<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 June 30, 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 July 31, 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 NINE MONTHS ENDED
------------------------------- -------------------------------
Jun 30, 1999 Jun 30, 1998 Jun 30, 1999 Jun 30, 1998
-------------- -------------- -------------- --------------
(thousands except per share data)
<S> <C> <C> <C> <C>
Operating revenues $ 42,869 $ 36,995 $ 176,904 $ 163,527
Less: Gas purchases 22,746 19,150 91,849 85,098
Revenue taxes 2,831 2,377 11,405 10,471
-------------- -------------- -------------- --------------
Operating margin 17,292 15,468 73,650 67,958
-------------- -------------- -------------- --------------
Cost of operations:
Operating expenses 9,064 9,297 27,904 28,191
Depreciation and amortization 3,234 3,655 9,587 10,745
Property and payroll taxes 1,203 1,149 3,525 3,483
-------------- -------------- -------------- --------------
13,501 14,101 41,016 42,419
-------------- -------------- -------------- --------------
Earnings from operations 3,791 1,367 32,634 25,539
Less interest and other
deductions - net 2,477 2,400 7,683 7,299
-------------- -------------- -------------- --------------
Earnings (loss) before income taxes 1,314 (1,033) 24,951 18,240
Income taxes 503 (370) 9,367 6,852
-------------- -------------- -------------- --------------
Net earnings (loss) 811 (663) 15,584 11,388
Preferred dividends 121 124 362 373
-------------- -------------- -------------- --------------
Net earnings (loss) available to
common shareholders $ 690 $ (787) $ 15,222 $ 11,015
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Common shares outstanding:
Weighted average 11,045 11,045 11,045 10,998
Net earnings (loss) per common share,
basic and diluted $ 0.06 $ (0.07) $ 1.38 $ 1.00
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Cash dividends per share $ 0.24 $ 0.24 $ 0.72 $ 0.72
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</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>
Jun 30, 1999 Sep 30, 1998
---------------- ----------------
<S> <C> <C>
ASSETS (Unaudited)
Utility Plant, net of accumulated
depreciation of $176,810 and $167,356 $ 274,709 $ 266,212
Construction work in progress 6,162 10,394
---------------- ----------------
280,871 276,606
---------------- ----------------
Other Assets:
Investments in non-utility property 202 667
Notes receivable, less current maturities 681 1,006
---------------- ----------------
883 1,673
---------------- ----------------
Current Assets:
Cash and cash equivalents 4,283 2,338
Accounts receivable, less allowance of $630
and $645 for doubtful accounts 13,367 9,271
Current maturities of notes receivable 204 329
Materials, supplies and inventories 5,398 6,213
Prepaid expenses and other assets 5,498 5,122
---------------- ----------------
28,750 23,273
---------------- ----------------
Deferred Charges 8,007 9,959
---------------- ----------------
$ 318,511 $ 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 10,272 3,003
---------------- ----------------
118,697 111,428
---------------- ----------------
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 - 6,929
Accounts payable 7,779 10,206
Property, payroll and excise taxes 2,941 4,570
Dividends and interest payable 5,212 7,407
Current maturities of long-term debt - 10,000
Other current liabilities 7,809 3,681
---------------- ----------------
23,741 42,793
---------------- ----------------
Deferred Credits and Other:
Gas cost changes 13,694 10,330
Other 31,193 29,902
---------------- ----------------
44,887 40,232
---------------- ----------------
Commitments and Contingencies - -
$ 318,511 $ 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>
NINE MONTHS ENDED
---------------------------------
Jun 30, 1999 Jun 30, 1998
-------------- --------------
(dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 15,584 $ 11,388
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 9,587 10,745
Amortization of gas cost changes 776 (450)
Gain on sale of land (174) -
Increase in deferred income taxes 942 451
Decrease in deferred investment tax credits (184) (194)
Cash provided (used) by changes in operating assets and liabilities:
Current assets and liabilities (5,741) 5,231
Gas cost changes 2,588 5,471
Other deferrals and non-current liabilities 1,743 2,209
-------------- --------------
Net cash provided by operating activities 25,121 34,851
-------------- --------------
INVESTING ACTIVITIES:
Capital expenditures (14,970) (20,998)
Customer contributions in aid of construction 2,139 1,578
New consumer loans (17) (332)
Receipts on consumer loans 429 853
Proceeds from sale of land 471 -
-------------- --------------
Net cash used by investing activities (11,948) (18,899)
-------------- --------------
FINANCING ACTIVITIES:
Issuance of common stock - 690
Redemption of preferred stock (222) (222)
Issuance of long-term debt 14,888 -
Repayment of long-term debt (10,650) (500)
Changes in notes payable and commercial paper, net (6,929) (8,418)
Dividends paid (8,315) (7,692)
-------------- --------------
Net cash used by financing activities (11,228) (16,142)
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,945 (190)
CASH AND CASH EQUIVALENTS:
Beginning of period 2,338 3,162
-------------- --------------
End of period $ 4,283 $ 2,972
-------------- --------------
-------------- --------------
</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 NINE MONTHS ENDED JUNE 30, 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, 2000,
and will be adopted by the Company as of October 1, 2000. 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. The Company also believes that, because of rate regulation, derivative
assets and liabilities would be offset by regulatory assets and regulatory
liabilities, and the earnings effect of application of this standard will not be
material.
