-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EgOo0EvjrvxJax2AKgSOOwmkFD+cZSIAi/PZb6+pA5PZ40zN5ZYjddoPbkOcntge B8cJBmSHH3bPNEs9sV2how== 0000077231-98-000008.txt : 19980506 0000077231-98-000008.hdr.sgml : 19980506 ACCESSION NUMBER: 0000077231-98-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980505 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENNSYLVANIA ENTERPRISES INC CENTRAL INDEX KEY: 0000077231 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 231920170 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11325 FILM NUMBER: 98610836 BUSINESS ADDRESS: STREET 1: ONE PEI CTR STREET 2: WILKES BARRE CTR CITY: WILKES BARRE STATE: PA ZIP: 18711-0601 BUSINESS PHONE: 7178298843 MAIL ADDRESS: STREET 1: 39 PUBLIC SQUARE CITY: WILKES BARRE STATE: PA ZIP: 18711-0601 10-Q 1 PENNSYLVANIA ENTERPRISES, INC. TABLE OF CONTENTS PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Income for the three months ended March 31, 1998 and 1997. . . . . . . . . . . 2 Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 . . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Cash Flows for the three months ended March 31, 1998 and 1997. . . . . . 5 Notes to Consolidated Financial Statements. . . . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . 10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 15 -1- PART I. FINANCIAL INFORMATION PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 1998 1997 (Thousands of Dollars) OPERATING REVENUES: Regulated $ 65,006 $ 79,939 Nonregulated - Gas sales and services 9,025 7,375 Pipeline construction and services 2,404 2,153 Other 454 24 Total operating revenues 76,889 89,491 OPERATING EXPENSES: Cost of gas 46,151 56,708 Operation and maintenance 11,333 10,332 Depreciation 2,601 2,299 Income taxes 4,156 5,599 Taxes other than income taxes 4,061 4,326 Total other operating expenses 68,302 79,264 OPERATING INCOME 8,587 10,227 OTHER INCOME (DEDUCTIONS), NET (3) 389 INCOME BEFORE INTEREST CHARGES 8,584 10,616 INTEREST CHARGES: Interest on long-term debt 2,588 2,042 Other interest 159 235 Allowance for borrowed funds used during construction (23) (66) Total interest charges 2,724 2,211 INCOME BEFORE SUBSIDIARY'S PREFERRED STOCK DIVIDENDS 5,860 8,405 SUBSIDIARY'S PREFERRED STOCK DIVIDENDS 321 353 NET INCOME $ 5,539 $ 8,052 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic 9,753,348 9,615,416 Diluted 9,834,444 9,660,881 EARNINGS PER SHARE OF COMMON STOCK: Basic $ .57 $ .84 Diluted $ .56 $ .83 CASH DIVIDENDS PER SHARE $ .30 $ .29 The accompanying notes are an integral part of the consolidated financial statements.
-2- PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1998 1997 (Thousands of Dollars) ASSETS UTILITY PLANT: At original cost $ 355,243 $ 351,106 Accumulated depreciation (90,607) (88,129) 264,636 262,977 OTHER PROPERTY AND INVESTMENTS: Nonutility property and equipment 20,163 16,335 Accumulated depreciation (5,028) (4,875) Other 2,269 2,171 17,404 13,631 CURRENT ASSETS: Cash and cash equivalents 2,188 2,202 Restricted cash - common stock subscribed (Note 3) 859 - Accounts receivable - Customers 32,068 28,681 Others 1,576 850 Reserve for uncollectible accounts (1,650) (1,340) Unbilled revenues 7,682 12,108 Materials and supplies, at average cost 3,328 3,110 Gas held by suppliers, at average cost 7,985 21,933 Deferred cost of gas and supplier refunds, net 1,593 6,316 Prepaid expenses and other 5,654 1,686 61,283 75,546 DEFERRED CHARGES: Regulatory assets - Deferred taxes collectible 30,761 30,592 Other 6,316 4,415 Unamortized debt expense 1,276 1,361 Other 280 308 38,633 36,676 TOTAL ASSETS $ 381,956 $ 388,830 The accompanying notes are an integral part of the consolidated financial statements.
