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, 1994, 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
001-11271 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, 1994
- ------------------------------ -------------- ---------------
Washington Energy Company $5 par value 23,839,781
Washington Natural Gas Company $5 par value 10,842,212
PAGE 2
INTRODUCTION
Washington Energy Company ("Company") or (Washington Energy") is a holding
company whose principal subsidiary, Washington Natural Gas Company ("Washing-
ton Natural") is engaged in the retail distribution of natural gas. The
Company, through other subsidiaries, is also engaged in the business of
selling gas appliances, energy efficient and security products for the home;
holds an equity position in a publicly traded oil and gas exploration and
production company; and holds certain coal-related investments. The Company
is exempt from the provisions of the Public Utility Holding Company Act of
1935 ("Act"), except with respect to acquisition of securities of other public
utility companies as defined in such Act. This Form 10-Q is filed on behalf
of Company and Washington Natural, which companies are referred to herein as
Registrants.
INCORPORATED DOCUMENTS TO BE FURNISHED
Certain documents or parts thereof have been incorporated herein by reference,
as permitted by rules of the Securities and Exchange Commission. The Company
will provide you, upon your written request, with a copy of any and all
information that has been incorporated by reference herein. Any such request
for copies should be directed to the Company s Treasury Department, 815 Mercer
Street, (P.O. Box 1869), Seattle, Washington 98111 (Telephone: (206) 622-
6767).
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, 1994 Balance Sheet, which
has been audited.)
Consolidated Statements of Income -
Three Months Ended December 31, 1994
and 1993 . . . . . . . . . . . . . . . . . . . . . . . . .
5
Consolidated Condensed Balance Sheets -
December 31, 1994, September 30, 1994
and December 31, 1993 . . . . . . . . . . . . . . . . . .
6
Consolidated Condensed Statements of
Capitalization - December 31, 1994 and 1993 . . . . . . .
8
Consolidated Condensed Statements of
Cash Flows - Three Months Ended
December 31, 1994 and 1993 . . . . . . . . . . . . . . .
10
Consolidated Statements of Shareholders'
Earnings (Deficit) Reinvested in the Business
and Premium on Capital Stock - Three Months
Ended December 31, 1994 and 1993 . . . . . . . . . . . .
11
PAGE 3
INDEX (Continued)
Page
Condensed Financial Statements of Washington
Natural Gas Company (All statements are
unaudited except for September 30, 1994
Balance Sheet, which has been audited.)
Statements of Income -
Three Months Ended December 31,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . .
12
Condensed Balance Sheets -
December 31, 1994, September 30, 1994
and December 31, 1993 . . . . . . . . . . . . . . . . .
13
Condensed Statements of Capitalization -
December 31, 1994 and 1993 . . . . . . . . . . . . . . .
15
Condensed Statements of Cash Flows -
Three Months Ended December 31,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . .
16
Statements of Shareholder's Earnings
Reinvested in the Business and Premium
on Capital Stock - Three Months Ended
December 31, 1994 and 1993 . . . . . . . . . . . . . . .
17
Notes to Condensed Financial Statements
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . .
18
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Unaudited) . . . . . .
21
Part II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . .
24
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 25
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 fi-
nancial 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 in-
terim 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, 1994 AND 1993
(In Thousands Except Per Share Amounts)
(Unaudited)
1994 1993
-------- --------
OPERATING REVENUES:
Regulated utility sales $149,747 $131,970
Merchandise, conservation products
and other 6,498 14,473
-------- --------
Total operating revenues 156,245 146,443
-------- --------
OPERATING EXPENSES:
Purchases of gas 81,824 75,321
Utility operations and maintenance 15,014 16,862
Other operations 6,931 13,712
Depreciation, depletion and amortization 8,881 7,644
General taxes 12,115 10,659
Federal income taxes 7,250 4,633
-------- --------
Total operating expenses 132,015 128,831
-------- --------
OPERATING INCOME 24,230 17,612
OTHER INCOME (EXPENSE)
Preferred dividend requirement -
Washington Natural Gas Company (1,861) (617)
Other, net 209 325
-------- --------
Gross income 22,578 17,320
INTEREST CHARGES 9,323 8,963
-------- --------
INCOME FROM CONTINUING OPERATIONS 13,255 8,357
DISCONTINUED OPERATIONS
Loss from operations, net of income tax - (47)
-------- --------
NET INCOME 13,255 8,310
DIVIDENDS ON PREFERRED STOCK - 9
EXCESS PREMIUM - PREFERRED REDEMPTION - 673
-------- --------
EARNINGS ON COMMON STOCK $ 13,255 $ 7,628
======== ========
EARNINGS (LOSS) PER COMMON SHARE:
From continuing operations $ .56 $ .33
From discontinued operations - -
--------- --------
Earnings per common share $ .56 $ .33
Average common shares outstanding 23,737 23,332
Dividends per common share outstanding $ .25 $ .25
The accompanying notes are an integral part of these financial statements.
