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 quarterly period ended December 31, 1995, or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________.
I.R.S.
Commission Employer
File Exact Name of Registrant as State of Identification
Number Specified in Its Charter Incorporation Number
- ---------- ------------------------------ ------------- ------------
001-11227 Washington Energy Company Washington 91-1005304
001-11271 Washington Natural Gas Company Washington 91-1005303
Address of Principal Executive Offices Zip Code
-------------------------------------- --------
815 Mercer Street 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 January 31, 1996
- ------------------------------ -------------- ---------------
Washington Energy Company $5 par value 24,128,432
Washington Natural Gas Company $5 par value 11,020,117
PAGE 2
INTRODUCTION
Washington Energy Company ("Company" or "Washington Energy") is a holding
company whose principal subsidiary, Washington Natural Gas Company ("Washing-
ton Natural") is engaged primarily in the retail distribution of natural gas.
The Company holds an equity position in a publicly traded oil and gas explora-
tion and production company, and through various subsidiaries, is also engaged
in the business of selling gas appliances, energy efficient and security
products for the home. The Company is exempt from the provisions of the
Public Utility Holding Company Act of 1935 ("Act"), except with respect to
acquisition of securities of other public utility companies as defined in such
Act. This Form 10-Q is filed on behalf of Company and Washington Natural,
which companies are referred to herein as Registrants.
DOCUMENTS TO BE FURNISHED
The Company will provide you, upon your written request, with a copy of any
and all information that has been incorporated by reference herein. Any such
request for copies should be directed to the Company's Treasury Department,
815 Mercer Street, (P.O. Box 1869), Seattle, Washington 98111 (Telephone:
(206) 622-6767).
INDEX
Page
PART I - FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . .
4
Item 1. Consolidated Condensed Financial Statements . . .. . . . . . . .
4
Consolidated Condensed Financial Statements of
Washington Energy Company and Subsidiaries
(All statements are unaudited except for the
September 30, 1995 Consolidated Balance Sheet,
which has been audited.)
Consolidated Statements of Income -
Three Months Ended December 31, 1995
and 1994 . . . . . . . . . . . . . . . . . . . . . . . . .
5
Consolidated Condensed Balance Sheets -
December 31, 1995, September 30, 1995
and December 31, 1994 . . . . . . . . . . . . . . . . . . .
6
Consolidated Statements of Capitalization -
December 31, 1995 and 1994 . . . . . . . . . . . . . . . .
8
Consolidated Condensed Statements of Cash Flows -
Three Months Ended December 31, 1995 and 1994 . . . . . .
10
PAGE 3
INDEX (Continued)
Page
Consolidated Statements of Shareholders'
Earnings (Deficit) Reinvested in the Business
and Premium on Capital Stock - Three Months
Ended December 31, 1995 and 1994 . . . . . . . . . . . .
12
Consolidated Condensed Financial Statements of Washington
Natural Gas Company and Subsidiaries (All state-
ments are unaudited except for the September 30, 1995
Consolidated Balance Sheet, which has been audited.)
Consolidated Statements of Income -
Three Months Ended December 31,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . .
13
Consolidated Condensed Balance Sheets -
December 31, 1995, September 30, 1995
and December 31, 1994 . . . . . . . . . . . . . . . . . .
14
Consolidated Statements of Capitalization -
December 31, 1995 and 1994 . . . . . . . . . . . . . . .
16
Consolidated Condensed Statements of Cash Flows -
Three Months Ended December 31, 1995 and 1994 . . . . . .
18
Consolidated Statements of Shareholder's Earnings
Reinvested in the Business and Premium
on Capital Stock - Three Months Ended
December 31, 1995 and 1994 . . . . . . . . . . . . . . .
20
Notes to Consolidated Condensed Financial Statements
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . .
21
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Unaudited) . . . . . .
27
Part II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . .
30
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
PAGE 4
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
The consolidated condensed financial statements included herein have been pre-
pared by the Registrants, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Registrants believe that
the disclosures are adequate to make the information presented not misleading.
It is suggested that these consolidated condensed financial statements be read
in conjunction with the consolidated 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 in-
terim period presented should not be considered indicative of the results to be
expected for the full fiscal year.
PAGE 5
<TABLE>
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(Unaudited)
<CAPTION>
1995 1994
-------- --------
(in thousands except
per share amounts)
<S> <C> <C>
OPERATING REVENUES:
Regulated utility sales $120,525 $149,747
Merchandise, conservation products and other 6,970 6,498
-------- --------
Total operating revenues 127,495 156,245
-------- --------
OPERATING EXPENSES:
Cost of gas sold 55,777 81,824
Operations and maintenance 23,367 21,867
Depreciation, depletion and amortization 9,050 8,948
General taxes 11,530 12,115
Federal income taxes 5,487 7,180
-------- --------
Total operating expenses 105,211 131,934
-------- --------
OPERATING INCOME 22,284 24,311
OTHER INCOME (EXPENSE):
Preferred dividend requirement -
Washington Natural Gas Company (1,755) (1,862)
Other, net 241 340
-------- --------
GROSS INCOME 20,770 22,789
INTEREST CHARGES 10,635 9,534
-------- --------
NET INCOME $ 10,135 $ 13,255
======== ========
EARNINGS PER COMMON SHARE $ .42 $ .56
AVERAGE COMMON SHARES OUTSTANDING 24,080 23,737
DIVIDENDS PER COMMON SHARE OUTSTANDING $ .25 $ .25
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
PAGE 6
<TABLE>
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 (Unaudited), SEPTEMBER 30, 1995 AND
DECEMBER 31, 1994 (Unaudited)
ASSETS
<CAPTION>
December September December
31, 1995 30, 1995 31, 1994
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
PROPERTY, PLANT AND EQUIPMENT:
Utility plant, at original cost $1,072,267 $1,055,322 $ 991,696
Coal and other 15,647 15,621 54,720
Accumulated depreciation and
amortization (281,726) (273,735) (256,866)
---------- ---------- ----------
Net property, plant and equipment 806,188 797,208 789,550
---------- ---------- ----------
INVESTMENT IN UNCONSOLIDATED
AFFILIATES 69,162 70,313 97,733
---------- ---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 7,692 9,315 5,764
Receivables, net 42,911 20,437 52,700
Federal income taxes receivable 10,454 10,942 7,347
Deferred income taxes 2,958 3,707 4,663
Purchased gas receivable - - 506
Materials and supplies, at average
cost 26,509 31,968 23,882
---------- ---------- ----------
Total current assets 90,524 76,369 94,862
---------- ---------- ----------
OTHER ASSETS AND DEFERRED CHARGES:
Environmental receivables 8,715 8,116 33,947
Regulatory tax asset 17,605 17,605 18,810
Deferred charges and other 23,390 19,879 17,328
---------- ---------- ----------
Total other assets and deferred
charges 49,710 45,600 70,085
---------- ---------- ----------
Total assets $1,015,584 $ 989,490 $1,052,230
========== ========== ==========
The accompanying notes are an integral part of these consolidated balance
sheets.
