PAGE 1
______________________________________________________________________________
______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 31, 1993, or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________.
I.R.S.
Commission Employer
File Exact Name of Registrant as State of Identification
Number Specified in Its Charter Incorporation Number
- ---------- ------------------------------ ------------- --------------
001-11227 Washington Energy Company Washington 91-1005304
000-951 Washington Natural Gas Company Washington 91-1005303
Address of Principal Executive Offices Zip Code
- -------------------------------------- --------
815 Mercer Street 98109
Registrants' Telephone Number, Including Area Code
--------------------------------------------------
(206) 622-6767
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days Yes X No ___.
Indicate the number of shares outstanding of each of the issuers' classes of
common stock, as of the latest practicable date.
Outstanding
Registrant Title of Stock December 31, 1993
- ------------------------------ -------------- -----------------
Washington Energy Company $5 par value 23,417,769
Washington Natural Gas Company $5 par value 10,587,921
______________________________________________________________________________
______________________________________________________________________________
PAGE 2
INTRODUCTION
Washington Energy Company ("Company") or ("Washington Energy"), incorporated
under the laws of the State of Washington, is a holding company exempt from
the provisions of the Public Utility Holding Company Act of 1935 except Sec-
tion 9(a)(2) thereof. It is the parent of Washington Natural Gas Company
("Washington Natural"), a natural gas distribution company incorporated under
the laws of the State of Washington. This Form 10-Q is filed on behalf of
Company and Washington Natural, which companies are referred to herein as
Registrants.
INDEX
Page
PART I - FINANCIAL INFORMATION 4
Item 1. Condensed Financial Statements 4
Consolidated Condensed Financial Statements of
Washington Energy Company and Subsidiaries
(All statements are unaudited except for
September 30, 1993 Balance Sheets, which
have been audited.)
Consolidated Statements of Income -
Three Months Ended December 31, 1993
and 1992 5
Consolidated Condensed Balance Sheets -
December 31, 1993, September 30, 1993
and December 31, 1992 6
Consolidated Condensed Statements of
Capitalization - December 31, 1993 and 1992 8
Consolidated Condensed Statements of
Cash Flows - Three Months Ended
December 31, 1993 and 1992 9
Consolidated Statements of Shareholders'
Earnings Reinvested in the Business and
Premium on Capital Stock - Three Months
Ended December 31, 1993 and 1992 10
Condensed Financial Statements of Washington
Natural Gas Company (All statements are
unaudited except for September 30, 1993
Balance Sheets, which have been audited.)
Statements of Income -
Three Months Ended December 31,
1993 and 1992 11
PAGE 3
INDEX (Continued)
Page
Condensed Balance Sheets -
December 31, 1993, September 30, 1993
and December 31, 1992 12
Condensed Statements of Capitalization -
December 31, 1993 and 1992 14
Condensed Statements of Cash Flows -
Three Months Ended December 31,
1993 and 1992 15
Statements of Shareholder's Earnings
Reinvested in the Business and Premium
on Capital Stock - Three Months Ended
December 31, 1993 and 1992 16
Notes to Condensed Financial Statements
(Unaudited) 17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Unaudited) 19
Part II - OTHER INFORMATION 22
Signatures 23
PAGE 4
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
The condensed financial statements included herein have been prepared by the
Registrants, without audit, pursuant to the rules and regulations of the Secur-
ities 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 Registrants believe that the disclosures
are adequate to make the information presented not misleading. It is suggested
that these condensed financial statements be read in conjunction with the
financial statements and the notes thereto included in Registrants' latest
annual report on Form 10-K.
Because of seasonal and other factors, the results of operations for the
interim periods presented should not be considered indicative of the results to
be expected for the full fiscal year.
