<PAGE>
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 September 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 October 31, 1994
Common Stock, $1.00 par value 8,864,192
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS
(Unaudited)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- -------------------------
Sep 30, 1994 Sep 30, 1993 Sep 30, 1994 Sep 30, 1993
------------ ------------ ------------ ------------
(dollars in thousands except per share data)
<S> <C> <C> <C> <C>
Operating revenues:
Gas sales $26,807 $27,433 $125,395 $123,485
Transportation revenue 2,032 1,930 4,337 4,540
Other operating income 28 72 145 280
--------- --------- --------- ---------
28,867 29,435 129,877 128,305
Less: Gas purchases 18,041 19,024 80,721 77,861
Revenue taxes 1,664 1,613 8,026 7,895
--------- --------- --------- ---------
Operating margin 9,162 8,798 41,130 42,549
--------- --------- --------- ---------
Cost of operations:
Operating expenses 7,359 6,773 22,846 21,041
Depreciation and amortization 2,539 2,303 7,486 6,760
Property and payroll taxes 1,035 951 3,169 2,932
Income taxes (1,397) (903) 757 2,529
--------- --------- --------- ---------
9,536 9,124 34,258 33,262
--------- --------- --------- ---------
Earnings from operations (374) (326) 6,872 9,287
Less interest and other
deductions - net 1,956 1,644 5,666 5,538
--------- --------- --------- ---------
Net earnings (loss) before cumulative effect
of change in accounting method (2,330) (1,970) 1,206 3,749
Cumulative effect of change
in accounting method - - - 209
--------- --------- --------- ---------
Net earnings (loss) (2,330) (1,970) 1,206 3,958
Preferred dividends 141 147 422 440
--------- --------- --------- ---------
Net earnings (loss) available to
Common Shareholders ($2,471) ($2,117) $784 $3,518
--------- --------- --------- ---------
Common shares outstanding:
Weighted average 8,811,958 8,527,015 8,675,203 7,789,882
End of period 8,851,473 8,541,629 8,851,473 8,541,629
Earnings (loss) per common share:
Before cumulative effect of
change in accounting method ($0.28) ($0.25) $0.09 $0.42
Cumulative effect of change
in accounting method - - - 0.03
--------- --------- --------- ---------
Net earnings (loss) per common share ($0.28) ($0.25) $0.09 $0.45
--------- --------- --------- ---------
Cash dividends per share $0.24 $0.24 $0.72 $0.71
--------- --------- --------- ---------
</TABLE>
<PAGE>
PART I. (Continued)
<TABLE>
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Thousands of Dollars)
<CAPTION>
(UNAUDITED)
Sep 30, 1994 Dec 31, 1993
------------ ------------
(dollars in thousands)
ASSETS
<S> <C> <C>
Utility Plant, net after accumulated
depreciation of $125,716 and $117,925 $201,927 $192,363
Construction work in progress 6,316 5,009
--------- ---------
208,243 197,372
--------- ---------
Other Assets:
Investments, at cost 1,226 1,149
Notes receivable, less current maturities 3,605 3,508
--------- ---------
4,831 4,657
--------- ---------
Current Assets:
Cash and cash equivalents 715 3,138
Temporary investments 1,481 757
Accounts receivable, less allowance of $512
and $490 for doubtful accounts 10,159 26,539
Current maturities of notes receivable 1,041 1,331
Materials, supplies and inventories 5,558 6,416
Prepaid expenses and other assets 3,168 444
--------- ---------
22,122 38,625
--------- ---------
Deferred Charges 12,708 12,036
--------- ---------
$247,904 $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 8,851,473
and 8,566,374 shares $8,851 $8,566
Additional paid-in capital 67,238 63,060
Retained earnings 8,525 14,076
--------- ---------
84,614 85,702
--------- ---------
Redeemable Preferred Stocks, aggregate
redemption amount of $7,798 and $7,826 7,503 7,528
--------- ---------
Long-term Debt 87,000 87,000
--------- ---------
Current Liabilities:
Notes payable 23,941 13,502
Accounts payable 10,537 22,362
Property, payroll and excise taxes 2,918 3,960
