<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission file number: 1-7196
CASCADE NATURAL GAS CORPORATION
(Exact name of registrant as specified in its charter)
Washington 91-0599090
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
222 Fairview Avenue North, Seattle, WA 98109
-------------------------------------- -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (206) 624-3900
--------------
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.
Title Outstanding
----- -----------
Common Stock, Par Value $1 per Share 9,210,454 as of April 30, 1996
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF NET EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------
Mar 31, 1996 Mar 31, 1995
------------ ------------
(thousands except per share data)
<S> <C> <C>
Operating revenues:
Gas sales $63,457 $62,110
Transportation revenue 4,101 2,438
Other operating income 62 62
------- -------
67,620 64,610
Less: Gas purchases 37,400 37,253
Revenue taxes 4,583 4,332
------- -------
Operating margin 25,637 23,025
------- -------
Cost of operations:
Operating expenses 8,358 7,836
Depreciation and amortization 3,056 2,830
Property and payroll taxes 1,178 1,013
------- -------
12,592 11,679
------- -------
Earnings from operations 13,045 11,346
Less interest and other
deductions - net 2,450 2,303
------- -------
Earnings before income taxes 10,595 9,043
Income taxes 3,825 3,310
------- -------
Earnings before preferred dividends 6,770 5,733
Preferred dividends 131 136
------- -------
Net earnings $ 6,639 $ 5,597
======= =======
Common shares outstanding:
Weighted average 9,163 8,931
End of period 9,196 8,968
Net earnings per common share $ 0.72 $ 0.63
======== ========
Cash dividends per common share $ 0.24 $ 0.24
======== ========
</TABLE>
2
<PAGE>
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
Mar 31, 1996 Mar 31, 1995
------------ ------------
(Dollars in Thousands)
(Unaudited)
<S> <C> <C>
ASSETS
Utility Plant, net after accumulated
depreciation of $141,980 and $138,831 $228,672 $224,093
Construction work in progress 12,524 14,957
-------- --------
241,196 239,050
-------- --------
Other Assets:
Investments 919 919
Notes receivable, less current maturities 2,253 2,426
-------- --------
3,172 3,345
-------- --------
Current Assets:
Cash and cash equivalents 2,340 2,197
Accounts receivable, less allowance of $417
and $425 for doubtful accounts 22,608 26,483
Current maturities of notes receivable 766 809
Materials, supplies and inventories 5,168 6,047
Prepaid expenses and other assets 1,939 2,353
-------- --------
32,821 37,889
-------- --------
Deferred Charges 17,121 16,614
-------- --------
$294,310 $296,898
======== ========
COMMON SHAREHOLDERS' EQUITY
PREFERRED STOCKS AND LIABILITIES
Common Shareholders' Equity:
Common stock per value $1 par share, authorized 15,000,000
shares, issued and outstanding 9,195,948 and 9,144,448 shares $ 9,196 $ 9,144
Additional paid-in capital 71,853 71,098
Retained earnings 13,728 9,297
--------- ---------
94,777 89,539
--------- ---------
Redeemable Preferred Stocks, aggregate redemption
amount of $7,103 and $7,103 6,851 6,851
--------- ---------
Long-term Debt 102,100 102,100
--------- ---------
Current Liabilities:
Notes payable 16,000 32,000
Accounts payable 10,028 16,392
Property, payroll and excise taxes 5,309 4,578
Dividends and interest payable 6,404 4,365
Other current liabilities 7,350 4,646
--------- ---------
45,091 61,981
--------- ---------
Deferred Credits:
Gas cost changes 20,014 10,934
Other 25,477 25,493
--------- ---------
45,491 36,427
--------- ---------
Commitments and Contingencies - -
--------- ---------
$ 294,310 $ 296,898
========= =========
</TABLE>
3
<PAGE>
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
Mar 31, 1996 Mar 31, 1995
------------ ------------
(Dollars in Thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Earnings before preferred dividends $ 6,770 $ 5,733
Adjustments to reconcile earnings before preferred
dividends to net cash provided by operating activities:
Depreciation 3,056 2,878
Amortization of gas cost changes 1,177 1,438
Increase in deferred income taxes 302 502
