UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 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 DECEMBER 31, 1996
----------------------------
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 1-1483
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WASHINGTON GAS LIGHT COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DISTRICT OF COLUMBIA AND VIRGINIA 53-0162882
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1100 H STREET, N. W., WASHINGTON, D. C. 20080
- --------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(703) 750-4440
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
NONE
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(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
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INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
COMMON STOCK $1.00 PAR VALUE 43,708,751 JANUARY 31, 1997
- ---------------------------- ------------------ ----------------
CLASS NUMBER OF SHARES DATE
WASHINGTON GAS LIGHT COMPANY
INDEX
Page No.
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PART I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheet -
December 31, 1996 and September 30, 1996...... 2
Consolidated Statement of Income -
Three Months Ended December 31, 1996 and
1995.......................................... 3
Consolidated Statement of Cash Flows -
Three Months Ended December 31, 1996 and
1995.......................................... 4
Notes to Consolidated Financial Statements....... 5
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations...................... 6-11
PART II. Other Information:
Item 5. Other Information.......................... 12
Item 6. Exhibits and Reports on Form 8-K........... 13
Signature........................................... 13
1
WASHINGTON GAS LIGHT COMPANY
CONSOLIDATED BALANCE SHEET
Dec.31, Sept.30,
1996 1996
---------- ----------
(Unaudited)
(Thousands)
ASSETS
Property, Plant and Equipment
At original cost......................... $1,749,013 $1,721,956
Accumulated depreciation and amortization (601,638) (591,382)
---------- ----------
1,147,375 1,130,574
---------- ----------
Current Assets
Cash and cash equivalents................ 9,480 4,589
Accounts receivable, less reserve........ 247,655 84,967
Inventories and storage gas purchased.... 90,674 98,254
Deferred income taxes.................... 18,567 17,888
Other prepayments, principally taxes..... 12,657 10,047
---------- ----------
379,033 215,745
---------- ----------
Deferred Charges and Other Assets.......... 114,099 118,282
---------- ----------
Total.................................... $1,640,507 $1,464,601
========== ==========
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity.............. $ 583,522 $ 558,809
Preferred stock.......................... 28,435 28,440
Long-term debt........................... 401,203 353,893
---------- ----------
1,013,160 941,142
---------- ----------
Current Liabilities
Current maturities of long-term debt..... 13,706 8,006
Notes payable............................ 117,881 115,278
Accounts and wages payable............... 175,475 104,832
Customer deposits and advance payments... 8,252 12,997
Accrued taxes and interest............... 43,011 10,504
Other current liabilities................ 18,722 22,537
---------- ----------
377,047 274,154
---------- ----------
Deferred Credits........................... 250,300 249,305
---------- ----------
Total.................................... $1,640,507 $1,464,601
========== ==========
See accompanying Notes to Consolidated Financial Statements.
2
WASHINGTON GAS LIGHT COMPANY
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended
Dec.31, Dec.31,
1996 1995
---------- -------
(Thousands, Except Per Share Data)
Operating Revenues..................... $ 344,958 $ 274,326
Cost of Gas............................ 191,275 122,904
---------- ---------
Net Revenues........................... 153,683 151,422
---------- ---------
Other Operating Expenses
Operation............................ 45,746 44,946
Maintenance.......................... 8,866 7,817
Depreciation and amortization........ 12,579 11,873
General taxes........................ 18,946 16,473
Income taxes......................... 21,490 23,292
---------- ---------
107,627 104,401
---------- ---------
Operating Income....................... 46,056 47,021
Other Income (Loss) - Net.............. 551 (851)
---------- ---------
Income Before Interest Expense......... 46,607 46,170
Interest Expense....................... 9,183 7,830
---------- ---------
Net Income............................. 37,424 38,340
Dividends on Preferred Stock........... 333 333
---------- ---------
Net Income Applicable to Common Stock.. $ 37,091 $ 38,007
========== =========
Average Common Shares Outstanding...... 43,711 43,051
Earnings per Average Share of
Common Stock
(See Exhibit 11 for computation of
fully diluted earnings per
average share)...................... $ 0.85 $ 0.88
========== =========
Dividends Declared per Common Share.... $ 0.285 $ 0.28
========== =========
See accompanying Notes to Consolidated Financial Statements.
