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FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended MARCH 31, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
----------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Commission Exact name of registrant as specified in its charter and States of I.R.S. Employer
File Number principal office address and telephone number Incorporation I.D. Number
1-1483 WASHINGTON GAS LIGHT COMPANY District of Columbia 53-0162882
1100 H Street, N.W. and Virginia
Washington, D.C. 20080
(703) 750-4440
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock $1.00 par value 46,480,143 April 30, 2000
- ---------------------------- ---------------- --------------
Class Number of Shares Date
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<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.................................................................... 2
Consolidated Balance Sheets......................................................... 2-3
Consolidated Statements of Income................................................... 4-5
Consolidated Statements of Cash Flows............................................... 6
Notes to Consolidated Financial Statements.......................................... 7-15
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................... 16-32
Item 3. Quantitative and Qualitative Disclosures About Market Risks
of the Company...................................................................... 33
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..................................... 33
Item 5. Other Information ...................................................................... 34
Item 6. Exhibits and Reports on Form 8-K........................................................ 34
SIGNATURE ............................................................................................ 35
</TABLE>
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WASHINGTON GAS LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
------------- -------------
(Unaudited)
(Thousands)
<S> <C> <C>
ASSETS
PROPERTY PLANT AND EQUIPMENT
At original cost $ 2,159,281 $ 2,114,071
Accumulated depreciation and amortization (739,516) (711,329)
------------- -------------
1,419,765 1,402,742
------------- -------------
CURRENT ASSETS
Cash and cash equivalents 20,170 26,935
Accounts receivable 195,299 74,295
Gas costs due from customers 3,872 5,127
Allowance for doubtful accounts (6,896) (6,626)
Accrued utility revenues 55,947 17,141
Materials and supplies--principally at average cost 17,174 17,207
Storage gas--at cost (first-in, first-out) 28,699 80,481
Deferred income taxes 17,833 19,662
Other prepayments--principally taxes 11,439 14,888
Other 1,654 648
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345,191 249,758
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DEFERRED CHARGES AND OTHER ASSETS
Regulatory assets 77,399 84,278
Other 35,300 29,946
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112,699 114,224
------------- -------------
Total Assets $ 1,877,655 $ 1,766,724
============= =============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated statements.
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<PAGE>
WASHINGTON GAS LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
------------- --------------
(Unaudited)
(Thousands)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity (Notes 4 and 5) $ 760,638 $ 684,034
Preferred stock (Note 4) 28,173 28,420
Long-term debt (Note 3) 506,963 506,084
------------- --------------
1,295,774 1,218,538
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CURRENT LIABILITIES
Current maturities of long-term debt 1,545 1,431
Notes payable 103,889 113,067
Accounts and wages payable 135,691 118,108
Dividends declared 14,756 14,507
Customer deposits and advance payments 8,010 15,853
Gas costs due to customers 5,134 11,321
Accrued taxes 43,478 5,226
Other 5,435 5,613
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317,938 285,126
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DEFERRED CREDITS
Unamortized investment tax credits 18,989 19,439
Deferred income taxes 160,108 156,495
Other 84,846 87,126
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263,943 263,060
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Total Capitalization and Liabilities $ 1,877,655 $ 1,766,724
============= ==============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated statements.
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<PAGE>
WASHINGTON GAS LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------
March 31, March 31,
2000 1999
-------------- --------------
(Thousands, Except Per Share Data)
<S> <C> <C>
UTILITY OPERATIONS
Operating Revenues $ 392,314 $ 392,481
Less: Cost of gas 200,214 195,310
Revenue taxes 15,540 15,730
------------- --------------
Net Revenues 176,560 181,441
------------- --------------
Other Operating Expenses
Operation 39,534 41,344
Maintenance 7,686 9,762
Depreciation and amortization 16,326 14,692
General taxes 5,905 5,992
Income taxes 35,282 36,999
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104,733 108,789
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Utility Operating Income 71,827 72,652
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NON-UTILITY OPERATIONS
Operating Revenues (Note 8)
Energy marketing 63,255 44,704
Heating, ventilating and air conditioning 11,679 8,758
Customer financing 1,111 1,023
Other non-utility revenues 244 452
Gain on sales of non-utility assets 346 --
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76,635 54,937
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Other Operating Expenses
Non-utility operating expenses 70,815 51,868
Income taxes 1,530 1,120
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72,345 52,988
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Non-Utility Operating Income 4,290 1,949
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TOTAL OPERATING INCOME 76,117 74,601
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Other Income (Expenses)--Net 425 (580)
------------- ---------------
INCOME BEFORE INTEREST EXPENSE 76,542 74,021
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INTEREST EXPENSE
Interest on long-term debt 9,043 8,596
Other 2,256 581
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11,299 9,177
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NET INCOME 65,243 64,844
DIVIDENDS ON PREFERRED STOCK 330 333
------------- --------------
NET INCOME APPLICABLE TO COMMON STOCK $ 64,913 $ 64,511
============= ==============
AVERAGE COMMON SHARES OUTSTANDING 46,475 46,293
============= ==============
EARNINGS PER AVERAGE COMMON SHARE--BASIC (Note 4) $ 1.40 $ 1.39
============= ==============
EARNINGS PER AVERAGE COMMON SHARE--DILUTED (Note 4) $ 1.39 $ 1.39
============= ==============
DIVIDENDS DECLARED PER COMMON SHARE $ 0.310 $ 0.305
============= ==============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated statements.
- 4 -
<PAGE>
<TABLE>
<CAPTION>
WASHINGTON GAS LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended
-----------------------------------
March 31, March 31,
2000 1999
-------------- --------------
(Thousands, Except Per Share Data)
<S> <C> <C>
UTILITY OPERATIONS
Operating Revenues $ 702,830 $ 689,830
Less: Cost of gas 365,116 354,229
Revenue taxes 27,222 26,799
-------------- --------------
Net Revenues 310,492 308,802
-------------- --------------
Other Operating Expenses
Operation 75,074 85,668
Maintenance 14,153 19,030
Depreciation and amortization 32,291 28,997
General taxes 10,365 11,529
Loss from agreement to sell utility property (Note 2) -- 3,300
Income taxes 57,766 52,122
-------------- --------------
189,649 200,646
-------------- --------------
Utility Operating Income 120,843 108,156
-------------- --------------
NON-UTILITY OPERATIONS
Operating Revenues (Note 8)
Energy marketing 107,009 67,892
Heating, ventilating and air conditioning 21,899 15,737
Customer financing 1,687 2,018
Other non-utility revenues 744 816
Gain on sales of non-utility assets 711 --
-------------- --------------
132,050 86,463
-------------- --------------
Other Operating Expenses
Non-utility operating expenses 122,964 83,103
Income taxes 2,781 1,229
-------------- --------------
125,745 84,332
-------------- --------------
Non-Utility Operating Income 6,305 2,131
-------------- --------------
TOTAL OPERATING INCOME 127,148 110,287
-------------- --------------
Other Income (Expenses)--Net (157) (1,370)
--------------- ---------------
INCOME BEFORE INTEREST EXPENSE 126,991 108,917
-------------- --------------
INTEREST EXPENSE
Interest on long-term debt 17,495 17,470
Other 4,474 1,688
-------------- --------------
21,969 19,158
-------------- --------------
NET INCOME 105,022 89,759
DIVIDENDS ON PREFERRED STOCK 663 666
-------------- --------------
NET INCOME APPLICABLE TO COMMON STOCK $ 104,359 $ 89,093
============== ==============
AVERAGE COMMON SHARES OUTSTANDING 46,472 45,584
============== ==============
EARNINGS PER AVERAGE COMMON SHARE--BASIC (Note 4) $ 2.25 $ 1.95
============== ==============
EARNINGS PER AVERAGE COMMON SHARE--DILUTED (Note 4) $ 2.24 $ 1.95
============== ==============
DIVIDENDS DECLARED PER COMMON SHARE $ 0.615 $ 0.605
============== ==============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated statements.
- 5 -
<PAGE>
WASHINGTON GAS LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------------
March 31, March 31,
2000 1999
--------------- --------------
(Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 105,022 $ 89,759
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
(USED IN) PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization<F1> 34,881 32,117
Deferred income taxes--net 7,801 (6,849)
Amortization of investment tax credits (450) (458)
Accrued/deferred pension cost--net (6,713) (39)
Allowance for funds used during construction (439) (972)
Loss from agreement to sell utility property (Note 2) -- 3,300
Other noncash charges (credits)--net (508) (177)
-------------- -------------
139,594 116,681
CHANGES IN ASSETS AND LIABILITIES
NET OF ACQUISITIONS AND DISPOSITIONS (Note 2)
Accounts receivable and accrued utility revenues (159,540) (117,643)
Gas costs due from/to customers--net (4,932) (3,121)
Storage gas 51,782 63,078
Other prepayments--principally taxes 3,449 1,823
Accounts payable 13,276 17,460
Wages payable 4,337 (110)
Customer deposits and advance payments (7,843) (10,384)
Accrued taxes 38,252 45,907
Deferred purchased gas costs--net 6,577 29,439
Other--net 974 (2,429)
-------------- -------------
Net Cash Provided by Operating Activities 85,926 140,701
-------------- -------------
FINANCING ACTIVITIES
Common stock issued -- 61,241
Long-term debt issued 1,830 27,196
Long-term debt retired (775) (19,925)
Debt issuance costs (118) (2,258)
Notes payable--net (9,178) (108,338)
Dividends on common and preferred stock (28,995) (27,696)
Other financing activities 443 76
-------------- -------------
Net Cash Used in Financing Activities (36,793) (69,704)
-------------- -------------
INVESTING ACTIVITIES
Capital expenditures (49,706) (75,251)
Investment in Limited Liability Company (4,800) --
Other investing activities (1,392) --
-------------- -------------
Net Cash Used in Investing Activities (55,898) (75,251)
-------------- -------------
DECREASE IN CASH AND CASH EQUIVALENTS<F2> (6,765) (4,254)
Cash and Cash Equivalents at Beginning of Period 26,935 17,876
-------------- -------------
Cash and Cash Equivalents at End of Period $ 20,170 $ 13,622
============== =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income taxes paid $ 19,354 $ 14,347
Interest paid $ 22,035 $ 19,988
<FN>
<F1>Includes amounts charged to other accounts.
