PAGE 1
THIS DOCUMENT IS A COPY OF THE FORM 10-Q AS AMENDED BY FORM 10-Q/A FILED ON
AUGUST 15, 1995 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
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 three and nine month periods ended June 30, 1995, 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, Seattle, Washington 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 June 30, 1995
------------------------------ -------------- --------------
Washington Energy Company $5 par value 24,014,884
Washington Natural Gas Company $5 par value 10,946,209
PAGE 2
INTRODUCTION
Washington Energy Company ("Company" or "Washington Energy") is a holding
company whose principal subsidiary, Washington Natural Gas Company
("Washington 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 efficiency 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; and conducts
gas brokerage and marketing. 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, 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 and Nine Months Ended June 30, 1995
and 1994 5
Consolidated Condensed Balance Sheets -
June 30, 1995, September 30, 1994
and June 30, 1994 7
Consolidated Condensed Statements of
Capitalization - June 30, 1995 and 1994 9
Consolidated Condensed Statements of
Cash Flows - Three and Nine Months Ended
June 30, 1995 and 1994 11
PAGE 3
INDEX (Continued)
Page
Consolidated Statements of Common Shareholders'
Earnings (Deficit) Reinvested in the Business
and Premium on Common Stock - Three and Nine
Months Ended June 30, 1995 and 1994 13
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 and Nine Months Ended June 30,
1995 and 1994 14
Condensed Balance Sheets -
June 30, 1995, September 30, 1994
and June 30, 1994 15
Condensed Statements of Capitalization -
June 30, 1995 and 1994 17
Condensed Statements of Cash Flows -
Three and Nine Months Ended June 30,
1995 and 1994 19
Statements of Common Shareholder's Earnings
Reinvested in the Business and Premium
on Common Stock - Three and Nine Months
Ended June 30, 1995 and 1994 21
Notes to Condensed Financial Statements 22
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 27
PART II - OTHER INFORMATION 31
Item 5. Ratio of Earnings to Fixed Charges 31
Item 6. Exhibits and Reports on Form 8-K 31
Signatures 32
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
Securities 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.
These condensed financial statements should 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 AND NINE MONTHS ENDED JUNE 30, 1995 AND 1994
(In Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- ------------------
1995 1994 1995 1994
-------- -------- -------- --------
OPERATING REVENUES:
Regulated utility sales $ 75,124 $ 72,455 $374,632 $346,246
Merchandise, conservation
products and other 3,744 7,171 17,998 30,992
-------- -------- -------- --------
Total operating revenues 78,868 79,626 392,630 377,238
-------- -------- -------- --------
OPERATING EXPENSES:
Purchases of gas 36,237 40,811 199,939 198,623
Operating and maintenance 21,319 34,652 67,895 94,102
Depreciation, depletion and
amortization 8,420 7,644 25,378 22,932
General taxes 8,871 9,249 35,104 33,098
Federal income taxes (2,573) (8,485) 10,807 (1,464)
-------- -------- -------- --------
Total operating expenses 72,274 83,871 339,123 347,291
-------- -------- -------- --------
OPERATING INCOME (LOSS) 6,594 (4,245) 53,507 29,947
OTHER INCOME (EXPENSE):
Preferred dividend requirement
Washington Natural Gas Company (1,755) (1,117) (5,371) (2,852)
Pre-tax loss on merger of
subsidiary - (4,694) - (4,694)
Federal income tax on merger - (24,274) - (24,274)
Other, net (130) (4,727) 410 (3,805)
-------- -------- -------- --------
GROSS INCOME (LOSS) 4,709 (39,057) 48,546 (5,678)
INTEREST CHARGES 10,333 9,703 29,687 27,279
-------- -------- -------- --------
GROSS INCOME (LOSS) (5,624) (48,760) 18,859 (32,957)
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 6
(Continued)
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 1995 AND 1994
(In Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------- -------------------
1995 1994 1995 1994
-------- -------- -------- --------
DISCONTINUED OPERATIONS:
Loss from operations, net of
income tax - (156) - (203)
-------- -------- -------- --------
NET INCOME (LOSS) (5,624) (48,916) 18,859 (33,160)
DIVIDENDS ON PREFERRED STOCK - - - 9
EXCESS PREMIUM - PREFERRED
REDEMPTION - - - 673
-------- -------- -------- --------
EARNINGS (LOSS) ON COMMON $ (5,624) $(48,916) $ 18,859 $(33,842)
STOCK
======== ======== ======== ========
EARNINGS (LOSS) PER COMMON
SHARE:
From continuing operations $ (.23) $ (2.07) $ .79 $ (1.44)
From discontinued operations - (.01) - -
--------- -------- -------- --------
Earnings (Loss) Per Common $ (.23) $ (2.08) $ .79 $ (1.44)
Share
======== ======== ======== ========
AVERAGE COMMON SHARES
OUTSTANDING 23,950 23,529 23,848 23,435
DIVIDENDS PAID PER COMMON
SHARE OUTSTANDING $ .25 $ .25 $ .75 $ .75
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 7
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS - JUNE 30, 1995 (Unaudited),
SEPTEMBER 30, 1994 AND JUNE 30, 1994 (Unaudited)
(Thousands of Dollars)
ASSETS
June September June
30, 1995 30, 1994 30, 1994
---------- ---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Utility plant, at original cost $1,022,438 $ 977,406 $ 965,741
Coal and other 55,808 54,398 53,847
Accumulated depreciation,
depletion and amortization (268,756) (249,239) (248,760)
---------- ---------- ----------
Net property, plant and equipment 809,490 782,565 770,828