-3- PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1998 1997 (Thousands of Dollars) CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common shareholders' investment (Note 3) $ 126,381 $ 122,105 Preferred stock of PG Energy - Not subject to mandatory redemption, net 15,864 15,864 Subject to mandatory redemption 640 640 Long-term debt 125,000 127,000 267,885 265,609 CURRENT LIABILITIES: Current portion of long-term debt 17,337 24,776 Preferred stock subject to repurchase or mandatory redemption 80 80 Notes payable 1,245 2,170 Accounts payable 14,464 18,448 Accrued general business and realty taxes 937 2,953 Accrued income taxes 7,856 4,618 Accrued interest 1,215 1,783 Accrued natural gas transition costs 842 1,087 Other 1,808 1,722 45,784 57,637 DEFERRED CREDITS: Deferred income taxes 53,275 52,511 Unamortized investment tax credits 4,553 4,596 Operating reserves 2,779 2,825 Other 7,680 5,652 68,287 65,584 COMMITMENTS AND CONTINGENCIES (Note 5) TOTAL CAPITALIZATION AND LIABILITIES $ 381,956 $ 388,830 The accompanying notes are an integral part of the consolidated financial statements.
-4- PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1998 1997 (Thousands of Dollars) CASH FLOW FROM OPERATING ACTIVITIES: Net income $ 5,539 $ 8,052 Effects of noncash charges to income - Depreciation 2,629 2,313 Deferred income taxes, net 595 351 Provisions for self insurance 202 202 Other, net 302 387 Changes in working capital, exclusive of cash and current portion of long-term debt - Receivables and unbilled revenues 623 (8,277) Gas held by suppliers 13,948 17,391 Accounts payable (3,623) (9,638) Deferred cost of gas and supplier refunds, net 4,478 8,751 Other current assets and liabilities, net (3,443) 554 Other operating items, net (1,257) (853) Net cash provided by operating activities 19,993 19,233 CASH FLOW FROM INVESTING ACTIVITIES: Additions to utility plant (4,477) (6,529) Additions to nonutility property (4,124) (433) Acquisition of regulated business - (2,009) Other, net 583 247 Net cash used for investing activities (8,018) (8,724) CASH FLOW FROM FINANCING ACTIVITIES: Issuance of common stock 807 495 Common stock subscribed, net 855 - Repurchase of subsidiary's preferred stock - (82) Dividends on common stock (2,925) (2,793) Repayment of long-term debt - (141) Net decrease in bank borrowings (10,725) (7,874) Other, net (1) 38 Net cash used for financing activities (11,989) (10,357) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (14) 152 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,202 1,126 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,188 $ 1,278 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) $ 3,142 $ 2,019 Income taxes $ 429 $ 653 The accompanying notes are an integral part of the consolidated financial statements.
-5- PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of the Business. Pennsylvania Enterprises, Inc. (the "Company") is a holding company which, through its subsidiaries, is engaged in both regulated and nonregulated activities. The Company's regulated activities are conducted by its principal subsidiary, PG Energy Inc. ("PG Energy"), a regulated public utility, and PG Energy's wholly-owned subsidiary, Honesdale Gas Company ("Honesdale"), also a regulated public utility which was acquired on February 14, 1997. Together PG Energy and Honesdale distribute natural gas to a thirteen-county area in northeastern Pennsylvania, a territory that includes the cities of Scranton, Wilkes-Barre and Williamsport. In 1997, PG Energy and Honesdale collectively accounted for approximately 84% of the Company's operating revenues. The Company, through its other subsidiaries, PG Energy Services Inc. ("Energy Services"), PEI Power Corporation ("Power Corp") which was formed in October, 1997, Theta Land Corporation ("Theta") and Keystone Pipeline Services, Inc. ("Keystone"), a wholly-owned subsidiary of Energy Services, is engaged in various nonregulated activities, including the sale of natural gas, propane and electricity and other energy-related services, as well as the construction, maintenance and rehabilitation of natural gas distribution pipelines and the sale of property for residential, commercial and other development. In the fourth quarter of 1997, Energy Services began marketing electricity and other products and services, under the name PG Energy PowerPlus, in 26 counties in northeastern and central Pennsylvania. Power Corp is expected to begin generating and selling electricity and steam, which will be marketed by PG Energy PowerPlus, in mid-1998 upon the completion of modifications to its cogeneration facility that will enable it to burn both natural and methane gas. Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its subsidiaries, PG Energy, Energy Services (including Keystone), Power Corp and Theta. The consolidated financial statements also include the accounts of Honesdale beginning February 14, 1997, the date Honesdale was acquired by PG Energy. All material intercompany accounts have been eliminated in consolidation. Both PG Energy and Honesdale (collectively referred to as the "Regulated Subsidiaries") are subject to the jurisdiction of the Pennsylvania Public Utility Commission (the "PPUC") for rate and accounting purposes. The financial statements of the Regulated Subsidiaries that are incorporated in these consolidated financial statements have been prepared in accordance with generally accepted accounting principles, including the provisions of Financial Accounting Standards Board ("FASB") Statement 71, "Accounting for the Effects of Certain Types of Regulation," which give recognition to the rate and accounting practices of regulatory agencies such as the PPUC. Interim Financial Statements. The interim consolidated financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. -6- The results for the interim periods are not indicative of the results to be expected for the year, primarily due to the effect of seasonal variations in weather on the sale of natural gas. However, in the opinion of management, all adjustments, consisting of only normal recurring accruals, necessary to present fairly the results for the interim periods have been reflected in the consolidated financial statements. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. Use of Accounting Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates involve judgments with respect to, among other things, various future economic factors and regulatory matters which are difficult to predict and are beyond the control of the Company. Therefore, actual amounts could differ from these estimates. (2) RATE MATTERS Rate Increase. By Order adopted December 19, 1996, the PPUC approved an overall 5.3% increase in PG Energy's base gas rates, designed to produce $7.5 million of additional annual revenue, effective January 15, 1997. Under the terms of the Order, the billing for the impact of the rate increase relative to PG Energy's residential heating customers, which totaled $1.7 million through March 31, 1997, was deferred, without carrying charges, until July, 1997. Gas Cost Adjustments. The provisions of the Pennsylvania Public Utility Code require that the tariffs of LDCs be adjusted on an annual basis, and, in the case of larger LDCs such as PG Energy, on an interim basis when circumstances dictate, to reflect changes in their purchased gas costs. The procedure includes a process for the reconciliation of actual gas costs incurred and actual revenues received and also provides for the refund of any overcollections, plus interest thereon, or the recoupment of any undercollections of gas costs. In accordance with these procedures PG Energy has been permitted to make the following changes since January 1, 1997, to the gas costs contained in its tariff rates: Change in Calculated Effective Rate per MCF Increase (Decrease) Date From To in Annual Revenue [CAPTION] [S] [C] [C] [C] March 1, 1998 $4.05 $3.95 $ (2,100,000) December 1, 1997 4.49 4.05 (12,100,000) March 1, 1997 4.18 4.49 8,300,000 The changes in gas rates on account of purchased gas costs have no effect on earnings since the change in revenue is offset by a corresponding change in the cost of gas. -7- (3) RESTRICTED CASH-COMMON STOCK SUBSCRIBED The Company reinstated its Customer Stock Purchase Plan (the "Customer Plan") effective February 4, 1998. The Customer Plan provides the residential customers of all the Company's subsidiaries with a method of purchasing newly- issued shares of the Company's common stock at a 5% discount from the market price. On April 1, 1998, the Company issued 35,668 shares of its common stock for an aggregate consideration of $855,000 with respect to payments received pursuant to the Customer Plan during the subscription period ended March 31, 1998. Such payments are reflected under the captions "Restricted cash - common stock subscribed" and "Common shareholders' investment" in these consolidated financial statements as of March 31, 1998. The proceeds from the issuance of shares through the Customer Plan were used by the Company to purchase common stock of PG Energy. (4) ACCOUNTING CHANGES Reporting Comprehensive Income. Effective January 1, 1998, the Company adopted the provisions of FASB Statement 130 "Reporting Comprehensive Income." However, because there were no items comprising other comprehensive income, the adoption of FASB 130 had no effect on the Company's financial statements for the first quarter of 1998. Disclosures about Segments of an Enterprise and Related Information. In June, 1997, FASB Statement 131, "Disclosures about Segments of an Enterprise and Related Information" was issued. The provisions of this statement, which