<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-3701
THE WASHINGTON WATER POWER COMPANY
(Exact name of registrant as specified in its charter)
Washington 91-0462470
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1411 East Mission Avenue, Spokane, Washington 99202-2600
--------------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 509-489-0500
----------------
None
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
At May 1, 1995, 54,924,793 shares of Registrant's Common Stock, no par value
(the only class of common stock), were outstanding.
<PAGE> 2
THE WASHINGTON WATER POWER COMPANY
Index
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Statements of Income - Three Months Ended
March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets - March 31, 1995
and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Capitalization - March 31, 1995
and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows - Three Months Ended
March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Schedule of Information by Business Segments - Three Months Ended
March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 13
Part II. Other Information:
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
2
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
The Washington Water Power Company
- -------------------------------------------------------------------------------
For the Three Months Ended March 31
Thousands of Dollars
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
OPERATING REVENUES .................................................. $197,928 $190,871
-------- --------
OPERATING EXPENSES:
Operations and maintenance ........................................ 93,794 97,968
Administrative and general ........................................ 16,118 13,511
Depreciation and amortization ..................................... 15,418 14,556
Taxes other than income taxes ..................................... 14,124 13,146
-------- --------
Total operating expenses ........................................ 139,454 139,181
-------- --------
INCOME FROM OPERATIONS .............................................. 58,474 51,690
-------- --------
OTHER INCOME (EXPENSE):
Interest expense .................................................. (14,730) (12,322)
Interest capitalized and AFUCE .................................... 224 1,390
Net gain on subsidiary transactions ............................... 1,918 -
Other income (deductions)-net ..................................... (701) 1,587
-------- --------
Total other income (expense)-net ................................ (13,289) (9,345)
-------- --------
INCOME BEFORE INCOME TAXES .......................................... 45,185 42,345
INCOME TAXES ........................................................ 16,732 15,654
-------- --------
NET INCOME .......................................................... 28,453 26,691
DEDUCT-Preferred stock dividend requirements ........................ 2,297 2,070
-------- --------
INCOME AVAILABLE FOR COMMON STOCK ................................... $ 26,156 $ 24,621
======== ========
Average common shares outstanding (thousands) ....................... 54,582 52,911
EARNINGS PER SHARE OF COMMON STOCK ................................. $0.48 $0.46
Dividends paid per common share ..................................... $0.31 $0.31
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
3
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
The Washington Water Power Company
- ------------------------------------------------------------------------------
Thousands of Dollars
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
---------- ------------
<S> <C> <C>
ASSETS:
PROPERTY:
Utility plant in service-net . . . . . . . . . . . . . . . . . . $1,820,824 $1,802,280
Construction work in progress . . . . . . . . . . . . . . . . . 23,477 27,316
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,844,301 1,829,596
Less: Accumulated depreciation and amortization . . . . . . . . 511,137 500,551
---------- ----------
Net utility plant . . . . . . . . . . . . . . . . . . . . . . 1,333,164 1,329,045
---------- ----------
OTHER PROPERTY AND INVESTMENTS:
Investment in exchange power-net . . . . . . . . . . . . . . . . 87,084 88,615
Other-net . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,271 114,145
---------- ----------
Total other property and investments . . . . . . . . . . . . . 205,355 202,760
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . 4,532 5,178
Temporary cash investments . . . . . . . . . . . . . . . . . . . 29,218 27,928
Accounts and notes receivable-net . . . . . . . . . . . . . . . 74,887 74,524
Materials and supplies, fuel stock and natural gas stored
(average cost) . . . . . . . . . . . . . . . . . . . . . . . . . 23,569 21,384
Prepayments and other . . . . . . . . . . . . . . . . . . . . . 5,849 7,552
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . 138,055 136,566
---------- ----------
DEFERRED CHARGES:
Regulatory assets for deferred income tax . . . . . . . . . . . 173,179 174,349
Conservation programs . . . . . . . . . . . . . . . . . . . . . 65,131 66,511
Other-net . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,108 85,022
---------- ----------
Total deferred charges . . . . . . . . . . . . . . . . . . . . 321,418 325,882
---------- ----------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,997,992 $1,994,253
========== ==========
CAPITALIZATION AND LIABILITIES:
CAPITALIZATION (See Consolidated Statements of Capitalization) . . $1,521,658 $1,533,640
---------- ----------
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 34,973 46,217
Taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . 41,150 17,977
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . 16,253 10,954
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,947 57,369
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . 147,323 132,517
---------- ----------
DEFERRED CREDITS:
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 313,253 312,525
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,543 14,399
---------- ----------
Total deferred credits . . . . . . . . . . . . . . . . . . . . 327,796 326,924
---------- ----------
MINORITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . 1,215 1,172
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 2 and 4)
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,997,992 $1,994,253
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF CAPITALIZATION
The Washington Water Power Company
- -----------------------------------------------------------------------------
Thousands of Dollars
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
---------- ------------
<S> <C> <C>
COMMON EQUITY:
Common stock, no par value: 200,000,000 shares authorized:
shares outstanding: 1995-54,846,574; 1994-54,420,696 . . . . . . . $ 576,901 $ 570,603
Note receivable from employee stock ownership plan . . . . . . . . (12,141) (12,267)
Capital stock expense and other paid in capital . . . . . . . . . . (10,042) (10,031)
Unrealized investment gain-net . . . . . . . . . . . . . . . . . . . 16,064 14,341
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . 124,142 114,848
--------- ----------
Total common equity . . . . . . . . . . . . . . . . . . . . . . 694,924 677,494
--------- ----------
PREFERRED STOCK-CUMULATIVE: (Note 1)
10,000,000 shares authorized:
Not subject to mandatory redemption:
Flexible Auction Series J; 500 shares outstanding
($100,000 stated value) . . . . . . . . . . . . . . . . . . . . . 50,000 50,000
--------- ----------
Total not subject to mandatory redemption . . . . . . . . . . . 50,000 50,000
--------- ----------
Subject to mandatory redemption:
$8.625, Series I; 500,000 shares outstanding ($100 stated value) . 50,000 50,000