3
WASHINGTON GAS LIGHT COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
Dec.31, Dec.31,
1996 1995
---------- ----------
(Thousands)
Operating Activities
Net Income ......................................... $ 37,424 $ 38,340
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization(a) ................. 14,275 13,398
Deferred income taxes-net ........................ (618) 2,819
Amortization of investment tax credits ........... (242) (247)
Allowance for funds
used during construction ....................... (80) (190)
Other noncash charges and credits-net ............ 1,111 2,319
---------- ----------
51,870 56,439
Changes in assets and liabilities:
Accounts receivable and accrued
utility revenues ............................... (166,141) (117,806)
Gas costs due from/to customers - net ............ 3,359 (5,831)
Storage gas purchased ............................ 7,878 14,119
Other prepayments, principally taxes ............. (2,610) (2,797)
Accounts and wages payable ....................... 69,738 23,916
Customer deposits and advance payments ........... (4,745) (357)
Accrued taxes .................................... 25,015 22,519
Accrued interest ................................. 7,492 6,508
Pipeline refunds due customers ................... (3,718) 5,580
Rate refund due customers ........................ -- (9,306)
Deferred purchased gas costs ..................... 4,850 (2,236)
Other-net ........................................ (1,385) 241
--------- ---------
Net Cash Used in Operating Activities .......... (8,397) (9,011)
--------- ---------
Financing Activities
Common stock issued ................................ 313 3,074
Long-term debt issued .............................. 53,000 --
Long-term debt retired ............................. (6) (2,505)
Notes payable - net ................................ 2,603 37,423
Dividends on common and preferred stock ............ (12,737) (12,357)
--------- ---------
Net Cash Provided by Financing Activities ...... 43,173 25,635
--------- ---------
Investing Activities
Capital Expenditures ............................... (29,885) (21,728)
--------- ---------
Net Cash Used in Investing Activities .......... (29,885) (21,728)
--------- ---------
Increase (Decrease) in Cash
and Cash Equivalents ............................. 4,891 (5,104)
Cash and Cash Equivalents
at Beginning of Period .......................... 4,589 13,911
--------- ---------
Cash and Cash Equivalents at
End of Period .................................... $ 9,480 $ 8,807
========= =========
Supplemental Disclosures of
Cash Flow Information
Income taxes paid ................................ $ 5 $ 833
Interest paid .................................... $ 1,532 $ 1,204
a/ Includes amounts charged to other accounts.
See accompanying Notes to Consolidated Financial Statements.
4
WASHINGTON GAS LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. In the opinion of the Company, the accompanying consolidated financial
statements reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly the results for such periods.
Refer to the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996.
B. Due to the seasonal nature of the Company's business, the results of
operations shown do not indicate the expected results for the fiscal year
ended September 30, 1997.
C. 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. Actual results could differ from those
estimates.
D. In October 1996, the Company issued a total of $53 million in Medium Term
Notes (MTNs) with maturity dates in fiscal year 2027. Of this total, $25
million in such notes were issued with a coupon rate of 6.82%. Holders of
these MTNs have a one-time option to have the Company redeem the notes at
their face value on October 9, 2006. The remaining $28 million was issued
with coupon rates of 6.62% and 6.63%. Holders of these MTNs have a one-time
option to have the Company redeem the notes at their face value on October
23, 2003.
5
WASHINGTON GAS LIGHT COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statements contained in this report that are not based on historical facts
are forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995. Actual results could differ from the expectations discussed
herein.
Factors that could cause actual results to differ from management's beliefs
described in this report include, among other matters: (1) the effect of
fluctuations in weather from normal levels; (2) regulatory and legislative
changes; (3) variations in prices of natural gas and competing energy sources;
(4) improvements in products or services offered by competitors; and (5)
changing economic conditions.