PAGE 6
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS - DECEMBER 31, 1994 (Unaudited),
SEPTEMBER 30, 1994 AND DECEMBER 31, 1993 (Unaudited)
(Thousands of Dollars)
ASSETS
December September December
31, 1994 30, 1994 31, 1993
---------- ---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Utility plant, at original cost $ 991,696 $ 977,406 $ 928,268
Coal and other 54,720 54,398 53,116
Accumulated depreciation,
depletion and amortization (256,866) (249,239) (234,617)
---------- ---------- ----------
Net property, plant and equipment 789,550 782,565 746,767
---------- ---------- ----------
INVESTMENT IN UNCONSOLIDATED:
AFFILIATES 97,733 98,139 112,985
---------- ---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 5,764 5,387 3,147
Receivables, net 52,280 43,035 76,531
Materials and supplies,
at average cost 23,882 28,069 32,733
---------- ---------- ----------
Total current assets 81,926 76,491 112,411
---------- ---------- ----------
OTHER ASSETS AND DEFERRED CHARGES:
Environmental insurance receivable 33,947 33,947 -
Utility tax asset 18,810 18,810 18,767
Deferred charges and other 22,313 20,542 37,754
---------- ---------- ----------
Total other assets and
deferred charges 75,070 73,299 56,521
---------- ---------- ----------
Total assets $1,044,279 $1,030,494 $1,028,684
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
PAGE 7
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (continued)
DECEMBER 31, 1994 (Unaudited), SEPTEMBER 30, 1994 AND
DECEMBER 31, 1993 (Unaudited)
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
December September December
31, 1994 30, 1994 31, 1993
---------- ---------- -----------
CAPITALIZATION (see statements):
Common shareholders' interest $ 259,606 $ 256,800 $ 319,228
Redeemable preferred stock 90,000 90,000 60,000
Long-term debt 290,060 290,200 353,260
---------- ---------- ----------
Total capitalization 639,666 637,000 732,488
---------- ---------- ----------
CURRENT LIABILITIES:
Notes payable and commercial paper 121,516 125,182 123,638
Current sinking fund requirements
and debt maturities 60,140 60,140 280
Accounts payable 34,678 34,326 34,204
Other current liabilities 45,380 32,261 21,070
Accrued general taxes 14,818 12,044 12,580
---------- ---------- ----------
Total current liabilities 276,532 263,953 191,772
---------- ---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 73,246 72,518 68,205
Other utility tax liabilities 12,560 12,560 13,139
Unamortized investment tax credits 9,937 10,132 10,715
Contributions in aid of construction 12,958 12,298 10,651
Contingency reserves and other 19,380 22,033 1,714
---------- ---------- ----------
Total deferred credits and
other liabilities 128,081 129,541 104,424
---------- ---------- ----------
Total capitalization and
liabilities $1,044,279 $1,030,494 $1,028,684
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
PAGE 8
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CAPITALIZATION
DECEMBER 31, 1994 AND 1993
(Thousands of Dollars)
(Unaudited)
1994 1993
-------- --------
COMMON SHAREHOLDERS' INTEREST:
Common stock, $5 par value;
authorized 50,000,000 shares,
outstanding 23,839,781 and
23,417,769 shares $119,199 $117,089
Premium on common stock 200,380 197,734
Shareholders' earnings (deficit)
reinvested in the business (59,973) 4,405
-------- --------
Total common shareholders'
interest 259,606 319,228
-------- --------
Shares
Outstanding at
December 31,
(in thousands)
-------------------
1994 1993
REDEEMABLE PREFERRED STOCK: -------- ---------
Washington Energy Company
Cumulative; authorized
200,000 shares of $100 par
value and 800,000 shares
of $25 par value - -
Washington Natural
Cumulative; authorized
1,000,000 shares of $100 par
value and 4,000,000 shares
of $25 par value
7.45%, Series II,
$25 par value 2,400 2,400 60,000 60,000
8.50%, Series III,
$25 par value 1,200 - 30,000 -
-------- --------
90,000 60,000
Less sinking-fund require-
ments included in current
liabilities - -
-------- --------
Total preferred stock $ 90,000 $ 60,000
The accompanying notes are an integral part of these financial statements.