are effective for fiscal years beginning after December 15, 1997, establish standards for reporting information about operating segments in annual financial statements and selected segment information in interim financial reports issued to shareholders. The Company expects to adopt the reporting provisions of FASB Statement 131 by the fourth quarter of 1998. (5) COMMITMENTS AND CONTINGENCIES Environmental Matters. PG Energy, like many gas distribution companies, once utilized manufactured gas plants in connection with providing gas service to its customers. None of these plants has been in operation since 1972, and several of the plant sites are no longer owned by PG Energy. Pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), PG Energy filed notices with the United States Environmental Protection Agency (the "EPA") with respect to the former plant sites. None of the sites is or was formerly on the proposed or final National Priorities List. The EPA has conducted site inspections and made preliminary assessments of each site and has concluded that no further remedial action is planned. Notwithstanding this determination by the EPA, some of the sites may ultimately require remediation. One site that was owned by PG Energy from 1951 to 1967 and at which it operated a manufactured gas plant from 1951 to 1954 was subject to remediation in 1996. The remediation at this site, which was performed by the party from whom PG Energy acquired the site in 1951, required the removal of materials from two former gas holders. The cost of such remediation is purported to have been approximately $525,000, of which the party performing the remediation is seeking to recover a material portion from PG Energy. PG Energy, however, believes that any liability it may have with respect to such remediation would be considerably less than the amount that the other party is seeking. While the final resolution of the matter is uncertain, PG Energy does not believe that it will have any material impact on its financial position or results of operations. Although the conclusion by the EPA that it anticipates -8- no further remedial action with respect to the sites at which PG Energy operated manufactured gas plants does not constitute a legal prohibition against further regulatory action under CERCLA or other applicable federal or state law, the Company does not believe that additional costs, if any, related to these manufactured gas plant sites would be material to its financial position or results of operations since environmental remediation costs generally are recoverable through rates over a period of time. -9- PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table expresses certain items in the Company's consolidated statements of income as percentages of operating revenues for each of the three- month periods ended March 31, 1998 and 1997: [CAPTION] Three Months Ended March 31, 1998 1997 [S] [C] [C] OPERATING REVENUES: Regulated........................................... 84.6% 89.3% Nonregulated - Gas sales and services............................ 11.7 8.3 Pipeline construction and services................ 3.1 2.4 Other............................................. 0.6 - Total operating revenues........................ 100.0 100.0 OPERATING EXPENSES: Cost of gas......................................... 60.0 63.4 Operation and maintenance........................... 14.7 11.6 Depreciation........................................ 3.4 2.6 Income taxes........................................ 5.4 6.2 Taxes other than income taxes....................... 5.3 4.8 Total operating expenses.......................... 88.8 88.6 OPERATING INCOME...................................... 11.2 11.4 OTHER INCOME (DEDUCTIONS), NET........................ (0.0) 0.4 INTEREST CHARGES...................................... (3.6) (2.4) SUBSIDIARY'S PREFERRED STOCK DIVIDENDS................ (0.4) (0.4) NET INCOME ........................................... 7.2% 9.0% o Three Months Ended March 31, 1998, Compared With Three Months Ended March 31, 1997 Operating Revenues. Operating revenues decreased $12.6 million (14.1%) from $89.5 million for the quarter ended March 31, 1997, to $76.9 million for the quarter ended March 31, 1998, largely as a result of a $14.9 million (18.7%) decrease in regulated operating revenues, the impact of which was partially offset by a $1.7 million (22.4%) increase in gas sales and services by PG Energy Services Inc. ("Energy Services"), a nonregulated affiliate of the Company. The $14.9 million (18.7%) decrease in regulated operating revenues from $79.9 million for the quarter ended March 31, 1997, to $65.0 million for the quarter ended March 31, 1998, was primarily the result of a 1.7 billion cubic feet (16.2%) decrease in sales by PG Energy Inc. ("PG Energy") to its residential and