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______________________________________________________________________________
______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report August 1, 1994
I.R.S.
Commission Employer
File State of Identification
Number Registrant Incorporation Number
001-11227 Washington Energy Company Washington 91-1005304
001-11271 Washington Natural Gas Company Washington 91-1005303
815 Mercer Street, Seattle, Washington 98111
(Address of Registrant's principal executive offices)
Registrant's telephone number, including area code: (206) 622-6767
______________________________________________________________________________
______________________________________________________________________________
1
Item 5. Other Events
On July 27, 1994, Washington Energy Company made the following press release:
THIRD-QUARTER LOSS REFLECTS CHARGES
SEATTLE -- Washington Energy Company (NYSE:WEG) recorded third-quarter
charges totaling $40.9 million, or $1.74 per share, as it "sets in motion the
strategy for restoring long-term profitability," Chairman, Chief Executive
Officer and President William P. Vititoe announced today.
As a result, the company experienced a net loss of $48.9 million, or
$2.08 per share, for the quarter ended June 30, 1994. That compares with a
$1.7 million loss, or 7 cents per share, for the same quarter one year ago.
Excluding the charges, Washington Energy lost $8.0 million, or 34 cents per
share, during the quarter.
A summary of three-month and nine-month results for the period ending
June 30, 1994 follows:
<TABLE>
3 months 9 months
In millions Per Share In millions Per Share
<S> <C> <C> <C> <C>
Earnings without 3rd quarter charges $ ( 8.0) $ ( .34) $ 7.1 $ .30
3rd quarter charges $ (40.9) $ (1.74) $ (40.9) $ (1.75)
Loss on common $ (48.9) $ (2.08) $ (33.8) $ (1.45)
</TABLE>
Restructuring and other charges
After-tax charges, totaling $11.9 million, relate to restructuring and
downsizing Washington Energy's utility subsidiary, writing off costs deemed to
be unrecoverable and establishing reserves for certain deferred assets.
By Sept. 30, the utility anticipates a staffing reduction of approxi-
mately 10 percent from its level of 1,480 employees as of Oct. 1993, the
2
beginning of the fiscal year, Vititoe said.
"While the specific cost savings from the downsizing are not fully
defined at this stage, our utility's restructuring does consolidate operations
and eliminate layers of management," said Vititoe. "We are giving our
customers more direct access to the company and better service.
"Our reengineering efforts have just begun, yet we already have uncov-
ered opportunities for greater efficiency. Some require new or upgraded
systems, while others simply require changes in existing processes. Both are
now underway. We view this reengineering as an ongoing process that will
result in continuing improvement in productivity," Vititoe said.
The charge to earnings covers estimated severance costs as well as costs
incurred in planning a new headquarters building, which now is not needed.
In addition, the company established reserves for estimated environmen-
tal investigation, legal and remediation costs associated with former manufac-
tured gas plant sites and wrote off certain deferred costs. It also recog-
nized a liability for its supplemental executive retirement plan to reflect
recent management changes and the timing difference between payments under the
plan and the receipt of life insurance proceeds that fund the plan.
"Obviously, we cannot guarantee that there will be no surprises in the
future, but we have thoroughly reviewed our books and expensed any items we
felt would not be recoverable in rates or which represented a risk of probable
loss in the future," Vititoe said. "In essence we have cleaned-up our balance
sheet."
Loss on oil and gas merger
After-tax charges totaling $29 million relate to the merger of the
company's oil and gas exploration subsidiary, Washington Energy Resources,
with Cabot Oil & Gas Corp. (NYSE:COG) of Houston. The charges reflect an
after-tax loss on the merger after establishing deferred taxes of $24.0
million and include a reserve for a purchase-price contingency. Reserves also
3
were established for estimated future losses on transportation contracts and
certain natural gas futures contracts retained by Washington Energy Company.
Vititoe explained that the merger "allows us now to concentrate on our
natural gas utility. It establishes a clear, market-determined value for our
substantial oil and gas investment and provides the potential for a greater
level of income, with less risk and diversion of management focus and with no
need to invest additional capital."
