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 June 30, 1997
------------------------------------
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
----------------------------------------
WASHINGTON GAS LIGHT COMPANY
(Exact name of registrant as specified in its charter)
District of Columbia and Virginia 53-0162882
--------------------------------- -------------------
(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
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code
NONE
- --------------------------------------------------------------------------------
(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
--- ---
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 43,699,547 July 31, 1997
- ---------------------------- ------------------ -----------------
Class Number of Shares Date
WASHINGTON GAS LIGHT COMPANY
INDEX
Page
No.
------
PART I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheet -
June 30, 1997 and September 30, 1996 2
Consolidated Statement of Income -
Three Months Ended June 30, 1997 and 1996 3
Consolidated Statement of Income -
Nine Months Ended June 30, 1997 and 1996 4
Consolidated Statement of Cash Flows -
Nine Months Ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-15
PART II. Other Information:
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
Signature 17
1
WASHINGTON GAS LIGHT COMPANY
CONSOLIDATED BALANCE SHEET
June 30, Sept. 30,
1997 1996
---------- ----------
(Unaudited)
(Thousands)
ASSETS
Property, Plant and Equipment
At original cost $1,807,828 $1,721,956
Accumulated depreciation and amortization (623,260) (591,382)
---------- ----------
1,184,568 1,130,574
---------- ----------
Current Assets
Cash and cash equivalents 13,436 4,589
Accounts receivable, less reserve 104,453 84,967
Inventories and storage gas purchased 54,356 98,254
Deferred income taxes 20,092 17,888
Other prepayments, principally taxes 8,052 10,047
---------- ----------
200,389 215,745
---------- ----------
Deferred Charges and Other Assets 110,616 118,282
---------- ----------
Total $1,495,573 $1,464,601
========== ==========
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity $ 616,219 $ 558,809
Preferred stock 28,433 28,440
Long-term debt 402,729 353,893
---------- ----------
1,047,381 941,142
---------- ----------
Current Liabilities
Current maturities of long-term debt 7,706 8,006
Notes payable 14,296 115,278
Accounts and wages payable 106,825 104,832
Customer deposits and advance payments 6,625 12,997
Accrued taxes and interest 43,571 10,504
Other current liabilities 19,650 22,537
---------- ----------
198,673 274,154
---------- ----------
Deferred Credits 249,519 249,305
---------- ----------
Total $1,495,573 $1,464,601
========== ==========
See accompanying Notes to Consolidated Financial Statements.
2
WASHINGTON GAS LIGHT COMPANY
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended
----------------------
June 30, June 30,
1997 1996
--------- ---------
(Thousands, Except Per
Share Data)
Operating Revenues $ 171,942 $ 157,760
Cost of Gas 87,578 76,008
--------- ---------
Net Revenues 84,364 81,752
--------- ---------
Other Operating Expenses
Operation 39,822 47,451
Maintenance 9,211 8,571
Depreciation and amortization 12,949 11,900
General taxes 15,564 15,217
Income taxes (200) (2,974)
--------- ---------
77,346 80,165
--------- ---------
Operating Income 7,018 1,587
Other Income - Net 609 210
--------- ---------
Income Before Interest Expense 7,627 1,797
Interest Expense 7,992 7,218
--------- ---------
Net Income (Loss) (365) (5,421)
Dividends on Preferred Stock 333 333
--------- ---------
Net Income (Loss) Applicable to Common Stock $ (698) $ (5,754)
========= =========
Average Common Shares Outstanding 43,704 43,472
Earnings (Loss) per Average Share of Common Stock
(See Exhibit 11 for computation of fully
diluted earnings per average share) $ (0.02) $ (0.13)
========= =========
Dividends Declared per Common Share $ .295 $ .285
========= =========
See accompanying Notes to Consolidated Financial Statements.