STOCK OPTIONS:
During the quarter ended March 31, 1999, the Company awarded officers,
under the 1998 Stock Incentive Plan, options 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 nine-month periods ended
June 30, 1999 and June 30, 1998.
RESULTS OF OPERATIONS
Net earnings available to common shareholders for the third quarter of
fiscal 1999 (quarter ended June 30, 1999) were $690,000, or $0.06 per share,
compared to a loss of $787,000, or $0.07 per share, for the second quarter of
fiscal 1998. For the nine-month period, net earnings available to common
shareholders were $15,222,000, or $1.38 per share, a 38% improvement over the
1998 period results of $11,015,000, or $1.00 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
------------------------------------------
Third Quarter of Fiscal Percent Year to Date Jun 30 Percent
1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------ ------------------------------------
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
DEGREE DAYS 1,014 797 27.2% 5,234 4,888 7.1%
AVERAGE NUMBER OF CUSTOMERS
Residential 151,327 143,746 5.3% 150,136 142,629 5.3%
Commercial 26,591 25,518 4.2% 26,393 25,423 3.8%
AVERAGE THERM USAGE PER CUSTOMER
Residential 138 122 13.4% 737 693 6.2%
Commercial 753 697 8.0% 3,633 3,530 2.9%
OPERATING MARGIN
Residential $ 6,576 $ 5,328 23.4% $ 31,481 $ 27,491 14.5%
Commercial $ 3,971 $ 3,493 13.7% $ 19,695 $ 17,697 11.3%
</TABLE>
For the quarter ended June 30, 1999, operating margin from sales to
residential and commercial customers increased by $1.73 million over the same
period last year. The primary factors contributing to this improvement were the
addition of 8,650 new customers and increased consumption per customer. An
increase of $1 per month in the monthly service charge paid by each residential
and commercial customer in Washington provided approximately $398,000 of the
improved quarterly margins, which was offset by a corresponding reduction in
rates charged to industrial customers.
For year to date margin, similar factors contributed to the
improvement. 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 third
quarter from industrial and other customers increased $98,000, or 1.5% from the
June 1998 quarter. Increased deliveries to customers resulted in approximately
$545,000 of margin improvement. This improvement was largely offset by the above
mentioned decrease in industrial rates, corresponding with the increased service
charges collected from residential and commercial customers.
On a year to date basis, industrial and other margin decreased
$297,000, or 1.3%. The effect of the above-mentioned rate reduction was
$1,187,000, and margins from sales of spot gas supplies decreased
7
<PAGE>
$519,000. Offsetting these reductions was an increase in distribution margin
resulting from a 10.8% 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 June 30, 1999, which consists
of operating expenses, depreciation and amortization, and property and payroll
taxes, decreased $600,000 or 4.3% from the quarter ended June 30, 1998.
