THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE
901 (d) OF REGULATION S-T
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File number 0-14183
ENERGY WEST INCORPORATED
(Exact name of registrant as specified in its charter)
Montana 81-0141785
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 First Avenue South, Great Falls, Mt. 59401
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (406)-791-7500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Exchange on which registered
Common Stock - Par Value $.15 NASDAQ
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (229.45 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K [X]. The
aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 20, 1995 Common Stock, $.15 Par Value -
$11,657,000 The number of shares outstanding of the issuer's classes of
common stock as of September 20, 1995 Common Stock, $.15 Par Value -
2,254,138 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders' report for the year ended June 30, 1995
are incorporated by reference into Parts I and II.
Portions of the proxy statement for the annual shareholders meeting to be
held November 6, 1995 are incorporated by reference into Part III.
PART I
Item 1. - Business
ENERGY WEST INCORPORATED ("the Company") is a regulated public utility,
with certain non-utility operations conducted through its subsidiaries. The
Company's regulated utility operations primarily involve the distribution
and sale of natural gas to the public in the Great Falls, Montana and Cody,
Wyoming areas. Since January 1993, the Company's regulated utility
operations have also included the distribution of propane to the public
through an underground propane vapor system in the Payson, Arizona area, and
since 1995, the distribution of natural gas through an underground system in
West Yellowstone, Montana, that is supplied by liquified natural gas ("LNG").
The Company conducts certain non-regulated non-utility operations
through its three wholly-owned subsidiaries, Rocky Mountain Fuels, Inc.
("RMF"), Vesta, Inc. ("Vesta") and Montana Sun, Inc. ("Montana Sun"). RMF
is engaged in the distribution of bulk propane in Northwestern Wyoming, the
Payson, Arizona area and the Cascade, Montana area. Vesta is involved in
gas storage, a small amount of oil and gas development and the marketing of
gas in Montana and Wyoming. Montana Sun owns two real estate properties in
Great Falls, Montana.
Utility Operations
The Company's primary business is the distribution and sale of natural
gas and propane to residential, commercial and industrial customers. The
natural gas distribution operations consist of two divisions, the Great Falls
division and the Cody division. The Cody division is also involved in the
transportation of natural gas. In addition, since January 1993 the Company
has been involved in the regulated distribution of propane in Arizona through
the Broken Bow division. Generally, residential customers use natural gas
and propane for space heating and water heating, commercial customers use
natural gas and propane for space heating and cooking, and industrial
customers use natural gas as a fuel in industrial processing and space
heating. The Company's revenues from utility operations are generated under
tariffs regulated by the respective state utility commissions.
Great Falls Division
The Great Falls division provides natural gas service to Great
Falls, Montana and much of suburban Great Falls withinapproximately 11
miles of the city limits. The service area has a population base of
approximately 65,000. The Company has a franchise to distribute natural
gas within the city of Great Falls. The franchise was renewed for 50 years
by the city of Great Falls in 1971. As of June 30, 1995, the Great Falls
division provided service to over 25,000 customers, including approximately
22,000 residential customers, approximately 3,000 commercial customers, an
oil refinery through a transportation agreement and Malmstrom Air Force Base
("Malmstrom"). The following table shows the Great Falls division's revenues
by customer class for the year ended June 30, 1995 and the past two fiscal
years:
Gas Revenues
(in thousands)
Years Ended June 30,
1995 1994 1993
Residential.................$8,996 $9,016 $9,454
Commercial..................$6,350 $6,360 $6,633
Malmstrom...................$1,393 $1,437 $1,462
Industrial..................$ 0 $ 0 $ 606
Transportation..............$ 73 $ 88 $ 8
Total................$16,812 $16,901 $18,163
The following table shows the volumes of natural gas, expressed in
millions of cubic feet ("MMcf") at 13.28 P.S.I.A., sold by the Great Falls
division for the year ended June 30, 1995 and the past two fiscal years;
billing degree days (weighted) showed a decrease over the three years and
was 7,516 in 1995, 7,540 in 1994 and 7,972 in 1993.
Gas Volumes
(MMcf)
Years Ended June 30,
1995 1994 1993
Residential..................2,297 2,315 2,455
Commercial...................1,646 1,655 1,729
Malmstrom.................... 464 478 490
Industrial................... 0 0 280
Total Gas Sales.........4,407 4,448 4,954
Transportation 714 521 14
Malmstrom, the Great Falls division's largest customer, accounted for
approximately 8% of the revenues of the division and approximately 5% of
the consolidated revenues of the Company in fiscal 1995. Malmstrom purchases
gas for space heating and water heating for buildings and residential
housing, to supplement its coal-fired central heating system. Malmstrom,
which is located near Great Falls, is an air force base with intercontinental
nuclear missiles and KC-135 refueling tankers. Malmstrom Air Force Base
represents approximately one third of the Great Falls economy. The base
employed approximately 4,400 military personnel and 550 civilian personnel
as of June 30, 1995. As of this date, a current realignment plan by the
federal government, calls for the base to receive additional Minuteman III
missiles from North Dakota, and the refueling unit to move to Florida. The
plan is now final and when both changes take place, the base will not suffer
substantially. No assurance can be given as to the future level of activity
at Malmstrom. On July 1, 1995, Malmstrom will become a transport customer of
the Great Falls division, purchasing its gas load from Transenergy, a division
of Vesta, Inc., a wholly-owned subsidiary of ENERGY WEST INCORPORATED. The
Great Falls division will experience no loss of margin as a result of this
new contract. The Great Falls division's sole transport customer is an oil
refinery located in the city. The Company provides gas to the customer for
processing use in its refining business. In fiscal 1995, the refinery
accounted for approximately 1% of the division's revenues and less than 1% of
the consolidated revenues of the Company. Historically, this customer's gas
load has remained relatively constant during the year because the gas is used
in the customer's business and is therefore not weather-sensitive, however, in
January, 1994, the refinery completed construction of a desulferization plant,
which uses additional natural gas and gas volumes have increased 50% over last
year, reflecting the impact of the plant for a full year. On June 1, 1993,
the refinery became a transport customer of the Great Falls division,
purchasing its gas load from Transenergy, a division of Vesta, Inc., a wholly-
owned subsidiary of ENERGY WEST INCORPORATED. The Great Falls division
experienced no loss of margin as a result of this new contract.
The Great Falls division's gas distribution operations are subject to
regulation by the Montana Public Service Commission ("MPSC"). The MPSC
regulates rates, adequacy of service, accounting, issuance of securities and
other matters.
On May 19, 1993, the MPSC issued a final order, which allowed rates to
be increased, effective February 1, 1993, to provide $540,000 of additional
annual revenues based on normal weather conditions and an allowed return on
common equity on normalized earnings of 11.50%.
In November, 1994, the Company filed for a rate increase to recover the
cost of increased operating expenses, increases in financing expenses due to
additional investments in utility plant, and other costs of doing business.
Included with the filing was a new surcharge to recover costs associated with
the environmental assessment and remediation of its service center, which was
formerly a manufactured gas plant site. The Montana Consumer Counsel {"MCC")
intervened in the rate case and in January, 1995, the Company and the MCC
filed a Joint Motion for Suspension of the Procedural Order, in order to allow
both parties to negotiate toward a stipulated settlement. On May 30, 1995,
the MPSC approved the revenue requirement stipulation executed between the
Company and the MCC as filed in March, 1995, which reduced base rates by
$250,000 and allowed a new surcharge associated with the manufactured gas
plant site with an initial balance of approximately $183,000, with the
surcharge calculated on a two-year recovery of the average annual basis. The
effective date of the rate decrease and surcharge is the beginning of Fiscal
1996 or July 1, 1995. The rate decrease reduces earnings per share by
approximately 1.8 cents on normalized volumes. Historically, the Great Falls
division has purchased all of its gas from Montana Power Company ("MPC"), a
publicly owned electric and gas utility serving much of Montana. In 1991 the
MPSC ordered MPC to become an open access transporter of natural gas over a
phase-in period ending on August 31, 1993. Since the 1991 order, the Company
has been able to purchase gas from sources other than MPC and transport
supplies on MPC's system. The Company has increased its gas purchases from
suppliers other than MPC, as open access transportation has been phased in.
The Great Falls division currently purchases approximately one-half of its
gas from a Canadian producer under a long-term contract expiring in 2007, and
approximately one-quarter of its gas from two Montana producers under long-
term contracts expiring between 1998 and 2005 and one-quarter of its gas from
short-term contracts with Montana producers. The division also makes spot
market purchases from time to time to fill its storage capacity in the spring
and summer.
The price of gas under the contract with the Canadian producer is
negotiated annually between the parties. The prices of gas under the
contracts with the three independent producers can be negotiated bi-annually
by either party. Gas purchased from the division's suppliers is transported
through pipelines owned by MPC and is delivered to the division's distribution
system at two city gates. The Company pays transportation tariffs to MPC at
rates approved by the MPSC.
Open access for the division's customers was negotiated between the
division, MPC and the MPSC during 1991, which called for a three year phase-in
of open access gas supplies, with gas costs tracking filings every six months.
The three year phase-in period began in November, 1991, with two-thirds of
supply purchased from MPC under the "Firm Utility Gas Cost" ("FUGC") rate and
one-third directly from other gas suppliers. The regulatory mechanism used to
track the phase-in resulted in additional costs in 1994 that offset an
increase in gross margins associated with the change in contract terms with
the refinery customer, which changed from a gas supply contract to a
transportation contract. On September 1, 1993, the Great Falls division
became a full open access customer of MPC. The division secured the balance
of its long-term gas supplies, to replace gas which was previously being
supplied by MPC, on terms satisfactory to the Company.
The Great Falls division contracts for gas storage from MPC in MPC-owned
gas storage areas and pays storage tariffs at rates approved by the MPSC. The
division uses this storage capacity to provide for seasonal peaking needs and
to take advantage of lower priced gas generally available during the summer
months.<PAGE>
Cody Division
The Cody division provides natural gas service in Northwestern Wyoming
to the city of Cody and the towns of Meeteetse and Ralston and the surrounding
areas. The service area has a population base of approximately 12,000. The
Cody division has a franchise granted by the Wyoming Public Service Commission
(the "WPSC") for gas purchasing, transportation and distribution covering the
west side of the Big Horn Basin, which stretches approximately 70 miles north
and south and 40 miles east and west from Cody. The franchise is effective
until 2002. As of June 30, 1995, the Cody division provided service to
approximately 5,100 customers, including 4,400 residential customers, 700
commercial customers and one industrial customer. The division also provides
transportation service to two customers.
The following table shows the Cody division's revenues by customer
class for the year ended June 30, 1995 and the past two fiscal years:
Gas Revenues
(in thousands)
Years Ended June 30,
1995 1994 1993
Residential.................$2,176 $2,219 $2,135
Commercial..................$1,887 $2,034 $2,016
Industrial..................$1,375 $1,331 $ 890
Transportation..............$ 172 $ 228 $ 163
Total..................$5,610 $5,812 $5,204
The following table shows the volumes of natural gas, expressed in
millions of cubic feet ("MMcf") at 13.28 P.S.I.A., sold by the Cody division
for the year ended June 30, 1995 and the past two fiscal years:
Gas Volumes
(MMcf)
Years Ended June 30,
1995 1994 1993
Residential.................. 486 474 512
Commercial................... 539 559 639
Industrial................... 517 473 367
Total Gas Sales........1,542 1,506 1,518
Transportation 1,484 2,533 1,833
The industrial sale in the Cody division is to Celotex, a manufacturer
of gypsum wallboard, under a long-term contract expiring in 2000. Sales to
the customer are made pursuant to a special industrial customer tariff which
fluctuates with the cost of gas. In fiscal 1995 this customer accounted for
approximately 24% of the revenues of the division and approximately 5% of the
consolidated revenues of the Company. The division's sales to Celotex, whose
business is cyclical and dependent on the level of national housing starts,
increased by 9% over previous year's volumes. Celotex and its parent company
Jim Walters Corporation, have been operating under Chapter 11 bankruptcy since
October, 1990. The bankruptcy stems from potential asbestos claims.
Approximately $132,000 was due the Cody division prior to the bankruptcy
filing. The division has increased its allowance for uncollectible accounts
by $52,000. Celotex has filed a plan for reorganization. Under this plan, the
Company would expect to receive approximately 60 to 75% of the receivable,
however the plan has not been approved by the bankruptcy court at this time.
No assurance can be given that Celotex will continue to be a significant
customer of the Cody division.
The Cody division's primary transportation customer is Interenergy
Corporation, a regional aggregator, producer and marketer of gas and the
division's primary supplier of natural gas. The parameters of the
transportation tariff (currently between $.08 and $.30 per Mcf) are
established by the WPSC. Agreements between the Company and the customer are
negotiated periodically within the parameters.