PAGE 9
(Continued)
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CAPITALIZATION
DECEMBER 31, 1994 AND 1993
(Thousands of Dollars)
(Unaudited)
1994 1993
-------- --------
LONG-TERM DEBT:
First Mortgage Bonds
9.96% due 1995 $ 40,000 $ 40,000
8-7/8% due 1996 - 3,200
8.80% due 1996 25,000 25,000
8-1/8% due 1997 3,200 3,340
10-1/4% due 1997 30,000 30,000
9.60% due 2000 25,000 25,000
9.57% due 2020 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 28,000
6.07% and 6.10% due 2004 18,500 18,500
6.51% and 6.53% due 2008 4,500 4,500
6.83% and 6.90% due 2013 13,000 13,000
7.19% due 2023 13,000 13,000
-------- --------
350,200 353,540
Less sinking-fund requirements
and maturities included in
current liabilities (60,140) (280)
-------- --------
Total long-term debt 290,060 353,260
-------- --------
TOTAL CAPITALIZATION $639,666 $732,488
======== ========
The accompanying notes are an integral part of these financial statements.
PAGE 10
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR
THE THREE MONTHS ENDED DECEMBER 31, 1994 AND 1993
(Thousands of Dollars)
(Unaudited)
1994 1993
-------- --------
CASH FLOW PROVIDED BY OPERATING ACTIVITIES:
Income from continuing operations $ 13,255 $ 8,310
Adjustments to reconcile income from
continuing operations to net cash
provided by operating activities:
Depreciation, depletion and amortization 9,201 7,593
Provision for uncollectible accounts receivable 703 494
Increase (decrease) in:
Federal income tax - current 11,257 8,438
Federal income tax - deferred 532 (5,158)
Accounts receivable (16,071) (32,252)
Accounts payable 352 13,588
Materials and supplies 4,187 7,161
Deferred charges (1,890) (6,473)
Other assets and liabilities 1,877 3,613
Other 432 9,167
-------- --------
Total adjustments 10,580 6,171
-------- --------
Net cash provided by operating activities 23,835 14,481
CASH FLOW USED IN INVESTING ACTIVITIES:
Utility plant additions (15,414) (24,503)
Coal, and other property expenditures (323) (1,266)
Proceeds from disposition - 201
Distributions from (investments in)
unconsolidated affiliates 445 (6,171)
-------- --------
Net cash used in investing activities (15,292) (31,739)
CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,569 1,911
Proceeds from issuance of preferred stock - 58,930
Proceeds from debt financing (reductions of):
Commercial paper, net (3,666) (21,860)
Redemptions and repurchases
Preferred stock - (23,222)
Long-term debt (140) (140)
Cash dividend payments
Common (5,929) (5,831)
Preferred - (9)
-------- --------
Net cash (used in) provided by
financing activities (8,166) 9,779
-------- --------
Net cash provided by (used in)
continuing operations 377 (7,479)
Net cash provided by (used in) discontinued
operations - (966)
-------- --------
Net increase (decrease) in cash and cash equivalents 377 (8,445)
Beginning cash and cash equivalents 5,387 11,592
-------- --------
Ending cash and cash equivalents $ 5,764 $ 3,147
======== ========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION -
Cash paid (received) during the period for:
Interest (net of amount capitalized) $ 6,431 $ 6,269
Income taxes - (4,713)
The accompanying notes are an integral part of these financial statements.
PAGE 11
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EARNINGS (DEFICIT)
REINVESTED IN THE BUSINESS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1994 AND 1993
(Thousands of Dollars)
(Unaudited)
1994 1993
-------- --------
Balance at beginning of period $(61,339) $ 8,457
Net income 13,255 8,310
Excess premium - preferred redemption - (673)
Cash dividends on capital stock:
Common stock (11,889) (11,680)
Preferred stock -
5%, Series A - (3)
6%, Series B - (1)
8-7/8%, Series C - (5)
-------- --------
Balance at end of period $(59,973) $ 4,405
======== ========
CONSOLIDATED STATEMENTS OF PREMIUM ON CAPITAL STOCK
1994 1993
-------- --------
Balance at beginning of period $199,571 $197,917
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 Ownership Plans 115 335
Excess of purchase price over par
value of shares of common stock
issued under the Dividend Rein-
vestment and Stock Purchase Plan 823 1,070
Common and preferred stock expense (129) (1,096)
-------- --------
Balance at end of period $200,380 $197,734
======== ========
The accompanying notes are an integral part of these financial statements.