<F2>Cash equivalents are highly liquid investments with a maturity of three
months or less when purchased.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated statements.
</FN>
</TABLE>
- 6 -
<PAGE>
WASHINGTON GAS LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1--GENERAL
ACCOUNTING MATTERS
These notes are an integral part of the accompanying consolidated
financial statements of Washington Gas Light Company (Washington Gas Light or
the Company) and its subsidiaries. In the opinion of Washington Gas Light, these
financial statements, including the notes hereto, reflect all adjustments (which
include only normal recurring adjustments) necessary for a fair statement of the
results for the periods presented. These financial statements should be read
together with Washington Gas Light's Annual Report on Form 10-K for the fiscal
year ended September 30, 1999. Certain amounts in the financial statements of
prior years have been reclassified to conform to the presentation of the current
year.
Due to the seasonal nature of Washington Gas Light's business, the
results of operations shown do not indicate the expected results for the fiscal
year ended September 30, 2000.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
In accordance with generally accepted accounting principles, management
makes estimates and assumptions regarding: 1) reported amounts of assets and
liabilities; 2) disclosure of contingent assets and liabilities at the date of
the financial statements; and 3) reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NOTE 2--RESTRUCTURING AND RELATED ORGANIZATIONAL CHANGES
CORPORATE STRUCTURE
At its March 3, 2000, Annual Meeting of Shareholders, Washington Gas
Light's shareholders voted to form a holding company known as WGL Holdings, Inc.
(WGL Holdings). Under the new structure, Washington Gas Light, as the regulated
utility, and the subsidiaries it currently holds, will each operate as separate
subsidiaries of WGL Holdings, Inc. WGL Holdings and Washington Gas Light are
taking the necessary steps to have the new structure in place this summer. These
steps include approval by the State Corporation Commission of Virginia (SCC of
VA) and the approval of an application that has been filed with the Securities
and Exchange Commission.
Upon the effective date of the reorganization, certificates previously
representing shares of Washington Gas Light common stock will automatically
represent the same number of shares of WGL Holdings common stock and will
entitle the holder to receive a certificate of WGL Holdings. After the
reorganization, all serial preferred stock of Washington Gas Light will remain
issued and outstanding as shares of Washington Gas Light serial preferred stock.
The dividend rate for the preferred stock will not be changed and those
dividends will continue to be paid by Washington Gas Light.
- 7 -
<PAGE>
All outstanding indebtedness and other obligations of Washington Gas
Light will remain as obligations of Washington Gas Light after the
reorganization. Immediately after the consummation of the merger, WGL Holdings,
Inc. will have no outstanding securities other than common stock, but could
issue other securities in the future. Holders of Washington Gas Light
medium-term notes will continue as security holders of Washington Gas Light.
SUBSIDIARY MERGERS
Shenandoah Gas Company--On September 29, 1999, the Company's Board of
-----------------------
Directors authorized a merger of a Company subsidiary, Shenandoah Gas Company
(Shenandoah), into Washington Gas Light to form a single corporation for the
regulated distribution of natural gas. On December 22, 1999, the SCC of VA
issued an order that approved the merger request, but required that Shenandoah
continue to operate as a division with separate accounting records until the
Company files, and the SCC of VA approves, a plan for the merger of the tariffs
for Washington Gas Light and Shenandoah. In the interim, the Company must
continue to fulfill longstanding regulatory reporting requirements for
Washington Gas Light and Shenandoah as separate entities.
Certificates of Merger were issued by the District of Columbia
Department of Consumer and Regulatory Affairs, effective March 22, 2000, and by
the SCC of VA, effective April 1, 2000. Shenandoah was merged into Washington
Gas Light effective April 1, 2000.
Virginia Intrastate Pipeline Company--Effective December 28, 1999, an
-------------------------------------
inactive Company subsidiary, Virginia Intrastate Pipeline Company (VIPCo) was
merged into Washington Gas Light. VIPCo was originally organized to construct
and operate a natural gas pipeline. Construction of the proposed project was
subsequently cancelled and, as a result, VIPCo has been inactive for a number of
years. VIPCo was inactive at the time of the merger.
NEW SUBSIDIARY
In January 2000, the Company established WG Maritime Plaza I, Inc. (WG
Maritime), to hold Washington Gas Light's interest in a venture formed to
develop a 12-acre parcel of land in Southeast Washington, D.C. that the Company
has owned since 1888. In May 1999, the Company announced its intention to pursue
commercial development of this site in partnership with a national developer.
The Company is proposing to lease the site to the venture under a long-term
ground lease and to receive a carried interest. The Company will not play an
active role in any development or management activities. The Company is not
contributing any capital to this venture. WG Maritime is a subsidiary of
Washington Gas Resources, Corp., a wholly owned subsidiary of Washington Gas
Light that serves as the parent company for most of the Company's non-utility
subsidiaries. No expenditures were made by WG Maritime through March 31, 2000,
and future expenditures by WG Maritime are not expected to be material.
DISPOSITION OF WEST VIRGINIA ASSETS
In November 1998, Shenandoah entered into an agreement to sell
virtually all of its natural gas utility assets located in West Virginia. At
that time, the Company recorded an estimated pre-tax loss of $3.3 million ($2.1
million after-tax). When the sale was consummated on July 1, 1999, the Company
reduced the pre-tax loss by $0.4 million for a net pre-tax loss from the
transaction of $2.9 million, or $1.9 million after-tax.
The new owner is serving Shenandoah's former 3,800 natural gas
customers in Martinsburg and Berkeley County, West Virginia. To ensure continued
natural gas service in the Eastern
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<PAGE>
Panhandle of West Virginia, the Shenandoah division provides natural gas
transportation service to the new owner. Shenandoah continues to provide natural
gas service to more than 11,000 customers in the northern Shenandoah Valley of
Virginia.
NOTE 3--LONG-TERM DEBT
UNSECURED MEDIUM-TERM NOTES
The Company issues unsecured Medium Term Notes (MTNs) whose terms are
individually set as to interest rate, maturity and any call or put option. These
notes can have maturity dates of one or more years from date of issuance.
On April 3, 2000, Washington Gas Light issued $8,500,000 of MTNs at an
interest rate of 7.5 percent. The notes mature on April 1, 2030, but the holders
have the option to put these notes to the Company over the 30-day period prior
to April 1, 2010.
On April 6, 2000, the Company issued $4,000,000 of MTNs at an interest
rate of 7.5 percent, with a maturity date of April 6, 2010.
INTEREST RATE HEDGES AND DEBT ISSUANCES
At March 31, 2000, the Company had no interest rate hedge agreements
outstanding in connection with planned issuances of MTNs. However, at March 31,
1999, the Company had one interest rate hedge agreement outstanding. The Company
accounts for its hedging agreements as hedges of anticipated transactions in
accordance with Statement of Financial Accounting Standards No. 80, Accounting
for Futures Contracts.
During October 1998, the Company issued $25 million of 10-year MTNs
with a coupon rate of 5.49 percent. During June 1998, in order to lock in the
Treasury yield for this issuance, the Company entered into an agreement that
reflected a forward sale of $24.9 million of 10-year U.S. Treasury notes at a
fixed price. The Company unwound its hedge position concurrent with the issuance
of the above-mentioned $25 million of MTNs. The $2.1 million that the Company
paid associated with the settlement of this hedge agreement was recorded to
unamortized debt issuance costs in October 1998 and is being amortized over the
life of the MTNs. The effective cost of the debt was 6.74 percent.
During September 1998, in order to lock in the Treasury yield for an
anticipated $39 million MTN issuance related to the refunding of $39 million of
8-3/4 percent First Mortgage Bonds in July 1999, the Company entered into an
agreement that reflected the forward sale of $40 million of 10-year U.S.
Treasury notes at a fixed price to be paid on July 1, 1999. The Company unwound
its hedge position concurrent with the issuance of $50 million of MTNs in early
July 1999. The Company received $2.0 million associated with the settlement of
this hedge agreement, which it recorded as a reduction to unamortized debt
issuance costs. This benefit is being amortized over the life of the MTNs. The
effective cost of the debt was 6.31 percent.
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<PAGE>
NOTE 4--COMMON STOCK, PREFERRED STOCK AND EARNINGS PER SHARE
SALE OF COMMON STOCK
On November 12, 1998, the Company publicly offered two million shares
of common stock at $25.0625 per share. On November 18, 1998, the underwriters
involved in the offering exercised their option to purchase an additional
300,000 shares from the Company at the same price per share. Net proceeds of
$55.7 million were used for general corporate purposes, including capital
expenditures.
EARNINGS PER SHARE
Basic earnings per share (EPS) is computed by dividing net income
applicable to common stock by the weighted-average number of common shares
outstanding during the reported period. Diluted EPS assumes the conversion of
convertible preferred stock and the issuance of common shares pursuant to
stock-based compensation plans at the beginning of the applicable period. The
following tables show the computation of basic and diluted EPS for the three
months and six months ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
Net Per Share
Income Shares Amount
---------- -------- ---------
(Thousands, Except Per Share Data)
<S> <C> <C> <C>
For the Three Months Ended March 31, 2000
- -----------------------------------------
Basic EPS:
Net Income Applicable to Common Stock $ 64,913 46,475 $1.40
Effect of Dilutive Securities:
$4.60 and $4.36 Convertible Preferred Stock, 14
Assuming Conversion on January 1, 2000<F1>
Stock-Based Compensation Plans -- 53
---------- --------
Diluted EPS:
Net Income Applicable to Common Stock
Plus Assumed Conversions $ 64,913 46,542 $1.39
========== ======== =====
For the Three Months Ended March 31, 1999
- -----------------------------------------
Basic EPS:
Net Income Applicable to Common Stock $ 64,511 46,293 $1.39
Effect of Dilutive Securities:
$4.60 and $4.36 Convertible Preferred Stock,
Assuming Conversion on January 1, 1999 3 24
---------- --------
Diluted EPS:
Net Income Applicable to Common Stock
Plus Assumed Conversions $ 64,514 46,317 $1.39
========== ======== =====
<FN>
<F1>All outstanding convertible preferred stock was either converted or redeemed
on February 1, 2000.
