Energy West, Incorporated Announces Delay in Filing Form 10-K,
Anticipated Restatement of Financial Results for Fiscal Years 2002 and 2003,
And First Three Quarters of Fiscal Year 2004
Great Falls, Mont., September 29, 2004 / PRNewswire - First
Call/--ENERGY WEST, INCORPORATED (NASDAQ: EWST - News), a natural gas, propane
and energy marketing company serving the Rocky Mountain states, announced today
that it will delay filing its annual report on Form 10-K for the fiscal year
ended June 30, 2004 in order to allow for the completion of a review of the
accounting treatment of a handful of long-term contracts for purchase or sale of
natural gas by its subsidiary, Energy West Resources, Inc. The review was
initiated in connection with the finalization of the audit of the Company's
financial statements for the fiscal year ended June 30, 2004. The Company also
stated that it anticipates that it is likely that the review will result in a
restatement of certain components of the Company's financial statements for the
fiscal years ended June 30, 2002 and June 30, 2003, and the first three quarters
of the fiscal year ended June 30, 2004.
None of the adjustments the Company anticipates making will affect the
Company's cash flows or cash positions during those years, or the first three
quarters of fiscal year 2004. In addition, the Company anticipates that the
expected cumulative downward adjustments in net income for previous periods will
be offset by increases in net income in future periods through fiscal year 2009
as the value of the Company's portfolio of contracts adjusts through settlement
or performance and changes in natural gas prices.
The Company stated that, although its review has not been completed, it
anticipates that earnings for fiscal years 2002 and 2003 will be adjusted,
corresponding to adjustments in amounts reflected in its balance sheets as of
June 30, 2002 and June 30, 2003 for derivative assets and derivative
liabilities. The expected restatements will reflect the effect of the Company's
determination that several contracts entered into during fiscal year 2002 for
the purchase or sale of natural gas at fixed future prices were erroneously
classified as normal purchase and sale contracts. The Company now believes that
these contracts did not qualify as normal purchase and sale contracts under
applicable accounting rules, and therefore must be reflected in the Company's
financial statements at fair value, determined as of the end of each period. The
valuation of such contracts required to be reflected at fair value is referred
to as "mark-to-market" valuation.
The addition of the contracts previously classified in error as normal
purchase and sale contracts to the group of contracts required to be reflected
at fair value is expected to result in adjustments to the mark-to-market gain
(loss) in the Company's contract portfolio, for fiscal years 2002 and 2003, and
the first three quarters of fiscal year 2004. The restatements are expected to
reduce net income for fiscal year 2002 in a range from $300,000 to $500,000. For
fiscal year 2003, the restatement is expected to change net loss in a range from
a reduction in net loss of $50,000 to an increase in net loss of $200,000. In
addition, the restatements are expected to reduce net income in ranges from
$100,000 to $200,000 for the quarter ended September 30, 2003, from $200,000 to
$300,000 for the quarter ended December 31, 2003, and from $50,000 to $100,000
for the quarter ended March 31, 2004.
The Company's cumulative gain (loss) in the portfolio of contracts
valued on a mark-to-market basis will be reversed in later periods as contracts
settle or are performed and/or as natural gas prices change. The expected
effects of such reversal in later periods will be to increase the Company's
income in future periods through fiscal year 2009, so that the cumulative
decrease in net income expected to result from the restatements of prior periods
will be offset in those future periods.
The gas purchase and sale contracts that are expected to be
reclassified were entered into at the time of or shortly after the Company's
termination of derivative contracts with Enron Canada Corporation ("ECC") during
the third quarter of fiscal year 2002. The Company believes that its
classification of some of the gas purchase and sale contracts erroneously
resulted in overstating the income realized from application of mark-to-market
accounting principles to the contract portfolio. Accordingly, the Company
expects that the results of the restatements may reflect that the net effect of
the termination of the ECC derivatives will include a material downward
adjustment of net income in fiscal year 2002. The Company is continuing to
review the effects of these transactions on its financial statements.
The estimated effects of the restatements are preliminary and subject
to audit. The final amount of the adjustments will be based upon the completion
of the review by the Company and its independent auditors.
The Audit Committee of the Company's Board of Directors concluded
today, based on the information available at this time, that the previously
issued financial statements for fiscal years 2002 and 2003, and the first three
quarters of fiscal year 2004, should not be relied upon because of errors in
those financial statements and that the Company likely would restate those
financial statements to make the necessary accounting adjustments.
David Cerotzke, the Company's President and CEO, stated "although we
are disappointed that our original treatment of these contracts was not fully in
accordance with the accounting rules, we believe our actions now will completely
resolve the earlier errors in classification of these contracts. This is a
significant step in putting behind us the problems associated with our marketing
activities, and allowing us to focus on our core utility operations. I would
like to emphasize that, in evaluating the cumulative impact of these changes, it
is very important to keep in mind that these adjustments have no effect on past
or future cash flow, and that the downward effect of the adjustments on our net
income in previous periods will be reversed by corresponding increases in net
income in future periods."
The Company made a filing today with the Securities and Exchange
Commission to extend the date for filing its Form 10-K for the fiscal year ended
June 30, 2004 by up to 15 calendar days from September 28, 2004, the original
deadline. The Company expects to file its Form 10-K with the Securities and
Exchange Commission on or before October 13, 2004.
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Safe Harbor Forward Looking Statement: Energy West is including the following
cautionary statement in the release to make applicable and to take advantage of
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995 for any forward-looking statements made by, or on behalf of Energy West.
Forward-looking statements are all statements other than
statements of historical fact, including without limitation those that are
identified by the use of the words "anticipates," "estimates," "expects,"
"intends," "plans," "predicts," and similar expressions. Such statements are
inherently subject to a variety of risks and uncertainties that could cause
actual results to differ materially from those expressed. Such risks and
uncertainties include, among others, risks associated with contracts accounted
for as derivatives, changes in the utility regulatory environment, wholesale and
retail competition, weather conditions, litigation risk and various other
matters, many of which are beyond Energy West's control. Energy West expressly
undertakes no obligation to update or revise any forward-looking statement
contained herein to reflect any change in Energy West's expectations with regard
thereto or any change in events, conditions, or circumstances on which any such
statement is based.
For additional information or clarification, please contact: John Allen
Our toll-free number is 1-800-570-5688. Our web address is www.energywest.com.
Our address is P.O. Box 2229, Great Falls, MT 59403-2229.