PAGE 12
WASHINGTON NATURAL GAS COMPANY
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 1994 AND 1993
(Thousands of Dollars)
(Unaudited)
1994 1993
-------- --------
OPERATING REVENUES:
Regulated utility sales $149,747 $131,970
-------- --------
OPERATING EXPENSES:
Purchases of gas 81,824 75,321
Utility operations and maintenance 15,014 16,862
Other operations 40 432
Depreciation 8,881 7,644
General taxes 12,038 10,381
Federal income taxes 8,098 4,443
-------- --------
Total operating expenses 125,895 115,083
-------- --------
OPERATING INCOME 23,852 16,887
OTHER INCOME (EXPENSE), NET (67) 30
-------- --------
Gross income 23,785 16,917
INTEREST CHARGES 7,643 7,710
-------- --------
NET INCOME 16,142 9,207
DIVIDENDS ON PREFERRED STOCK 1,862 626
-------- --------
EARNINGS ON COMMON STOCK $ 14,280 $ 8,581
======== ========
The accompanying notes are an integral part of these financial statements.
PAGE 13
WASHINGTON NATURAL GAS COMPANY
CONDENSED BALANCE SHEETS - DECEMBER 31, 1994, (Unaudited)
SEPTEMBER 30, 1994 AND DECEMBER 31, 1993 (Unaudited)
(Thousands of Dollars)
ASSETS
December September December
31, 1994 30, 1994 31, 1993
-------- -------- --------
UTILITY PLANT, at original cost $991,696 $977,406 $928,268
Accumulated depreciation (247,079) (239,520) (224,754)
-------- -------- --------
Net utility plant 744,617 737,886 703,514
-------- -------- --------
RECEIVABLES FROM AFFILIATED COMPANIES 1,639 2,020 10,588
-------- -------- --------
CURRENT ASSETS:
Cash and cash equivalents 269 427 965
Accounts receivable, net 61,329 53,386 83,117
Materials and supplies,
at average cost 21,089 25,360 32,405
-------- -------- --------
Total current assets 82,687 79,173 116,487
-------- -------- --------
OTHER ASSETS AND DEFERRED CHARGES:
Environmental insurance receivable 33,947 33,947 -
Utility tax asset 18,810 18,810 18,767
Deferred charges and other 15,460 13,180 28,140
-------- -------- --------
Total other assets and
deferred charges 68,217 65,937 46,907
-------- -------- --------
Total assets $897,160 $885,016 $877,496
======== ======== ========
The accompanying notes are an integral part of these financial statements.
PAGE 14
(Continued)
WASHINGTON NATURAL GAS COMPANY
CONDENSED BALANCE SHEETS - DECEMBER 31, 1994 (Unaudited),
SEPTEMBER 30, 1994 AND DECEMBER 31, 1993 (Unaudited)
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
December September December
31, 1994 30, 1994 31, 1993
-------- --------- --------
CAPITALIZATION (see statements):
Common shareholder's interest $251,708 $235,988 $261,992
Redeemable preferred stock 90,000 90,000 60,000
Long-term debt 290,060 290,200 353,260
-------- -------- --------
Total capitalization 631,768 616,188 675,252
-------- -------- --------
CURRENT LIABILITIES:
Current sinking fund requirements
and debt maturities 60,140 60,140 280
Accounts payable 32,023 30,914 33,350
Other current liabilities 29,453 26,773 13,679
Accrued general taxes 14,606 11,869 11,733
-------- -------- --------
Total current liabilities 136,222 129,696 59,042
PAYABLES TO AFFILIATED COMPANIES 28,096 39,828 44,852
-------- -------- --------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 65,619 64,314 63,845
Other utility tax liabilities 12,560 12,560 13,139
Unamortized investment tax credits 9,937 10,132 10,715
Contributions in aid of construction 12,958 12,298 10,651
-------- -------- --------
Total deferred credits and
other liabilities 101,074 99,304 98,350
-------- -------- --------
Total capitalization and
liabilities $897,160 $885,016 $877,496
======== ======== ========
The accompanying notes are an integral part of these financial statements.
