PAGE 1
______________________________________________________________________________
______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the three- and six-month periods ended March 31, 1994, or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________.
I.R.S.
Commission Employer
File Exact Name of Registrant as State of Identification
Number Specified in Its Charter Incorporation Number
- ---------- ------------------------------ ------------- --------------
001-11227 Washington Energy Company Washington 91-1005304
000-951 Washington Natural Gas Company Washington 91-1005303
Address of Principal Executive Offices Zip Code
- -------------------------------------- --------
815 Mercer Street, Seattle, Washington 98109
Registrants' Telephone Number, Including Area Code
--------------------------------------------------
(206) 622-6767
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days Yes X No .
Indicate the number of shares outstanding of each of the issuers' classes of
common stock, as of the latest practicable date.
Outstanding
Registrant Title of Stock March 31, 1994
- ------------------------------ -------------- --------------
Washington Energy Company $5 par value 23,512,116
Washington Natural Gas Company $5 par value 10,650,571
______________________________________________________________________________
______________________________________________________________________________
PAGE 2
INTRODUCTION
Washington Energy Company ("Company") or ("Washington Energy"), incorporated
under the laws of the State of Washington, is a holding company exempt from
the provisions of the Public Utility Holding Company Act of 1935 except Sec-
tion 9(a)(2) thereof. It is the parent of Washington Natural Gas Company
("Washington Natural"), a natural gas distribution company incorporated under
the laws of the State of Washington. This Form 10-Q is filed on behalf of
Company and Washington Natural, which companies are referred to herein as
Registrants.
INDEX
Page
PART I - FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . 4
Item 1. Condensed Financial Statements . . . . . . . . . . . . . . . . . 4
Consolidated Condensed Financial Statements of
Washington Energy Company and Subsidiaries
(All statements are unaudited except for
September 30, 1993 Balance Sheets, which
have been audited.)
Consolidated Statements of Income -
Three and Six Months Ended March 31, 1994
and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Condensed Balance Sheets -
March 31, 1994, September 30, 1993
and March 31, 1993 . . . . . . . . . . . . . . . . . . . . 6
Consolidated Condensed Statements of
Capitalization - March 31, 1994 and 1993 . . . . . . . . . 8
Consolidated Condensed Statements of
Cash Flows - Three and Six Months Ended
March 31, 1994 and 1993 . . . . . . . . . . . . . . . . . 9
Consolidated Statements of Shareholders'
Earnings Reinvested in the Business and
Premium on Capital Stock - Three and Six
Months Ended March 31, 1994 and 1993 . . . . . . . . . . 10
Condensed Financial Statements of Washington
Natural Gas Company (All statements are
unaudited except for September 30, 1993
Balance Sheets, which have been audited.)
Statements of Income -
Three and Six Months Ended March 31,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . 11
PAGE 3
INDEX (Continued)
Page
Condensed Balance Sheets -
March 31, 1994, September 30, 1993
and March 31, 1993 . . . . . . . . . . . . . . . . . . . 12
Condensed Statements of Capitalization -
March 31, 1994 and 1993 . . . . . . . . . . . . . . . . 14
Condensed Statements of Cash Flows -
Three and Six Months Ended March 31,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . 15
Statements of Shareholder's Earnings
Reinvested in the Business and Premium
on Capital Stock - Three and Six Months
Ended March 31, 1994 and 1993 . . . . . . . . . . . . . 16
Notes to Condensed Financial Statements
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . 20
Part II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . 24
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 24
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
PAGE 4
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
The condensed financial statements included herein have been prepared by the
Registrants, without audit, pursuant to the rules and regulations of the Secur-
ities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Registrants believe that the disclosures
are adequate to make the information presented not misleading. It is suggested
that these condensed financial statements be read in conjunction with the
financial statements and the notes thereto included in Registrants' latest
annual report on Form 10-K.
Because of seasonal and other factors, the results of operations for the
interim periods presented should not be considered indicative of the results to
be expected for the full fiscal year.
<TABLE>
PAGE 5
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 1994 AND 1993
(In Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
1994 1993 1994 1993
-------- -------- -------- --------
<F> <C> <C> <C> <C>
OPERATING REVENUES:
Utility sales of gas $139,440 $132,505 $269,079 $241,406
Merchandise, conservation products
and other 12,021 20,976 29,125 41,513
Oil and natural gas operations 8,163 7,415 14,673 14,101
-------- -------- -------- --------
Total operating revenues 159,624 160,896 312,877 297,020
OPERATING EXPENSES:
Purchases of gas 82,491 70,633 157,812 123,264
Utility operations and maintenance 16,327 16,646 33,302 33,310
Other operations 14,015 18,028 30,420 36,702
Depreciation, depletion and amortization 10,922 9,047 21,272 18,277
General taxes 16,243 14,292 28,087 23,923
Federal income taxes 2,740 8,064 7,707 14,580
-------- -------- -------- --------
Total operating expenses 142,738 136,710 278,600 250,056
-------- -------- -------- --------
OPERATING INCOME 16,886 24,186 34,277 46,964
OTHER INCOME (EXPENSE)
Preferred dividend requirement -
Washington Natural Gas Company (1,118) (654) (1,735) (1,308)
Other, net 609 319 951 95
-------- -------- -------- --------
Gross income 16,377 23,851 33,493 45,751
INTEREST EXPENSE:
Interest on long-term debt 7,566 6,546 15,101 13,068
Interest on short-term debt 1,148 1,174 1,946 2,245