PAGE 5
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 1993 AND 1992
(In Thousands Except Per Share Amounts)
(Unaudited)
1993 1992
-------- --------
<F>
OPERATING REVENUES:
Utility sales of gas $129,639 $108,901
Merchandise, conservation products
and other 17,104 20,537
Oil and natural gas operations 6,510 6,686
-------- --------
Total operating revenues 153,253 136,124
OPERATING EXPENSES:
Purchases of gas 75,321 52,631
Utility operations and maintenance 16,975 16,664
Other operations 16,405 18,674
Depreciation, depletion and amortization 10,350 9,230
General taxes 11,844 9,631
Federal income taxes 4,967 6,516
-------- --------
Total operating expenses 135,862 113,346
-------- --------
OPERATING INCOME 17,391 22,778
Other income (expense), net
Preferred dividend requirement -
Washington Natural Gas Company (617) (654)
Other 342 (224)
-------- --------
Gross income 17,116 21,900
INTEREST CHARGES:
Interest on long-term debt 7,535 6,522
Interest on short-term debt 798 1,071
Interest capitalized (135) (133)
Other interest charges 608 146
-------- --------
Total interest charges 8,806 7,606
-------- --------
INCOME FROM CONTINUING OPERATIONS 8,310 14,294
DISCONTINUED OPERATIONS
Loss from operations, net of income tax - (713)
-------- --------
NET INCOME 8,310 13,581
DIVIDENDS ON PREFERRED STOCK 9 26
EXCESS PREMIUM - PREFERRED REDEMPTION 673 -
-------- --------
EARNINGS ON COMMON STOCK $ 7,628 $ 13,555
======== ========
EARNINGS (LOSS) PER COMMON SHARE:
From continuing operations $ .33 $ .63
From discontinued operations - (.03)
-------- --------
Earnings per common share $ .33 $ .60
======== ========
Dividends per common share outstanding $ .25 $ .35
Average common shares outstanding 23,333 22,591
PAGE 6
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS - DECEMBER 31, 1993 (Unaudited),
SEPTEMBER 30, 1993 AND DECEMBER 31, 1992 (Unaudited)
(Thousands of Dollars)
ASSETS
December September December
31, 1993 30, 1993 31, 1992
----------- ---------- --------
<F>
PROPERTY, PLANT AND EQUIPMENT:
Utility plant, at original cost $ 912,382 $ 888,944 $830,189
Oil and gas (on full cost method),
coal and other 271,432 258,304 246,921
Accumulated provisions
for depreciation,
depletion and amortization (306,462) (295,755) (278,199)
---------- ---------- --------
Net property, plant and equipment 877,352 851,493 798,911
CURRENT ASSETS:
Cash and cash equivalents 3,918 13,049 4,350
Accounts receivable, net 50,089 20,868 55,136
Unbilled revenue 30,012 11,072 27,487
Federal income taxes 8,025 15,354 1,498
Purchased gas receivable 17,083 23,869 24,291
Materials and supplies, at average cost 35,007 40,779 38,742
---------- ---------- --------
Total current assets 144,134 124,991 151,504
OTHER ASSETS AND DEFERRED CHARGES:
Utility tax asset 18,767 18,767 17,004
Deferred charges and other 52,408 40,805 21,434
---------- ---------- --------
Total other assets and deferred charges 71,175 59,572 38,438
---------- ---------- --------
Total assets $1,092,661 $1,036,056 $988,853
========== ========== ========
PAGE 7
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (continued)
DECEMBER 31, 1993 (Unaudited), SEPTEMBER 30, 1993 AND
DECEMBER 31, 1992 (Unaudited)
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
December September December
31, 1993 30, 1993 31, 1992
----------- ---------- --------
<F>
CAPITALIZATION (see statements):
Common shareholders' interest $ 319,228 $ 322,931 $336,916
Preferred stock 60,000 17,300 27,548
Long-term debt 353,260 353,400 276,540
---------- ---------- --------
Total capitalization 732,488 693,631 641,004
CURRENT LIABILITIES:
Notes payable and commercial paper 123,638 145,498 111,937
Current sinking fund requirements
and debt maturities 280 5,528 14,460
Accounts payable 70,598 44,484 76,448
Other current liabilities 27,554 19,500 25,866
Accrued taxes 15,863 14,198 11,904
---------- ---------- --------
Total current liabilities 237,933 229,208 240,615
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 87,398 78,688 69,592
Other utility tax liabilities 13,139 13,139 16,985
Unamortized investment tax credits 10,715 10,913 11,511
Contributions in aid of construction 10,651 10,113 8,752
Other 337 364 394
---------- ---------- --------
Total deferred credits and
other liabilities 122,240 113,217 107,234
---------- ---------- --------
Total capitalization and liabilities $1,092,661 $1,036,056 $988,853
========== ========== ========
PAGE 8
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CAPITALIZATION
DECEMBER 31, 1993 AND 1992
(Thousands of Dollars)
(Unaudited)
1993 1992
-------- --------
<F>
COMMON SHAREHOLDERS' INTEREST:
Common stock, $5 par value; $117,089 $115,067
authorized 50,000,000 shares,
outstanding 23,417,769 and 23,013,495 shares
Premium on common stock 197,734 193,170
Shareholders' earnings reinvested
in the business 4,405 28,679
-------- --------
Total common shareholders' interest 319,228 336,916
PREFERRED STOCK: Shares