PAGE 15
WASHINGTON NATURAL GAS COMPANY
CONDENSED STATEMENTS OF CAPITALIZATION
DECEMBER 31, 1994 AND 1993
(Thousands of Dollars)
(Unaudited)
1994 1993
-------- --------
COMMON SHAREHOLDER'S INTEREST:
Common stock, $5 par value;
authorized 25,000,000 shares,
outstanding 10,842,212 and
10,587,921 shares $ 54,211 $ 52,940
Premium on common stock 165,080 161,596
Shareholder's earnings rein-
vested in the business 32,417 47,456
-------- --------
Total common shareholder's
interest 251,708 261,992
-------- --------
Shares
Outstanding at
REDEEMABLE PREFERRED STOCK: December 31,
Cumulative; authorized (in thousands)
1,000,000 shares of $100 par --------------------
value and 4,000,000 shares 1994 1993
of $25 par value - ======== =========
7.45%, Series II,
$25 par value 2,400 2,400 60,000 60,000
8.50%, Series III,
$25 par value 1,200 - 30,000 -
Less sinking-fund require-
ments included in current
liabilities - -
-------- --------
Total preferred stock 90,000 60,000
-------- --------
LONG-TERM DEBT:
First Mortgage Bonds
9.96% due 1995 40,000 40,000
8-7/8% due 1996 - 3,200
8.80% due 1996 25,000 25,000
8-1/8% due 1997 3,200 3,340
10-1/4% due 1997 30,000 30,000
9.60% due 2000 25,000 25,000
9.57% due 2020 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 28,000
6.07% and 6.10% due 2004 18,500 18,500
6.51% and 6.53% due 2008 4,500 4,500
6.83% and 6.90% due 2013 13,000 13,000
7.19% due 2023 13,000 13,000
-------- --------
350,200 353,540
Less sinking-fund requirements
and debt maturities included
in current liabilities (60,140) (280)
-------- --------
Total long-term debt 290,060 353,260
-------- --------
TOTAL CAPITALIZATION $631,768 $675,252
======== ========
The accompanying notes are an integral part of these financial statements.
PAGE 16
WASHINGTON NATURAL GAS COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1994 AND 1993
(Thousands of Dollars)
(Unaudited)
1994 1993
-------- --------
CASH FLOW PROVIDED BY OPERATING ACTIVITIES:
Net income $ 16,142 $ 9,207
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 9,133 7,620
Provision for uncollectible accounts
receivable 214 494
Increase (decrease) in:
Federal income tax - current 6,822 (683)
Federal income tax - deferred 1,109 1,167
Accounts receivable (14,598) (36,886)
Accounts payable 619 17,950
Materials and supplies 4,271 7,201
Deferred charges (2,399) (6,032)
Other assets and liabilities 5,183 3,509
Other (310) 584
-------- --------
Total adjustments 10,044 (5,076)
-------- --------
Net cash provided by operating activities 26,186 4,131
-------- --------
CASH FLOW USED IN INVESTING ACTIVITIES:
Utility plant additions (15,414) (23,565)
-------- --------
CASH FLOW FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,569 1,697
Proceeds from issuance of preferred stock - 58,930
Proceeds from debt financing (reductions of):
Commercial paper (11,242) (17,211)
Redemptions and repurchases
Preferred stock - (23,399)
Long-term debt (140) (140)
Cash dividend payments
Common - (8,420)
Preferred (1,117) (831)
-------- --------
Net cash provided by (used in)
financing activities (10,930) 10,626
-------- --------
Net Decrease In Cash and Cash Equivalents (158) (8,808)
Beginning Cash and Cash Equivalents 427 9,773
-------- --------
Ending Cash and Cash Equivalents $ 269 $ 965
======== ========
Supplemental Disclosures of
Cash Flow Information -
Cash paid during the period for:
Interest (net of amount capitalized) $ 4,549 $ 5,262
Income taxes - 4,072
The accompanying notes are an integral part of these financial statements.