</TABLE>
PAGE 7
<TABLE>
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 (Unaudited), SEPTEMBER 30, 1995 AND
DECEMBER 31, 1994 (Unaudited)
(continued)
CAPITALIZATION AND LIABILITIES
<CAPTION>
December September December
31, 1995 30, 1995 31, 1994
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
CAPITALIZATION (see Consolidated
Statements of Capitalization):
Common shareholders' interest $ 195,804 $ 196,686 $ 259,606
Redeemable preferred stock of
subsidiary 90,000 90,000 90,000
Long-term debt 344,920 310,060 290,060
---------- ---------- ----------
Total capitalization 630,724 596,746 639,666
---------- ---------- ----------
CURRENT LIABILITIES:
Notes payable and commercial paper 161,846 161,994 121,516
Current sinking fund requirements
and debt maturities 140 30,140 60,140
Accounts payable 26,079 32,755 34,678
Purchased gas liability 29,633 15,554 -
Accrued general taxes 14,967 12,556 14,818
Environmental remediation liabilities 4,491 4,578 6,199
Other current liabilities 37,672 28,939 34,974
---------- ---------- ----------
Total current liabilities 274,828 286,516 272,325
---------- ---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 63,565 59,450 85,404
Regulatory tax liability 11,017 11,017 12,560
Unamortized investment tax credits 9,157 9,352 9,937
Contributions in aid of construction 14,633 14,252 12,958
Contingency reserves and other 11,660 12,157 19,380
---------- ---------- ----------
Total deferred credits and
other liabilities 110,032 106,228 140,239
---------- ---------- ----------
Total capitalization and
liabilities $1,015,584 $ 989,490 $1,052,230
========== ========== ==========
The accompanying notes are an integral part of these consolidated balance
sheets.
</TABLE>
PAGE 8
<TABLE>
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
DECEMBER 31, 1995 AND 1994
(Unaudited)
<CAPTION>
Shares Outstanding
at December 31, December 31,
------------------- ------------------
1995 1994 1995 1994
-------- -------- -------- --------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
COMMON SHAREHOLDERS' INTEREST:
Common stock, $5 par value;
authorized 50,000,000 shares 24,128 23,840 $120,639 $119,199
Premium on common stock 203,354 200,380
Shareholders' accumulated
deficit (128,189) (59,973)
-------- --------
Total common shareholders'
interest 195,804 259,606
-------- --------
REDEEMABLE PREFERRED STOCK:
Washington Energy Company -
cumulative; authorized
200,000 shares of $100 par
value and 800,000 shares
of $25 par value
- - - -
no shares outstanding
Washington Natural Gas Company -
cumulative; authorized
1,000,000 shares of $100 par
value and 4,000,000 shares
of $25 par value
7.45%, Series II, $25 par value 2,400 2,400 60,000 60,000
8.50%, Series III, $25 par value 1,200 1,200 30,000 30,000
-------- --------
Total preferred stock 90,000 90,000
-------- --------
</TABLE>
<TABLE>
PAGE 9
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
DECEMBER 31, 1995 AND 1994 (Unaudited)
(Continued)
<CAPTION>
December 31,
-------------------
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
LONG-TERM DEBT:
First mortgage bonds
9.96% due 1995 $ $ 40,000
8.80% called in 1995 - 25,000
8-1/8% due 1997 3,060 3,200
10-1/4% called in 1995 - 30,000
9.60% due 2000 25,000 25,000
9.57% due 2020 25,000 25,000
Secured medium-term notes, series A
5.55% and 5.67% due 1995 - 20,000
8.25% due 1998 11,000 11,000
7.08% due 1999 10,000 10,000
8.51% through 8.55% due 2001 19,000 19,000
7.53% and 7.91% due 2002 30,000 30,000
8.25% through 8.40% due 2022 35,000 35,000
Secured medium-term notes, series B
6.23% through 6.31% due 2003 28,000 28,000
6.07% and 6.10% due 2004 18,500 18,500
6.51% and 6.53% due 2008 4,500 4,500
6.83% and 6.90% due 2013 13,000 13,000
7.19% due 2023 13,000 13,000
Secured medium-term notes, series C
6.92% and 6.93% due 2005 31,000 -
7.02% and 7.04% due 2007 25,000 -
7.12% due 2010 7,000 -
7.35% and 7.36% due 2015 12,000 -
6.58% due 2006 10,000 -
6.61% and 6.62% due 2009 8,000 -
7.15% and 7.20% due 2025 17,000 -
-------- --------
345,060 350,200
Less sinking-fund requirements
and maturities included in
current liabilities (140) (60,140)
-------- --------
Total long-term debt 344,920 290,060
-------- --------
TOTAL CAPITALIZATION $630,724 $639,666
======== ========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
PAGE 10
<TABLE>
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR
THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994 (Unaudited)
<CAPTION>
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 10,135 $ 13,255
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 9,141 9,201
Provision for uncollectible accounts receivable 250 703
Equity in undistributed losses of
unconsolidated affiliate 1,151 406
Deferred federal income tax 4,669 7,003
Increase (decrease) in:
Accounts receivable (22,725) (36,909)
Current federal income taxes receivable 488 4,787
Purchased gas receivable/liability 14,079 20,755
Environmental expenditures (686) -
Accounts payable (6,676) 6,551