3
WASHINGTON GAS LIGHT COMPANY
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Nine Months Ended
----------------------
June 30, June 30,
1997 1996
--------- ---------
(Thousands, Except Per
Share Data)
Operating Revenues $ 948,365 $ 863,912
Cost of Gas 521,740 424,660
--------- ---------
Net Revenues 426,625 439,252
--------- ---------
Other Operating Expenses
Operation 127,728 139,799
Maintenance 26,191 23,675
Depreciation and amortization 38,348 35,737
General taxes 59,364 56,093
Income taxes 54,960 59,882
--------- ---------
306,591 315,186
--------- ---------
Operating Income 120,034 124,066
Other Income (Loss) - Net 2,266 (1,355)
--------- ---------
Income Before Interest Expense 122,300 122,711
Interest Expense 26,097 22,883
--------- ---------
Net Income 96,203 99,828
Dividends on Preferred Stock 999 999
--------- ---------
Net Income Applicable to Common Stock $ 95,204 $ 98,829
========= =========
Average Common Shares Outstanding 43,708 43,272
Earnings per Average Share of Common Stock
(See Exhibit 11 for computation of fully
diluted earnings per average share) $ 2.18 $ 2.28
========= =========
Dividends Declared per Common Share $ .875 $ .850
========= =========
See accompanying Notes to Consolidated Financial Statements.
4
WASHINGTON GAS LIGHT COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
----------------------
June 30, June 30,
1997 1996
--------- ---------
(Thousands)
Operating Activities
Net Income $ 96,203 $ 99,828
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization a/ 44,067 40,778
Deferred income taxes-net 3,644 8,595
Amortization of investment tax credits (716) (730)
Allowance for funds used during construction (282) (386)
Other noncash charges and credits-net (2,715) 4,980
--------- ---------
140,201 153,065
Changes in assets and liabilities:
Accounts receivable and accrued utility revenues (41,688) (32,903)
Gas costs due from/to customers - net 21,233 (39,142)
Materials and supplies 1,781 1,222
Storage gas costs 42,117 9,353
Other prepayments, principally taxes 1,995 1,690
Accounts and wages payable 1,291 25,491
Customer deposits and advance payments (6,372) (9,164)
Accrued taxes 25,458 22,156
Accrued interest 7,609 5,863
Pipeline refunds due customers (2,355) (1,300)
Rate refund due customers -- (9,306)
Deferred purchased gas costs 7,033 (1,978)
Other-net (3,266) 5,904
--------- ---------
Net Cash Provided by Operating Activities 195,037 130,951
--------- ---------
Financing Activities
Common stock issued 312 9,568
Long-term debt issued 83,812 50,000
Long-term debt retired (35,543) (69,830)
Premium on long-term debt retired (1,422) (2,263)
Notes payable - net (100,982) --
Dividends on common and preferred stock (38,809) (37,515)
--------- ---------
Net Cash Used in Financing Activities (92,632) (50,040)
--------- ---------
Investing Activities
Capital expenditures (93,558) (82,748)
--------- ---------
Net Cash Used in Investing Activities (93,558) (82,748)
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents 8,847 (1,837)
Cash and Cash Equivalents at Beginning of Period 4,589 13,911
--------- ---------
Cash and Cash Equivalents at End of Period $ 13,436 $ 12,074
========= =========
Supplemental Disclosures of Cash Flow Information
Income taxes paid $ 26,785 $ 31,180
Interest paid $ 18,380 $ 16,705
a/ Includes amounts charged to other accounts.
See accompanying Notes to Consolidated Financial Statements.
5
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. During the nine months ended June 30, 1997, the Company issued a total of
$83 million in Medium-Term Notes (MTNs). The notes have a 30-year nominal
life and coupon rates ranging from 6.57% to 6.82%. Holders of $28 million
of these MTNs have a one-time option to have the Company redeem the notes
at their face value in seven years. The holders of the remaining $55
million of MTNs have a one-time option to have the Company redeem the notes
at their face value in ten years.
In July 1997, the Company issued a total of $12 million in MTNs with
maturity dates in fiscal year 2027. Of this total, the Company issued $6
million in notes with a coupon rate of 6.40%. Holders of these MTNs have a
one-time option to have the Company redeem the notes at their face value in
July 2004. The Company issued the remaining $6 million with a coupon
rate of 6.46%. Holders of these MTNs have a one-time option to have the
Company redeem the notes at their face value in July 2004.
E. In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share" (SFAS No. 128) and SFAS No. 129, "Disclosure of Information about
Capital Structure" (SFAS No. 129). The Company will adopt both of these
statements in the first quarter of fiscal 1998; however, there is not
expected to be any effect on the Company's Consolidated Financial
Statements.
