PENNSYLVANIA ENTERPRISES, INC.
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the three
months ended March 31, 1997 and 1996. . . . . . . . . . . 2
Consolidated Balance Sheets as of March 31, 1997,
and December 31, 1996 . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows for
the three months ended March 31, 1997 and 1996. . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 15
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PART I. FINANCIAL INFORMATION
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31,
1997 1996
(Thousands of Dollars)
OPERATING REVENUES:
Regulated $ 79,939 $ 69,415
Nonregulated -
Gas sales and services 7,375 2,736
Pipeline construction and services 2,153 1,898
Other 24 38
Total operating revenues 89,491 74,087
OPERATING EXPENSES:
Cost of gas 56,708 41,921
Operation and maintenance 10,332 10,197
Depreciation 2,299 2,018
Income taxes 5,599 5,685
Taxes other than income taxes 4,326 3,823
Total other operating expenses 79,264 63,644
OPERATING INCOME 10,227 10,443
OTHER INCOME, NET 389 571
INCOME BEFORE INTEREST CHARGES 10,616 11,014
INTEREST CHARGES:
Interest on long-term debt 2,042 2,867
Other interest 235 219
Allowance for borrowed funds used during
construction (66) (46)
Total interest charges 2,211 3,040
INCOME FROM CONTINUING OPERATIONS 8,405 7,974
LOSS WITH RESPECT TO DISCONTINUED OPERATIONS - (365)
INCOME BEFORE SUBSIDIARY'S PREFERRED STOCK DIVIDENDS 8,405 7,609
SUBSIDIARY'S PREFERRED STOCK DIVIDENDS 353 637
NET INCOME $ 8,052 $ 6,972
COMMON STOCK (Note 3):
Earnings per share of common stock:
Continuing operations $ .84 $ .63
Discontinued operations - (.03)
Earnings per share of common stock $ .84 $ .60
Weighted average number of shares outstanding 9,615,416 11,581,624
Cash dividends per share $ .29 $ .275
The accompanying notes are an integral part of the consolidated financial statements.
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PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
(Thousands of Dollars)
ASSETS
UTILITY PLANT:
At original cost $ 329,179 $ 319,205
Accumulated depreciation (82,961) (79,783)
246,218 239,422
OTHER PROPERTY AND INVESTMENTS:
Nonutility property and equipment 12,925 12,502
Accumulated depreciation (4,766) (4,674)
Other 1,742 1,720
9,901 9,548
CURRENT ASSETS:
Cash and cash equivalents 1,278 1,126
Accounts receivable -
Customers 33,325 22,464
Others 872 565
Reserve for uncollectible accounts (1,629) (1,233)
Unbilled revenues 11,161 12,966
Materials and supplies, at average cost 2,968 2,865
Gas held by suppliers, at average cost 2,874 20,265
Natural gas transition costs collectible 1,637 2,525
Deferred cost of gas and supplier refunds, net 10,744 19,316
Prepaid expenses and other 4,223 1,438
67,453 82,297
DEFERRED CHARGES:
Regulatory assets -
Deferred taxes collectible 30,293 29,771
Other 4,460 4,274
Unamortized debt expense 1,426 1,498
Other 612 -
36,791 35,543
TOTAL ASSETS $ 360,363 $ 366,810
The accompanying notes are an integral part of the consolidated financial statements.
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PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common shareholders' investment $ 123,443 $ 117,651
Preferred stock of PGE -
Not subject to mandatory redemption, net 18,804 18,851
Subject to mandatory redemption 739 739
Long-term debt 85,392 75,000
228,378 212,241
CURRENT LIABILITIES:
Current portion of long-term debt 29,679 38,721
Preferred stock subject to repurchase or
mandatory redemption 80 115
Notes payable - 10,000
Accounts payable 12,149 19,945
Accrued general business and realty taxes 1,404 2,350
Accrued income taxes 19,278 14,525
Accrued interest 1,206 1,243
Accrued natural gas transition costs 1,506 2,095
Other 3,749 3,904
69,051 92,898
DEFERRED CREDITS:
Deferred income taxes 50,468 49,270
Unamortized investment tax credits 4,725 4,767
Operating reserves 3,046 3,086
Other 4,695 4,548
62,934 61,671
COMMITMENTS AND CONTINGENCIES (Note 4)
TOTAL CAPITALIZATION AND LIABILITIES $ 360,363 $ 366,810
The accompanying notes are an integral part of the consolidated financial statements.