Cumulative; authorized: Outstanding at
1,000,000 shares of $100 par December 31,
value and 4,000,000 shares ------------------
of $25 par value 1993 1992
========= =======
5%, Series A, $100 par value - 22,000 - 2,200
6%, Series B, $100 par value - 24,480 - 2,448
8-7/8%, Series C, $100 par value - 31,000 - 3,100
8-3/4%, Series F, $100 par value - 50,000 - 5,000
8-3/4%, Series I, $25 par value - 800,000 - 20,000
7.45%, Series II, $25 par value 2,400,000 - 60,000 -
Less sinking-fund requirements
included in current liabilities - (5,200)
-------- --------
Total preferred stock 60,000 27,548
LONG-TERM DEBT:
First Mortgage Bonds
6-7/8% due 1993 - 3,980
12% due 1993 - 5,000
9.96% due 1995 40,000 40,000
8-7/8% due 1996 3,200 3,340
8.80% due 1996 25,000 25,000
8-1/8% due 1997 3,340 3,480
10-1/4% due 1997 30,000 30,000
9.57% due 2020 25,000 25,000
9.60% due 2000 25,000 25,000
Secured Medium-Term Notes, Series A
5.55% and 5.67% due 1995 20,000 20,000
8.25% due 1998 11,000 11,000
7.08% due 1999 10,000 10,000
8.51% through 8.55% due 2001 19,000 19,000
7.53% and 7.91% due 2002 30,000 30,000
8.25% through 8.40% due 2022 35,000 35,000
Secured Medium-Term Notes, Series B
6.23% through 6.31% due 2003 28,000 -
6.07% and 6.10% due 2004 18,500 -
6.51% and 6.53% due 2008 4,500 -
6.83% and 6.90% due 2013 13,000 -
7.19% due 2023 13,000 -
-------- --------
353,540 285,800
Less sinking-fund requirements and
maturities included in current liabilities (280) (9,260)
-------- --------
Total long-term debt 353,260 276,540
-------- --------
TOTAL CAPITALIZATION $732,488 $641,004
======== ========
PAGE 9
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR
THE THREE MONTHS ENDED DECEMBER 31, 1993 AND 1992
(Thousands of Dollars)
(Unaudited)
1993 1992
-------- --------
<F>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income from continuing operations $ 8,310 $ 14,294
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 10,439 9,322
Provision for uncollectible accounts receivable 494 462
Increase (decrease) in:
Federal income tax payable
- Current 7,329 4,055
- Deferred 2,569 3,767
Accounts receivable (41,869) (68,979)
Accounts payable 26,114 36,731
Materials and supplies 5,772 (2,502)
Deferred charges (5,660) (1,895)
Other assets and liabilities 3,586 4,740
Other 1,665 784
-------- --------
Total adjustments 10,439 (13,515)
-------- --------
Net cash provided by operating activities 18,749 779
CASH FLOW USED IN INVESTING ACTIVITIES:
Utility plant additions 23,565 21,733
Proceeds from disposition (201) -
Coal, oil and gas, and other property expenditures 13,329 8,878
-------- --------
Net cash used in investing activities 36,693 30,611
CASH FLOW FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,911 64,153
Proceeds from financing (reductions of):
Preferred stock 58,930 -
Commercial paper (21,860) (9,173)
Bank loans, net - (17,100)
Redemptions and repurchases
Preferred stock (23,222) -
Long-term debt (140) (140)
Cash dividend payments
Common (5,831) (8,014)
Preferred (9) -
-------- --------
Net cash provided by
financing activities 9,779 29,726
-------- --------
Net cash used in continuing operations (8,165) (106)
Net cash used in discontinued operations (966) (956)
-------- --------
Net decrease in cash and cash equivalents (9,131) (1,062)
Beginning cash and cash equivalents 13,049 5,412
-------- --------
Ending cash and cash equivalents $ 3,918 $ 4,350
======== ========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION -
Cash paid (received) during the period for:
Interest (net of amount capitalized) $ 6,269 $ 2,507
Income taxes (4,713) (1,129)
PAGE 10
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EARNINGS
REINVESTED IN THE BUSINESS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1993 AND 1992
(Thousands of Dollars)
(Unaudited)
1993 1992
-------- --------
<F>
Balance at beginning of period $ 8,457 $ 31,193
Net income 8,310 13,581
Excess premium - preferred redemption (673) -
Cash dividends on capital stock:
Common stock (11,680) (16,069)
Preferred stock -
5%, Series A (3) (8)
6%, Series B (1) (4)
8-7/8%, Series C (5) (14)
-------- --------
Balance at end of period $ 4,405 $ 28,679
======== ========
CONSOLIDATED STATEMENTS OF PREMIUM ON CAPITAL STOCK
1993 1992
-------- --------
Balance at beginning of period $197,917 $145,075
Excess of proceeds over par value
of common stock issued by public
offering, less expense of sale - 46,543
Excess of cost over par value
of preferred stock reacquired (492) -
Excess of purchase price over par
value of shares of common stock
issued under the employee stock
purchase and option plans 335 407
Excess of purchase price over par
value of shares of common stock
issued under the Dividend Rein-
vestment and Stock Purchase Plan 1,070 1,385
Common and preferred stock expense (1,096) (240)
-------- --------
Balance at end of period $197,734 $193,170
======== ========
PAGE 11
WASHINGTON NATURAL GAS COMPANY
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 1993 AND 1992