---------- ---------- ----------
INVESTMENT IN UNCONSOLIDATED
AFFILIATES 95,338 98,139 98,317
---------- ---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 8,448 5,387 5,067
Receivables, net 17,770 43,035 55,346
Materials and supplies, at average cost 24,627 28,069 19,900
---------- ---------- ----------
Total current assets 50,845 76,491 80,313
---------- ---------- ----------
OTHER ASSETS AND DEFERRED CHARGES:
Environmental insurance receivables 37,647 33,947 31,930
Regulatory tax asset 18,810 18,810 18,767
Deferred charges and other 25,831 20,542 14,281
---------- ---------- ----------
Total other assets and deferred
charges 82,288 73,299 64,978
---------- ---------- ----------
Total assets $1,037,961 $1,030,494 $1,014,436
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 8
(Continued)
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 1995 (Unaudited), SEPTEMBER 30, 1994 AND
JUNE 30, 1994 (Unaudited)
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
June September June
30, 1995 30, 1994 30, 1994
---------- ---------- ----------
CAPITALIZATION:
Common shareholders' interest $ 261,696 $ 256,800 $ 274,805
Redeemable preferred stock of Subsidiary 90,000 90,000 60,000
Long-term debt 265,060 290,200 330,200
---------- ---------- ----------
Total capitalization 616,756 637,000 665,005
---------- ---------- ----------
CURRENT LIABILITIES:
Notes payable and commercial paper 125,480 125,182 98,413
Current sinking fund requirements
and debt maturities 65,140 60,140 20,140
Accounts payable 52,616 34,326 23,097
Environmental remediation liabilities 4,950 6,199 9,446
Other current liabilities 33,652 26,062 29,385
Accrued general taxes 11,781 12,044 10,532
Net liabilities - discontinued operations - - 418
---------- ---------- ----------
Total current liabilities 293,619 263,953 191,431
---------- ---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 74,699 72,518 102,381
Regulatory tax liabilities 12,560 12,560 13,139
Unamortized investment tax credits 9,547 10,132 10,319
Contributions in aid of construction 13,850 12,298 11,628
Contingency reserves and other 16,930 22,033 20,533
---------- ---------- ----------
Total deferred credits and
other liabilities 127,586 129,541 158,000
---------- ---------- ----------
Total capitalization and liabilities $1,037,961 $1,030,494 $1,014,436
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 9
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CAPITALIZATION
JUNE 30, 1995 AND 1994
(Thousands of Dollars)
(Unaudited)
1995 1994
-------- --------
COMMON SHAREHOLDERS' INTEREST:
Common stock, $5 par value;
authorized 50,000,000 shares,
outstanding 24,014,884 and
23,617,904 shares $120,075 $118,090
Premium on common stock 201,974 199,664
Shareholders' (deficit) (60,353) (42,949)
-------- --------
Total common shareholders'
interest 261,696 274,805
Shares -------- --------
Outstanding
--------------------
1995 1994
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 Gas Company
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 -
-------- --------
Total preferred stock 90,000 60,000
-------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 10
(Continued)
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CAPITALIZATION
JUNE 30, 1995 AND 1994
(Thousands of Dollars)
(Unaudited)
1995 1994
-------- --------
LONG-TERM DEBT:
First Mortgage Bonds
9.96% due 1995 40,000 40,000
8.80% called in 1995 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
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
-------- --------
330,200 350,340
Less sinking-fund requirements
and debt maturities included
in current liabilities (65,140) (20,140)
-------- --------
Total long-term debt 265,060 330,200
-------- --------
TOTAL CAPITALIZATION $616,756 $665,005
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 11
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR
THE THREE AND NINE MONTHS ENDED JUNE 30, 1995 AND 1994
(Thousands of Dollars)
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- ------------------
1995 1994 1995 1994
-------- -------- -------- --------
CASH FLOW FROM OPERATING ACTIVITIES:
Income (loss) from continuing
$ (5,624) $(48,760) $ 18,859 $(32,957)
operations
Adjustments to reconcile income (loss)
from continuing operations to net cash
provided by (used in) operating
activities:
Depreciation, depletion and
amortization 8,603 7,744 25,908 23,226
Provision for uncollectible accounts
receivable 167 311 528 1,401
Equity in undistributed (earnings)
losses of unconsolidated affiliate 1,223 (395) 2,800 (484)
Pre-tax loss on sale of subsidiary - 4,694 - 4,694
Increase (decrease) in:
Federal income tax - current (4,987) (13,446) 11,410 (10,709)
Federal income tax - deferred 399 38,303 1,596 31,063
Accounts receivable 4,649 14,240 19,137 9,440
Accounts payable 1,269 (5,313) 18,356 (2,350)
Materials and supplies (6,557) (5,713) 3,442 19,993
Deferred charges (372) 1,134 (9,157) (11,005)
Other assets and liabilities (2,042) 2,517 (2,799) 9,900
Other (982) 493 (1,474) 4,186
-------- -------- -------- --------
Total adjustments 1,370 44,569 69,747 79,355
-------- -------- -------- --------
Net cash (used in) provided by
operating activities (4,254) (4,191) 88,606 46,398
-------- -------- -------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Utility plant additions (16,205) (21,645) (50,437) (66,130)
Proceeds from sale of subsidiary - 63,660 - 63,660
Coal and other property expenditures (381) - (1,411) (1,799)
Investment in unconsolidated
subsidiary - (1,772) - (20,238)
-------- -------- -------- --------