SFAS No. 128 establishes standards for computing and presenting earnings
per share (EPS) which simplifies calculations found in Accounting
Principles Board Opinion No. 15, "Earnings Per Share," as amended and
interpreted, and thus, makes them comparable to international EPS
standards. SFAS No. 128 replaces primary EPS with a presentation of basic
EPS. Basic EPS excludes dilution for any potentially dilutive securities
and is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. SFAS
No. 128 also requires dual presentation of basic and fully diluted EPS (now
called diluted EPS) on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the basic
EPS calculation to the diluted EPS computation.
SFAS No. 129 continues the existing requirements to disclose the pertinent
rights and privileges of all security holders other than ordinary common
stockholders but expands the number of companies subject to portions of its
requirements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" (SFAS No. 130). This statement is effective for fiscal years
beginning after December 15, 1997, and the Company will adopt it in the
first quarter of fiscal year 1998. SFAS No. 130 establishes standards for
reporting and displaying all components of comprehensive income in a full
set of general purpose financial statements. Comprehensive income is the
total of net income and all other nonowner changes in equity. Currently,
several accounting standards make specific exceptions to the "all-inclusive
income concept" requiring that certain changes in assets and liabilities
not be reported in a statement that reports results of operations for the
period in which they are recognized but instead to report the accumulated
balances of these items as a separate component of equity in a statement of
financial position. SFAS No. 130 amends existing accounting pronouncements
that provide for these specific exceptions and requires that all components
of comprehensive income be reported in a financial statement for the period
in which they are recognized. This statement does not require a specific
6
WASHINGTON GAS LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(continued)
format. The accumulated balance of other comprehensive income must be
displayed as a separate component of equity in the statement of financial
position. Currently the Company has no items of other comprehensive income,
and adopting this standard is not expected to affect the Company's
reporting requirements.
F. Certain amounts in financial statements of prior years have been
reclassified to conform to the presentation of the current year.
7
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
THREE MONTHS ENDED JUNE 30, 1997 vs. JUNE 30, 1996
Earnings
For the three months ended June 30, 1997, the Company recorded a seasonal
net loss applicable to common stock of $0.7 million, which represented a $5.1
million smaller loss as compared to the same quarter last year. The net loss per
average common share was $.02, or an improvement over the prior year of $.11 per
average common share. Average common shares outstanding increased by less than
1% 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 lower loss this year primarily resulted from lower other operating expenses
reflecting non-recurring employee-related costs recorded last year associated
with the Company's redesign of its organization.
Net Revenues
Net revenues for the period increased by $2.6 million (3.2%) from the same
period last year to $84.4 million primarily resulting from cooler weather in the
current quarter and the effect of increased customer meters. The table on the
following page compares certain operating statistics for the quarters ended June
30, 1997 and 1996.
8
WASHINGTON GAS LIGHT COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(continued)
Three Months Ended
June 30, June 30,
1997 1996
-------- --------
Gas Sales and Deliveries (thousands of therms)
Gas Sold and Delivered
Firm 161,416 164,887
Interruptible 25,728 44,944
Electric Generation - -
------- -------
187,144 209,831
------- -------
Gas Delivered for Others
Firm 5,872 916
Interruptible 43,758 20,977
Electric Generation 35,288 16,082
------- -------
84,918 37,975
------- -------
Total Deliveries 272,062 247,806
======= =======
Gas Sold Off System (thousands of therms) 81,526 509
Degree Days
Actual 462 399
Normal 310 310
Customer Meters (end of period) 796,202 770,076
Gas Delivered to Firm Customers
Therm deliveries to firm customers, including gas sold and delivered and
gas delivered for others, increased by 1.5 million therms primarily due to
weather that was 15.8% colder than the same quarter last year and the effect of
a 3.4% increase in the number of customer meters.
Gas Delivered to Interruptible Customers
Therms delivered to interruptible customers, including gas sold and
delivered and gas delivered for others, increased by 3.6 million therms (5.4%)
in the current quarter, resulting in a slight increase in net revenues when
compared to the same quarter last year. The increase in volumes delivered
resulted primarily from the colder weather in the current year's quarter.
However, margin-sharing arrangements in each of the Company's major
jurisdictions minimize 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 fixed costs from the
interruptible class to the firm class.
9
WASHINGTON GAS LIGHT COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(continued)
Gas Delivered for Electric Generation
The Company sells and/or transports gas to two customers with facilities in
Maryland who use the supplies to generate electricity. Volumes delivered for
electric generation in the current quarter increased by 19.2 million therms over
the same period last year, primarily as a result of lower gas prices in the
current period as compared with other competing fuels. The addition of the
second customer in August 1996 also contributed to the increase. 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 has an immaterial effect on net income.