(Thousands of Dollars)
(Unaudited)
1993 1992
-------- --------
<F>
OPERATING REVENUES:
Sales of gas $129,639 $108,901
Merchandise and conservation products 2,631 18,961
-------- --------
Total operating revenues 132,270 127,862
OPERATING EXPENSES:
Purchases of gas 75,321 52,895
Utility operations and maintenance 16,975 16,664
Other operations 432 15,192
Depreciation 7,531 7,033
General taxes 10,381 8,857
Federal income taxes 4,443 6,469
-------- --------
Total operating expenses 115,083 107,110
-------- --------
OPERATING INCOME 17,187 20,752
OTHER EXPENSE, NET (270) (380)
-------- --------
Gross income 16,917 20,372
INTEREST CHARGES:
Interest on long-term debt 7,263 6,255
Interest on short-term debt (3) 374
Amortization of debt discount and expense 89 91
Other interest charges 361 25
-------- --------
Total interest charges 7,710 6,745
-------- --------
NET INCOME 9,207 13,627
DIVIDENDS ON PREFERRED STOCK 626 682
-------- --------
EARNINGS ON COMMON STOCK $ 8,581 $ 12,945
======== ========
PAGE 12
WASHINGTON NATURAL GAS COMPANY
CONDENSED BALANCE SHEETS - DECEMBER 31, 1993, (Unaudited)
SEPTEMBER 30, 1993 AND DECEMBER 31, 1992 (Unaudited)
(Thousands of Dollars)
ASSETS
December September December
31, 1993 30, 1993 31, 1992
-------- -------- --------
<F>
UTILITY PLANT, at original cost $912,381 $888,944 $830,189
Accumulated provision for depreciation (223,193) (215,474) (201,240)
-------- -------- --------
Net utility plant 689,188 673,470 628,949
RECEIVABLES FROM AFFILIATED COMPANIES 10,588 4,459 3,071
CURRENT ASSETS:
Cash and cash equivalents 965 9,773 2,813
Accounts receivable, net 82,953 52,007 93,663
Materials and supplies, at average cost 32,405 39,606 37,395
-------- -------- --------
Total current assets 116,323 101,386 133,871
OTHER ASSETS AND DEFERRED CHARGES:
Utility tax asset 18,767 18,767 17,004
Deferred charges and other 42,466 36,434 18,950
-------- -------- --------
Total other assets and deferred charges 61,233 55,201 35,954
-------- -------- --------
Total assets $877,332 $834,516 $801,845
======== ======== ========
PAGE 13
(Continued)
WASHINGTON NATURAL GAS COMPANY
CONDENSED BALANCE SHEETS - DECEMBER 31, 1993 (Unaudited),
SEPTEMBER 30, 1993 AND DECEMBER 31, 1992 (Unaudited)
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
December September December
31, 1993 30, 1993 31, 1992
-------- -------- --------
<F>
CAPITALIZATION (see statements):
Common shareholder's interest $261,992 $262,334 $266,402
Preferred stock 60,000 17,300 27,600
Long-term debt 353,260 353,400 276,540
-------- -------- --------
Total capitalization 675,252 633,034 570,542
CURRENT LIABILITIES:
Current sinking fund requirements
and debt maturities 280 5,580 14,560
Accounts payable 33,185 27,489 47,148
Other current liabilities 13,680 11,204 15,384
Accrued taxes 11,733 10,755 9,858
-------- -------- --------
Total current liabilities 58,878 55,028 86,950
PAYABLES TO AFFILIATED COMPANIES 44,852 49,809 57,010
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 63,845 62,480 50,095
Other utility tax liabilities 13,139 13,139 16,985
Unamortized investment tax credits 10,715 10,913 11,511
Contributions in aid of construction 10,651 10,113 8,752
-------- -------- --------
Total deferred credits and
other liabilities 98,350 96,645 87,343
-------- -------- --------
Total capitalization and liabilities $877,332 $834,516 $801,845
======== ======== ========
PAGE 14
WASHINGTON NATURAL GAS COMPANY
CONDENSED STATEMENTS OF CAPITALIZATION
DECEMBER 31, 1993 AND 1992
(Thousands of Dollars)
(Unaudited)
1993 1992
-------- --------
<F>
COMMON SHAREHOLDER'S INTEREST:
Common stock, $5 par value; $ 52,940 $ 51,656
authorized 25,000,000 shares,
outstanding 10,587,921 and 10,331,135 shares
Premium on common stock 161,596 156,484
Shareholder's earnings reinvested
in the business 47,456 58,262
-------- --------
Total common shareholder's interest 261,992 266,402
Shares
PREFERRED STOCK: Outstanding at
Cumulative; authorized: December 31,
1,000,000 shares of $100 par --------------------
value and 4,000,000 shares 1993 1992
of $25 par value - ========= =======
5%, Series A, $100 par value - 22,000 - 2,200
6%, Series B, $100 par value - 26,000 - 2,600
8-7/8%, Series C, $100 par value - 31,000 - 3,100
8-3/4%, Series F, $100 par value - 50,000 - 5,000
8-3/4%, Series I, $25 par value - 800,000 - 20,000
7.45%, Series II, $25 par value 2,400,000 - 60,000 -
Less sinking-fund requirements
included in current liabilities - (5,300)
------- -------
Total preferred stock 60,000 27,600
LONG-TERM DEBT:
First Mortgage Bonds
6-7/8% due 1993 - 3,980
12% due 1993 - 5,000
9.96% due 1995 40,000 40,000
8-7/8% due 1996 3,200 3,340
8.80% due 1996 25,000 25,000
8-1/8% due 1997 3,340 3,480
10-1/4% due 1997 30,000 30,000
9.57% due 2020 25,000 25,000
9.60% due 2000 25,000 25,000
Secured Medium-Term Notes, Series A
5.55% and 5.67% due 1995 20,000 20,000
8.25% due 1998 11,000 11,000
