<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, 1999
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 offices) (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 registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding
----- -----------
Common Stock, Par Value $1 per Share 11,045,095 as of April 30, 1999
<PAGE>
CASCADE NATURAL GAS CORPORATION
Index
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Statements of Net Earnings 3
Consolidated Condensed Balance Sheets 4
Consolidated Condensed Statements of Cash Flows 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 11
Part II. Other Information
Item 2. Changes in Securities 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASCADE NATURAL GAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF NET EARNINGS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
Mar 31, 1999 Mar 31, 1998 Mar 31, 1999 Mar 31, 1998
------------ ------------ ------------ ------------
(thousands except per share data)
<S> <C> <C> <C> <C>
Operating revenues $ 71,118 $ 65,548 $134,035 $126,532
Less: Gas purchases 37,088 34,255 69,103 65,949
Revenue taxes 4,835 4,346 8,574 8,093
------------ ------------ ------------ ------------
Operating margin 29,195 26,947 56,358 52,490
------------ ------------ ------------ ------------
Cost of operations:
Operating expenses 9,423 9,533 18,840 18,894
Depreciation and amortization 3,205 3,600 6,353 7,090
Property and payroll taxes 1,163 1,213 2,322 2,335
------------ ------------ ------------ ------------
13,791 14,346 27,515 28,319
------------ ------------ ------------ ------------
Earnings from operations 15,404 12,601 28,843 24,171
Less interest and other
deductions - net 2,584 2,415 5,206 4,899
------------ ------------ ------------ ------------
Earnings before income taxes 12,820 10,186 23,637 19,272
Income taxes 4,801 3,817 8,864 7,221
------------ ------------ ------------ ------------
Net earnings 8,019 6,369 14,773 12,051
Preferred dividends 119 124 241 249
------------ ------------ ------------ ------------
Net earnings available to
common shareholders $ 7,900 $ 6,245 $ 14,532 $ 11,802
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Common shares outstanding:
Weighted average 11,045 11,018 11,045 10,993
End of period 11,045 11,045 11,045 11,045
Net earnings per common share,
basic and diluted $ 0.72 $ 0.57 $ 1.32 $ 1.07
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Cash dividends per share $ 0.24 $ 0.24 $ 0.48 $ 0.48
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
CASCADE NATURAL GAS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Mar 31, 1999 Sep 30, 1998
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Utility Plant, net of accumulated depreciation
of $173,567 and $167,356 $273,999 $266,212
Construction work in progress 6,095 10,394
--------- ---------
280,094 276,606
--------- ---------
Other Assets:
Investments in non-utility property 667 667
Notes receivable, less current maturities 775 1,006
--------- ---------
1,442 1,673
--------- ---------
Current Assets:
Cash and cash equivalents 6,786 2,338
Accounts receivable, less allowance of $611
and $645 for doubtful accounts 26,191 9,271
Current maturities of notes receivable 240 329
Materials, supplies and inventories 5,456 6,213
Prepaid expenses and other assets 5,294 5,122
--------- ---------
43,967 23,273
--------- ---------
Deferred Charges 8,455 9,959
--------- ---------
$333,958 $311,511
--------- ---------
--------- ---------
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 11,045,095 shares $ 11,045 $ 11,045
Additional paid-in capital 97,380 97,380
Retained earnings 12,233 3,003
--------- ---------
120,658 111,428
--------- ---------
Redeemable Preferred Stocks, aggregate redemption
amount of $6,338 and $6,592 6,186 6,408
--------- ---------
Long-term Debt 125,000 110,650
--------- ---------
Current Liabilities:
Notes payable and commercial paper 5,000 6,929
Accounts payable 11,706 10,206
Property, payroll and excise taxes 5,963 4,570
Dividends and interest payable 7,141 7,407
Current maturities of long-term debt -- 10,000
Other current liabilities 9,266 3,681
--------- ---------
39,076 42,793
--------- ---------
Deferred Credits and Other:
Gas cost changes 11,579 10,330
Other 31,459 29,902
--------- ---------
43,038 40,232
--------- ---------
Commitments and Contingencies -- --
$333,958 $311,511
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
CASCADE NATURAL GAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
Mar 31, 1999 Mar 31, 1998
------------ ------------
(dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 14,773 $ 12,051
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 6,353 7,090
Amortization of gas cost changes 234 (511)
Increase (decrease) in deferred income taxes 628 (300)
Decrease in deferred investment tax credits (122) (129)
Cash provided (used) by changes in operating assets and
liabilities:
Current assets and liabilities (8,083) 6,891