$6.95, Series K; 350,000 shares outstanding ($100 stated value) . 35,000 35,000
--------- ----------
Total subject to mandatory redemption . . . . . . . . . . . . . 85,000 85,000
--------- ----------
LONG-TERM DEBT: (Note 1)
First Mortgage Bonds:
4 5/8% due March 1, 1995 . . . . . . . . . . . . . . . . . . . . . - 10,000
7 1/8% due December 1, 2013 . . . . . . . . . . . . . . . . . . . 66,700 66,700
7 2/5% due December 1, 2016 . . . . . . . . . . . . . . . . . . . 17,000 17,000
Secured Medium-Term Notes:
Series A - 4.72% to 8.06% due 1996 through 2023 . . . . . . . . 250,000 250,000
Series B - 7.52% to 8.25% due 1997 through 2006 . . . . . . . . 93,000 63,000
--------- ----------
Total first mortgage bonds . . . . . . . . . . . . . . . . . . . 426,700 406,700
--------- ----------
Pollution Control Bonds:
6% Series due 2023 . . . . . . . . . . . . . . . . . . . . . . . . 4,100 4,100
Unsecured Medium-Term Notes:
Series A - 7.94% to 9.58% due 1995 through 2007 . . . . . . . . . 92,500 92,500
Series B - 5.50% to 8.55% due 1996 through 2023 . . . . . . . . . 135,000 150,000
--------- ----------
Total unsecured medium-term notes . . . . . . . . . . . . . . . 227,500 242,500
--------- ----------
Notes payable (due within one year) to be refinanced . . . . . . . . 24,500 58,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,934 9,846
--------- ----------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . 691,734 721,146
--------- ----------
TOTAL CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . $1,521,658 $1,533,640
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
The Washington Water Power Company
- -------------------------------------------------------------------------------
For the Three Months Ended March 31
Thousands of Dollars
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,453 $ 26,691
NON-CASH REVENUES AND EXPENSES
INCLUDED IN NET INCOME:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . 18,390 17,101
Provision for deferred income taxes . . . . . . . . . . . . . . . . . . . . . . (182) 2,270
Allowance for equity funds used during construction . . . . . . . . . . . . . . (218) (568)
Power and natural gas cost deferrals and amortization . . . . . . . . . . . . . 5,729 (357)
Deferred revenues and other-net . . . . . . . . . . . . . . . . . . . . . . . . 740 (439)
(Increase) decrease in working capital components:
Receivables and prepaid expenses-net . . . . . . . . . . . . . . . . . . . . 994 1,486
Materials & supplies, fuel stock and natural gas stored . . . . . . . . . . . (2,136) 2,646
Payables and other accrued liabilities . . . . . . . . . . . . . . . . . . . 15,635 20,990
Other-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,151) 235
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . 59,254 70,055
-------- --------
INVESTING ACTIVITIES:
Construction expenditures (excluding AFUDC-equity funds) . . . . . . . . . . . . . (16,570) (25,427)
Other capital requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343 (9,466)
(Increase) decrease in other noncurrent balance sheet items-net . . . . . . . . . 1,011 2,246
Assets acquired and investments in subsidiaries (Note 3) . . . . . . . . . . . . . (938) (6,133)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . (16,154) (38,780)
-------- --------
FINANCING ACTIVITIES:
Increase (decrease) in commercial paper, notes payable
and bank borrowings-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . (33,500) (26,501)
Maturity of unsecured medium-term notes . . . . . . . . . . . . . . . . . . . . . (15,000) -
Sale of secured medium-term notes . . . . . . . . . . . . . . . . . . . . . . . . 30,000 -
Maturity of first mortgage bonds . . . . . . . . . . . . . . . . . . . . . . . . . (10,000) -
Sale of common stock-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,468 4,084
Miscellaneous-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,512) 4,720
-------- --------
NET FINANCING ACTIVITIES BEFORE CASH DIVIDENDS . . . . . . . . . . . . . . . . . . . (27,544) (17,697)
Less cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,202) (15,678)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . (43,746) (33,375)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . (646) (2,100)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . 5,178 11,201
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . $ 4,532 $ 9,101
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,929 $ 6,367
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 894 $ 1,352
Non-cash financing and investing activities . . . . . . . . . . . . . . . . . . . $ 2,955 $ 2,831
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
6
<PAGE> 7
SCHEDULE OF INFORMATION BY BUSINESS SEGMENTS
The Washington Water Power Company
- -------------------------------------------------------------------------------
For the Three Months Ended March 31
Thousands of Dollars
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
OPERATING REVENUES:
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 125,821 $ 124,926
Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . 59,136 53,489
Non-utility . . . . . . . . . . . . . . . . . . . . . . . . . 12,971 12,456
---------- ----------
Total operating revenues . . . . . . . . . . . . . . . . . . $ 197,928 $ 190,871
========== ==========
OPERATIONS AND MAINTENANCE EXPENSES:
Electric:
Power purchased . . . . . . . . . . . . . . . . . . . . . . $ 22,952 $ 29,903
Fuel for generation . . . . . . . . . . . . . . . . . . . . 7,723 11,405
Other electric . . . . . . . . . . . . . . . . . . . . . . . 17,803 15,113
Natural gas:
Natural gas purchased for resale . . . . . . . . . . . . . . 34,818 30,696
Other natural gas . . . . . . . . . . . . . . . . . . . . . 3,746 3,005
Non-utility . . . . . . . . . . . . . . . . . . . . . . . . . 6,752 7,846
---------- ----------
Total operations and maintenance expenses . . . . . . . . . $ 93,794 $ 97,968
========== ==========
ADMINISTRATIVE AND GENERAL EXPENSES:
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,669 $ 8,579
Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . 3,268 2,896
Non-utility . . . . . . . . . . . . . . . . . . . . . . . . . 3,181 2,036
---------- ----------
Total administrative and general expenses . . . . . . . . . $ 16,118 $ 13,511
========== ==========
DEPRECIATION AND AMORTIZATION EXPENSES:
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,120 $ 11,974
Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . 2,445 1,935
Non-utility . . . . . . . . . . . . . . . . . . . . . . . . . 853 647
---------- ----------
Total depreciation and amortization expenses . . . . . . . . $ 15,418 $ 14,556
========== ==========
INCOME FROM OPERATIONS:
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,147 $ 38,105
Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . 11,626 11,961
Non-utility . . . . . . . . . . . . . . . . . . . . . . . . . 1,701 1,624
---------- ----------
Total income from operations . . . . . . . . . . . . . . . . $ 58,474 $ 51,690
========== ==========
INCOME AVAILABLE FOR COMMON STOCK:
Utility operations . . . . . . . . . . . . . . . . . . . . . . $ 23,686 $ 23,002
Non-utility operations . . . . . . . . . . . . . . . . . . . . 2,470 1,619
---------- ----------
Total income available for common stock . . . . . . . . . . $ 26,156 $ 24,621
========== ==========
ASSETS: (1994 amounts at December 31)
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,450,238 $1,441,643
Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . 239,059 247,060
Common plant . . . . . . . . . . . . . . . . . . . . . . . . . 27,049 25,849
Other utility assets . . . . . . . . . . . . . . . . . . . . . 104,428 106,118
Non-utility assets . . . . . . . . . . . . . . . . . . . . . . 177,218 173,583