</FN>
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Net Per Share
Income Shares Amount
---------- -------- ---------
(Thousands, Except Per Share Data)
<S> <C> <C> <C>
For the Six Months Ended March 31, 2000
- ---------------------------------------
Basic EPS:
Net Income Applicable to Common Stock $104,359 46,472 $2.25
Effect of Dilutive Securities:
$4.60 and $4.36 Convertible Preferred Stock, 6 19
Assuming Conversion on October 1, 1999<F1>
Stock-Based Compensation Plans -- 51
---------- --------
Diluted EPS:
Net Income Applicable to Common Stock
Plus Assumed Conversions $104,365 46,542 $2.24
========== ======== =====
For the Six Months Ended March 31, 1999
- ---------------------------------------
Basic EPS:
Net Income Applicable to Common Stock $89,093 45,584 $1.95
Effect of Dilutive Securities:
$4.60 and $4.36 Convertible Preferred Stock,
Assuming Conversion on October 1, 1998 6 24
---------- --------
Diluted EPS:
Net Income Applicable to Common Stock
Plus Assumed Conversions $89,099 45,608 $1.95
========== ======== =====
<FN>
<F1>All outstanding convertible preferred stock was either converted or redeemed
on February 1, 2000.
</FN>
</TABLE>
PREFERRED STOCK REDEMPTION
On December 29, 1999, the Company notified the stockholders of its
$4.36 convertible series preferred stock and its $4.60 convertible series
preferred stock that the Board of Directors of Washington Gas Light had voted to
redeem all outstanding shares of its convertible stock at a price of $100 per
share on February 1, 2000. For both series of convertible preferred stock,
stockholders had the option of accepting the $100 cash redemption value or
converting their shares into Washington Gas Light common stock. Each share of
the $4.36 preferred stock and the $4.60 preferred stock could be converted into
10.29 and 11.39 shares, respectively, of Washington Gas Light common stock.
Fractional shares were converted to cash based on the value of the preferred
stock on the date that the preferred stock certificates were received by the
Company's transfer agent. Both series of convertible preferred stock were
redeemed on February 1, 2000 as shown in the following table.
- 11 -
<PAGE>
<TABLE>
<CAPTION>
$4.36 Series $4.60 Series
------------ ------------
<S> <C> <C>
Conversions:
------------
Shares of Preferred Stock Converted 1,067 382
Shares of Common Stock Issued 10,670 4,202
Cash Paid for Fractional Shares $ 1,482 $ 638
Redemptions:
------------
Shares of Preferred Stock Redeemed 779 174
Total Redemption Cost $ 77,900 $ 17,400
</TABLE>
NOTE 5--STOCK-BASED COMPENSATION
The Company periodically provides compensation in the form of common
stock to key employees and Company directors. The stock-based compensation plans
are designed to promote the Company's long-term success by attracting,
recruiting and retaining key employees, and giving certain employees and Company
directors an ownership interest in Washington Gas Light, thereby promoting a
closer identity of interests between those individuals and the Company's
stockholders. The following sections describe stock awarded under these plans.
STOCK GRANTS TO DIRECTORS
Non-employee directors receive a portion of their annual retainer fee
in the form of common stock through the Directors' Stock Compensation Plan. On
January 3, 2000, a total of 5,600 shares of common stock was granted to
directors from the Company's treasury stock. The fair value of the common stock
on the grant date was $26.25 per share.
NOTE 6--ENVIRONMENTAL MATTERS
The Company has identified up to ten sites where Washington Gas Light,
its subsidiaries, or their predecessors may have operated manufactured gas
plants (MGP). The Company last used any such plant in 1984. In connection with
these operations, the Company is aware that certain by-products of the gas
manufacturing process are present at or near some former sites and may be
present at others.
At one of the former MGP sites, studies show the presence of coal tar
under the site and an adjoining property. The Company's risk assessment study
performed on the site shows that there is no unacceptable risk to human health
or the environment. The Company has taken steps to control the movement of
contaminants into an adjacent river by installing a water treatment system that
removes and treats contaminated groundwater at the site. The Company received
approval from governmental authorities for a comprehensive remedial plan for the
majority of the site that will allow commercial development of the Company's
property. The Company has signed a development agreement with a national
developer to enter a ground lease and obtain a carried interest in the
commercial development. Financing for the project is pending. Approval of a
remedial plan for the remainder of the site, which consists of an adjoining
property owned by a separate entity, is expected soon.
At another former MGP site, a local government has notified the Company
about the detection of a substance in an adjacent river that may be related to
this site. This same local government owned and operated the MGP for the
majority of the life of the plant. The local government sold the MGP to
- 12 -
<PAGE>
a company, which was subsequently merged into Washington Gas Light. Washington
Gas Light retired the MGP many years ago. In addition, the Company is aware that
the local government has had communications about this condition with federal
environmental authorities. At this time, the extent and nature of the
contamination and the Company's related obligation, if any, to perform or
contribute to remediation cannot be determined. The Company is holding
discussions with the local government and may participate in studies to assess
the extent and nature of contamination, as well as the need for appropriate
remediation.
See Note 9 to the Consolidated Financial Statements in the Washington
Gas Light Company 1999 Annual Report on Form 10-K for a discussion of the other
eight sites.
NOTE 7--COMMITMENTS AND AND CONTINGENCIES
MARYLAND REGULATORY MATTERS
On January 6, 2000, the Company announced that it filed with the Public
Service Commission of Maryland (PSC of MD or the Commission) a non-unanimous
settlement agreement that would, if approved by the Commission, freeze basic
delivery rates at the present levels and insulate Maryland customers from
potential rate increases over the next five years. The only adjustments that
could occur would be for material changes in costs due to extraordinary events,
such as tax rate changes or new regulatory requirements. The agreement also
included the potential to reduce customers' bills and increase returns to
shareholders through the use of an earnings-sharing mechanism. In addition, the
agreement included a provision for residential heating customers that would
reduce fluctuations in customers' bills due to the effects of weather deviations
from normal levels.
On April 28, 2000, the hearing examiner assigned to this proceeding
issued a "Proposed Order of Hearing Examiner" (Proposed Order) which recommends
that the PSC of MD reject the proposed settlement. This recommendation is based
upon the hearing examiner's conclusion that the settlement does not adequately
address historical disproportionate rates of return among classes of customers.
The Proposed Order will become a final Order of the PSC of MD on May 30, 2000,
unless either a party to the proceeding files an appeal with the Commission or
the Commission modifies or reverses the Proposed Order. At the present time, the
Company intends to file an appeal with the Commission.
DISTRICT OF COLUMBIA REGULATORY MATTERS
On February 17, 2000, the District of Columbia's Office of the People's
Counsel (OPC) filed a complaint with the Public Service Commission of the
District of Columbia (PSC of DC) requesting an investigation into the rates and
charges of Washington Gas Light. The complaint alleges that: 1) the actual
return on equity earned by Washington Gas Light is significantly higher than
authorized by the PSC of DC; and 2) the return on equity that the PSC of DC
authorizes Washington Gas Light to earn is higher than is appropriate, given
current economic conditions.
On February 28, 2000, Washington Gas Light submitted an "Answer" to the
PSC of DC requesting the dismissal of the OPC complaint chiefly on the grounds
that the OPC's analysis of the Company's rates was substantively flawed. The
Company is in the process of responding to questions made by the PSC of DC
Staff. The Company is unable to predict when or how the PSC of DC will take
action on the complaint filed by OPC.
Furthermore, on May 12, 2000, OPC filed a motion requesting leave to
reply to Washington Gas Light's Answer and a reply to the Company's Answer,
asserting that Washington Gas Light's Answer
- 13 -
<PAGE>
failed to demonstrate that a rate investigation is unnecessary and once again
is asking the PSC of DC to open an investigation. The Company has 10 days to
file a reply.
NOTE 8--OPERATING SEGMENT REPORTING
The Company reports four operating segments: 1) regulated utility; 2)
energy marketing; 3) heating, ventilating and air conditioning (HVAC)
activities; and 4) customer financing.
With nearly 95 percent of the Company's assets, the regulated utility
segment is the Company's core business. The regulated utility segment provides
regulated gas distribution services (including the purchase and delivery of
natural gas, meter reading, responding to customer inquiries, and bill
preparation), to customers in metropolitan Washington, D.C. and parts of
Maryland and Virginia. The energy marketing segment sells natural gas directly
to customers, both inside and outside the Company's traditional service
territory, in competition with unregulated gas marketers. The HVAC segment
designs, renovates and services mechanical heating, ventilating and air
conditioning systems for commercial and residential customers. The customer
financing segment provides financing for consumer purchases of natural gas
appliances and energy-related equipment. Operating segment information is
presented in the following table.