Net cash (used in) provided by
investing activities (16,586) 40,243 (51,848) (24,507)
-------- -------- -------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 12
(Continued)
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR
THE THREE AND NINE MONTHS ENDED JUNE 30, 1995 AND 1994
(Thousands of Dollars)
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- -----------------
1995 1994 1995 1994
-------- -------- -------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock $ 1,178 $ 1,606 $ 4,083 $ 5,029
Proceeds from issuance of
(reduction of) preferred stock - (13) - 58,782
Proceeds from issuance of
(reduction of):
Commercial paper, net 15,230 (28,229) (11,767) (47,085)
Bank loans, net 12,000 - 12,000 -
Redemptions and repurchases:
Preferred stock - - - (23,222)
Long-term debt - (3,200) (20,140) (3,340)
Cash dividend payments:
Common (5,984) (5,878) (17,873) (17,563)
Preferred - - - (9)
-------- -------- -------- --------
Net cash provided by (used in)
financing activities 22,424 (35,714) (33,697) (27,408)
-------- -------- -------- --------
Net cash provided by (used in)
continuing operations 1,584 338 3,061 (5,517)
Net cash used in discontinued operations
(primarily operating activities) - (741) - (2,465)
-------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents 1,584 (403) 3,061 (7,982)
Beginning cash and cash equivalents 6,864 5,470 5,387 13,049
-------- -------- -------- --------
Ending cash and cash equivalents $ 8,448 $ 5,067 $ 8,448 $ 5,067
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of amount capitalized) $ 6,878 $ 5,595 $25,682 $22,495
Income taxes paid (received) 2,035 (100) 2,335 200
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 13
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EARNINGS (DEFICIT)
REINVESTED IN THE BUSINESS AND PREMIUM ON COMMON STOCK
FOR THE THREE AND NINE MONTHS ENDED
JUNE 30, 1995 AND 1994 (Thousands of Dollars)
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ------------------
1995 1994 1995 1994
-------- -------- -------- --------
Balance at beginning of period $(48,745) $ 11,845 $(61,339) $ 8,457
Net income (loss) (5,624) (48,916) 18,859 (33,160)
Excess premium -
preferred redemption - - - (673)
Dividends declared on capital stock:
Common stock (5,984) (5,878) (17,873) (17,564)
Preferred stock:
5%, Series A - - - (3)
6%, Series B - - - (1)
8-7/8%, Series C - - - (5)
-------- -------- -------- --------
Balance at end of period $(60,353) $(42,949) $(60,353) $(42,949)
======== ======== ======== ========
CONSOLIDATED STATEMENTS OF PREMIUM ON COMMON STOCK
Balance at beginning of period $201,185 $198,600 $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 option plans 124 147 238 482
Excess of purchase price over par
value of shares of common stock
issued under the Dividend Rein-
vestment and Stock Purchase Plan 668 930 2,338 3,014
Common and preferred stock expense (3) (13) (173) (1,257)
-------- -------- -------- --------
Balance at end of period $201,974 $199,664 $201,974 $199,664
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 14
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED
JUNE 30, 1995 AND 1994
(Thousands of Dollars)
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
-------- -------- -------- --------
OPERATING REVENUES:
Regulated utility sales $ 75,124 $ 72,455 $374,632 $346,245
-------- -------- -------- --------
Total operating revenues 75,124 72,455 374,632 346,245
-------- -------- -------- --------
OPERATING EXPENSES:
Purchases of gas 36,237 40,811 199,939 198,623
Utility operations and maintenance 16,249 26,789 46,557 61,629
Other operations 262 325 635 1,333
Depreciation 8,420 7,643 25,378 22,932
General taxes 8,831 8,919 34,932 31,987
Federal income taxes (1,227) (8,262) 14,037 451
-------- -------- -------- --------
Total operating expenses 68,772 76,225 321,478 316,955
-------- -------- -------- --------
OPERATING INCOME (LOSS) 6,352 (3,770) 53,154 29,290
OTHER INCOME (EXPENSE), NET (307) (5,963) (672) (4,708)
-------- -------- -------- --------
GROSS INCOME (LOSS) 6,045 (9,733) 52,482 24,582
INTEREST CHARGES 7,945 7,235 23,878 23,172
-------- -------- -------- --------
NET INCOME (LOSS) (1,900) (16,968) 28,604 1,410
DIVIDENDS ON PREFERRED STOCK 1,755 1,117 5,371 2,861
EXCESS PREMIUM - PREFERRED REDEMPTION - - - 798
-------- -------- -------- --------
EARNINGS (LOSS) ON COMMON STOCK $ (3,655)$(18,085) $ 23,233 $ (2,249)
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 15
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS - JUNE 30, 1995, (UNAUDITED)
SEPTEMBER 30, 1994 AND JUNE 30, 1994 (UNAUDITED)
(Thousands of Dollars)
ASSETS
June September June
30, 1995 30, 1994 30, 1994
---------- ---------- ----------
UTILITY PLANT, at original cost $1,022,438 $ 977,406 $ 965,741
Accumulated provision for depreciation (258,781) (239,520) (238,830)
---------- ---------- ----------
Net utility plant 763,657 737,886 726,911
---------- ---------- ----------
RECEIVABLES FROM AFFILIATED COMPANIES 751 2,020 2,320
---------- ---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 4,013 427 1,381
Receivables, net 14,654 53,386 37,272
Materials and supplies, at average cost 22,462 25,360 19,641
---------- ---------- ----------
Total current assets 41,129 79,173 58,294
---------- ---------- ----------
OTHER ASSETS AND DEFERRED CHARGES:
Environmental insurance receivables 37,647 33,947 31,930
Regulatory tax asset 18,810 18,810 18,767
Deferred charges and other 16,646 13,180 7,307
---------- ---------- ----------
Total other assets and deferred