Dividends and interest payable 5,424 3,665
Other current liabilities 986 2,395
--------- ---------
43,806 45,884
--------- ---------
Deferred Credits:
Gas cost changes 493 3,568
Other 24,488 23,008
--------- ---------
24,981 26,576
--------- ---------
Commitments and Contingencies - -
--------- ---------
$247,904 $252,690
--------- ---------
</TABLE>
<PAGE>
PART I (Continued)
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September
------------------------
1994 1993
---------- ----------
(dollars in thousands)
<S> <C> <C>
Operating Activities:
Net earnings $1,206 $3,958
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 8,346 7,484
Amortization of gas cost changes (3,196) (8,486)
Increase (decrease) in deferred income taxes 1,448 (396)
Cumulative effect of change in accounting method - (209)
Decrease in deferred investment tax credits (203) (203)
Cash provided (used) by changes in operating assets and liabilities:
Accounts receivable 16,380 11,837
Income taxes (2,589) (1,076)
Inventories 17 (637)
Gas cost changes 121 1,471
Deferred items (722) 2,677
Accounts payable and accrued expenses (12,575) (6,091)
Other (186) 485
---------- ----------
Net cash provided by operating activities 8,047 10,814
---------- ----------
Investing Activities:
Capital expenditures (18,890) (24,350)
New consumer loans (1,046) (1,631)
Receipts on consumer loans 2,070 2,661
Other (724) (358)
---------- ----------
Net cash used by investing activities (18,590) (23,678)
---------- ----------
Financing Activities:
Issuance of common stock, net 3,828 14,770
Redemption of preferred stock (25) (42)
Proceeds from long-term debt - 23,758
Repayment of long-term debt - (22,761)
Net change in notes payable 10,439 1,001
Dividends paid (6,122) (5,590)
---------- ----------
Net cash provided by financing activities 8,120 11,136
---------- ----------
Net Decrease in Cash and Cash Equivalents (2,423) (1,728)
Cash and Cash Equivalents:
Beginning of period 3,138 3,332
---------- ----------
End of period $715 $1,604
---------- ----------
</TABLE>
<PAGE>
PART I. (Cont.)
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
Three And Nine Month Periods Ending September 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".
Note 1 - Sale of Subsidiary Companies
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.
Note 2 - Subsequent Events
On October 18 and 20, 1994, the Corporation issued Medium-Term Notes
totaling $18,000,000, bringing the total of Medium-Term Notes issued and
outstanding to $100,000,000. These new notes mature in 2005 and 2006, and
have interest rates from 8.35% to 8.50%.
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 primarily 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. Subsequent to the end of the quarter, $18,000,000 of Medium-Term
Notes were issued bringing the total issued to $100,000,000 and the
registered but not issued to $50,000,000.
After preferred and common dividends of $6,122,000, there was
$1,925,000 of cash flow from year-to-date operations. This amount, and
proceeds of $3,828,000 from common stock issued to participants in the
Dividend Reinvestment Plan and the 401(k) Plan along with short-term
borrowing, were used primarily for capital expenditures of $18,890,000.
Capital expenditures for the remainder of the year are budgeted at
$16,210,000 which will be funded initially with operating cash flow, secondly
from the lines of credit described above and from the October 1994 issuance
of $18,000,000 of Medium-Term Notes.
Results of Operations
Operating results for the third quarter of 1994 were a loss of
$2,471,000, or $0.28 per share, compared to a loss of $2,117,000, or $0.25
per share, for the third quarter of 1993. For the nine months ended September
30, 1994, net earnings were $784,000, or $0.09 per share, compared to net
earnings of $3,518,000, or $0.45 per share, for the nine months ended
September 30, 1993.