The division's revenues are generated under regulated tariffs that are
designed to recover a base cost of gas, administrative and operating expenses
and provide sufficient return to cover interest and profit. The division also
services customers under separate contract rates that were individually
approved by the WPSC. The division's tariffs include a purchased gas
adjustment clause which allows an adjustment of rates charged to customers in
order to recover changes in gas costs from base gas costs. A Wyoming statute
permits the WPSC to allow gas utilities to retain 10% of its cost of gas
savings over a base period level. In fiscal 1995 this gas cost incentive
improved gross margin for the division by approximately $138,000. The amount
of gas cost incentive if any, fluctuates with the market price of natural gas.
The Cody division's last general rate order was effective in 1989. The
Company does not contemplate filing an application for a general rate increase
for the division in the foreseeable future. The division's allowed return on
common equity on normalized earnings, calculated in accordance with the WPSC
order, has been 13.01% since the last general rate order. The Cody division
has a five-year agreement with Interenergy Corporation, a regional aggregator,
producer and marketer of gas, to supply natural gas to the division. The
contract has been renewed and renegotiated annually since 1989. The contract
requires Interenergy to deliver gas to various points on the division's
transmission system. Most of the gas purchased by the division is transported
on the division's own transportation system and the balance is transported on
Interenergy's transportation system. The division also has several small
supply contracts with small producers in the Cody transportation network.
(The division's service area is located in a gas producing region.) In
addition, the division has a backup contract to purchase natural gas from
Coastal Gas Marketing, but has never purchased gas under this contract.
The Cody division does not have storage facilities. Historically, the
division has been able to purchase gas from its suppliers to meet peak
demands.
Broken Bow Division
The Broken Bow division is involved in the regulated distribution of
propane in the Payson, Arizona area. The division was formed following the
Company's acquisition of Broken Bow Gas's underground propane vapor
distribution system in January 1993. The acquisition was effective as of
November 1, 1992. The service area of the Broken Bow division includes
approximately 575 square miles and has a population base of approximately
30,000. As of June 30, 1995, the Broken Bow division provided service to
approximately 3,400 customers, including approximately 3,000 residential
customers and approximately 400 commercial customers.
The Broken Bow division's operations are subject to regulation by the
Arizona Corporation Commission, which regulates rates, adequacy of service,
issuance of securities and other matters. The Broken Bow division's
properties include approximately 90 miles of underground distribution
pipeline, propane storage facilities and an office building leased from
Petrogas, an affiliated bulk propane distributor in the Payson area. The
division purchases its propane supplies from Petrogas under terms reviewed
periodically by the Arizona Corporation Commission.
Non-Utility Operations
The Company conducts its non-utility operations through its three
wholly-owned subsidiaries: RMF, Vesta and Montana Sun. RMF is engaged in
the bulk sale of propane through its three divisions: Wyo L-P, which serves
Northwestern Wyoming and Cooke City, Montana, Petrogas, which serves the
Payson, Arizona area and Missouri River Propane, which sells bulk propane in
the Cascade area, immediately southwest of Great Falls, Montana. RMF acquired
assets and operations comprising its Wyo L-P divisions through acquisitions of
existing propane distribution businesses in August 1991 and May 1992. RMF
acquired the assets and operations of its Petrogas division through an
acquisition of an existing propane distribution business in January 1993. The
aggregate purchase price for RMF's acquisitions were approximately $2.79
million. RMF had approximately 3,500 customers as of June 30, 1995, of which
the Wyo L-P division had approximately 3,100 customers and the Petrogas
division and Missouri River Propane had approximately 400 customers. RMF
purchases propane from various suppliers under short-term contracts and on the
spot market, and sells propane to residential and commercial customers,
primarily for use in space heating and cooking. Petrogas also supplies
propane to the Broken Bow division, while Missouri River Propane supplies
propane to Cascade Gas, an underground propane-vapor system serving the city
of Cascade, Montana. For the twelve months ended June 30, 1995, RMF's
revenues (excluding approximately $1,063,000 sales by Petrogas to the Broken
Bow division and approximately $69,000 sales by Missouri River Propane to
Cascade Gas Company, an operating district of the Great Falls division) were
approximately $2,771,000, of which approximately $2,131,000 was attributable
to the Wyo L-P division, $585,000 was attributable to the Petrogas division
and the balance attributable to the Missouri River Propane division.
RMF faces competition from other propane distributors and suppliers of
the same fuels that compete with natural gas. Competition is based primarily
on price and there is a high degree of competition with other propane
distributors in the service areas.
Vesta is involved in a small amount of oil and gas development and the
marketing of gas in Montana and Wyoming. Vesta currently has varying working
interests in four oil and nine gas producing properties. Volumes of oil and
gas produced are not significant and did not result in significant net income
in fiscal 1995. Vesta conducts its gas marketing through its Transenergy
affiliate. The Company believes that the ordering of MPC to provide open
access on its gas transportation system in Montana presents an opportunity for
Transenergy to do business as a broker of natural gas using the MPC and other
systems. Transenergy presently has four customers for those services, plus
the State of Montana, which includes several units of the State of Montana.
Vesta also purchased an underground storage facility near Havre, Montana and
leased additional storage capacity from Montana Power Company, to allow more
flexibility in the timing of its gas purchases. In 1993, Vesta retroactively
changed from the full cost method to the successful efforts method of
accounting for its oil and gas operations effective June 30, 1990.
Accordingly, all financial statements have been restated to reflect the new
method. The change was not material to net income for the year ended
June 30, 1993, and did not change the per common share amount previously
reported. The accounting change reduced retained earnings by $220,856 as of
June 30, 1990. Management believes the conversion to the successful efforts
method is appropriate because it better reflects the economics of Vesta's
reduced exploration efforts.
Montana Sun owns a commercial real estate property and a parcel of
undeveloped land in Great Falls, Montana. Montana Sun leases the commercial
property to a federal governmental agency. The Company is presently seeking
to sell the commercial property, but is otherwise inactive at this time.
Additional information with respect to the nonutility operation of the
Company is set forth in Notes 1, 6 and 8 to the Company's consolidated
financial statements.
Capital Expenditures
The Company generally conducts a continuing construction program and has
completed expansion of its gas pipeline in areas around metropolitan Great
Falls as well as an underground propane-vapor system in the town of Cascade,
Montana, southwest of Great Falls. In the Cody division, expansion of the gas
system in that area was completed and in the Broken Bow division, construction
is still being completed, as a result of growth. The Company started
construction of a natural gas system in West Yellowstone, Montana, in May of
1994. West Yellowstone Gas Company transports liquefied natural gas from
southwestern Wyoming for revaporization into the system; operations started in
May of 1995. The Great Falls division has also added an underground propane
vapor system to service customers in the Hardy area, 30 miles southwest of
Great Falls, Montana. In fiscal years 1995, 1994 and 1993, total capital
expenditures were $4,705,868, $2,626,221 and $2,468,463 respectively.
Other Business Information
The principal competition faced by the Company in its distribution of
natural gas is from other suppliers of competitive fuels, including
electricity, oil, propane and coal. The principal competition faced by the
Company in its distribution and sales of propane is from other propane
distributors and suppliers of the same energy sources that compete with
natural gas and electricity. Competition is based primarily on price and
there is a high degree of competition with other propane distributors in the
service areas. The principal considerations affecting a customer's selection
of utility gas service over competing energy sources include service, price,
equipment costs, reliability and ease of delivery. In addition, the type of
equipment already installed in businesses and residences significantly affects
the customer's choice of energy. However, where previously installed
equipment is not an issue, households in recent years have consistently
preferred the installation of gas heat. The Great Falls division's statistics
indicate that approximately 95% of the houses and businesses in the service
area use natural gas for space heating fuel, approximately 91% use gas for
water heating and approximately 99% of the new homes built on or near the
Great Falls division's service mains in recent years have selected natural gas
as their energy source. The Cody division believes that approximately 95% of
the houses and businesses in the service area use natural gas for space
heating fuel, approximately 90% use gas for water heating, and approximately
99% of the new homes built on or near the division's service mains in recent
years have selected gas as their energy source. The Broken Bow division
concludes that approximately 59% of the houses and businesses adjacent to the
division's distribution pipeline use the division's propane for space heating
or water heating.
The Company had approximately 140 employees as of June 30, 1995, of
which 124 were full-time. Twenty-five of the employees were with the Cody
division, 24 employees were with RMF and 13 were with the Broken Bow division.
The other 78 employees were with the Great Falls division and at corporate
headquarters. Approximately 13 full-time and 3 seasonal hourly employees in
the Great Falls division are represented by two collective bargaining units,
the United Association of Journeymen and Apprentices of the Plumbing and
Pipefitting Industry of the USA and the Construction and General Laborer's
Union. The Company's two labor contracts were renegotiated through April 30,
1997. The Company considers its relationship with its employees to be
satisfactory.
The Company has instituted an extensive customer-related energy
conservation program which encourages the efficient use of energy through
proper conservation measures. The Company provides inspection services to
homeowners and businesses and recommends appropriate conservation projects.
The Company also is concentrating on increasing load in existing residential
structures by the addition of gas appliances and conversion of homes with all
electric appliances. The Company has started a natural gas and propane
appliance showroom to aggressively market gas appliances in the Great Falls
and Cody divisions with future plans to market appliances in the propane
offices of the Company. In addition, the Company encourages converting
commercial food service equipment to natural gas through a developed
commercial equipment efficiency program, both in Great Falls and Cody. The
Company's field marketing personnel are paid through an incentive plan geared
to how much load they add to the system.
Since 1982 the Company has conducted strategic corporate planning at
about three year intervals. It uses outside resources to bring light to new
areas of potential development and defines key results areas for the
organization to focus on for the next three years. This has been a effective
process for the organization.
The Company has implemented management and employee incentive programs
tied to bottom-line performance of the corporation. Officers and management,
down to first-line supervisors, participate in a pay-for-performance program.
If the Company meets a minimum earnings per share for the consolidated
corporation for 50% funding and individual divisions meet their allocated of
consolidated earnings per share for the other 50%, or in the case of senior
officers and corporate staff the corporation meets a minimum rank on the
comparison of utilities published by Edward D. Jones & Co. for the other 50%;
then the incentive pool is triggered; then whether the incentive is actually
earned depends on whether the individuals in the program achieve individual
specific performance objectives set at the beginning of the year. Incentives
vary from .8% on up of base wages. All officers and eligible employees
participate in the Company's Employee Stock Ownership Plan, in which payout is
based on pre-tax earnings of the Company and approved by the Board each year.
Item 2. - Properties
The Company owns all of its properties in Great Falls, including an office
building, a service and operating center, regulating stations and its
distribution system. In Wyoming, the Company owns its distribution system,
including 167 miles of transmission pipeline. Office and service buildings
for the Cody division are leased under long-term leases. RMF owns buildings,
propane tanks and related metering and regulating equipment for the Wyoming
and Arizona propane distribution operations. The Company owns mains and
service lines for the Broken Bow division's propane vapor distribution
operation in Payson, Arizona. The Broken Bow division leases building space
from Petrogas for its propane vapor distribution operations in Payson.
Environmental Matters
The Company owns property on which it operated a manufactured gas plant
from 1909 to 1928. The site is currently used as a service center and to
store certain equipment and materials and supplies. The coal gasification
process utilized in the plant resulted in the production of certain by-
products which have been classified by the federal government and the state of
Montana as hazardous to the environment. After management became aware of the
potential of contamination on this site, it initiated an assessment of the
property through the assistance of a qualified consulting firm. That
assessment revealed the presence of certain hazardous material in quantities
exceeding tolerances established for such material by regulatory authorities.
After making required notifications of that condition to federal and state
regulatory authorities, a report summarizing the assessment was filed with the
State of Montana Department of Health and Environmental Science (MDHES).
Subsequent to that submittal a meeting was held with a representative of the
MDHES wherein a process was agreed upon to arrive at appropriate remediation
of the site. The costs incurred by the Company to date approximate $263,500
and have been capitalized as other deferred charges. Until further work is
done regarding remediation alternatives, no further estimate of the costs of
remediation can be made. However, management believes that regardless of the
alternative selected, the costs incurred will not materially affect the
Company's financial position.
The Company received formal approval from MPSC to recover the costs
associated with the cleanup of this site. The Company will begin recovery of
costs incurred at June 30, 1995 over two years through a surcharge in billing
rates effective July 1, 1995. Management intends to request that future costs
be recovered over a similar time period.
Item 3. - Legal Proceedings
The Company is not a party to any litigation other than that arising out
of the normal course of business. In the aggregate, such litigation is not
considered material in relation to the financial position of the Company.