charges 73,103 65,937 58,004
---------- ---------- ----------
Total assets $ 878,640 $ 885,016 $ 845,529
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 16
(Continued)
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS - JUNE 30, 1995 (Unaudited),
SEPTEMBER 30, 1994 AND JUNE 30, 1994 (Unaudited)
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
June September June
30, 1995 30, 1994 30, 1994
---------- --------- ---------
CAPITALIZATION (see statements):
Common shareholder's interest $263,127 $235,988 $246,369
Redeemable preferred stock 90,000 90,000 60,000
Long-term debt 265,060 290,200 330,200
--------- --------- ---------
Total capitalization 618,187 616,188 636,569
--------- --------- ---------
CURRENT LIABILITIES:
Current sinking fund requirements
and debt maturities 65,140 60,140 20,140
Accounts payable 51,699 30,914 20,117
Other current liabilities 11,467 20,574 21,879
Accrued general taxes 11,655 11,869 10,359
Environmental remediation liabilities 4,950 6,199 9,446
--------- --------- ---------
Total current liabilities 144,911 129,696 81,941
--------- --------- ---------
PAYABLES TO AFFILIATED COMPANIES 11,321 39,828 24,493
--------- --------- ---------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 68,264 64,314 66,271
Regulatory tax liabilities 12,560 12,560 13,139
Unamortized investment tax credits 9,547 10,132 10,319
Contributions in aid of construction 13,850 12,298 11,627
Other - 1,170
--------- --------- ---------
Total deferred credits and
other liabilities 104,221 99,304 102,526
--------- --------- ---------
Total capitalization and liabilities $ 878,640 $ 885,016 $ 845,529
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 17
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CAPITALIZATION
JUNE 30, 1995 AND 1994
(Thousands of Dollars)
(Unaudited)
1995 1994
-------- --------
COMMON SHAREHOLDER'S INTEREST:
Common stock, $5 par value;
authorized 25,000,000 shares,
outstanding 10,946,209 and
10,718,938 shares $ 54,731 $ 53,595
Premium on common stock 167,026 163,867
Shareholder's earnings reinvested
in the business 41,370 28,907
-------- --------
Total common shareholder's
263,127 246,369
interest
-------- --------
REDEEMABLE PREFERRED STOCK: Shares
Cumulative; authorized Outstanding
1,000,000 shares of $100 par -------------------
value and 4,000,000 shares 1995 1994
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 -
-------- --------
Total preferred stock 90,000 60,000
-------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 18
(Continued)
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CAPITALIZATION
JUNE 30, 1995 AND 1994
(Thousands of Dollars)
(Unaudited)
1995 1994
-------- --------
LONG-TERM DEBT:
First Mortgage Bonds
9.96% due 1995 40,000 40,000
8.80% called in 1995 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
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
-------- --------
330,200 350,340
-------- --------
Less sinking-fund requirements
and debt maturities included in
current liabilities (65,140) (20,140)
-------- --------
Total long-term debt 265,060 330,200
-------- --------
TOTAL CAPITALIZATION $618,187 $636,569
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 19
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTHS
ENDED JUNE 30, 1995 AND 1994
(Thousands of Dollars)
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
-------- -------- -------- --------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,900) $(16,968) $ 28,604 $ 1,410
-------- -------- -------- --------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 8,507 7,742 25,652 23,225
Provision for uncollectible
accounts receivable 181 219 848 1,049
Increase (decrease) in:
Federal income tax - current (2,171) (10,715) 10,729 (8,131)
Federal income tax - deferred 1,090 1,022 3,363 3,197
Accounts receivable 20,331 22,956 19,518 21,391
Accounts payable 1,162 (7,700) 20,785 (6,547)
Materials and supplies (6,770) (5,688) 2,898 19,965
Deferred charges (1,630) 4,917 (7,334) (9,277)
Other assets and liabilities (2,353) 6,670 (526) 17,628
Other (764) (199) (1,211) 1,665
-------- -------- -------- --------
Total adjustments 17,583 19,224 74,722 64,165
-------- -------- -------- --------
Net cash provided by operating
activities 15,683 2,256 103,326 65,575
-------- -------- -------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Utility plant additions (16,205) (21,645) (50,437) (66,130)
-------- -------- -------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 20
(Continued)
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTHS
ENDED JUNE 30, 1995 AND 1994
(Thousands of Dollars)
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
-------- -------- -------- --------
CASH FLOW PROVIDED BY (USED IN) FINANCING
ACTIVITIES:
Proceeds from issuance of common stock 1,175 1,603 4,079 4,795
Proceeds from issuance of preferred
stock - (13) - 58,780
Repayments of payables to affiliated
companies, net 548 22,787 (28,507) (25,316)
Redemptions and repurchases:
Preferred stock - - - (23,398)
Long-term debt - (3,200) (20,140) (3,340)
Cash dividend payments:
Common - (4,260) - (16,937)
Preferred - (1,118) (4,735) (2,421)
-------- -------- -------- --------
Net cash provided by (used in)
financing activities 1,723 15,799 (49,303) (7,837)
-------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,201 (3,590) 3,586 (8,392)
BEGINNING CASH AND CASH EQUIVALENTS 2,812 4,971 427 9,773
-------- -------- -------- --------
ENDING CASH AND CASH EQUIVALENTS $ 4,013 $ 1,381 $ 4,013 $ 1,381