- 14 -
<PAGE>
<TABLE>
<CAPTION>
Non-Utility Operations
------------------------------------------------------
Regulated Energy Customer Other Total Elim./
Utility Marketing HVAC Financing Activities Non-Utility Other Consolidated
----------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Three Months Ended March 31, 2000
- ----------------------------------
Total Revenues $ 392,314 $ 63,255 $11,679 $1,111 $ 244 $ 76,289 $ -- $ 468,603
Depreciation and Amortization 16,326 7 142 -- -- 149 -- 16,475
Operating Expenses<F1> 268,879 59,855 10,098 518 (151) 70,320 -- 339,199
Income Tax Expense 35,282 1,186 684 212 (552) 1,530 (296) 36,516
Net Interest Expense 11,229 5 20 45 -- 70 -- 11,299
Net Income (Loss) 60,598 2,202 735 336 947 4,220 425 65,243
Total Assets 1,773,987 52,439 27,035 7,855 332 87,661 16,007 1,877,655
Capital Expenditures 27,230 6 34 -- -- 40 -- 27,270
Three Months Ended March 31, 1999
- ---------------------------------
Total Revenues $ 392,481 $ 44,704 $ 8,758 $1,023 $ 452 $ 54,937 $ -- $ 447,418
Depreciation and Amortization 14,692 8 46 -- -- 54 -- 14,746
Operating Expenses<F1> 268,138 43,150 8,063 424 177 51,814 -- 319,952
Income Tax Expense (Benefit) 36,999 536 245 217 122 1,120 (230) 37,889
Net Interest Expense 9,071 3 64 39 -- 106 -- 9,177
Net Income (Loss) 63,581 1,007 340 343 153 1,843 (580) 64,844
Total Assets 1,750,937 24,854 12,716 4,033 692 42,295 (2,315) 1,790,917
Capital Expenditures 39,234 19 135 -- -- 154 -- 39,388
Six Months Ended March 31, 2000
- -------------------------------
Total Revenues $ 702,830 $107,009 $21,899 $1,687 $ 744 $131,339 $ -- $ 834,169
Depreciation and Amortization 32,291 14 285 -- -- 299 -- 32,590
Operating Expenses<F1> 491,930 102,675 18,844 727 (292) 121,954 -- 613,884
Income Tax Expense 57,766 1,568 1,196 338 (321) 2,781 (317) 60,230
Net Interest Expense 21,801 5 76 86 1 168 -- 21,969
Net Income (Loss) 99,042 2,747 1,498 536 1,356 6,137 (157) 105,022
Total Assets 1,773,987 52,439 27,035 7,855 332 87,661 16,007 1,877,655
Capital Expenditures 49,544 32 130 -- -- 162 -- 49,706
Six Months Ended March 31, 1999
- -------------------------------
Total Revenues $ 689,830 $ 67,892 $15,737 $2,018 $ 816 $ 86,463 $ -- $ 776,293
Depreciation and Amortization 28,997 15 85 -- -- 100 -- 29,097
Operating Expenses<F1> 500,555 66,889 14,620 915 579 83,003 -- 583,558
Income Tax Expense (Benefit) 52,122 341 384 396 108 1,229 (656) 52,695
Net Interest Expense 18,948 3 124 80 3 210 -- 19,158
Net Income (Loss) 89,208 644 524 627 126 1,921 (1,370) 89,759
Total Assets 1,750,937 24,854 12,716 4,033 692 42,295 (2,315) 1,790,917
Capital Expenditures 74,745 19 487 -- -- 506 -- 75,251
<FN>
<F1>Includes cost of gas and revenue taxes during all reporting periods and
a gain on the sales of non-utility assets during the quarter and six
months ended March 31, 2000.
</FN>
</TABLE>
- 15 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain matters discussed in this report, excluding historical
information, include forward-looking statements. Words, including, but not
limited to, "estimates," "expects," "anticipates," "intends," "believes,"
"plans," and variations of these words, identify forward-looking statements that
involve uncertainties and risks. These statements are necessarily based upon
various assumptions with respect to the future, including:
1) economic, competitive, political and regulatory conditions and
developments;
2) capital and energy commodity market conditions;
3) changes in relevant laws and regulations, including tax, environmental
and employment laws and regulations;
4) weather conditions;
5) legislative, regulatory and judicial mandates and decisions;
6) timing and success of business and product development efforts;
7) technological improvements;
8) the pace of deregulation efforts and the availability of other
competitive alternatives; and
9) other uncertainties.
Such uncertainties are difficult to predict accurately and are
generally beyond the Company's direct control. Accordingly, while it believes
that the assumptions are reasonable, the Company cannot ensure that all
expectations and objectives will be realized. Readers are urged to use care and
consider the risks, uncertainties and other factors that could affect the
Company's business as described in this Quarterly Report on Form 10-Q. All
forward-looking statements made in this Quarterly Report on Form 10-Q rely upon
the safe harbor protections provided under the Private Securities Litigation
Reform Act of 1995.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 VS. MARCH 31, 1999
EARNINGS
--------
For the quarter ended March 31, 2000, net income applicable to common
stock totaled $64.9 million, or $0.4 million higher than the results for the
same period last year. Basic and diluted earnings per average common share in
the current quarter were $1.40 and $1.39, respectively, compared to basic and
diluted earnings per share of $1.39 for the same quarter in
- 16 -
<PAGE>
fiscal year 1999. Results for the quarter ended March 31, 2000, included a
nonrecurring gain of $0.02 per average common share associated with the sales
of two minor non-utility investments.
There were 7.9 percent fewer degree days during the current quarter
compared with the same quarter last year. However, the Company was able to
increase its basic earnings per share because of a 2.9 percent increase in its
customer base, a 7.6 percent reduction in utility operation and maintenance
expenses and continued profitable growth by its energy-related retail
activities.
Reductions in utility operation and maintenance expenses enhanced
earnings per average common share by $0.05 over the same quarter last year. In
total, utility operation and maintenance expenses fell by $3.9 million to $47.2
million, primarily due to the absence of expenses in the current quarter from
the Company's former West Virginia operations, reductions in bad debt expenses,
and the postponement of some operating activities from the current quarter until
later in the fiscal year. A $1.6 million increase in depreciation and
amortization expenses, resulting primarily from the completion of a new
enterprise-wide software system during the second half of fiscal year 1999,
reduced earnings by $0.02 per average common share.
The Company's major non-utility operations earned $0.09 per average
common share in the quarter ended March 31, 2000, compared to $0.04 in the same
quarter of last year. The increase was primarily attributable to improvements by
the unregulated energy marketing segment and the heating, ventilating and air
conditioning (HVAC) segment, as well as the $0.02 nonrecurring gain from the
sale of minor non-utility investments.
NET REVENUES
------------
Net revenues for the quarter ended March 31, 2000, decreased by $4.9
million (2.7 percent) from the same period last year to $176.6 million and
reduced earnings per average common share by $0.06 from the quarter ended March
31, 1999. As shown in the following table, a 3.3 percent increase in the number
of customers served by the Company's continuing operations, partially offset by
7.9 percent warmer weather, resulted in a 1.3 percent increase in firm therm
deliveries by the Company's continuing operations. Nonetheless, net revenues
decreased primarily because of the absence of approximately $2.0 million of net
revenues in the current quarter from the West Virginia operations that were sold
in July 1999, as well as a 19.1 percent decline in therm deliveries to
interruptible customers served by the Company's continuing operations. In
addition, on a per therm basis, net revenues earned by the Company on wholesale
gas deliveries to the new owner of the West Virginia utility assets are
significantly lower than those earned on direct sales and deliveries to the West
Virginia customers during fiscal year 1999, reflecting a lower cost of
delivering gas on a wholesale basis. The lower price per therm earned on
deliveries to the wholesale provider of the Company's former West Virginia
customers reduced the Company's net revenues by approximately $2 million from
the quarter ended March 31, 1999.
- 17 -
<PAGE>
<TABLE>
<CAPTION>
GAS STATISTICS
Three Months Ended
March 31,
------------------------- Percent
2000 1999 Variance Inc.(Dec.)
----------- --------- -------- ----------
<S> <C> <C> <C> <C>
Gas Sales and Deliveries (thousands of therms)
Firm
Gas Sold and Delivered
Continuing operations 368,684 437,740 (69,056) (15.8)
West Virginia operations -- 3,178 (3,178) (100.0)
Gas Delivered for Others
Continuing operations 163,037 87,124 75,913 87.1
West Virginia operations -- 2,853 (2,853) (100.0)
----------- --------- ---------
531,721 530,895 826 0.2
----------- --------- ---------
Interruptible
Gas Sold and Delivered
Continuing operations 8,705 16,331 (7,626) (46.7)
West Virginia operations -- 3,221 (3,221) (100.0)
Gas Delivered for Others 81,892 95,704 (13,812) (14.4)
----------- --------- ---------
90,597 115,256 (24,659) (21.4)
----------- --------- ---------
Electric Generation
Gas Delivered for Others 27,598 16,290 11,308 69.4
----------- --------- ---------
Total Deliveries 649,916 662,441 (12,525) (1.9)
=========== ========= =========
Degree Days
Actual 1,953 2,121 (168) (7.9)
Normal 2,135 2,147 (12) (0.6)
Percent Cooler (Warmer) than Normal (8.5%) (1.2%)
Customer Meters (end of period)
Continuing operations 872,122 843,889 28,233 3.3
West Virginia operations -- 3,781 (3,781) (100.0)
----------- --------- ---------
Total Customer Meters 872,122 847,670 24,452 2.9
=========== ========= =========
</TABLE>
Gas Delivered to Firm Customers
The level of gas delivered to firm customers is highly sensitive to
weather variability, because a large portion of the Company's deliveries of
natural gas is used for space heating. The Company's rates are based on normal
weather and none of the tariffs for the jurisdictions in which the Company
operates currently have a provision for weather normalization. However, the
Company does have declining block rates in its Maryland and Virginia
jurisdictions that reduce the impact that deviations from normal weather have on
net revenues. See the discussion below under "Regulatory Matters" with respect
to proposed tariff changes in Maryland that include a weather normalization
provision.
During the three months ended March 31, 2000, firm therm deliveries
rose by 826,000 therms or 0.2 percent over the same quarter last year. This
increase primarily reflects a 3.3 percent rise in the number of customer meters
from continuing operations, partially offset by the absence of sales this
quarter to nearly 3,800 customers of the Company's former West Virginia
operations. Firm therm deliveries were also adversely affected by a 7.9 percent
decrease in heating degree days from last
- 18 -
<PAGE>
year. Weather for the three months ended March 31, 2000, was 8.5 percent warmer
than normal, while weather for the same period last year was 1.2 percent warmer
than normal.
As an increasing number of customers choose to buy the natural gas
commodity from third-party suppliers, the volume of firm therm deliveries from
continuing operations to customers who purchase both the natural gas commodity
and delivery service as a "bundled" service from Washington Gas Light decreased
from 437.7 million therms in the three months ended March 31, 1999 to 368.7
million therms during the current quarter, or a decline of 15.8 percent. This
decrease was more than offset as the volume of firm gas delivered for others
from the Company's continuing operations rose from 87.1 million therms to 163.0
million therms, an 87.1 percent increase. On a per unit basis, the net revenues
that Washington Gas Light earns from delivering gas for others are the same as
it earns from bundled gas sales in which customers purchase both the natural gas
commodity and the associated delivery service from the Company. Therefore, the
Company does not experience any loss of margins when customers choose to
purchase their gas from a third-party supplier.
Gas Delivered to Interruptible Customers
Deliveries to interruptible customers during the quarter ended March
31, 2000, decreased by 24.7 million therms or 21.4 percent from the same period
last year, primarily because of decreased demand by interruptible customers and
the absence of interruptible gas deliveries during the current quarter from the
Company's former West Virginia operations. The effect on net income of changes
in delivered volumes and prices to the interruptible class is minimized by
margin-sharing arrangements embedded in the Company's interruptible rate design.