Item 4. - Submission of Matters to a Vote of Security Holders
None
Executive Officers and Directors of the Company
The following table sets forth the names and ages of, and the positions and
offices within the Company presently held by, all directors and executive
officers of the Company:
Name Age Position
Larry D. Geske 56 President and Director since
1978; appointed Chief
Executive Officer in 1979
Edward J. Bernica 45 Vice-President and Chief
Financial Officer since
October, 1994
William J. Quast 56 Vice-President, Treasurer,
Controller and Assistant
Secretary since 1988, has been
Vice-President, Secretary and
Treasurer since 1987,
Assistant Vice-President,
Secretary Controller and
Assistant Treasurer since
1983, Secretary since 1982 and
an Assistant Treasurer of the
Company since 1979
Tim A. Good 50 Vice-President and Manager of
the CGD since 1988; General
Manager of Cody Gas Company, a
Division of the Coastal
Corporation, for five years
prior to the acquisition of
CGD by the Company
Sheila M. Rice 48 Vice-President and Division
Manager of the Great Falls
division since April, 1993;
Vice-President Marketing and
Consumer Services since 1988
and has been Vice-President,
Marketing and Consumer
Relations since 1987; was
Assistant Vice-President for
Marketing and Customer
Relations 1983-1987
Name Age Position
John C. Allen 44 Vice-President of Human
Resources and Corporate
Counsel and Secretary since
1992; Corporate Counsel and
Secretary since 1988; Counsel
and Assistant Secretary from
November 1986 to 1988 and
Corporate Attorney to the
Company from March 1986 to
November 1986
Lynn F. Hardin 47 Assistant Vice-President of
Gas Supply for the Great Falls
division since June 1, 1993;
Assistant Vice-President of
Division Administration since
1989; was manager of
Accounting and Administration
for Cody Gas Company, a
Division of The Coastal
Corporation, for five years
prior to acquisition of CGD by
the Company
Earl L. Terwilliger, Jr. 47 Assistant Vice-President for
Market Development for the
Great Falls division since
1990; has been Assistant Vice-
President of Customer
Accounting and Credit since
1988
Ian B. Davidson 63 Director since 1969
Timothy J. Moylan 39 Director since 1991
Thomas N. McGowen, Jr. 69 Director since 1978
G. Montgomery Mitchell 67 Director since 1984
John Reichel 69 Director since 1984
David A. Flitner 62 Director since 1988
Larry D. Geske has been employed by the Company since 1975 and became
President and Director of the Company in 1978. In 1979, Mr. Geske was
appointed to the position of Chief Executive Officer. In addition, Mr. Geske
is a past Director of First Interstate Bank of Great Falls (parent Company is
First Interstate Bank Corporation) and is a Director of the Great Falls
Capital Corporation and the Great Falls Dodgers Baseball Club. He is also a
Director of the American Gas Association's Board. Mr. Geske, prior to service
with the Company, was a Field Engineer "A" with NIGAS in Aurora, Illinois and
a Senior Consultant with Stone and Webster Management Consultants, Inc. in New
York.
Mr. Edward J. Bernica has been employed by the Company since October 1994 and
became Vice-President and Chief Financial Officer in November, 1994. Mr.
Bernica, prior to service with the Company, was Director of Finance at U. S.
West in Englewood, Colorado and prior to that, was employed by ENRON
Corporation in Omaha, Nebraska as Director-Financial Analysis and Planning
William J. Quast has been Vice-President, Treasurer, Controller and Assistant
Secretary since 1988. He has served as Vice-President, Secretary and
Treasurer since 1987 and as Assistant Vice-President, Secretary, Controller
and Assistant Treasurer since 1983. He has served as Secretary of the Company
since 1982 and as Assistant Treasurer of the Company since 1979. Mr. Quast
was re-elected in 1993 and is currently serving as Trustee for the Great Falls
Public School system. Mr. Quast, prior to service with the Company, was an
accounting manager for Wyton Oil and Gas Company, a propane distributor in
Denver, Colorado and was Treasurer for D. A. Davidson & Co. in Great Falls,
Montana.
Tim A. Good has been Vice-President and Division Manager of the CGD since
1988. He served as General Manager of Cody Gas Company, a Division of The
Coastal Corporation for five years prior to the acquisition of the Cody Gas
Company by EWST in 1988.
Sheila M. Rice has been Vice-President and Division Manager of the Great Falls
division since April, 1993. Prior to that, she was Vice-President of
Marketing and Consumer Services since 1988. She served as Vice-President,
Marketing and Consumer Relations from 1987 to 1988, Assistant Vice-President
for Marketing/Customer Relations from 1983 to 1987 and as Consumer Service
Representative/Conservation Specialist for the Company from 1979 to 1983.
John C. Allen has been Vice-President of Human Resources and Corporate Counsel
since 1992 and previously served as Corporate Counsel and Secretary of the
Company since 1988. He served as Corporate Counsel and Assistant Secretary
from November 1986 until 1988 and as Corporate Attorney of the Company (March,
1986-November 1986). From 1979 to 1986, Mr. Allen was employed as a staff
attorney with the Montana Consumer Counsel.
Lynn F. Hardin has been Assistant Vice-President of Gas Supply since June 1,
1993. Prior to that, he was Assistant Vice-President of Division
Administration since 1989. He was Manager of Accounting and Administration of
Cody Gas Company, a Division of The Coastal Corporation for five years prior
to the acquisition of the Cody Gas Company by the Company in 1988.
Earl L. Terwilliger, Jr. has been Assistant Vice-President for Market
Development since 1990. He served as Assistant Vice-President of Customer
Accounting and Credit from 1988 to 1990 and Manager of Customer Accounting and
Credit for the previous four years. Prior to that time, Mr. Terwilliger was
office manager.
Ian B. Davidson has been a Director of the Company since 1969. Mr. Davidson
has been Chairman and Chief Executive Officer of D. A. Davidson & Co. since
October, 1970. Mr. Davidson also is a Director of Plum Creek Management
Company, Great Falls Capital Corporation and serves on the Board of Governors
of the Pacific Coast Stock Exchange and the National Association of Securities
Dealers.
Timothy J. Moylan has been a Director of the Company since 1991. Mr. Moylan
is President of the BelRad Group, South Pacific, Inc., and Natural Resources
Group, Inc. These Companies are primarily involved in the natural gas
brokerage business and related information processing services.
Thomas N. McGowen, Jr. has been a Director of the Company since 1978. Mr.
McGowen is past President and Chairman of the Board of Pabst Brewing Company.
Mr. McGowen is a Director of Federal Signal Corporation and Ribi Immunochem
Corporation.
G. Montgomery Mitchell has been a Director of the Company since 1984. Mr.
Mitchell was a Senior Vice-President and Director of Stone and Webster
Management Consultants, Inc. until his retirement in 1993. Mr. Mitchell was
responsible for Stone and Webster's services provided to natural gas utility
and pipeline companies and managed their Houston, Texas office. He is
presently retained by Stone and Webster for advisory and senior consulting
services. Mr. Mitchell also is a Director of Mobile Gas Services Corporation
(Alabama).
John Reichel has been a Director of the Company since 1984. Prior to his
retirement he was Managing Director of the Montana Region of First Bank
System, Inc. From 1983 to 1985, Mr. Reichel was Managing Director of the
Western Montana Region of First Bank System, Inc. and from 1975 to 1983 served
as President of First Bank Great Falls. Mr. Reichel retired from First Bank
System, Inc. in 1987.
David A. Flitner has been a Director of the Company since 1988. MR. Flitner
is owner of David Flitner Ranch and David Flitner Packing and Outfitting
(Wyoming Companies) and Hideout Adventures, Inc., a recreational enterprise.
PART II
Item 5. - Market for registrant's common equity and related
stockholder matters.
Common Stock Prices and Dividend Comparison - Fiscal 1995 and Shares of the
Company's Class A Common Stock are traded in the over-the-counter market on
the NASDAQ (National Association of Securities Dealers Automated Quotation)
system-symbol: EWST. The over-the-counter market quotations reflect inter-
dealer prices, without retail mark-up, mark-down or commission, and may not
necessarily represent the actual transactions. Prices are shown as a result
of a 2-for-1 stock split, effective June 24, 1994.
Price Range - Fiscal 1995 High Low
First Quarter 9 1/4 8 1/2
Second Quarter 9 1/4 8
Third Quarter 8 1/2 7 1/2
Fourth Quarter 8 1/4 7 1/2
Year 9 1/4 7 1/2
Price Range - Fiscal 1994 High Low
First Quarter 8 1/2 7 7/8
Second Quarter 9 1/4 8
Third Quarter 9 1/8 8 5/8
Fourth Quarter 9 1/4 7 3/8
Year 9 1/4 7 3/8
Dividends: The Board of Directors normally consider approving common stock
dividends for payments in March, June, September and January. Quarterly
dividend payments per common share for Fiscal Years 1995 and 1994 were:
Fiscal 1995 Fiscal 1994
September $.0950 $.0875
January $.0950 $.0875
March $.0950 $.0875
June $.1000 $.0950
Item 6. - Selected Financial Data
Set forth below is the historical financial data with respect to the Company
for the years ended June 30, 1995, 1994, 1993, 1992 and 1991, and has been
derived from, and should be read in conjunction with, the audited financial
statements which appear elsewhere in this report. All information is
expressed in thousands of dollars except share and per share information.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Operating Results:
Operating Revenues $ 30,548 $ 29,347 $27,629 $ 22,951 $23,850
Operating Expenses:
Gas Purchased 18,616 18,410 17,232 14,935 16,212
Other 6,380 5,979 5,454 4,399 3,815
Maintenance 306 331 376 259 275
Depreciation and Amortization 1,559 1,464 1,286 976 745
Taxes Other Than Income 595 527 540 464 390
Total Operating Expenses 27,456 26,711 24,888 21,033 21,437
Operating Income: 3,092 2,636 2,741 1,918 2,413
Other Income Net 175 199 139 113 116
Income Before Interest Charges 3,267 2,835 2,880 2,031 2,529
Total Interest Charges 938 962 959 815 774
Income Before Income Taxes 2,329 1,873 1,921 1,216 1,755
Income Taxes 816 614 637 384 683
Income Before Cumulative Effect
of Change in Acctg. Principle 1,513 1,259 1,284 832 1,072
Cumulative Effect of Change as of
July 1, 1993 from Adoption of
FASB 109 0 92
Net Income
EPS Before Cumulative Effect of
FASB 109 0.68 0.57 0.59 0.39 0.51
Earnings Per Common Share 0.68 0.61 0.59 0.39 0.51
Dividends per Common Share 0.39 0.36 0.32 0.31 0.28
Weighted Ave. Common Shares
Outstanding 2,235,413 2,205,050 2,171,448 2,159,092 2,122,246
At Year End:
Total Assets $ 32,375 $ 28,786 $ 28,036 $ 22,375 19,663
Current Liabilities $ 6,786 $ 4,193 $ 4,881 $ 4,806 $ 2,215
Total Long-Term Obligations $ 10,435 $ 10,718 $ 11,050 $ 6,735 $ 6,956
Total Stockholder s Equity $ 10,533 $ 9,393 $ 8,733 $ 7,946 $ 7,759
Total Capitilization $ 20,968 $ 20,111 $ 19,783 $ 14,681 $ 14,724
</TABLE>
Supplementary Data (Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
Fiscal Year 1995 Revenues $ 3,297 $ 9,322 $ 10,000 $7,929
Operating Income (Loss) (484) 1,486 1,829 261
Net Income (Loss) (386) 802 1,046 51
Net Income(Loss) Per Share (0.17) 0.36 0.47 0.02
Fiscal Year 1994 Revenues $ 3,978 $ 9,172 $ 9,768 $4,762
Operating Income (Loss) (397) 1,146 1,833 54
Net Income
Before a Cum. Effect (320) 621 1,090 (132)
Net Income (Loss) (227) 621 1,090 (133)
Net Income
Before Cum. Effect (0.15) 0.28 0.50 (0.06)
Net income (Loss) Per Share (0.11) 0.28 0.50 (0.06)
Item 7. - Management's Discussion and Analysis of Financial Condition and
Results of Consolidated Operations
RESULTS OF CONSOLIDATED OPERATIONS
Fiscal 1995 Compared to Fiscal 1994
Net Income
The Company's net income for fiscal 1995 was $1,513,000 compared to $1,351,000
in fiscal 1994, an increase of $162,000 or 12% over 1994. However fiscal 1994
net income included an accounting change of $92,365 due to the cumulative
effect on prior years of the change in accounting for income taxes. Before
the effect of the accounting change, net income increased $254,000 or 20% in
1995 over 1994. The notes to the financial statements further describe this
accounting change. The following summary describes the components of the
change between years.
Revenue
Operating revenues increased approximately 4%, primarily due to gas trading
revenues; regulated utility revenues declined slightly as compared to the
prior year, represented 76% of total revenues in 1995 versus 80% in fiscal
1994. Nonregulated revenues increased slightly due to growth in the
nonregulated Arizona customer base, served by the Petrogas division.