7.08% due 1999 10,000 10,000
8.51% to 8.55% due 2001 19,000 19,000
7.53% and 7.91% due 2002 30,000 30,000
8.25% to 8.40% due 2022 35,000 35,000
Secured Medium-Term Notes, Series B
6.23% through 6.31% due 2003 28,000 -
6.07% and 6.10% due 2004 18,500 -
6.51% and 6.53% due 2008 4,500 -
6.83% and 6.90% due 2013 13,000 -
7.19% due 2023 13,000 -
-------- --------
353,540 285,800
Less sinking-fund requirements and
debt maturities included in current liabilities (280) (9,260)
-------- --------
Total long-term debt 353,260 276,540
-------- --------
TOTAL CAPITALIZATION $675,252 $570,542
======== ========
PAGE 15
WASHINGTON NATURAL GAS COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1993 AND 1992
(Thousands of Dollars)
(Unaudited)
1993 1992
-------- --------
<F>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 9,207 $ 13,627
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 7,620 7,124
Provision for uncollectible accounts receivable 494 460
Increase (decrease) in:
Federal income tax payable (receivable)
-Current (683) 5,335
-Deferred 1,167 937
Accounts receivable (36,886) (58,635)
Accounts payable 17,950 26,102
Materials and supplies 7,201 (2,432)
Deferred charges (6,032) (1,400)
Other assets and liabilities 3,509 4,749
Other 584 609
-------- --------
Total adjustments (5,076) (17,151)
-------- --------
Net cash provided by (used in)
operating activities 4,131 (3,524)
CASH FLOW USED IN INVESTING ACTIVITIES:
Utility plant additions 23,565 21,733
CASH FLOW FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,697 57,757
Proceeds from debt financing (reductions of):
Preferred stock 58,930 -
Commercial paper (17,211) (3,526)
Bank loans, net - (17,100)
Redemptions and repurchases
Preferred stock (23,399) -
Long-term debt (140) (140)
Cash dividend payments
Common (8,420) (9,771)
Preferred (831) (651)
-------- --------
Net cash provided by
financing activities 10,626 26,569
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,808) 1,312
BEGINNING CASH AND CASH EQUIVALENTS 9,773 1,501
-------- --------
ENDING CASH AND CASH EQUIVALENTS $ 965 $ 2,813
======== ========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION -
Cash paid during the period for:
Interest (net of amount capitalized) $ 5,262 $ 1,721
Income taxes 4,072 393
PAGE 16
WASHINGTON NATURAL GAS COMPANY
STATEMENTS OF SHAREHOLDER'S EARNINGS
REINVESTED IN THE BUSINESS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1993 AND 1992
(Thousands of Dollars)
(Unaudited)
1993 1992
-------- --------
<F>
Balance at beginning of period $ 48,094 $ 55,088
Net income 9,207 13,627
Excess premium - preferred redemption (798) -
Cash dividends declared:
Common stock (8,420) (9,771)
Cumulative preferred stock -
5%, Series A (9) (28)
6%, Series B (13) (38)
8-7/8%, Series C (23) (69)
8-3/4%, Series F (22) (109)
8-3/4%, Series I (88) (438)
7.45%, Series II (472) -
-------- --------
Balance at end of period $ 47,456 $ 58,262
======== ========
STATEMENTS OF PREMIUM ON CAPITAL STOCK
1993 1992
-------- --------
Balance at beginning of period $161,618 $108,186
Excess of proceeds over par value
of common stock issued to parent
company, less expense of sale - 46,714
Excess of cost over par value of
preferred stock reacquired (331) -
Excess of purchase price over par
value of shares of common stock
issued under the parent company's
Employee Stock Purchase Plan 180 179
Excess of purchase price over par
value of shares of common stock
issued under the parent company's
Dividend Reinvestment and Stock
Purchase Plan 1,209 1,533
Common and preferred stock expense (1,080) (128)
-------- --------
Balance at end of period $161,596 $156,484
======== ========
PAGE 17
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
1. The consolidated financial statements include the accounts of Washington
Energy Company, and its wholly-owned subsidiaries, after elimination of
intercompany items and transactions: Washington Natural Gas Company;
Thermal Efficiency, Inc.; Washington Energy Resources Company
("Resources") and its wholly-owned subsidiaries; ThermRail, Inc.; WECO
Finance Company and its wholly-owned subsidiary; Thermal Energy, Inc. and
its wholly-owned subsidiary; Holdings Northwest, Inc.; and Washington
Energy Services Company.
In the opinion of management, all adjustments necessary for a fair
presentation of the results for the two three-month periods have been
reflected and were of a normal recurring nature.
2. Reference is made to the notes to the financial statements included on
pages 49 through 82 in the Registrants' Form 10-K annual report for the
fiscal year ended September 30, 1993. Those notes include a summary of
significant accounting policies and a description of other events and
transactions which should be read in connection with the accompanying con-
densed financial statements.
3. Dividends on Washington Energy common stock are payable when and as
declared by the Board of Directors out of funds legally available
therefor.
