UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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 0-1055
FLORIDA PUBLIC UTILITIES COMPANY
(Exact name of registrant as specified in its charter)
Florida 59-0539080
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
401 South Dixie Highway, West Palm Beach, FL 33401
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (561) 832-2461
(Former name, former address and former fiscal year, if changed since last
report)
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. At October 31, 1998 there were
2,999,915 shares of $1.50 par value common shares outstanding.
FLORIDA PUBLIC UTILITIES COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands)
September 30, December 31,
1998 1997
ASSETS
Utility Plant $116,706 $112,356
Less accumulated depreciation 42,121 39,632
Net utility plant 74,585 72,724
Current Assets
Cash and overnight investments 521 123
Accounts receivable 7,446 7,621
Inventories and prepayments 3,933 4,063
Total 11,900 11,807
Investments Held in Escrow for
Environmental Costs 3,095 3,024
Deferred Charges 1,227 1,067
Total $ 90,807 $ 88,622
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity $ 27,419 $ 26,189
Preferred stock 600 600
Long-term debt 23,500 23,500
Total 51,519 50,289
Current Liabilities
Notes payable 4,800 7,600
Accounts payable 5,778 5,596
Taxes accrued 1,608 146
Other 6,139 5,149
Customer deposits 3,849 3,782
Total 22,174 22,273
Deferred Credits 9,236 7,909
Deferred Income Taxes and
Regulatory Liability 7,878 8,151
Total $ 90,807 $ 88,622
FLORIDA PUBLIC UTILITIES COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Revenues
Natural gas $ 5,512 $ 6,151 $22,094 $24,431
Electric 11,824 11,328 30,611 29,779
Propane gas 719 727 3,149 3,092
Water 589 526 1,617 1,451
Total revenues 18,644 18,732 57,471 58,753
Cost of Fuel and Taxes
Based on Revenues 11,992 12,423 36,160 38,701
Operating Margin 6,652 6,309 21,311 20,052
Operating Expenses
Operations 4,191 4,020 12,298 11,895
Depreciation 1,079 1,010 3,183 3,007
Income taxes 226 179 1,304 1,016
Total operating expenses 5,496 5,209 16,785 15,918
Operating Income 1,156 1,100 4,526 4,134
Interest Charges and Other
Interest expense (700) (717) (2,120) (2,199)
Other income (expense) (8) 12 16 32
Gain from sale of non-utility
property 837 837
Income taxes on above gain (315) (315)
Net Income 448 917 2,422 2,489
Preferred Stock Dividends 7 7 21 21
Earnings For Common Stock $ 441 $ 910 $ 2,401 $ 2,468
Earnings Per Common Share $ .15 $ .31 $ .80 $ .83
Dividends Per Common Share $ .16 $ .15 $ .46 $ .45
Weighted Average Common Shares
Outstanding 2,996,913 2,972,710 2,990,612 2,964,282
FLORIDA PUBLIC UTILITIES COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
Nine Months Ended
September 30,
1998 1997
Cash Flows from Operating Activities
Net income $ 2,422 $ 2,489
Adjustments to reconcile net income to net
cash provided (used) by operating activities
Depreciation 3,183 3,007
Gain from sale of non-utility property (837)
Deferred income taxes (274) (678)
Other 71 196
Changes in operating assets and liabilities
Accounts receivable 161 563
Inventories and prepayments 145 170
Accounts payable and accrued expenses 2,668 392
Environmental insurance proceeds 122 259
Over recovery of fuel costs 1,118 2,060
Other (200) (81)
Net cash provided by operating activities 9,416 7,540
Cash Flows from Investing Activities
Construction expenditures (5,177) (5,416)
Proceeds from sale of non-utility property 886
Other 119 263
Net cash used by investing activities (5,058) (4,267)
Cash Flows from Financing Activities
Repayments of short-term borrowings - net (2,800) (2,500)
Dividends paid (1,394) (1,351)
Other 234 249
Net cash used by financing activities (3,960) (3,602)
Net Increase (Decrease) in Cash and Overnight
Investments 398 (329)
Cash and Overnight Investments at Beginning
of Period 123 841
Cash and Overnight Investments at End of
Period $ 521 $ 512
FLORIDA PUBLIC UTILITIES COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. In the opinion of the Company, the accompanying condensed consolidated
financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial information
contained therein. The results of operations are not necessarily
indicative of the results expected for the full year.
2. The First Mortgage Bond Indentures provide for restrictions on the payment
of cash dividends. At September 30, 1998, under the most restrictive
provision, approximately $5,900,000 of retained earnings were
unrestricted.