Gross Margin
Gross margins (operating revenues less cost of gas sold and cost of gas
trading) increased approximately $994,000 in 1995. Regulatory gross margins
increased approximately $530,000, due to the Great Falls and Broken Bow
divisions. The Great Falls division realized higher margins due to a timing
difference in purchased gas costs. The Broken Bow gross margin increased due
to customer growth in the Payson, Arizona area. The Cody gross margins
remained relatively unchanged, even though sales were down. Nonregulated
gross margins increased approximately $464,000, primarily due to additional
gas trading activity.
Other Expenses
Operating expenses (excluding cost of gas sales) increased approximately
$538,000 in 1995. The primary reasons for this increase was increased
depreciation and amortization of approximately $95,000 reflecting the addition
or acquisition of property, plant and equipment, while the remaining increase
was due to inflation and additional personnel required in the growing
operations of the Company.
As a result of the above changes in gross margins and offsetting increases in
operation expenses and depreciation and amortization, operating income
increased 17% from $2,636,000 in 1994 to $3,092,000 in 1995. Total interest
expense for the Company was approximately $939,000 for fiscal 1995, down
slightly from $962,000 in fiscal 1994. Other additions to or deductions from
operating income in determining net income remained comparable between the two
years.
Fiscal 1994 Compared to Fiscal 1993
Net Income
The Company's net income for fiscal 1994 was $1,351,000 compared to
$1,284,000 in fiscal 1993. The following summary describes the components
of the change between years.
Operating revenues were approximately the same as the prior year. However,
regulatory revenues, representing 80% of total revenues in 1994, declined
primarily due to warmer than normal weather in the Great Falls and Cody
markets. The weather related declines in revenue were partially offset by the
addition of a new gas transportation contract and increased production at a
manufacturing plant served by the Cody division, as well as the increased
customer base in the Arizona market, which is served by the Broken Bow
division. The decline in regulated revenues was offset by a comparable
increase in the nonregulated revenues. Nonregulated revenues increased due to
growth in the nonregulated Arizona customer base, served by the Petrogas
division and increase gas marketing activities.
Gross margins (operating revenues less cost of gas sold) increased
approximately $540,000. Regulatory gross margins remained relatively constant
in both the Great Falls and Cody divisions, despite the decline in revenues,
and reflected a $140,000 increase in the the Broken Bow division. The Cody
gross margins remained relatively unchanged due to the addition of a
transportation contract. The addition of the transportation contract offset
the lower sales price and lower gross margin but increased usage by the
manufacturing plant customer. The gross margins at the Great Falls division
were also relatively constant due to changing a refinery customer from a gas
supply contract to a transportation contract and the end of the three year
phase-in period for open access gas supplies. The regulatory mechanism used
to track the phase-in resulted in additional costs in 1994 that offset the
increase in gross margins associated with the change in contract terms with
the refinery customer. The Broken Bow division gross margins increased due
to an expansion of the customer base. Nonregulated gross margins increased due
to an increase in the customer base inthe Arizona market, and increased gas
marketing activities, which contributed to the remaining increase in gross
margins of approximately $400,000. However, the increases in gross margin
were offset by an increase in operation and maintenance expenses and
depreciation and amortization expenses of approximately $645,000. These
increases were the result of additional maintenance activities and the
addition of personnel. Of the total increase of $645,000, approximately
$180,000 was the result of additional depreciation and amortization in 1994.
This increase reflects the addition or acquisition of property, plant and
equipment during thepast two years.
As a result of the above changes in gross margins and operation and
maintenance expenses, operating income declined from $2,741,000 in 1993 to
$2,636,000 in 1994. Other additions to or deductions from operating income in
determining net income remained comparable between the two years. However,
net income for 1994 was $1,350,000 an increase of $68,000 over 1993 due
primarily to the cumulative effect on prior years of the change in accounting
for income taxes. The notes to the financial statements further describe this
accounting change.
OPERATING RESULTS OF THE COMPANY'S UTILITY OPERATIONS
Years Ended June 30
1995 1994 1993
(in thousands)
Operating revenues:
Great Falls division $16,812 $16,900 $18,163
Cody division 5,609 5,813 5,204
Broken Bow division 1,942 1,708 1,199
Total operating revenues 24,363 24,421 24,566
Gas purchased 15,077 15,667 15,927
Gross Margin 9,286 8,754 8,639
Operating expenses 7,136 6,673 6,322
Interest charges [see note below] 908 895 809
Other utility (income) expense-net (126) (106) (68)
Federal and state income taxes 454 410 508
Net utility income $ 914 $ 882 $1,068
[interest charges for utility and non-utility operations do not equal
total interest charges for the Company, due to eliminating entries
between entities.]
Fiscal 1995 Compared to Fiscal 1994
Revenues and Gross Margins
Utility operating revenues in fiscal 1995 were $24,363,000 compared to
$24,421,000 in fiscal 1994. Gross margin, which is defined as operating
revenues less gas purchased, was $9,286,000 for fiscal 1995 compared to
$8,754,000 in fiscal 1994. Although utility revenues remained unchanged from
fiscal 1994, margins increased 6% for fiscal 1995, primarily due to higher
margins experienced by the Great Falls division when compared to margins
experienced in fiscal 1994 as a result of a timing difference in purchased gas
costs booked, as well as higher margins in the Broken Bow division as a
result of growth in the Payson, Arizona area. The winter heating season in
the Great Falls division in fiscal 1995 was approximately 1% warmer than
fiscal 1994 and 1% warmer than "normal" (i.e., the average temperature during
the preceding 30 years). The winter heating season in the Cody division was
approximately 1% warmer than fiscal 1994 and 5% warmer than normal. The
Broken Bow division experienced a 14% increase in revenues and a 24% increase
in margins, as a result of growth in the Payson, Arizona area.
Operating Expenses
Utility operating expenses, exclusive of the cost of gas purchased and federal
and state income taxes, were $7,136,000 for fiscal 1995, as compared to
$6,673,000 for fiscal 1994. The 7% increase in the period is due to increased
depreciation and amortization, reflecting the addition or acquisition of
property, plant and equipment, while the remaining increase was due to
inflation and additional personnel required in the growing utility operations
of the Company.
Interest Charges
Interest charges allocable to the Company's utility divisions were $908,000 in
fiscal 1995, as compared to $895,000 in fiscal 1994. Short-term interest
charges increased as a result of higher interest rates compared to a year ago,
however this was offset by lower interest payments on long-term debt, due to
repayment of principle.
Income Taxes
State and federal income taxes of the company's utility divisions was $454,000
in fiscal 1995, as compared to $410,000 in fiscal 1994. The 11% increase was
primarily attributable to a $76,000 increase in pre-tax income of the utility
divisions.
Fiscal 1994 Compared to Fiscal 1993
Revenues and Gross Margins
Utility operating revenues in fiscal 1994 were $24,421,000 compared to
$24,566,000 in fiscal 1993. Gross margin, which is defined as operating
revenues less gas purchased, was $8,754,000 for fiscal 1994 compared to
$8,639,000 in fiscal 1993.
The .5% decrease in revenues, and yet a 1% increase in gross margin for fiscal
1994 were primarily due to the warmer heating season, and higher margins in
the Broken Bow division. The winter heating season in the Great Falls
division in fiscal 1994 was approximately 11% warmer than fiscal 1993 and 4%
warmer than "normal" (i.e., the average temperature during the preceding 30
years). The winter heating season in the Cody division was approximately 7%
warmer than fiscal 1993 and 11% warmer than normal. The Broken Bow division
experienced a 154% increase in revenues and a 136% increase in margins, as a
result of growth in the Payson, Arizona area.
Operating Expenses
Utility operating expenses, exclusive of the cost of gas purchased and federal
and state income taxes, were $6,673,000 for fiscal 1994, as compared to
$6,322,000 for fiscal 1993. The 7% increase in the period reflects the
inclusion of the Broken Bow division operating expenses for the full year,
increases in employee benefits expense and normal inflationary trends. The
Broken Bow division was purchased in fiscal 1993 with operations beginning on
November 1, 1992.
Interest Charges
Interest charges allocable to the Company's utility divisions were $895,000 in
fiscal 1994, as compared to $809,000 in fiscal 1993. The stable interest
charges resulted from stable interest rates most of the year on short-term
borrowing and interest savings realized from refunding certain industrial
development revenue bonds of the company in September 1992 and refunding
certain State Board of Investment Bonds in June 1993.
Income Taxes
State and federal income taxes of the company's utility divisions were
$407,000 in fiscal 1994, as compared to $508,000 in fiscal 1993. The 20%
decrease was primarily attributable to a $281,000 decrease in pre-tax income
of the utility divisions.
OPERATING RESULTS OF EACH OF THE COMPANY'S NON-UTILITY SUBSIDIARIES
Years Ended June 30
1995 1994 1993
(in thousands)
ROCKY MOUNTAIN FUELS (RMF)
Operating revenues $3,902 $3,759 $3,243
Cost of propane 2,171 2,050 1,706
Operating expenses 1,484 1,399 1,181
Other (income) expense-net (33) (67) (14)
Interest expense [see note below] 87 113 146
Federal and state income taxes 71 85 84
Cumulative effect on prior years
of change in accounting for
income taxes 4
Net income (loss) $ 122 $ 183 $140
VESTA
Operating revenues $ 76 $ 77 $400
Gas trading revenue 3,239 1,965 333
Operating expenses 172 170 419
Cost of gas trading 2,500 1,667 306
Other (income) expense-net (43) (44) (34)
Federal and state income taxes 259 94 14
Cumulative effect on prior years
of change in accounting for
income taxes 42
Net income (loss) $ 427 $197 $28
MONTANA SUN
Operating revenues $99 $100 $99
Operating expenses 47 61 41
Other (income) expense-net (16) (24) (23)
Interest expense [see note below] (14) (4) 3
Federal and state income taxes 31 26 31
Cumulative effect on prior years
of change in accounting for
income taxes 46
Net income (loss) $51 $87 $47
[interest charges for utility and non-utility operations do not equal
total interest charges for the Company, due to eliminating entries
between entities.]
Non-Utility Operations
Rocky Mountain Fuels
For the fiscal year ended June 30, 1995, RMF generated net income of $122,000
compared to $183,000 for fiscal 1994. Approximately $68,000 of RMF's net
income for fiscal 1995 was attributable to the Wyo L-P division, which serves
northwestern Wyoming and Cooke City, Montana, and approximately $63,000 was
attributable to the Petrogas division, which serves the Payson, Arizona area.
RMF income decreased because of higher overheads, due to reallocation from the
utility operation and normal inflationary trends along with higher
depreciation. Missouri River Propane in Montana and Big Horn Answering
Service in Cody, Wyoming account for the balance, which had a net loss for
fiscal 1995.
For the fiscal year ended June 30, 1994, RMF generated net income of $183,000
compared to $140,000 for fiscal 1993.
Approximately $83,000 of RMF's net income for fiscal 1994 was attributable to
the Wyo L-P division and approximately $106,000 was attributable to the
Petrogas division. Petrogas division income increased substantially, due to
growth in the Payson, Arizona area, as well as substantially increased
margins, due to favorable propane purchases. In addition, RMF had higher net
income of $4,200 due to the adoption of SFAS No. 109 which is accounting
treatment related to income taxes. The balance of net income or loss is
attributable to Missouri River Propane, a bulk propane distributor in Cascade,
Montana and Big Horn Answering Service in Cody, Wyoming.
Vesta - Transenergy
For fiscal 1995, Vesta's net income was $427,000 compared to $198,000 for
fiscal 1994, primarily due to increased gas marketing margins in Transenergy,
Vesta's gas marketing subsidiary. In fiscal 1995, Vesta's gross marketing
margin in gas trading activities increased approximately 148% to approximately
$738,000 from $298,000 in fiscal 1994. This increase in margins was partially
offset by the effect of a $42,000 increase to net income in Fiscal 1994 as a
result from adoption of SFAS No.109.
For fiscal 1994, Vesta's net income was $198,000 compared to $28,000 for
fiscal 1993. Revenues and earnings of Vesta increased primarily as a result
of increased activity from Transenergy, Vesta's gas marketing division as well
as the effect of an accounting change of $42,000 increase to net income. This
increase resulted from adoption of SFAS No. 109, which changed the method of
accounting for income taxes from the deferred method to the liability method.
Montana Sun
For fiscal 1995, Montana Sun's net income was $51,000 as compared to $87,000
for fiscal 1994 which had the effect of an accounting change, from adoption of
SFAS No. 109.
For fiscal 1994, Montana Sun's net income was $87,000 as compared to $47,000
for fiscal 1993, primarily as a result of the effect of an accounting change,
from adoption of SFAS No. 109.