---------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $1,997,992 $1,994,253
========== ==========
CAPITAL EXPENDITURES (excluding AFUDC):
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,748 $ 20,177
Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . 4,745 5,069
Common plant . . . . . . . . . . . . . . . . . . . . . . . . . 1,187 3,999
Non-utility . . . . . . . . . . . . . . . . . . . . . . . . . 323 4,259
---------- ----------
Total capital expenditures . . . . . . . . . . . . . . . . . $ 16,003 $ 33,504
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
7
<PAGE> 8
THE WASHINGTON WATER POWER COMPANY
- ----------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying financial statements of The Washington Water Power Company
(Company) for the interim periods ended March 31, 1995 and 1994 are unaudited
but, in the opinion of management, reflect all adjustments, consisting only of
normal recurring accruals, necessary for a fair statement of the results of
operations for those interim periods. The results of operations for the
interim periods are not necessarily indicative of the results to be expected
for the full year. These financial statements do not contain the detail or
footnote disclosure concerning accounting policies and other matters which
would be included in full fiscal year financial statements; therefore, they
should be read in conjunction with the Company's audited financial statements
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
NOTE 1. FINANCINGS
Reference is made to the information relating to financings and borrowings as
discussed under the caption "Liquidity and Capital Resources" in Item 2.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
NOTE 2. COMMITMENTS AND CONTINGENCIES
SUPPLY SYSTEM PROJECT 3
In 1985, the Company and the Bonneville Power Administration (BPA) reached a
settlement surrounding litigation related to the suspension of construction of
Washington Public Power Supply System (Supply System) Project 3. Project 3 is
a partially constructed 1,240 MW nuclear generating plant in which the Company
has a 5% interest. Under the settlement agreement, the Company receives power
deliveries from BPA from 1987 to 2017 in proportion to the Company's investment
in Project 3.
The only material claim against the Company arising out of the Company's
involvement in Project 3, which has been pending since October 1982 in the
United States District Court for the Western District of Washington (District
Court), is the claim of Chemical Bank, as bond fund trustee for Supply System
Projects 4 and 5, against all owners of Projects 1, 2 and 3 for unjust
enrichment in the allocation of certain costs of common services and facilities
among the Supply System's five nuclear projects. Projects 4 and 5 were being
constructed adjacent to Projects 1 and 3, respectively, under a plan to share
certain costs. Chemical Bank was seeking a reallocation of $495 million in
costs (plus interest since commencement of construction in 1976) originally
allocated to Projects 4 and 5.
On January 24, 1995, the Company executed a Memorandum of Understanding (MOU)
which is intended to settle all remaining claims in the "cost sharing"
litigation. The other parties to the MOU are expected to include Chemical
Bank, as trustee for the holder of Supply System Projects 4 and 5 bonds; the
Supply System; BPA; certain public utility participants in those projects; and
Puget Sound Power & Light Company (Puget), and Portland General Electric
Company (PGE), Puget and PGE being two of the other three investor-owned
utilities which held minority ownership interests in Project 3.
The MOU provides for the Company to pay $500,000 in settlement of all claims,
and as part of a total $55,000,000 payment to Chemical Bank. In the MOU, the
Company also agrees to give up any claims relating to the Company's bridge
loans made to the Supply System in 1981. In exchange, the Company would be
released from all pending cost-sharing litigation claims. The MOU contemplates
and provides agreement on consolidation of the Project 5 and Project 3 sites
for site restoration purposes, if BPA and the Supply System decide to thus
consolidate the site. In the event that occurs, the Company would be
completely indemnified from any additional costs by a separate agreement with
BPA. Under the MOU, the Company's payment to Chemical Bank is due in July,
1995, and it is expected that a final settlement agreement and dismissal of the
litigation will occur before or contemporaneously with that payment.
NEZ PERCE TRIBE
On December 6, 1991, the Nez Perce Tribe filed an action against the Company in
U. S. District Court for the District of Idaho alleging, among other things,
that two dams formerly operated by the Company, the Lewiston Dam
8
<PAGE> 9
THE WASHINGTON WATER POWER COMPANY
- -----------------------------------------------------------------------------
on the Clearwater River and the Grangeville Dam on the South Fork of the
Clearwater River, provided inadequate passage to migrating anadromous fish in
violation of rights under treaties between the Tribe and the United States made
in 1855 and 1863. The Lewiston and Grangeville Dams, which had been owned and
operated by other utilities under hydroelectric licenses from the Federal Power
Commission (the "FPC", predecessor of the FERC, the Federal Energy Regulatory
Commission) prior to acquisition by the Company, were acquired by the Company
in 1937 with the approval of the FPC, but were dismantled and removed in 1973
and 1963, respectively. The Tribe initially indicated through expert opinion
disclosures that they were seeking actual and punitive damages of $208 million.
However, supplemental disclosures reflect allegations of actual loss under
different assumptions of between $425 million and $650 million.
Discovery had been stayed pending a decision by the Court on a case involving
some similar issues brought by the Tribe against Idaho Power Company. The
Court has since decided these issues and has dismissed all claims against Idaho
Power. The Idaho Power case has now been appealed by the Nez Perce Tribe to
the Ninth Circuit Court of Appeals. On November 21, 1994, the Company filed
its Motion and Brief in Support of Summary Judgment of Dismissal. The Nez
Perce Tribe has filed a reply brief, and has requested oral argument. No
hearing on the Company's Motion for Summary Judgment has been scheduled by the
Court and the matter is not set for trial. The Company is presently unable to
assess the likelihood of an adverse outcome in this litigation, or estimate an
amount or range of potential loss in the event of an adverse outcome.
OIL SPILL
The Company recently completed an updated investigation of an oil spill that
occurred several years ago in downtown Spokane at the site of the Company's
steam heat plant. The Company purchased the plant in 1916 and operated it as a
non-regulated plant until it was deactivated in 1986 in a business decision
unrelated to the spill. After the Bunker C fuel oil spill, initial studies
suggested that the oil was being adequately contained by both geological
features and man-made structures. The Washington State Department of Ecology
(DOE) concurred with these findings. However, more recent tests confirm that
the oil has migrated approximately one city block beyond the steam plant
property. On December 6, 1993, the Company asked the DOE to enter into
negotiations for a Consent Decree which will provide for additional remedial
investigation and a feasibility study. The Consent Decree, entered on November
8, 1994, provided for 22 additional soil borings to be made around the site,
which have been completed. In December 1993, the Company established a reserve
of $2.0 million, and in December 1994 increased it to $3.1 million based on
more current estimates.
