SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1995
Commission File Number 1-7196
CASCADE NATURAL GAS CORPORATION
(Exact name of registrant as specified in its charter)
Washington 91-0599090
(State of incorporation or organization) (IRS Employer
Identification Number)
222 Fairview Avenue North
Seattle, Washington 98109
(Address of principal executive office (Zip Code)
Registrant's telephone number 206-624-3900
including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1995
- ----------------------------- -------------------------------
Common Stock, $1.00 par value 9,105,367
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- ---------------------------
Sep. 30, 1995 Sep. 30, 1994 Sep. 30, 1995 Sep. 30, 1994
------------- ------------- ------------- -------------
(dollars in thousands except per share data)
Operating revenues:
Gas sales $23,563 $26,807 $117,879 $125,395
Transportation revenue 2,923 2,032 7,819 4,337
Other operating income 26 28 139 145
-------- -------- -------- --------
26,512 28,867 125,837 129,877
Less: Gas purchases 14,464 18,041 71,238 80,721
Revenue taxes 1,564 1,664 8,208 8,026
-------- -------- -------- --------
Operating margin 10,484 9,162 46,391 41,130
-------- -------- -------- --------
Cost of operations:
Operating expenses 7,454 7,359 23,470 22,846
Depreciation and amortization 2,972 2,539 8,273 7,486
Property and payroll taxes 1,049 1,035 3,116 3,169
-------- -------- -------- --------
11,475 10,933 34,859 33,501
-------- -------- -------- --------
Earnings (loss) from operations (991) (1,771) 11,532 7,629
Less interest and other
deductions - net 2,425 1,956 7,157 5,666
-------- -------- -------- --------
Earnings (loss) before income taxes (3,416) (3,727) 4,375 1,963
Income taxes (1,099) (1,397) 1,842 757
-------- -------- -------- --------
Net earnings (loss) (2,317) (2,330) 2,533 1,206
Preferred dividends 136 141 408 422
-------- -------- -------- --------
Net earnings (loss) available to
Common Shareholders ($2,453) ($2,471) $2,125 $784
======== ======== ======== ========
Common shares outstanding:
Weighted average 9,063 8,812 8,977 8,675
End of period 9,098 8,851 9,098 8,851
Net earnings (loss) per common share ($0.27) ($0.28) $0.24 $0.09
======== ======== ======== ========
Cash dividends per common share $0.24 $0.24 $0.72 $0.72
======== ======== ======== ========
PART I. (Continued)
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
Sep 30, 1995 Dec. 31, 1994
------------ ------------
(dollars in thousands)
ASSETS
Utility Plant, net after accumulated
depreciation of $136,248 and $127,806 $221,222 $206,057
Construction work in progress 5,896 7,872
--------- ---------
227,118 213,929
--------- ---------
Other Assets:
Investments 918 919
Notes receivable, less current maturities 2,335 2,915
--------- ---------
3,253 3,834
--------- ---------
Current Assets:
Cash and cash equivalents 718 3,949
Securities available for sale 2,054 1,466
Accounts receivable, less allowance of $409
and $461 for doubtful accounts 10,820 28,885
Current maturities of notes receivable 868 988
Materials, supplies and inventories 6,124 5,583
Prepaid expenses and other assets 2,689 1,653
--------- ---------
23,273 42,524
--------- ---------
Deferred Charges 13,642 12,010
--------- ---------
$267,286 $272,297
========= =========
COMMON SHAREHOLDERS' EQUITY,
PREFERRED STOCKS AND LIABILITIES
Common Shareholders' Equity:
Common stock, par value $1 per share
Authorized, 15,000,000 shares
Issued and outstanding 9,098,133
and 8,911,661 shares $9,098 $8,912
Additional paid-in capital 70,400 67,992
Retained earnings 6,424 10,806
--------- ---------
85,922 87,710
--------- ---------
Redeemable Preferred Stocks, aggregate
redemption amount of $7,479 and $7,499 7,200 7,217
--------- ---------
Long-term Debt 100,000 100,000
--------- ---------
Current Liabilities:
Notes payable 19,001 14,501
Accounts payable 7,513 18,366
Property, payroll and excise taxes 3,004 4,541
Dividends and interest payable 6,236 4,202
Other current liabilities 2,015 1,620
Current maturities of long-term debt 5,000 5,000
--------- ---------
42,769 48,230
--------- ---------
Deferred Credits:
Gas cost changes 5,187 4,407
Other 26,208 24,733
--------- ---------
31,395 29,140
--------- ---------
Commitments and Contingencies - -
--------- ---------
$267,286 $272,297
========= =========
PART I (Continued)
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended Sep. 30
-------------------------
1995 1994
(dollars in thousands)
Operating Activities:
Net earnings $2,533 $1,206
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 8,998 8,346
Amortization of gas cost changes 2,520 (3,196)
Increase in deferred income taxes 1,506 1,448