commercial heating customers. This reduction in sales was attributable to the unseasonably warm weather during the quarter and lower levels in PG Energy's gas cost rate (see "-Rate Matters"). There was a 457 (15.3%) decrease in heating degree days from 2,990 (93.7% of normal) during the first quarter of 1997 to 2,533 (79.4% of normal) during the first quarter of 1998. -10- The $1.7 million increase in nonregulated gas sales and services from $7.4 million for the quarter ended March 31, 1997, to $9.0 million for the quarter ended March 31, 1998, was primarily the result of a 793,000 cubic feet (40.3%) increase in sales of natural gas by Energy Services during the quarter. Operating Expenses. Operating expenses, including depreciation and income taxes, decreased $11.0 million (13.8%) from $79.3 million for the first quarter of 1997 to $68.3 million for the first quarter of 1998. As a percentage of operating revenues, total operating expenses remained largely unchanged, increasing only slightly from 88.6% during the first quarter of 1997 to 88.8% during the first quarter of 1998. The cost of gas decreased $10.6 million (18.6%) from $56.7 million for the first quarter of 1997 to $46.2 million for the first quarter of 1998, primarily because of the aforementioned decrease in sales to PG Energy's residential and commercial heating customers and lower levels in PG Energy's gas cost rate (see "-Rate Matters"). The effects of these factors were partially offset by the increased sales by Energy Services. Other than the cost of gas and income taxes, operating expenses increased by $1.0 million (6.1%) from $17.0 million for the first quarter of 1997 to $18.0 million for the first quarter of 1998. This increase was largely attributable to a $1.0 million (9.7%) increase in operation and maintenance expense, primarily as a result of increased payroll and other costs associated with the expansion of the Company's nonregulated activities. Also contributing to the higher operating expenses was a $302,000 (13.1%) increase in depreciation expense, primarily as a result of additions to utility plant. Income taxes decreased $1.4 million (25.8%) from $5.6 million for the first quarter of 1997 to $4.2 million for the first quarter of 1998 due to a decrease in income before income taxes (for this purpose, operating income net of interest charges). Operating Income. As a result of the above, operating income decreased by $1.6 million (16.0%) from $10.2 million for the three-month period ended March 31, 1997, to $8.6 million for the three-month period ended March 31, 1998, and also decreased as a percentage of total operating revenues for such periods from 11.4% in the three-month period ended March 31, 1997, to 11.2% in the three- month period ended March 31, 1998. Other Income (Deductions), Net. Other income (deductions), net decreased $392,000 from income of $389,000 for the three-month period ended March 31, 1997, to deductions of $3,000 for the three-month period ended March 31, 1998, largely because the first quarter of 1997 included a gain on the condemnation of certain property of PG Energy for highway construction. Interest Charges. Interest charges increased $513,000 (23.2%) from $2.2 million for the first quarter of 1997 to $2.7 million for the first quarter of 1998. This increase was largely attributable to a higher level of long-term debt outstanding in 1998. Subsidiary's Preferred Stock Dividends. Dividends on preferred stock decreased $32,000 (9.1%) from $353,000 for the three-month period ended March 31, 1997, to $321,000 for the three-month period ended March 31, 1998, primarily as a result of the repurchase by PG Energy of 30,560 shares of its 4.10% cumulative preferred stock in 1997. -11- Net Income. The decrease in net income of $2.5 million (31.2%) from $8.1 million for the first quarter of 1997 to $5.5 million for the first quarter of 1998, as well as the $.27 per share decrease in both basic and diluted earnings per share of common stock, were the result of the matters discussed above, principally the decrease in operating revenues and the increase in interest charges, the effects of which were partially offset by decreased operating expenses. RATE MATTERS Rate Increase. By Order adopted December 19, 1996, the Pennsylvania Public Utility Commission (the "PPUC") approved an overall 5.3% increase in PG Energy's base gas rates, designed to produce $7.5 million of additional annual revenue, effective January 15, 1997. Under the terms of the Order, the billing for the impact of the rate increase relative to PG Energy's residential heating customers, which totaled $1.7 million through March 31, 1997, was deferred, without carrying charges, until July, 1997. Proposed Rate Increase. On March 16, 1998, PG Energy filed an application with the PPUC seeking an increase in its base gas