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of amount capitalized) $ 5,279 $ 3,877 $20,709 $18,549
Income taxes - - - -
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 21
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EARNINGS
REINVESTED IN THE BUSINESS AND PREMIUM ON COMMON STOCK
FOR THE THREE AND NINE MONTHS ENDED
JUNE 30, 1995 AND 1994
(Thousands of Dollars)
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
-------- -------- -------- --------
Balance at beginning of period $ 45,024 $ 51,253 $ 18,137 $ 48,094
Net income (loss) (1,900) (16,968) 28,604 1,410
Excess premium -
preferred redemption - - - (798)
Cash dividends declared:
Common stock - (4,260) - (16,938)
Cumulative preferred stock:
7.45%, Series II (1,118) (1,118) (3,354) (2,861)
8.50%, Series III (636) - (2,017) -
-------- -------- -------- --------
Balance at end of period $ 41,370 $ 28,907 $ 41,370 $ 28,907
======== ======== ======== ========
STATEMENTS OF PREMIUM ON COMMON STOCK
Balance at beginning of period $166,104 $162,619 $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 Plan 151 170 288 350
Excess of purchase price over par
value of shares of common stock
issued under the parent company's
Dividend Reinvestment and Stock
Purchase Plan 774 1,091 2,933 3,472
Common and preferred stock expense (3) (13) (173) (1,242)
-------- -------- -------- --------
Balance at end of period $167,026 $163,867 $167,026 $163,867
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 22
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
subsidiaries are Washington Natural Gas Company ( Washington Natural ) and
its wholly-owned subsidiaries; 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 three months and nine months ending June 30,
1995, include the Company s 9.4 percent share, based on common stock
ownership, of the operating results of Cabot using the equity method of
accounting and the preferred dividends of Cabot in Other income
(expense). The prior year statements reflect Resources on a basis
consistent with the presentation of Cabot. Certain amounts in the 1994
financial statements have been reclassified to conform with the 1995
presentation.
In the opinion of management, all adjustments necessary for a fair
presentation of the results for the three-month and nine-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
consolidated condensed financial statements.
3. There are no formal restrictions on payment of common dividends by Washing-
ton 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 Indentures of Washington Natural and the preferential
dividend rights of holders of Washington Natural preferred stock. At
June 30, 1995, $41,368,000 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 does not intend to pay dividends to
Washington Energy prior to the end of the Company's September 30, 1995
fiscal year since Washington Natural normally incurs seasonal losses in the
latter part of the fiscal year which would reduce Washington Natural's
retained earnings.
4. Washington Natural is the former operator of, or the successor to a former
operator of, several manufactured gas plants in Western Washington. The
following sites are currently undergoing investigation, remedial or
monitoring actions relating to environmental contamination: (1) the
Tideflats area of Tacoma, Washington; (2) Everett, Washington; and (3)
Chehalis, Washington. There is another former manufactured gas plant site
situated at 22nd and A Streets in Tacoma, Washington, where Washington
PAGE 23
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
(contd.)
Natural has incurred costs, primarily for legal defense, because Washington
Natural does not believe that it has responsibility as a successor to a
former operator(s). This other site is not expected to result in a
significant liability to Washington Natural.
The financial statements reflect management's estimates of the costs to be
incurred, based on known and available information with regard to the
extent of contamination and the potential methods of cleanup believed to be
feasible at each site. Washington Natural is continually evaluating the
progress at each site and the cost estimates will be revised, if necessary,
as new information is available. The financial statements reflect the
expected recovery of a significant portion of the total cleanup costs as
discussed in greater detail below.
The following table summarizes the expected costs, the costs recorded
through June 30, 1995, the expected recoveries from insurance companies
and other parties and the actual recoveries through June 30, 1995, for
each of the three sites:
Tideflats Everett Chehalis
Estimated total
investigation, legal
remediation, and
financing costs $ 44,929,000 $ 3,250,000 $ 2,000,000
Actual costs paid
to date 44,412,000 174,000 948,000
------------ ------------ ------------
Balance expected to
be paid $ 517,000 $ 3,076,000 $ 1,052,000
============ ============ ============
Expected recoveries
from insurance
companies and
other parties $ 43,738,000 $ 3,250,000 $ 2,000,000
Actual recoveries
received to date 11,882,000 - -
------------ ------------ ------------
Balance expected to
be recovered $ 31,856,000 $ 3,250,000 $ 2,000,000
============ ============ ============
The remediation activities at the Tideflats site were completed as of
May 1995. All known sources of contamination have been identified and
remediated. Monitoring equipment is in the process of being installed
at the site. In the future, ongoing monitoring and maintenance costs
which will be expensed as incurred and are not estimated to be material.