Materials and supplies 5,459 4,187
Deferred charges (3,194) (1,771)
Other operating assets and liabilities 5,000 (3,310)
Other - (450)
-------- --------
Total adjustments 6,956 11,153
-------- --------
Net cash provided by operating activities 17,091 24,408
-------- --------
CASH FLOW USED IN INVESTING ACTIVITIES:
Utility plant additions (18,101) (15,414)
Other property expenditures (25) (322)
Proceeds from disposition of fixed assets 96 -
-------- --------
Net cash used in investing activities $(18,030) $(15,736)
-------- --------
</TABLE>
<TABLE>
PAGE 11
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR
THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994 (Unaudited)
(Continued)
<CAPTION>
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of:
Common stock $ 1,030 $ 1,440
First mortgage bonds 34,592 -
Reductions of commercial paper, net (148) (3,666)
Redemptions of first mortgage bonds (30,140) (140)
Common stock dividends (6,018) (5,929)
-------- --------
Net cash used in financing activities (684) (8,295)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,623) 377
Beginning cash and cash equivalents 9,315 5,387
-------- --------
Ending cash and cash equivalents $ 7,692 $ 5,764
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -
Cash paid during the period for:
Interest (net of amount capitalized) $ 8,442 $ 6,431
Income taxes - -
</TABLE>
PAGE 12
<TABLE>
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EARNINGS (DEFICIT)
REINVESTED IN THE BUSINESS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1995 AND 1994
(Unaudited)
<CAPTION>
1995 1994
--------- ---------
(in thousands)
<S> <C> <C>
Balance at beginning of period $(126,278) $ (61,339)
Net income 10,135 13,255
Common stock dividends declared (12,046) (11,889)
--------- --------
Balance at end of period $(128,189) $ (59,973)
========= =========
</TABLE>
<TABLE>
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PREMIUM ON COMMON STOCK
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
<CAPTION>
1995 1994
--------- ---------
(in thousands)
<S> <C> <C>
Balance at beginning of period $ 202,616 $ 199,571
Excess of purchase price over par value of
shares of common stock issued under the
Employee Stock Purchase and Ownership Plans 116 115
Excess of purchase price over par value of
shares of common stock issued under the
Dividend Reinvestment and Stock Purchase Plan 614 823
Excess of purchase price over par value of
shares of common stock issued under the
Incentive Stock Option Plan 10 -
Common and preferred stock expense (2) (129)
--------- ---------
Balance at end of period $ 203,354 $ 200,380
========= =========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
PAGE 13
<TABLE>
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(Unaudited)
<CAPTION>
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
OPERATING REVENUES:
Regulated utility sales $120,525 $149,747
-------- --------
OPERATING EXPENSES:
Cost of gas sold 55,777 81,824
Utility operations and maintenance 16,500 15,043
Depreciation 8,954 8,881
General taxes 11,460 12,038
Federal income taxes 6,442 8,028
-------- --------
Total operating expenses 99,133 125,814
-------- --------
OPERATING INCOME 21,392 23,933
OTHER INCOME, NET 283 63
-------- --------
GROSS INCOME 21,675 23,996
INTEREST CHARGES 7,802 7,854
-------- --------
NET INCOME 13,873 16,142
Dividends on preferred stock 3,511 1,862
-------- --------
Earnings on common stock $ 10,362 $ 14,280
======== ========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
PAGE 14
<TABLE>
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS - DECEMBER 31, 1995 (Unaudited),
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994 (Unaudited)
ASSETS
<CAPTION>
December September December
31, 1995 30, 1995 31, 1994
---------- ---------- --------
(in thousands)
<S> <C> <C> <C>
UTILITY PLANT, at original cost $1,072,267 $1,055,322 $991,696
Accumulated depreciation (271,559) (263,664) (247,079)
---------- ---------- --------
Net utility plant 800,708 791,658 744,617
---------- ---------- --------
RECEIVABLES FROM AFFILIATED COMPANIES 219 102 108
---------- ---------- --------
CURRENT ASSETS:
Cash and cash equivalents 2,589 3,571 269
Accounts receivable, net 36,096 16,644 48,410
Federal income taxes receivable 1,383 1,416 1,415
Deferred income taxes 2,958 3,707 4,650
Purchased gas receivable - - 506
Materials and supplies,
at average cost 24,204 29,706 21,089
---------- ---------- --------
Total current assets 67,230 55,044 76,339
---------- ---------- --------
OTHER ASSETS AND DEFERRED CHARGES:
Environmental receivables 8,715 8,116 33,947
Regulatory tax asset 17,605 17,605 18,810
Deferred charges and other 20,195 18,073 16,486
---------- ---------- --------
Total other assets and deferred
charges 46,515 43,794 69,243
---------- ---------- --------
Total assets $ 914,672 $ 890,598 $890,307
========== ========== ========
The accompanying notes are an integral part of these consolidated balance
sheets.