Liquidity and Capital Resources
The Company's operating capital needs, as well as dividend payments and
capital expenditures, are generally funded through cash flow from operating
activities, short-term borrowing and liquidation of temporary cash
investments. Historically, to the extent cash flow has not been sufficient to
fund capital expenditures, the Company had borrowed long-term or issued equity
securities to fund capital expansion projects or reduce short-term borrowing.
The Company's short-term borrowing requirements vary according to the seasonal
nature of its sales and expense activity. The Company has greater need for
short-term borrowing during periods when internally generated funds are not
sufficient to cover all capital and operating requirements, including costs of
gas purchases, financing of customer accounts receivable and capital
expenditures. In general, the company's short-term borrowing needs for
purchases of gas inventory and capital expenditures are greatest during the
summer months and the Company's short-term borrowing needs for financing of
customer accounts receivable are greatest during the winter months. In
addition during the past two years, the Company has used short-term borrowing
to finance the acquisition of propane operations. Short-term borrowing
utilized for construction or property acquisitions generally are replaced by
permanent financing when it becomes economical and practical to do so.
At June 30, 1995, the Company had a $8,000,000 bank line of credit, of which
$2,620,000 had been borrowed under the credit agreement. The short-term
borrowings bear interest at the rate of 8 3/4% per annum as of June 30, 1995.
The company generated net cash from operating activities for fiscal 1995 of
approximately $3,605,000 as compared to $2,851,000 for fiscal 1994. This
change from fiscal 1994 is attributed to a $162,000 increase in net income,
$249,000 increase in depreciation and amortization, $92,000 cumulative effect
of an accounting change and other miscellaneous working capital changes,
offset by approximately $302,000 decrease in deferred income taxes. Cash used
in investing activities was approximately $4,262,000 for fiscal 1995, as
compared to $1,817,000 for fiscal 1994. Capital expenditures for fiscal 1995
was approximately $4,700,000, primarily due to system expansion in all areas
and construction of the West Yellowstone system. Partially offsetting these
capital expenditures were proceeds received from a restricted deposit from the
Series 1992A bonds deposited in a construction fund, drawn for specific
capital projects in the Great Falls division of approximately $205,000,
proceeds from the sale of property, plant and equipment of $80,000, proceeds
from collection of long-term notes receivable of $79,000 and proceeds from
contributions in aid of construction of $81,000.
The Company generated net cash from operating activities for fiscal 1994 of
$2,851,000 as compared to $1,464,000 for fiscal 1993. This increase in cash
generated from operations resulted from lower working capital requirement of
approximately $1,200,000, and increased depreciation and amortization expenses
of $197,000 and a $67,000 increase in net income. Cash used in investing
activities was $1,817,000 for fiscal 1994, as compared to $4,445,000 for
fiscal 1993. The decrease in capital expenditures for fiscal 1994 was
primarily due to the proceeds received from a restricted deposit from the
Series 1992A bonds deposited in a construction fund, drawn for specific
capital projects in the Great Falls division and to non-use of cash, used last
year in fiscal 1993, for the acquisition of the Payson, Arizona properties.
Capital expenditures of the Company are primarily for expansion and
improvement of its gas utility properties. To a lesser extent, funds are also
expended to meet the equipment needs of the Company's operating subsidiaries
and to meet the Company's administrative needs. The Company's capital
expenditures were $4.7 million in fiscal 1995 and approximately $2.6 million
for fiscal 1994 and $3.7 million in fiscal 1993, including RMF's expenditures
for the acquisition of propane operations. During fiscal 1995, approximately
$1.6 million has been expended for the construction of the natural gas system
in West Yellowstone, Montana and approximately $400,000 had been expended for
gas system expansion projects for new subdivisions in the Broken Bow
division's service area. Capital expenditures are expected to be
approximately $5.5 million in fiscal 1996, including approximately $1.6
million for continued expansion into West Yellowstone, Montana, $1.3 million
for the Broken Bow division, with the balance for maintenance and other
special system expansion projects in the Great Falls and Cody divisions. The
Company continues to evaluate opportunities to expand its existing businesses
from time to time.
Information on the sources and uses of cash for the Company is included in the
Consolidated Statements of Cash Flows on page 22 of the Company's 1995 Annual
Report.
SEC Ratio of Earnings to Fixed Charges
For the twelve months ended June 30, 1995, 1994 and 1993, the Company's ratio
of earnings to fixed charges was 2.93, 2.64 and 2.77 times, respectively.
Fixed charges include interest related to long-term debt, short-term
borrowing, certain lease obligations and other current liabilities.
Inflation
Capital intensive businesses, such as the Company's natural gas operations,
are significantly affected by long-term inflation. Neither depreciation
charges against earnings nor the rate-making process reflect the replacement
cost of utility plant. However, based on past practices of regulators, these
businesses will be allowed to recover and earn on the actual cost of their
investment in the replacement or upgrade of plant. Although prices for
natural gas may fluctuate, earnings are not impacted because gas cost tracking
procedures semi-annually balance gas costs collected from customers with the
costs of supplying natural gas. The Company believes that the effects of
inflation, at currently anticipated levels, will not significantly affect
results of operations.
Accounting for Income Taxes
In February 1992 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards "SFAS") No. 109, "Accounting for
Income Taxes." SFAS No.109 retains the current requirement to record deferred
income taxes for temporary differences that are reported in different years
for financial reporting and tax purposes; however, the methodology for
calculating and recording deferred income taxes has changed. Under the
liability method adopted by SFAS No. 109, deferred tax liabilities or assets
are computed using the tax rate that will be in effect when the temporary
differences reverse. However, the changes in tax rates applied to accumulated
deferred income taxes may not be immediately recognized in operating results
by regulated companies because of rate-making treatment and provisions in the
Tax Reform Act of 1986. Effective July 1, 1993, the Company changed its
method of accounting for income taxes from the deferred method to the
liability method required by SFAS No. 109. As permitted under the new rules,
prior year's financial statements have not been restated. For regulated
operations, the cumulative effect of this change in accounting method on July
1, 1993 resulted in the recording of a regulatory asset of approximately
$601,000 and a regulatory liability of approximately $205,000. For
nonregulated operations, the cumulative effect of this change in accounting
method on July 1, 1993 was to increase net income by approximately $92,000.
Postretirement Benefits Other Than Pensions
In December 1990 the FASB issued SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." SFAS No. 106 requires that the
projected future cost of providing postretirement benefits, such as health
care which the Company provides, be recognized as an expense as employees
render service rather than when paid. The cumulative effect of this
accounting change may be recognized as a charge against income in the year
adopted or, alternatively, on a deferred basis as part of the future annual
benefit cost. The Company complied with SFAS No. 106 on July 1, 1993.
Effective for fiscal year 1994, the Company modified its plan for these
benefits and has elected to pay eligible retirees $125 per month in lieu of
contracting for health and life insurance benefits. The amount of this
payment is fixed and will not increase with medical trends or inflation.
The adoption of SFAS No. 106 did not have a significant effect upon results of
operations. See Note 4 to the Consolidated Financial Statement for additional
information.
Environmental Issues
The Company owned and operated a manufactured gas plant from 1909 to 1928.
The Company's service center and shop in Great Falls is presently located on
the site. The five-acre site is one of approximately 1,500 manufactured gas
plant sites listed on a national survey prepared for the Environmental
Protection Agency in 1985. The Company has retained an environmental
consulting firm to investigate the site for possible environmental
contamination. The Company initiated the investigation on its own accord.
The consultant recently concluded a site investigation which indicated that
some contamination exists on the site. The contamination consists of certain
compounds from purifier wastes and coal tar. The Company has notified
appropriate federal and state environmental authorities of the existence of
such contamination. The results of this investigation has been submitted to
the Montana Department of Health and Environmental Sciences. The Company's
consultant has indicated that further environmental investigation or
remediation may be necessary, but the Department has not yet requested or
ordered such investigation or remediation. It is not possible at this time to
determine the actual costs of the further investigation or remediation. Based
upon a number of technical and regulatory assumptions that may change in the
future, the Company's consultant has estimated that the cost of further
investigation and remediation likely will be at least $300,000 and possibly
could be higher by a material amount.
The Company, in November, 1994, filed an application with the Montana Public
Service Commission, requesting a surcharge on customer bills to recover in
rates, the projected costs associated with the investigation and any
subsequent remediation that may occur. On May 30, 1995, the Montana Public
Service Commission approved the surcharge associated with the investigation,
assessment and remediation of the manufactured gas plant site, based on a two-
year recovery of the initial balance of $182,736. The unamortized balance
will earn the Great Falls division's last Montana Public Service Commission
approved return on rate base to allow the Great Falls division to recover its
time value of money. The Great Falls division is expected to complete
remediation of the manufactured gas plant site at the lowest possible cost.
Any cost increases beyond the initial amount must be requested by the Company.
The Company intends to include such costs beyond the initial amount, in its
rate applications to the Montana Public Service Commission when such
applications are made. However, the Company cannot give assurance that such
costs will be recovered in that regulatory process. Management expects that
recovery of a significant portion of, if not all, costs of remediation will be
granted.
Subsequent Event
In August, 1995, the Company announced that it had signed a letter of intent
and a definitive agreement to purchase the assets of Jackson Vangas in
Jackson, Wyoming, for approximately $1,000,000, from Quantum Chemical
(Suburban Propane Division) of Whippany, New Jersey. Jackson Vangas operates
a propane vapor system which serves approximately 500 customers in and around
Jackson, Wyoming, a city of approximately 5,000 people. The agreement is
contingent upon the approval of the Wyoming Public Service Commission to
grant ENERGY WEST a natural gas franchise to serve the Jackson Hole area.
There are competing applications for the Jackson franchise and hearings are
scheduled for Cheyenne, Wyoming starting August 23, 1995. It is anticipated
that the Wyoming Public Service Commission will render their decision, as to
which applicant will be granted the franchise, within thirty days of the close
of the hearing. If a certificate to serve is granted, ENERGY WEST will
eventually serve Jackson with natural gas through an LNG station, which would
be constructed near Jackson.
Item 8. - Financial Statements and Supplementary Data
The financial statements and schedule listed in Item 14(a)(1) and (3) are
included in this report beginning on page F-1.
Item 9. - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable
PART III
Item 10. - Directors and Executive Officer of the Registrant
Information concerning the directors and executive officers is included in
Part I, on pages 15 through 18. The information contained under the heading
"Election of Directors" in the Proxy Statement is incorporated herein by
reference in response to this item.
Item 11. - Executive Compensation
The information contained under heading "Executive Compensation" in the Proxy
Statement is incorporated herein by reference in response to this item.
Item 12. - Security ownership of certain beneficial owners and management
The information contained under the heading "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement is incorporated
herein by reference in response to this item.
Item 13. - Certain relationships and related transactions
The information contained under the heading "Certain Transactions" in the
Proxy Statement is incorporated herein by reference in response to this item.
PART IV
Item 14. - Exhibits, Financial Statement Schedules and Reports on Form 8K
Page No.
(a) 1. Index to Consolidated Financial Statements
Report of Independent Auditors F-1
Consolidated Balance Sheets - June 30, 1995 and 1994 F-2 - F-3
Consolidated Statements of Income - Years ended
June 30, 1995, 1994 and 1993 F-4
Consolidated Statements of Stockholders' Equity - Years
ended June 30, 1995, 1994 and 1993 F-5
Consolidated Statement of Cash Flows - Years ended
June 30, 1995, 1994 and 1993 F-6 - F-7
Notes to Consolidated Financial Statements F-8 - F-23
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have
been omitted.