PAGE 24
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
(contd.)
The Everett site is the subject of a remedial investigation study for
scheduled for completion in August 1995. A feasibility study to
determine the appropriate method of remediation is scheduled for
completion in December 1995. The estimated total cost of the studies of
$1,250,000 was expensed in the fiscal year ended September 30, 1994.
Washington Natural cannot reasonably estimate the full extent of future
remediation costs at the Everett site until more information is available
from the remedial investigation and feasibility studies. However, a
reserve for remediation costs of $2,000,000 has been established based on
the preliminary information obtained during the investigation.
The Chehalis site has been undergoing investigation and remediation
activities since September 1992. The original cost estimate for the
remediation was $200,000. Due to additional contamination found at the
site and complications encountered in the remediation process, the
estimated cost of the cleanup was increased by $1,800,000.
Washington Natural sold the site of a former manufactured gas plant at
Lake Union, now known as "Gas Works Park," to the City of Seattle on
September 4, 1962. The City of Seattle, in a letter from the Seattle
City Attorney dated February 24, 1995, requested that Washington Natural
participate in the cleanup of this site. The letter also indicated that
if Washington Natural does not participate, the City of Seattle will
pursue legal remedies which the city believes are available. Washington
Natural believes that the contract, which sold the land to the City of
Seattle, presents substantial defenses against any claims the City of
Seattle may make for environmental remediation costs, which may be
incurred at this site. Because the extent of contamination at the site
is unknown and the City of Seattle has not formally initiated any legal
proceedings, the course of events at this site cannot be predicted. Thus
Washington Natural has not recorded any liability with respect to the Gas
Works site as of June 30, 1995. To the extent that Washington Natural
may be required under state or federal statutes to incur remediation
costs as a potentially liable party, it is believed that Washington
Natural will have substantial contractual recourse against the City of
Seattle.
As indicated above, Washington Natural's financial statements as of
June 30, 1995, include environmental insurance receivables in the amount
of $37,647,000 primarily related to the Tideflats, Everett, and Chehalis
sites, based upon successful litigation against its insurers regarding the
Tideflats site. In June 1991, Washington Natural filed a lawsuit in King
County Superior Court, State of Washington, against certain insurance
companies that provided insurance applicable to the Tideflats site 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 certain insurer
defendants in the action. The liability of these defendant insurers is
joint and several, up to the annual limits of their policies, subject to
relevant underlying limits. These defendants have appealed the judgment
PAGE 25
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
(contd.)
to the Washington State Court of Appeals; however, Washington Natural does
not believe the appeal will be successful. Although the factual situation
at the other sites differs in some respects from the factual situation at
the Tideflats site, Washington Natural believes, based on the precedent
established in the Tideflats case and discussion with legal counsel,
believes it is probable that it has insurance coverage sufficient to
recover substantially all the remediation costs at the other former gas
plant sites.
Based on all known facts and analyses, Washington Natural believes it is
not likely that the identified environmental liabilities, after
consideration of recoveries from insurance and other third parties and the
judgment entered against certain insurance companies, will result in a
material adverse impact on Washington Natural's financial position,
operating results and cash flow trends.
5. A class-action lawsuit was filed against Washington Energy and two of its
officers, one of which has subsequently retired, (collectively, the
Defendants) 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, the Defendants 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. The
plaintiffs have appealed to the U.S. Court of Appeals for the Ninth
Circuit; however, in management's opinion, the District Court s decision
should be upheld on appeal.
6. 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 alleged that Washington Natural has monopolized or attempted to
monopolize the market for natural gas in central western Washington. Cost
Management also alleged 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 Washington Utilities and
Transportation Commission (WUTC) and that it wrongfully interfered with
Cost Management's relationships with its customers. Cost Management
sought injunctive relief and damages in an unspecified amount. Washington
Natural filed a motion to dismiss the lawsuit which was granted on
PAGE 26
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
(contd.)
May 5, 1995. In dismissing Cost Management s action the court ruled that
the state action doctrine provides antitrust immunity for conduct done
pursuant to a clearly articulated and actively supervised state policy,
where unfettered competition is replaced with regulation. In dismissing
the federal antitrust claims, the court declined to retain jurisdiction
over Cost Management s state law claims which were dismissed without
prejudice. Cost Management has filed an appeal in the 9th Circuit Court
and it has filed a new lawsuit in Superior Court in King County, which was
stayed pending the U.S. District Court appeal; however, in management s
opinion, the District Court decision should be upheld on appeal and the
suit in the Superior Court is unlikely to succeed.
7. On April 10, 1995, the State of Montana s Department of State Lands (DSL)
issued a decision not to extend the time in which Montco, a Montana
limited partnership in which the Company has a material interest, could
commence coal mining operations under its surface mining permit,
effectively terminating the surface mining permit. DSL further indicated
that Montco could reapply for a surface mining permit. On June 15, 1995,
Montco filed a complaint in Montana District Court requesting that the
Court order DSL to issue to Montco a renewal of its surface mining permit
and an extension of time in which to commence mining activities. DSL s
April 10th decision is not expected to have a material impact on the
Company s plans or its ability to realize its investment in the mineral
rights.