PAGE 17
WASHINGTON NATURAL GAS COMPANY
STATEMENTS OF SHAREHOLDER'S EARNINGS
REINVESTED IN THE BUSINESS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1994 AND 1993
(Thousands of Dollars)
(Unaudited)
1994 1993
-------- --------
Balance at beginning of period $ 18,137 $ 48,094
Net income 16,142 9,207
Excess premium, preferred redemption (798)
Cash dividend
Common stock - (8,420)
Cumulative preferred stock -
5%, Series A - (9)
6%, Series B - (13)
8-7/8%, Series C - (23)
8-3/4%, Series F - (22)
8-3/4%, Series I - (88)
7.45%, Series II (1,118) (472)
8.50%, Series III (744) -
-------- --------
Balance at end of period $ 32,417 $ 47,456
======== ========
STATEMENTS OF PREMIUM ON CAPITAL STOCK
1994 1993
-------- --------
Balance at beginning of period $163,978 $161,618
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 and
Ownership Plans 138 180
Excess of purchase price over par
value of shares of common stock
issued under the parent company's
Dividend Reinvestment and Stock
Purchase Plan 1,093 1,209
Common and preferred stock expense (129) (1,080)
-------- --------
Balance at end of period $165,080 $161,596
======== ========
The accompanying notes are an integral part of these financial statements.
PAGE 18
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
1. The consolidated financial statements include the accounts of Washington
Energy Company ("the Company") and its wholly-owned subsidiaries, after
elimination of intercompany items and transactions. The Company's sub-
sidiaries are Washington Natural Gas Company ("Washington Natural");
Washington Energy Services Company ("Services"); Washington Energy Gas
Marketing Company ("WEGM"); WECO Finance Company and its wholly-owned
subsidiary; Thermal Energy, Inc., and its wholly-owned subsidiary; and
ThermRail, Inc. Due to the merger of Washington Energy Resources Company
("Resources") with a subsidiary of Cabot Oil & Gas Corporation ("Cabot"),
Houston, Texas, on May 2, 1994, the financial statements for the December
31, 1994, quarter show the earnings of Cabot in "Other income (expense),"
using the equity method of accounting. The prior year reflects Resources
on a basis consistent with the presentation of Cabot.
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 52 through 73 in the Registrants' Form 10-K annual report for the
fiscal year ended September 30, 1994. 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
condensed 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 are no formal restrictions on payment of common
dividends by Washington Energy, but as a practical matter, its long-term
ability to pay dividends is limited by the restrictions on dividend
payments in the First Mortgage Bond indenture of Washington Natural and
the preferential dividend rights of holders of Washington Natural
preferred stock. At December 31, 1994, all of the retained earnings of
Washington Natural were restricted as to the payment of common dividends
under terms of the most restrictive of the indentures securing Washington
Natural's First Mortgage Bonds. Washington Natural is restricted from
paying dividends to Washington Energy until its retained earnings
increase by $8,951,000.
4. Washington Natural had principal responsibility for the cleanup of a
former manufactured gas plant site in the Tide Flats area of Tacoma,
Washington, which the U.S. Environmental Protection Agency determined
c o n t a ined several contaminants and required cleanup under the
Comprehensive Environmental Response, Compensation and Liability Act. As
of December 31, 1994, remediation activities have been substantially
completed. Based upon current cleanup cost estimates and the cost of
i n surance litigation, described below, less insurance settlements
totaling $7,140,000, Washington Natural's share of the cleanup cost at
this site is estimated to be $33,947,000. In the 1994 fiscal year,
Washington Natural recorded a current liability for the difference
between the estimated total unrecovered cleanup cost and the $27,998,000
of expenditures incurred through the end of the fiscal year, and also
recorded a corresponding receivable in the amount of $33,947,000 for the
probable insurance recovery based upon the litigation described below.
PAGE 19
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
(contd.)
In June 1991, Washington Natural filed a lawsuit in King County Superior
Court, State of Washington, against certain insurance companies that
provided insurance to Washington Natural at various times dating back to
the 1940s. On June 10, 1994, the Superior Court entered final judgment
in favor of Washington Natural. Under the terms of the final judgment,
Washington Natural is entitled to collect its present and future
uncompensated reasonable and necessary costs in remediating the site from
the policies of the insurer defendants in the action other than those
that previously settled with Washington Natural. The liability of these
insurers is joint and several, up to the annual limits of their policies
and subject to relevant underlying limits.
The judgment provides for limitation of some of the insurers' liability
based on the presence in their policies of "owned property" or alienated
premises clauses. However, Washington Natural does not expect this
limitation to affect its ability to collect all of its remediation costs.
The final judgment further awards Washington Natural prejudgment interest
and declares that Washington Natural is entitled to collect its
reasonable attorney fees and costs incurred in obtaining coverage of its
remediation costs. The defendants have appealed the judgment to the
Washington State Court of Appeals.