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PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
1997 1996
(Thousands of Dollars)
CASH FLOW FROM OPERATING ACTIVITIES:
Income from continuing operations, net of
subsidiary's preferred stock dividends $ 8,052 $ 7,337
Effects of noncash charges to income -
Depreciation 2,313 2,031
Deferred income taxes, net 351 96
Provisions for self insurance 202 241
Other, net 387 625
Changes in working capital, exclusive of cash
and current portion of long-term debt -
Receivables and unbilled revenues (8,277) (5,829)
Gas held by suppliers 17,391 13,414
Accounts payable (9,638) (970)
Deferred cost of gas and supplier refunds, net 8,751 (2,955)
Other current assets and liabilities, net 554 5,449
Other operating items, net (853) (2,912)
Net cash provided by continuing operations 19,233 16,527
Net cash provided by discontinued operations - 2,133
Net cash provided by operating activities 19,233 18,660
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to utility plant (6,529) (2,973)
Proceeds from sale of discontinued operations - 261,752
Acquisition of regulated business (2,009) -
Other, net (186) 68
Net cash provided by (used for) investing
activities (8,724) 258,847
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock 495 768
Repurchase of subsidiary's preferred stock (82) -
Dividends on common stock (2,793) (3,186)
Repayment of long-term debt (141) (50,050)
Net decrease in bank borrowings (7,874) (76,508)
Other, net 38 (73)
Net cash used for financing activities (10,357) (129,049)
NET INCREASE IN CASH AND CASH EQUIVALENTS 152 148,458
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,126 629
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,278 $ 149,087
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 2,019 $ 1,510
Income taxes $ 653 $ 470
The accompanying notes are an integral part of the consolidated financial statements.
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PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business. Pennsylvania Enterprises, Inc. ("the Company") is a
holding company which, through its subsidiaries, is engaged in both regulated
and nonregulated activities. The Company's regulated activities are conducted
by its principal subsidiary, PG Energy Inc. ("PGE"), a regulated public utility,
and PGE's wholly-owned subsidiary, Honesdale Gas Company ("Honesdale"), also a
regulated public utility which was acquired on February 14, 1997. Together PGE
and Honesdale distribute natural gas to a twelve-county area in northeastern
Pennsylvania, a territory that includes 129 municipalities, in addition to the
cities of Scranton, Wilkes-Barre and Williamsport.
The Company, through its other subsidiaries, PG Energy Services Inc.
("Energy Services"), formerly known as Pennsylvania Energy Resources, Inc.,
Theta Land Corporation and Keystone Pipeline Services, Inc. ("Keystone"), a
wholly-owned subsidiary of Energy Services, is engaged in various nonregulated
activities, including the marketing and sale of natural gas and propane and
other energy-related services, as well as the construction, maintenance and
rehabilitation of natural gas distribution pipelines. Additionally, Theta is
presently initiating several residential and commercial real estate development
projects on Company-owned land for which construction is expected to commence in
the latter half of 1997.
Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and its subsidiaries, PGE, Energy Services
(including Keystone) and Theta. The consolidated financial statements also
include the accounts of Honesdale beginning February 14, 1997, the date
Honesdale was acquired by PGE. All material intercompany accounts have been
eliminated in consolidation.
Both PGE and Honesdale are subject to the jurisdiction of the Pennsylvania
Public Utility Commission ("PPUC") for rate and accounting purposes. The
financial statements of PGE and Honesdale that are incorporated in these
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles, including the provisions of Financial
Accounting Standards Board ("FASB") Statement 71, "Accounting for the Effects of
Certain Types of Regulation," which give recognition to the rate and accounting
practices of regulatory agencies such as the PPUC.
