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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1994
Commission File Number 1-7196
CASCADE NATURAL GAS CORPORATION
(Exact name of registrant as specified in its charter)
Washington 91-0599090
(State of incorporation or organization) (IRS Employer
Identification No.)
222 Fairview Avenue North
Seattle, Washington 98109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, 206-624-3900
including area code
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 such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 1, 1994
Common Stock, $1.00 par value 8,802,339
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- -------------------------
Jun 30, 1994 Jun 30, 1993 Jun 30, 1994 Jun 30, 1993
------------ ------------ ------------ ------------
(dollars in thousands except per share data)
<S> <C> <C> <C> <C>
Operating revenues:
Gas sales $35,047 $35,604 $98,588 $96,052
Transportation revenue 1,160 1,438 2,305 2,610
Other operating income 57 99 117 208
--------- --------- --------- ---------
36,264 37,141 101,010 98,870
Less: Gas purchases 22,613 23,863 62,680 58,837
Revenue taxes 2,250 2,264 6,362 6,282
--------- --------- --------- ---------
Operating margin 11,401 11,014 31,968 33,751
--------- --------- --------- ---------
Cost of operations:
Operating expenses 7,851 7,227 15,487 14,268
Depreciation and amortization 2,512 2,257 4,947 4,457
Property and payroll taxes 1,030 956 2,134 1,981
Income taxes (590) (272) 2,154 3,432
--------- --------- --------- ---------
10,803 10,168 24,722 24,138
--------- --------- --------- ---------
Earnings from operations 598 846 7,246 9,613
Less interest and other
deductions - net 1,873 1,682 3,710 3,894
--------- --------- --------- ---------
Net earnings (loss) before cumulative effect
of change in accounting method (1,275) (836) 3,536 5,719
Cumulative effect of change
in accounting method - - - 209
--------- --------- --------- ---------
Net earnings (loss) (1,275) (836) 3,536 5,928
Preferred dividends 140 146 281 293
========= ========= ========= =========
Net earnings (loss) available to
Common Shareholders ($1,415) ($982) $3,255 $5,635
--------- --------- --------- ---------
Common shares outstanding:
Weighted average 8,737,734 7,715,380 8,636,247 7,649,837
End of period 8,790,459 8,518,752 8,790,459 8,518,752
Earnings (loss) per common share:
Before cumulative effect of
change in accounting method ($0.16) ($0.13) $0.38 $0.71
Cumulative effect of change
in accounting method - - - 0.03
--------- --------- --------- ---------
Net earnings (loss) per common share ($0.16) ($0.13) $0.38 $0.74
========= ========= ========= =========
Cash dividends per share $0.24 $0.24 $0.48 $0.47
========= ========= ========= =========
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PART I. (Continued)CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
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<CAPTION>
(UNAUDITED)
Jun 30, 1994 Dec 31, 19
------------ ----------
(dollars in thousands)
<S> <C> <C>
ASSETS
Utility Plant, net after accumulated
depreciation of $123,499 and $117,925 $199,391 $192,363
Construction work in progress 3,450 5,009
--------- ---------
202,841 197,372
--------- ---------
Other Assets:
Investments, at cost 1,140 1,149
Notes receivable, less current maturities 2,956 3,508
--------- ---------
4,096 4,657
--------- ---------
Current Assets:
Cash and cash equivalents 735 3,138
Temporary investments 1,276 757
Accounts receivable, less allowance of $515
and $490 for doubtful accounts 12,023 26,539
Current maturities of notes receivable 1,117 1,331
Materials, supplies and inventories 6,362 6,416
Prepaid expenses and other assets 1,276 444
--------- ---------
22,789 38,625
--------- ---------
Deferred Charges 12,631 12,036
--------- ---------
$242,357 $252,690
========= =========
COMMON SHAREHOLDERS' EQUITY,
PREFERRED STOCKS AND LIABILITIES
Common Shareholders' Equity:
Common stock, par value $1 per share
Authorized, 15,000,000 shares
Issued and outstanding 8,790,459
and 8,566,374 shares $8,790 $8,566
Additional paid-in capital 66,419 63,060
Retained earnings 13,120 14,076
--------- ---------
88,329 85,702
--------- ---------
Redeemable Preferred Stocks, aggregate
redemption amount of $7,805 and $7,826 7,509 7,528
--------- ---------