Dividend unchanged
Vititoe re-emphasized his commitment not to recommend to the Board of
Directors any change in the current annual dividend. He noted the strategies
that the company is employing -- downsizing and reengineering Washington
Natural Gas, a more collaborative approach to the regulatory process and the
merger of the oil and gas exploration subsidiary -- form the cornerstone in a
strategy to improve profitability, and should support the dividend over the
long term.
Other factors: rates, weather, growth, merchandise sales
The third-quarter loss also reflects a lower profit margin for Washing-
ton Natural Gas due to a $15.4 million annual revenue decrease as a result of
a rate order for Washington Natural Gas which went into effect in October
1993. However, future margins will be improved with a rate increase that was
implemented on June 4, 1994. Washington Natural Gas, with approval from the
Washington Utilities and Transportation Commission reached a negotiated
settlement that will increase revenues by $19 million on an annual basis.
Also, weather during the quarter was approximately 18 percent warmer
than normal and 1 percent warmer than a year ago. A combination of slightly
warmer temperatures and shifting by some large-volume customers between
classes and to alternative fuels lowered gas sales volumes, which were down
approximately 3 percent.
The company served 21,300, or 5 percent, more customers compared to a
year ago, partially offsetting the effects of warmer weather. Washington
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Natural Gas now serves more than 445,000 customers in the central Puget Sound
region of western Washington.
Although the company anticipated lower income from Washington Energy
Company's retail merchandise sales operation, it actually incurred an operat-
ing loss during the quarter. Most of these merchandising activities were part
of Washington Natural Gas until Oct. 1, 1993, when the merchandise sales
operation was reestablished in a new subsidiary .
12-month results
Income from continuing operations showed a loss of $1.77 per share for
the 12 months ended June 30, 1994; excluding the third-quarter charges, the
loss was 2 cents a share. This is down from income of $1.06 a share for the
same period a year ago. The 12-month results reflect the same factors that
affected quarterly earnings. In addition, lower income from retail merchan-
dise sales operations, a loss from pipeline demand charges and brokerage
activities and a number of other one-time charges discussed in the prior
quarters contributed to the 12-month loss.
The results for the 12-month period also include a charge of 44 cents
per share for the divestiture of the Unisyn Biowaste Technology operation
recorded in the fourth quarter of last fiscal year. After discontinued
operations, the company reported a loss of $2.21 a share.
Summary
"The third-quarter charges and losses will result in Washington Energy
Company closing out its fiscal year on Sept. 30 with a loss. However, through
the restructuring, we have repositioned the company for improved profitability
in fiscal 1995 and beyond," Vititoe said.
5
<TABLE>
WASHINGTON ENERGY COMPANY
SUMMARY INCOME STATEMENT AND OTHER FINANCIAL DATA
(Dollars in thousands, except per share amounts)
3 Months Ended 12 Months Ended
June 30 (1) June 30
<S> <C> <C> <C> <C>
1994 1993 1994 1993
Washington Energy Company
Operating Revenues
Utility sales of gas $ 70,102 $ 66,434 $ 391,482 $ 344,925
Merchandise and other 6,961 16,986 56,484 77,785
Oil and natural gas production 7,486 9,767 26,064
Total operating revenues $ 77,063 $ 90,906 $ 457,733 $ 448,774
Operating income (loss) $ (7,036) $ 7,596 $ 28,543 $ 56,328
Income (loss) from continuing operations $ (48,916) $ (1,034) $ (40,575) $ 23,483
Discontinued operations, net of income taxes
Loss from operations (667) (563) (2,640)
Loss on disposal (9,818)
Net income (loss) $ (48,916) $ (1,701) $ (50,956) $ 20,843
Preferred dividends 24 34 102
Preferred redemption 673
Earnings (loss) on common stock $ (48,916) $ (1,725) $ (51,663) $ 20,741
Earnings (loss) per common share ($2.08) ($.07) ($2.21) $.94
Dividends per common share $.25 $.35 $1.10 $1.40
Average common shares outstanding in thousands 23,529 23,129 23,383 22,131
Book value per share $11.64 $14.94
Capitalization and Short-Term Debt
Common $ 274,804 $ 346,798
Preferred 60,000 27,300
Long-term debt 330,200 276,400
Current Portion LT Debt 20,140 14,508
Commercial paper and notes payable 98,413 133,809
Total capitalization and short-term debt $ 783,557 $ 798,815
Net plant $ 755,146 $ 838,941
Operating Income (Loss) by Business Segment
Before Income Taxes
Natural gas distribution $ (14,585) $ 3,995 $ 23,992 $ 50,091
Retail merchandise and services (511) 643 1,798 8,209
Oil and natural gas 1,687 1,923 7,207
Other (427) (81) (4,078) (733)
Total $ (15,523) $ 6,244 $ 23,635 $ 64,774
(1) Results for the quarter are not indicative of what can be expected for a full year of operations because operating revenues
and earnings are greatly affected by variations in weather conditions.