FIRESTORM
On October 16, 1991, gale-force winds struck a five-county area in eastern
Washington and a seven-county area in northern Idaho. These winds were
responsible for causing 92 separate wildland fires, resulting in two deaths and
the loss of 114 homes and other structures, some of which were located in the
Company's service territory. Four separate class action lawsuits were filed
against the Company by private individuals in the Superior Court of Spokane
County on October 13, 1993. These suits concern fires identified as Midway,
Golden Cirrus, Nine Mile and Chattaroy. All of these suits were certified as
class actions on September 16, 1994, and bifurcated for trial of liability and
damage issues by order of the same date. The Company's Motion for
Reconsideration was denied on October 21, 1994, and a Motion for Discretionary
Review of the Court's decision on certification of class actions was timely
filed with the Washington Court of Appeals (Division III) on November 14, 1994.
The Company was also served with two suits in Spokane County Superior Court
filed on April 20, 1994 and on September 15, 1994, both of which sought
individual damages from separate fires within the Chattaroy Fire complex. Five
additional and separate suits were brought by Grange Insurance Company, and
were filed in Spokane County Superior Court on October 10, 1994, for
approximately $2.2 million paid to Grange insureds for the same fire areas.
Two additional class action suits were also filed - one in Lincoln County
Superior Court, filed on October 14, 1994, for a fire known as "Nine Mile West"
(previously included in the Spokane County Nine Mile suit certified as a class
action), and the second in Spokane County Superior Court, filed on October 14,
1994, for the Ponderosa Fire area (which had not been the subject of previous
suit). Neither of these suits has yet been certified as a class action,
although the Lincoln County suit has been transferred to Spokane County
pursuant to decision of the Lincoln County Superior Court on February 21, 1995.
Complainants in all cases allege various theories of tortious conduct,
including negligence, creation of a public nuisance, strict liability and
trespass; in most cases, complainants allege that fires were caused by electric
distribution lines downed by the wind. The lawsuits seek recovery for property
damage, emotional and mental distress, lost income and punitive damages, but do
not specify the amount of damages being sought. Since little
9
<PAGE> 10
THE WASHINGTON WATER POWER COMPANY
- -------------------------------------------------------------------------------
discovery has been conducted and the classes are not yet formed, the Company is
presently unable to assess the likelihood of an adverse outcome or estimate an
amount or range of potential loss in the event of an adverse outcome. The
Company was previously presented with a claim from the Washington State
Department of Natural Resources (DNR) for fire suppression costs associated
with five of these fires in eastern Washington. The total of the DNR claim was
$1.0 million. On July 22, 1993, the Company entered into a settlement with the
DNR whereby the Company agreed to pay $200,000 to DNR in full settlement of any
and all DNR claims; however, there was no admission of liability on the part of
the Company.
WILLIAMS LAKE LAWSUIT
On February 2, 1995, a lawsuit was commenced in Spokane County Superior Court
against the Company and its subsidiary, Pentzer, by Tondu Energy Systems, Inc.
and T.E.S. Williams Lake Partnership alleging contract violations, conspiracy,
misrepresentation and breach of fiduciary duties in regard to the 1993 sale of
Pentzer Energy Services, Inc. to B.C. Gas, Inc. The suit claims damages in
excess of $10 million, plus exemplary damages, prejudgment interest, costs and
attorneys' fees. Also named as defendants are B.C. Gas, Inc., Inland Pacific
Energy (Williams Lake) Corp. and the former Pentzer Energy Services, Inc.,
subsidiaries involved in the sale. The claims involve an alleged first
right to purchase interests in the Williams Lake, British Columbia wood-fired
generating station. Discovery with regard to the lawsuit has not yet
commenced. The Company and Pentzer intend to vigorously defend against all of
the claims.
OTHER CONTINGENCIES
The Company has long-term contracts related to the purchase of fuel for thermal
generation, natural gas and hydroelectric power. Terms of the natural gas
purchase contracts range from one month to five years and the majority provide
for minimum purchases at the then effective market rate. The Company also has
various agreements for the purchase, sale or exchange of power with other
utilities, cogenerators, small power producers and government agencies.
NOTE 3. ACQUISITIONS AND DISPOSITIONS
In February 1995, Pentzer Corporation (Pentzer), the Company's wholly-owned
private investment firm, acquired The Decker Company, Inc., a company that
designs and packages point-of-purchase displays and other marketing materials
for national manufacturers of consumer products.
NOTE 4. PROPOSED MERGER
In June 1994, the Company, Sierra Pacific Resources (SPR), Sierra Pacific Power
Company, a subsidiary of SPR (SPPC), and Resources West Energy Corporation, a
newly formed subsidiary of the Company (Resources West) entered into an
Agreement and Plan of Reorganization and Merger, dated as of June 27, 1994, as
amended October 4, 1994 which provides for the merger of the Company, SPR and
SPPC with and into Resources West. The merger is designed to qualify as a
pooling-of-interests for accounting and financial reporting purposes. Under
this method of accounting, the recorded assets and liabilities of the Company,
SPR and SPPC will be carried forward to the consolidated financial statements
of Resources West at their recorded amounts; income of Resources West will
include income of the Company, SPR and SPPC for the entire fiscal year in which
the merger occurs; and the reported income of the separate corporations for
prior periods will be combined and restated as income of Resources West.
The cost savings from the merger are estimated to approximate $450 million, net
of merger transaction and transition costs, over a 10 year period following the
consummation of the merger. As of March 31, 1995, $9.3 million in merger
transaction and transition costs have been incurred and are included on the
balance sheet as Other Deferred Charges.
The following pro forma condensed financial information combines the historical
consolidated balance sheets and statements of income of the Company and SPR
after giving effect to the merger. The unaudited pro forma condensed
consolidated balance sheet at March 31, 1995 gives effect to the merger as if
it had occurred at March 31, 1995. The unaudited pro forma condensed
consolidated statements of income for the quarter ended March 31, 1995 gives
effect to the merger as if it had occurred at January 1, 1995. These
statements are prepared on the basis of accounting for the
10
<PAGE> 11
THE WASHINGTON WATER POWER COMPANY
- -------------------------------------------------------------------------------
merger as a pooling-of-interests and are based on the assumptions set forth in
the paragraph below. The pro forma condensed financial information has been
prepared from, and should be read in conjunction with the Company's historical
consolidated financial statements and related notes thereto of which this note
is a part and SPR's historical consolidated financial statements and related
notes thereto included in reports filed by SPR pursuant to the Securities
Exchange Act, as amended. The information contained herein with respect to SPR
and its subsidiaries has been supplied by SPR. The information is not
necessarily indicative of the financial position or operating results that
would have occurred had the merger been consummated on the date, or at the
beginning of the periods, for which the merger is being given effect, nor is it
necessarily indicative of future operating results or financial position.