Gas cost changes 1,016 3,442
Other deferrals and non-current liabilities 2,069 1,976
-------- --------
Net cash provided by operating activities 16,868 30,510
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (10,575) (14,878)
Customer contributions in aid of construction 1,331 1,293
New consumer loans (13) (332)
Receipts on consumer loans 294 713
-------- --------
Net cash used by investing activities (8,963) (13,204)
-------- --------
FINANCING ACTIVITIES:
Issuance of common stock -- 690
Redemption of preferred stock (222) (224)
Issuance of long-term debt 14,887 --
Repayment of long-term debt (10,650) --
Changes in notes payable and commercial paper, net (1,929) (11,900)
Dividends paid (5,543) (4,917)
-------- --------
Net cash used by financing activities (3,457) (16,351)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,448 955
CASH AND CASH EQUIVALENTS:
Beginning of period 2,338 3,162
-------- --------
End of period $ 6,786 $ 4,117
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
CASCADE NATURAL GAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED MARCH 31, 1999
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 natural gas distribution
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 1998 Annual Report on Form 10-K for the fiscal year ended
September 30, 1998, and comments included therein under "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
NEW ACCOUNTING STANDARDS:
As of the first quarter of fiscal 1999, the Company adopted Statement of
Financial Accounting Standards (FAS) Nos. 130, 131, and 132.
FAS No. 130, entitled "REPORTING COMPREHENSIVE INCOME," requires companies
to (a) classify items of other comprehensive income by their nature in a
financial statement, and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in-capital in the equity section of a statement of financial position. The
Company does not have other comprehensive income, therefore implementation of
this standard has not affected the reporting of its financial information.
FAS No. 131, entitled "DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION," requires public enterprises to report financial and
descriptive information on the basis that is used internally for evaluating
segment performance and deciding how to allocate resources to segments.
Management views the Company as operating as a single segment, that of a local
distribution company (LDC) in the Pacific Northwest. Appropriate disclosures
will be included in the year-end financial statements.
FAS No. 132, entitled "EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER
POSTRETIREMENT BENEFITS," modifies the disclosure requirements for pensions and
other postretirement benefits, but does not affect the measurement of such
benefits. These modified disclosures will be included in the Company's year-end
financial statement footnotes.
In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
entitled "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES." This
standard will be effective for fiscal years beginning after June 15, 1999, and
will be adopted by the Company as of October 1, 1999. It requires that the fair
value of all derivative financial instruments be recognized as either assets or
liabilities on the Company's balance sheet. Changes during a period in the fair
value of a derivative instrument would be included in earnings or other
comprehensive income for the period.
The Company is currently evaluating the effects of this standard on its
financial reporting. This evaluation is not complete, but the Company believes
that some of its natural gas supply contracts may meet the technical definition
of derivative instruments, and thus may be subject to the requirements of FAS
No. 133.
STOCK OPTIONS:
During the quarter ended March 31, 1999, the Company awarded officers,
under the 1998 Plan for Incentive Stock Options, grants to purchase 38,000
shares of Cascade common stock. The exercise price per share was equal to the
fair market value of the stock at the date of grant. Stock awards granted at
100% of fair market value are not recognized as compensation expense.
6
<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 affected consolidated
results of operations and cash flows for the three and six-month periods ended
March 31, 1999 and March 31, 1998.
RESULTS OF OPERATIONS
Net earnings available to common shareholders for the second quarter of
fiscal 1999 (quarter ended March 31, 1999) were $7,900,000, or $0.72 per share,
compared to $6,245,000, or $0.57 per share, for the second quarter of fiscal
1998. This represents a 26% improvement in quarterly earnings per share. For the
six-month period, net earnings available to common shareholders were
$14,532,000, or $1.32 per share, a 23% improvement over the 1998 period results
of $11,802,000, or $1.07 per share. Improvements in results for the quarter and
year to date periods are primarily attributable to increases in operating
margins.