Under these arrangements, the Company applies a majority of the margins earned
on interruptible gas sales and deliveries to firm customers' rates. This occurs
once the Company reaches a pre-established gross margin threshold or occurs in
exchange for shifting many of the fixed costs of providing service from the
interruptible to the firm class.
Gas Delivered for Electric Generation
The Company sells and/or delivers gas to two companies that use natural
gas to fuel their electric generation facilities in Maryland. Deliveries to
these customers in the current quarter increased by 11.3 million therms (69.4
percent) over the same period last year. The Company shares a significant
majority of the margins earned from gas deliveries to these customers with firm
customers. Therefore, changes in the volume of interruptible gas deliveries do
not have a material effect on either net revenues or net income.
OTHER UTILITY OPERATING EXPENSES
--------------------------------
Operation and maintenance expenses for the three months ended March 31,
2000, declined by $3.9 million (7.6 percent) from the prior year's levels. This
reduction improved earnings per average common share by $0.05 over the same
quarter of last year. The results for the quarter ended March 31, 1999, included
$2.6 million of operation and maintenance expenses from the Company's former
West Virginia operations. Other key factors that contributed to the variance in
operation and maintenance expenses for this quarter compared with the same
quarter last year include:
- 19 -
<PAGE>
o a $2.3 million reduction in pension and postretirement medical and
life insurance benefits, a quarterly reduction that is expected to
continue through the remainder of fiscal year 2000;
o a $1.8 million reduction in bad debt expense, which resulted from
the Company's continuing improvements to its collection practices;
and
o a $1.9 million increase in labor expense over the same quarter
last year, primarily reflecting increases in employee wages and
incentives, partially offset by a 4.1 percent reduction in the
number of utility employees.
The current quarter reflects the absence of some expenses that are
likely to be delayed until subsequent quarters of the current fiscal year.
Although operation and maintenance expenses for subsequent quarters of the
current fiscal year are likely to be higher than the quarter just completed, the
Company anticipates that such expenses for all of fiscal year 2000 will be less
than the level incurred for all of fiscal year 1999.
Depreciation and amortization increased by $1.6 million (11.1 percent)
in the current quarter because of the Company's increased investment in
property, plant and equipment. This caused earnings per average common share to
fall by $0.02 when compared to the same quarter last year. Included in this
increase is $1.0 million of amortization related to the completion of an
enterprise-wide software system in the second half of fiscal year 1999. Going
forward, the quarterly amortization associated with this system should continue
to approximate this amount.
Utility income taxes decreased by $1.7 million, primarily due to a 4.7
percent decline in pre-tax utility operating income this quarter. For utility
operations, the effective income tax rates were 36.8 percent for the second
fiscal quarters of both 2000 and 1999.
NON-UTILITY RESULTS
-------------------
The Company has three primary unregulated operating segments: 1) energy
marketing; 2) HVAC; and 3) customer financing. The results from those
operations, plus the impact of other incidental unregulated activities increased
net operating income (after income taxes, but before interest expense) by $2.3
million from the same period last year to $4.3 million in the current quarter.
After applicable interest expense, earnings per average common share derived
from non-utility activities were $0.09 in the current quarter, an increase of
$0.05 over the same quarter last year. The increase in non-utility earnings
includes a nonrecurring gain of $0.02 per average common share from a
subsidiary's sales of certain venture funds and a preferred stock interest. The
following table compares the financial results, after taxes and interest
expense, from non-utility activities for the quarters ended March 31, 2000 and
1999.
- 20 -
<PAGE>
<TABLE>
<CAPTION>
Net Income (Loss) Applicable to Non-Utility Activities
(In thousands of dollars, except percentages)
Three Months Ended
March 31,
------------------------ Percent
2000 1999 Variance Inc.(Dec.)
--------- -------- -------- ----------
<S> <C> <C> <C> <C>
Energy Marketing $2,202 $1,007 $1,195 118.7
HVAC:
Commercial 962 340 622 182.9
Residential--Equity Earnings from Primary (227) -- (227) --
Customer Financing 336 343 (7) (2.0)
Other Non-Utility:
Continuing operations 30 153 (123) (80.4)
Gain from sales of non-utility assets 917 -- 917 100.0
--------- -------- --------
Total $4,220 $1,843 $2,377 129.0
========= ======== ========
</TABLE>
Energy Marketing
The Company's retail energy marketing subsidiary, Washington Gas Energy
Services (WGEServices), sells natural gas in competition with unregulated
marketers and unregulated subsidiaries of other utility companies. WGEServices
continued to expand rapidly as the subsidiary sold 18.4 billion cubic feet (bcf)
of gas in the current quarter, an increase of 20.3 percent from 15.3 bcf sold in
the second quarter of fiscal year 1999. During the quarters ended March 31, 2000
and 1999, respectively, 22.7 percent and 20.2 percent of these sales were made
to customers outside of the service territory of the regulated utility. Revenues
increased from $44.7 million in the quarter ended March 31, 1999 to $63.3
million in the quarter ended March 31, 2000, a 41.5 percent increase. These
improvements were due primarily to the continuing growth of WGEServices'
customer base and an increase in the proportion of customers who are billed on
the basis of their monthly usage, as contrasted with a fixed monthly bill.
The results produced by the energy marketing segment during the current
quarter are not necessarily representative of the results that should be
expected for the entire fiscal year due to seasonal usage differences and the
level of customer acquisition costs that may be incurred as this business
segment grows. Furthermore, WGEServices expects to begin selling electricity in
the state of Maryland in the near future, representing another factor that could
increase expenses as customers are added and cause the currently reported
results to be lower in the near future.
HVAC
The HVAC segment designs, renovates and services mechanical heating,
ventilating and air conditioning systems for commercial and residential
customers. Revenues derived from the Company's commercial HVAC activities
increased from $8.8 million in the quarter ended March 31, 1999 to $12.0 million
in the quarter ended March 31, 2000, while income from those operations rose
from $340,000 to $962,000, respectively. The improvement by the Company's
commercial HVAC segment resulted from an increase in the number of installations
being undertaken at customers' facilities.
The results for HVAC also include a $227,000 net loss from the
Company's investment in Primary Investors, LLC (Primary), a residential and
light commercial HVAC entity in which the
- 21 -
<PAGE>
Company acquired a 50 percent interest in August 1999. The Company believes that
the net loss at Primary results from the incurrence of start-up costs necessary
to integrate companies that are being acquired. To date, seven companies have
been purchased by Primary with annualized revenues estimated at $30 million.
Based on the timing of the acquisitions and the incurrence of integration costs,
Washington Gas Light anticipates that it may incur a negligible net loss from
Primary in fiscal year 2000.
Customer Financing
The customer financing segment provides financing for consumer
purchases of natural gas appliances and energy-related equipment. Net income
from customer financing fell $7,000 in the current quarter to $336,000 due to a
lower volume of contracts sold by the Company to banks, combined with higher
interest rates charged by these banks.
Sales of Non-Utility Assets
During the quarter ended March 31, 2000, a non-utility Company
subsidiary sold a fully reserved preferred stock investment and recorded a
pre-tax book gain of $300,000. In addition, the same subsidiary recorded a
pre-tax gain of $46,000 from a fully reserved venture fund. For income tax
purposes, the sale of the preferred stock investment resulted in a capital loss
transaction for which the Company will realize the tax benefit through a capital
loss carryback. In total, the Company recorded a $917,000 after-tax gain on
these transactions, which includes the tax benefit of the capital loss
carryback.
INTEREST EXPENSE
----------------
Total interest expense increased by $2.1 million (23.1 percent) from
the same period last year, reflecting the following changes in interest expense:
<TABLE>
<CAPTION>
Composition of Interest Expense
(In thousands of dollars, except percentages)
Three Months Ended
March 31,
-----------------------
Percent
2000 1999 Variance Inc.(Dec.)
-------- ------- -------- ----------
<S> <C> <C> <C> <C>
Long-Term Debt $ 9,043 $8,710 $ 333 3.8
Short-Term Debt 2,153 621 1,532 246.7
Other (Includes AFUDC) 103 (154) 257 166.9
-------- ------- -------
Total $ 11,299 $9,177 $ 2,122 23.1
======== ======= =======
</TABLE>
The increase in interest on long-term debt of $333,000 was primarily
due to a $3.4 million increase in the balance of debt funding of an HVAC
construction project for a government agency in Maryland. The interest expense
relating to this debt is partially offset by income accrued on the construction
project that is recorded in "Other Income (Expenses)--Net." This increase in
long-term debt interest was partially offset by a $3.5 million decline in the
average balance of First Mortgage Bonds and Medium-Term Notes (MTNs), as well as
a decrease of 0.16 percentage points in the weighted-average cost of such debt.
The embedded cost of long-term debt outstanding at March 31, 2000, was 6.8
percent.
The $1.5 million increase in interest on short-term debt was due to a
$95.8 million rise in the average short-term debt balance and an increase of
0.92 percentage points in the weighted-average cost of such debt. The average
balance of short-term debt outstanding increased during the quarter
- 22 -
<PAGE>
ended March 31, 2000, primarily due to: 1) the issuance of common stock and MTNs
early in fiscal year 1999, of which a portion of the proceeds were used to
reduce short-term debt; and 2) increased short-term debt issuances in the
current quarter due to a higher volume and cost of storage gas purchases in the
quarter ended March 31, 2000, compared with the same quarter last year.
Other interest expense increased $257,000 due primarily to a decrease
in the accrual for allowance for funds used during construction (AFUDC). The
decreased accrual for AFUDC reflects a decline in construction work in progress
due primarily to the completion of the enterprise-wide software system during
the second half of fiscal year 1999, partially offset by the effect of increased
interest rates during the second quarter of 2000 compared with the same quarter
last year.
SIX MONTHS ENDED MARCH 31, 2000 VS. MARCH 31, 1999
EARNINGS
--------
For the six months ended March 31, 2000, net income applicable to
common stock was $104.4 million, or $15.3 million higher than the results for
the same period last year. Basic and diluted earnings per average common share
in the current six-month period were $2.25 and $2.24, respectively, compared to
basic and diluted earnings per share of $1.95 for the same period in fiscal year
1999. Results for the six months ended March 31, 2000, included a nonrecurring
gain of $0.02 per average common share associated with the sales of minor
non-utility investments. Results for the six months ended March 31, 1999,
included a $2.1 million ($0.05 per average common share) nonrecurring net loss
from the agreement to sell the West Virginia natural gas utility assets.