Intercompany transactions (including purchased and exchanged power
transactions) between the Company and SPR during the period presented were not
material and, accordingly, no pro forma adjustments were made to eliminate such
transactions. For comparative purposes, certain historical amounts have been
reclassified to conform to the pro forma condensed financial statement format.
The $450 million net cost savings estimated to be achieved by the merger are
not reflected in the pro forma financial statements. All references to per
share information for WWP have been adjusted to reflect the two-for-one common
stock split which became effective on November 9, 1993. Pro forma per share
data and common shares outstanding for Resources West give effect to the
conversion of each share of WWP Common Stock into one share of Resources West
Common Stock and the conversion of each share of SPR Common Stock into 1.44
shares of Resources West Common Stock.
Pro Forma Condensed Consolidated Balance Sheet at March 31, 1995 (in thousands
of dollars):
<TABLE>
<CAPTION>
WWP SPR PRO FORMA
---------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
Assets
------
Utility plant in service-net............... $1,820,824 $1,771,748 $3,592,572
Construction work in progress ............. 23,477 82,278 105,755
---------- ---------- ----------
Total ................................. 1,844,301 1,854,026 3,698,327
Accumulated depreciation and amortization.. 511,137 517,424 1,028,561
---------- ---------- ----------
Net utility plant...................... 1,333,164 1,336,602 2,669,766
Other property and investments ............ 205,355 18,454 223,809
Current assets ............................ 138,055 125,371 263,426
Deferred charges .......................... 321,418 144,796 466,214
---------- ---------- ----------
Total assets .......................... $1,997,992 $1,625,223 $3,623,215
========== ========== ==========
Capitalization and Liabilities
------------------------------
Common stock and additional paid-in
capital ............................... $ 576,901 $ 452,282 $1,029,183
Other shareholders equity ................. 118,023 63,100 181,123
Preferred stock............................ 135,000 93,515 228,515
Long-term debt ............................ 691,734 565,708 1,257,442
---------- ---------- ----------
Total capitalization................... 1,521,658 1,174,605 2,696,263
Current liabilities........................ 147,323 131,616 278,939
Deferred income taxes ..................... 313,253 155,900 469,153
Other deferred credits .................... 14,543 163,102 177,645
Minority interest ......................... 1,215 - 1,215
---------- ---------- ----------
Total capitalization and liabilities $1,997,992 $1,625,223 $3,623,215
========== ========== ==========
Common shares outstanding (thousands) 54,847 29,486 97,307
</TABLE>
11
<PAGE> 12
THE WASHINGTON WATER POWER COMPANY
- -----------------------------------------------------------------------------
Pro Forma Condensed Consolidated Statements of Income for the three months
ended March 31, 1995 (in thousands of dollars, except per share amounts):
<TABLE>
<CAPTION>
WWP SPR PRO FORMA
-------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Operating revenues........................... $197,928 $160,146 $358,074
Operating expenses........................... 139,454 132,895 272,349
Income from operations....................... 58,474 27,251 85,725
Income from continuing operations
before preferred dividends............... 28,453 17,172 45,625
Income available for common stock............ 26,156 15,247 41,403
Average common shares outstanding ........... 54,582 29,458 97,002
Earnings per share .......................... $0.48 $0.52 $0.43
</TABLE>
12
<PAGE> 13
THE WASHINGTON WATER POWER COMPANY
- --------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company is primarily engaged as a utility in the generation, purchase,
transmission, distribution and sale of electric energy and the purchase,
transportation, distribution and sale of natural gas. Natural gas operations
are affected to a significant degree by weather conditions and customer growth.
The Company's electric operations are highly dependent upon hydroelectric
generation for its power supply. As a result, the electric operations of the
Company are significantly affected by weather and streamflow conditions, and to
a lesser degree, by customer growth. Revenues from the sale of surplus energy
to other utilities and the cost of power purchases vary from year to year
depending on streamflow conditions and the wholesale power market. The
wholesale power market in the Northwest region is affected by several factors,
including the availability of water for hydroelectric generation, the
availability of base load plants in the region and the demand for power in the
Southwest region. Other factors affecting the wholesale power market include
new entrants in the wholesale market, such as power brokers and marketers,
competition from low cost generation being developed by independent power
producers and declining margins. Usage by retail customers varies from year to
year primarily as a result of weather conditions, the economy in the Company's
service area, customer growth, conservation, appliance efficiency and other
technology.
The Company intends to continue to emphasize the efficient use of energy by its
customers, increase efforts to grow its customer base, especially natural gas,
and continue to manage its operating costs, increase revenues and improve
margins. The Company also intends to pursue resource opportunities through
system upgrades, purchases, demand side management and other options that will
result in obtaining electric power and natural gas supplies at the lowest
possible cost.
RESULTS OF OPERATIONS
OVERALL OPERATIONS
Overall earnings per share for the first quarter of 1995 were $0.48 compared to
$0.46 for the first quarter of 1994. The change was primarily the result of
decreased purchased power and fuel expense, due to improved streamflow
conditions and increased hydroelectric generation, and customer growth,
partially offset by increased purchased gas costs.
Utility income available for common stock contributed $0.43 to earnings per
share in the first quarter of both 1995 and 1994. Non-utility income available
for common stock contributed $0.05 to earnings per share in the first quarter
of 1995 compared to $0.03 for the same period in 1994. The increase in
non-utility operating results is primarily due to the impact of a transactional
gain of $1.3 million, net of tax, from the sale of Itron stock in 1995.
ELECTRIC OPERATIONS
Operating income summary
<TABLE>
<CAPTION>
(Dollars in thousands)
Three months ended March 31 Change
--------------------------- ------------------
1995 1994 Amount %
-------- -------- -------- ---
<S> <C> <C> <C> <C>
Operating Revenues.................................................. $125,821 $124,926 $ 895 1
Operating Expenses:
Purchased power.................................................. 22,952 29,903 (6,951) (23)
Fuel for generation.............................................. 7,723 11,405 (3,682) (32)
Other operating and maintenance.................................. 17,803 15,113 2,690 18
Administrative and general....................................... 9,669 8,579 1,090 13
Depreciation and amortization.................................... 12,120 11,974 146 1
Taxes other than income ......................................... 10,407 9,847 560 6
-------- -------- ------
Total operating expenses......................................... 80,674 86,821 (6,147) (7)
-------- -------- -----
Income from operations............................................. 45,147 38,105 7,042 18
Electric operations income taxes................................. 12,897 11,244 1,653 15
-------- -------- ------
Net operating income (1)........................................... $ 32,250 $ 26,861 $5,389 20
======== ======== ======
</TABLE>
(1) Does not include interest expense or other income.