Gas Sold Off System
During the quarter ended June 30, 1997, the Company sold 81.5 million
therms to customers outside its service territory, an increase of 81.0 million
therms over the same period last year. These sales are made at relatively small
margins, and although a large volume of gas was sold off system, the effect of
these sales on net income was not material.
Other Operating Expenses
Operation and maintenance expenses declined by $7.0 million (12.5%) from
the same period last year. This decrease is primarily attributable to
non-recurring employee-related costs recorded last year associated with the
Company's redesign of its organization and lower labor and related employee
benefit costs. Partially offsetting these decreases are higher uncollectible
accounts expenses due primarily to increased revenues caused by higher gas
costs during the recent heating season.
Depreciation and amortization increased by $1.0 million (8.8%) primarily
due to the effect of the Company's continuing investment in new plant and
equipment.
General taxes rose by $347,000 (2.3%) primarily due to higher property
taxes resulting from increased investments in property.
Income taxes, including amounts reflected in other income, increased by
$3.1 million, due primarily to a lower pre-tax loss generated this quarter.
Other Income - Net
Other income - net increased by $399,000, primarily as a result of earnings
generated from non-regulated gas marketing activities and other energy-related
services.
Interest Expense
Interest expense increased by $774,000 (10.7%) reflecting greater interest
expense on both long-term and short-term debt and lower interest on supplier
refunds. Interest on long-term debt increased by $766,000. This increase was
due to a $47.5 million rise in the average amount of long-term debt outstanding,
partially offset by a decline of 0.10 percentage points in the weighted average
cost of long-term debt. Interest on short-term debt increased by $329,000. This
increase was due to a $22.9 million increase in the average amount of short-term
debt outstanding, slightly offset by a decline of 0.18 percentage points in the
average cost of debt. Interest on supplier refunds due to customers decreased
10
WASHINGTON GAS LIGHT COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(continued)
by $201,000, reflecting a decline in the previously existing balance due
to customers and no significant refunds in the current year.
NINE MONTHS ENDED JUNE 30, 1997 vs. JUNE 30, 1996
Earnings
For the nine months ended June 30, 1997, net income applicable to common
stock amounted to $95.2 million, or $3.6 million lower than for the same period
last year. Earnings per average common share were $2.18, or $.10 lower than last
year. Average common shares outstanding increased by 1.0% over the prior year.
The decrease in net income applicable to common stock was directly attributable
to warmer weather in the current period. The effects of warmer weather were
partially offset by a 3.4% increase in customer meters, a decrease in other
operating expenses and an increase in other income (loss)- net.
Net Revenues
The variability of weather affects the level of gas delivered to customers,
since 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 nine months ended June 30, 1997 was slightly colder than normal
while weather for the same period last year was 18.9% colder than normal. 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 on net revenues of deviations
in weather from normal.
Net revenues for the nine months ended June 30, 1997 decreased by $12.6
million (2.9%) from the same period last year to $426.6 million. This decrease
primarily resulted from the significantly colder weather last year, partially
offset by an increase in customer meters in the current year. The table on the
following page compares certain operating statistics for the nine months ended
June 30, 1997 and 1996.
11
WASHINGTON GAS LIGHT COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(continued)
Nine Months Ended
June 30, June 30,
1997 1996
--------- ---------
Gas Sales and Deliveries (thousands of therms)
Gas Sold and Delivered
Firm 1,014,816 1,121,808
Interruptible 133,403 153,161
Electric Generation 51 375
--------- ---------
1,148,270 1,275,344
--------- ---------
Gas Delivered for Others
Firm 19,814 2,501
Interruptible 142,565 59,219
Electric Generation 55,512 22,874
--------- ---------
217,891 84,594
--------- ---------
Total Deliveries 1,366,161 1,359,938
========= =========
Gas Sold Off System (thousands of therms) 167,329 36,565
Degree Days
Actual 3,862 4,561
Normal 3,838 3,836
Customer Meters (end of period) 796,202 770,076
Gas Delivered to Firm Customers
Therm deliveries to firm customers decreased by 89.7 million therms (8.0%),
resulting in a decline in related net revenues. These decreases were primarily
caused by weather that was 15.3% warmer than for the same period last year,
partially offset by a 3.4% increase in customer meters.