rates, designed to produce $15.0 million in additional annual revenue, to be effective May 15, 1998. On April 23, 1998, the PPUC suspended this rate increase for seven months (until December 15, 1998) in order to investigate the reasonableness of the proposed rates. It is not presently possible to determine what action the PPUC will ultimately take in this matter. Gas Cost Adjustments. The provisions of the Pennsylvania Public Utility Code require that the tariffs of local gas distribution companies ("LDCs") be adjusted on an annual basis, and, in the case of larger LDCs such as PG Energy, on an interim basis when circumstances dictate, to reflect changes in their purchased gas costs. The procedure includes a process for the reconciliation of actual gas costs incurred and actual revenues received and also provides for the refund of any overcollections, plus interest thereon, or the recoupment of any undercollections of gas costs. In accordance with these procedures, PG Energy has been permitted to make the following changes since January 1, 1997, to the gas costs contained in its gas tariff rates: [CAPTION] Change in Calculated Effective Rate per MCF Increase (Decrease) Date From To in Annual Revenue [S] [C] [C] [C] March 1, 1998 $4.05 $3.95 $ (2,100,000) December 1, 1997 4.49 4.05 (12,100,000) March 1, 1997 4.18 4.49 8,300,000 The changes in gas rates on account of purchased gas costs have no effect on earnings since the change in revenue is offset by a corresponding change in the cost of gas. LIQUIDITY AND CAPITAL RESOURCES Liquidity The primary capital needs of the Company continue to be the funding of PG Energy's construction program and the seasonal funding of PG Energy's gas purchases and increases in its customer accounts receivable. PG Energy's -12- revenues are highly seasonal and weather-sensitive, with approximately 75% of its revenues normally being realized in the first and fourth quarters of the calendar year when the temperatures in its service area are the coldest. Additionally, as the Company's nonregulated activities expand, increased capital will be required for those activities, especially to convert the cogeneration facility Power Corp acquired in November, 1997, to burn both natural and methane gas and, in connection therewith, to construct a methane gas recovery facility at a nearby landfill. It is currently anticipated that the expenditures for the expansion of the Company's nonregulated activities will be funded by a combination of capital provided by the Company, bank borrowings and other debt financing. The cash flow from PG Energy's operations is generally sufficient to fund a portion of its construction expenditures. However, to the extent external financing is required, it is the practice of PG Energy to use bank borrowings to fund such expenditures, pending the periodic issuance of stock and long-term debt. Bank borrowings are also used by PG Energy for the seasonal funding of its gas purchases and increases in customer accounts receivable. In order to temporarily finance construction expenditures and to meet its seasonal borrowing requirements, PG Energy has made arrangements for a total of $78.5 million of unsecured revolving bank credit, which is deemed adequate for its immediate needs. Specifically, PG Energy currently has eight bank lines of credit with an aggregate borrowing capacity of $78.5 million which provide for borrowings at interest rates generally less than prime and which mature at various times during 1998 and 1999 and which PG Energy intends to renew or replace as they expire. As of May 1, 1998, PG Energy had $7.5 million of borrowings outstanding under these bank lines of credit. The Company believes that its regulated subsidiaries will be able to raise in a timely manner such funds as are required for their future construction expenditures, refinancings and other working capital requirements. Likewise, the Company believes that its nonregulated subsidiaries will be able to raise such funds as are required for their needs, including that required relative to Power Corp's cogeneration facility and related methane gas recovery facility. Long-Term Debt and Capital Stock Financings Both the Company and its subsidiaries, most notably PG Energy, periodically engage in long-term debt and capital stock financings in order to obtain funds required for construction expenditures, the refinancing of existing debt and various working capital purposes. No long-term debt or capital stock financings were consummated by either the Company or PG Energy during the three-month period ended March 31, 1998. The Company also obtains external funds from the sale of common stock through its Dividend Reinvestment and Stock Purchase Plan (the "DRP"), its Customer Stock Purchase Plan (the "Customer Plan"), its 1992 Stock Option Plan and its Employees' Savings