In the 1994 fiscal year, Washington Natural also accrued $2,231,000 for
estimated environmental investigation, legal and remediation costs
associated with certain former manufactured gas plant sites, one of which
is located in Everett, Washington. The Everett site is the subject of a
remedial investigation and feasibility study that is scheduled for
completion in June 1995. Washington Natural cannot reasonably estimate
the extent or range of future remediation costs, if any, at the Everett
site until more information is known from the remedial investigation and
feasibility study.
Based on all known facts and analyses, Washington Natural believes it is
n o t likely that the identified environmental liabilities, after
consideration of insurance recoveries and the judgment entered against
certain insurance companies, will result in a material adverse impact on
Washington Natural's financial position or operating results and cash
flow trends.
5. A class-action lawsuit was filed against Washington Energy and two of its
officers in the United States District Court, Western District of
Washington, in February, 1994, alleging violations of state and federal
securities act provisions and associated violations of Washington state
law. The essence of the complaint concerned alleged disclosure
violations regarding the nature or the extent of the downside financial
risk associated with the 1992 utility rate request filing of Washington
Natural. In May, 1994, Washington Energy filed a Motion to Dismiss.
Discovery in the case was stayed pending resolution of this motion and on
July 25, 1994, the District Court issued its Order Granting Defendants'
Motion To Dismiss and entered a judgment dismissing the action.
Plaintiffs have appealed to the U.S. Court of Appeals for the Ninth
Circuit; however, in management s opinion, the appeal is unlikely to
succeed.
PAGE 20
6. The State of Montana's Department of State Lands on December 29, 1994,
denied the renewal of the surface mining permit related to the coal
holdings of the MONTCO partnership, a partnership in which the Company
has a material interest. The permit denial is being contested by MONTCO.
The denial of the renewal of the surface mining permit is not expected to
have a material impact on the Company's plans or its ability to realize
its investment in the mineral rights.
7. Anti-Trust Lawsuit - On September 6, 1994, Cost Management Services, Inc.
( Cost Management ), a Mercer Island, Washington, company involved in the
purchase and resale of natural gas, filed an action against Washington
Natural in U.S. District Court, Western District of Washington. Cost
Management alleges that Washington Natural has monopolized or attempted
to monopolize the market for natural gas in central western Washington.
Cost Management also alleges Washington Natural failed to charge its
customers in accordance with the prices, terms and conditions set forth
in tariffs filed by Washington Natural with the WUTC and that it
wrongfully interfered with Cost Management s relationships with its
customers. Cost Management seeks injunctive relief and damages in an
unspecified amount. Washington Natural has denied the allegations and is
vigorously defending this matter. A Motion to Dismiss the lawsuit has
been filed by Washington Natural. Neither the outcome of nor the
financial exposure from this lawsuit can be predicted at this time in the
absence of pre-trial discovery.
8. 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 21
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 $13.3 million for the quarter ended December 31, 1994, up $4.9 mil-
lion from the same quarter a year ago. Earnings per share on common stock of
$.56 for the first quarter of 1995 were up from $.33 a year ago. Net income
of the principal subsidiary, Washington Natural Gas Company (Washington
Natural), was $16.1 million for the quarter, up $6.9 million from the same
period last year.
The increase in income from continuing operations was due to several factors.
Utility gross margin was up $11.3 million for the quarter. A rate increase
implemented last June generated approximately $6 million of that improvement.
The balance reflects 3 percent colder weather and 5 percent customer growth,
which increased gas sales volumes. Utility operating and maintenance costs
were down 11 percent, primarily as a result of a previously announced
restructuring and work-force reduction.
A premium of $673,000, paid during the December 1993 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.
Operating Revenues
The Company's operating revenues of $156.2 million for the quarter ended
December 31, 1994, were up $9.8 million compared with the same period a year
ago.
Regulated utility sales of $149.7 million were up $17.8 million or 13% from
the same period last year, due primarily to higher gas prices that resulted
from increased purchased gas costs which were passed through to customers.
Purchased gas adjustments do not impact net income. Gas sales volumes were up
11% from the same period a year ago. The utility served 21,640, or 5%, more
customers than a year ago. Temperatures during the period were 3% colder than
normal.
Washington Energy Services Company, a subsidiary that began operation on
October 1, 1993, and sells energy and security products for the home, recorded
merchandise and other revenues of $6.5 million for the quarter, compared to
$14.5 million for the same period a year ago. The elimination of joint
marketing and the reorganization of the merchandise functions have negatively
impacted Service s ability the attract new merchandise customers.