Gas Delivered to Interruptible Customers
Therms delivered to interruptible customers in the current period increased
by 63.6 million therms (29.9%) because the Company interrupted service to these
customers significantly more in the same period last year due to the colder
weather. As a result of the previously mentioned margin-sharing arrangements in
each of the Company's jurisdictions, the effect on net income of increased
deliveries to interruptible customers was minimal.
Gas Delivered for Electric Generation
Volumes delivered for electric generation in the current nine months
increased by 32.3 million therms from the same period last year, primarily due
to a second customer being added in August 1996. Therms delivered to this class
of customer also increased due to favorable gas prices as compared to prices for
other competing fuels. Margins earned on such deliveries are being shared with
firm customers as described previously in this report.
12
WASHINGTON GAS LIGHT COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(continued)
Gas Sold Off System
During the nine months ended June 30, 1997, the Company sold 167.3 million
therms to customers outside its service territory, a 130.8 million therm
increase over the same period last year. Because of relatively small margins on
this type of sale, the effect of these sales on net income was not material.
Other Operating Expenses
Operation and maintenance expenses declined by $9.6 million (5.8%) from the
same period last year. This decrease primarily reflects lower labor and related
employee benefit costs because of reduced employee levels and the
previously-described charge recorded last year related to the Company's
reorganization. Partially offsetting these decreases are higher uncollectible
accounts expenses, as previously discussed.
Depreciation and amortization increased by $2.6 million (7.3%) primarily
due to additional depreciation on the Company's new investments in plant and
equipment.
General taxes increased by $3.3 million (5.8%) due primarily to increased
property taxes resulting from increased investments in property, and higher
gross receipts taxes on higher revenues. The higher revenues reflect an
increased cost of gas per therm in 1997 compared to 1996. Recovery of gross
receipts taxes are included in revenues and, therefore, fluctuations in these
amounts have no effect on net income.
Income taxes, including amounts reflected in other income, decreased by
$3.1 million, due primarily to lower pre-tax income. The effective income tax
rate for the nine months ended June 30, 1997 was 36.8% and was 37.2% in the same
period in the prior year.
Other Income (Loss) - Net
Other income (loss) - net increased by $3.6 million, primarily due to the
difference in valuation reserves for certain non-utility activities recorded in
the two periods. Also contributing to the increase were earnings generated from
non-regulated gas marketing activities and other energy-related services.
Interest Expense
Interest expense increased by $3.2 million (14.0%) reflecting higher
interest expense on both long-term and short-term debt and lower interest on
supplier refunds. Interest on long-term debt increased by $1.7 million. This
increase was due to a $46.3 million rise in the average amount of long-term debt
outstanding, partially offset by a decline of 0.28 percentage points in the
weighted average cost of long-term debt. Interest on short-term debt increased
by $2.1 million. This increase was due to a $51.4 million increase in the
average amount of short-term debt outstanding, slightly offset by a decline of
0.18 percentage points in the average cost of debt. The increase in short-term
debt reflects the effect of financing increased gas costs and an increased
emphasis on using short-term debt to finance current assets. Interest on
supplier refunds due to customers decreased by $404,000, for reasons described
previously in this report.
13
WASHINGTON GAS LIGHT COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(continued)
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. When these assets are converted into cash after the winter
heating season, the Company liquidates short-term debt and acquires storage gas
for the subsequent heating season.
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, the Company had $14.3 million of
short-term debt outstanding ($10.0 million of bank loans and $4.3 million of
commercial paper) as of June 30, 1997, and had no short-term debt outstanding as
of June 30, 1996. Total short-term debt outstanding declined by $101.0 million
from the balance outstanding at September 30, 1996, reflecting the seasonality
of borrowing.
Long-Term Cash Requirements and Related Financing
Capital expenditures for the first nine months of fiscal year 1997 were
$93.6 million with a budget of $153.2 million for the fiscal 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
Company's last significant base rate increase became effective in December 1994.
The number of customer meters and the variability of the weather almost
exclusively affect the level of therms delivered.