Additional shares outstanding in the current six-month period caused earnings
per average common share to be $0.04 lower than last year.
There were 2.9 percent fewer degree days during the first half of this
fiscal year, compared with the same period last year. However the Company was
able to increase its basic earnings per average common share because of a 2.9
percent increase in its customer base, a 14.8 percent reduction in operation and
maintenance expenses and continued profitable growth by its energy-related
retail activities.
Net utility revenues increased $1.7 million, or 0.6 percent, reflecting
a 3.5 percent increase in firm therm deliveries due to 2.9 percent customer
growth, partially offset by weather that was 2.9 percent warmer than last year.
In addition, utility operation and maintenance expenses decreased $15.5 million
or 14.8 percent in the current six-month period and enhanced earnings per share
by $0.21 over the same period last year. Net utility revenues and operation and
maintenance expenses for 1999 include results from a utility subsidiary's West
Virginia operations that were subsequently sold in July 1999.
The Company's three major non-utility operations contributed $0.10 per
average common share, a $0.06 improvement over the six months ended March 31,
1999. The increase was primarily attributable to improvements by the unregulated
energy marketing and HVAC segments.
NET REVENUES
Net revenues for the six months ended March 31, 2000, increased by $1.7
million (0.6 percent) from the same period last year to $310.5 million and
caused earnings per average common share to rise by $0.02 over the six months
ended March 31, 1999. As shown in the following table, a 3.3 percent increase in
the number of customers served by the Company's continuing operations, partially
offset by 2.9 percent warmer weather, resulted in a 4.7 percent
- 23 -
<PAGE>
increase in firm therm deliveries by the Company's continuing operations. These
improvements more than offset the $3.2 million of net revenues from the
Company's former West Virginia operations that were included in the results for
the six months ended March 31, 1999. However, on a per therm basis, net
revenues earned by the Company on wholesale gas deliveries to the new owner
of the West Virginia utility assets are significantly lower than those earned
on direct sales and deliveries to the West Virginia customers during fiscal year
1999, reflecting a lower cost of delivering gas on a wholesale basis. The
lower price per therm earned on deliveries to the wholesale provider of the
Company's former West Virginia customers reduced the Company's net revenues
by approximately $3 million from the six months ended March 31, 1999.
<TABLE>
<CAPTION>
GAS STATISTICS
Six Months Ended
March 31,
------------------------ Percent
2000 1999 Variance Inc.(Dec.)
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Gas Sales and Deliveries (thousands of therms)
Firm
Gas Sold and Delivered
Continuing operations 652,894 728,172 (75,278) (10.3)
West Virginia operations -- 4,842 (4,842) (100.0)
Gas Delivered for Others
Continuing operations 232,300 117,153 115,147 98.3
West Virginia operations -- 5,158 (5,158) (100.0)
---------- ---------- ---------
885,194 855,325 29,869 3.5
---------- ---------- ---------
Interruptible
Gas Sold and Delivered
Continuing operations 18,122 28,931 (10,809) (37.4)
West Virginia operations -- 5,779 (5,779) (100.0)
Gas Delivered for Others 156,196 170,774 (14,578) (8.5)
---------- ---------- ---------
174,318 205,484 (31,166) (15.2)
---------- ---------- ---------
Electric Generation
Gas Delivered for Others 53,353 29,743 23,610 79.4
---------- ---------- ---------
Total Deliveries 1,112,865 1,090,552 22,313 2.0
========== ========== =========
Degree Days
Actual 3,248 3,345 (97) (2.9)
Normal 3,503 3,523 (20) (0.6)
Percent Cooler (Warmer) than Normal (7.3%) (5.1%)
Customer Meters (end of period)
Continuing operations 872,122 843,889 28,233 3.3
West Virginia operations -- 3,781 (3,781) (100.0)
---------- ---------- ---------
Total Customer Meters 872,122 847,670 24,452 2.9
========== ========== =========
</TABLE>
Gas Delivered to Firm Customers
During the six months ended March 31, 2000, firm therm deliveries rose
by 29.9 million therms or 3.5 percent over the same period last year. This
increase primarily reflects a 3.3 percent rise in the
- 24 -
<PAGE>
number of customer meters from continuing operations, partially offset by the
absence of sales this fiscal period to nearly 3,800 customers of the
Company's former West Virginia operations that were sold in July 1999. Firm
therm deliveries were also adversely affected by a 2.9 percent decrease in
heating degree days from last year. Weather for the six months ended March 31,
2000, was 7.3 percent warmer than normal, while weather for the same period
last year was 5.1 percent warmer than normal.
The volume of firm therm deliveries from continuing operations to
customers who purchase "bundled" service from Washington Gas Light decreased
from 728.2 million therms in the six months ended March 31, 1999 to 652.9
million therms during the current six-month period, or a decline of 10.3
percent. This decrease was more than offset as the volume of firm gas delivered
for others from the Company's continuing operations rose from 117.2 million
therms to 232.3 million therms, a 98.3 percent increase.
Gas Delivered to Interruptible Customers
Deliveries to interruptible customers during the six months ended March
31, 2000, decreased by 31.2 million therms or 15.2 percent from the same period
last year, because of decreased demand by interruptible customers coupled with
the 2.9 percent decrease in heating degree days, as well as the absence of 5.8
million therm sales and deliveries associated with the Company's former West
Virginia operations which were included in the results for the six months ended
March 31, 1999. As previously described in this report, the effect on net income
of changes in gas deliveries to interruptible customers is minimal due to
margin-sharing arrangements in each of the Company's jurisdictions.
Gas Delivered for Electric Generation
Volumes delivered for electric generation in the current six-month
period increased by 23.6 million therms (79.4 percent) over the same period last
year, primarily due to decreased usage by these customers during the first half
of fiscal year 2000 compared with the same period last year. Margins earned on
such deliveries are being shared with firm customers as described previously in
this report.
OTHER OPERATING EXPENSES
During the six months ended March 31, 2000, operation and maintenance
expenses declined $15.5 million (14.8 percent) from the prior year's levels.
This reduction improved earnings per average common share by $0.21 over the same
six-month period last year. The results for the six months ended March 31, 1999,
included $4.1 million of operation and maintenance expenses from the West
Virginia operations that were sold in July 1999. Other key factors that
contributed to the variance in operation and maintenance expenses for the first
six months of fiscal year 2000 compared with the same period for the prior year
include:
o a $5.3 million reduction in pension and postretirement medical and life
insurance benefits;
o a $4.0 million decrease in construction and technical support services;
o a $4.0 million reduction in advertising, corporate relations and
miscellaneous customer service expenses; and
- 25 -
<PAGE>
o a $2.0 million reduction in bad debt expense resulting from the
previously discussed improvement to the Company's collection practices.
These reductions were partially offset by a $2.0 million net increase
in labor and benefit expenses. This increase reflects an increase in employee
wages and incentives, partially offset by the 4.1 percent reduction in the
number of utility employees.
The operation and maintenance expenses incurred during the current
six-month period reflects the absence of some expenses that are likely to be
delayed until later in the current fiscal year. Although operation and
maintenance expenses are likely to increase for the remainder of the current
fiscal year, the Company anticipates that such expenses for all of fiscal year
2000 will be less than the level incurred for all of fiscal year 1999.
Depreciation and amortization increased by $3.3 million (11.4 percent)
in the current six-month period because of the Company's increased investment in
property, plant and equipment. Included in this increase is $2.1 million of
amortization related to the new enterprise-wide software system that was
completed in the second half of fiscal year 1999. The increase in depreciation
and amortization reduced earnings per average common share for the six months
ended March 31, 2000, by $0.04 per share when compared to last year.
Utility income taxes increased by $5.6 million, primarily due to an
11.0 percent increase in pre-tax utility operating income for the current
six-month period. For utility operations, the effective income tax rates were
36.9 percent for the first six months of both fiscal 2000 and 1999.
NON-UTILITY OPERATING RESULTS
-----------------------------
During the six months ended March 31, 2000, the results from the
Company's unregulated energy marketing, HVAC and customer financing activities,
plus the impact of other incidental unregulated activities increased net
operating income (after income taxes, but before interest expense) to $6.3
million compared to net operating income of $2.1 million earned the same period
last year, an increase of $4.2 million. Earnings per average common share
derived from non-utility activities were $0.13 in the current six-month period,
an increase of $0.09 over last year. The increase in non-utility earnings
includes a nonrecurring gain of $0.02 per average common share from a
subsidiary's sales of certain venture funds and a preferred stock interest. The
following table compares the financial results, after income taxes and
associated interest expense, from non-utility activities for the six months
ended March 31, 2000 and 1999.
- 26 -
<PAGE>
<TABLE>
<CAPTION>
Net Income (Loss) Applicable to Non-Utility Activities
(In thousands of dollars, except percentages)
Six Months Ended
March 31,
--------------------- Percent
2000 1999 Variance Inc.(Dec.)
------ ------ -------- ----------
<S> <C> <C> <C> <C>
Energy Marketing $2,747 $ 644 $2,103 326.6
HVAC:
Commercial 1,825 524 1,301 248.3
Residential--Equity Earnings in Primary (327) -- (327) (100.0)
Customer Financing 536 627 (91) (14.5)
Other Non-Utility
Continuing operations 202 126 76 60.3
Gain from sales of non-utility assets 1,154 -- 1,154 100.0
------ ------ ------
Total $6,137 $1,921 $4,216 219.5
====== ====== ======
</TABLE>
Energy Marketing
WGEServices, the Company's retail energy marketing subsidiary,
continued to expand rapidly as the subsidiary sold 31.8 billion cubic feet (bcf)
of gas in the current six-month period, an increase of 39.5 percent from 22.8
bcf sold in the first six months of year 1999. During the six months ended March
31, 2000 and 1999, respectively, 23.5 percent and 21.9 percent of these sales
were made to customers outside of the service territory of the regulated
utility. Revenues increased from $67.9 million in the six months ended March 31,
1999 to $107.0 million in the six months ended March 31, 2000, a 57.6 percent
increase. Improvements in revenues and net income for the energy marketing
segment were due primarily to the continuing growth of WGEServices' customer
base, higher natural gas prices and an increase in the proportion of customers
who are billed on the basis of their monthly usage as contrasted with a fixed
monthly bill. In addition, WGEServices' net income has improved because of its
ability to take advantage of favorable conditions in the natural gas market. As
previously discussed, the results produced by the energy marketing segment are
not necessarily representative of the results for the entire fiscal year because
of the seasonal nature of the business and WGEServices' planned entry into
Maryland's electric retail market.