Decrease in deferred investment tax credits (65) (60)
Cash provided (used) by changes in operating assets and liabilities:
Current assets and liabilities 4,317 (338)
Gas cost changes 7,903 5,086
Other deferrals and non-current liabilities (799) (553)
-------- --------
Net cash provided by operating activities 22,661 14,686
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (5,209) (7,731)
New consumer loans (308) (312)
Receipts on consumer loans 531 466
Purchase of securities available for sale - (802)
-------- --------
Net cash used by investing activities (4,986) (8,379)
-------- --------
FINANCING ACTIVITIES:
Issuance of common stock 536 490
Changes in notes payable, net (16,000) (8,501)
Dividends paid (2,068) (2,040)
-------- --------
Net cash used by financing activities (17,532) (10,051)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 143 (3,744)
CASH AND CASH EQUIVALENTS:
Beginning of period 2,197 3,949
-------- --------
End of period $ 2,340 $ 205
======== ========
</TABLE>
4
<PAGE>
CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTH PERIOD ENDED MARCH 31, 1996
The preceding statements were taken from the books and records of
the Company 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 1995 Annual Report on Form 10-K and comments
included therein under "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following is management's assessment of the Company's
financial condition and a discussion of the principal factors that affect
consolidated results of operations for the three month periods ended March
31, 1996 and March 31, 1995.
RESULTS OF OPERATIONS
Net earnings were $6,639,000, or $0.72 per common share for the
three months ended March 31, 1996. This represents a 19% improvement over the
net earnings of $5,597,000, or $0.63 per share for the comparable period in
1995. This increase resulted primarily from improvement in the residential
and commercial operating margin. Complementing the operating margin
improvement was a moderate increase in the cost of operations.
RESIDENTIAL AND COMMERCIAL OPERATING MARGIN
<TABLE>
<CAPTION>
RESIDENTIAL AND COMMERCIAL OPERATING MARGIN
(dollars in thousands)
============================================================================
Three Months Ended March 31
1996 1995
<S> <C> <C>
Degree Days 2,416 2,201
Average Customers
Residential 128,285 120,935
Commercial 23,913 22,942
Therms per Customer
Residential 339 304
Commercial 1,774 1,674
Margin
Residential $10,662 $8,897
Commercial $ 8,151 $7,130
============================================================================
</TABLE>
Residential and commercial operating margin increased 17% quarter
to quarter due to consumption per customer increases for both residential,
12%, and commercial, 6%. Consumption was affected by one additional day in
February 1996 and colder weather. Estimated degree days were 10% greater than
during the first quarter 1995 and 2% greater than normal. Also contributing
to the margin increase was the addition of 8,400 residential and commercial
customers from March 31, 1995, to March 31, 1996.
INDUSTRIAL AND NON-CORE OPERATING MARGIN
Operating margin from industrial and non-core customers decreased
by 2% from first quarter 1995, primarily due to reduced gas usage by
cogeneration customers. Cogeneration customers used less natural gas because
of unusually wet weather increasing the availability of hydro power.
Industrial operating margin was also negatively affected by reductions in
deliveries to wood products customers. Partially offsetting these reductions
were significant increases from a new cogeneration plant and increased
deliveries to refinery customers.
6
<PAGE>
COST OF OPERATIONS
Operating expenses, which are primarily payroll and employee
benefits expenses, increased 6.6% over the first quarter of 1995, due in
large part to changes in interest rate assumptions used in actuarial
calculations of retirement benefit accruals. Depreciation expense increased
$226,000, consistent with a 9% increase in utility plant. Property and
payroll taxes increased $165,000 due primarily to increased property tax
accruals resulting from increases in taxable utility plant.