(a) 3 Exhibits (See Exhibit Index on Page E-1)
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
ENERGY WEST INCORPORATED
/S/ Larry D. Geske /s/ William J. Quast
Larry D. Geske, President and William J. Quast
Chief Executive Officer Vice-President, Treasurer,
and Chairman of the Board Controller and Assistant
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Larry D. Geske 9/27/95
Larry D. Geske President and Chief Executive Date
Officer and Acting Chairman of the Board
/s/ Ian B. Davidson 9/27/95
Ian B. Davidson Director Date
/s/ Timothy J. Moylan 9/27/95
Timothy J. Moylan Director Date
/s/ Thomas N. McGowen, Jr. 9/27/95
Thomas N. McGowen, Jr. Director Date
/s/ G. Montgomery Mitchell 9/27/95
G. Montgomery Mitchell Director Date
/s/ John Reichel 9/27/95
John Reichel Director Date
/s/ David A. Flitner 9/27/95
David A. Flitner Director Date
EXHIBIT INDEX
EXHIBITS
3.1 Restated Articles of Incorporation of the Company, as amended (1)
3.2 Bylaws of the Company, as amended (1)
4.2 Indenture of Trust, dated as of November 1, 1979, relating to Series
1979 Industrial Development Revenue Bonds (1)
4.3 Loan Agreement, dated as of November 1, 1979, relating to Series
1979 Industrial Development Revenue Bonds (1)
4.4 Indenture of Trust, dated as of October 1, 1982, relating to Series
1982 Industrial Development Revenue Bonds (1)
4.5 Loan Agreement, dated as of October 1, 1982, relating to Series
1982 Industrial Development Revenue Bonds (1)
4.6 First Supplemental Indenture, dated as of December 1, 1985, relating to
Series 1982-A Industrial Development Revenue bonds (1)
4.7 First Amendment to Loan Agreement, dated as of December 1, 1985,
relating to Series 1982-A Industrial Development Revenue Bonds (1)
10.1 1984 Stock Option Plan (1)
10.2 Employee Stock Ownership Plan Trust Agreement (1)
10.3 PAYSOP Trust Agreement (1)
10.4 Gas Service Contract, dated July 11, 1985, between the Company and
Montana Refining Company (1)
10.5 Demand Promissory Note, dated January 23, 1984, between the Company and
Norwest Bank Great Falls, National Association (1)
13 Financial Statements and Schedules
22 Subsidiaries of the Registrant (included on page E-3)
24 Consent of Independent Auditors (included on page E-4)
(1) Incorporated by reference from the Company's Registration Statement on
Form S-1 (Registration No. 33-1672) which became effective on January 8,
1986
E-1
************************************************************************
EXHIBIT (22) SUBSIDIARIES OF THE REGISTRANT
The voting stock of the following subsidiaries is 100% owned by the
Registrant:
State or Sovereign
Name of Subsidiary of Incorporation
Vesta, Inc. Montana
Montana Sun, Inc. Montana
Rocky Mountain Fuels, Inc. Montana
E-3
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EXHIBIT 24 - CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Energy West Incorporated or our report dated August 25, 1995, included in
the 1995 Annual Report to Shareholders of Energy West Incorporated.
We also consent to the addition of the financial statement schedules, listed
in the accompanying index to financial statements, to the financial statements
covered by our report dated August 25, 1995, incorporated herein by reference.
ERNST & YOUNG LLP
Denver, Colorado
August 25, 1995
E-4
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EXHIBIT 13 - FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Auditors
The Board of Directors
Energy West Incorporated
We have audited the accompanying consolidated balance sheets of Energy West
Incorporated and subsidiaries as of June 30, 1995 and 1994, and the related
consolidated statements of income, stockholders equity, and cash flows for
each of the three years in the period ended June 30, 1995. These financial
statements are the responsibility of the Company s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, the financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of Energy West Incorporated and subsidiaries at June 30,
1995 and 1994, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended June 30, 1995, in
conformity with generally accepted accounting principles.
As described in Notes 4 and 5 to the consolidated financial statements, in
1994 the Company changed its method of accounting for postretirement benefits
other than pensions and for income taxes, respectively.
Denver, Colorado
August 25, 1995
F-1
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Energy West Incorporated and Subsidiaries
Consolidated Balance Sheets
June 30
1995 1994
Assets
Current assets:
Cash $ 507,450 $ 452,829
Temporary cash investments (at cost which
approximates market) 59,556 59,384
Restricted deposit - 204,550
Accounts receivable, less allowances for
uncollectible accounts of $191,168 ($189,300
at June 30, 1994) 3,042,603 2,627,531
Natural gas and propane inventory 1,686,704 699,623
Materials and supplies 458,596 388,547
Prepayments and other 59,761 199,380
Refundable income tax payments 241,798 237,023
Recoverable costs of gas purchases 125,410 400,966
Deferred income taxes-current 81,398 -
Total current assets 6,263,276 5,269,833
Investments 12,476 12,476
Notes receivable due after one year 15,984 94,721
Property, plant and equipment 39,697,080 35,158,559
Less accumulated depreciation and amortization 16,146,743 14,595,743
Net property, plant and equipment 23,550,337 20,562,816
Deferred charges:
Net unamortized debt issue costs 1,042,155 1,109,600
Regulatory assets for income taxes 519,484 600,867
Unrecognized postretirement obligation 352,380 372,000
Other 618,689 763,663
Total deferred charges 2,532,708 2,846,130
Total assets $32,374,781 $28,785,976
F-2
***********************************************************************
June 30
1995 1994
Capitalization and liabilities
Current liabilities:
Long-term debt due within one year $ 365,833 $ 343,064
Notes payable 2,620,000 1,275,000
Accounts payable-gas purchases 1,535,736 1,263,839
Accounts payable-other 735,810 228,708
Payable to employee benefit plans 443,430 188,490
Accrued vacation 267,350 267,868
Other current liabilities 817,834 580,732
Deferred income taxes-current - 44,952
Total current liabilities 6,785,993 4,192,653
Other:
Deferred income taxes 2,674,928 2,611,008
Deferred investment tax credits 523,903 544,965
Contributions in aid of construction 771,702 690,525
Accumulated postretirement obligation 467,274 439,800
Regulatory liability for income taxes 176,530 191,286
Other 6,736 4,713
Total other 4,621,073 4,482,297
Commitments and contingencies (Note 10)
Long-term debt (less amounts due within
one year) 10,434,957 10,718,064
Stockholders' equity:
Preferred stock - $.15 par value:
Authorized - 1,500,000 shares;
Outstanding - none - -
Common stock - $.15 par value:
Authorized - 3,500,000 shares;
Outstanding - 2,254,138 shares (2,191,478 shares
at June 30, 1994) 338,121 328,722
Capital in excess of par value 2,117,730 1,643,793
Retained earnings 8,076,907 7,420,447
Total stockholders' equity 10,532,758 9,392,962
Total capitalization 20,967,715 20,111,026
Total capitalization and liabilities $32,374,781 $28,785,976
See accompanying notes.
F-3
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Energy West Incorporated and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended June 30
1995 1994 1993
<S> <C> <C> <C>
Operating revenue:
Regulated utilities $23,300,606 $23,443,438 $24,565,127
Nonregulated operations 4,008,954 3,939,148 3,036,772
Gas trading 3,238,839 1,964,866 332,798
Total revenue 30,548,399 29,347,452 27,934,697
Operating expenses:
Gas purchased 16,116,688 16,742,903 17,232,138
Cost of gas trading 2,500,363 1,667,182 305,980
Distribution, general and
administrative 6,379,651 5,979,621 5,453,770
Maintenance 306,077 330,762 376,420
Depreciation and amortization 1,558,755 1,464,078 1,285,632
Taxes other than income 594,569 527,142 540,187
Total operating expenses 27,456,103 26,711,688 25,194,127
Operating income 3,092,296 2,635,764 2,740,570
Other income, net 174,878 199,014 138,736
Income before interest charges and
income taxes 3,267,174 2,834,778 2,879,306
Interest charges:
Long-term debt 735,813 741,866 779,701
Other 202,770 220,317 178,822
Total interest charges 938,583 962,183 958,523
Income before income taxes 2,328,591 1,872,595 1,920,783
Provision for income taxes 815,688 613,964 637,115
Income before cumulative effect of
change in accounting principle 1,512,903 1,258,631 1,283,668
Cumulative effect on prior years of
change in accounting for income
taxes - 92,365 -
Net income $ 1,512,903 $ 1,350,996 $ 1,283,668
Income per share of common
equivalent stock:
Income before cumulative effect
of change in accounting
principle $0.68 $0.57 $0.59
Cumulative effect of change in
accounting for income taxes - 0.04 -
Net income per common share $0.68 $0.61 $0.59
</TABLE>
See accompanying notes.
F-4
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Energy West Incorporated and Subsidiaries
Consolidated Statements of Stockholders Equity
<TABLE>
<CAPTION>
Capital in
Common Excess of Retained
Stock Par Value Earnings Total
<S> <C> <C> <C> <C>
Balance at June 30, 1992 $161,178 $1,519,323 $6,265,210 $ 7,945,711
Exercise of stock options into 5,200
shares of common stock at $3.64
per share 390 18,548 - 18,938
Sale of 25,174 shares of common
stock at $6.88 to $7.94 per share
under the Company's dividend
reinvestment plan 1,888 182,369 - 184,257
Net income for the year ended June
30, 1993 - - 1,283,668 1,283,668
Cash dividends on common stock-
$.32 per share - - (699,085) (699,085)
Balance at June 30, 1993 163,456 1,720,240 6,849,793 8,733,489
Exercise of stock options into 3,800
shares of common stock at $7.13
to $8.19 per share 285 14,977 - 15,262
Sale of 8,293 shares of common
stock at $8.87 per share under the
Company's dividend reinvestment
plan 1,244 72,313 - 73,557
Net income for the year ended June
30, 1994 - - 1,350,996 1,350,996
Common stock dividend, 2-for-1
stock split 163,737 (163,737) - -
Cash dividends on common stock-
$.36 per share - - (780,342) (780,342)
Balance at June 30, 1994 328,722 1,643,793 7,420,447 9,392,962
Exercise of stock options into 14,410
shares of common stock at $4.94
to $8.75 per share 2,161 78,318 - 80,479
Sale of 36,720 shares of common
stock at $7.50 to $9.00 per share
under the Company's dividend
reinvestment plan 5,508 293,529 - 299,037
Issuance of 11,535 shares of common
stock to ESOP at estimated fair
value of $9.00 per share 1,730 102,090 - 103,820
Net income for the year ended June
30, 1995 - - 1,512,903 1,512,903
Cash dividends on common stock -
$.385 per share - - (856,443) (856,443)
Balance at June 30, 1995 $338,121 $2,117,730 $8,076,907 $10,532,758
</TABLE>
See accompanying notes.
F-5
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Energy West Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended June 30
1995 1994 1993
<S> <C> <C> <C>
Operating activities
Net income $ 1,512,903 $ 1,350,996 $ 1,283,668
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,777,559 1,529,310 1,332,432
Gain on sale of property,
plant and equipment (4,174) (25,276) (2,061)
Investment tax credit (21,062) (21,062) (21,062)
Deferred income taxes 4,197 306,026 423,076
Cumulative effect of change in
accounting method - 92,365 -
Changes in operating assets and
liabilities:
Accounts receivable (415,072) 92,638 (1,060,221)
Gas inventory (987,081) 506,099 (123,359)
Accounts payable 778,999 (616,316) 18,977
Other assets and liabilities 958,624 (437,164) (387,346)
Net cash provided by operating
activities 3,604,893 2,777,616 1,464,104
Investing activities
Construction expenditures (4,705,868) (2,626,221) (2,468,463)
Acquisition of propane distribution
assets and operations - - (1,202,062)
Restricted deposit 204,550 619,367 (823,917)
Proceeds from sale of property,
plant and equipment 79,749 64,820 12,218
Long-term notes receivable - - (25,000)
Collection of long-term notes
receivable 78,737 36,526 17,615
Proceeds from contributions in aid
of construction 81,177 88,276 44,292
Net cash used in investing activities (4,261,655) (1,817,232) (4,445,317)
</TABLE>
F-6
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Energy West Incorporated and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year ended June 30
1995 1994 1993
<S> <C> <C> <C>
Financing activities
Proceeds from long-term debt $ 117,808 $ 20,000 $11,300,000
Debt issuance and reacquisition costs - (65,000) (976,692)
Payment of long-term debt (335,000) (333,872) (6,890,000)
Proceeds from notes payable 19,926,854 17,428,000 22,529,000
Repayment of notes payable (18,625,000) (17,491,000) (22,899,943)
Sale of common stock 80,479 15,262 18,938
Dividends paid (453,586) (706,785) (514,828)
Net cash provided by (used in)
financing activities 711,555 (1,133,395) 2,566,475
Net increase (decrease) in cash and
cash equivalents 54,793 (173,011) (414,738)
Cash and cash equivalents at
beginning of year 512,213 685,224 1,099,962
Cash and cash equivalents at
end of year $ 567,006 $ 512,213 $ 685,224
Supplemental disclosures of cash
flow information:
Cash paid for:
Interest $ 942,221 $ 932,159 $ 928,465
Income taxes 870,327 369,000 576,000
Noncash financing activities:
Dividend reinvestment plan $ 299,037 $ 73,557 $ 184,257
ESOP shares issued 103,820 - -
</TABLE>
See accompanying notes.
F-7
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Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1995
1. Principal Accounting Policies
General
Energy West Incorporated (the Company) operates principally in a single
business segment as a distributor of natural gas and propane to residential
and commercial customers. Natural gas and propane vapor distribution
operations (regulated utilities) are regulated by the Montana Public Service
Commission (MPSC), the Wyoming Public Service Commission (WPSC) and the
Arizona Corporation Commission. Accordingly, most of the Company's accounting
policies are subject to the requirements set forth in the Federal Energy
Regulatory Commission s Uniform System of Accounts. In some cases, because
of the rate making process, these accounting policies differ from those used
by nonregulated operations. Bulk propane distribution is a nonregulated
operation.
