<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 June 30, 1995
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 Number)
222 Fairview Avenue North
Seattle, Washington 98109
(Address of principal executive office (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 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
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 31, 1995
Common Stock, $1.00 par value 9,053,637
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- ---------------------------
June 30, 1995 June 30, 1994 June 30, 1995 June 30, 1994
------------- ------------- ------------- -------------
(dollars in thousands except per share data)
<S> <C> <C> <C> <C>
Operating revenues:
Gas sales $32,206 $35,047 $94,316 $98,588
Transportation revenue 2,458 1,160 4,896 2,305
Other operating income 51 57 113 117
-------- -------- -------- --------
34,715 36,264 99,325 101,010
Less: Gas purchases 19,521 22,613 56,774 62,680
Revenue taxes 2,312 2,250 6,644 6,362
-------- -------- -------- --------
Operating margin 12,882 11,401 35,907 31,968
-------- -------- -------- --------
Cost of operations:
Operating expenses 7,998 7,851 16,016 15,487
Depreciation and amortization 2,687 2,512 5,301 4,947
Property and payroll taxes 1,054 1,030 2,067 2,134
-------- -------- -------- --------
11,739 11,393 23,384 22,568
-------- -------- -------- --------
Earnings from operations 1,143 8 12,523 9,400
Less interest and other
deductions - net 2,395 1,873 4,732 3,710
-------- -------- -------- --------
Earnings before income taxes (1,252) (1,865) 7,791 5,690
Income taxes (369) (590) 2,941 2,154
-------- -------- -------- --------
Net earnings (loss) (883) (1,275) 4,850 3,536
Preferred dividends 136 140 272 281
-------- -------- -------- --------
Net earnings (loss) available to
Common Shareholders ($1,019) ($1,415) $4,578 $3,255
======== ======== ======== ========
Common shares outstanding (thousands):
Weighted average 9,000 8,738 8,944 8,636
End of period 9,044 8,790 9,044 8,790
-------- -------- -------- --------
Net earnings (loss) per common share ($0.11) ($0.16) $0.51 $0.38
======== ======== ======== ========
Cash dividends per share $0.24 $0.24 $0.48 $0.48
======== ======== ======== ========
</TABLE>
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<TABLE>
<CAPTION>
PART I. (Continued)
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
June 30, 1995 Dec. 31, 1994
------------ ------------
(dollars in thousands)
<S> <C> <C>
ASSETS
Utility Plant, net after accumulated
depreciation of $133,601 and $127,806 $218,712 $206,057
Construction work in progress 4,259 7,872
-------- --------
222,971 213,929
-------- --------
Other Assets:
Investments 919 919
Notes receivable, less current maturities 2,605 2,915
-------- --------
3,524 3,834
-------- --------
Current Assets:
Cash and cash equivalents 688 3,949
Securities available for sale 2,252 1,466
Accounts receivable, less allowance of $448
and $461 for doubtful accounts 11,303 28,885
Current maturities of notes receivable 868 988
Materials, supplies and inventories 6,042 5,583
Prepaid expenses and other assets 363 1,653
-------- --------
21,516 42,524
-------- --------
Deferred Charges 13,417 12,010
-------- --------
$261,428 $272,297
======== ========
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 9,043,720
and 8,911,661 shares $ 9,044 $ 8,912
Additional paid-in capital 69,685 67,992
Retained earnings 11,060 10,806
-------- --------
89,789 87,710
-------- --------
Redeemable Preferred Stocks, aggregate
redemption amount of $7,479 and $7,499 7,200 7,217
-------- --------
Long-term Debt 100,000 100,000
-------- --------
Current Liabilities:
Notes payable 9,001 14,501
Accounts payable 7,727 18,366
Property, payroll and excise taxes 3,384 4,541
Dividends and interest payable 4,264 4,202
Other current liabilities 1,194 1,620
Current maturities of long-term debt 5,000 5,000
-------- --------
30,570 48,230
-------- --------
Deferred Credits:
Gas cost changes 8,000 4,407
Other 25,869 24,733
-------- --------
33,869 29,140
-------- --------
Commitments and Contingencies - -
-------- --------
$261,428 $272,297
======== ========
</TABLE>
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<TABLE>
<CAPTION>
PART I (Continued)
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30
-------------------------
1995 1994
------ ------
(dollars in thousands)
<S> <C> <C>
Operating Activities:
Net earnings $4,850 $3,536
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 5,838 5,456
Amortization of gas cost changes 2,133 (2,619)
Increase in deferred income taxes 1,139 1,056
Decrease in deferred investment tax credits (120) (135)
Cash provided (used) by changes in operating assets and
liabilities:
Accounts receivable 17,582 14,516
Income taxes 442 (569)
Inventories 231 54
Gas cost changes 561 2,466
Deferred items (641) 245
Accounts payable and accrued expenses (12,118) (14,288)
Prepaid expenses and other assets 806 (205)
Other 27 33
--------- ---------
Net cash provided by operating activities 20,730 9,546
--------- ---------
Investing Activities:
Capital expenditures (15,320) (10,733)
New consumer loans (548) (768)
Receipts on consumer loans 967 1,501
Purchase of securities available for sale (802) (1,272)
Proceeds from securities available for sale - 752
--------- ---------
Net cash used by investing activities (15,703) (10,520)
--------- ---------
Financing Activities:
Issuance of common stock, net 1,319 3,387
Redemption of preferred stock (16) (20)
Repayment of notes payable, net (5,500) (501)
Dividends paid (4,091) (4,295)
--------- ---------
Net cash used by financing activities (8,288) (1,429)
--------- ---------
Net Decrease in Cash and Cash Equivalents (3,261) (2,403)
Cash and Cash Equivalents:
Beginning of period 3,949 3,138
--------- ---------
End of period $688 $735
========= =========
</TABLE>
<PAGE>
PART I. (Cont.)