Interim Financial Statements. The interim consolidated financial statements
included herein have been prepared by the Company without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading.
The results for the interim periods are not indicative of the results to be
expected for the year, primarily due to the effect of seasonal variations in
weather on the sale of natural gas. However, in the opinion of management, all
adjustments, consisting of only normal recurring accruals, necessary to present
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fairly the results for the interim periods have been reflected in the
consolidated financial statements. It is suggested that these consolidated
financial statements be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's latest annual report
on Form 10-K.
Use of Accounting Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. These estimates involve judgments with respect to,
among other things, various future economic factors and regulatory matters which
are difficult to predict and are beyond the control of the Company. Therefore,
actual amounts could differ from these estimates.
(2) RATE MATTERS
Rate Increase. By Order adopted December 19, 1996, the PPUC approved an
overall 5.3% increase in PGE's base gas rates, designed to produce $7.5 million
of additional annual revenue, effective January 15, 1997. Under the terms of
the Order, the billing for the impact of the rate increase relative to PGE's
residential heating customers (which it is estimated will total $6.6 million on
an annual basis) is being deferred, without carrying charges, until July, 1997.
Gas Cost Adjustments. The provisions of the Pennsylvania Public Utility
Code require that the tariffs of local gas distribution companies ("LDCs") be
adjusted on an annual basis, and, in the case of larger LDCs such as PGE, on an
interim basis when circumstances dictate, to reflect changes in their purchased
gas costs. The procedure includes a process for the reconciliation of actual
gas costs incurred and actual revenues received and also provides for the refund
of any overcollections, plus interest thereon, or the recoupment of any
undercollections of gas costs.
In accordance with these procedures PGE has been permitted to make the
following changes since January 1, 1996, to the gas costs contained in its gas
tariff rates:
[CAPTION]
Change in Calculated
Effective Rate per MCF Increase (Decrease)
Date From To in Annual Revenue
[S] [C] [C] [C]
March 1, 1997 $4.18 $4.49 $ 8,300,000
December 1, 1996 3.01 4.18 32,400,000
September 1, 1996 2.88 3.01 3,600,000
June 1, 1996 2.75 2.88 3,400,000
The changes in gas rates on account of purchased gas costs have no effect on
earnings since the change in revenue is offset by a corresponding change in the
cost of gas.
(3) COMMON STOCK
Common Stock Split. Pursuant to resolutions adopted by the Company's Board
of Directors on February 19, 1997, a Certificate of Amendment was filed with the
Secretary of State of the Commonwealth of Pennsylvania on March 20, 1997,
amending the Company's Restated Articles of Incorporation to (i) increase the
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number of authorized shares of its common stock from 15 million shares to 30
million shares and (ii) reduce the stated value of such shares from $10.00 per
share to $5.00 per share. This amendment had no effect on the Company's capital
accounts. On February 19, 1997, the Board of Directors also declared a two-for-
one split of the Company's common stock effective March 20, 1997. The number of
shares of common stock reflected in these consolidated financial statements and
the earnings per share of common stock for the quarter ended March 31, 1996,
were restated to give retroactive effect to this stock split.
(4) COMMITMENTS AND CONTINGENCIES
Environmental Matters. PGE, like many gas distribution companies, once
utilized manufactured gas plants in connection with providing gas service to its
customers. None of these plants has been in operation since 1960, and several
of the plant sites are no longer owned by PGE. Pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), PGE
filed notices with the United States Environmental Protection Agency (the "EPA")
with respect to the former plant sites. None of the sites is or was formerly on
the proposed or final National Priorities List. The EPA has conducted site
inspections and made preliminary assessments of each site and has concluded that
no further remedial action is planned. While this conclusion does not
constitute a legal prohibition against further regulatory action under CERCLA or
other applicable federal or state law, the Company does not believe that
additional costs, if any, related to these manufactured gas plant sites would be
material to its financial position or results of operations since environmental
remediation costs generally are recoverable through rates over a period of time.