There is no formal restriction on payment of common dividends by Washing-
ton Energy, but as a practical matter for the immediate future, its abili-
ty to pay dividends is limited by the restrictions on dividend payments in
the first mortgage bond indenture of Washington Natural and the preferen-
tial dividend rights of holders of Washington Natural preferred stock. At
December 31, 1993, $7,226,000 of retained earnings was unrestricted as to
payment of cash dividends under terms of the most restrictive of the
indentures securing Washington Natural's First Mortgage Bonds.
4. Washington Natural and a predecessor operated a manufactured gas plant in
the Tide Flats area of Tacoma, Washington, from 1928 through 1956. The
U.S. Environmental Protection Agency (EPA) has determined that the site
contains several contaminants. The site requires cleanup under the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended (CERCLA). Washington Natural has principal responsibility for the
cleanup and is one of the 21 companies and municipalities funding the
cleanup project. The EPA has approved a remediation method for the site.
Remediation activities have commenced and are expected to be substantially
completed by the end of calendar 1994.
Based upon current cleanup cost estimates, less insurance settlement
agreements entered into as a consequence of the insurance lawsuit
described below, which total $7.1 million, the Company's liability is
estimated to be approximately $16.9 million to $17.9 million.
The Washington Department of Ecology (DOE) has recently published chemical
testing methods and promulgated related regulations for the classification
of wastes. Based on information now available to Washington Natural, if
DOE guidelines for utilizing these testing procedures are placed into
effect as they are now proposed by DOE and if they are applied to the
cleanup project at the Tide Flats site, there would be a material increase
in the range of costs stated above. Washington Natural is engaged in
discussions with EPA and the DOE to clarify the revised testing procedures
and to evaluate the appropriateness of applying the new procedures to the
Tide Flats site.
In June 1991, Washington Natural filed a lawsuit in King County superior
Court, State of Washington, against insurance companies that have provided
insurance to Washington Natural at various times dating back to the 1940s.
The trial, which commenced on October 11, 1993, has been bifurcated
between a first phase, to determine whether the policies issued by the
defendants provided coverage for the cleanup costs, and a second phase, to
determine the amount of coverage. On October 27, 1993, the jury in the
trial returned a verdict in favor of Washington Natural in the first phase
of the trial. The jury found that the essential requirements for coverage
PAGE 18
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
(cont'd)
were satisfied for each policy period at issue. The second phase, which
is scheduled to begin in May 1994, will determine which insurance policies
will apply and the amount of that coverage.
As a result of consultation with counsel, Washington Natural believes
recovery of the cleanup costs in all material respects through insurance
is probable. Based on the above, Washington Natural has, in effect,
netted the liability with the probable insurance recovery.
5. Washington Energy Resources Company (Resources) has entered into agree-
ments with several natural gas pipeline companies reserving capacity to
transport gas from Canada to the U.S. on a pipeline expansion placed in
service on November 1, 1993. These contracts, which vary in term from 10
to 30 years, call for fixed monthly demand charges aggregating $715,000
per month in fiscal 1994, despite the volumes actually transported.
During the quarter ended December 31, 1993, Resources was unable to re-
cover most of the demand charges through brokered gas activity due to the
narrow spread between Canadian and U.S. west coast gas prices. It is not
known how long this adverse price disparity will continue, but the Company
anticipates this situation will continue for at least the next quarter.
6. The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting For Income Taxes," which
supersedes SFAS No. 96, the accounting standard the Company had followed
since 1987. The Company adopted SFAS No. 109 as of October 1, 1993.
The Company and all of its subsidiaries file a consolidated federal income
tax return. The parent company and its subsidiaries each report current
income tax expense as allocated under an informal consolidated tax
allocation agreement. Generally, this allocation results in profitable
companies recognizing benefits to the extent their losses contribute to
reduce consolidated taxes. Deferred income taxes have been established by
each member of the consolidated group based upon the temporary differ-
ences, the reversal of which will result in taxable or deductible amounts
in future years when related asset or liability is recovered or settled,
within each entity.
At September 30, 1993, Washington Energy Company has $8,439,000 of alter-
native minimum tax credits which do not expire. The alternative minimum
tax credits can be used in the future to reduce Washington Energy
Company's regular tax liability in excess of its minimum tax liability.
The Company has recorded under SFAS No. 109 gross deferred tax assets
totalling $15,706,000. These deferred tax assets consist of alternative
minimum tax credits of $8,439,000, loss on discontinued operations of
$7,036,000 and other miscellaneous deferred tax assets of $227,000. The
Company determined that a valuation allowance was not needed.
The components of the net deferred tax liability are as follows:
(in thousands)
09/30/93 10/01/93
-------- --------
Deferred tax liabilities:
Accelerated depreciation $(58,091) $(58,091)
Environmental activities (4,389) (4,389)
Intangible drilling costs (11,757) (11,757)
Abandoned oil and gas properties (6,631) (6,631)
Coal development activities (12,010) (12,010)
Deferred tax assets:
Receivable from IRS 4,161 -
Minimum tax credits 2,762 8,439
Loss on discontinued operations 7,036 7,036
Other 231 231
-------- --------
Total deferred tax liability $(78,688) $(77,172)
======== ========
PAGE 19
7. The Company formed a new, wholly-owned subsidiary, Washington Energy
Services Company, effective October 1, 1993. This new subsidiary
consolidates the Company's merchandising of energy and security products
for the home, including merchandising operations previously managed by
Washington Natural. While the reporting of merchandising operations by
Washington Energy Company is not affected by this formation, Washington
Natural's results of operations will no longer include the revenues and
expenses from the merchandising operations previously managed by them.