13
<PAGE> 14
THE WASHINGTON WATER POWER COMPANY
- -------------------------------------------------------------------------------
Electric operating revenues increased $0.9 million, or 1%, in the first quarter
of 1995 over 1994, due primarily to 7% customer growth from the retail sector,
of which approximately 4% resulted from the acquisition of PacifiCorp's
electric properties in northern Idaho as of December 30, 1994. Weather in the
first quarter of both 1995 and 1994 was essentially the same. Wholesale
revenues were $4.2 million, or 17%, lower in the first quarter of 1995 as a
result of improved streamflow conditions and increased availablility of
hydroelectric generation in the region which led to lower market prices and
reduced demand for secondary power.
ELECTRIC REVENUES AND KWH SALES BY SERVICE CLASS
<TABLE>
<CAPTION>
Class Increase (Decrease) from prior year
------------ ----------------------------------------------------
REVENUE KWH SALES
------------------- ----------------------
(Dollars and kWh in millions)
<S> <C> <C> <C> <C>
Residential ................................. $ 3.5 8% 51.9 6%
Commercial................................... 2.6 8 31.0 5
Industrial .................................. 1.3 9 30.6 7
Wholesale ................................... (4.2) (17) (201.8) (25)
-------------------------------------------------------------------------------------------------------
</TABLE>
Improved streamflow conditions and increased hydroelectric generation caused
purchased power costs to decline by $7.0 million in the first quarter of 1995
over 1994. Fuel expense decreased by $3.7 million in the first quarter of 1995
compared to 1994 as increased hydroelectric generation resulted in the economic
dispatch of some of the thermal plants. Other operating and maintenance
expenses increased $2.7 million, or 18%, in the first quarter of 1995 primarily
due to amortization of the Demand Side Management programs and lease payments
and operating expenses related to the Rathdrum combustion turbine, which went
into service during the first quarter of 1995. Administrative and general
expenses increased by $1.1 million in the first quarter of 1995 due primarily
to lease payments for computer software systems and labor-related costs.
Income taxes were up $1.7 million from the first quarter of 1994, primarily due
to increased operating income in the first quarter of 1995.
NATURAL GAS OPERATIONS
Operating income summary
<TABLE>
<CAPTION>
(Dollars in thousands) Three months ended March 31 Change
--------------------------- -------------------
1995 1994 Amount %
-------- -------- -------- ---
<S> <C> <C> <C> <C>
Operating Revenues................................................... $59,136 $53,489 $5,647 11
Operating Expenses:
Natural gas purchased............................................. 34,818 30,696 4,122 13
Other operating and maintenance................................... 3,746 3,005 741 25
Administrative and general........................................ 3,268 2,896 372 13
Depreciation and amortization..................................... 2,445 1,935 510 26
Taxes other than income........................................... 3,233 2,996 237 8
------- ------- ------
Total operating expenses..................................... 47,510 41,528 5,982 14
------- ------- ------
Income from operations.............................................. 11,626 11,961 (335) (3)
Natural gas operations income taxes............................... 3,706 3,971 (265) (7)
------- ------- ------
Net operating income (1)............................................ $ 7,920 $ 7,990 $ (70) (1)
======= ======= ======
Actual Heating Degree Days for Spokane.............................. 2,587 2,615 (28) (1)
30 Year Average Heating Degree Days................................. 2,878 2,878
Actual Heating Degree Days as a Percent of
Historical Heating Degree Days ................................ 90% 91%
</TABLE>
(1) Does not include interest expense or other income.
- ------------------------------------------------------------------------------
14
<PAGE> 15
THE WASHINGTON WATER POWER COMPANY
- -------------------------------------------------------------------------------
Total natural gas revenues increased $5.6 million, or 11%, in the first quarter
of 1995, over 1994, primarily due to 7% customer growth in the retail sector,
additional transportation customers and slightly higher average prices than
last year. Total sales increased by 14.4 million therms across all classes
except industrial.
NATURAL GAS REVENUES AND THERM SALES BY SERVICE CLASS
<TABLE>
<CAPTION>
Class Increase (Decrease) from prior year
------------ ----------------------------------------------------
REVENUE THERM SALES
------------------- ----------------------
(Dollars and Therms in millions)
<S> <C> <C> <C> <C>
Residential ............................... 3.6 13% 4.3 7%
Commercial ............................... 1.5 8 1.4 3
Industrial - firm ......................... 0.1 4 (0.1) (2)
Industrial - interruptible ............... (0.3) (33) (0.9) (32)
Off-system sales ......................... 0.1 - 1.8 -
Transportation ........................... 0.3 13 5.0 10
-------------------------------------------------------------------------------------------------------
</TABLE>
Total natural gas operating expenses increased by $6.0 million, or 14%, in the
first quarter of 1995. Purchased gas costs increased $4.1 million in the first
quarter of 1995 due primarily to increased therm sales as a result of customer
growth. Other operating and maintenance expenses increased 25% in the first
quarter of 1995 over 1994 primarily due to amortization of the Demand Side
Management programs. Administrative and general expenses increased by 13% in
1995 over the first quarter of 1994, primarily due to lease payments for
computer software systems and labor-related costs. Depreciation and
amortization expense also increased by 26% during the first quarter of 1995 as
a result of increased natural gas plant-in-service.
NON-UTILITY OPERATIONS
Operating income summary
<TABLE>
<CAPTION>
(Dollars in thousands) Three months ended March 31 Change
--------------------------- -------------------
1995 1994 Amount %
-------- -------- -------- ---
<S> <C> <C> <C> <C>
Operating revenues ....................... $12,971 $12,456 $ 515 4
Operating expenses ....................... 11,270 10,832 438 4
------- ------- ------
Income from operations ................... 1,701 1,624 77 5
Other income - net ....................... 1,697 481 1,216 -
------- ------- ------
Income before income taxes ............... 3,398 2,105 1,293 61
Income taxes ............................. 928 486 442 91
------- ------- ------
Net income ............................... $ 2,470 $ 1,619 $ 851 53
======= ======= ======
</TABLE>
- -------------------------------------------------------------------------------
Non-utility operations include the results of Pentzer and one other active
subsidiary. Pentzer's business strategy is to acquire controlling interest in
a broad range of middle-market companies, to help these companies grow through
internal development and strategic acquisitions, and to sell the portfolio
investments to the public or to strategic buyers. Pentzer's objective is to
produce current returns from its portfolio investments that are higher than
that of the utility operations and to supplement these current returns by
generating transactional gains through the sale of portfolio investments when
appropriate. From time to time, a significant portion of Pentzer's earnings
contributions may be the result of transactional gains. Accordingly, although
the income stream is expected to be positive, it may be uneven from year to
year.