</TABLE>
<TABLE>
PAGE 15
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS - DECEMBER 31, 1995 (Unaudited),
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994 (Unaudited)
(Continued)
CAPITALIZATION AND LIABILITIES
<CAPTION>
December September December
31, 1995 30, 1995 31, 1994
-------- --------- --------
(in thousands)
<S> <C> <C> <C>
CAPITALIZATION (see Consolidated
Statements of Capitalization):
Common shareholder's interest $262,904 $251,528 $251,708
Redeemable preferred stock 90,000 90,000 90,000
Long-term debt 344,920 310,060 290,060
-------- -------- --------
Total capitalization 697,824 651,588 631,768
-------- -------- --------
CURRENT LIABILITIES:
Current sinking fund requirements
and debt maturities 140 30,140 60,140
Accounts payable 24,973 31,253 32,023
Purchased gas liability 29,633 15,554 -
Accrued general taxes 14,756 12,381 14,606
Environmental remediation liabilities 4,491 4,578 6,199
Other current liabilities 25,322 23,958 24,182
-------- -------- --------
Total current liabilities 99,315 117,864 137,150
-------- -------- --------
PAYABLES TO AFFILIATED COMPANIES 6,909 16,699 16,354
-------- -------- --------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 75,817 69,826 69,580
Regulatory tax liability 11,017 11,017 12,560
Unamortized investment tax credits 9,157 9,352 9,937
Contributions in aid of construction 14,633 14,252 12,958
-------- -------- --------
Total deferred credits and
other liabilities 110,624 104,447 105,035
-------- -------- --------
Total capitalization and
liabilities $914,672 $890,598 $890,307
======== ======== ========
The accompanying notes are an integral part of these consolidated balance
sheets.
</TABLE>
PAGE 16
<TABLE>
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
DECEMBER 31, 1995 AND 1994
(Unaudited)
<CAPTION>
Shares Outstanding
at December 31, December 31,
-------------------- --------------------
1995 1994 1995 1994
-------- -------- -------- --------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
COMMON SHAREHOLDER'S INTEREST:
Common stock, $5 par value;
authorized 25,000,000 shares 11,020 10,842 $ 55,101 $ 54,211
Premium on common stock 168,576 165,080
Shareholder's earnings
reinvested in the business 39,227 32,417
-------- --------
Total common shareholder's
interest 262,904 251,708
-------- --------
REDEEMABLE PREFERRED STOCK,
cumulative; authorized 1,000,000
shares of $100 par value and
4,000,000 shares of $25 par value
7.45%, Series II, $25 par value 2,400 2,400 60,000 60,000
8.50%, Series III, $25 par value 1,200 1,200 30,000 30,000
-------- --------
Total preferred stock 90,000 90,000
-------- --------
</TABLE>
<TABLE>
PAGE 17
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
DECEMBER 31, 1995 AND 1994 (Unaudited)
(Continued)
<CAPTION>
December 31,
--------------------
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
LONG-TERM DEBT:
First mortgage bonds
9.96% due 1995 $ - $ 40,000
8.80% called in 1995 - 25,000
8-1/8% due 1997 3,060 3,200
10-1/4% called in 1995 - 30,000
9.60% due 2000 25,000 25,000
9.57% due 2020 25,000 25,000
Secured medium-term notes, series A
5.55% and 5.67% due 1995 - 20,000
8.25% due 1998 11,000 11,000
7.08% due 1999 10,000 10,000
8.51% 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 28,000
6.07% and 6.10% due 2004 18,500 18,500
6.51% and 6.53% due 2008 4,500 4,500
6.83% and 6.90% due 2013 13,000 13,000
7.19% due 2023 13,000 13,000
Secured medium-term notes, series C
6.92% and 6.93% due 2005 31,000 -
7.02% and 7.04% due 2007 25,000 -
7.12% due 2010 7,000 -
7.35% and 7.36% due 2015 12,000 -
6.58% due 2006 10,000 -
6.61% and 6.62% due 2009 8,000 -
7.15% and 7.20% due 2025 17,000 -
-------- --------
345,060 350,200
Less sinking-fund requirements
and maturities included in
current liabilities (140) (60,140)
-------- --------
Total long-term debt 344,920 290,060
-------- --------
TOTAL CAPITALIZATION $697,824 $631,768
======== ========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
PAGE 18
<TABLE>
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(Unaudited)
<CAPTION>
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
CASH FLOW PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
Net income $ 13,873 $ 16,142
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 9,045 9,133
Provision for uncollectible accounts
receivable 234 214
Deferred federal income tax 6,545 7,930
Increase (decrease) in:
Accounts receivable (19,686) (34,890)
Current federal income taxes receivable 33 -
Purchased gas receivable/liability 14,079 20,755
Environmental expenditures (686) -
Accounts payable (6,280) 7,308
Materials and supplies 5,502 4,271
Deferred charges (1,804) (2,282)
Other operating assets and liabilities 2,365 (1,709)
Other - (448)
-------- --------
Total adjustments 9,347 10,282
-------- --------
Net cash provided by operating activities 23,220 26,424
-------- --------
CASH FLOW PROVIDED BY (USED IN) INVESTING
ACTIVITIES:
Utility plant additions (18,101) (15,414)
Proceeds from disposition of fixed assets 96 -
-------- --------
Net cash used in investing activities (18,005) (15,414)
-------- --------
</TABLE>
<TABLE>
PAGE 19
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994 (Unaudited)
(Continued)
<CAPTION>
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of:
Common stock $ 1,014 $ 1,440
First mortgage bonds 34,592 -
Payables to affiliated companies, net (9,907) (11,351)
Redemptions of first mortgage bonds (30,140) (140)
Cash dividend payments:
Common - -
Preferred (1,756) (1,117)
-------- --------
Net cash used in financing activities (6,197) (11,168)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (982) (158)
Beginning cash and cash equivalents 3,571 427
-------- --------
Ending cash and cash equivalents $ 2,589 $ 269
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -
Cash paid during the period for:
Interest (net of amount capitalized) $ 5,993 $ 4,549
Income taxes - -
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
PAGE 20
<TABLE>
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EARNINGS
REINVESTED IN THE BUSINESS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1995 AND 1994
(Unaudited)
<CAPTION>
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
Balance at beginning of period $ 28,865 $ 18,137
Net income 13,873 16,142
Dividends declared:
Common stock - -
Cumulative preferred stock:
7.45%, Series II (2,236) (1,118)
8.50%, Series III (1,275) (744)
-------- --------
Balance at end of period $ 39,227 $ 32,417
======== ========
</TABLE>
<TABLE>
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PREMIUM ON COMMON STOCK
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
<CAPTION>
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
Balance at beginning of period $167,752 $163,978
Excess of purchase price over par value of
shares of common stock issued under the
parent company's Employee Stock Purchase Plan 135 138
Excess of purchase price over par value of
shares of common stock issued under the
parent company's Dividend Reinvestment
and Stock Purchase Plan 689 1,093
Common and preferred stock expense - (129)
-------- --------
Balance at end of period $168,576 $165,080
======== ========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
PAGE 21
WASHINGTON ENERGY COMPANY AND SUBSIDIARIES
WASHINGTON NATURAL GAS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
(1) SUMMARY OF CONSOLIDATION POLICY
The consolidated financial statements include the accounts of Washington
Energy Company and its wholly-owned subsidiaries, after elimination of
intercompany items and transactions. The Company's subsidiaries are:
1. Washington Natural Gas Company and its wholly-owned
subsidiaries;