Interest capitalized (136) (133) (271) (266)
Other interest charges 353 74 961 220
-------- -------- -------- --------
Total interest expense 8,931 7,661 17,737 15,267
-------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS 7,446 16,190 15,756 30,484
DISCONTINUED OPERATIONS
Loss from operations, net of income tax - (627) - (1,340)
-------- -------- -------- --------
NET INCOME 7,446 15,563 15,756 29,144
DIVIDENDS ON PREFERRED STOCK - 26 9 52
EXCESS PREMIUM - PREFERRED REDEMPTION - - 673 -
-------- -------- -------- --------
EARNINGS ON COMMON STOCK $ 7,446 $ 15,537 $ 15,074 $ 29,092
======== ======== ======== ========
EARNINGS (LOSS) PER COMMON SHARE:
From continuing operations $ .32 $ .70 $ .64 $ 1.33
From discontinued operations - (.03) - (.05)
-------- -------- -------- --------
EARNINGS PER COMMON SHARE $ .32 $ .67 $ .64 $ 1.28
======== ======== ======== ========
Dividends per common share outstanding $ .25 $ .35 $ .50 $ .70
Average common shares outstanding 23,443 23,037 23,387 22,812
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 6
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS - MARCH 31, 1994 (Unaudited),
SEPTEMBER 30, 1993 AND MARCH 31, 1993 (Unaudited)
(Thousands of Dollars)
ASSETS
March September March
31, 1994 30, 1993 31, 1993
---------- ---------- --------
<F> <C> <C> <C>
PROPERTY, PLANT AND EQUIPMENT:
Utility plant, at original cost $ 930,730 $ 888,944 $851,230
Oil and gas (on full cost method),
coal and other 295,011 258,304 252,725
Accumulated provision
for depreciation,
depletion and amortization (320,057) (295,755) (287,491)
---------- ---------- --------
Net property, plant and equipment 905,684 851,493 816,464
CURRENT ASSETS:
Cash and cash equivalents 6,048 13,049 5,495
Accounts receivable, net 42,618 20,868 38,344
Unbilled revenue 18,617 11,072 16,968
Federal income taxes 10,233 15,354 930
Purchased gas receivable 7,478 23,869 30,775
Materials and supplies, at average cost 15,753 40,779 19,330
---------- ---------- --------
Total current assets 100,747 124,991 111,842
OTHER ASSETS AND DEFERRED CHARGES:
Utility tax asset 18,767 18,767 17,004
Environmental remediation receivable 31,930 - -
Deferred charges and other 37,954 40,805 33,105
---------- ---------- --------
Total other assets and deferred charges 88,651 59,572 50,109
---------- ---------- --------
Total assets $1,095,082 $1,036,056 $978,415
========== ========== ========
The accompanying notes are an integral part of these consolidated balance sheets.
PAGE 7
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (continued)
MARCH 31, 1994 (Unaudited), SEPTEMBER 30, 1993 AND
MARCH 31, 1993 (Unaudited)
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
March September March
31, 1994 30, 1993 31, 1993
----------- ---------- --------
<F> <C> <C> <C>
CAPITALIZATION (see statements):
Common shareholders' interest $ 328,006 $ 322,931 $354,486
Preferred stock 60,000 17,300 27,348
Long-term debt 333,260 353,400 276,540
---------- ---------- --------
Total capitalization 721,266 693,631 658,374
CURRENT LIABILITIES:
Notes payable and commercial paper 126,642 145,498 129,290
Current sinking fund requirements
and debt maturities 20,280 5,528 14,460
Accounts payable 54,276 44,484 36,930
Other current liabilities 22,036 19,500 15,001
Accrued general taxes 17,734 14,198 14,658
Environmental remediation liability 12,174 - -
---------- ---------- --------
Total current liabilities 253,142 229,208 210,339
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 85,365 78,688 71,750
Other utility tax liabilities 13,139 13,139 16,985
Unamortized investment tax credits 10,517 10,913 11,313
Contributions in aid of construction 11,317 10,113 9,260
Other 336 364 394
---------- ---------- --------
Total deferred credits and
other liabilities 120,674 113,217 109,702
---------- ---------- --------
Total capitalization and liabilities $1,095,082 $1,036,056 $978,415
========== ========== ========
The accompanying notes are an integral part of these consolidated balance sheets.
PAGE 8
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CAPITALIZATION
MARCH 31, 1994 AND 1993
(Thousands of Dollars)
(Unaudited)
1994 1993
-------- --------
<F> <C> <C>
COMMON SHAREHOLDERS' INTEREST:
Common stock, $5 par value; $117,561 $115,518
authorized 50,000,000 shares,
outstanding 23,512,116 and 23,417,769 shares
Premium on common stock 198,600 194,753
Shareholders' earnings reinvested
in the business 11,845 44,215
-------- --------
Total common shareholders' interest 328,006 354,486
PREFERRED STOCK: Shares
Cumulative; authorized Outstanding at
1,000,000 shares of $100 par March 31,
value and 4,000,000 shares ------------------
of $25 par value 1994 1993
--------- -------
5%, Series A, $100 par value - 21,000 - 2,100
6%, Series B, $100 par value - 24,480 - 2,448
8-7/8%, Series C, $100 par value - 30,000 - 3,000
8-3/4%, Series F, $100 par value - 50,000 - 5,000
8-3/4%, Series I, $25 par value - 800,000 - 20,000
7.45%, Series II, $25 par value 2,400,000 - 60,000 -
Less sinking-fund requirements
included in current liabilities (5,200)
-------- --------
Total preferred stock 60,000 27,348
LONG-TERM DEBT:
First Mortgage Bonds
6-7/8% due 1993 - 3,980
12% due 1993 - 5,000
9.96% due 1995 40,000 40,000
8-7/8% due 1996 3,200 3,340
8.80% due 1996 25,000 25,000
8-1/8% due 1997 3,340 3,480
10-1/4% due 1997 30,000 30,000
9.60% due 2000 25,000 25,000
9.57% due 2020 25,000 25,000
Secured Medium-Term Notes, Series A
5.55% and 5.67% due 1995 20,000 20,000
8.25% due 1998 11,000 11,000
7.08% due 1999 10,000 10,000
8.51% through 8.55% due 2001 19,000 19,000
7.53% and 7.91% due 2002 30,000 30,000
8.25% through 8.40% due 2022 35,000 35,000
Secured Medium-Term Notes, Series B
6.23% through 6.31% due 2003 28,000 -
6.07% and 6.10% due 2004 18,500 -
6.51% and 6.53% due 2008 4,500 -
6.83% and 6.90% due 2013 13,000 -
7.19% due 2023 13,000 -
-------- --------
353,540 285,800
Less sinking-fund requirements and
maturities included in current liabilities (20,280) (9,260)
-------- --------
Total long-term debt 333,260 276,540
-------- --------
TOTAL CAPITALIZATION $721,266 $658,374
======== ========
The accompanying notes are an integral part of these consolidated balance sheets.