RESULTS OF OPERATIONS
Earnings
For the three months ended December 31, 1996, net income applicable to
common stock amounted to $37.1 million, or $.9 million lower than the same
period in the prior year. Earnings per average common share were $.85, or $.03
per average common share lower than the quarter ended December 31, 1995. Average
common shares outstanding increased by 1.5% over the prior year. Effective
November 1, 1996 shares issued under the Dividend Reinvestment and Common Stock
Purchase Plan and Employee Savings Plans are being purchased on the open market
instead of being issued as new shares. The decrease in net income applicable to
common stock reflected higher net revenues, higher other operating expenses,
higher other income (loss) - net and higher interest expense.
Net Revenues
The variability of weather affects the level of gas delivered to customers,
since such a large portion of the Company's deliveries of natural gas is used
for heating. The Company establishes its rates on the basis of normal weather.
Weather for the quarters ended December 31, 1996 and December 31, 1995 was 7.3%
and 23.8% colder than normal, respectively. The Company has no weather
normalization tariff provision in any of its jurisdictions. However, the Company
has declining block rates in two of its three major jurisdictions that reduce
the impact of deviations in weather from normal.
Net revenues for the period increased by $2.3 million (1.5%) from the same
period last year to $153.7 million. The table on the following page compares
certain operating statistics for the quarters ended December 31, 1996 and 1995.
6
WASHINGTON GAS LIGHT COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Three Months Ended
Dec. 31, Dec. 31,
1996 1995
------- -------
Gas Sales and Deliveries
(thousands of therms)
Gas Sold and Delivered
Firm................................ 369,145 380,970
Interruptible....................... 54,397 58,505
Electric generation................. 51 122
------- -------
423,593 439,597
------- -------
Gas Delivered for Others
Firm................................ 3,322 63
Interruptible....................... 43,928 21,843
Electric generation................. 10,637 6,452
------- -------
57,887 28,358
------- -------
Total Deliveries.................. 481,480 467,955
======= =======
Gas Sold Off System
(thousands of therms)................... 29,138 -
Degree Days............................. 1,476 1,696
Customer Meters (end of period)......... 789,897 768,252
Gas Delivered to Firm Customers
Therm deliveries to firm customers decreased by 8.6 million therms (2.2%)
due to weather that was 13.0% warmer than the same quarter last year, a factor
that caused the variation in net revenues. However, a 2.8% increase in the
number of customer meters and an increase in gross receipts taxes due from
customers that are included in operating revenues offset the effect of the
warmer weather on net revenues. Various taxing authorities levy these taxes on
revenues which, therefore, increase with rises in revenues. The Company recovers
the taxes from customers and remits them to the various taxing authorities. The
Company records amounts of increased gross receipts taxes in general tax
expenses and, therefore, the increase in net revenues associated with gross
receipts taxes does not affect net income. Revenues for the current quarter
increased due to a sharp rise in the cost of gas over the same period last year.
The Company does not earn a profit on the sale of the natural gas commodity.
Rather, it passes these costs on to its customers through its rates. Operating
revenues and cost of gas both reflect the increased cost of gas experienced in
the quarter, and therefore the increase had no impact on net revenues.
7
WASHINGTON GAS LIGHT COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Gas Delivered to Interruptible Customers
Therms delivered to interruptible customers in the current quarter
increased by 18.0 million therms (22.4%) resulting in a slight increase in net
revenues. The increase in volumes delivered resulted primarily from significant
interruptions in service to these customers in the same quarter last year due to
the sharply colder weather. Margin sharing arrangements in each of the Company's
major jurisdictions minimized the effect on net income of increases in sales and
deliveries to the interruptible class. Under these arrangements, the Company
returns a majority of the margins earned on sales and deliveries to the
interruptible class to firm customers after it reaches a certain gross margin
threshold or in exchange for the shift of a portion of the fixed costs from the
interruptible to the firm class.
Gas Delivered for Electric Generation
The Company sells and/or transports gas to two customers with facilities in
Maryland where the customers use the supplies to generate electricity. Volumes
delivered for electric generation in the current quarter increased by 4.1
million therms due primarily to the addition of the second customer in August
1996. The Company shares a significant majority of the margins earned on
deliveries to these customers with firm customers and, therefore, the change in
volumes delivered between periods had an immaterial effect on net income.
Gas Sold Off System
During the quarter ended December 31, 1996, the Company sold 29.1 million
therms to customers outside the Company's service territory, the effect of which
on net income was not material.