OPERATING MARGIN
RESIDENTIAL AND COMMERCIAL MARGIN. Operating margins derived from sales to
residential and commercial customers were as set forth in the following table:
<TABLE>
<CAPTION>
RESIDENTIAL AND COMMERCIAL OPERATING MARGIN
- -------------------------------------------------------------------------- -----------------------------------------
Second Quarter of Fiscal Percent Year to Date March 31 Percent
1999 1998 Change 1999 1998 Change
- -------------------------------------------------------------------------- -----------------------------------------
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
DEGREE DAYS 2,205 2,109 4.6% 4,220 4,089 3.2%
AVERAGE NUMBER OF CUSTOMERS
Residential 151,557 143,783 5.4% 149,634 142,229 5.2%
Commercial 26,634 25,611 4.0% 26,311 25,363 3.7%
AVERAGE THERM USAGE PER CUSTOMER
Residential 317 306 3.6% 599 572 4.7%
Commercial 1,522 1,450 5.0% 2,883 2,837 1.6%
OPERATING MARGIN
Residential $ 13,296 $ 11,811 12.6% $ 24,905 $ 22,163 12.4%
Commercial $ 8,391 $ 7,204 16.5% $ 15,724 $ 14,204 10.7%
</TABLE>
For the quarter ended March 31, 1999, operating margin from sales to
residential and commercial customers increased by $2.67 million over the same
period last year. The primary factors contributing to this improvement were the
addition of 8,800 new customers and increased residential consumption per
customer. An increase of $1 per month in the monthly service charge paid by each
customer in Washington provided about $399,000 of the improved quarterly
margins, but this was offset by a corresponding reduction in rates charged to
industrial customers.
For the year to date margin, similar factors contributed to the
improvement. The higher consumption per customer is largely attributable to the
colder weather in the 1998 - 1999 winter heating season. Although the 1998 -
1999 season was warmer than normal, gas consumption the prior winter was
affected by even warmer El Nino weather conditions.
INDUSTRIAL AND OTHER MARGIN. Operating margin during the 1999 second
quarter from industrial and other customers decreased $423,000, or 5.3% from the
March 1998 quarter. This is largely due to the above mentioned decrease in rates
to offset the increased service charges collected from residential and
commercial customers.
On a year to date basis, industrial and other margin decreased $394,000, or
2.4%. The effect of the above-mentioned rate reduction was $790,000, and margins
from sales of spot gas supplies decreased $520,000. Offsetting these reductions
was an increase in distribution margin resulting from an 8.9%
7
<PAGE>
increase in gas deliveries to industrial customers in several major industry
classifications served by the Company.
COST OF OPERATIONS
Cost of operations for the quarter ended March 31, 1999, which consists of
operating expenses, depreciation and amortization, and property and payroll
taxes, decreased $555,000 or 3.9% from the quarter ended March 31, 1998.
OPERATING EXPENSES, which are primarily labor and benefits expenses,
decreased $111,000, or 1.2%, for the quarter. Labor and benefits expenses
increased by $182,000 or 2.2%, and include $231,000 in one-time costs associated
with management restructuring. Most other categories of operating expenses
decreased from the second quarter of fiscal 1998, reflecting the Company's
increased focus on achieving cost reductions and efficiencies.
Year to date operating expenses decreased $54,000, or 0.3%, though labor
and benefits expense increased $471,000, or 2.8%. Labor and benefits expenses
include one-time management restructuring costs of $329,000. Decreases were
experienced in most other expense categories. Ongoing savings resulting from the
restructuring are expected to be $343,000 annually ($234,000 in fiscal 1999).
DEPRECIATION AND AMORTIZATION decreased by $395,000 (11.0%) for the
quarter, and $737,000 (10.4%) year to date. Increased depreciation charges from
new asset additions were more than offset by the effect of lower depreciation
rates adopted in July 1998. The lower depreciation rates resulted from a
recently conducted depreciation study. The annual effect of the lower rates is
approximately $2 million.