PAGE 9
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR
THE THREE AND SIX MONTHS ENDED MARCH 31, 1994 AND 1993
(Thousands of Dollars)
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
1994 1993 1994 1993
-------- -------- -------- --------
<F> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income from continuing operations $ 7,446 $ 16,190 $ 15,756 $ 30,484
Adjustments to reconcile net income from
continuing operations to net cash provided
by operating activities:
Depreciation, depletion and amortization 11,027 9,136 21,466 18,458
Provision for uncollectible accounts
receivable 596 592 1,090 1,054
Increase (decrease) in:
Federal income tax payable:
Current (2,208) 892 5,121 4,947
Deferred (2,763) 1,960 (194) 5,727
Accounts receivable 27,875 20,235 (13,994) (48,745)
Accounts payable (16,322) (39,518) 9,792 (2,787)
Materials and supplies 19,254 19,412 25,026 16,910
Deferred charges (4,770) (11,671) (10,430) (13,566)
Other assets and liabilities 1,901 (223) 5,487 4,517
Other 4,745 960 6,410 1,745
-------- -------- -------- --------
Total adjustments 39,335 1,775 49,774 (11,740)
-------- -------- -------- --------
Net cash provided by operating activities 46,781 17,965 65,530 18,744
CASH FLOW USED IN INVESTING ACTIVITIES:
Utility plant additions (18,888) (21,418) (42,453) (43,151)
Proceeds from disposition - - 201 -
Coal, oil and gas, and other
property expenditures (23,579) (5,579) (36,908) (14,457)
-------- -------- -------- --------
Net cash used in investing activities (42,467) (26,997) (79,160) (57,608)
CASH FLOW FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,512 2,036 3,423 66,189
Proceeds from financing:
Preferred stock (135) - 58,795 -
Commercial paper 3,004 17,353 (18,856) 8,180
Bank loans, net - - - (17,100)
Redemptions and repurchases
Preferred stock - (200) (23,222) (200)
Long-term debt - - (140) (140)
Cash dividend payments
Common (5,854) (8,056) (11,685) (16,070)
Preferred - (52) (9) (52)
-------- -------- -------- --------
Net cash provided by (used in)
financing activities (1,473) 11,081 8,306 40,807
-------- -------- -------- --------
Net cash provided by (used in)
continuing operations 2,841 2,049 (5,324) 1,943
Net cash used in discontinued operations (711) (904) (1,677) (1,860)
-------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents 2,130 1,145 (7,001) 83
Beginning cash and cash equivalents 3,918 4,350 13,049 5,412
-------- -------- -------- --------
Ending cash and cash equivalents $ 6,048 $ 5,495 $ 6,048 $ 5,495
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION -
Cash paid during the period for:
Interest (net of amount capitalized) $ 11,021 $ 12,554 $ 17,290 $15,061
Income taxes 7,530 4,877 2,817 3,748
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 10
WASHINGTON ENERGY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EARNINGS
REINVESTED IN THE BUSINESS AND PREMIUM ON CAPITAL STOCK
FOR THE THREE AND SIX MONTHS ENDED
MARCH 31, 1994 AND 1993 (Thousands of Dollars)
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
1994 1993 1994 1993
-------- -------- -------- --------
<F> <C> <C> <C> <C>
Balance at beginning of period $ 4,405 $ 28,679 $ 8,457 $ 31,193
Net income 7,446 15,563 15,756 29,144
Excess premium - preferred redemption - - (673) -
Cash dividends on capital stock:
Common stock (6) (1) (11,686) (16,070)
Preferred stock -
5%, Series A - (9) (3) (17)
6%, Series B - (3) (1) (7)
8-7/8%, Series C - (14) (5) (28)
-------- -------- -------- --------
Balance at end of period $ 11,845 $ 44,215 $ 11,845 $ 44,215
======== ======== ======== ========
CONSOLIDATED STATEMENTS OF PREMIUM ON CAPITAL STOCK
Balance at beginning of period $197,734 $193,170 $197,917 $145,075
Excess of proceeds over par value
of common stock issued by public
offering, less expense of sale - - - 46,543
Excess of cost over par value
of preferred stock reacquired - - (492) -
Excess of purchase price over par
value of shares of common stock
issued under the employee stock
purchase and option plans - 40 335 447
Excess of purchase price over par
value of shares of common stock
issued under the Dividend Rein-
vestment and Stock Purchase Plan 1,014 1,545 2,084 2,930
Common and preferred stock expense (148) (2) (1,244) (242)
-------- -------- -------- --------
Balance at end of period $198,600 $194,753 $198,600 $194,753
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated balance sheets.