Other Operating Expenses
Operation and maintenance expenses rose by $1.8 million (3.5%) over the
same period last year. The increase primarily reflects higher expenses relating
to uncollectible accounts resulting from higher revenues and miscellaneous
operating provisions recorded in the current year.
Depreciation and amortization increased by $706,000 (5.9%) due primarily to
additional depreciation on the Company's rising investment in plant and
equipment.
8
WASHINGTON GAS LIGHT COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
General taxes increased by $2.5 million (15.0%) due primarily to higher
gross receipts taxes on higher revenues. The Company reflects gross receipts
taxes billed to customers in operating revenues and gross receipts taxes due to
the taxing authorities in general taxes. Therefore, fluctuations in these
amounts have no effect on net income.
Income taxes, including amounts reflected in other income decreased by $1.3
million, due primarily to lower pre-tax income and a slight drop in the
effective income tax rate in the most recent quarter. The effective tax rate for
the current quarter was 36.8% and was 37.6% in the prior year's quarter. The
decline in the effective tax rate included the effect of valuation reserves
recorded in other income (loss) - net in the quarter ended December 31, 1995 for
which the Company did not provide a tax benefit.
Other Income (Loss) - Net
Other income (loss) - net increased by $1.4 million due to valuation
reserves for certain non-utility activities recorded in the quarter last year.
Interest Expense
Interest expense increased by $1.4 million (17.3%) over the same period
last year, almost exclusively due to an $86.2 million rise in the average amount
of short-term debt outstanding reflecting the effect of increased gas costs and
an increased emphasis on using short-term debt to finance current assets. A
decline of .38 percentage points in the weighted average cost of short-term debt
slightly offset this increase. Interest on long-term debt was approximately the
same as the quarter ended December 31, 1995. A decline in the weighted average
cost of such debt of .55 percentage points almost completely offset an increase
of $35.7 million in the average amount of long-term debt outstanding.
LIQUIDITY AND CAPITAL RESOURCES
Short-Term Cash Requirements and Related Financing
The Company's business is highly weather sensitive and seasonal.
Approximately 75% of the Company's therms delivered (excluding deliveries for
electric generation) occur in the first and second fiscal quarters. This weather
sensitivity causes short-term cash requirements to vary significantly during the
year. Cash requirements peak in the fall and winter months when accounts
receivable, accrued utility revenues and storage gas are at or near their
highest levels. After the winter heating season, the Company liquidates
short-term debt and acquires storage gas for the subsequent heating season when
these assets are converted into cash.
9
WASHINGTON GAS LIGHT COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The Company uses short-term debt in the form of commercial paper and
short-term bank loans to fund seasonal cash requirements. Alternative seasonal
sources include unsecured lines of credit, some of which are seasonal, and $130
million in a revolving credit agreement maintained with a group of banks. The
Company activates these financing options to support or replace the Company's
commercial paper. Excluding current maturities, short-term debt outstanding was
$117.9 million as of December 31, 1996, and $115.3 million was outstanding at
September 30, 1996.
Long-Term Cash Requirements and Related Financing
Capital expenditures for the first three months of fiscal year 1997 were
$29.9 million with a budget of $153.2 million for the year. To fund construction
expenditures and other capital requirements, the Company draws upon both
internal and external sources of cash. The Company's ability to generate
adequate cash internally depends upon a number of factors, including the timing
and amount of rate increases received and the level of therm sales. The number
of customers meters and the variability of the weather almost exclusively affect
the level of therm sales.
Net cash used in operating activities was $8.4 million during the first
three months of fiscal year 1997 and compares to $9.0 million for the same
period in fiscal year 1996. The slight improvement came from: (1) increased
sources of cash reflected in accounts and wages payable due to higher gas prices
and the amounts associated with the redesign of the Company's organization that
have not been paid; 2) refunds made to customers of amounts overcollected in
interim rates made in the prior year; and (3) increased collections from
customers of gas costs. The combined effect of: (1) higher funds used to support
accounts receivable resulting from increased gas costs; (2) reduced use of
storage gas inventories in the current period; and (3) lower refunds received
from pipelines, more than offset these sources.