INTEREST AND OTHER DEDUCTIONS - NET
Interest and other deductions increased $169,000 (7.0%) for the quarter,
and $307,000 (6.3%) year to date. The increases are due primarily to increases
in outstanding debt, as well as higher interest accrued on deferred gas cost
balances. There was also a decrease in interest income due to lower short-term
investment balances, and fewer appliance loans outstanding.
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 revolving credit commitment of $40 million from three banks. This agreement
expires in September 2000. The Company uses the facility to meet short-term
needs as well as to support a money market facility and a commercial paper
facility of a similar amount. The annual commitment fee is 1/8 of 1%. The
Company also has $30,000,000 of uncommitted lines from three banks.
Longer term financing is provided by a Medium-Term Note program with $125
million outstanding at March 31, 1999. There is remaining $15 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 believes it has adequate financial flexibility to
meet its anticipated cash needs.
OPERATING ACTIVITIES
Although net earnings for the six months ended March 31, 1999 were higher
by $2,722,000 than the 1998 period, net cash provided by operating activities
was $16,868,000, compared to $30,510,000 last year. Affecting the comparison was
the difference in cash flows from changes in current assets and liabilities.
This change is primarily the result of timing differences related to changes in
accounts receivable, accounts payable, and the payment of income taxes.
8
<PAGE>
INVESTING ACTIVITIES
Cash used by investing activities for the six months ended March 31, 1999
was $8,963,000, compared to $13,204,000 for the first six months of fiscal 1998.
Capital expenditures in fiscal 1999 were lower due in part to delays in
construction of facilities to serve a major new customer. It is expected that
this project will be complete by the end of fiscal 1999.
Capital expenditures for fiscal 1999 are budgeted at approximately $23.5
million. This is slightly less than fiscal 1998 actual expenditures. The Company
expects that 1999 capital expenditures will be financed approximately 65% from
operating activities, and 35% from debt financing.
FINANCING ACTIVITIES
Financing activities for the six months ended March 31, 1999 resulted in a
net cash outflow of $3,457,000 compared to $16,351,000 for the comparable period
last year. During the first quarter of fiscal 1999, the Company redeemed $10
million of medium term notes, which matured in December. This redemption was
funded with short-term debt. In March, the Company issued $15 million of new
7.098% medium-term notes with a 30-year maturity. Proceeds were used primarily
to pay down short-term debt.
YEAR 2000 READINESS DISCLOSURE
Cascade is heavily reliant on computers for internal and external
information processing. Computers are used extensively in the Company's system
for payroll, accounts receivable, accounts payable, performing critical
analysis, financial reporting and communications. To mitigate potential problems
associated with the Year 2000 issue, Cascade began in 1996 to address the
compliance of those computers and systems that are critical to business
operations.
This Year 2000 Readiness Disclosure is based in part on information
provided to the Company by outside suppliers and vendors. While the Company
believes this outside information is accurate, Cascade is not the source of this
information and has not independently verified the information submitted by
third parties.
RISKS
The Company continues to modify or replace systems that may be impacted by
the dates in the year 2000 and thereafter. The Company's comprehensive
remediation strategy is being led by the Information Technology Department and
reviewed by executive management and the Board of Directors. Cascade believes
that by modifying existing programs, installing new hardware and software, and
implementing a comprehensive contingency plan, the risk of technical failure can
be minimized and the Year 2000 issue will not pose a major disruption on
business operations.
The Company has contacted suppliers and vendors with whom it has
significant business relationships to determine the extent to which the Company
may be vulnerable to a year 2000 failure. The Company has received
communications from substantially all significant suppliers and vendors. While
most companies can provide no assurance that their suppliers, vendors or
customers will be compliant, Cascade has not received indication that any major
third party will have a significant compliance problem that would adversely
affect its ability to conduct business with Cascade.
Should internal computer systems fail due to a year 2000 compliance
problem, business processes that may be interrupted include: monitoring of gas
flow and pressure; measurement of gas receipts from suppliers and deliveries to
customers; processing customer invoices; payments to suppliers; financial
measurement and reporting; internal and external communications; payroll
processing; and other administrative functions. Management has not developed
estimates of losses that may be incurred in the event of a failure of one or
more of these systems.