2. Washington Energy Services Company;
3. Washington Energy Gas Marketing Company;
4. WECO Finance Company and its wholly-owned subsidiary;
5. Thermal Energy, Inc., and its wholly-owned subsidiary; and
6. ThermRail, Inc.
In the opinion of management, all adjustments necessary for a fair
presentation of the results for the interim periods have been reflected and
were of a normal recurring nature.
(2) REFERENCE TO FORM 10-K FOR FISCAL YEAR ENDED SEPTEMBER 30, 1995
Reference is made to the notes to the consolidated financial statements
included on pages 61 through 90 in the Registrants' Form 10-K annual report
for the fiscal year ended September 30, 1995. Those notes include a summary
of significant accounting policies and a description of other events and
transactions which should be read in conjunction with the accompanying
consolidated condensed financial statements.
(3) DIVIDENDS
(a) Restriction
There are no restrictions on payment of dividends by the Company, but as a
practical matter, its long-term ability to pay dividends is limited by the
restrictions on dividend payments in the first mortgage bond indentures of
Washington Natural. Washington Natural has not paid dividends to Washington
Energy since April 1994 due to these restrictions. At December 31, 1995,
Washington Natural was restricted from paying dividends to Washington Energy
until its retained earnings increased by more than $2,141,000.
(b) Preferred Dividend Declaration
Washington Energy's accounting method is to expense the preferred dividend
requirement of Washington Natural on a ratable method during the fiscal year.
During the quarter ended December 31, 1995, Washington Natural's Board of
Directors declared dividends payable on January 1, 1996 and April 1, 1996.
The dividend payable on January 1, 1996 was expensed in the consolidated
financial statements of Washington Energy in the first fiscal quarter. The
dividend payable on April 1, 1996 will be expensed in the second fiscal
quarter.
Page 22
(4) LIABILITY FOR ENVIRONMENTAL MATTERS
(a) General
The distribution of natural gas by Washington Natural involves certain
controllable environmental risks. Washington Natural conducts its natural gas
distribution business using accepted industry practices and procedures.
Washington Natural is not aware of any material environmental exposures
related to its natural gas distribution activities. However, Washington
Natural, as the former operator of, or the successor to a former operator of,
several manufactured gas plants in western Washington prior to 1957, has
several existing environmental exposures and one recently resolved
environmental insurance action.
Former manufactured gas plant sites in the following areas are currently
undergoing investigation, remedial actions or monitoring actions relating to
environmental contamination: 1) the Tideflats area of Tacoma, Washington; 2)
Everett, Washington; 3) Chehalis, Washington and 4) "Gas Works Park" in
Seattle. As discussed in Note 5(a), there is another former manufactured gas
plant site situated at 22nd and "A" Streets in Tacoma, where Washington
Natural has incurred costs, primarily for legal defense of litigation brought
by the Washington State Department of Transportation, because Washington
Natural does not believe that it has responsibility for remediation related to
this site and it is not expected to result in a significant liability to
Washington Natural.
The financial statements reflect actual costs to date and management's
estimates of the costs to be incurred, based on known and available
information with regard to the extent of contamination and the potential
methods of cleanup or containment believed to be feasible at each site.
Washington Natural is continually evaluating the progress at each site and the
cost estimates will be revised, if necessary, as new information is available.
The financial statements reflect receivables for the expected recoveries from
insurance carriers and other third parties of substantially all of the cleanup
costs as discussed in greater detail below.
Page 23
The following table summarizes total expected costs, the costs incurred and
recorded through December 31, 1995, the expected recoveries from insurance
companies and other parties and the actual recoveries through December 31,
1995, for each of the Washington Natural's four significant sites (in
thousands):
<TABLE>
<CAPTION>
Gas Works
Tideflats Everett Chehalis Park
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Estimated total investigation,
legal, remediation, and
financing costs $43,355 $ 3,250 $ 2,000 $ 1,000
Actual costs to date 43,355 400 1,624 12
------- ------- ------- -------
Balance expected to be incurred $ - $ 2,850 $ 376 $ 988
======= ======= ======= =======
Expected recoveries from insurance
companies and other parties $42,088 $ 3,250 $ 2,000 $ 1,000
Actual recoveries to date 40,315 -- -- --
------- ------- ------- -------
Balance expected to be recovered $ 1,773 $ 3,250 $ 2,000 $ 1,000
======= ======= ======= =======
</TABLE>
(b) Tideflats
The remediation activities at the Tideflats site were completed as of July
1995, and confirmed by the U.S. Environmental Protection Agency in a letter
dated September 28, 1995. Monitoring equipment has been installed at the
site. In the future, ongoing monitoring and maintenance costs will be
expensed as incurred and are not estimated to be material.