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three Month and Six Month Periods Ending June 30, 1995
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 1994 Annual Report on Form 10-K and comments
included therein under "Management'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 primarily through the issuance of Medium-Term Notes. At
the end of the quarter, there was $100,000,000 outstanding and $50,000,000
registered under the Securities Act of 1933 and available for issuance.
After preferred and common dividends of $4,091,000 there was
$16,639,000 of cash flow from year-to-date operations. This cash flow and
proceeds of $1,319,000 from common stock issued to participants in the
dividend reinvestment plan and 401(k) plan were used primarily for capital
expenditures of $15,320,000 and reductions in short-term borrowing. Capital
expenditures for the remainder of the year are budgeted at $24,180,000 which
will be funded initially with operating cash flow and secondly from the lines
of credit described above. Management is also considering a preferred stock
issue to provide the necessary long-term capital.
Results of Operations
The seasonal second quarter 1995 net loss to common shareholders was
$1,019,000, or $0.11 per share, compared to a net loss of $1,415,000, or $0.16
per share, for the quarter ended June 30, 1994, an improvement of 28.0%. Based
on estimated degree days, temperatures were 10% warmer than normal for the
quarter but 22% colder than the quarter ended June 30, 1994.
For the six months ended June 30, 1995, net earnings available to
common shareholders was $4,578,000 million, or $0.51 per share, a 41%
improvement over the $3,255,000 million net earnings available to common
shareholders for the six months ended June 30, 1994.
A major factor in the improved results for the quarter was the $1.5
million increase in Operating Margin with the core residential and commercial
customers contributing $1.3 million. A customer increase of 9,085, and an
increase in average consumption per customer accounted for $900,000 of the
increased core margin. The remaining core margin improvement results from
increases in Oregon rates to cover costs associated with additional interstate
transmission capacity to meet growth. These costs were not covered in 1994
rates because such inclusion would have resulted in earnings in excess of a
12.75% target rate of return on equity in that state. The remaining increase
of $.2 million came from a broad spectrum of the large industrial base.
Margin and Throughput Changes
Second Quarter 1995 Compared to Second Quarter 1994
Margin Contribution Throughput
($ in thousands) (thousands of therms)
Amount Percent Amount Percent
------- ------- ------ -------
Core $ 1,312 20.0% 3,055 9.0%
Non-Core 169 4.0% 223 0.0%
------- ----- ----- ----
Total $ 1,481 13.0% 3,278 2.0%
======= ===== ===== ====
Margin and Throughput Changes
Six Months 1995 Compared to Six Months 1994
Margin Contribution Throughput
($ in thousands) (thousands of therms)
Amount Percent Amount Percent
------ ------- ------ -------
Core $ 2,837 12.0% 7,270 6.0%
Non-Core 1,102 12.0% 39,300 13.0%
------- ----- ------ -----
Total $ 3,939 12.0% 46,570 11.0%
======= ===== ====== =====
Core margin for the six months ended June 30, 1995 increased 12% over
the six months ended June 30, 1994 primarily as a result of the growth in the
residential and commercial customer base plus the effect of increased Oregon
rates in 1995, as discussed above. Non-core margin increased primarily from
the addition of a new large cogeneration customer in the Spring of 1994.
Total customers increased by 6.8% during the twelve months ended June
30, 1995, compared to 8.1% for the twelve months ended June 30, 1994. The
growth rate is about the same as that reported for the first quarter of 1995
and, as expected, continues to be less than the growth rate for 1994. The
available market for converting existing buildings to gas will keep Cascade's
customer growth rate high compared to the national average of about 2%.
Operating expenses for the quarter were up $147,000, or 2%, over the
quarter ended June 30, 1994. For the six-month period, payroll and fringe
benefit costs accounted for 86.1% of the operating expense increase which is
the result of general salary and wage increases. These payroll increases were
far out-paced by customer additions, reflecting continuing efficiency gains
that have raised the ratio of customers to employees from 227 in 1990 to 307
today, an improvement of over 35%.