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PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
STOCK SPLIT
On February 19, 1997, the Board of Directors of Pennsylvania Enterprises,
Inc. (the "Company") declared a two-for-one split of the Company's Common Stock
effective March 20, 1997, as more fully discussed in Note 3 of the accompanying
Notes to Consolidated Financial Statements. All per share data included in this
Form 10-Q has been restated to reflect this two-for-one split.
RESULTS OF CONTINUING OPERATIONS
The following table expresses certain items in the Company's consolidated
statements of income as percentages of operating revenues for each of the three-
month periods ended March 31, 1997 and 1996:
[CAPTION]
Three Months Ended
March 31,
1997 1996
[S] [C] [C]
OPERATING REVENUES:
Regulated........................................... 89.3% 93.7%
Nonregulated -
Gas sales and services............................ 8.3 3.7
Pipeline construction and services................ 2.4 2.6
Other............................................. - -
Total operating revenues........................ 100.0% 100.0%
OPERATING EXPENSES:
Cost of gas......................................... 63.4 56.6
Operation and maintenance........................... 11.6 13.7
Depreciation........................................ 2.6 2.7
Income taxes........................................ 6.2 7.7
Taxes other than income taxes....................... 4.8 5.2
Total operating expenses.......................... 88.6 85.9
OPERATING INCOME...................................... 11.4 14.1
OTHER INCOME, NET..................................... 0.4 0.8
INTEREST CHARGES (1).................................. (2.4) (4.1)
INCOME FROM CONTINUING OPERATIONS..................... 9.4 10.8
LOSS WITH RESPECT TO DISCONTINUED OPERATIONS.......... - (0.5)
INCOME BEFORE SUBSIDIARY'S PREFERRED
STOCK DIVIDENDS..................................... 9.4 10.3
SUBSIDIARY'S PREFERRED STOCK DIVIDENDS (1)............ (0.4) (0.9)
NET INCOME ........................................... 9.0% 9.4%
(1) None of the Company's interest expense and none of the subsidiary's
preferred stock dividends was allocated to the discontinued operations.
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o Three Months Ended March 31, 1997, Compared With Three Months Ended
March 31, 1996
Operating Revenues. Operating revenues increased $15.4 million (20.8%) from
$74.1 million for the quarter ended March 31, 1996, to $89.5 million for the
quarter ended March 31, 1997, largely as a result of a $10.5 million (15.2%)
increase in regulated operating revenues and a $4.6 million (169.6%) increase in
gas sales and services by PG Energy Services Inc. ("Energy Services") a
nonregulated affiliate of the Company formerly known as Pennsylvania Energy
Resources, Inc.
The $10.5 million (15.2%) increase in regulated operating revenues from
$69.4 million for the quarter ended March 31, 1996, to $79.9 million for the
quarter ended March 31, 1997, was primarily the result of higher levels in PG
Energy Inc.'s ("PGE") gas cost rate and the effect of the rate increase granted
PGE by the Pennsylvania Public Utility Commission (the "PPUC") which became
effective on January 15, 1997 (see "Rate Matters"). The effect of the increases
in rates was partially offset by a 1.2 billion cubic feet (9.3%) decrease in
sales to PGE's residential and commercial heating customers. There was a 331
(10.0%) decrease in heating degree days from 3,321 (104.1% of normal) during the
first quarter of 1996 to 2,990 (93.7% of normal) during the first quarter of
1997. Operating revenues of Honesdale Gas Company ("Honesdale") totaling
$834,000 from its February 14, 1997, acquisition date through March 31, 1997,
also contributed to the increased regulated operating revenues.
The $4.6 million increase in nonregulated gas sales and services from $2.7
million for the quarter ended March 31, 1996, to $7.4 million for the quarter
ended March 31, 1997, was primarily the result of a 1.4 million cubic feet
(255.6%) increase in sales of natural gas by Energy Services during the quarter.