INTEREST AND OTHER DEDUCTIONS
Interest and other deductions increased $147,000 over the first
quarter of 1995 due to an increase of $180,000 in interest expense. Increased
short-term borrowing and increased deferred gas cost credits resulted in the
higher interest expense. The increased borrowing was partially offset by
lower short-term interest rates and replacement of a long-term arrangement at
more favorable terms.
LIQUIDITY AND CAPITAL RESOURCES
The seasonal nature of the Company's business creates short-term
cash requirements to finance customer accounts receivable and construction
expenditures. To provide working capital for these requirements, the Company
has a credit agreement, which expires in 2000, for a commitment of $40
million from three banks. The committed line also supports a money market
facility of a similar amount. A subsidiary company has a $5 million revolving
credit facility, used for non regulated business, which expires in 2000, and
at March 31, 1996, $2.1 million was outstanding under the facility. The
Company also has $25 million of uncommitted lines from three banks.
The Company has a Medium-Term Note program used for long-term
financing, with $100 million outstanding at March 31, 1996, and $50 million
registered under the Securities Act of 1933 and available for issuance.
Because of the availability of short-term credit and the ability to issue
long-term debt and additional equity, management is of the opinion it has
adequate financial flexibility to meet its anticipated cash needs.
Operating cash flow for the quarter ended March 31, 1996 improved
over the 1995 first quarter primarily due to improved earnings and lower gas
costs. In addition, operating cash flow for the first quarter of 1995 was
negatively affected by the timing of $3.8 million in interest payments. After
dividend payments, there was $20.6 million of remaining cash flow from
operations. This cash flow, as well as proceeds from common stock issued to
participants in the Company's dividend reinvestment plan and 401(k) plan were
used primarily to fund $5.2 million in capital expenditures and reduce
short-term borrowings. Capital expenditures for the remainder of 1996 are
budgeted at approximately $30 million. It is expected that total 1996 capital
expenditures will be financed 30% to 40% by operating cash flow net of
dividends.
Financing plans include the issuance of 1 to 1.5 million shares
of common stock later in 1996. Proceeds from this financing will be used to
retire short-term debt and for other general corporate purposes.
7
<PAGE>
REGULATORY MATTERS
Negotiations continue to establish new rates for Washington
customers. Any issues not resolved in the ongoing negotiations will be
submitted to the Washington Utilities and Transportation Commission (WUTC)
for decision in hearings scheduled to end in September. The WUTC technically
has until December 2, 1996 to issue a final order.
Effective May 1, 1996, the WUTC approved an order establishing a
temporary reduction in rates intended to reflect lower prospective gas costs.
The order also requires public hearings to determine the adequacy of the rate
reduction and indicates that based on the outcome of the proceedings, further
reductions and refunds could be required.
LABOR NEGOTIATIONS
The labor contract with 216 Cascade employees represented by
Local 121 of the International Chemical Workers Union expired April 1, 1996.
A new three year contract is under negotiation between the Company and
representatives of the union.
Statements containing forward looking information involve
uncertainty. Actual future results may differ materially depending on a
variety of factors, including the Company's successful execution of internal
performance plans; regulatory uncertainties; the weather; performance issues
with the Company's markets and natural gas suppliers; and collective
bargaining labor disputes.
8
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
Under the terms of its bank credit agreements, the Corporation is
required to maintain a minimum of $71,557,000 of net worth. Under this
restriction, approximately $23,220,000 was available for the payment of
dividends as of March 31, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 1996 annual meeting of the Shareholders of the Corporation
was held on April 24, 1996. The following directors were elected at the
meeting for terms of office expiring in 1997 by the vote indicated below:
Abstentions and
For Withheld Broker Non-Votes
--------- -------- ----------------
Carl Burnham, Jr. 7,703,541 168,827 -0-
Melvin C. Clapp 7,737,091 135,227 -0-
David A. Ederer 7,741,486 130,882 -0-
Howard L. Hubbard 7,739,445 132,923 -0-
W. Brian Matsuyama 7,740,632 131,736 -0-
Larry L. Pinnt 7,739,005 133,363 -0-
Brooks G. Ragen 7,741,060 131,308 -0-
Andrew V. Smith 7,726,820 145,548 -0-
Mary A. Williams 7,735,668 136,700 -0-
ITEM 5. OTHER INFORMATION.