OPERATING EXPENSES, which are primarily labor and benefits expenses,
decreased $233,000, or 2.5%, for the quarter. Most categories of operating
expenses decreased from the third quarter of fiscal 1998, reflecting the
Company's increased focus on achieving cost reductions and efficiencies. The
lower expenses are primarily the result of reduced staffing levels and various
initiatives to reduce operating and administrative costs throughout the Company.
Year to date operating expenses decreased $287,000, or 1.0%. Decreases
were experienced in most expense categories. Labor and benefits expenses include
one-time management restructuring costs of $329,000. Ongoing labor savings
resulting from restructuring are expected to be $600,000.
DEPRECIATION AND AMORTIZATION decreased by $421,000 (11.5%) for the
quarter, and $1,158,000 (10.8%) 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 depreciation study conducted in 1998. The annual effect of the lower
rates is approximately $2 million.
INTEREST AND OTHER DEDUCTIONS - NET
Interest and other deductions increased $77,000 (3.2%) for the quarter,
and $384,000 (5.3%) 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. Other non-operating
income for the quarter included a gain of $174,000 on the sale of non-utility
property.
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 June 30, 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 nine months ended June 30, 1999 were
higher by $4,196,000 than the 1998 period, net cash provided by operating
activities was $25,121,000, compared to $34,851,000 last year. Affecting the
comparison was the difference in cash flows from changes in current assets and
8
<PAGE>
liabilities. This change is primarily the result of timing differences related
to changes in accounts receivable and accrued taxes.
INVESTING ACTIVITIES
Cash used by investing activities for the nine months ended June 30,
1999 was $11,948,000, compared to $18,899,000 for the first nine 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. Also, new
feasibility rules applicable to the Company's Washington operations have had the
desired effect of discouraging marginally feasible new customer hookups or
requiring marginal customers to contribute more toward the cost of new plant.
Under the new rules, customers are required to contractually commit to install
appliances that will utilize enough gas to make the Company's investment in
plant profitable.
Capital expenditures for fiscal 1999 are expected to be approximately
$20 million, compared to the original budget of $23.5 million. The Company
expects that 1999 capital expenditures will be financed approximately 75% from
operating activities, and 25% from debt financing.
FINANCING ACTIVITIES
Financing activities for the nine months ended June 30, 1999 resulted
in a net cash outflow of $11,228,000 compared to $16,142,000 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
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.
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. In addressing this issue, the Company has employed a five-phase
process consisting of: 1) organize and inventory all peripherals, applications,
software, metering equipment, communications equipment and date-related logic
systems that could be impacted; 2) assess those systems that require
modification or replacement; 3) upgrade or replace non-compliant equipment and
systems; 4) test and validate all mission critical systems and implement test
data migration plans and procedures for large applications; and 5) place
compliant systems and equipment into service.
The Company has engaged in a process to gain commitments from major
suppliers to ensure that their systems are year 2000 compliant. To date, the
Company has received communications from substantially all significant suppliers
and vendors. While no company can provide assurance that 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. Cascade believes those
statements that have been received are accurate, however the Company is not the
source of this information and has not independently verified the information
received.
9
<PAGE>
RISKS
The Company's comprehensive remediation strategy is being led by the
Information Technology Department and reviewed by executive management and Board
members. Cascade believes that by installing new hardware and software and by
implementing a comprehensive contingency plan, the risk of any technical failure
can be minimized and the Year 2000 issue will not pose a major disruption to its
business operations.
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.
STATE OF READINESS
Management believes that substantially all mission critical systems
have been identified. To date, nearly all of the Company's personal computers,
embedded building and office systems, and fleet vehicles have been assessed,
tested, and verified to be compliant. Corrections to internally developed
software, including billing, cash receipts processing, and payroll are complete
and have tested to be compliant. Third party hardware and software upgrades that
remain to be upgraded and tested include telephone system upgrades for three
district offices and a new SCADA system, which monitors natural gas pressure and
volume on the Company's distribution system. Upgrading of the Company's
telephone systems will be completed in the third calendar quarter of 1999. The
new SCADA system will run parallel to the Company's existing SCADA system before
full implementation in the fourth calendar quarter of 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 $850,000.