PAGE 11
WASHINGTON NATURAL GAS COMPANY
STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED
MARCH 31, 1994 AND 1993
(Thousands of Dollars)
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
1994 1993 1994 1993
-------- -------- -------- --------
<F> <C> <C> <C> <C>
OPERATING REVENUES:
Sales of gas $139,440 $132,505 $269,079 $241,406
Merchandise and conservation products 2,673 18,696 5,304 37,657
-------- -------- -------- --------
Total operating revenues 142,113 151,201 274,383 279,063
OPERATING EXPENSES:
Purchases of gas 82,491 70,633 157,812 123,528
Utility operations and maintenance 16,353 16,646 33,328 33,310
Other operations 577 13,692 1,009 28,884
Depreciation 7,532 7,033 15,063 14,066
General taxes 14,425 13,493 24,806 22,350
Federal income taxes 4,350 7,689 8,793 14,158
-------- -------- -------- --------
Total operating expenses 125,728 129,186 240,811 236,296
-------- -------- -------- --------
OPERATING INCOME 16,385 22,015 33,572 42,767
OTHER INCOME, NET 375 228 515 78
-------- -------- -------- --------
Gross income 16,760 22,243 34,087 42,845
INTEREST EXPENSE:
Interest on long-term debt 7,305 6,283 14,568 12,538
Interest on short-term debt 162 444 569 1,048
Amortization of debt discount and expense 105 91 194 182
Other interest charges 17 31 378 56
-------- -------- -------- --------
Total interest expense 7,589 6,849 15,709 13,824
-------- -------- -------- --------
NET INCOME 9,171 15,394 18,378 29,021
DIVIDENDS ON PREFERRED STOCK 1,118 682 1,744 1,364
-------- -------- -------- --------
EARNINGS ON COMMON STOCK $ 8,053 $ 14,712 $ 16,634 $ 27,657
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
PAGE 12
WASHINGTON NATURAL GAS COMPANY
CONDENSED BALANCE SHEETS - MARCH 31, 1994,
SEPTEMBER 30, 1993 AND MARCH 31, 1993
(Thousands of Dollars)
(Unaudited)
ASSETS
March September March
31, 1994 30, 1993 31, 1993
-------- -------- --------
<F> <C> <C> <C>
UTILITY PLANT, at original cost $930,730 $888,944 $851,230
Accumulated provision for depreciation (230,990) (215,474) (208,092)
-------- -------- --------
Net utility plant 699,740 673,470 643,138
RECEIVABLES FROM AFFILIATED COMPANIES 3,143 4,459 2,449
CURRENT ASSETS:
Cash and cash equivalents 4,971 9,773 2,935
Accounts receivable, net 51,212 52,007 69,677
Materials and supplies, at average cost 13,953 39,606 18,336
-------- -------- --------
Total current assets 70,136 101,386 90,948
OTHER ASSETS AND DEFERRED CHARGES:
Utility tax asset 18,767 18,767 17,004
Environmental remediation receivable 31,930 - -
Deferred charges and other 27,457 36,434 29,207
-------- -------- --------
Total other assets and deferred charges 78,154 55,201 46,211
-------- -------- --------
Total assets $851,173 $834,516 $782,746
======== ======== ========
The accompanying notes are an integral part of these balance sheets.
PAGE 13
(Continued)
WASHINGTON NATURAL GAS COMPANY
CONDENSED BALANCE SHEETS - MARCH 31, 1994 (Unaudited),
SEPTEMBER 30, 1993 AND MARCH 31, 1993 (Unaudited)
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
March September March
31, 1994 30, 1993 31, 1993
-------- -------- --------
<F> <C> <C> <C>
CAPITALIZATION (see statements):
Shareholder's interest $267,125 $262,334 $283,093
Preferred stock 60,000 17,300 27,400
Long-term debt 333,260 353,400 276,540
-------- -------- --------
Total capitalization 660,385 633,034 587,033
CURRENT LIABILITIES:
Current sinking fund requirements
and debt maturities 20,280 5,580 14,560
Accounts payable 30,028 27,489 24,095
Other current liabilities 12,801 11,204 15,668
Accrued general taxes 13,762 10,755 9,656
Environmental remediation liability 12,174 - -
-------- -------- --------
Total current liabilities 89,045 55,028 63,979
PAYABLES TO AFFILIATED COMPANIES 1,719 49,809 42,944
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 65,051 62,480 51,232
Other utility tax liabilities 13,139 13,139 16,985
Unamortized investment tax credits 10,517 10,913 11,313
Contributions in aid of construction 11,317 10,113 9,260
-------- -------- --------
Total deferred credits and
other liabilities 100,024 96,645 88,790
-------- -------- --------
Total capitalization and liabilities $851,173 $834,516 $782,746
======== ======== ========
The accompanying notes are an integral part of these balance sheets.
PAGE 14
WASHINGTON NATURAL GAS COMPANY
CONDENSED STATEMENTS OF CAPITALIZATION
MARCH 31, 1994 AND 1993
(Thousands of Dollars)
(Unaudited)
1994 1993
-------- --------
<F> <C> <C>
COMMON SHAREHOLDER'S INTEREST:
Common stock, $5 par value; $ 53,253 $ 51,946
authorized 25,000,000 shares,
outstanding 10,650,571 and
10,587,921 shares
Premium on common stock 162,619 158,173
Shareholder's earnings reinvested
in the business 51,253 72,974
-------- --------
Total common shareholder's interest 267,125 283,093
Shares
PREFERRED STOCK: Outstanding at
Cumulative; authorized March 31,
1,000,000 shares of $100 par -------------------
value and 4,000,000 shares 1994 1993
of $25 par value - ---------- -------
5%, Series A, $100 par value - 21,000 - 2,100
6%, Series B, $100 par value - 26,000 - 2,600
8-7/8%, Series C, $100 par value - 30,000 - 3,000
8-3/4%, Series F, $100 par value - 50,000 - 5,000
8-3/4%, Series I, $25 par value - 800,000 - 20,000
7.45%, Series II, $25 par value 2,400,000 - 60,000 -
Less sinking-fund requirements
included in current liabilities - (5,300)
------- -------
Total preferred stock 60,000 27,400
LONG-TERM DEBT:
First Mortgage Bonds
6-7/8% due 1993 - 3,980
12% due 1993 - 5,000
9.96% due 1995 40,000 40,000
8-7/8% due 1996 3,200 3,340
8.80% due 1996 25,000 25,000
8-1/8% due 1997 3,340 3,480
10-1/4% due 1997 30,000 30,000
9.60% due 2000 25,000 25,000
9.57% due 2020 25,000 25,000
Secured Medium-Term Notes, Series A
5.55% and 5.67% due 1995 20,000 20,000
8.25% due 1998 11,000 11,000
7.08% due 1999 10,000 10,000
8.51% to 8.55% due 2001 19,000 19,000
7.53% and 7.91% due 2002 30,000 30,000
8.25% to 8.40% due 2022 35,000 35,000
Secured Medium-Term Notes, Series B
6.23% through 6.31% due 2003 28,000 -
6.07% and 6.10% due 2004 18,500 -
6.51% and 6.53% due 2008 4,500 -
6.83% and 6.90% due 2013 13,000 -
7.19% due 2023 13,000 -
-------- --------
353,540 285,800
Less sinking-fund requirements and
debt maturities included in current liabilities (20,280) (9,260)
-------- --------
Total long-term debt 333,260 276,540
-------- --------
TOTAL CAPITALIZATION $660,385 $587,033
======== ========
The accompanying notes are an integral part of these balance sheets.