HVAC
Revenues derived from the Company's commercial HVAC activities
increased from $15.7 million in the six months ended March 31, 1999, to $22.4
million in the six months ended March 31, 2000, a 42.7 percent increase. Net
income from those operations rose from $524,000 to $1.8 million, reflecting
increased revenues and the absence of start-up costs, which were incurred during
the first six months of fiscal year 1999.
The results for the HVAC segment also include a $327,000 net loss from
the Company's investment in Primary, reflecting start-up costs necessary to
integrate companies that are being acquired. To date, seven companies have been
purchased by Primary with annualized revenues estimated at $30 million. As
mentioned previously in this report, the Company anticipates that it may incur a
negligible net loss from Primary in fiscal year 2000.
- 27 -
<PAGE>
Customer Financing
Net income from customer financing decreased $91,000 in the six-month
period due to a lower volume of contracts sold by the Company to banks, combined
with higher interest rates charged by these banks.
Sale of Non-Utility Assets
During the six months ended March 31, 2000, a non-utility Company
subsidiary sold a fully reserved preferred stock investment and recorded a
pre-tax book gain of $300,000. In addition, the same subsidiary recorded a
pre-tax gain of $411,000 from fully reserved venture funds. For income tax
purposes, the sale of the preferred stock investment resulted in a capital loss
transaction for which the Company will realize the tax benefit through a capital
loss carryback. In total, the Company recorded a $1,154,000 after-tax gain on
these transactions, which includes the tax benefit of the capital loss
carryback.
INTEREST EXPENSE
----------------
Total interest expense increased by $2.8 million (14.7 percent) from
the same period last year, reflecting the following changes:
<TABLE>
<CAPTION>
COMPOSITION OF INTEREST EXPENSE
(In Thousands, except percentages)
Six Months Ended
March 31,
--------------------- Percent
2000 1999 Variance Inc.(Dec.)
------- ------- -------- ----------
<S> <C> <C> <C> <C>
Long-Term Debt $17,495 $17,470 $ 25 0.1
Short-Term Debt 4,330 1,929 2,401 124.5
Other (Includes AFUDC) 144 (241) 385 159.8
------- ------- --------
Total $21,969 $19,158 $ 2,811 14.7
======= ======= ========
</TABLE>
The increase in interest on short-term debt of $2.4 million was due to
a $72.2 million rise in the average amount of short-term debt outstanding and an
increase of 0.68 percentage points in the weighted-average cost of such debt.
The average balance of short-term debt outstanding increased during the six
months ended March 31, 2000, primarily due to: 1) the issuance of common stock
and MTNs early in fiscal year 1999, of which a portion of the proceeds were used
to reduce short-term debt; and 2) increased short-term debt issuances due to a
higher volume and cost of storage gas purchases in the six months ended March
31, 2000, compared with the same period last year.
Other interest expense increased $385,000 due primarily to a decrease
in the accrual for AFUDC. The decreased accrual for AFUDC reflects a decline in
construction work in progress due primarily to the completion of the
enterprise-wide software system during the second half of fiscal year 1999,
partially offset by the effect of increased interest rates during the six months
ended March 31, 2000, compared with the same period last year.
- 28 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
SHORT-TERM CASH REQUIREMENTS AND RELATED FINANCING
The Company's business is highly weather sensitive and seasonal.
Approximately 75 percent of the Company's therm deliveries (excluding deliveries
for electric generation) occur in the first and second fiscal quarters. This
weather sensitivity causes short-term cash requirements to vary significantly
during the year. Cash requirements peak in the fall and winter months when
accounts receivable, accrued utility revenues and storage gas are at, or near,
their highest levels. After the winter heating season, these assets are
converted into cash and are generally used to liquidate short-term debt and
acquire storage gas for the subsequent heating season.
At March 31, 2000, the Company had notes payable outstanding, which
consist of bank loans and commercial paper, of $103.9 million as compared to
$113.1 million at September 30, 1999. The decrease in notes payable from
September 1999 reflects the seasonality of the Company's cash requirements.
LONG-TERM CASH REQUIREMENTS AND RELATED FINANCING
To fund construction expenditures and other capital requirements, the
Company draws upon both internal and external sources of cash. The Company's
ability to generate adequate cash internally depends upon a number of factors,
including the timing and amount of rate increases received and the level of
therm deliveries. The Company's last significant base rate increase became
effective in December 1994. The number of customer meters and the variability of
the weather from normal levels significantly affect the level of therms
delivered.
CASH FLOW FROM OPERATING ACTIVITIES
Net cash provided by operating activities during the first six months
of fiscal year 2000 was $85.9 million compared with $140.7 million during the
same period last year. The $54.8 million decline in cash from operating
activities was primarily the result of:
o higher funds used to support accounts receivable, as a result of
increased customer accounts receivable associated with non-utility
operations;
o a decrease in the source of cash reflected in storage gas primarily,
as a result of an increase in the volume of gas stored and higher gas
prices during the current period; and
o a reduction in the seasonal over-recovery of purchased gas costs due
to customers during the six months ended March 31, 2000, compared
with the same period last year, primarily because a greater number of
customers are choosing to purchase natural gas from third-party
suppliers, rather than from the Company. As described previously, The
Company does not experience any loss of margins when customers choose
to purchase their gas from a third-party supplier.
Partially offsetting these uses of cash was a $22.9 million increase in
net income, adjusted for non-cash items.
- 29 -
<PAGE>
CASH FLOW FROM FINANCING ACTIVITIES
During the first six months of fiscal year 2000, there were no
issuances or reacquisitions of common stock. For the same period last year,
$55.7 million was raised through the sale of 2.3 million shares of common stock
and an additional $5.5 million was raised from shares of common stock issued
through the Dividend Reinvestment and Common Stock Purchase Plan and the
Employee Savings Plan.
During the six months ended March 31, 2000, the Company issued $1.7
million of long-term debt related to the funding of construction projects.
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures for the first six months of fiscal year 2000 were
$49.7 million, on a budget of $125.3 million for fiscal year 2000, compared to
capital expenditures of $75.3 million for the first six months of fiscal year
1999. The decline was primarily attributable to a $11.9 million decrease in
capital expenditures associated with the Company's enterprise-wide software
system during the first six months of fiscal year 2000.
SALES OF ACCOUNTS RECEIVABLE
----------------------------
During the six months ended March 31, 2000, the Company sold, with
recourse, $13.6 million of non-utility accounts receivable, compared to $15.5
million in the six months ended March 31, 1999.
OTHER FACTORS AFFECTING THE COMPANY
CORPORATE STRUCTURE
Changes in the Company corporate structure, including the establishment
of a holding company, are discussed in Note 2 to the Consolidated Financial
Statements.
ELECTRICITY SUPPLY AGREEMENT
In Maryland, beginning July 1, 2000, retail customers of Potomac
Electric Power Company, Baltimore Gas and Electric, Potomac Edison and Delmarva
Power and Light will be able to choose their supplier of electricity. Similar to
the gas industry, customers of these utilities will have the option to continue
purchasing their electricity "bundled" with the associated distribution and
transmission service from their current utility. Customers may also choose to
purchase electricity from a third-party supplier and to have their current
electric utility deliver the energy. Similar customer choice programs are being
considered for electric customers in the Virginia and District of Columbia
jurisdictions.
The Company, through its energy marketing subsidiary WGEServices, plans
to begin marketing electricity to retail electric customers in Maryland this
summer and in other regions as electric customer choice programs are introduced.
On April 3, 2000, WGEServices entered into a master purchase and sale agreement
with Southern Company Energy Marketing L.P. (Southern), a wholesale energy
marketer. Under the agreement, WGEServices can purchase electric energy,
capacity and certain ancillary services from Southern, which WGEServices will
resell to retail electric customers in Maryland and in other regions as customer
choice programs are introduced.
- 30 -
<PAGE>
REGULATORY MATTERS
Regulatory matters that may have an impact on the Company's operations
are discussed in Note 7 to the Consolidated Financial Statements.
YEAR 2000
Washington Gas Light has continued to operate successfully through the
turn of the century and during other key dates associated with the transition to
the year 2000. The Company continues to monitor its systems for Year 2000
issues.
The following table reflects the amounts charged to expense and
capitalized for the six months ended March 31, 2000, and the fiscal years ending
September 30, 1999, 1998 and 1997 for business-application systems remediation,
embedded systems replacement, end-user applications remediation and replacement,
independent verification and validation costs and business continuity
initiatives.
<TABLE>
<CAPTION>
(millions) 2000 1999 1998 1997 Total
---------- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Expense $ - $ 6 $ 5 $ 1 $ 12
Capital $ 1 $ 24 $ 20 $ - $ 45
</TABLE>
The Company does not anticipate incurring additional Year 2000-related
costs.
LABOR MATTERS
On April 6, 2000, the approximately 380 members of the Office and
Professional Employees International Union Local 2 voted to ratify a new
three-year labor contract with the Company. Key contract provisions include:
o a lump sum contract ratification bonus, which was paid on April 13,
2000, of $1,200 per employee, for a total of $456,000;
o a general wage increase of 1.5 percent, 1 percent and 2 percent in the
first, second and third years of the contract, respectively;
o an increase in the Company's matching contribution for the 401(K)
Savings Plan up to 2 percent in the first year and up to 2.25 percent
in the second and third years;
o an income security plan that provides up to 20 weeks of pay for
employees who may be affected by a declaration in excess in
classification;
o improved medical, vision and disability coverage; and
o length of service-based performance bonuses for long-term employees.