Washington Natural as of December 31, 1995, expects to receive approximately
$1,773,000 million in equipment salvage value and reimbursement from another
responsible party at the site. Including the collection of these receivables,
Washington Natural has collected or will recover all but $1,267,000 of the
costs incurred to remediate the Tideflats site. Washington Natural, under an
agreement with the WUTC, will seek recovery in future customer rates of the
remediation costs which are not reimbursed by third parties.
(c) Everett
A remedial investigation study of the Everett site was completed in August
1995. A feasibility study to determine the appropriate method of remediation
or containment is scheduled for completion in February 1996. Washington
Natural cannot estimate the full extent of future remediation costs at the
Everett site until more information is available from the feasibility study.
However, a reserve for investigation and remediation costs of $3,250,000 has
been established based on the preliminary information obtained during the
remedial investigation.
The Everett site was previously owned and operated by other companies who are
potentially liable parties ("PLPs") for the remediation of the site. The cost
estimate reflects the total cost expected to remediate the site before
contributions by other PLPs.
Page 24
(d) Chehalis
The Chehalis site has been undergoing investigation and remediation activities
since September 1992. As of the fall of 1995, Washington Natural has
completed source control and installed groundwater monitoring wells.
Washington Natural is currently compiling seasonal groundwater data to
determine if further remedial measures are required.
(e) Gas Works Park
Washington Natural sold the site of a former manufactured gas plant at Lake
Union, now known as "Gas Works Park," to the City of Seattle on September 4,
1962. The City of Seattle, in a letter from the Seattle City Attorney dated
February 24, 1995, requested that Washington Natural participate in a cleanup
of this site. The letter also indicated that if Washington Natural does not
participate, the City of Seattle will pursue legal remedies which the City of
Seattle believes are available. Washington Natural believes that the
contract, which sold the land to the City of Seattle, presents substantial
defenses against any claims the City of Seattle may make for environmental
remediation costs, which may be incurred at this site.
To date, the City of Seattle has not formally initiated any legal proceedings
and the course of events at this site cannot be predicted. However,
Washington Natural has met with and has exchanged correspondence with the City
of Seattle seeking a solution to Washington Natural's participation in the
cleanup at the Gas Works Park site. During the fourth quarter of fiscal 1995,
a reserve for $1,000,000 for the potential resolution of this matter with the
City of Seattle was established. A receivable of $1,000,000 was also
established to reflect the probable recovery of the estimated costs from
Washington Natural's insurance carriers.
(f) Expected Recoveries
Washington Natural's financial statements as of December 31, 1995, include
environmental receivables in the amount of $8,715,000 primarily for recoveries
from insurance carriers, based upon the successful litigation against its
insurers regarding the Tideflats site, and other PLPs. Although the factual
situations at the other sites differ in some respects from the factual
situation at the Tideflats site, Washington Natural believes, based on the
precedents established in the Tideflats case and discussion with legal
counsel, that it is probable that it has insurance coverage sufficient to
recover costs not recovered from other PLPs.
Based on all known facts and analyses, the Company and Washington Natural
believe it is not likely that the identified environmental liabilities will
result in a material adverse impact on the Company's or Washington Natural's
financial position, operating results or cash flow trends.
(5) LITIGATION
(a) Washington State Department of Transportation Lawsuits
On August 8, 1989, the Washington State Department of Transportation (the
"WDOT") commenced a lawsuit ("Federal Action") in the U.S. District Court,
Western District of Washington ("District Court"), against Washington Natural
and other defendants. The suit sought from Washington Natural and the other
Page 25
defendants, the recovery of approximately $7 million in costs incurred by the
WDOT in cleaning up contamination at the site of a former manufactured gas
plant which discontinued operations in the early 1900s. The trial court ruled
that WDOT's claim was barred due to its failure to comply with federal law
governing the cleanup of hazardous waste sites, and ordered that judgment be
entered in favor of Washington Natural and the other defendants. The trial
court's decision was affirmed by the United States Court of Appeals for the
Ninth Circuit ("Court of Appeals") on July 13, 1995. The WDOT did not
initiate an appeal of the Federal Action to the United States Supreme Court
within the prescribed time for appeal of the Court of Appeals decision thereby
finalizing the District Court's decision in favor of Washington Natural.
On May 10, 1994, the WDOT filed an action in the state Superior Court for
Pierce County, Washington ("State Action") against Washington Natural and
other defendants arising out of the same occurrence and seeking the same
damages as sought in the Federal Action described above. The State Action
alleges a claim under Washington's Model Toxics Control Act, which was
recently amended to allow a private right of action for cost recovery. The
State Action was stayed by Stipulation and Order dated June 10, 1994 pending
the outcome of the Federal Action. The WDOT has indicated that it would
pursue the State Action if the appeal was denied by the Court of Appeals. As
of February 13, 1995 the WDOT has not requested the Superior Court for Pierce
County to lift its stay. If the WDOT pursues the State Action, Washington
Natural intends to mount a vigorous defense on several grounds and believes
that the State Action will not be successful.
(b) Alleged Securities Violations
A class-action lawsuit was filed against Washington Energy and two of its
officers, one of whom has subsequently retired, (collectively, "the
Defendants") in District Court, in February 1994, alleging violations of state
and federal securities act provisions and associated violations of Washington
state law. The essence of the complaint concerned alleged disclosure
violations regarding the nature or the extent of the downside financial risk
associated with the 1992 utility rate request filing of Washington Natural.