Pentzer's earnings for the first quarter of 1995 exceeded 1994 by $1 million
primarily due to the impact of a transactional gain of $1.3 million, net of
tax, from the sale of Itron stock in 1995.
In February 1995, Pentzer acquired The Decker Company, Inc., a company that
designs and packages point-of-purchase displays and other marketing materials
for national manufacturers of consumer products.
15
<PAGE> 16
THE WASHINGTON WATER POWER COMPANY
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
UTILITY
The Company funds capital expenditures with a combination of
internally-generated cash and external financing. The level of cash generated
internally and the amount that is available for capital expenditures fluctuates
annually. Cash provided by operating activities remains the Company's primary
source of funds for operating needs, dividends and construction expenditures.
Operating Activities Cash available from operating activities in the first
quarter of 1995 declined by over $10 million from the same period in 1994
primarily due to increases in materials and supplies expenses in addition to a
decrease in payables. The decline was partially offset by the positive effect
of the power and natural gas cost deferrals plus an increase in net income. See
the Consolidated Statements of Cash Flows for additional details.
Investing Activities Cash used in investing activities decreased by more than
$20 million in the first quarter of 1995, when compared to the same quarter in
1994, primarily due to a 35% decline in construction expenditures. See the
Consolidated Statements of Cash Flows for additional information.
Financing Activities Cash used in financing activities increased by over $10
million in the three months ended March 31, 1995 when compared to the same time
period in 1994. During the first quarter of 1995, $30 million of Secured
Medium Term Notes, Series B (Series B Notes) were issued with an average
interest rate of 7.90% and an average maturity of 5.5 years. As of May 11,
1995, $157 million of Series B Notes remained to be issued. Also in the first
quarter of 1995, $25 million of long-term debt with an average interest rate of
5.48% matured and was repaid.
Capital expenditures are financed on an interim basis with short-term debt.
The Company has $160 million in committed lines of credit. In addition, the
Company may borrow up to $60 million through other borrowing arrangements with
banks. As of March 31, 1995, $24.5 million was outstanding under the committed
lines of credit. There were no other short-term borrowings outstanding.
The Company's total common equity increased by $16 million during the first
quarter of 1995 to $679 million. The increase was primarily due to an increase
in retained earnings in addition to the issuance of 441,000 shares of common
stock in the first three months of 1995 through both the Dividend Reinvestment
Plan and the Investment and Employee Stock Ownership Plan for proceeds of $6.5
million. No shares were issued under the Company's Periodic Offering Program.
The utility capital structure at March 31, 1995, was 49% debt, 9% preferred
stock and 42% common equity as compared to 50% debt, 10% preferred stock and
40% common equity at year-end 1994.
During the 1995-1997 period, utility capital expenditures are expected to be
$228 million, and $132 million will be required for long-term debt maturities
and preferred stock sinking fund requirements. During this three-year period,
the Company estimates that internally-generated funds will provide
approximately 90% of the funds needed for its capital expenditure program.
External financing will be required to fund maturing long-term debt, preferred
stock sinking fund requirements and the remaining portion of capital
expenditures. These projections relate to the Company on a stand-alone basis
and do not reflect any adjustment for the effects of the proposed merger of the
Company, Sierra Pacific Resources (SPR) and Sierra Pacific Power Company (SPPC)
with and into Resources West Energy Corporation (Resources West). See
Regulatory Proceedings below for additional merger information.
NON-UTILITY
The non-utility operations have $43.0 million in borrowing arrangements ($23.4
million outstanding as of March 31, 1995) to fund corporate requirements on an
interim basis. At March 31, 1995, the non-utility operations had $34.7 million
in cash and marketable securities with $11.6 million in long-term debt
outstanding.
The 1995-1997 non-utility capital expenditures are expected to be $5 million,
and $7 million in debt maturities will also occur. During the next three
years, internally-generated cash and other debt obligations are expected to
provide the majority of the funds for the non-utility capital expenditure
requirements.
16
<PAGE> 17
THE WASHINGTON WATER POWER COMPANY
- --------------------------------------------------------------------------------
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
Outstanding shares of the Company's no par value Common Stock are listed on
both the New York Stock Exchange and the Pacific Stock Exchange.
REGULATORY PROCEEDINGS.
Merger On June 28, 1994, the Company announced that it had entered into a
proposed merger agreement with SPR, SPPC and Resources West. Applications
seeking approval of the merger were filed with the Federal Energy Regulatory
Commission (FERC) and with the state utility commissions in the states of
California, Idaho, Montana, Nevada, Oregon and Washington. The Montana Public
Service Commission issued an order declining to exercise jurisdiction. Each of
the other five states has set separate calendars for filings and hearings,
which are all proceeding on schedule. The FERC has not yet established a
procedural schedule for this proposed merger. However, the Company continues
to anticipate receiving final orders from all jurisdictions and closing the
merger transaction by the end of 1995. See Note 4 to Financial Statements for
additional information.
FERC On March 29, 1995, the FERC issued a Notice of Proposed Rulemaking (NOPR)
relating to transmission services and a supplemental NOPR on Recovery of
Stranded Costs. If adopted, the NOPR on open access transmission would require
public utilities operating under the Federal Power Act to provide third-party
access to their transmission systems at comparable rates. The supplemental
NOPR on stranded costs provides a basis for recovery by regulated public
utilities of legitimate and verifiable stranded costs associated with existing
wholesale requirements customers and retail customers who become unbundled
wholesale transmission customers of the utility. FERC will consider allowing
recovery of stranded investment costs associated with retail wheeling only if a
state regulatory commission lacks the authority to consider that issue. The
Company is currently evaluating the NOPR to determine its potential impact on
the Company, its customers and on its proposed merger with SPR and SPPC.
Comments on the NOPR are due by August 7, 1995. It is anticipated that the
final rules could take effect in early 1996. The Company cannot predict the
outcome of this matter.
ADDITIONAL FINANCIAL DATA.