Long-term Debt 87,000 87,000
--------- ---------
Current Liabilities:
Notes payable 13,001 13,502
Accounts payable 9,176 22,362
Property, payroll and excise taxes 3,188 3,960
Dividends and interest payable 3,839 3,665
Other current liabilities 1,949 2,395
--------- ---------
31,153 45,884
--------- ---------
Deferred Credits:
Gas cost changes 3,415 3,568
Other 24,951 23,008
--------- ---------
28,366 26,576
--------- ---------
Commitments and Contingencies - -
--------- ---------
$242,357 $252,690
========= =========
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PART I (Continued)
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<CAPTION>
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30
------------------------
1994 1993
---------- ----------
<S> <C> <C>
Operating Activities:
Net earnings $3,536 $5,928
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 5,456 5,013
Amortization of gas cost changes (2,619) (7,348)
Increase (decrease) in deferred income taxes 1,056 (1,083)
Cumulative effect of change in accounting method - (209)
Decrease in deferred investment tax credits (135) (135)
Cash provided (used) by changes in operating assets and liabilities:
Accounts receivable 14,516 11,493
Income taxes (569) 216
Inventories 54 81
Gas cost changes 2,466 2,375
Deferred items 245 3,082
Accounts payable and accrued expenses (14,288) (6,561)
Other (172) 356
---------- ----------
Net cash provided by operating activities 9,546 13,208
---------- ----------
Investing Activities:
Capital expenditures (10,733) (13,441)
New consumer loans (768) (1,195)
Receipts on consumer loans 1,501 1,743
Other (520) -
---------- ----------
Net cash used by investing activities (10,520) (12,893)
---------- ----------
Financing Activities:
Issuance of common stock, net 3,387 14,656
Redemption of preferred stock (20) (39)
Proceeds from long-term debt - 23,760
Repayment of long-term debt - (22,835)
Repayment of notes payable, net (501) (13,000)
Dividends paid (4,295) (3,660)
---------- ----------
Net cash used by financing activities (1,429) (1,118)
---------- ----------
Net Decrease in Cash and Cash Equivalents (2,403) (803)
Cash and Cash Equivalents:
Beginning of period 3,138 3,332
---------- ----------
End of period $735 $2,529
========== ==========
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CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
Three- and Six-Month Periods Ending June 30, 1994
The preceding statements were taken from the books and records of the
Corporation and reflect all adjustments which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods. All adjustments were of a normal and recurring nature.
Because of the highly seasonal nature of the business, earnings or loss
for any portion of the year are disproportionate in relation to the full
year.
Reference is directed to the Notes to Consolidated Financial Statements
contained in the 1993 Annual Report on Form 10-K and comments included herein
under "Managements's Discussion and Analysis of Financial Condition and
Results of Operations".
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The seasonal nature of the Corporation's business creates short-term
cash requirements to finance customer accounts receivable and construction
expenditures. To provide working capital for these requirements, the
Corporation has $25,000,000 of committed lines from two banks which are used
to support a money market facility of a similar amount. The Corporation also
has $30,000,000 of uncommitted lines from three banks. Long-term debt
requirements are met through the issuance of Medium-Term Notes of which there
were $82,000,000 outstanding at the end of the quarter and $68,000,000
registered under the Securities Act of 1933 and available for issuance.
After preferred and common dividends of $4,295,000, there was
$5,251,000 of cash flow from year-to-date operations. These proceeds, and
proceeds of $3,387,000 from common stock issued to participants in the
Corporation's Dividend Reinvestment Plan and 401(k) Plan along with short-
term borrowing, were used primarily for capital expenditures of $10,733,000.
Capital expenditures for the remainder of the year are budgeted at
$24,367,000 which will be funded initially with operating cash flow and
secondly from the lines of credit described above.