FLORIDA PUBLIC UTILITIES COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1998
Financial Condition. The Company has a $15,000,000 line of credit with its
primary bank of which $4,800,000 was outstanding at September 30, 1998. The
line provides for interest at LIBOR plus 50 basis points. The Company is
approved by the Florida Public Service Commission to borrow up to $15,000,000
on a line of credit basis, $14,000,000 of which is available for general
corporate purposes with the remaining $1,000,000 reserved as a contingency
for major storm repairs in the Marianna electric division.
Overview. The Company is organized into three regulated business segments,
natural gas, electric and water and one non-regulated operation, propane gas.
The water operation is not significant, approximating 3% of revenues.
Contributing to variations in operating margins are the effects of seasonal
weather conditions, the timing of rate increases and the migration of winter
residents and tourists to Florida during the winter season.
Summary of Operating Margins
(in thousands) Nine Months Ended September 30,
1998 1997 1996
Natural and Propane Gas
Operating margin $12,270 $11,480 $11,934
Less propane gas 1,987 1,728 1,979
Remainder $10,283 $ 9,752 $ 9,955
Electric
Operating margin $ 7,497 $ 7,189 $ 7,191
Less industrial 417 428 406
Remainder $ 7,080 $ 6,761 $ 6,785
Three Months Ended September 30,
1998 1997 1996
Natural and Propane Gas
Operating margin $ 3,316 $ 3,175 $ 3,119
Less propane gas 509 442 461
Remainder $ 2,807 $ 2,733 $ 2,658
Electric
Operating margin $ 2,776 $ 2,633 $ 2,600
Less industrial 135 147 142
Remainder $ 2,641 $ 2,486 $ 2,458
Operating Margin. Operating margin, defined as gross operating revenues less
cost of fuel and taxes passed-through to customers which are based on revenues,
provides a more meaningful basis for evaluating utility operations since fuel
costs and taxes passed-through to customers have no effect on results of
operations.
Nine Months Ended September 30, 1998 Compared With Nine Months Ended
September 30, 1997
Natural and Propane Gas Service. Total natural and propane gas service operating
margin increased $790,000, or 6.9% in 1998 as compared with 1997. Excluding
propane gas operating margin from total gas operating margin, remaining
operating margin increased $531,000, or 5.4%. The increase in natural gas
operating margin was due to a 2.2% increase in average customers for the first
nine months ended September 30, 1998 and an increase in per customer consumption
of about 2.1%, resulting primarily from an increase in heating degree days of
about 60% from the comparable period in 1997. Propane gas operating margin
increased $259,000 or about 15% as compared with 1997. Propane gas had a 2.6%
decrease in average customers for the nine month period ended September 30,
1998, some of whom were converted to natural gas. The net increase in propane
operating margin is primarily due to the increase in heating degree days in
1998 and a propane rate increase that became effective in April.
Total natural and propane gas service operating margin decreased $454,000 or
about 4% in 1997 as compared with 1996. Excluding propane gas operating margin
from total gas operating margin, remaining operating margin decreased $203,000
or about 2% in 1997 as compared with 1996. Propane gas operating margin
decreased $251,000, or about 13%. The decrease in natural and propane gas
operating margin is due principally to an approximate 60% decrease in heating
degree days early in 1997.
Electric Service. Total electric service operating margin increased $308,000,
or 4.3% versus 1997. There was an approximate 7% increase in average
consumption per customer, due primarily to warmer weather and a 2% growth in
average customers.
Total electric service operating margin decreased $2,000 in 1997 as compared
with 1996. Excluding industrial customers, operating margin decreased $24,000.
The effect on consumption of the warmer weather early in 1997 more than offset
customer growth of 2.4%.
Operating Expenses. In 1998, operations expenses (administrative and general
expenses and other operating expenses), excluding cost of fuel and taxes passed-
through to customers, increased $403,000, or 1.9% in relation to operating
margin. Operations expenses have increased marginally in all categories of
expense due primarily to inflationary pressures.
In 1997, operations expenses, excluding cost of fuel and taxes passed-through to
customers, increased $73,000. Such expenses increased due to inflationary
pressures and were mitigated by an increase in the amortization of net periodic
pension cost (actually a credit as the pension plan is over-funded).
Depreciation increased, due to expansion and remodeling of our corporate
headquarters and growth of our utility plant and taxes other than income taxes
increased due to an increase in property taxes.
Income taxes were provided for at approximately the same rate in both nine-month
periods and are reduced by amortization of investment tax credits.
Interest expense decreased in 1998 versus 1997 due primarily to an approximate
16% reduction in the weighted average amounts outstanding under the line of
credit as compared with 1997.
Cash Flows. Net cash provided by operating activities increased $1,876,000 when
compared with 1997. Accounts payable and accrued expenses is the most
significant change in operating assets and liabilities, increasing $2,276,000.
Accounts payable and accrued expenses at September 30, 1998 is at traditional
levels, the apparent increase results from a decrease of $1,945,000 from
December 1996 to September 1997.