Interest expense was up $.5 million for the quarter and $1.1 million
for the six months due primarily to an increase of $18 million in long-term
debt to finance plant expansion.
The Company reported earlier its intention to seek a general rate
increase in the state of Washington. In June, the Company began participating
with the staff of the Washington Utilities and Transportation Commission and
other interested parties in a new approach to the rate making process. This
approach strives to achieve results that meet the interests of all parties
without the expense, contentiousness or time lapse of the traditional rate
case filing. At this time, it is not known what the outcome or timing of a
final rate order will be.
<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 $65,002,000 of net worth. Under this
restriction approximately $24,786,000 was available for the payment of
dividends at June 30, 1995.
Item 5. Other Information
Ratio of Earnings to Fixed Charges
Twelve Months
Ended June 30, Year Ended December 31
-------------- ---------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
2.16 2.37 2.07 2.86 1.97 2.45 2.48
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
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 on its behalf by the
undersigned thereunto duly authorized.
CASCADE NATURAL GAS CORPORATION
(Registrant)
By /s/ J. D. Wessling
J. D. Wessling
Vice President - Finance
Chief Financial Officer
DATED: August 7, 1995
<PAGE>
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<TABLE>
<CAPTION>
EXHIBIT 12
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
------------------- ----------------------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed charges, as defined:
Interest expense $9,206 7,187 8,090 7,038 7,478 7,793 8,374
Amortization of debt issuance
expense 600 579 593 562 402 362 373
-------- ------- ------- ------- ------- ------- --------
Total fixed charges 9,806 7,766 8,683 7,600 7,880 8,155 8,747
-------- ------- ------- ------- ------- ------- --------
Earnings, as defined:
Net earnings 7,074 6,711 5,760 9,103 4,843 7,651 8,376
Add (deduct):
Income taxes 4,292 3,946 3,505 5,224 2,817 4,206 4,547
Cumulative effect of change
in accounting method - - - (209) - - -
Fixed charges 9,806 7,766 8,683 7,600 7,880 8,155 8,747
-------- ------- ------- ------- ------- ------- --------
Total earnings $21,172 18,423 17,948 21,718 15,540 20,012 21,670
-------- ------- ------- ------- ------- ------- --------
Ratio of earnings to fixed charges 2.16 2.37 2.07 2.86 1.97 2.45 2.48
======== ======= ======= ======= ======= ======= ========
Fixed charges and preferred
dividend requirements:
Fixed charges $9,806 7,766 8,683 7,600 7,880 8,155 8,747
Preferred dividend requirements 882 902 898 913 941 229 238
------- ------- ------- ------- ------- ------- --------
Total $10,688 8,668 9,581 8,513 8,821 8,384 8,985
-------- ------- ------- ------- ------- ------- --------
Ratio of earnings to fixed charges
and preferred dividend requirements 1.98 2.13 1.87 2.55 1.76 2.39 2.41
======== ======= ======= ======= ======= ======= ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND> This schedule contains summary financial information
extracted from the Company's Consolidated Condensed
Balance Sheets and related Consolidated Condensed
Statements of Net Earnings Available to Common
Shareholders for the period ended June 30, 1995 and is
qualified in its entirety by reference to such financial
statements.
<MULTIPLIER> 1,000
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<PERIOD-TYPE> 6-MOS
<BOOK-VALUE> PER-BOOK
<S> <C>
<TOTAL-NET-UTILITY-PLANT> 222,971
<OTHER-PROPERTY-AND-INVEST> 3,524
<TOTAL-CURRENT-ASSETS> 21,516
<TOTAL-DEFERRED-CHARGES> 13,417
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 261,428
<COMMON> 9,044
<CAPITAL-SURPLUS-PAID-IN> 69,685
<RETAINED-EARNINGS> 11,060
<TOTAL-COMMON-STOCKHOLDERS-EQ> 89,789
7,200
0
<LONG-TERM-DEBT-NET> 100,000
<SHORT-TERM-NOTES> 9,001
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 5,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 50,438
<TOT-CAPITALIZATION-AND-LIAB> 261,428
<GROSS-OPERATING-REVENUE> 99,325
<INCOME-TAX-EXPENSE> 2,941
<OTHER-OPERATING-EXPENSES> 86,802
<TOTAL-OPERATING-EXPENSES> 89,743
<OPERATING-INCOME-LOSS> 9,582
<OTHER-INCOME-NET> 242
<INCOME-BEFORE-INTEREST-EXPEN> 9,824
<TOTAL-INTEREST-EXPENSE> 4,974
<NET-INCOME> 4,850
272
<EARNINGS-AVAILABLE-FOR-COMM> 4,578
<COMMON-STOCK-DIVIDENDS> 4,323 <F1>
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 20,730
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
<FN>
<F1> Amount represents total common stock dividends declared. This amounts
differs from the $4,091 shown on the Consolidated Statements of Cash Flows,
which is net of reinvested dividends of $504, and includes $272 of preferred
dividends.
</FN>
</TABLE>