Results of Operations
Operating results for the second quarter of 1994 were a loss of
$1,415,000, or $.16 per share, compared to a loss of $982,000, or $.13 per
share, for the second quarter of 1993. For the six months ended June 30,
1994, net earnings were $3,255,000, or $.38 per share, compared to net
earnings of $5,635,000, or $.74 per share, for the six months ended June 30,
1993.
Gross margins for the quarter were 4% higher than in 1993, due to
$827,000 of increased margins resulting from the addition of new high volume
non-core customers during the past year, including the Company's latest
cogeneration customer. Core-market margins decreased $440,000 for the quarter
despite an increase of 573,000 therms. The therms increase comes from 810,000
of increased deliveries to industrial customers who opt to receive bundled
core sales service. The smaller margins associated with these sales
ameliorated, but could not fully offset, the impact on core margins of a
237,000 therm decline in deliveries to weather sensitive residential and
commercial customers and increased costs associated with interstate
transmission capacity to meet growth needs. The warm weather experienced
through the first three months of the year continued into the second quarter
with temperatures, as measured in heating degree days, estimated to be 28%
warmer than normal and 8% warmer than the 1993 second quarter.
MARGIN AND THROUGH-PUT CHANGES
SECOND QUARTER 1994 COMPARED TO SECOND QUARTER 1993
Margin Contribution Through-Put
($ in thousands) (thousands of therms)
Increase (Decrease) Increase (Decrease)
Amount Percent Amount Percent
-------- ---------- -------- ----------
Core Deliveries $ (440) ( 6.0%) 573 2.0%
Non-Core Deliveries 827 21.0% 47,424 44.0%
-------- ------- ------ -----
Total $ 387 4.0% 47,997 34.0%
======== ======= ====== =====
MARGIN AND THROUGH-PUT CHANGES
SIX MONTHS 1994 COMPARED TO SIX MONTHS 1993
Margin Contribution Through-Put
($ in thousands) (thousands of therms)
Increase (Decrease) Increase (Decrease)
Amount Percent Amount Percent
-------- ---------- -------- ----------
Core Deliveries $(2,736) (11.0%) (8,820) ( 7.0%)
Non-Core Deliveries 953 12.0% 64,576 27.0%
-------- ------- ------ -----
Total $(1,893) ( 5.0%) 55,756 15.0%
======== ======= ====== =====
Through-put increased 15% for the six months ended June 30, 1994
compared to the six months ended June 30, 1993 and gross margin decreased 5%
reflecting the mix of increased through-put of lower margin non-core
deliveries.
Total customer growth accelerated to a rate of 8.1% during the twelve
months ended June 30, 1994, with residential customers increasing by 9.0% in
that period. This marked the first 12-month period in recent history that net
customer additions exceeded 10,000. While this significant rate of core
growth should benefit earnings, particularly during winter heating periods,
its contribution during the second quarter was limited by both the season and
the higher temperatures. For the month of April, alone, estimated
temperatures were 30% warmer than normal and 24% warmer than in 1993. If
temperatures had been equivalent to April, 1993, estimated core heating
requirements would have reduced the second quarter loss by more than $.03 per
share.
Operating expenses for the quarter increased $624,000 or 8.6% compared
to the second quarter of 1993. Salary, wages and commissions increased
$239,000 due to the addition of 6 employees and general wage increases.
Benefits cost increases amounted to $315,000 which is due, in large part, to
increases in medical and dental expenses which stemmed from recent claims
experience and changes in actuarial assumptions for the pension plan. The
total increase for payroll and fringe benefit costs accounted for 88.8% of
the total increase. For the six months ended June 30, 1994, operating
expenses increased 8.5% with 77.9% of the increase due to payroll and
benefits.
Depreciation and amortization expense and property and payroll taxes
increased in the current quarter and six-month periods as compared to one
year ago, primarily as a result of the increase in utility plant to serve the
growing customer base.