9
<PAGE>
STATE OF READINESS
In 1996 the Company began identifying which of its computer systems
required modification or replacement to achieve year 2000 compliance. Management
believes that substantially all mission critical systems have been identified.
Approximately 600 of the Company's personal computers, embedded building and
office systems, and fleet vehicles have been inventoried and assessed for
compliance. To date, nearly 97% have been tested and verified to be compliant.
Most vendor based software has been or will be upgraded or replaced, including
financial, meter reading, and SCADA (the system that monitors natural gas flow
through the distribution system) systems. Corrections to internally developed
software, including billing, cash receipts processing, and payroll, are now
believed to be complete, and are currently undergoing testing to verify
compliance. All internally developed systems are scheduled to be fully compliant
by August 1999.
COSTS OF YEAR 2000 COMPLIANCE
The Company is using a combination of internal and external resources to
make necessary modifications to existing internally developed systems. Total
external expenditures to date have been less than $100,000, and the Company
intends to complete this process with internal resources. Such costs are charged
to expense as incurred. The Company does not separately track the direct costs
associated with such internal personnel, which primarily consist of salary and
benefits. Rather, the cost associated with using internal resources is viewed
primarily as an opportunity cost, resulting in a delay of other planned system
enhancements and replacements intended to enhance operating efficiencies. Such
delays are not expected to have a material adverse effect on the Company or its
competitive position.
In addition, the Company's capital expenditures to date to replace
non-compliant vendor based systems have totaled approximately $610,000.
Estimated total capital expenditures are expected to be $1.9 million. While Year
2000 compliance is the primary motivating factor for these system replacements,
management anticipates other significant improvements from these systems as
compared to the old systems. All costs and completion dates discussed are based
on management's best estimates. Actual results may differ from expectations.
CONTINGENCY PLANNING
The Company has given consideration to several worst-case Year 2000
scenarios and is in the process of completing a Year 2000 Contingency Plan to
address those scenarios. These contingency scenarios are based on short-term
disruptions in pipeline transportation, gas and material supply purchases and
internal system failures. The Plan addresses specific backup and recovery
procedures and business processes that are critical to operations and identifies
contingency trigger points and roles of key individuals in the event of system
failure. Management believes the most likely worst case scenario to be the
possibility that necessary program code modifications of legacy computer systems
may have been overlooked. The response to such an event is the dedication of
available programming staff to correct the problem. The Company plans to review
and update its remediation schedule and contingency plan as needed.
LABOR NEGOTIATIONS
The Company is currently in negotiations with the International Chemical
Workers Union (ICWU), which represents non-supervisory operating employees in
the Company's district offices. The current ICWU collective bargaining
agreement was entered into in 1996 and had an original expiration date of
April 1, 1999. Expiration has been extended to June 1, by which time
management expects to have a new contract in place.
10
<PAGE>
FORWARD LOOKING STATEMENTS
Statements contained in this report that are not historical in nature are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are subject to risks
and uncertainties that may cause actual future results to differ materially.
Such risks and uncertainties with respect to the Company include, among others,
its ability to successfully implement internal performance goals, misjudgments
in assessing the Company's year 2000 compliance requirements and risks,
competition from alternative forms of energy, consolidation in the energy
industry, performance issues with key natural gas suppliers, the
capital-intensive nature of the Company's business, regulatory issues, including
the need for adequate and timely rate relief to recover increased capital and
operating costs resulting from customer growth and to sustain dividend levels,
the weather and other factors influencing natural gas usage by customers,
increasing competition brought on by deregulation initiatives at the federal and
state regulatory levels, the potential loss of large volume industrial customers
due to "bypass" or the shift by such customers to special competitive contracts
at lower per unit margins, exposure to environmental cleanup requirements, and
economic conditions, particularly in the Company's service area.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has evaluated its risk related to financial instruments whose
values are subject to market sensitivity. The only such instruments are Company
issued fixed-rate debt obligations. Cascade makes interest and principal
payments on these obligations in the normal course of its business, and does not
plan to redeem these obligations prior to normal maturities. Accordingly,
management believes the Company is not subject to market risk as defined in Item
305 of Regulation S-K.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Under the terms of its bank credit agreements, the Company is required to
maintain a minimum net worth of $87,518,000. Under the most restrictive of these
agreements, approximately $33,140,000 was available for payment of dividends as
of March 31, 1999.