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 currently reviewing contingency options, including manual
alternatives to system operations. These contingency scenarios are based on
short-term disruptions to gas supply, communications, and internal system
failures. The Company's Year 2000 Contingency Plan, along with its Emergency
Operating Procedure, addresses business processes that are critical to
operations and identifies the roles of key individuals in the event of such
failures. Management believes the most likely worst case scenario is 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 reviews and updates its
remediation schedule and contingency plan as needed.
10
<PAGE>
LABOR NEGOTIATIONS
The Company and the International Chemical Workers Union, which
represents non-supervisory operating employees in the Company's district
offices, negotiated a collective bargaining agreement which has been approved by
union membership. The agreement provides for wages and benefits equivalent to a
2.5% wage increase on April 1, 1999, a 1.2% increase on April 1, 2000, and a
1.5% increase on October 1, 2000. The agreement will be effective through March
31, 2001.
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 $31,179,000 was available for payment of
dividends as of June 30, 1999.
ITEM 5. OTHER INFORMATION
Ratio of Earnings to Fixed Charges:
<TABLE>
<CAPTION>
Twelve Months Ended
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
6/30/99 9/30/98 9/30/97 9/30/96 12/31/95 12/31/94
2.99 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
June 30, 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: August 5, 1999
--------------
<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
6/30/99 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 $ 10,456 $ 10,132 9,436 10,101 9,938 8,090
Amortization of debt
issuance expense 594 605 612 612 606 593
------------- ------------ ------------ ------------ ------------ -----------
Total fixed charges $ 11,050 $ 10,737 10,048 10,713 10,544 8,683
------------- ------------ ------------ ------------ ------------ -----------
Earnings, as defined:
Net earnings $ 13,740 $ 9,544 10,627 8,211 7,732 5,760
Add (deduct):
Income taxes 8,209 5,694 6,263 4,272 4,508 3,505
Fixed charges 11,050 10,737 10,048 10,713 10,544 8,683
------------- ------------ ------------ ------------ ------------ -----------
Total earnings $ 32,999 $ 25,975 26,938 23,196 22,784 17,948
------------- ------------ ------------ ------------ ------------ -----------
Ratio of earnings to
fixed charges 2.99 2.42 2.68 2.17 2.16 2.07
------------- ------------ ------------ ------------ ------------ -----------
Fixed charges and preferred
dividend requirements:
Fixed charges $ 11,050 $ 10,737 10,048 10,713 10,544 8,683
Preferred dividend
requirements 776 778 811 819 853 898
------------- ------------ ------------ ------------ ------------ -----------
Total $ 11,826 $ 11,515 10,859 11,532 11,397 9,581
------------- ------------ ------------ ------------ ------------ -----------
Ratio of earnings to fixed charges and
preferred dividend requirements 2.79 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 JUNE 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 280,871
<OTHER-PROPERTY-AND-INVEST> 883
<TOTAL-CURRENT-ASSETS> 28,750
<TOTAL-DEFERRED-CHARGES> 8,007
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 318,511
<COMMON> 11,045
<CAPITAL-SURPLUS-PAID-IN> 97,380
<RETAINED-EARNINGS> 10,272
<TOTAL-COMMON-STOCKHOLDERS-EQ> 118,697
6,186
0
<LONG-TERM-DEBT-NET> 125,000
<SHORT-TERM-NOTES> 0
<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> 68,628
<TOT-CAPITALIZATION-AND-LIAB> 318,511
<GROSS-OPERATING-REVENUE> 176,904
<INCOME-TAX-EXPENSE> 9,367
<OTHER-OPERATING-EXPENSES> 144,270
<TOTAL-OPERATING-EXPENSES> 144,270
<OPERATING-INCOME-LOSS> 32,634
<OTHER-INCOME-NET> 378
<INCOME-BEFORE-INTEREST-EXPEN> 23,645
<TOTAL-INTEREST-EXPENSE> 8,061
<NET-INCOME> 15,584
362
<EARNINGS-AVAILABLE-FOR-COMM> 15,222
<COMMON-STOCK-DIVIDENDS> 7,952
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 25,121
<EPS-BASIC> 1.38
<EPS-DILUTED> 1.38
</TABLE>