Interest expense and other deductions increased $191,000 quarter to
quarter due to a $10,000,000 increase in long-term debt and increases in
short-term interest rates. Year-to-date interest and other deductions
decreased $184,000 over the six-month period ended June 30, 1993. This
decrease is due to other deductions of $491,000, from the 1993 first quarter,
for the write-off of subsidiary assets related to drilling activities and the
downward adjustment of an inventory valuation. Similar charges are not
present in the 1994 period causing an overall decline in this cost category,
even though actual interest costs increased $149,000 as a result of increases
in long-term debt outstanding and increases in short-term interest rates. The
swap agreements entered into by the Company and a major bank in the first
quarter of 1994 were terminated June 22, 1994. In addition, a swap agreement
entered into in the fourth quarter of 1992 was terminated July 27, 1994. The
effect of the terminations is treated as interest cost and is amortized over
the term of the agreements. The terminations do not have a material impact on
the financial condition of the Company.
Effective July 15, 1994, the Corporation combined two of its
subsidiaries, Fibre Graphics, Inc. and Metrology One, Inc., as part of a sale
agreement. Terms of the sale include transfer of ownership in the
subsidiaries, which continue to be obligated to the Corporation on a note.
The effect of this transaction is not material to the financial condition of
the Corporation.
PART II OTHER INFORMATION
Item 2. Changes in Securities.
Under the terms of its bank credit agreement, the Corporation is
required to maintain a minimum of $62,677,000 of net worth. Under this
restriction approximately $25,652,000 was available for the payment of
dividends at June 30, 1994.
Item 5. Other Information
Ratio of Earnings to Fixed Charges
Twelve Months
Ended June 30, Year Ended December 31
---------------------------------------
1994 1993 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ----
2.37 2.60 2.86 1.97 2.45 2.48 2.62
For purposes of this calculation, earnings include income before income
taxes plus fixed charges. Fixed charges include interest expense and the
amortization of debt issuance expenses. Refer to Exhibit 12 for calculation
of these ratios as well as the ratio of earnings to fixed charges including
preferred dividends.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
No. Description
------ -----------
12 Computation of Ratio of Earnings to Fixed Charges
b. Reports on Form 8-K:
No Form 8-K was filed during the quarter for which this
report is filed.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
CASCADE NATURAL GAS CORPORATION
(Registrant)
By /s/ Donald E. Bennett
Donald E. Bennett
Executive Vice President,
Chief Financial Officer
and Secretary
DATED: August 10, 1994
<PAGE>
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EXHIBIT 12
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CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDEND REQUIREMENTS
Twelve Months Ended
June 30 Year Ended December 31
------------------ ---------------------------------------
1994 1993 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------ ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed charges, as defined:
Interest expense 7,187 7,337 7,038 7,478 7,793 8,374 8,063
Amortization of debt issuance expense 579 506 562 402 362 373 370
------- ------- ------- ------- ------- ------- -------
Total fixed charges 7,766 7,843 7,600 7,880 8,155 8,747 8,433
------- ------- ------- ------- ------- ------- -------
Earnings, as defined:
Net earnings 6,711 8,063 9,103 4,843 7,651 8,376 8,482
Add (deduct):
Income taxes 3,946 4,698 5,224 2,817 4,206 4,547 5,178
Cumulative effect of change
in accounting method - (209) (209) - - - -
Fixed charges 7,766 7,843 7,600 7,880 8,155 8,747 8,433
------- ------- ------- ------- ------- ------- -------
Total earnings 18,423 20,395 21,718 15,540 20,012 21,670 22,093
------- ------- ------- ------- ------- ------- -------
Ratio of earnings to fixed charges 2.37 2.60 2.86 1.97 2.45 2.48 2.62
======= ======= ======= ======= ======= ======= =======
Fixed charges and preferred
dividend requirements:
Fixed charges 7,766 7,843 7,600 7,880 8,155 8,747 8,433
Preferred dividend requirements 902 934 913 941 229 238 287
------- ------- ------- ------- ------- ------- -------
Total 8,668 8,777 8,513 8,821 8,384 8,985 8,720
------- ------- ------- ------- ------- ------- -------
Ratio of earnings to fixed charges
and preferred dividend requirements 2.13 2.32 2.55 1.76 2.39 2.41 2.53
======= ======= ======= ======= ======= ======= =======
</TABLE>
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