6
WASHINGTON ENERGY COMPANY
FISCAL 1994 THIRD QUARTER CHARGES
(Dollars in thousands)
After-tax
Amount
<S> <C>
Restructuring charges
Employee severance $ 2,275
Headquarters building 1,939
Other 399
4,613
Other charges
Supplemental executive retirement plan 2,178
Receivable sale deferred asset 1,830
Environmental expenses 1,450
Disallowed gas purchase cost from
affiliate 1,004
Other 825
7,287
Oil and gas merger
Net loss on merger 12,198
Reserve for purchase price contingency 4,420
Reserve for future gas transportation
losses 10,400
Reserve for gas futures contracts 1,950
28,968
Total $ 40,868
7
WASHINGTON ENERGY COMPANY
SUMMARY INCOME STATEMENT AND OTHER FINANCIAL DATA (Continued)
(Dollars in thousands)
3 Months Ended 12 Months Ended
June 30 (1) June 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Washington Natural Gas Company
Operating Revenues
Firm $ 57,741 $ 54,750 $ 335,029 $ 296,906
Interruptible 12,361 11,684 56,453 48,018
Rentals and other 2,353 1,914 9,003 8,461
Total operating revenues $ 72,455 $ 68,348 $ 400,485 $ 353,385
Gross utility margin - gas revenues less gas purchases $ 29,291 $ 34,295 $ 167,369 $ 171,391
Net income (loss) $ (16,968) $ (1,539) $ (4,301) $ 20,417
Utility gas sales (000's of therms)
Firm 104,187 107,759 636,969 620,166
Interruptible 61,436 63,147 254,844 265,761
Total sales of gas 165,623 170,906 891,813 885,927
Customers served (average)
Firm 446,570 425,222 438,360 416,426
Interruptible 1,005 1,009 1,050 1,061
Total customers 447,575 426,231 439,410 417,487
Weather % colder (+) or warmer (-) than normal (in terms
of degree days) -18.5% -17.6% -5.4% -3.2%
Degree days 714 732 4,496 4,620
(1) Results for the quarter are not indicative of what can be expected for a full year of operations because operating revenues
and earnings are greatly affected by variations in weather conditions.
</TABLE>
8
In addition, Washington Energy Company made the following press release on
July 27, 1994:
JUDGE DIMMICK DISMISSES SHAREHOLDERS CLASS-ACTION SUIT
SEATTLE -- A class-action lawsuit brought by two shareholders of
Washington Energy Company was dismissed yesterday (July 26) by U.S. District
Court Judge Carolyn R. Dimmick in Seattle.
The suit, filed by the Hagens & Berman law firm on behalf of two
plaintiffs, alleged that Washington Energy Company and two of its officers had
failed to communicate to shareholders the risks associated with a 1992 general
rate filing by the company's Washington Natural Gas subsidiary.
In granting judgment in favor of Washington Energy Company, the Court
noted that relevant information had been available from public records of the
Washington Utilities and Transportation Commission.
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Signatures
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 hereunto duly authorized.
WASHINGTON ENERGY COMPANY
by /S/ James P. Torgerson
Senior Vice President - Finance,
Planning and Development and
Chief Financial Officer
WASHINGTON NATURAL GAS COMPANY
by /S/ James P. Torgerson
Senior Vice President - Finance,
Planning and Development and
Chief Financial Officer
August 1, 1994
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