PAGE 15
WASHINGTON NATURAL GAS COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS
ENDED MARCH 31, 1994 AND 1993
(Thousands of Dollars)
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
1994 1993 1994 1993
-------- -------- -------- --------
<F> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 9,171 $ 15,394 $ 18,378 $ 29,021
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 7,637 7,124 15,257 14,248
Provision for uncollectible
accounts receivable 596 592 1,090 1,052
Increase (decrease) in:
Federal income tax payable:
Current 3,267 6,744 2,584 12,079
Deferred 1,008 939 2,175 1,876
Accounts receivable 35,323 19,521 (1,563) (39,114)
Accounts payable (17,067) (23,608) 883 2,494
Materials and supplies 18,452 19,059 25,653 16,627
Deferred charges (4,747) (10,257) (10,779) (11,657)
Other assets and liabilities 340 (2,196) 3,849 2,553
Other 1,506 673 2,090 1,282
-------- -------- -------- --------
Total adjustments 46,315 18,591 41,239 1,440
-------- -------- -------- --------
Net cash provided by operating
activities 55,486 33,985 59,617 30,461
CASH FLOW USED IN INVESTING ACTIVITIES:
Utility plant additions (18,888) (21,418) (42,453) (43,151)
CASH FLOW PROVIDED BY (USED IN) FINANCING
ACTIVITIES:
Proceeds from issuance of common stock 1,495 1,979 3,192 59,736
Proceeds from debt financing:
Preferred stock (135) - 58,795 -
Commercial paper (29,223) (13,511) (46,434) (17,037)
Bank loans, net - - - (17,100)
Redemptions and repurchases
Preferred stock - (200) (23,399) (200)
Long-term debt - - (140) (140)
Cash dividend payments
Common (4,256) - (12,677) (9,771)
Preferred (473) (713) (1,303) (1,364)
-------- -------- -------- --------
Net cash provided by (used in)
financing activities (32,592) (12,445) (21,966) 14,124
-------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 4,006 122 (4,802) 1,434
BEGINNING CASH AND CASH EQUIVALENTS 965 2,813 9,773 1,501
-------- -------- -------- --------
ENDING CASH AND CASH EQUIVALENTS $ 4,971 $ 2,935 $ 4,971 $ 2,935
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION -
Cash paid (received) during the period for:
Interest (net of amount capitalized) $ 9,320 $ 11,573 $ 14,582 $ 13,294
Income taxes - (393) 4,071 -
The accompanying notes are an integral part of these financial statements.
PAGE 16
WASHINGTON NATURAL GAS CO
STATEMENTS OF SHAREHOLDER'S EARNINGS
REINVESTED IN THE BUSINESS AND PREMIUM ON CAPITAL STOCK
FOR THE THREE AND SIX MONTHS ENDED
MARCH 31, 1994 AND 1993
(Thousands of Dollars)
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
1994 1993 1994 1993
-------- -------- -------- --------
<F> <C> <C> <C> <C>
Balance at beginning of period $ 47,456 $ 58,262 $ 48,094 $ 55,088
Net income 9,171 15,394 18,378 29,021
Excess premium - preferred redemption - - (798) -
Cash dividends declared:
Common stock (4,256) - (12,677) (9,771)
Cumulative preferred stock -
5%, Series A - (28) (9) (55)
6%, Series B - (39) (13) (77)
8-7/8%, Series C - (69) (23) (138)
8-3/4%, Series F - (109) (22) (219)
8-3/4%, Series I - (437) (88) (875)
7.45%, Series II (1,118) - (1,589) -
-------- -------- -------- --------
Balance at end of period $ 51,253 $ 72,974 $ 51,253 $ 72,974
======== ======== ======== ========
STATEMENTS OF PREMIUM ON CAPITAL STOCK
Balance at beginning of period $161,596 $156,484 $161,618 $108,186
Excess of proceeds over par value
of common stock issued to parent
company, less expense of sale - - - 46,714
Excess of cost over par value of
preferred stock reacquired - - (331) -
Excess of purchase price over par
value of shares of common stock
issued under the parent company's
Employee Stock Purchase Plan - - 180 179
Excess of purchase price over par
value of shares of common stock
issued under the parent company's
Dividend Reinvestment and Stock
Purchase Plan 1,172 1,689 2,381 3,222
Common and preferred stock expense (149) - (1,229) (128)
-------- -------- -------- --------
Balance at end of period $162,619 $158,173 $162,619 $158,173
======== ======== ======== ========
The accompanying notes are an integral part of these balance sheets.
PAGE 17
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
1. The consolidated financial statements include the accounts of
Washington Energy Company, and its wholly-owned subsidiaries,
after elimination of intercompany items and transactions:
Washington Natural Gas Company; Thermal Efficiency, Inc.;
Washington Energy Resources Company ("Resources") and its
wholly-owned subsidiaries; ThermRail, Inc.; WECO Finance
Company and its wholly-owned subsidiary; Thermal Energy, Inc.
and its wholly-owned subsidiary; Holdings Northwest, Inc.; and
Washington Energy Services Company ("Services").
In the opinion of management, all adjustments necessary for a
fair presentation of the results for the three- and six-month
periods have been reflected and were of a normal recurring
nature.
2. Reference is made to the notes to the financial statements
included on pages 49 through 82 in the Registrants' Form 10-K
annual report for the fiscal year ended September 30, 1993.
Those notes include a summary of significant accounting
policies and a description of other events and transactions
which should be read in connection with the accompanying
consolidated condensed financial statements.