Decrease in deferred investment tax credits (180) (203)
Cash provided (used) by changes in operating assets and liabilities:
Accounts receivable 18,063 16,380
Income taxes (1,716) (2,589)
Inventories 169 17
Gas cost changes (1,740) 121
Deferred items (1,793) (722)
Accounts payable and accrued expenses (9,587) (12,575)
Prepaid expenses and other assets 310 (77)
Other (4) (109)
--------- ---------
Net cash provided by operating activities 19,079 8,047
--------- ---------
Investing Activities:
Capital expenditures (22,586) (18,890)
New consumer loans (793) (1,046)
Receipts on consumer loans 1,492 2,070
Purchase of securities available for sale (1,813) (724)
Proceeds from securities available for sale 1,230 -
--------- ---------
Net cash used by investing activities (22,470) (18,590)
--------- ---------
Financing Activities:
Issuance of common stock, net 1,821 3,828
Redemption of preferred stock (17) (25)
Proceeds from notes payable, net 4,500 10,439
Dividends paid (6,144) (6,122)
--------- ---------
Net cash provided by financing activities 160 8,120
--------- ---------
Net Decrease in Cash and Cash Equivalents (3,231) (2,423)
Cash and Cash Equivalents:
Beginning of period 3,949 3,138
--------- ---------
End of period $718 $715
========= =========
PART I. (Cont.)
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three Month and Nine Month Periods Ending September 30, 1995
The preceding statements were taken from the books and records of the Corporation and
reflect all adjustments which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods. All adjustments were of a normal and
recurring nature.
Because of the highly seasonal nature of the business, earnings or loss for any
portion of the year are disproportionate in relation to the full year.
Reference is directed to the Notes to Consolidated Financial Statements contained in
the 1994 Annual Report on Form 10-K and comments included therein under "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity and Capital Resources
The seasonal nature of the Company's business creates short-term cash requirements to
finance customer accounts receivable and construction expenditures. To provide working capital
for these requirements, the Company has $40,000,000 of committed lines from three banks which
are used to support a money market facility of a similar amount. The Company also has
$30,000,000 of uncommitted lines from three banks. Long-term debt requirements are met
primarily through the issuance of Medium-Term Notes. At the end of the quarter there was
$100,000,000 outstanding and $50,000,000 registered under the Securities Act of 1933 and
available for issuance.
After preferred and common dividends of $6,144,000 there was $12,935,000 of cash flow
from year-to-date operations. This cash flow and proceeds of $1,821,000 from common stock
issued to participants in the dividend reinvestment plan and 401(k) plan were used primarily
for capital expenditures of $22,586,000 and reductions in short-term borrowing. Capital
expenditures for the remainder of the year are budgeted at $16,914,000 which will be funded
initially with operating cash flow and secondly from the lines of credit described above.
Management is also considering a preferred stock issue to provide the necessary long-term
capital.
Results of Operations
The seasonal third quarter 1995 net loss to common shareholders was $2,453,000, or $0.27
per share, compared to a net loss of $2,471,000, or $0.28 per share, for the quarter ended
September 30, 1994. The operating loss for the third quarter was $1 million, an improvement of
44% over the operating loss for the third quarter of 1994 despite a disappointing September
with estimated temperatures 50% warmer than normal.
For the nine months ended September 30, 1995, net earnings available to common
shareholders was $2,125,000, or $0.24 per share, a 167% improvement over the $.09 per share
earnings available to common shareholders for the nine months ended September 30, 1994.
Operating Margin was up $1,322,000, or 14% over the third quarter of 1994. Of the total
margin, core margin increased 22% due to a 7% increase in the number of residential customers
and a 4% increase in commercial customers as well as an increase in average therms consumed
per residential customer. Core margin also improved because of increases in Oregon rates to
cover costs associated with additional interstate transmission capacity to meet growth. These
costs were not covered in 1994 rates because such inclusion would have resulted in earnings in
excess of a 12.75% target rate of return on equity in that state. Non-core margin was up
$395,000, or 8%, resulting primarily from a significant increase in deliveries to an
industrial customer.