Ratio of Earnings to Fixed Charges:
Twelve Months
Ended March 31, Year Ended December 31,
1996 1995 1995 1994 1993 1992 1991
2.29 2.16 2.16 2.07 2.86 1.97 2.45
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.
9
<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
b. Reports on Form 8-K:
On February 21, 1996, the registrant filed a report on Form 8-K,
dated February 7, 1996, to report the change of its fiscal year to a fiscal
year ending September 30.
10
<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
Date: May 13, 1996
11
<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
March 31 Year Ended December 31
-------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- ------- ------ ------ ------- ------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed charges as defined:
Interest expense $ 10,118 8,670 9,938 8,090 7,038 7,478 $ 7,793
Amortization of debt issuance
expense 608 596 606 593 562 402 362
-------- ------- ------ ------ ------- ------- --------
Total fixed charges 10,726 9,266 10,544 8,683 7,600 7,880 $ 8,155
-------- ------- ------ ------ ------- ------- --------
Earnings, as defined:
Earnings before preferred dividends 8,770 6,682 7,732 5,760 9,103 4,843 $ 7,651
Add (deduct):
Income taxes 5,022 4,071 4,508 3,505 5,224 2,817 4,206
Cumulative effect of change
in accounting method - - - - (209) - -
Fixed charges 10,726 9,266 10,544 8,683 7,600 7,880 8,155
-------- ------- ------ ------ ------- ------- --------
Total earnings $ 24,518 20,019 22,784 17,948 21,718 15,540 $ 20,012
-------- ------- ------ ------ ------- ------- --------
Ratio of earnings to fixed charges 2.29 2.16 2.16 2.07 2.86 1.97 2.45
-------- ------- ------ ------ ------- ------- --------
-------- ------- ------ ------ ------- ------- --------
Fixed charges and preferred
dividend requirements:
Fixed charges $ 10,726 9,266 10,544 8,683 7,600 7,880 $ 8,155
Preferred dividend requirements 840 890 853 898 913 941 229
-------- ------- ------ ------ ------- ------- --------
Total $ 11,566 10,156 11,397 9,581 8,513 8,821 $ 8,384
-------- ------- ------ ------ ------- ------- --------
Ratio of earnings to fixed charges
and preferred dividend requirements 2.12 1.97 2.00 1.87 2.55 1.76 2.39
-------- ------- ------ ------ ------- ------- --------
-------- ------- ------ ------ ------- ------- --------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF CASCADE NATURAL GAS CORPORATION INCLUDED IN
THE QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1996 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> SEP-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 241,196
<OTHER-PROPERTY-AND-INVEST> 3,172
<TOTAL-CURRENT-ASSETS> 32,821
<TOTAL-DEFERRED-CHARGES> 17,121
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 294,310
<COMMON> 9,196
<CAPITAL-SURPLUS-PAID-IN> 71,853
<RETAINED-EARNINGS> 13,728
<TOTAL-COMMON-STOCKHOLDERS-EQ> 94,777
6,851
0
<LONG-TERM-DEBT-NET> 102,100
<SHORT-TERM-NOTES> 16,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 74,582
<TOT-CAPITALIZATION-AND-LIAB> 294,310
<GROSS-OPERATING-REVENUE> 67,620
<INCOME-TAX-EXPENSE> 3,825
<OTHER-OPERATING-EXPENSES> 54,575
<TOTAL-OPERATING-EXPENSES> 54,575
<OPERATING-INCOME-LOSS> 13,045
<OTHER-INCOME-NET> 56
<INCOME-BEFORE-INTEREST-EXPEN> 13,101
<TOTAL-INTEREST-EXPENSE> 2,506
<NET-INCOME> 6,770
131
<EARNINGS-AVAILABLE-FOR-COMM> 6,639
<COMMON-STOCK-DIVIDENDS> 2,207
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 22,661
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.72
</TABLE>