ITEM 5. OTHER INFORMATION
RATIO OF EARNINGS TO FIXED CHARGES:
<TABLE>
<CAPTION>
Twelve Months Ended
- -----------------------------------------------------------------------------
3/31/99 9/30/98 9/30/97 9/30/96 12/31/95 12/31/94
- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
2.80 2.42 2.68 2.17 2.16 2.07
</TABLE>
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 the 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:
<TABLE>
<CAPTION>
No. Description
--- -----------
<S> <C>
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule UT
</TABLE>
b. Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter ended
March 31,1999.
12
<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
By: /s/ J. D. Wessling
------------------------------------------------------
J. D. Wessling
Sr. Vice President Finance and Chief Financial Officer
(Principal Financial Officer)
Date: May 4, 1999
------------------
13
<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
3/31/99 9/30/98 9/30/97 9/30/96 12/31/95 12/31/94
------------- ----------- ----------- ------------ ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed charges, as defined:
Interest expense $ 10,279 $ 10,132 9,436 10,101 9,938 8,090
Amortization of debt
issuance expense 597 605 612 612 606 593
------------- ----------- ----------- ------------ ------------ ------------
Total fixed charges $ 10,876 $ 10,737 10,048 10,713 10,544 8,683
------------- ----------- ----------- ------------ ------------ ------------
------------- ----------- ----------- ------------ ------------ ------------
Earnings, as defined:
Net earnings $ 12,266 $ 9,544 10,627 8,211 7,732 5,760
Add (deduct):
Income taxes 7,333 5,694 6,263 4,272 4,508 3,505
Fixed charges 10,876 10,737 10,048 10,713 10,544 8,683
------------- ----------- ----------- ------------ ------------ ------------
Total earnings $ 30,475 $ 25,975 26,938 23,196 22,784 17,948
------------- ----------- ----------- ------------ ------------ ------------
Ratio of earnings to
fixed charges 2.80 2.42 2.68 2.17 2.16 2.07
------------- ----------- ----------- ------------ ------------ ------------
------------- ----------- ----------- ------------ ------------ ------------
Fixed charges and preferred
dividend requirements:
Fixed charges $ 10,876 $ 10,737 10,048 10,713 10,544 8,683
Preferred dividend requirements 781 778 811 819 853 898
------------- ----------- ----------- ------------ ------------ ------------
Total $ 11,657 $ 11,515 10,859 11,532 11,397 9,581
------------- ----------- ----------- ------------ ------------ ------------
Ratio of earnings to fixed charges and
preferred dividend requirements 2.61 2.26 2.48 2.01 2.00 1.87
------------- ----------- ----------- ------------ ------------ ------------
------------- ----------- ----------- ------------ ------------ ------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF CASCADE NATURAL GAS CORPORATION
INCLUDED IN THE QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED MARCH 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 280,094
<OTHER-PROPERTY-AND-INVEST> 1,442
<TOTAL-CURRENT-ASSETS> 43,967
<TOTAL-DEFERRED-CHARGES> 8,455
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 333,958
<COMMON> 11,045
<CAPITAL-SURPLUS-PAID-IN> 97,380
<RETAINED-EARNINGS> 12,233
<TOTAL-COMMON-STOCKHOLDERS-EQ> 120,658
6,186
0
<LONG-TERM-DEBT-NET> 125,000
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 5,000
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 77,114
<TOT-CAPITALIZATION-AND-LIAB> 333,958
<GROSS-OPERATING-REVENUE> 134,035
<INCOME-TAX-EXPENSE> 8,864
<OTHER-OPERATING-EXPENSES> 105,192
<TOTAL-OPERATING-EXPENSES> 105,192
<OPERATING-INCOME-LOSS> 28,843
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> 19,979
<TOTAL-INTEREST-EXPENSE> 5,206
<NET-INCOME> 14,773
241
<EARNINGS-AVAILABLE-FOR-COMM> 14,532
<COMMON-STOCK-DIVIDENDS> 5,302
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 16,868
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 1.32
</TABLE>