Washington Natural's gross operating revenue and net operating income
without the transferred merchandising operations are shown below:
(in thousands)
Three months ended Three months ended
December 31, 1993 December 31, 1992
Gross operating revenues $ 132,270 $ 110,861
Net operating income 17,187 19,647
_________________________________
Because of seasonal and other factors, the results of operations for the
interim periods presented should not be considered indicative of the
results to be expected for the full fiscal year.
PAGE 20
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Washington Energy Company (the Company) reported income from continuing opera-
tions of $8.3 million for the quarter ended December 31, 1993, down $6.0 mil-
lion from the same quarter a year ago. Earnings per share on common stock of
$.33 for the first quarter of 1994 were down from $.60 a year ago. Net income
of the principal subsidiary, Washington Natural Gas Company (Washington
Natural), was $9.2 million for the quarter, down $4.4 million from the same
period last year.
The decrease in income from continuing operations was due to several factors.
Tax adjustments related to prior periods reduced first-quarter net income by
$.8 million. Lower utility gas sales margins (due to the general rate decrease
effective October 1993), and increased depreciation and revenue-based taxes
caused $2.4 million of the decrease in the utility's net income. The Com-
pany's net income decreased $.9 million due to natural gas pipeline demand
charges that were not recovered through brokered gas activity by the Company's
oil and gas subsidiary, Washington Energy Resources Company. Canadian natural
gas prices during the quarter did not allow full recovery of pipeline demand
charges for sales in U.S. West Coast markets.
A premium of $673,000, paid during the quarter for the early redemption of
higher-dividend preferred stock, did not affect earnings but decreased income
available to common shareholders in computing earnings per share. The redemp-
tion was financed with a portion of the proceeds from an offering of $60 mil-
lion of 7.45% preferred stock in November 1993.
Operating Revenues
The Company's operating revenues of $153.3 million for the quarter ended Decem-
ber 31, 1993, were up $17.1 million compared with the same period a year ago.
Consolidated utility sales of gas of $129.6 million were up 19% from the same
period last year, due primarily to higher gas prices that resulted from in-
creased purchased gas costs which were passed through to customers. Purchased
gas adjustments do not impact net income. Gas sales volumes were up 3% from
the same period a year ago. The utility served 22,100, or 5%, more customers
than a year ago. Temperatures during the period were .4% warmer than normal.
Washington Energy Resources had production revenues of $8.0 million for the
quarter, an increase of 18% from the same quarter a year ago. Production was
up 37% over the prior year period despite the fact that a substantial portion
of its production was shut in for eight days in early December due to a fire at
a third party's processing plant. Lower prices for natural gas and liquids
held back the increase in revenue from the quarter's expanded production.
Merchandise sales and related revenues were $17.1 million for the quarter,
compared to $20.5 million for the same period a year ago. Washington Energy
Services Company, a subsidiary that began operation on October 1, 1993, and
sells energy and security products for the home, contributed $14.5 million of
these revenues. Previously, these products were sold by two other subsidiaries
of Washington Energy Company. Lower revenues had been anticipated during the
start-up of the new subsidiary.
Operating Expenses
The Company's operating expenses of $135.9 million, including federal income
tax, were up $22.5 million from the three months ended December 31, 1992. The
increase in operating expenses was due primarily to the increase in the volume
of gas purchased, increases in natural gas prices (which were passed through to
customers), depreciation, and revenue taxes, and an income tax adjustment
related to prior periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's utility subsidiary makes capital expenditures to provide reliable
gas distribution service to its customers and for its energy-related opera-
tions. In years of normal weather for utility operations, approximately half
of the capital needs are met through cash flow from operations. The remaining
PAGE 21
requirements are funded through short-term borrowings which, in turn, are refi-
nanced from the proceeds of securities issues. The issuance of long-term
securities is dependent on management's evaluation of need, financial market
conditions and other factors.
The Company's capital investment requirements for the first quarter of fiscal
1994 were $36.7 million. These requirements were met through cash provided
from operations, short-term financing and long-term financing.
Washington Natural's utility construction requirements were $23.6 million
during the first quarter and are estimated to be $62 million for the fiscal
year ended September 30, 1994. The Company expects capital spending for its
oil and gas subsidiary will be $20 million through the first six months of
fiscal 1994. Estimated expenditures for Washington Energy's other programs
through other subsidiaries are estimated at $5 million in fiscal 1994. It is
expected that these programs will be paid for with cash flow from operations,
short-term borrowing and long-term financing.
In addition to its construction program, the Company has short-term borrowing
requirements related to its utility operations. The operating revenues and
earnings of Washington Natural vary with weather conditions because approxi-
mately 90% of its customers use natural gas for space heating. This normally
produces substantially increased operating revenues and earnings during the
first eight or nine months of each fiscal year and lower operating revenues and
a loss in the remaining three or four months, with the 12 months as a whole
being profitable. Because of this, Washington Natural must borrow on a short-
term basis to meet its construction and operating needs for a portion of the
year.