8. Current maturities of long-term debt include $25,000,000 related to the
early call of the 8.80% First Mortgage Bonds with an original maturity
date of August 1, 1996. These bonds will be redeemed prior to
September 30, 1995, using either proceeds from a new issue of secured
medium-term notes or short-term borrowings.
PAGE 27
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
The Company reported a loss from continuing operations of $5.6 million for the
quarter ended June 30, 1995, compared to $48.8 million for the same quarter a
year ago. Income from continuing operations for the first nine months of
fiscal 1995 of $18.9 million compared to a loss of $33.0 million for the same
period a year ago. Losses per share on common stock were $.23 for the quarter
June 30, 1995, compared with a loss of $2.08 a year ago. Earnings per share
on common stock were $.79 during the first nine months of fiscal 1995,
compared with a loss of $1.44 for the same period a year ago. Net loss of the
principal subsidiary, Washington Natural, was $1.9 million for the quarter,
compared to a $17.0 million loss for the same period last year. Net income
for the first nine months of fiscal 1995 was $28.6 million compared with a net
loss of $2.2 million in 1994.
The Company s utility operating results are directly impacted by weather.
Despite weather being 11 percent warmer than normal and 4 percent warmer than
1994, the Company s fiscal 1995 financial results to date improved due
primarily to (1) a $19 million general utility rate increase granted in June
1994, (2) a $17.5 million general utility rate increase granted in May 1995,
(3) continued growth in the number of utility customers which increased
approximately 21,000 to 468,000, (4) a decrease in utility operating and
maintenance costs which resulted primarily from a reduction in employment
levels in the summer of 1994, and (5) the merger of Resources with a
subsidiary of Cabot in May 1994 which resulted in $29.0 million in related
losses in the quarter ended June 1994.
Operating Revenues
The Company's operating revenues of $78.9 million for the quarter ended
June 30, 1995, were essentially flat compared with the same period a year ago,
because the improved revenues at the utility were offset by the decline in
merchandising revenues. Utility revenues of $75.1 million were up 3.7% from
the same period last year, due primarily to the June 1994 $19 million rate
increase. Utility revenues year-to-date were up 8.2% primarily due to the
June 1994 rate increase. The utility served nearly 21,000, or 5%, more
customers in the current period compared to a year ago.
Merchandise and other revenues of $3.7 million were recorded by Services for
the quarter, compared to $7.2 million for the same period a year ago,
Merchandise revenues for the nine months year-to-date were $18.0 million
compared to $31.0 million for the same period in fiscal 1994. The elimination
of joint marketing and the reorganization of the merchandise functions into
Services, a new subsidiary on October 1, 1993 have negatively impacted
Service's ability to market its products and generate sales.
Operating Expenses
The Company's operating expenses of $72.3 million, including federal income
taxes, were down $11.6 million for the three months ended June 30, 1995
compared with the same period a year ago. Operating expenses were down $8.2
million
PAGE 28
for the first nine months of fiscal 1995 from the same period last year. The
decrease in operating expenses was due primarily to the workforce reduction at
the utility and other one-time charges incurred in the third quarter ended
June 1994.
Significant Cash Flow and Balance Sheet Changes
The three and nine month periods ended June 30, 1995, were significantly
impacted by the positive cash flow resulting from the change in the purchased
gas adjustment receivable.
As discussed in more detail in the future outlook section of Management's
Discussion and Analysis, Washington Natural is permitted by the WUTC to
accumulate in balancing accounts the differences between purchased gas costs
authorized to be passed through to rate payers and actual cost of purchased
gas. At September 30, 1994 Washington Natural had a purchased gas adjustment
receivable of approximately $21.3 million. As of June 30, 1995 the purchased
gas adjustment was a liability of $22.0 million because as natural gas prices
declined during the three and nine months ended June 30, 1995, Washington
Natural was able to purchase gas at costs lower than the costs currently being
recovered in rates, thereby incurring an obligation to be passed through to
rate payers in the future. The swing in the purchased gas adjustment
balancing account from a receivable to a payable resulted in positive cash
flow which was used to pay down debt. During the nine months ended June 30,
1995, on a consolidated basis, total debt was reduced by $19.8 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company s capital expenditure requirements which relate primarily to
Washington Natural s 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 the issuance of 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's capital investment requirements for the first nine months of
fiscal 1995 were $51.8 million. This compares to capital investment
requirements for the first nine months of fiscal 1994 of $67.9 million. The
fiscal 1995 requirements were met through cash provided from operations.
In addition to its capital expenditure 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 over half of annual revenues are derived from customers who use
natural gas primarily for space heating. This normally produces substantially
increased operating earnings and cash flow during the first eight or nine
months of each fiscal year and a seasonal loss and negative cash flow in the
remaining three or four months, with the 12 months as a whole being
profitable and generating positive operating cash flow. 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.
PAGE 29
On March 31, 1995, the Company entered into a new short-term credit agreement
with a lending group composed of nine commercial banks. The agreement
provides for a revolving credit facility up to an aggregate amount of $250
million. Generally, advances will bear interest at market rates.