In May 1994, the Defendants filed a motion to dismiss the lawsuit. Discovery
in the case was stayed pending resolution of this motion and on July 25, 1994,
the District Court issued its Order Granting Defendants' Motion To Dismiss and
entered a judgment dismissing the action. The plaintiffs have appealed to the
Court of Appeals. On October 19, 1995 the Court of Appeals heard oral
arguments. A decision is expected sometime in 1996. In management's opinion,
the District Court's decision should be upheld on appeal.
(c) Alleged Anti-Trust Violations
On September 6, 1994, Cost Management Services, Inc. ("Cost Management"), a
Mercer Island, Washington, company involved in the purchase and resale of
natural gas, filed an action against Washington Natural in District Court.
Cost Management alleged that Washington Natural has monopolized or attempted
to monopolize the market for natural gas in central western Washington. Cost
Management also alleged Washington Natural failed to charge its customers in
accordance with the prices, terms and conditions set forth in tariffs filed by
Washington Natural with the WUTC and that it wrongfully interfered with Cost
Management's relationships with its customers. Cost Management sought
injunctive relief and damages in an unspecified amount. Washington Natural
filed a motion to dismiss the lawsuit which was granted on May 5, 1995. In
dismissing
Page 26
Cost Management's action the court ruled that the state action doctrine
provides antitrust immunity for conduct done pursuant to a clearly articulated
and actively supervised state policy, where unfettered competition is replaced
with regulation. In dismissing the federal antitrust claims, the court
declined to retain jurisdiction over Cost Management's state law claims which
were dismissed without prejudice. Cost Management has filed an appeal in the
Court of Appeals and it has filed a new lawsuit in Superior Court in King
County, which was stayed pending the District Court appeal. The parties, as
of November 22, 1995, have filed briefs with the Court of Appeals on the issue
of the District Court's judgment dismissing the federal antitrust claims. A
hearing date for oral arguments has not been set. In management's opinion,
the District Court decision should be upheld on appeal and the suit in the
Superior Court is unlikely to succeed.
(6) RESTRUCTURING AND SEVERANCE CHARGES
In the fiscal years ended September 30, 1994 and 1995 Washington Natural
established reserves for restructuring charges and employee severance of
$3,500,000 and $3,150,000, respectively. During the quarter ended December
31, 1995, payments of approximately $2,000,000 were made to former employees.
The remaining reserve of $2,300,000 at December 31, 1995 will be fully
utilized to fund the future payment of severance benefits which are being paid
over time based on the terms of individual severance agreements.
Page 27
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Washington Energy Company ("the Company") reported net income of $10.1 million
for the quarter ended December 31, 1995, down $3.1 million from the same
quarter a year ago. Earnings per share of $.42 for the first quarter of 1995
were down from $.56 a year ago. Net income of the principal subsidiary,
Washington Natural Gas Company ("Washington Natural"), was $13.9 million for the
quarter, down $2.3 million from the same period last year.
The decrease in net income was primarily due to unseasonably warm weather.
The average temperatures during the current quarter ended December 31, were
the warmest on record for the last 15 years. The weather, based on the number
of degree days during the quarter, was 13% warmer than the prior year and 10%
warmer than normal. The earnings effect of the unseasonably warm weather was
partially offset by the earnings impact of the May 1995 general rate order and
continuing customer growth.
Operating Revenues
The Company's operating revenues of $127.5 million for the quarter ended
December 31, 1995, were down $28.7 million compared with the same period a
year ago. Regulated utility sales of $120.5 million were down $29.2 million
or 20% from the same period last year, due primarily to the negative impact of
warmer than normal weather and the purchase gas adjustment. As a result of
the warm weather, total gas volumes were down 10% from the same period a year
ago even though the utility served 16,000 or 4% more customers. The May 1995
purchased gas adjustment passed on to customers, in the form of lower rates,
the expected cost savings of the decline in natural gas prices. Although the
purchased gas adjustment reduces revenues it does not impact utility gross
margin or net income.
Utility margin (regulated utility sales less cost of gas sold) of $64.7
million decreased of $3.2 million compared to the same quarter last year. The
May 1995 general rate order increased utility margin by an estimated $4
million compared to the same period last year. In addition, the growth in the
number of customers served provided approximately $2 million in utility
margin. However, the effect of warm weather on the volume of gas sold was a
reduction in utility margin of approximately $9 million.
Operating Expenses
The Company's operating expenses of $105.2 million, including federal income
taxes, were down $26.7 million from the three months ended December 31, 1994.
The decrease in operating expenses was due primarily to a $26.0 million
decrease in the cost of gas sold.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures typically represent the largest cash flow item for the
Company due to the capital-intensive nature and growth rate of the utility.
The bulk of the Company's gross capital expenditures of $18.1 million was for
utility plant. Washington Natural makes capital expenditures to add new
customers to its gas distribution system and to replace and enhance components
Page 28
of the system to insure its reliability and safety. Washington Natural's
financing strategy is to fund capital expenditures with a combination of cash
flow from operations, after dividend payments, and short-term borrowings on an
interim basis. The short-term borrowings are reduced periodically with the
proceeds from issuing long-term debt and equity securities, the choice and
timing of which are dependent on management's evaluation of need, financial
market conditions and other factors. During the current quarter, 62% of the
capital expenditures were funded by cash flow from operations after dividends.
The balance of the capital expenditures were funded primarily by the issuance
of long-term debt under a $150,000,000 shelf offering of secured medium-term
notes. At December 31, 1995, Washington Natural had issued $110,000,000 of
secured medium-term notes under this registration statement.
The Company has several short-term financing arrangements in place: an
aggregate of $250 million of commercial paper and similar programs backed by a
committed revolving credit agreement, of which $88 million was unused at
December 31, 1995; an uncommitted bank credit arrangement of $25 million, all
of which was available at December 31, 1995; and a committed agreement to sell
up to $90 million of merchandise and gas receivables, of which $41 million was
unused at December 31, 1995. The borrowing capacity under the latter
agreement is effectively limited by the availability of receivables to sell.