3. Dividends on Washington Energy common stock are payable when
and as declared by the Board of Directors out of funds legally
available therefor.
There is no formal restriction on payment of common dividends
by Washington Energy, but as a practical matter for the
immediate future, its ability to pay dividends is limited by
the restrictions on dividend payments in the first mortgage
bond indenture of Washington Natural and the preferential
dividend rights of holders of Washington Natural preferred
stock. At March 31, 1994, $11,023,000 of retained earnings was
unrestricted as to payment of cash dividends under terms of the
most restrictive of the indentures securing Washington
Natural's First Mortgage Bonds.
4. Washington Natural and a predecessor operated a manufactured
gas plant in the Tide Flats area of Tacoma, Washington, from
1928 through 1956. The U.S. Environmental Protection Agency
has determined that the site contains several contaminants that
require cleanup under the Comprehensive Environmental Response,
Compensation and Liability Act, as amended (CERCLA).
Washington Natural has principal responsibility for the
cleanup. Remediation activities are expected to be
substantially completed by the end of calendar 1994.
PAGE 18
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
(cont'd)
In June 1991, Washington Natural filed a lawsuit in King County
Superior Court, State of Washington, against insurance
companies that have provided insurance to Washington Natural
at various times dating back to the 1940s. The trial was
bifurcated between a first phase, to determine whether the
policies issued by the defendants provided coverage for the
cleanup costs, and a second phase, to determine the amount of
coverage. On October 27, 1993, the Jury in the first phase of
the trial found that the essential requirements for coverage
were satisfied for each policy period at issue. In connection
with the second phase of the trial the court ruled, on
February 23, 1994, that each of the remaining defendants were
jointly and severally liable for Washington Natural's damages
up to the limits of their policies and subject to deductibles
and the amount of any underlying coverage. A final judgement
is expected to be granted in June 1994.
Based upon current cleanup cost estimates and insurance
litigation costs, less insurance settlement agreements to date
which total $7.1 million, the Company's share of the cleanup
cost at this site is estimated to be $31.9 million. Washington
Natural has recorded a current liability for the difference
between the estimated total cleanup cost and the $19.8 million
incurred to date. As a result of the Jury findings and court
rulings described above, the Company has recorded a receivable
in the amount of $31.9 million for the probable insurance
recovery. The net result of these transactions has not
significantly affected earnings to date.
5. On May 2, 1994, Resources closed a merger with Cabot Oil & Gas
Corporation. See discussion in Management's Discussion and
Analysis of Financial Condition and Results of Operations under
Outlook.
6. The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting For
Income Taxes," which supersedes SFAS No. 96, the accounting
standard the Company had followed since 1987. The Company
adopted SFAS No. 109 as of October 1, 1993.
The Company and all of its subsidiaries file a consolidated
federal income tax return. The parent company and its
subsidiaries each report current income tax expense as
allocated under an informal consolidated tax allocation
agreement. Generally, this allocation results in profitable
companies recognizing tax benefits from any losses their
subsidiaries may generate. Deferred income taxes have been
established by each member of the consolidated group based upon
the temporary differences, the reversal of which will result
in taxable or deductible amounts in future years when related
asset or liability is recovered or settled, within each entity.
PAGE 19
At September 30, 1993, Washington Energy had $8,439,000 of
alternative minimum tax credits which do not expire. The
alternative minimum tax credits can be used in the future to
reduce Washington Energy's regular tax liability in excess of
its minimum tax liability.
The Company has recorded under SFAS No. 109 gross deferred tax
assets totalling $15,706,000. These deferred tax assets
consist of alternative minimum tax credits of $8,439,000, loss
on discontinued operations of $7,036,000 and other
miscellaneous deferred tax assets of $227,000. The Company
determined that a valuation allowance was not needed.
</TABLE>
<TABLE>
The components of the net deferred tax liability are as follows:
in thousands)
09/30/93 10/01/93
-------- --------
<F> <C> <C>
Deferred tax liabilities:
Accelerated depreciation $(58,091) $(58,091)
Environmental activities (4,389) (4,389)
Intangible drilling costs (11,757) (11,757)
Abandoned oil and gas properties (6,631) (6,631)
Coal development activities (12,010) (12,010)
Deferred tax assets:
Receivable from IRS 4,161 -
Minimum tax credits 2,762 8,439
Loss on discontinued operations 7,036 7,036
Other 231 231
-------- --------
Total deferred tax liability $(78,688) $(77,172)
======== ========
7. The Company formed Services, effective October 1, 1993. This new subsidiary
consolidates the Company's merchandising of energy and security products for
the home, including merchandising operations previously managed by Washington
Natural. While the reporting of merchandising operations by Washington Energy
is not affected by this formation, Washington Natural's results of operations
will no longer include the revenues and expenses from the merchandising
operations previously managed by it. Washington Natural's gross operating
revenue and net operating income without the transferred merchandising
operations are shown below:
(in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
1994 1993 1994 1993
-------- -------- -------- --------
<F> <C> <C> <C> <C>
Gross operating revenues $142,113 $134,406 $274,383 $245,266
Net operating income 16,385 20,073 33,572 39,720
8. A class-action lawsuit was filed against Washington Energy in February, 1994. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations under Outlook.
_________________________________
Because of seasonal and other factors, the results of operations for the
interim periods presented should not be considered indicative of the results to
be expected for the full fiscal year.
</TABLE>
PAGE 20
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
The Company reported income from continuing operations of $7.4 million for the
quarter ended March 31, 1993, down $8.7 million from the same quarter a year
ago. Income from continuing operations for the first six months of fiscal 1994
of $15.8 million was down $14.7 million from the same period a year ago.
Earnings per share on common stock were $.32 for the second quarter of 1994,
down from $.67 a year ago. Earnings per share on common stock were $.64 during
the first six months of fiscal 1994, down half, or $.64 from the same period a
year ago. Net income of the principal subsidiary, Washington Natural, was $9.2
million for the quarter, down $6.2 million from the same period last year and
net income for the first six months of fiscal 1994 was $18.4 million compared
with $29.0 million in 1993.