This new agreement primarily provides credit support for various short-term
financing arrangements.
Additionally, WNG has an agreement to sell up to $90 million of merchandise
and gas receivables. The borrowing capacity under the latter agreement is
effectively limited by the availability of receivables to sell. The Company
also has a $25 million uncommitted credit line from a bank.
It is the opinion of management that the Company has and will have sufficient
capital resources, both internal and external, to meet anticipated cash flow
requirements.
ENVIRONMENTAL MATTERS
In management's opinion, based on all known 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
On May 11, 1995, the WUTC issued an order approving a settlement of the
general rate case filed (revenue minus purchased gas cost) in March 1995.
The order provides an additional $17.7 million in margin for the utility, to
cover increased costs related to plant additions and upgrades and higher
costs for financing and general operations. The increase in margin reflects
an authorized rate of return on common equity in the range of 11 to 11.25
percent, up from the previous level of 10.5 percent. The WUTC also
stipulated that Washington Natural will be allowed to earn in excess of that
range to the extent that it can do so by managing its cost of service. The
order also implements a rate redesign ordered by the WUTC on April 11, 1995
to better reflect the cost of service of various classes of customers.
Generally, the rate redesign lowers rates for transportation and most
commercial and industrial customers while increasing the rates for
residential and certain large-volume industrial customers.
In a separate decision on May 11, 1995, the WUTC issued an order to implement
a purchased gas adjustment of $46.5 million on an annual basis as requested
by Washington Natural. The purchased gas adjustment is the mechanism whereby
Washington Natural passes through to its customers changes in the cost of
gas it purchases without impacting its operating income. The purchased gas
adjustment enables Washington Natural to adjust its rates with approval of
the WUTC to fully recover its projected future cost of gas. Differences
between actual and projected gas costs are accumulated in balancing accounts
for recovery from or refund to customers as part of a future purchased gas
adjustment. Natural gas prices have declined in recent months which has
resulted in Washington Natural accumulating a liability to its customers in
balancing accounts, based on the preceeding purchased gas adjustment approved
by the WUTC in July 1993. The $46.5 million purchased gas adjustment will
pass through to customers the amount previously accumulated in the balancing
PAGE 30
accounts and Washington Natural s projection of continuing lower gas prices
in the future without impacting Washington Natural s operating income.
The above actions by the WUTC resolved all the outstanding rate issues. All
rate adjustments took effect on May 15, 1995. As part of the May 1995 rate
increase, Washington Natural agreed not to make a tariff filing for a general
rate case prior to May 15, 1997. Washington Natural, however, is not
precluded from filing for interim/emergency rate relief if conditions warrant
such rate relief. The settlement of the general rate case and the rate
redesign are key elements in improving the Company's future financial
performance. In addition to improving the Company's profitability, these
changes combined with the purchased gas cost adjustment will enable the
Company to be more competitive in the energy marketplace.
The Company is also engaged in efforts to reduce costs and to reengineer the
Company's major operating processes and procedures. The results for the nine
months ended June 30, 1995, reflect the cost savings achieved primarily from
a workforce reduction at the utility in the summer of 1994. The Company has
contracted with a national consulting firm to assist in its reengineering
efforts. Consulting expenses for the reengineering project will be
approximately $4.5 million for all of fiscal 1995, but are expected to be
minimal in fiscal 1996 and beyond as the Company implements the redesigned
processes now being developed. The Company expects approximately $3 to $5
million in annual savings beginning in fiscal 1996 from the Reengineering
efforts.
COMMON DIVIDEND
The Company has paid a dividend of 25 cents per share in each of the quarters
ended December 31, 1994, March 31, 1995, and June 30, 1995. The Company
expects that the quarterly dividend of 25 cents per share will be maintained.
For federal income tax purpose of the Company s shareholders, the dividend
paid in the first quarter ended December 31, 1994 was fully taxable.
However, the Company anticipates that the dividends paid in the second, third
and fourth quarters of fiscal 1995 will be partially or fully nontaxable
return of capital distributions. The exact portion which will be a return of
capital will be reported to shareholders on the tax information Form 1099-DIV
in early January 1996.
PAGE 31
PART II - OTHER INFORMATION
Item 5. Ratio of Earnings to Fixed Charges
The ratios of earnings to fixed charges for the twelve months ended
June 30, 1995 and 1994 were 1.89 and .77, respectively. Earnings
for the twelve months ended June 30, 1994, were inadequate to cover
fixed charges and the coverage deficiency was $7,156,000.
Item 6. Exhibits and Reports on Form 8-K filed during the Quarter Ended
June 30, 1995.
(a) Exhibits - None
(b) Reports on Form 8-K.
A report on Form 8-K was filed by Washington Energy and Washington Natural on
May 2, 1995, regarding the rate case settlement of $17.7 million for the
utility and the Company's operating results for the quarter ended March 31,
1995.
A report on Form 8K was filed by Washington Energy and Washington Natural on
May 17, 1995, regarding an antitrust lawsuit brought by Cost Management
Services, Inc. against Washington Natural. The U.S. District Court for the
Western District of Washington dismissed the suit citing the state action
doctrine as a bar to antitrust claims against Washington Natural.
PAGE 32
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 Chief Financial Officer
(the 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 Chief Financial Officer
(the Principal Financial Officer)
August 15, 1995