At December 31, 1995, Washington Natural had $24 million of eligible
receivables which had not been sold under the arrangement.
ENVIRONMENTAL MATTERS
In management's opinion, based on all know facts and analyses, it is not
likely that environmental liabilities identified to date will result in a
material adverse impact on the Company's or Washington Natural's financial
position or operating results and cash flow trends. (See Note 4 of the Notes
to Condensed Financial Statements.)
SIGNIFICANT BALANCE SHEET CHANGES
The December 31, 1995 accounts receivable balance of $42.9 million reflects an
increase of $22.5 million caused by the normal seasonal increase in gas sales
over a seasonal low point in Washington Natural's operating cycle at September
30, 1995. This balance is $9.8 million lower than the prior year due to the
lower level of revenues in 1995 versus 1994 as a result of the warmer weather
and the purchased gas adjustment discussed above.
The purchased gas liability (a liability to customers to pass on the effect of
the purchased gas adjustment mechanism) of $29.6 million at December 31, 1995
is almost double the September 30, 1995 balance of $15.6 million. This is due
to the actual purchase of gas during the quarter at a cost lower than the cost
of gas sold authorized in rates.
Page 29
During the quarter ended December 31, 1995, Washington Natural called early
$30,000,000 of first mortgage bonds with an interest rate of 10.25%. This
redemption was refinanced by the issuance of $35,000,000 of secured medium-
term notes with interest rates between 6.58% and 7.20%.
FUTURE OUTLOOK
(a) Proposed Merger
On October 18, 1995, a definitive agreement was approved by Washington
Energy's and Washington Natural's Boards of Directors to merge Washington
Energy and Washington Natural into Puget Sound Power & Light Company,
("Puget"), which, as the surviving corporation will be renamed at the
effective time of the merger. The merger would create a combination utility
serving more than 830,000 electric and more than 475,000 gas customers in the
state of Washington.
The agreement must be approved by the holders of the common stock of
Washington Energy, the holders of the preferred stock of Washington Natural,
and the holders of the common stock of Puget. In addition, the WUTC, which
regulates both utilities, must approve the merger, and certain other
conditions in the merger agreement must be satisfied or waived. Shareholders
of the three companies will be asked to vote on the merger on March 20, 1996.
Regulatory approval is expected prior to the end of calendar 1996.
The synergies from the merger are expected to generate substantial cost
savings that would not be available absent the merger. Preliminary estimate
of such potential savings, by the management of Washington Energy and Puget
with the assistance of Deloitte & Touche LLP, (after taking into account the
costs incurred to achieve such savings), is approximately $370 million over
the ten-year period following the merger.
(b) Expected Improvement in Earnings
Although the expected timing for completion of the merger precludes realizing
significant benefits from the synergies of the proposed merger with Puget in
1996, other decisions and actions taken in recent fiscal years should have a
favorable impact on the Company's future earnings. Operating earnings have and
will continue to benefit from the $17.7 million rate increase approved in May
1995. Because the weather in calendar 1995 was the warmest in at least the
last 30 years, Washington Natural's results of operations have not been fully
reflected the utility's earning power. Washington Natural's earnings should
be positively impacted if weather patterns return to normal and the current
cost structure remains constant.
Also, the Company expects utility customer growth of about 4%, or 16,000 to
19,000 new customers for fiscal 1996.
COMMON DIVIDEND
The Company paid a dividend of 25 cents in each of the quarters ended December
31, 1995 and 1994. The Company expects that the quarterly dividend of 25
cents per share will be maintained.
Page 30
PART II - OTHER INFORMATION
Item 5. Other Information - Washington Natural Gas Company
The ratio of earnings to fixed charges for the twelve months ended
December 31, 1995 was 1.20. For the 12 months ended December 31,
1994, earnings were insufficient to cover fixed charges. The
earnings deficiency was $11,213,000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K.
(1) A report on Form 8-K was filed by Washington Energy and
Washington Natural on October 23, 1995, regarding the
definitive agreement to merge Washington Energy and
Washington Natural into Puget Sound Power & Light Company.
(2) A report on Form 8-K was filed by Washington Energy and
Washington Natural on October 30, 1995, regarding the
Company's operating results for the quarter and year ended
September 30, 1995.
PAGE 31
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WASHINGTON ENERGY COMPANY
By /s/ William P. Vititoe
William P. Vititoe
Chairman of the Board of Directors,
Chief Executive Officer and President
By /s/ James P. Torgerson
James P. Torgerson
Executive Vice President,
Chief Administrative Officer and
Chief Financial Officer; the
Principal Financial Officer
WASHINGTON NATURAL GAS COMPANY
By /s/ William P. Vititoe
William P. Vititoe
Chairman of the Board of Directors,
Chief Executive Officer and President
By /s/ James P. Torgerson
James P. Torgerson
Executive Vice President,
Chief Administrative Officer and
Chief Financial Officer; the
Principal Financial Officer
February 14, 1996
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<INCOME-TAX-EXPENSE> 6,442
<OTHER-OPERATING-EXPENSES> 92,691
<TOTAL-OPERATING-EXPENSES> 99,133
<OPERATING-INCOME-LOSS> 21,392
<OTHER-INCOME-NET> (283)
<INCOME-BEFORE-INTEREST-EXPEN> 21,675
<TOTAL-INTEREST-EXPENSE> 7,802
<NET-INCOME> 13,873
3,511
<EARNINGS-AVAILABLE-FOR-COMM> 10,362
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 27,610
<CASH-FLOW-OPERATIONS> 23,220
<EPS-PRIMARY> .94
<EPS-DILUTED> .94
</TABLE>