Gross margins for the third quarter of 1994 were 4.1% higher than in the
1993 third quarter, due to $791,000 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 $427,000 for the quarter, as warm weather continued into the third
quarter, with temperatures, as measured in heating degree days, estimated to
be 42% warmer than normal and 44% warmer than the 1993 third quarter. Core
throughput decreased less than margins due to a decrease of higher margin
residential and commercial throughput and an increase in throughput of lower
margin core industrial. Core margins were also affected by increased costs
associated with additional interstate transmission capacity to meet growth
needs.
MARGIN AND THROUGHPUT CHANGES
THIRD QUARTER 1994 COMPARED TO 1993
Margin Contribution Throughput
($ in thousands) (thousands of therms)
Increase (Decrease) Increase (Decrease)
Amount Percent Amount Percent
------ ------- ------ -------
Core Deliveries $ (427) ( 9.0%) ( 871) 3.0%
Non-Core Deliveries 791 19.0% 52,558 42.0%
------- -------- -------- -----
Total $ 364 4.0% 51,687 35.0%
======= ======== ======== =====
MARGIN AND THROUGHPUT CHANGES
NINE MONTHS 1994 COMPARED TO 1993
Margin Contribution Throughput
($ in thousands) (thousands of therms)
Increase (Decrease) Increase (Decrease)
Amount Percent Amount Percent
------ ------- ------ -------
Core Deliveries $ (3,163) ( 10.0%) ( 9,691) 6.0%
Non-Core Deliveries 1,744 14.0% 117,134 32.0%
------- -------- -------- -----
Total $ (1,419) 3.0% 107,443 21.0%
======= ======== ========= =====
Throughput increased for the nine-month period compared to the nine
months ended September 30, 1993 while gross margin decreased reflecting the
mix of increased throughput of lower margin non-core deliveries, as well as
increased costs associated with additional interstate transmission capacity
to meet growth needs.
Total customer growth continues at one of the fastest rates in the
industry. The rate during the twelve months ended September 30, 1994 was
7.9%, with residential customers increasing by 8.7% in that period. While
this significant rate of core growth should benefit earnings, particularly
during winter heating periods, its contribution during the third quarter was
limited by both the season and the higher temperatures.
Operating expenses for the quarter increased $586,000 or 8.7% compared
to the third quarter of 1993. Salary, wages and commissions increased
$261,000 due to general wage increases and the addition of 7 employees.
Benefits cost increases amounted to $170,000 which is due, in large part, to
increases in medical and dental expense, which stemmed from recent claims
experience and changes in actuarial assumptions for the pension plan. For the
nine months ended September 30, 1994, operating expenses increased 8.6% with
74% of the increase due to payroll and benefits.
Depreciation and amortization expense and property and payroll taxes
increased in the current quarter and nine month periods as compared to 1993,
primarily as a result of the increase in utility plant to serve the growing
customer base.
Interest expense and other deductions increased $312,000 quarter to
quarter due to a $22,000,000 increase in short and long-term debt. Interest
and other deductions increased $128,000 in the nine months ended September
30, 1994 compared to the similar period one year ago. Interest expense was
up $626,000 in the current period. However, the 1993 period included
$491,000 of costs related to a write-off of subsidiary assets related to a
drilling project and the downward adjustment of an inventory valuation which
are not present in the 1994 period.
<PAGE>
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 $63,116,000 of net worth. Under this
restriction approximately $21,498,000 was available for the payment of
dividends at September 30, 1994.