The decrease in income from continuing operations was due to several factors.
Lower earnings reflect reduced utility rates that went into effect in October
1993 for Washington Natural as the result of a general rate decision by the
Washington Utilities and Transportation Commission ("WUTC"). Weather during
the second quarter was 7% warmer than normal and 9% warmer than the same period
a year ago. Weather for the first six months of fiscal 1994 was 4% warmer than
normal compared to the weather for the same period last year which was 1%
colder than normal. A combination of warmer temperatures and shifting by some
large-volume customers between classes and to alternative fuels lowered gas
sales, which were down approximately 4% in the three months ended March 31,
1994, compared to a year ago. The Company's net income decreased $1.6 million
in the current quarter compared to a year ago, due to natural gas pipeline
demand charges that were not recovered through gas brokering activity by
Resources. Canadian natural gas purchase prices during the quarter did not
allow full recovery of pipeline demand charges for sales in U.S. West Coast
markets. Earnings were also affected by lower income from the Company's retail
merchandise and services operation as business was re-established in Services.
Operating Revenues
The Company's operating revenues of $159.6 million for the quarter ended March
31, 1994, were down $1.3 million compared with the same period a year ago.
Consolidated utility gas revenues of $139.4 million were up 5% from the same
period last year, due primarily to higher gas prices that resulted from
increased purchased gas costs which were passed through to customers.
Purchased gas adjustments do not impact net income. Utility gas revenues year-
to-date were 11.5%, also due to an increase in gas prices. The utility served
over 21,000, or 5%, more customers in the current period compared to a year
ago.
Resources had production revenues of $9.7 million for the quarter, an increase
of 38% from the same quarter a year ago. Year-to-date production revenues were
$17.8 million for the first six months of fiscal 1994. Production was up 46%
for the quarter, and 42% year-to-date over the prior year periods despite the
fact that a substantial portion of its production was shut in for eight days in
early December due to a fire at a third party's processing plant. Lower prices
for natural gas and liquids reduced the effect of increased production on
revenue for the quarter and year to date.
PAGE 21
Merchandise sales and related revenues were $12.0 million for the quarter,
compared to $21.0 million for the same period a year ago. Merchandise sales
and related revenues for the six months year to date were $29.1 million
compared to $41.5 million for the same period last year. Services, a
subsidiary that began operations on October 1, 1993, and sells energy and
security products for the home, contributed $8.8 million of these revenues for
the quarter and $23.3 million for the six months year to date. The remainder
of these revenues were from appliance leasing activities retained by Washington
Natural. Previously, these products were sold by two other subsidiaries of the
Company. Lower revenues had been anticipated during the start-up of Services.
Operating Expenses
The Company's operating expenses of $142.7 million, including federal income
tax, were up $6.0 million for the three months ended March 31, 1994. Operating
expenses were up $28.5 million for the first six months of fiscal 1994 from the
same period last year. The increase in operating expenses was due primarily to
the increase in natural gas prices (which were passed through to customers),
depreciation and depletion, and revenue related taxes.
LIQUIDITY AND CAPITAL RESOURCES
Washington Natural makes capital expenditures to provide reliable gas distribu-
tion service to its customers and for its energy-related operations. In years
of normal weather for utility operations, approximately half of the capital
needs are met through cash flow from operations. The remaining requirements
are funded through short-term borrowings which, in turn, are refinanced from
the proceeds of securities issues. The issuance of long-term securities is
dependent on management's evaluation of need, financial market conditions and
other factors.
The Company's capital investment requirements for the first six months of
fiscal 1994 were $79.4 million. These requirements were met through cash
provided from operations, short-term financing and long-term financing.
Washington Natural's utility construction requirements were $42.5 million
during the first six months of fiscal 1994. Resources capital requirements
were $34.9 million and programs for other subsidiaries totalled $2.0 million
for the same period. Estimated construction requirements for Washington
Natural are $75 million for the fiscal year ended September 30, 1994, and
estimated expenditures for Washington Energy's other programs through other
subsidiaries (excluding Resources, which was merged with Cabot Oil & Gas
Corporation ("Cabot") on May 2, 1994) are estimated to be $5 million in fiscal
1994. It is expected that these programs will be funded with cash flow from
operations, short-term borrowing and long-term financing.
In addition to its construction program, the Company has short-term borrowing
requirements related to its utility operations. The operating revenues and
earnings of Washington Natural vary with weather conditions because
approximately 90% of its customers use natural gas for space heating. This
normally produces substantially increased operating revenues and earnings
during the first eight or nine months of each fiscal year and lower operating
revenues and a loss in the remaining three or four months, with the 12 months
as a whole being profitable. Because of this, Washington Natural must borrow
on a short-term basis to meet its construction and operating needs for a
portion of the year.
The Company has commercial paper programs, short-term bank credit arrangements
and an agreement to sell merchandise and gas receivables to provide short-term
financing. These arrangements provide the Company with total short-term
borrowing capacity and ability to sell receivables of $320 million. The total
remaining amount available from these sources was $113 million at March 31,
1994. As part of the merger of Resources with Cabot on May 2, 1994, the
Company received $63,661,000 in satisfaction of amounts owed by Resources to
the Company at March 31, 1994.
On November 1, 1993, Washington Natural redeemed all of its outstanding
preferred stock. Also in November 1993, Washington Natural completed a public
offering of 2.4 million shares of preferred stock, 7.45% Series II, $25 par
value, with net proceeds of $58.8 million.
PAGE 22
The Company's board of directors announced in October 1993 its decision to
reset the Company's quarterly dividend from 35 cents to 25 cents.
It is the opinion of management that the Company has and will have sufficient
capital resources, both internal and external, to meet anticipated capital
requirements.