Operating Expenses. Operating expenses, including depreciation and income
taxes, increased $15.6 million (24.5%) from $63.6 million for the first quarter
of 1996 to $79.3 million for the first quarter of 1997. As a percentage of
operating revenues, total operating expenses increased from 85.9% during the
first quarter of 1996 to 88.6% during the first quarter of 1997, largely as a
result of an increase in the cost of gas.
Cost of gas increased $14.8 million (35.3%) from $41.9 million for the first
quarter of 1996 to $56.7 million for the first quarter of 1997, primarily
because of higher levels in PGE's gas cost rate (see "-Rate Matters"), the
aforementioned increase in sales by Energy Services and the higher level of gas
costs that Energy Services incurred as a result of market prices in January,
1997. Also contributing to the increase was $574,000 of gas costs related to
Honesdale from its February 14, 1997, acquisition date through March 31, 1997.
Other than the cost of gas and income taxes, operating expenses increased by
$919,000 (5.7%) from $16.0 million for the first quarter of 1996 to $17.0
million for the first quarter of 1997. This increase was partially attributable
to a $503,000 (13.2%) increase in taxes other than income taxes resulting from a
higher level of gross receipts tax because the increased sales by PGE and the
sales of Honesdale from its acquisition date. Operation and maintenance expense
increased $135,000 (1.3%) largely as a result of increased payroll and other
costs attributable to the expansion of the Company's nonregulated activities.
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Also contributing to the higher operating expenses was a $281,000 (13.9%)
increase in depreciation expense, primarily as a result of a $312,000 (16.4%)
increase in depreciation attributable to additions to PGE's utility plant.
Operating Income (Loss). As a result of the above, operating income
decreased by $216,000 (2.1%) from $10.4 million for the three-month period ended
March 31, 1996, to $10.2 million for the three-month period ended March 31,
1997, and decreased as a percentage of total operating revenues for such periods
from 14.1% in the three-month period ended March 31, 1996, to 11.4% in the
three-month period ended March 31, 1997, largely as a result of the
proportionately higher ratio of cost of gas to operating revenues.
Other Income, Net. Other income, net decreased $182,000 from $571,000 for
the three-month period ended March 31, 1996, to $389,000 for the three-month
period ended March 31, 1997, largely because the first quarter of 1996 included
income from the temporary investment of certain proceeds from the sale of PGE's
regulated water utility operations in February, 1996.
Interest Charges. Interest charges decreased $829,000 (27.3%) from $3.0
million for the first quarter of 1996 to $2.2 million for the first quarter of
1997. This decrease was largely attributable to the the Company's defeasance of
its 10.125% Senior Notes on September 30, 1996.
Income From Continuing Operations. Income from continuing operations
increased $431,000 (5.4%) from $8.0 million for the three-month period ended
March 31, 1996, to $8.4 million for the three-month period ended March 31, 1997.
This increase was largely the result of the matters discussed above, principally
the increase in operating revenues and decrease in interest charges, the effects
of which were partially offset by increased operating expenses.
Subsidiary's Preferred Stock Dividends. Dividends on preferred stock
decreased $284,000 (44.6%) from $637,000 for the three-month period ended
March 31, 1996, to $353,000 for the three-month period ended March 31, 1997,
primarily as a result of the repurchase by PGE in 1996 of 134,359 shares of its
9% cumulative preferred stock, 9,408 shares of its 5.75% cumulative preferred
stock and 20,330 shares of its 4.10% cumulative preferred stock, largely during
the second quarter of that year.