Item 5. Other Information
Ratio of Earnings to Fixed Charges
Twelve Months
Ended September 30, Year Ended December 31
----------------------------------------
1994 1993 1993 1992 1991 1990 1989
---- ---- ----------------------------------------
2.21 2.65 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.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
No. Description
--- -----------
12 Computation of Ratio of Earnings to Fixed Charges and
Preferred Dividend Requirements
27 Financial Data Schedule UT, filed electronically via EDGAR
only
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: November 10, 1994
<PAGE>
<PAGE>
EXHIBIT 12
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDEND REQUIREMENTS
<TABLE>
<CAPTION>
Twelve Months Ended
September 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 7,540 7,131 7,038 7,478 7,793 8,374 8,063
Amortization of debt issuance expense 586 545 562 402 362 373 370
------- ------- ------- ------- ------- ------- -------
Total fixed charges 8,126 7,676 7,600 7,880 8,155 8,747 8,433
------- ------- ------- ------- ------- ------- -------
Earnings, as defined:
Net earnings 6,351 8,067 9,103 4,843 7,651 8,376 8,482
Add (deduct):
Income taxes 3,452 4,843 5,224 2,817 4,206 4,547 5,178
Cumulative effect of change
in accounting method - (209) (209) - - - -
Fixed charges 8,126 7,676 7,600 7,880 8,155 8,747 8,433
------- ------- ------- ------- ------- ------- -------
Total earnings 17,929 20,377 21,718 15,540 20,012 21,670 22,093
------- ------- ------- ------- ------- ------- -------
Ratio of earnings to fixed charges 2.21 2.65 2.86 1.97 2.45 2.48 2.62
------- ------- ------- ------- ------- ------- -------
Fixed charges and preferred
dividend requirements:
Fixed charges 8,126 7,676 7,600 7,880 8,155 8,747 8,433
Preferred dividend requirements 867 939 913 941 229 238 287
------- ------- ------- ------- ------- ------- -------
Total 8,993 8,615 8,513 8,821 8,384 8,985 8,720
------- ------- ------- ------- ------- ------- -------
Ratio of earnings to fixed charges
and preferred dividend requirements 1.99 2.37 2.55 1.76 2.39 2.41 2.53
</TABLE>
<PAGE>
EXHIBIT 27
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
FINANCIAL DATA SCHEDULE UT
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED CONDENSED STATEMENT OF
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS AND THE
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1994, AND THE CONSOLIDATED CONDENSED
BALANCE SHEET AS OF SEPTEMBER 30, 1994, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
AND BY REFERENCE TO THE NOTES TO THIS SCHEDULE.
<MULTIPLIER> 1,000
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<PERIOD-TYPE> 9-MOS
<S> <C>
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 208,243
<OTHER-PROPERTY-AND-INVEST> 4,831
<TOTAL-CURRENT-ASSETS> 22,122
<TOTAL-DEFERRED-CHARGES> 12,708
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 247,904
<COMMON> 8,851
<CAPITAL-SURPLUS-PAID-IN> 67,238
<RETAINED-EARNINGS> 8,525
<TOTAL-COMMON-STOCKHOLDERS-EQ> 84,614
7,503
0
<LONG-TERM-DEBT-NET> 87,000
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 23,941
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 44,846
<TOT-CAPITALIZATION-AND-LIAB> 247,904
<GROSS-OPERATING-REVENUE> 129,877
<INCOME-TAX-EXPENSE> 757
<OTHER-OPERATING-EXPENSES> 122,248
<TOTAL-OPERATING-EXPENSES> 123,005
<OPERATING-INCOME-LOSS> 6,872
<OTHER-INCOME-NET> 88 <F1>
<INCOME-BEFORE-INTEREST-EXPEN> 6,960 <F1>
<TOTAL-INTEREST-EXPENSE> 5,754 <F1>
<NET-INCOME> 1,206
422
<EARNINGS-AVAILABLE-FOR-COMM> 784
<COMMON-STOCK-DIVIDENDS> 6,335 <F2>
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 8,047
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
<FN>
<F1> Interest and other deductions, as shown on the Consolidated Condensed
Statement of Net Earnings Available to Common Shareholders, is net of an
$88,000 credit related to other nonoperating income and expense.
<F2> Item 34 represents total common stock dividends declared and charged to
retained earnings. This amount differs from the $6,122,000 shown on the
Consolidated Statement of Cash Flows, which is net of reinvested
dividends of $635,000, and includes $422,000 of preferred dividends.
</FN>
</TABLE>