The Company has commercial paper programs, short-term bank credit arrangements
and an agreement to sell merchandise and gas receivables to provide short-term
financing. These arrangements provide the Company with total short-term
borrowing capacity and ability to sell receivables of $295 million. The total
remaining amount available from these sources was $91 million at December 31,
1993.
On November 1, 1993, Washington Natural redeemed all of its outstanding pre-
ferred stock. Also in November 1993, Washington Natural filed a Registration
Statement with the Securities and Exchange Commission (SEC) in connection with
the sale of 2.4 million shares of preferred stock, 7.45% Series II, $25 par
value. These shares were sold on November 24, 1993, with net proceeds of
$58.4 million.
The Company's board of directors announced in October 1993 its decision to
reset the Company's quarterly dividend from 35 cents to 25 cents.
It is the opinion of management that the Company has adequate access to capital
markets and will have sufficient capital resources, both internal and external,
to meet anticipated capital requirements.
PAGE 22
ENVIRONMENTAL MATTERS
Washington Natural has the principal responsibility for cleaning up environmen-
tal contamination at a former manufactured gas plant site in Tacoma, Washing-
ton. Washington Natural ceased its manufacturing operations at the site in
1956 and later sold most of the property. Remediation activities are
expected to be substantially complete by the end of calendar 1994. Washington
Natural believes that recovery of these costs in all material respects from
insurance carriers is probable. Based on the above, Washington Natural has, in
effect, netted the liability with the probable insurance recovery. (See Note 4
of the Notes to Consolidated Financial Statements.)
FUTURE OUTLOOK
The past five years have been substantial growth years for the Company.
Washington Natural has been growing about two to three times faster than the
national average among natural gas utilities. Washington Natural anticipates
its growth will continue, but not at the 6.7% annual rate experienced since the
beginning of fiscal 1988. Washington Natural expects customer growth of about
4% to 5% for fiscal 1994, or approximately 17,000 to 21,000 new customers.
Washington Natural anticipates capital spending for fiscal 1994 will be $26
million less than it experienced in 1993.
In addition to continued growth by the utility, Washington Energy Resources
Company is expected to increase its production and sales. The Company is
exploring its options to monetize the value of this subsidiary. These options
include merger, sale of all or a portion of its assets or the issuance of their
securities to the investing public. As part of reviewing these options, the
Company is also reviewing various options to mitigate the demand charges
described in Note 5 to the Notes to Condensed Financial Statements. It is not
known how long the price disparity between demand charges and gas prices will
continue, but the Company anticipates this situation will continue for at least
the next quarter.
Washington Natural filed a limited-scope general rate case with the Washington
Utilities and Transportation Commission on November 19, 1993, and requested a
revenue increase of $24.6 million to address its margin deficiency due to the
general rate decrease effective October 1993. The primary focus is to seek
recovery of additional operating costs and the inclusion in rate base of addi-
tional utility plant for system improvements and expansion since calendar year
1991, which was used as the base measurement year in the prior rate case.
Hearings are scheduled to be conducted during the weeks of February 21, 1994,
and May 23, 1994. The Commission has until October 1994 to rule on the
request, although the Company is hopeful the rate case can be resolved on an
expedited manner.
PAGE 23
PART II - OTHER INFORMATION
Item 5. Other Information
The ratios of earnings to fixed charges for the twelve months ended
December 31, 1986 and 1967 were 1.86 and 1.67, respectively.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K.
A report on Form 8-K was filed by Washington Energy and Washing-
ton Natural on October 5, 1993, regarding Washington Natural's
rate case matters.
A report on Form 8-K was filed by Washington Energy and Wash-
ington Natural on October 21, 1993, regarding the Company's
board of directors decision to consider options to monetize the
value of its oil and gas operations and resetting the Company's
dividend.
A report on Form 8-K was filed by Washington Energy and
Washington Natural on October 27, 1993, regarding the Company's
operating results for the quarter ended September 30, 1993.
A report on Form 8-K was filed by Washington Energy and
Washington Natural on October 29, 1993, regarding a jury verdict
in Washington Natural's lawsuit against insurance companies
concerning environmental matters.
A report on Form 8-K/A was filed by Washington Energy and
Washington Natural on November 2, 1993, amending the Form 8-K
filed on October 29, 1993.
A report on Form 8-K was filed by Washington Energy and
Washington Natural on November 22, 1993, regarding Washington
Natural filing a request with the WUTC for a general rate
increase.
PAGE 24
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WASHINGTON ENERGY COMPANY
By /s/ James A. Thorpe
James A. Thorpe
Chairman and Chief Executive Officer
By /s/ James P. Torgerson
James P. Torgerson
Senior Vice President - Finance, Planning and
Development and Principal Financial Officer
WASHINGTON NATURAL GAS COMPANY
By /s/ James A. Thorpe
James A. Thorpe
Chairman and Chief Executive Officer
By /s/ James P. Torgerson
James P. Torgerson
Senior Vice President - Finance, Planning and
Development and Principal Financial Officer
February 14, 1994