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-
<PAGE>
PART I. FINANCIAL INFORMATION
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
(Thousands of Dollars)
<S> <C> <C>
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.
</TABLE>
-2-
<PAGE>
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(Thousands of Dollars)
ASSETS
<S> <C> <C>
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.
</TABLE>
-3-
<PAGE>
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(Thousands of Dollars)
<S> <C> <C>
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.
</TABLE>
-4-
<PAGE>
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
(Thousands of Dollars)
<S> <C> <C>
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.
</TABLE>
-5-
<PAGE>
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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
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.
</LEGEND>
<CIK> 0000077231
<NAME> PENNSYLVANIA ENTERPRISES INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 264,636,000
<OTHER-PROPERTY-AND-INVEST> 17,404,000
<TOTAL-CURRENT-ASSETS> 61,283,000
<TOTAL-DEFERRED-CHARGES> 38,633,000
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 381,956,000
<COMMON> 48,900,000
<CAPITAL-SURPLUS-PAID-IN> 24,572,000
<RETAINED-EARNINGS> 52,909,000
<TOTAL-COMMON-STOCKHOLDERS-EQ> 126,381,000
640,000
15,864,000
<LONG-TERM-DEBT-NET> 125,000,000
<SHORT-TERM-NOTES> 1,245,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 17,337,000
80,000
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 95,409,000
<TOT-CAPITALIZATION-AND-LIAB> 381,956,000
<GROSS-OPERATING-REVENUE> 76,889,000
<INCOME-TAX-EXPENSE> 4,156,000
<OTHER-OPERATING-EXPENSES> 64,146,000
<TOTAL-OPERATING-EXPENSES> 68,302,000
<OPERATING-INCOME-LOSS> 8,587,000
<OTHER-INCOME-NET> (3,000)
<INCOME-BEFORE-INTEREST-EXPEN> 8,584,000
<TOTAL-INTEREST-EXPENSE> 2,724,000
<NET-INCOME> 5,860,000
321,000
<EARNINGS-AVAILABLE-FOR-COMM> 5,539,000
<COMMON-STOCK-DIVIDENDS> 2,925,000
<TOTAL-INTEREST-ON-BONDS> 4,837,000
<CASH-FLOW-OPERATIONS> 19,993,000
<EPS-PRIMARY> .57
<EPS-DILUTED> .56
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
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.
</LEGEND>
<RESTATED>
<CIK> 0000077231
<NAME> PENNSYLVANIA ENTERPRISES INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 246,218,000
<OTHER-PROPERTY-AND-INVEST> 9,901,000
<TOTAL-CURRENT-ASSETS> 67,453,000
<TOTAL-DEFERRED-CHARGES> 36,791,000
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 360,363,000
<COMMON> 48,157,000
<CAPITAL-SURPLUS-PAID-IN> 20,770,000
<RETAINED-EARNINGS> 54,516,000
<TOTAL-COMMON-STOCKHOLDERS-EQ> 123,443,000
739,000
18,804,000
<LONG-TERM-DEBT-NET> 85,392,000
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 29,679,000
80,000
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 102,226,000
<TOT-CAPITALIZATION-AND-LIAB> 360,363,000
<GROSS-OPERATING-REVENUE> 89,491,000
<INCOME-TAX-EXPENSE> 5,599,000
<OTHER-OPERATING-EXPENSES> 73,665,000
<TOTAL-OPERATING-EXPENSES> 79,264,000
<OPERATING-INCOME-LOSS> 10,227,000
<OTHER-INCOME-NET> 389,000
<INCOME-BEFORE-INTEREST-EXPEN> 10,616,000
<TOTAL-INTEREST-EXPENSE> 2,211,000
<NET-INCOME> 8,405,000
353,000
<EARNINGS-AVAILABLE-FOR-COMM> 8,052,000
<COMMON-STOCK-DIVIDENDS> 2,793,000
<TOTAL-INTEREST-ON-BONDS> 4,837,000
<CASH-FLOW-OPERATIONS> 19,233,000
<EPS-PRIMARY> .84
<EPS-DILUTED> .83
</TABLE>