Consolidated Subsidiaries
The Company s wholly-owned nonregulated subsidiaries, Vesta, Incorporated
(Vesta), Montana Sun, Inc. (Montana Sun) and Rocky Mountain Fuels, Inc. (RMF),
are included in the consolidated financial statements. The results of
operations of these subsidiaries constitute all of the Company's nonregulated
operations. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Vesta's activities include a gas marketing division doing business as
Transenergy and oil and gas exploration and development. Its principal assets
are capitalized oil and gas development costs, storage field costs and
equipment, and inventory. The Transenergy division currently markets gas to
large industrial customers (businesses using over 60,000 Mcf of natural gas
annually).
Montana Sun s operating activities consist of commercial real estate
development. Its significant assets consist of real estate held for future
sale.
RMF began operations in fiscal 1992 following the Company s acquisition of
the assets and operations of six Wyoming propane distribution entities. In
fiscal 1993 these operations were expanded through the acquisition of an
Arizona propane distribution entity. Principal assets of RMF include bulk
storage and customer tanks, delivery trucks and related equipment.
F-8
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Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Principal Accounting Policies (continued)
Natural Gas and Propane Inventory
Natural gas inventory is stated at the lower of weighted average cost or net
realizable value. Propane inventory is stated at the lower of first-in, first-
out or net realizable value.
Recoverable Costs of Gas Purchases
Differences between the costs of gas considered in the Company's rate
structure and actual costs are accounted for as a current asset or liability,
as applicable. These differences are recovered or refunded, as applicable,
in future periods by adjustment of the Company's rates.
Property, Plant and Equipment
Additions to property, plant and equipment are recorded at original cost when
placed in service. Depreciation and amortization are recorded on a
straight-line basis over estimated useful lives or the units-of-production
method, as applicable, at various rates averaging approximately 4.15%, 4.32%
and 4.17% during the years ended June 30, 1995, 1994 and 1993, respectively.
Oil and Gas Activities
Oil and gas operations are accounted for under the successful efforts method.
Exploratory drilling costs are capitalized pending determination of proved
reserves; all other exploration costs are expensed. All development and
lease acquisition costs are capitalized. Provision for depreciation and
amortization, including estimated future dismantlement and restoration costs,
is determined on a field-by-field basis using the units-of-production method.
When properties are sold, the asset cost and related accumulated depreciation
and amortization are eliminated, with any gain or loss reflected in income.
Gas Trading
The Company s business activities include buying and selling of natural gas.
The Company recognizes revenue and costs on gas trading transactions at the
point in time when gas is delivered to the purchaser.
F-9
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Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Principal Accounting Policies (continued)
Debt Issuance and Reacquisition Costs
Debt premium, discount and issuance expenses are amortized over the life of
each issue. Debt reacquisition costs for refinanced debt are amortized over
the remaining life of the new debt.
Statement of Cash Flows
For purposes of this statement, all highly liquid investments with original
maturities of three months or less are considered to be cash equivalents.
Financial Instruments
All of the Company s financial instruments requiring fair value disclosure
were recognized in the consolidated balance sheet as of June 30, 1995. Except
for long-term debt, their carrying values approximate the estimated fair
values. Descriptions of the methods and assumptions used to reach this
conclusion are as follows:
Cash, temporary cash investments, restricted deposit, accounts receivable,
accounts payable, and payable to employee benefit plans: These financial
instruments have short maturities, or are invested in financial instruments
with short maturities.
Notes receivable: These notes generally relate to energy conservation
incentive programs, some of which bear favorable interest rates compared to
market for similar risks. However, due to the relatively small balances of
these notes, any differences between carrying value and fair value are
immaterial.
Notes payable: Represent lines of credit, with maturities of a year or less,
bearing interest at current market rates.
The fair value of the Company s long-term debt, based on quoted market prices
for the same or similar issues, is less than carrying value by approximately
three percent.
Earnings Per Share
Earnings per common share were computed based on the weighted average number of
common shares outstanding and common stock equivalents, if dilutive. The
weighted average number of shares has been restated for 1993 as the Company's
Board of
F-10
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Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Principal Accounting Policies (continued)
Directors approved a 2-for-1 stock split effective June 24, 1994 for
stockholders of record on May 31, 1994. The weighted average number of such
shares at June 30 was 2,235,413 in 1995, 2,205,050 in 1994, and 2,171,448 in
1993.
New Accounting Standards
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, effective
for financial statements for fiscal years beginning after December 15, 1995.
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable and long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of
carrying amount or fair value less cost to sell. SFAS No. 121 also
establishes the procedures for review of recoverablity, and measurement of
impairment if necessary, of long-lived assets and certain identifiable
intangibles to be held and used by an entity. The financial effects of
adopting the new standard are not expected to be material to the Company's
financial position or operations.
Reclassifications
Certain reclassifications have been made to the fiscal 1994 and 1993
consolidated financial statements to conform to the fiscal 1995 presentation.
2. Notes Payable
At June 30, 1995, the Company maintained a line of credit totaling $8,000,000
with interest calculated at prime less 1/4 percent. A total of $2,620,000,
$1,275,000 and $1,338,000 had been borrowed under line of credit agreements
at June 30, 1995, 1994, and 1993, respectively. Borrowings on lines of
credit, based upon daily loan balances, averaged $2,397,175, $2,369,671 and
$2,960,151 during the years ended June 30, 1995, 1994 and 1993, respectively.
The maximum borrowings outstanding on this line at any month end were
$4,983,000, $4,267,000 and $4,000,000 during these same periods. The daily
weighted average interest rate was 8.2%, 6.4% and 6.3% for the years ended
June 30, 1995, 1994 and 1993, respectively. This line of credit expires
January 1, 1996. Management expects this line of credit to be renewed for
another year.
F-11
***********************************************************************
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Long-Term Debt Obligations
Long-term debt consists of the following:
June 30
1995 1994
Series 1993 notes payable $ 7,800,000 $ 7,800,000
Industrial development revenue obligations:
Series 1992A 1,200,000 1,455,000
Series 1992B 1,690,000 1,745,000
Other 110,790 61,128
Total long-term obligations 10,800,790 11,061,128
Less portion due within one year 365,833 343,064
Long-term obligations due after one year $10,434,957 $10,718,064
Series 1993 Notes Payable
On June 24, 1993, the Company issued $7,800,000 of Series 1993 unsecured notes
bearing interest rates ranging from 6.20% to 7.60% (6.20% at June 30, 1995),
payable semiannually on June 1 and December 1 of each year, commencing
December 1, 1993. Maturity dates began in 1999 and extend to 2013. At the
Company's option, beginning June 1, 2003, notes maturing subsequent to 2003
may be redeemed prior to maturity, in whole or part, at redemption prices
declining from 104% to 100% of face value, plus accrued interest.
Industrial Development Revenue Obligations
On September 15, 1992, Cascade County, Montana (the County) issued two
Industrial Development Revenue Obligations, the Series 1992A Bonds for
$1,700,000 and Series 1992B Bonds for $1,800,000. The Series 1992A and
Series 1992B Bonds are unsecured; however, loan agreements are maintained
with the Company in the same amounts. Both the Series 1992A and Series
1992B Bonds require annual principal payments on October 1 and semiannual
interest payments on April 1 and October 1 of each year beginning in 1993.
The Series 1992A Bonds have a final maturity in 1999 and bear interest at
rates ranging from 3.25% to 5.30%. The Series 1992B Bonds have a final
maturity in 2012 and bear interest at rates ranging from 3.354% to 6.50%.
The restricted deposit in the consolidated balance sheet is proceeds from the
Series 1992A bonds deposited in a construction fund with the trustee, Trust
Corp., an entity whose Chairman and Chief Executive Officer is a significant
shareholder and a member of the Company's Board of Directors. The deposit
can only be drawn for specific capital projects under the terms of the
related indenture. All Capital projects were completed in fiscal year 1995.
F-12
***********************************************************************
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Long-Term Debt Obligations (continued)
of the Company's Board of Directors. The deposit can only be drawn for
specific capital projects under the terms of the related indenture. All
capital projects were completed in fiscal year 1995.
Aggregate Annual Maturities
<TABLE>
<CAPTION>
Fiscal Series IDR Obligations Total
Year Ending 1993 Series Series Long-Term
June 30 Bonds 1992A 1992B Other Obligations
<S> <C> <C> <C> <C> <C>
1996 $ $ 265,000 $ 55,000 $ 45,833 $ 365,833
1997 - 280,000 60,000 15,340 355,340
1998 - 295,000 60,000 17,202 372,202
1999 165,000 175,000 65,000 19,299 424,299
2000 175,000 185,000 70,000 13,116 443,116
Thereafter 7,460,000 - 1,380,000 - 8,840,000
7,800,000 1,200,000 1,690,000 110,790 10,800,790
Less current portion - 265,000 55,000 45,833 365,833
$7,800,000 $ 935,000 $1,635,000 $ 64,957 $10,434,957
</TABLE>
The Company's long-term debt obligation agreements contain various covenants
including: limiting total dividends and distributions made in the immediately
preceding 60-month period to aggregate consolidated net income for such
period, restricting senior indebtedness, limiting asset sales, and maintaining
certain financial debt and interest ratios.
4. Retirement Plans
The Company has a defined contribution pension plan (the Plan) which covers
substantially all of the Company's employees. Under the Plan, the Company
contributes 10% of each participant's eligible compensation. Total
contributions to the Plan for the years ended June 30, 1995, 1994 and 1993
were $336,589, $279,668 and $264,160, respectively.
In addition to providing benefits under the Plan, the Company provides certain
health and life insurance benefits for eligible retired employees. Through
June 30, 1993, the cost of these benefits was recognized as an expense when
paid. The cost of these benefits for 1993 was $6,429.
F-13
***********************************************************************
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Retirement Plans (continued)
The Company adopted, effective July 1, 1993, SFAS No. 106, Employers
Accounting for Postretirement Benefits Other Than Pensions. This standard
requires that the projected future cost of providing postretirement benefits
be recognized as an expense as employees render service rather than when paid.
Effective for fiscal year 1994, the Company modified its plan for these
benefits and has elected to pay eligible retirees $125 per month in lieu of
contracting for health and life insurance benefits. The amount of this
payment is fixed and will not increase with medical trends or inflation.
The Company s transition obligation at June 30, 1995 and 1994 was $352,380 and
$372,000, respectively, of which $327,400 in 1995 and $363,000 in 1994 related
to the regulated utility operations. The transition obligation was accrued as
a deferred charge and will be amortized over 20 years. Substantially all of
the transition obligation is for the future cost of benefits to active
employees.
The incremental annual increases in consolidated expenses due to adoption of
SFAS No. 106 were $71,200 and $68,000 in fiscal years 1995 and 1994,
respectively. Included in these amounts were $62,600 in 1995 and $58,300 in
1994 relating to regulatory operations. The MPSC will allow recovery of these
costs beginning on July 1, 1995 for the utility operations in Montana.
Management believes it is probable that its regulators in Wyoming and Arizona
will allow recovery of these costs based upon recent industry rate decisions
addressing this issue. The Company plans to fund the related annual cost by
establishing and contributing to a trust from which future benefits would be
paid. The following table presents the amounts recognized at June 30, 1995
and 1994 in the consolidated financial statements.
1995 1994
Accumulated postretirement benefit obligation:
Retirees $154,400 $184,600
Fully eligible active plan participants 53,700 15,600
Other active plan participants 259,174 239,600
$467,274 $439,800
Net periodic postretirement benefit cost:
Service cost $ 19,400 $ 18,000
Interest cost 32,200 30,400
Amortization of transition obligation 19,600 19,600
Net periodic postretirement benefit cost $ 71,200 $ 68,000
F-14
***********************************************************************
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Retirement Plans (continued)
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation at June 30, 1995 was 7.5 percent. The
weighted-average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is 12.5 percent for the
1995-96 fiscal year and is assumed to decrease gradually to 6.5 percent after
7 years and remain at that level thereafter. At June 30, 1994, the weighted-
average discount rate used in determining the accumulated postretirement
benefit obligation was 8.0 percent. The weighted-average health care cost
trend rate was 14.0 percent for the 1994-95 fiscal year and was assumed to
decrease gradually to 7.0 percent after 8 years and remain at that level
thereafter.
Due to the minimal number of retirees receiving benefits that are not fixed
and the relatively short duration of these benefits, the health care cost
trend rate assumption does not have a significant effect on the amounts
reported.
5. Income Tax Expense
Effective July 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by
FASB Statement No. 109, Accounting for Income Taxes. As permitted under the
new rules, prior years financial statements have not been restated.