Three Months Ended September 30, 1998 Compared with Three Months Ended
September 30, 1997
Natural and Propane Gas Service. Total natural and propane gas service operating
margin increased $141,000, or 4.4% in 1998 as compared with 1997. Natural gas
operating margin increased $74,000, or 2.7% as compared with the third quarter
of 1997. The increase in propane gas operating margin of 15% is due principally
to a rate increase that became effective in April.
Total natural and propane gas service operating margin increased $56,000 or
1.8% in 1997 as compared with 1996. Excluding propane gas operating margin
from total gas operating margin, remaining operating margin decreased $75,000
or about 2.8% in 1997 as compared with 1996. The increase in natural gas
operating margin is due principally to an approximate 2% increase in customers
and a like increase in average consumption per customer. Propane gas operating
margin decreased $19,000, or about 4%, due primarily to a 1% decrease in
customers (some of which were converted to natural gas) and an 6% decrease
in average consumption per customer.
Electric Service. Total electric service operating margin increased $143,000 or
5.4% versus the third quarter of 1997. There was a 5% increase in average
consumption per customer due primarily to warmer weather in 1998. Resulting
from such increase in consumption was an increase of more than 4% in average
operating margin per customer, excluding industrial customers.
Total electric service operating margin increased $33,000 in 1997 as compared
with 1996. Excluding the two industrial customers, operating margin increased
$28,000.
Operating Expenses. In 1998, operations expenses, excluding cost of fuel and
taxes passed-through to customers, increased $171,000, or 2.6% in relation to
operating margin. Operations expenses have increased marginally in all
classifications of expense, due primarily to inflationary pressures.
In 1997, operations expenses, excluding cost of fuel and taxes passed-through
to customers, decreased $18,000. Refer to the above comments for the 1997
nine-month period for comments regarding such expenses, depreciation and taxes
other than incomes taxes.
Income taxes were provided for at approximately the same rate in both three
month periods and are reduced by amortization of deferred investment tax
credits.
Interest expense decreased in 1998 versus 1997 due primarily to an approximate
14% reduction in the weighted average amounts outstanding under the line of
credit as compared with 1997.
Other Matters - The Year 2000
The Company is currently involved in an ongoing project to identify its state
of readiness regarding the Year 2000 issues and their effect on the Company's
information systems. The Company is utilizing both internal and external
resources to evaluate and remediate required modifications. The Company
software profile consists of approximately one-half purchased software
systems and one-half internally developed systems. The purchased software
consists of various financial applications and the meter reading system.
The Company plans to complete the Year 2000 project, including testing of
all systems, by June 1999. Such plans are based on management's best estimates
and the ability to locate and correct all relevant computer codes on a timely
basis. However, there is no guarantee that everything will proceed as planned
and actual results could differ from these plans.
The Company is utilizing its in-house programming staff to modify internally
developed systems in preparation for the Year 2000. The modification costs,
consisting of salary and related costs, are not significant and are being
expensed as incurred. The purchased financial software systems were Year 2000
compliant when they were placed in service and do not require any modifications.
The Company's meter reading system will be replaced with a Year 2000 compliant
system in the first quarter of 1999 at an estimated expenditure of $80,000.
The Company is communicating with its significant suppliers to determine their
Year 2000 status and is attempting to identify potential areas of concern.
However, there can be no guarantee that the systems of other companies on which
the Company's systems rely will be converted timely, or that a failure to
convert by a supplier or other third party, or a conversion that is incompatible
with the Company's systems, would not have a material adverse effect on the
Company.
The Company presently believes that with modifications to existing internal
software systems and conversion to a new meter reading software, any Year 2000
issues will be neutralized with no significant adverse effect on customers or
disruption to business operations. If such modifications are not completed,
the Year 2000 issue could have a material adverse effect on the Company. The
Company has not adopted a contingency plan to address possible risks to its
systems and the need for such a plan would not be evaluated prior to June
1999.
Forward Looking Information
This report contains forward looking information that is intended to qualify
for the safe harbor provided by the Private Securities Litigation Reform Act
of 1995. Although the Company believes that its expectations are based on
reasonable assumptions, actual results could differ materially from those
currently anticipated. Factors that could cause actual results to differ
from those anticipated include, but are not limited to, uncertainties relative
to the impact of Year 2000, the effects of regulatory actions, competition,
future economic conditions and weather.
PART II.
OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K.
(a) None.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the quarter ending
September 30, 1998
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.
FLORIDA PUBLIC UTILITIES COMPANY
(Registrant)
By /s/ Jack R. Brown
Jack R. Brown
Treasurer
(DULY AUTHORIZED OFFICER
AND
CHIEF FINANCIAL OFFICER)
Date: November 10, 1998
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