Margin and Throughput Changes
Third Quarter 1995 compared to 1994
Margin Contribution Throuput
($ in thousands) (thousands of therms)
Amount Percent Amount Percent
------ ------- ------ -------
Core $ 927 22.1% 959 4.0%
Non-Core 395 8.0% 9,958 5.6%
------ ------- ------ -------
Total $1,322 14.4% 10,917 5.4%
====== ======= ====== =======
Margin and Throughput Changes
Nine Months 1995 compared to 1994
Margin Contribution Throuput
($ in thousands) (thousands of therms)
Amount Percent Amount Percent
------ ------- ------ -------
Core $3,764 13.9% 8,230 5.8%
Non-Core 1,497 10.6% 49,258 10.2%
------ ------- ------ -------
Total $5,261 12.8% 57,488 9.2%
====== ======= ====== =======
Total customers increased by 6.3% during the twelve months ended September 30, 1995.
The growth rate was down from the 6.8% reported for the twelve months ended June 30, 1995 and,
as expected, continues to be less than the growth rate for 1994. With a residential market
saturation rate of only 46% and a solid price advantage over competing electric rates, the
market for converting existing buildings to gas should keep Cascade's customer growth rate
high compared to the national average of about 2%. Contrary to national trends, Cascade has
not experienced a decline in per customer consumption despite the installation of more
efficient appliances and better weather insulation of homes. In the less weather sensitive
industrial market, in 1996 we expect to add a fifth co-generation customer, a regional
distribution center for a national retailer, a silicon wafer manufacturer and a food
processor. Expected gross margin from these plants will approximate $1,800,000 annually.
Operating expenses for the quarter were up $95,000, or 1.3%, over the quarter ended
September 30, 1994. For the nine months, operating expenses were up $624,000, or 2.7%. After
a period of years with increases in total benefits and health care costs, Cascade has
experienced considerable moderation in these expenses in 1995. However, in 1996 we will be
incurring an increase in expense related to the amortization of deferred post retirement
medical benefits. The net effect will be an increase in benefits expense in 1996 by
approximately $1,450,000. The Company is seeking inclusion of this expense increase in rates
to customers.
Interest expense was up $469,000 for the quarter and $1,491,000 for the nine months
due primarily to an increase of $13,000,000 in long-term debt and increased average borrowings
under short-term credit arrangements to finance plant expansion.
The Company reported earlier the commencement in June of this year of negotiations to
seek a general rate increase in the state of Washington. As part of this negotiation process
the Company intends to file new rates by the end of November, 1995. It is hoped a conclusion
to this rate case can be reached in the first half of 1996.
Cascade has received and is investigating a claim of contamination of a former
manufactured gas site in Oregon once operated by a predecessor company. At this date there is
no estimate of the extent of clean-up costs, if any. To the extent the Company may be
responsible for such costs, it expects to seek contribution from its insurers and would seek
appropriate rate relief to the extent of any remaining expense incurred.
PART II OTHER INFORMATION
Item 2. Changes in Securities
Under the terms of its bank credit agreement, the Company is required to maintain a
minimum of $70,010,000 of net worth. Under this restriction approximately $15,912,000 was
available for the payment of dividends at September 30, 1995.
Item 5. Other Information
On January 6, 1995 the Company amended its articles of incorporation to reduce the
authorized amount of its $. 55 Cumulative Preferred Stock from 167,973 to 136,088. The
amendment did not require shareholder approval.
Ratio of Earnings to Fixed Charges
Twelve Months
Ended September 30, Year Ended December 31
- ----------------------- -------------------------------------
1995 1994 1994 1993 1992 1991 1990
2.16 2.21 2.07 2.86 1.97 2.45 2.48
For purposes of this calculation, earnings include income before income taxes plus fixed
charges. Fixed charges include interest expense and the amortization of debt issuance
expenses. Refer to Exhibit 12 for calculation of these ratios as well as the ratio of
earnings to fixed charges including preferred dividends.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
No. Description
--- -----------
3.1 Articles of incorporation as amended
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule UT, filed electronically via EDGAR only
b. Reports on Form 8-K:
No Form 8-K was filed during the quarter for which this report is filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
CASCADE NATURAL GAS COMPANY
(Registrant)
By /s/ J. D. Wessling
J. D. Wessling
Vice President - Finance
Chief Financial Officer
DATED: November 7, 1995