The cumulative effect of adopting Statement 109 as of July 1, 1993, was to
increase net income by $92,365 for nonregulated operations and create a
regulatory asset of $600,867 and regulatory liability of $204,620 for
regulated operations. The regulatory assets and liabilities represent the
anticipated effects on regulated rates charged to customers which will result
from the adoption of Statement 109. For the year ended June 30, 1995, state
income tax rate changes in Montana and Arizona and amortization of certain
liabilities resulted in a decrease in regulatory assets of $81,383 and
regulatory liabilities of $14,756 for regulated entities, resulting in ending
balances of $519,484 and $176,530, respectively.
F-15
***********************************************************************
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Income Tax Expense (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company s deferred tax assets and liabilities as of June 30, 1995 and
1994 are as follows:
1995 1994
Deferred tax assets:
Allowance for doubtful accounts $ 55,987 $ 44,070
Unamortized investment tax credit 175,983 191,286
Contributions in aid of construction 102,458 70,809
Other nondeductible accruals 156,096 124,260
Other 42,318 36,642
Total deferred tax assets 532,842 467,067
Deferred tax liabilities:
Customer refunds payable 84,525 189,501
Property, plant and equipment 2,615,597 2,489,331
Unamortized debt issue costs 215,827 231,874
Unamortized environmental study costs 101,330 81,442
Covenant not to compete 93,283 97,525
Other 15,810 33,354
Total deferred tax liabilities 3,126,372 3,123,027
Net deferred tax liabilities $2,593,530 $2,655,960
F-16
***********************************************************************
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Income Tax Expense (continued)
Income tax expense consists of the following:
<TABLE>
<CAPTION>
Year ended June 30
1995 1994 1993
Liability Method Deferred Method
<S> <C> <C> <C>
Current income taxes:
Federal $705,420 $490,698 $185,323
State 120,074 12,331 37,958
Total current income taxes 825,494 503,029 223,281
Deferred income taxes (benefits):
Tax depreciation in excess of book 179,794 139,564 264,098
Book amortization in excess of tax (56,981) (73,435) (42,859)
Recoverable cost of gas purchases (98,479) 86,341 75,161
Environmental study cleanup costs 20,539 81,442 -
Bond issuance costs - - 246,161
Other 17,813 (62,016) (56,368)
Total deferred income taxes 62,686 171,896 486,193
Investment tax credit, net (21,062) (21,062) (21,062)
Total income taxes $867,118 $653,863 $688,412
Income taxes-operations $815,688 $613,964 $637,115
Income taxes-other income 51,430 39,899 51,297
Total income taxes $867,118 $653,863 $688,412
</TABLE>
Income tax expense from operations differs from the amount computed by
applying the federal statutory rate to pre-tax income for the following
reasons:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Tax expense at statutory rate - 34% $799,582 $607,394 $567,652
State income tax, net of federal tax benefit 77,377 38,693 56,922
Amortization of deferred investment tax
credits (21,062) (21,062) (21,062)
Other 11,221 28,838 33,603
Total income taxes $867,118 $653,863 $637,115
</TABLE>
F-17
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Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Regulated and Nonregulated Operations
Summarized financial information for the Company s regulated utility and
nonregulated nonutility operations (before intercompany eliminations between
regulated and nonregulated primarily consisting of gas sales from nonregulated
to regulated entities, intercompany accounts receivable, accounts payable,
equity, and subsidiary investment) is as follows:
<TABLE>
<CAPTION>
June 30 1995 June 30 1994
Regulated Nonregulated Regulated Nonregulated
<S> <C> <C> <C> <C>
Capital expenditures $ 3,933,828 $ 772,040 $ 2,211,940 $ 414,281
Property, plant and equipment, net:
Regulated utilities $19,907,237 - $17,283,956 -
Nonregulated propane - 2,811,913 - 2,541,025
Oil and gas operations - 334,704 - 227,042
Real estate held for investment - 496,483 - 510,793
Current assets 4,458,594 2,420,839 4,967,194 1,117,233
Other assets 3,884,006 496,360 4,157,392 581,411
Total assets $28,249,837 $6,560,299 $26,408,542 $4,977,504
Equity $ 8,903,740 $2,701,018 $ 8,362,673 $2,102,290
Long-term debt 8,533,074 1,901,883 9,220,711 1,497,353
Current liabilities 6,304,063 1,493,087 4,473,446 928,799
Deferred income taxes 2,727,782 299,343 2,678,634 250,851
Other liabilities 1,781,178 164,968 1,673,078 198,211
Total capitalization and liabilities $28,249,837 $6,560,299 $26,408,542 $4,977,504
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
Regulated Nonregulated Regulated Nonregulated Regulated Nonregulated
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Operating revenue $24,363,446 $4,077,768 $24,421,153 $3,935,760 $24,565,127 $3,743,120
Gas trading revenue - 3,238,839 - 1,964,866 - 332,798
Operating expenses:
Gas purchased 15,077,466 2,170,877 15,666,853 2,050,377 15,926,510 2,011,976
Cost of gas trading - 2,500,363 - 1,667,182 - 305,980
Distribution,
general and
administrative 5,130,220 1,249,431 4,792,531 1,187,090 4,494,489 959,281
Maintenance 304,677 1,400 315,409 15,353 373,677 2,743
Depreciation and
amortization 1,205,758 352,997 1,134,150 329,928 993,046 292,586
Taxes other than
income 494,338 100,230 430,446 96,696 460,013 80,174
Operating income $ 2,150,987 $ 941,309 $ 2,081,764 $ 554,000 $ 2,317,392 $ 423,178
</TABLE>
F-18
***********************************************************************
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Regulated and Nonregulated Operations (continued)
The significant changes between fiscal years for nonregulated operations are
due to acquisitions of propane entities described in Note 8.
7. Stock Options and Ownership Plans
Stock Options
There are two Incentive Stock Option Plans which provide for granting options
to purchase up to 200,000 shares of the Company s common stock to key
employees. The option price may not be less than 100% of the common stock
fair market value on the date of grant (110% of the fair market value if the
employee owns more than 10% of the Company s outstanding common stock). These
options may not have a term exceeding five years.
A summary of the activity under this plan is as follows:
Number of Price Per
Shares Share
Fiscal 1995
Outstanding at July 1, 1994 106,948 $4.938-8.75
Granted 5,000 $9.125
Exercised (14,410) $4.938-8.75
Expired (6,950) $4.938-7.125
Outstanding at June 30, 1995 90,588
At June 30, 1995
Exercisable 90,588
Available for grant 29,652
F-19
***********************************************************************
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Stock Options and Ownership Plans (continued)
Number of Price Per
Shares Share
Fiscal 1994
Outstanding at July 1, 1993 105,048 $3.188-7.125
Granted 7,000 $7.375-8.75
Exercised (3,800) $3.188-7.125
Expired (1,300) $3.188
Outstanding at June 30, 1994 106,948 $4.938-8.75
At June 30, 1994
Exercisable 106,948
Available for grant 27,702
Fiscal 1993
Outstanding at July 1, 1992 35,700 $3.188-6.50
Granted 74,548 $6.375-7.125
Exercised (5,200) $3.188-7.125
Outstanding at June 30, 1993 105,048 $3.188-7.125
At June 30, 1993
Exercisable 105,048
Available for grant 33,402
Employee Stock Ownership Plan
In 1984, the Company established an Employee Stock Ownership Plan (ESOP) which
covers most of the Company s employees. The Company has contributed and
recognized as expense $129,367, $103,820 and $106,844 for the years ended June
30, 1995, 1994 and 1993, respectively. Contributions to the Plan are
determined by the Board of Directors. During the years ended June 30, 1995,
1994 and 1993, the ESOP acquired 11,535 shares at $9.00 per share, 11,772
shares at $9.08 per share and 9,112 shares at $7.41 per share, respectively.
F-20
***********************************************************************
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Purchase of Assets
In January 1993, the Company purchased the assets of two Arizona propane
distribution entities for an aggregate purchase price of $1,200,000. Broken
Bow Gas Company (Broken Bow) is an underground propane distribution entity
regulated by the Arizona Corporation Commission.
This acquisition was accounted for by the purchase method and the financial
statements include the results of operations of the acquired assets from their
respective dates of acquisition. The total purchase price was assigned to
assets acquired (primarily property, plant and equipment) based on the
estimated fair values of such assets at their date of acquisition.
If the above acquisitions had occurred on July 1, 1992, the consolidated
results of operations for the year ended June 30, 1993 would have been as
follows:
Year ended
June 30
1993
(Unaudited)
Pro forma basis:
Operating revenue $27,913,000
Net income 1,240,000
Earnings per share 0.57
9. Operating Lease
The Company leases a building in Cody, Wyoming. The lease expires on June 30,
2005. Future minimum rental payments will be approximately $72,000 per year
from fiscal 1996 through fiscal 2005 and total future minimum lease payments
of $720,000. Rental expenses related to this lease were $70,133, $73,933 and
$73,737 in fiscal years 1995, 1994 and 1993, respectively.
F-21
***********************************************************************
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Commitments and Contingencies
Commitments
The Company has entered into long-term, take or pay natural gas supply
contracts which expire beginning in 1996 and ending in 2005. The contracts
generally require the Company to purchase specified minimum volumes of
natural gas at a fixed price which is subject to renegotiation every two years.
Current prices per Mcf for these contracts range from $1.28 to $1.90. Based
on current prices, the minimum take or pay obligation at June 30, 1995 for
each of the next five years and in total is as follows:
Fiscal Year
1996 $ 2,630,414
1997 1,659,614
1998 1,460,894
1999 1,460,894
2000 1,460,894
Thereafter 5,188,606
Total $13,861,316
Natural gas purchases under these contracts for the years ended June 30, 1995,
1994, and 1993 approximated $6,203,000, $6,901,000, and $7,400,000,
respectively.
The Company signed a definitive purchase agreement for the acquisition of a
propane vapor system, contingent on the Company obtaining regulatory approval
for an exclusive natural gas franchise for the area where this system is
located. The purchase price is approximately $920,000.
Environmental Contingency
The Company owns property on which it operated a manufactured gas plant from
1909 to 1928. The site is currently used as a service center and to store
certain equipment and materials and supplies. The coal gasification process
utilized in the plant resulted in the production of certain by-products which
have been classified by the federal government and the state of Montana as
hazardous to the environment. After management became aware of the potential
of contamination on this site, it initiated an assessment of the property
through the assistance of a qualified consulting firm. That assessment
revealed the presence of certain hazardous material in quantities exceeding
tolerances established for such material by regulatory authorities. After
making required notifications of that condition to federal and state
regulatory authorities, a report summarizing the assessment
F-22
***********************************************************************
Energy West Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Commitments and Contingencies (continued)
was filed with the State of Montana Department of Health and Environmental
Science (MDHES). Subsequent to that submittal a meeting was held with a
representative of the MDHES wherein a process was agreed upon to arrive at
appropriate remediation of the site. The costs incurred by the Company to
date approximate $263,500 and have been capitalized as other deferred charges.
Until further work is done regarding remediation alternatives, no further
estimate of the costs of remediation can be made. However, management
believes that regardless of the alternative selected, the costs incurred will
not materially affect the Company s financial position.
The Company received formal approval from MPSC to recover the costs associated
with the cleanup of this site. The Company will begin recovery of costs
incurred at June 30, 1995 over two years through a surcharge in billing rates
effective July 1, 1995. Management intends to request that future costs be
recovered over a similar time period.
F-23
***********************************************************************
<TABLE> <S> <C>
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 23,550,337
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 6,263,276
<TOTAL-DEFERRED-CHARGES> 2,532,708
<OTHER-ASSETS> 28,460
<TOTAL-ASSETS> 32,374,781
<COMMON> 338,121
<CAPITAL-SURPLUS-PAID-IN> 2,117,730
<RETAINED-EARNINGS> 8,076,907
<TOTAL-COMMON-STOCKHOLDERS-EQ> 10,532,758
0
0
<LONG-TERM-DEBT-NET> 10,434,957
<SHORT-TERM-NOTES> 2,620,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 365,833
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 8,421,233
<TOT-CAPITALIZATION-AND-LIAB> 32,374,781
<GROSS-OPERATING-REVENUE> 30,548,399
<INCOME-TAX-EXPENSE> 815,688
<OTHER-OPERATING-EXPENSES> 27,456,103
<TOTAL-OPERATING-EXPENSES> 27,456,103
<OPERATING-INCOME-LOSS> 3,092,296
<OTHER-INCOME-NET> 174,878
<INCOME-BEFORE-INTEREST-EXPEN> 3,267,174
<TOTAL-INTEREST-EXPENSE> 938,583
<NET-INCOME> 1,512,903
0
<EARNINGS-AVAILABLE-FOR-COMM> 8,076,907
<COMMON-STOCK-DIVIDENDS> 856,443
<TOTAL-INTEREST-ON-BONDS> 735,813
<CASH-FLOW-OPERATIONS> 3,604,893
<EPS-PRIMARY> .68
<EPS-DILUTED> .68
</TABLE>