Operating Expenses
The Company's operating expenses of $132.0 million, including federal income
tax, were up $3.2 million from the three months ended December 31, 1993. 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 based general taxes.
PAGE 22
LIQUIDITY AND CAPITAL RESOURCES
The bulk ($15.4 million) of the Company s gross capital expenditures (15.7
million) was for utility plant. Washington Natural makes capital expenditures
to add new customers to its gas distribution system and to insure the
reliability and safety of the system. Capital expenditures normally are
funded with a combination of cash flow from operations after dividend payments
and short-term borrowings on an interim basis. The short-term borrowings are
reduced periodically with the proceeds from issuing long-term debt and equity
securities, the choice and timing of which are dependent on management s
evaluation of need, financial market conditions and other factors.
The Company has several short-term financing arrangements available currently:
a $150 million commercial paper program backed by a committed revolving credit
agreement, of which $28 million was unused at December 31, 1994; uncommitted
bank and other credit arrangements totaling $25 million, of which $25 million
was available at year end; and a committed agreement to sell up to $90 million
of merchandise and gas receivables, of which $24 million was unused at year
end. The borrowing capacity under the latter agreement is effectively limited
by the availability of receivables to sell.
On September 15, 1994, Washington Natural sold 1,200,000 shares of 8.50%
cumulative preferred stock, $25 par value, to the public for net proceeds of
$29,105,000. The new preferred stock is redeemable on or after September 1,
1999, at par value and has no sinking-fund requirements.
In November 1993, Washington Natural sold 2,400,000 shares of 7.45% cumulative
preferred stock, $25 par value, to the public following the early redemption
of all its other preferred stock series. The sale netted proceeds to
Washington Natural of $58,930,000. The preferred stock is redeemable on or
after November 1, 2003, at par value and has no sinking-fund requirements.
ENVIRONMENTAL MATTERS
In management s opinion, based on all know facts and analyses, it is not
likely that environmental liabilities identified to date, after consideration
of insurance recoveries and the judgment entered against certain insurance
companies, will result in a material adverse impact on Washington Natural s
financial position or operating results and cash flow trends. (See Note 4 of
the Notes to Financial Statements.)
FUTURE OUTLOOK
Washington Natural s annual customer growth has averaged 6% over the last five
years, which is well above the national average among natural gas utilities.
Customer growth is expected to be down slightly in 1995, at 4% to 5% or
approximately 18,000 to 22,000 new customers.
Washington Natural expects to file a general rate case in March 1995 to
address all of the costs of operating the utility. In addition to updating
operating costs and rate base to reflect recent growth, the utility also will
request an increase in its allowed rate of return in light of the recent
increases in its cost of capital. The WUTC would have until February 1996 to
act on such a filing.
PAGE 23
Washington Natural has filed a proposal to redesign its rates to better
reflect the cost of serving various classes of customers. Washington Natural
filed proposed tariffs with the WUTC in June 1994 that, if approved, would
reduce transportation rates and industrial rates and make Washington Natural
economically indifferent when customers choose between transportation and
sales service. The request also proposes to raise residential rates and firm
commercial and industrial rates. The effect of these changes, if approved,
would be to increase the margin on gas sales to residential and commercial
markets (where the majority of Washington Natural s growth occurs), decrease
the margin on transportation and larger volume industrial sales, and still
maintain the competitive advantage of gas versus alternative energy services.
The WUTC has until May 1995 to act on this filing.
COMMON DIVIDEND
The Company paid a dividend of 25 cents in each of the quarters ended December
31, 1994 and 1993.
PAGE 24
PART II - OTHER INFORMATION
Item 5. Other Information - Washington Natural Gas
The ratios of earnings to fixed charges for the twelve months ended
December 31, 1994 and 1993 were .88 and 1.86, 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
Washington Natural on November 8, 1994, regarding the Company's
operating results for the quarter and year ended September 30,
1994.
PAGE 25
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/ William P. Vititoe
William P. Vititoe
Chairman of the Board of Directors,
Chief Executive Officer and President
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/ William P. Vititoe
William P. Vititoe
Chairman of the Board of Directors,
Chief Executive Officer and President
By /s/ James P. Torgerson
James P. Torgerson
Senior Vice President - Finance, Planning and
Development and Principal Financial Officer
February 14, 1995