Operating activities provided net cash of $195.0 million during the first
nine months of fiscal year 1997 compared to $131.0 million for the same period
in fiscal year 1996. This improvement was derived from: (1) increased
collections from customers of gas costs; (2) higher costs for gas storage
withdrawals in the current year, combined with lower levels of storage gas
injections due to warmer weather as compared to last year; (3) refunds made to
customers in the prior year for amounts overcollected due to the implementation
of interim rates; and (4) lower income tax payments as a result of lower taxable
income in the current year. Partially offsetting these sources of cash were the
following: (1) decreased sources of cash reflected in accounts and wages
payable, primarily due to decreased gas prices in June 1997 compared to June
1996, and the payment during fiscal year 1997 of amounts associated with the
redesign of the Company's organization; (2) lower net income; and (3) greater
funds supporting accounts receivable primarily due to colder weather in June
1997.
The total long-term debt issued in the current nine month period ($83.8
million) comprises issuances of Medium-Term Notes (MTNs) in October 1996 and
February 1997 and other long-term debt ($.8 million) issued by a subsidiary of
the Company. The $30.0 million issuance of MTNs in February 1997 was used for
the retirement on March 27, 1997 of $27.5 million of the 8-5/8% Series of First
14
WASHINGTON GAS LIGHT COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(continued)
Mortgage Bonds that were callable on or after March 1, 1997. Other retirements
of long-term debt ($8.0 million) occurred in January 1997 related to the
maturity of MTNs with coupon rates of 6.50% to 6.58%.
The discontinuation of new shares being issued through the Dividend
Reinvestment and Common Stock Purchase Plan and Employee Savings Plans caused
the $9.3 million decrease in cash provided by common stock issued. Effective
November 1, 1996, the plans purchase shares in the open market.
During the nine months ended June 30, 1997, the Company sold with recourse,
$26.1 million of non- utility accounts receivable. This compares to $23.7
million sold in the nine months ended June 30, 1996.
YEAR 2000
Like all companies with business-application-software programs written over
many years and computing infrastructure including computerized devices, the
Company is also affected by the so-called "Year 2000" issue. These programs,
which include the Company's customer service, operations and financial systems,
were written using two-year digits to define the applicable year, rather than
four. Any of the Company's programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in the computer shutting down or performing incorrect computations.
The computing infrastructure, including computerized devices, could contain
date-sensitive software that could cause the devices to fail to operate or to
operate inconsistently.
The Company is completing the process of identifying the systems and
infrastructure that could be affected by the Year 2000 issue and has developed
an implementation plan to resolve the issue. The plan includes the replacement
of certain equipment, modification of certain software to recognize the turn of
the century, or replacement of certain software systems with new systems that
provide additional strategic information as well as recognize four-digit dates.
The plan is currently expected to result in non-recurring expenses over the next
two years of approximately $8 million to $10 million.
In order to provide additional strategic information, the Company expects
to replace certain existing systems with new systems that will also be Year 2000
operational. The costs to replace these systems, of $15 million to $20 million,
will be capitalized.
The Company believes, with appropriate replacement or modifications, it
will be able to operate its time-sensitive business-application-software
programs and infrastructure through the turn of the century.
15
PART II. OTHER INFORMATION
Item 5.
Other Information
A. 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.
B. On August 1, 1997, Shenandoah Gas Company (Shenandoah), one of the
Company's distribution subsidiaries, filed a request with the State
Corporation Commission of Virginia for new rates designed to collect
additional annual operating revenues of $2,306,000, or 10.54%. This
request included an overall rate of return of 10.03%, a return on common
equity of 12.25%, and a 55.24% common equity ratio. The requested increase
in rates is necessary to compensate Shenandoah for its increased capital
investment.
16
PART II. OTHER INFORMATION (continued)
Item 6.
Exhibits and Reports on Form 8-K
(a) Exhibits Filed Herewith:
Description Page in 10-Q
- ------------------------------------------------------- ----------------
10.0 Employment Agreement between the Company and See separate
Patrick J. Maher, dated May 19, 1997 volume
10.1 Form of Employment Agreement between the "
Company and the certain named executive officers,
as defined in Item 404(a)3 of Regulation S-K.
Following is a listing of those named executive
officers and the dates of their agreements:
Officer Date
---------------------------- ------------
James H. DeGraffenreidt, Jr. May 19, 1997
John K. Keane, Jr. May 19, 1997
Joseph M. Schepis May 19, 1997
Frederic M. Kline May 19, 1997
11 Computation of Earnings per Average Share of "
Common Stock Assuming Full 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
June 30, 1997.
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 August 11, 1997 /s/ Robert E. Tuoriniemi
------------------------------------ ------------------------------------
Controller
(Principal Accounting Officer)
17