Currently, negotiations are underway with the Teamsters Local 96
(Teamsters) labor union for a contract that expires on May 31, 2000, which
covers 725 field employees, or 40 percent of the Company's utility workforce,
excluding employees of the Shenandoah division. Later this year, the Company
will negotiate a second contract with the Teamsters, which covers 26 field and
office employees, or 63 percent of the Shenandoah division workforce, which
expires on July 31, 2000. Negotiations will also be undertaken later this year
with the International Brotherhood of Electrical
- 31 -
<PAGE>
Workers Local 1900 (IBEW) for a contract, which covers 20 production and
maintenance workers, or approximately 1 percent of the Company's utility
workforce, which expires on July 31, 2000. Finally, the Company will negotiate
with the IBEW for a second contract, which covers 14 clerical employees or less
than 1 percent of the Company's workforce, that will expire on October 31, 2000.
The Company is using good faith efforts to negotiate with each union,
with the intention of reaching timely and reasonable agreements. In any event,
the Company has contingency plans in place to ensure that its customers continue
receiving safe and reliable service.
- 32 -
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
OF THE COMPANY
The Company has interest rate risk exposure related to long-term debt.
Additionally, the Company's subsidiary, WGEServices has price risk exposure
related to gas marketing activities. For information regarding the Company's
exposure related to these risks, see Item 7A in the Company's most recently
filed Form 10-K. The Company's risk associated with interest rates has not
materially changed from September 30, 1999. At March 31, 2000, WGEServices' open
position was not material to the Company's financial position or results of
operations.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders was held on March 3, 2000.
(c) Matters voted upon at the meeting:
The following individuals were elected to the Board of Directors
at the Annual Meeting on March 3, 2000.
<TABLE>
<CAPTION>
Votes in Favor Votes Withheld
-------------- --------------
<S> <C> <C>
Michael D. Barnes 40,700,733 747,271
Fred J. Brinkman 40,726,067 721,977
Daniel J. Callahan, III 40,780,794 667,100
Orlando W. Darden 40,679,345 768,699
James H. DeGraffenreidt, Jr. 40,755,953 690,618
Melvyn J. Estrin 40,786,362 661,682
Philip A. Odeen 40,798,008 650,036
Joseph M. Schepis 40,813,682 634,362
Karen Hastie Williams 40,754,428 693,616
</TABLE>
The following matters were introduced and voted upon at the Annual
Meeting:
o The Board of Directors recommended that the Stockholders ratify
the appointment of Arthur Andersen LLP, independent public
accountants, to audit the books and accounts of the Company for
fiscal year 2000. This proposal was approved by a vote of
40,816,495 votes in favor of the proposal, and 282,706 against.
There were 348,843 abstentions.
o The Board of Directors recommended that the Stockholders approve
an agreement and plan of merger and reorganization dated as of
January 13, 2000. This proposal was approved by a vote of (i)
31,542,329 shares of common and preferred stock in favor of the
proposal and 1,313,095 against, and (ii) 31,404,016 shares of
common stock voting as a class in favor of the proposal and
1,261,796 against. There were 632,980 abstentions and 7,959,640
broker non-votes.
o A stockholder proposed that the Board of Directors take steps to
provide for cumulative voting in the election of Directors. This
proposal was defeated by a vote of 7,185,287 in favor of the
proposal and 24,338,942 against. There were 1,964,175 abstentions
and 7,959,640 broker non-votes.
- 33 -
<PAGE>
ITEM 5. OTHER INFORMATION
On March 3, 2000, the Company's Board of Directors elected Mr. Terry D.
McCallister as Vice President of Operations, effective April 3, 2000. In his new
position, Mr. McCallister is responsible for plants and gate stations, system
operation and maintenance and the Company's divisions in Shenandoah, Virginia
and Frederick, Maryland. Mr. McCallister was previously with Southern Natural
Gas Company, a subsidiary of Sonat, Inc., where he served as Vice President and
Director of Operations. Prior to working for Sonat, Mr. McCallister held various
leadership positions with Atlantic Richfield Company, a fully integrated
international oil and gas exploration, production, refining and marketing
company.
In a related change, Mr. Richard L. Fisher became Vice
President--Facilities Support Services, a position in which he is directly
responsible for transportation, buildings and materials management/operations
support.
To ensure greater focus on the Company's unregulated entities and
enhanced coordination with its strategic efforts, Washington Gas Light's
unregulated subsidiaries were reorganized to report through Ms. Elizabeth M.
Arnold, Vice President--Strategy, in March 2000. Ms. Arnold's expanded
responsibilities include Washington Gas Energy Services, Washington Gas Energy
Systems and American Combustion Industries, Inc. In addition, Ms. Arnold is
overseeing Washington Gas Light's investment in Primary Investors, LLC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.0 Financial Data Schedule
99.0 Computation of Ratio of Earnings to Fixed Charges
99.1 Computation of Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends
(b) Reports on Form 8-K:
o Washington Gas Light filed a Current Report on Form 8-K, dated
February 23, 2000, to report on a complaint filed with the Public
Service Commission of the District of Columbia (PSC of DC) by the
District of Columbia's Office of the People's Counsel (OPC),
requesting an investigation into the rates and charges of
Washington Gas Light. The complaint alleges that: 1) the actual
return on equity earned by Washington Gas Light is significantly
higher than authorized by the PSC of DC; and 2) the return on
equity that the PSC of DC authorizes Washington Gas Light Company
to earn is higher than is appropriate, given current economic
conditions.
o Washington Gas Light filed a Current Report on Form 8-K, dated
January 6, 2000, announcing that it filed, with the Public Service
Commission of Maryland (PSC of MD), an agreement with the Maryland
Office of People's Counsel and the PSC of MD Staff on an incentive
rate plan. In part, the agreement includes provisions to freeze
customer rates over the next five years along with an
earnings-sharing mechanism. The agreement is subject to review and
approval of the PSC of MD.
- 34 -
<PAGE>
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.
WASHINGTON GAS LIGHT COMPANY
----------------------------
(Registrant)
Date May 15, 2000 /s/ Robert E. Tuoriniemi
---------------------------------- ----------------------------
Robert E. Tuoriniemi
Controller
(Principal Accounting Officer)
- 35 -
<TABLE> <S> <C>
<ARTICLE>UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME, BALANCE SHEETS AND STATEMENTS OF CASH FLOWS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,418,065
<OTHER-PROPERTY-AND-INVEST> 1,700
<TOTAL-CURRENT-ASSETS> 345,191
<TOTAL-DEFERRED-CHARGES> 112,699
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,877,655
<COMMON> 46,612
<CAPITAL-SURPLUS-PAID-IN> 368,817
<RETAINED-EARNINGS> 345,209
<TOTAL-COMMON-STOCKHOLDERS-EQ> 760,638
0
28,173
<LONG-TERM-DEBT-NET> 506,963 <F1>
<SHORT-TERM-NOTES> 0 <F2>
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 103,889 <F2>
<LONG-TERM-DEBT-CURRENT-PORT> 1,545
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 476,447
<TOT-CAPITALIZATION-AND-LIAB> 1,877,655
<GROSS-OPERATING-REVENUE> 834,169 <F3>
<INCOME-TAX-EXPENSE> 60,547 <F3>
<OTHER-OPERATING-EXPENSES> 646,474 <F3>
<TOTAL-OPERATING-EXPENSES> 707,021
<OPERATING-INCOME-LOSS> 127,148
<OTHER-INCOME-NET> (157)
<INCOME-BEFORE-INTEREST-EXPEN> 126,991
<TOTAL-INTEREST-EXPENSE> 21,969
<NET-INCOME> 105,022
663
<EARNINGS-AVAILABLE-FOR-COMM> 104,359
<COMMON-STOCK-DIVIDENDS> 28,580
<TOTAL-INTEREST-ON-BONDS> 21,969 <F4>
<CASH-FLOW-OPERATIONS> 85,926
<EPS-BASIC> 2.25
<EPS-DILUTED> 2.24
<FN>
<F1> REPRESENTS TOTAL LONG-TERM DEBT INCLUDING $500,700 IN UNSECURED MEDIUM-TERM
NOTES, $6,921 IN OTHER LONG-TERM DEBT AND ($658) IN UNAMORTIZED PREMIUM
AND DISCOUNT-NET.
<F2> TOTAL OF SHORT-TERM NOTES PAYABLE AND COMMERCIAL PAPER TIES TO BALANCE
SHEET CAPTION ENTITLED NOTES PAYABLE.
<F3> INCLUDES UTILITY AND NON-UTILITY.
<F4> REPRESENTS TOTAL INTEREST EXPENSE, PER CONSOLIDATED STATEMENTS OF INCOME.
</FN>
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 99.0
WASHINGTON GAS LIGHT COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Twelve Months Ended March 31, 2000
(Unaudited)
(Dollars in Thousands)
FIXED CHARGES
<S> <C>
Interest Expense $ 39,820
Amortization of Debt Premium, Discount and Expense 505
Interest Component of Rentals 12
------------
Total Fixed Charges $ 40,337
============
EARNINGS
Net Income $ 84,031
Add:
Income Taxes Applicable to Utility Operating Income 44,250
Income Taxes Applicable to Non-Utility Operating Income 5,465
Income Taxes Applicable to Other Income (Expenses)--Net (604)
Total Fixed Charges 40,337
------------
Total Earnings $ 173,479
============
Ratio of Earnings to Fixed Charges
4.3
============
- 1 -
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 99.1
WASHINGTON GAS LIGHT COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
Twelve Months Ended March 31, 2000
(Unaudited)
(Dollars in Thousands)
PRE-TAX PREFERRED STOCK DIVIDENDS
<S> <C>
Preferred Dividends $ 1,328
Effective Income Tax Rate 0.3689
Complement of Effective Income Tax Rate (1 - Tax Rate) 0.6311
Pre-Tax Preferred Dividends $ 2,104
=============
FIXED CHARGES
Interest Expense $ 39,820
Amortization of Debt Premium, Discount and Expense 505
Interest Component of Rentals 12
-------------
Total Fixed Charges 40,337
Pre-tax Preferred Dividends 2,104
-------------
Total $ 42,441
=============
EARNINGS
Net Income $ 84,031
Add:
Income Taxes Applicable to Utility Operating Income 44,250
Income Taxes Applicable to Non-Utility Operating Income 5,465
Income Taxes Applicable to Other Income (Expenses)--Net (604)
Total Fixed Charges 40,337
-------------
Total Earnings $ 173,479
=============
Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
4.1
=============
- 1 -
</TABLE>