The following table reflects the ratio of earnings to fixed charges and the
ratio of earnings to fixed charges and preferred dividend requirements:
<TABLE>
<CAPTION>
12 Months Ended
-----------------------------------
March 31, December 31,
1995 1994
-------- --------
<S> <C> <C>
Ratio of Earnings to Fixed Charges ................... 3.17(x) 3.24(x)
Ratio of Earnings to Fixed Charges and
Preferred Dividend Requirements ................. 2.55(x) 2.59(x)
</TABLE>
The Company has long-term purchased power arrangements with various Public
Utility Districts, with interest on these contracts included in purchased power
expenses. These amounts do not have a material impact on fixed charges ratios.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<S> <C>
12 Computation of ratio of earnings to fixed charges and preferred dividend requirements.
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K.
None.
17
<PAGE> 18
THE WASHINGTON WATER POWER COMPANY
- -------------------------------------------------------------------------------
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WASHINGTON WATER POWER COMPANY
----------------------------------
(Registrant)
Date: May 12, 1995 /s/ J. E. Eliassen
----------------------------
J. E. Eliassen
Vice President - Finance and
Chief Financial Officer
(Principal Accounting and
Financial Officer)
18
<PAGE> 1
EXHIBIT 12
THE WASHINGTON WATER POWER COMPANY
Computation of Ratio of Earnings to Fixed Charges and
Preferred Dividend Requirements (1)
Consolidated
(Thousands of Dollars)
<TABLE>
<CAPTION>
12 Mos. Ended Years Ended December 31
March 31 --------------------------------------------------
1995 1994 1993 1992 1991
------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Fixed charges, as defined:
Interest on long-term debt ................. $ 51,928 $ 49,566 $ 47,129 $ 51,727 $ 52,801
Amortization of debt expense and
premium - net ............................ 3,557 3,511 3,004 1,814 1,751
Interest portion of rentals ................ 1,974 1,282 924 1,105 1,018
-------- -------- -------- -------- --------
Total fixed charges .................... $ 57,459 $ 54,359 $ 51,057 $ 54,646 $ 55,570
======== ======== ======== ======== ========
Earnings, as defined:
Net income from continuing operations ...... $ 78,960 $ 77,197 $ 82,776 $ 72,267 $ 70,631
Add (deduct):
Income tax expense ....................... 45,773 44,696 42,503 41,330 38,086
Total fixed charges above ................ 57,459 54,359 51,057 54,646 55,570
-------- -------- -------- -------- --------
Total earnings ......................... $182,192 $176,252 $176,336 $168,243 $164,287
======== ======== ======== ======== ========
Ratio of earnings to fixed charges ........... 3.17 3.24 3.45 3.08 2.96
Fixed charges and preferred dividend
requirements:
Fixed charges above ...................... $ 57,459 $ 54,359 $ 51,057 $ 54,646 $ 55,570
Preferred dividend requirements(2) ....... 14,032 13,668 12,615 10,716 14,302
-------- -------- -------- -------- --------
Total .................................. $ 71,491 $ 68,027 $ 63,672 $ 65,362 $ 69,872
======== ======== ======== ======== ========
Ratio of earnings to fixed charges and
preferred dividend requirements ............ 2.55 2.59 2.77 2.57 2.35
</TABLE>
- ----------
(1) Calculations have been restated to reflect the results from continuing
operations (i.e., excluding discontinued coal mining operations).
(2) Preferred dividend requirements have been grossed up to their pre-tax
level.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE WASHINGTON WATER POWER COMPANY,
INCLUDED IN THE QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED MARCH
31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,333,164
<OTHER-PROPERTY-AND-INVEST> 205,355
<TOTAL-CURRENT-ASSETS> 138,055
<TOTAL-DEFERRED-CHARGES> 321,418
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,997,992
<COMMON> 564,760
<CAPITAL-SURPLUS-PAID-IN> 6,022
<RETAINED-EARNINGS> 124,142
<TOTAL-COMMON-STOCKHOLDERS-EQ> 694,924
85,000
50,000
<LONG-TERM-DEBT-NET> 638,571<F1>
<SHORT-TERM-NOTES> 24,500
<LONG-TERM-NOTES-PAYABLE> 8,655
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 22,631
0
<CAPITAL-LEASE-OBLIGATIONS> 8
<LEASES-CURRENT> 13
<OTHER-ITEMS-CAPITAL-AND-LIAB> 473,690<F2>
<TOT-CAPITALIZATION-AND-LIAB> 1,997,992
<GROSS-OPERATING-REVENUE> 197,928
<INCOME-TAX-EXPENSE> 16,732<F3>
<OTHER-OPERATING-EXPENSES> 139,454
<TOTAL-OPERATING-EXPENSES> 139,454
<OPERATING-INCOME-LOSS> 58,474
<OTHER-INCOME-NET> 1,217
<INCOME-BEFORE-INTEREST-EXPEN> 59,691<F4>
<TOTAL-INTEREST-EXPENSE> 14,506
<NET-INCOME> 28,453
2,297
<EARNINGS-AVAILABLE-FOR-COMM> 26,156
<COMMON-STOCK-DIVIDENDS> 16,914
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 59,254
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.48
<FN>
<F1>LONG-TERM DEBT-NET DOES NOT MATCH THE AMOUNT REPORTED ON THE COMPANY'S
CONSOLIDATED STATEMENT OF CAPITALIZATION AS LONG-TERM DEBT DUE TO THE OTHER
CATEGORIES REQUIRED BY THIS SCHEDULE.
<F2>OTHER ITEMS CAPITAL AND LIABILITIES INCLUDES THE CURRENT LIABILITIES, DEFERRED
CREDITS AND MINORITY INTEREST, LESS CERTAIN AMOUNTS INCLUDED UNDER LONG-TERM
DEBT-CURRENT PORTION AND LEASES-CURRENT, FROM THE COMPANY'S CONSOLIDATED
BALANCE SHEET.
<F3>THE COMPANY DOES NOT INCLUDE INCOME TAX EXPENSE AS AN OPERATING EXPENSE ITEM.
IT IS INCLUDED ON THE COMPANY'S STATEMENTS AS A BELOW-THE-LINE ITEM.
<F4>INCOME BEFORE INTEREST EXPENSE IS NOT A SPECIFIC LINE ITEM ON THE COMPANY'S
INCOME STATEMENTS. THE COMPANY COMBINES TOTAL INTEREST EXPENSE AND OTHER INCOME
TO CALCULATE INCOME BEFORE INCOME TAXES.
</FN>
</TABLE>