ENVIRONMENTAL MATTERS
Washington Natural has the principal responsibility for cleaning up environmen-
tal contamination at a former manufactured gas plant site in Tacoma, Washing-
ton. Washington Natural ceased its manufacturing operations at the site in
1956 and later sold most of the property. Remediation activities are expected
to be substantially complete by the end of calendar 1994. Washington Natural
believes that recovery of these costs from insurance carriers is probable.
(See Note 4 of the Notes to Consolidated Financial Statements.)
OUTLOOK
Growth
The past five years have been substantial growth years for the Company.
Washington Natural's number of customers has been growing about two to three
times faster than the national average among natural gas utilities. Washington
Natural anticipates its customer growth will continue, but not at the 6.7%
annual rate experienced since the beginning of fiscal 1988. Washington Natural
expects customer growth of about 4% to 5% for fiscal 1994, or approximately
17,000 to 21,000 new customers. Washington Natural anticipates capital
spending for fiscal 1994 will be $26 million less than it experienced in 1993,
or approximately $75 million.
Class-Action Lawsuit
A class-action lawsuit was filed against Washington Energy in February alleging
violations of state and federal securities act provisions and associated
violations of Washington state law. The essence of the complaint concerns
alleged disclosure violations regarding the nature or the extent of the
downside financial risk associated with the 1992 utility rate request filing of
Washington Natural. The Company denies the allegations stated in the complaint
and denies any violation of federal or state laws and intends to vigorously
defend the suit.
General Rate Case
Washington Natural filed a limited-scope general rate case with the WUTC on
November 19, 1993, and requested a revenue increase of $24.6 million to address
its margin deficiency due to the general rate decrease effective October 1993.
The primary focus is to seek recovery of additional operating costs and the
inclusion in rate base of additional utility plant through September, 1993, for
system improvements and expansion since calendar year 1991, which was used as
the base measurement year in the prior rate case.
The staff of the WUTC recently submitted a filing in Washington Natural's
pending rate case supporting a $19 million rate increase for the gas utility.
If the staff's recommendation is adopted, annual earnings per share, on a pro-
forma basis, could increase by 49 cents. In addition to staff's filing, Public
Counsel filed a proposal to further reduce the revenue increase requested by
the Company by $3.1 million. The WUTC's three commissioners have until October
19, 1994, to issue a final decision.
PAGE 23
Revised Rate Design
By May 31, 1994, Washington Natural will be filing a cost-of-service study with
a revised rate design, which should address a margin shortfall caused by
shifting by some large-volume transportation customers to interruptible sales
service and alternative fuels.
Merger of Cabot Oil & Gas Corporation
On February 25, 1994, Washington Energy announced the signing of a merger
agreement between Cabot Oil & Gas Corporation and Washington Energy Resources
Company for total consideration of $180 million, including assumption of debt.
On May 2, 1994, Washington Energy closed the merger. The consideration was
reduced by approximately $23 million to reflect a downward revision in reserves
primarily due to lower production from certain newly drilled wells. In
addition to the payment of Resources debt to the Company described above, the
Company received 2,133,000 shares of Cabot Class A common stock and 1,134,000
shares of 6% redeemable convertible preferred stock of Cabot, stated at $50
value. The purchase price is subject to further downward adjustment based on
performance of wells in a certain field over the next year. Under the terms of
the merger agreement, Cabot's Board of Directors is being expanded by two
seats, to be held by representatives of Washington Energy.
In conjunction with the merger, Washington Energy retained certain of
Resources' marketing, pipeline and gas storage contractual arrangements with
several natural gas pipeline companies reserving capacity to transport gas from
Canada to the U.S. on a pipeline expansion placed in service on November 1,
1993. These contracts, which vary in term from 10 to 30 years, call for fixed
monthly demand charges regardless of the volumes actually transported.
Preceding the merger with Cabot, Resources had been unable to recover most of
the demand charges through gas brokering activity due to the narrow spread
between Canadian and U.S. west coast gas prices. To mitigate future losses
from these pipeline obligations, the Company has assigned, effective November
1, 1995, approximately 50 percent of future pipeline capacity and related
demand charges for these contracts. With the sale of Resources, however, the
Company is no longer able to use its own production to help mitigate the
remaining losses. As a result, the Company's ability to actively market its
capacity and reduce pipeline demand charges has been significantly reduced.
Accordingly, the Company will provide reserves for such contingencies of over
$15 million, net of tax. The Company will also be required to provide more
than $20 million of deferred taxes as a result of the merger and related
transactions. The Company expects, therefore, to record a loss of
approximately $25 to $30 million as a result of the merger and establishing the
contingency reserves and deferred taxes during the third quarter, ending June
30, 1994.
The cash received from the merger has been used to reduce Washington Energy's
short-term debt. The merger also allows the Company to continue its presence
in the exploration and production industry without the need for additional
capital investment.
PAGE 24
PART II - OTHER INFORMATION
Item 5. Other Information
The ratios of earnings to fixed charges for the twelve months ended
March 31, 1994 and 1993 were 1.31 and 1.68, respectively.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K.
A report on Form 8-K was filed by Washington Energy and Washing-
ton Natural on February 23, 1994, regarding a shareholder'
class-action suit filed against the Company.
A report on Form 8-K was filed by Washington Energy and Wash-
ington Natural on March 1, 1994, regarding the signing of a
merger agreement between Cabot Oil & Gas Corporation and
Washington Energy Resources Company, regarding the Company's
board of directors approval of the merger and election of
William P. Vititoe as chairman and chief executive officer, and
regarding the resignation of Robert R. Golliver, as President
and Chief Operating Officer.
PAGE 25
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WASHINGTON ENERGY COMPANY
By /s/ William P. Vititoe
William P. Vititoe
Chairman, President and Chief Executive Officer
By /s/ James P. Torgerson
James P. Torgerson
Senior Vice President - Finance, Planning and
Development and Principal Financial Officer
WASHINGTON NATURAL GAS COMPANY
By /s/ William P. Vititoe
William P. Vititoe
Chairman, President and Chief Executive Officer
By /s/ James P. Torgerson
James P. Torgerson
Senior Vice President - Finance, Planning and
Development and Principal Financial Officer
May 13, 1994