Net Income. The increase in net income of $1.1 million from $7.0 million
for the first quarter of 1996 to $8.1 million for the first quarter of 1997, as
well as the increase in earnings per share of common stock of $.24 from $.60 per
share for the first quarter of 1996 to $.84 per share for the first quarter of
1997 were the result of the higher income from continuing operations and the
reduced dividends on subsidiary's preferred stock, as discussed above, and the
absence of any loss with respect to discontinued operations. Also contributing
to the increase in earnings per share of common stock was the reduction in the
weighted average number of shares outstanding as a result of the repurchase of
shares, largely during the second quarter of 1996, with proceeds from the sale
of PGE's water utility operations in February, 1996.
RATE MATTERS
Rate Increase. By Order adopted December 19, 1996, the PPUC approved an
overall 5.3% increase in PGE's base gas rates, designed to produce $7.5 million
of additional annual revenue, effective January 15, 1997. Under the terms of
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the Order, the billing for the impact of the rate increase relative to PGE's
residential heating customers (which it is estimated will total $6.6 million on
an annual basis) is being deferred, without carrying charges, until July, 1997.
Gas Cost Adjustments. The provisions of the Pennsylvania Public Utility
Code require that the tariffs of local gas distribution companies ("LDCs") be
adjusted on an annual basis, and, in the case of larger LDCs such as PGE, on an
interim basis when circumstances dictate, to reflect changes in their purchased
gas costs. The procedure includes a process for the reconciliation of actual
gas costs incurred and actual revenues received and also provides for the refund
of any overcollections, plus interest thereon, or the recoupment of any
undercollections of gas costs.
In accordance with these procedures, PGE has been permitted to make the
following changes since January 1, 1996, to the gas costs contained in its gas
tariff rates:
[CAPTION]
Change in Calculated
Effective Rate per MCF Increase (Decrease)
Date From To in Annual Revenue
[S] [C] [C] [C]
March 1, 1997 $4.18 $4.49 $ 8,300,000
December 1, 1996 3.01 4.18 32,400,000
September 1, 1996 2.88 3.01 3,600,000
June 1, 1996 2.75 2.88 3,400,000
The changes in gas rates on account of purchased gas costs have no effect on
earnings since the change in revenue is offset by a corresponding change in the
cost of gas.
Recovery of FERC Order 636 Transition Costs. By Order of the PPUC entered
August 26, 1994, PGE began recovering the Non-Gas Transition Costs (i.e. Gas
Supply Realignment and Stranded Costs) that it estimates it will ultimately be
billed pursuant to Federal Energy Regulatory Commission Order 636 through the
billing of a surcharge to its customers effective September 12, 1994. It is
currently estimated that $10.2 million of Non-Gas Transition Costs will be
billed to PGE, generally over a six-year period extending through January 1,
1999, of which $8.7 million had been billed to PGE and $8.5 million had been
recovered from its customers as of March 31, 1997. PGE has recorded the
estimated Non-Gas Transition Costs that remain to be billed to it and the
amounts remaining to be recovered from its customers.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The primary capital needs of the Company continue to be the funding of PGE's
construction program and the seasonal funding of PGE's gas purchases and
increases in its customer accounts receivable. PGE's revenues are highly
seasonal and weather-sensitive, with approximately 75% of its revenues normally
being realized in the first and fourth quarters of the calendar year when the
temperatures in its service area are the coldest.
Additionally, as the Company's nonregulated activities expand, capital will
be required for those activities, especially the residential and commercial real
estate development projects that are planned for certain Company-owned land.
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The projects that are currently planned by the Company are in the initial
planning and design phases, and the amount and type of funding that those
projects will require has not yet been finalized. However, it is currently
anticipated that such expenditures will be funded by a combination of capital
provided by the Company, bank borrowings and other debt financing.
The cash flow from PGE's operations is generally sufficient to fund a
portion of its construction expenditures. However, to the extent external
financing is required, it is the practice of PGE to use bank borrowings to fund
such expenditures, pending the periodic issuance of stock and long-term debt.
Bank borrowings are also used by PGE for the seasonal funding of its gas
purchases and increases in customer accounts receivable.