Plan. During 1998 (through May 1) the Company realized $2.6 million, $855,000 and $268,000 from the issuance of common stock under the DRP, the Customer Plan and the Employees' Savings Plan, respectively. There have been no issuances of common stock under the 1992 Stock Option Plan during 1998. -13- Capital Expenditures and Related Financings Capital expenditures totaled $8.8 million during the first three months of 1998, including $4.4 million of expenditures for the construction of utility plant and $3.8 million for the conversion of Power Corp's cogeneration facility and construction of the related methane gas recovery facility. The Company estimates that its capital expenditures will total $38.8 million for the remainder of the year, consisting of $31.9 million relative to utility plant and $6.9 million with respect to the Company's nonregulated activities, including $4.3 million relative to Power Corp's cogeneration facility and related methane gas recovery facility. It is anticipated that such capital expenditures will be financed with internally generated funds and bank borrowings, and by the periodic issuance of stock and long-term debt. Current Maturities of Long-Term Debt and Preferred Stock As of March 31, 1998, $17.3 million of long-term debt, and $80,000 of PG Energy's preferred stock was required to be repaid within twelve months. Year 2000 The Company is currently replacing its financial and customer information systems with purchased software packages. The installation of these new systems will resolve the primary year 2000 issues. The new financial systems are anticipated to be operational by the end of 1998 and the new customer information system is now anticipated to be operational in 1999. The Company has completed a review of the program coding of other significant in-house developed applications and determined that they are presently year 2000 compliant. Additionally, the Company is reviewing its installed base of personal computers to identify non-compliant machines that would be in service at year 2000. The Company, as a contingency, is also presently evaluating the feasibility of modifying its existing customer information system to make it year 2000 compliant in the event its new customer system is not fully operational in 1999, as now scheduled. Forward-Looking Statements Certain statements made above relating to plans, conditions, objectives and economic performance go beyond historical information and may provide an indication of future results. To that extent, they are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, and each is subject to factors that could cause actual results to differ from those in the forward-looking statement, such as the nature of Pennsylvania legislation restructuring the natural gas industry and general economic conditions and uncertainties relating to the expansion of the Company's nonregulated activities. The Company undertakes no obligation to publicly release any revision to these forward-looking statements to reflect events or circumstances after the date of this filing. -14- PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27-1 Financial Data Schedule -- filed herewith. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter for which this report is filed. -15- PENNSYLVANIA ENTERPRISES, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. PENNSYLVANIA ENTERPRISES, INC. (Registrant) Date: May 5, 1998 By: /s/ Thomas J. Ward Thomas J. Ward Secretary Date: May 5, 1998 By: /s/ John F. Kell, Jr. John F. Kell, Jr. Vice President, Financial Services (Principal Financial Officer and Principal Accounting Officer) -16- EX-27 2
UT THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET, STATEMENTS OF INCOME AND CASH FLOW, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. 0000077231 PENNSYLVANIA ENTERPRISES INC. 3-MOS DEC-31-1997 MAR-31-1998 PER-BOOK 264,636,000 17,404,000 61,283,000 38,633,000 0 381,956,000 48,900,000 24,572,000 52,909,000 126,381,000 640,000 15,864,000 125,000,000 1,245,000 0 0 17,337,000 80,000 0 0 95,409,000 381,956,000 76,889,000 4,156,000 64,146,000 68,302,000 8,587,000 (3,000) 8,584,000 2,724,000 5,860,000 321,000 5,539,000 2,925,000 4,837,000 19,993,000 .57 .56
EX-27 3
UT THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEETS, STATEMENTS OF INCOME AND CASH FLOW, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. 0000077231 PENNSYLVANIA ENTERPRISES INC. 3-MOS DEC-31-1996 MAR-31-1997 PER-BOOK 246,218,000 9,901,000 67,453,000 36,791,000 0 360,363,000 48,157,000 20,770,000 54,516,000 123,443,000 739,000 18,804,000 85,392,000 0 0 0 29,679,000 80,000 0 0 102,226,000 360,363,000 89,491,000 5,599,000 73,665,000 79,264,000 10,227,000 389,000 10,616,000 2,211,000 8,405,000 353,000 8,052,000 2,793,000 4,837,000 19,233,000 .84 .83
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