The $53 million of long-term debt issued during the current quarter
represents issuances of Medium-Term Notes (MTNs) in October 1996. The terms of
these MTNs are discussed in Note D to the Consolidated Financial Statements.
10
WASHINGTON GAS LIGHT COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
On December 30, 1996, the Company filed a shelf registration statement with
the Securities and Exchange Commission (SEC) for the issuance and sale of up to
a total of $250 million in unsecured notes. It was declared by the SEC to be
effective on January 9, 1997. To the extent the notes are sold, the Company
expects to use the net proceeds for three primary purposes: (1) the refunding of
maturing long-term debt and satisfaction of sinking fund requirements; (2) the
refunding of higher-coupon long-term debt as market conditions permit; and (3)
for general corporate purposes, including capital expenditures and additional
working capital requirements.
The discontinuation of new shares being issued through the Dividend
Reinvestment and Common Stock Purchase Plan and Employee Savings Plans caused
the $2.8 million decrease in cash provided by common stock issued. Effective
November 1, 1996, the plans purchase shares in the open market.
During the three months ended December 31, 1996, the Company sold with
recourse, $8.6 million of non-utility accounts receivable. This compares to $9.1
million sold in the three months ended December 31, 1995.
11
PART II. OTHER INFORMATION
Item 5.
Other Information
A. On December 18, 1996 Fitch Investors Service (Fitch) changed ratings on $18
billion of preferred stock issued by 37 companies (including the Company),
putting ratings on a scale with bonds. Due to the new rating criteria,
Fitch rates all preferred stock one notch below senior debt rated AAA
through A. As a result, the Company's outstanding preferred stock was
lowered to A+ from AA-. The Company has been advised by Fitch that its
rating change was entirely the result of Fitch's new policy and not the
result of a weakened credit profile.
B. On December 16, 1996, the State Corporation of Virginia approved a filing
made by the Company to revise its interruptible delivery service tariff to
expand the eligible base of interruptible customers who could purchase gas
from third-party suppliers. Effective January 1, 1997, the revised tariffs
reduced the minimum annual requirement for delivery service from 250,000 to
60,000 therms.
C. On December 30, 1996, the Company filed a shelf registration statement with
the Securities and Exchange Commission (SEC) for the issuance and sale of
up to a total of $250 million in unsecured notes. It was declared by the
SEC to be effective on January 9, 1997. To the extent the notes are sold,
the Company expects to use the net proceeds from the sale of these
securities for three primary purposes: (1) the refunding of maturing
long-term debt and satisfaction of sinking fund requirements; (2) the
refunding of higher-coupon long-term debt as market conditions permit; and
(3) for general corporate purposes, including capital expenditures and
additional working capital requirements.
D. Many in the energy industry, including the Company, believe that the
increasingly deregulated and more competitive energy industry will continue
to lead to industry consolidation, combination, disaggregation and other
strategic alliances and restructuring as energy companies seek to offer a
broader range of energy services to compete more effectively in attracting
and retaining customers. For example, affiliations with other operating
utilities could potentially result in economies and synergies, and
combinations could provide a means to offer customers a more complete range
of energy services. Others are discontinuing operations in certain portions
of the energy industry or divesting portions of their business and
facilities. The Company, from time to time, performs studies, and in some
cases holds discussions regarding utility and energy-related investments
and transactions. The ultimate impact on the Company of any such
investments and transactions that may occur can not be determined at this
time.
12
PART II. OTHER INFORMATION (continued)
Item 6.
Exhibits and Reports on Form 8-K
(a) Exhibits Filed Herewith:
Description Page in 10-Q
--------------------------------------- -------------
11 Computation of Earnings per Average See separate
Share of Common Stock Assuming Full Volume
Dilution from Conversions of the $4.60
and $4.36 Convertible Preferred Series
27 Financial Data Schedule "
99.0 Computation of Ratio of Earnings to "
Fixed Charges
99.1 Computation of Ratio of Earnings to "
Fixed Charges and Preferred Stock
Dividends
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months ended
December 31,1996.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WASHINGTON GAS LIGHT COMPANY
(Registrant)
Date February 13, 1997 /s/ Robert E. Tuoriniemi
------------------------ ------------------------
Controller
(Principal Accounting Officer)