In order to finance construction expenditures and to meet its seasonal
borrowing requirements, PGE has made arrangements for a total of $70.5 million
of unsecured revolving bank credit, which is deemed adequate for its immediate
needs. Specifically, PGE currently has six bank lines of credit with an
aggregate borrowing capacity of $70.5 million which provide for borrowings at
interest rates generally less than prime and which mature at various times
during 1997 and 1998. As of May 1, 1997, PGE had $39.4 million of borrowings
outstanding under these bank lines of credit.
The Company believes that PGE, as well as Honesdale, will be able to raise
in a timely manner such funds as are required for their future construction
expenditures, refinancings and other working capital requirements. Likewise,
the Company believes that its nonregulated subsidiaries will be able to raise
such funds as are required for their needs, including that required for the
residential and commercial real estate development that is planned.
Long-Term Debt and Capital Stock Financings
Both the Company and its subsidiaries, particularly PGE, periodically engage
in long-term debt and capital stock financings in order to obtain funds required
for construction expenditures, the refinancing of existing debt and various
working capital purposes. No long-term debt or capital stock financings were
consummated by either the Company or PGE during the three-month period ended
March 31, 1997. A $40.0-$50.0 million long-term debt financing, the proceeds
from which will be used to repay bank borrowings is, however, planned by PGE for
later in 1997.
The Company also obtains external funds from the sale of common stock
through its Dividend Reinvestment and Stock Purchase Plan (the "DRP"), its 1992
Stock Option Plan and its Employees' Savings Plan. During the three-month
period ended March 31, 1997, the Company realized $331,000, $27,000 and $159,000
from the issuance of common stock under the DRP, 1992 Stock Option Plan and
Employees' Savings Plan, respectively.
Capital Expenditures and Related Financings
Capital expenditures totaled $7.1 million during the first three months of
1997, including $6.5 million of expenditures for the construction of utility
plant.
The Company estimates that its capital expenditures will total $36.0 million
for the remainder of the year, consisting of $27.2 million relative to utility
plant and $8.8 million with respect to the Company's nonregulated activities,
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including $6.1 million for residential and commercial real estate development.
It is anticipated that such capital expenditures will be financed with
internally generated funds and bank borrowings, and to the extent necessary by
the issuance of stock and long-term debt.
Current Maturities of Long-Term Debt and Preferred Stock
As of March 31, 1997, $29.7 million of PGE's long-term debt, and $80,000 of
PGE's preferred stock was required to be repaid within twelve months.
On April 18, 1997, PGE announced an offer to purchase any and all of the
78,853 outstanding shares of its 4.10% cumulative preferred stock at a price of
$70.00 per share for an aggregate consideration of $5.5 million, exclusive of
fees and other expenses. The offer, which is not conditioned upon any minimum
number of shares being tendered by shareholders, will expire on May 16, 1997,
unless extended at the option of PGE. Although PGE cannot presently determine
the number of shares which will be tendered by shareholders pursuant to the
offer, it is anticipated that payment for any shares tendered will be financed
with borrowings under PGE's bank lines of credit.
Forward-Looking Statements
Certain statements made above relating to plans, conditions, objectives and
economic performance go beyond historical information and may provide an
indication of future results. To that extent, they are forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, and each is subject to factors that could cause actual results to differ
from those in the forward-looking statement, such as the nature of Pennsylvania
legislation restructuring the natural gas industry and general economic
conditions and uncertainties relating to new projects like the residential and
commercial development projects on Company-owned land.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11-1 Statement Re Computation of Per Share Earnings -- filed herewith.
27-1 Financial Data Schedule -- filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this report
is filed.
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PENNSYLVANIA ENTERPRISES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
PENNSYLVANIA ENTERPRISES, INC.
(Registrant)
[CAPTION]
[S] [C] [C]
Date: May 13, 1997 By: /s/ Thomas J. Ward
Thomas J. Ward
Secretary
Date: May 13, 1997 By: /s/ John F. Kell, Jr.
John F. Kell, Jr.
Vice President, Financial Services
(Principal Financial Officer and
Principal Accounting Officer)
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