1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-3701
AVISTA CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 91-0462470
- ---------------------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1411 East Mission Avenue, Spokane, Washington 99202-2600
- --------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 509-489-0500
Web site: http://www.avistacorp.com
None
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(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
At July 31, 1999, 37,029,129 shares of Registrant's Common Stock, no par value
(the only class of common stock), were outstanding.
2
AVISTA CORPORATION
Index
Page No.
--------
Part I. Financial Information:
Item 1.Financial Statements
Consolidated Statements of Income - Three Months Ended
June 30, 1999 and 1998 ........................................... 3
Consolidated Statements of Income - Six Months Ended
June 30, 1999 and 1998 ........................................... 4
Consolidated Balance Sheets - June 30, 1999
and December 31, 1998 ............................................ 5
Consolidated Statements of Capitalization - June 30, 1999
and December 31, 1998 ............................................ 6
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 1999 and 1998 ........................................... 7
Schedule of Information by Business Segments - Three Months Ended
June 30, 1999 and 1998 ........................................... 8
Schedule of Information by Business Segments - Six Months Ended
June 30, 1999 and 1998 ........................................... 10
Notes to Consolidated Financial Statements .......................... 12
Item 2.Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................ 16
Item 3.Quantitative and Qualitative Disclosures About Market Risk ....... 25
Part II. Other Information:
Item 4. Submission of Matters to a Vote of Security Holders.............. 25
Item 5.Other Information ................................................ 25
Item 6.Exhibits and Reports on Form 8-K ................................. 26
Signature .......................................................................... 27
3
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Avista Corporation
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For the Three Months Ended June 30
Thousands of Dollars
1999 1998
------------ ----------
OPERATING REVENUES .................................................... $ 1,411,736 $ 632,995
------------ ----------
OPERATING EXPENSES:
Resource costs ..................................................... 1,297,210 472,254
Operations and maintenance ......................................... 37,053 54,401
Administrative and general ......................................... 28,936 35,795
Depreciation and amortization ...................................... 19,223 17,452
Taxes other than income taxes ...................................... 11,934 11,151
------------ ----------
Total operating expenses ......................................... 1,394,356 591,053
------------ ----------
INCOME FROM OPERATIONS ................................................ 17,380 41,942
------------ ----------
OTHER INCOME (EXPENSE):
Interest expense ................................................... (15,006) (16,855)
Net gain (loss) on subsidiary transactions ......................... (884) --
Other income (deductions)-net ...................................... 7,504 (89)
------------ ----------
Total other income (expense)-net ................................. (8,386) (16,944)
------------ ----------
INCOME BEFORE INCOME TAXES ............................................ 8,994 24,998
INCOME TAXES .......................................................... 485 9,355
------------ ----------
NET INCOME ............................................................ 8,509 15,643
DEDUCT-Preferred stock dividend requirements (Note 5) ................. 5,384 788
------------ ----------
INCOME AVAILABLE FOR COMMON STOCK ..................................... $ 3,125 $ 14,855
============ ==========
Average common shares outstanding (thousands), Basic (Note 5) ......... 40,185 55,960
Average common shares outstanding (thousands), Diluted (Note 5) ....... 40,300 55,960
EARNINGS PER SHARE OF COMMON STOCK, BASIC (Note 5) .................... $ 0.08 $ 0.27
EARNINGS PER SHARE OF COMMON STOCK, DILUTED (Note 5) .................. $ 0.08 $ 0.27
Dividends paid per common share ....................................... $ 0.12 $ 0.31
NET INCOME ............................................................ $ 8,509 $ 15,643
------------ ----------
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustment ............................ 138 (134)
Unrealized investment gains/(losses)-net of tax .................... (154) (1,269)
------------ ----------
OTHER COMPREHENSIVE INCOME ............................................ (16) (1,403)
------------ ----------
COMPREHENSIVE INCOME .................................................. $ 8,493 $ 14,240
============ ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
3
4
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Avista Corporation
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For the Six Months Ended June 30
Thousands of Dollars
1999 1998
------------ ------------
OPERATING REVENUES .................................................... $ 2,647,931 $ 1,204,664
------------ ------------
OPERATING EXPENSES:
Resource costs ..................................................... 2,385,263 879,494
Operations and maintenance ......................................... 90,006 103,626
Administrative and general ......................................... 59,448 62,418
Depreciation and amortization ...................................... 38,297 34,602
Taxes other than income taxes ...................................... 27,030 25,882
------------ ------------
Total operating expenses ......................................... 2,600,044 1,106,022
------------ ------------
INCOME FROM OPERATIONS ................................................ 47,887 98,642
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense ................................................... (31,758) (34,060)
Net gain on subsidiary transactions ................................ 15,594 7,611
Other income (deductions)-net ...................................... 8,960 4,947
------------ ------------
Total other income (expense)-net ................................. (7,204) (21,502)
------------ ------------
INCOME BEFORE INCOME TAXES ............................................ 40,683 77,140
INCOME TAXES .......................................................... 12,786 29,265
------------ ------------
NET INCOME ............................................................ 27,897 47,875
DEDUCT-Preferred stock dividend requirements (Note 5) ................ 10,767 1,612
------------ ------------
INCOME AVAILABLE FOR COMMON STOCK ..................................... $ 17,130 $ 46,263
============ ============
Average common shares outstanding (thousands), Basic (Note 5) ......... 40,319 55,960
Average common shares outstanding (thousands), Diluted (Note 5) ....... 40,427 55,960
EARNINGS PER SHARE OF COMMON STOCK, BASIC (Note 5) .................... $ 0.42 $ 0.83
EARNINGS PER SHARE OF COMMON STOCK, DILUTED (Note 5) .................. $ 0.42 $ 0.83
Dividends paid per common share ....................................... $ 0.24 $ 0.62
NET INCOME ............................................................ $ 27,897 $ 47,875
------------ ------------
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustment ............................ 358 (134)
Unrealized investment gains/(losses)-net of tax .................... 261 (997)
------------ ------------
OTHER COMPREHENSIVE INCOME ............................................ 619 (1,131)
------------ ------------
COMPREHENSIVE INCOME .................................................. $ 28,516 $ 46,744
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
4
5
CONSOLIDATED BALANCE SHEETS
Avista Corporation
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Thousands of Dollars
June 30, December 31,
1999 1998
---------- ------------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents .......................................... $ 47,420 $ 72,836
Temporary cash investments ......................................... 6,490 5,786
Accounts and notes receivable-net .................................. 594,162 456,857
Energy commodity assets ............................................ 530,388 357,581
Materials and supplies, fuel stock and natural gas stored .......... 44,708 42,140
Prepayments and other .............................................. 28,288 33,396
---------- ----------
Total current assets ............................................. 1,251,456 968,596
---------- ----------
UTILITY PROPERTY:
Utility plant in service-net ....................................... 2,129,411 2,095,301
Construction work in progress ...................................... 46,542 45,391
---------- ----------
Total ............................................................ 2,175,953 2,140,692
Less: Accumulated depreciation and amortization .................... 693,851 669,750
---------- ----------
Net utility plant ................................................ 1,482,102 1,470,942
---------- ----------
OTHER PROPERTY AND INVESTMENTS:
Investment in exchange power-net ................................... 59,264 62,577
Non-utility properties and investments-net ......................... 202,808 206,773
Energy commodity assets ............................................ 442,001 236,644
Other-net .......................................................... 27,681 26,016
---------- ----------
Total other property and investments ............................. 731,754 532,010
---------- ----------
DEFERRED CHARGES:
Regulatory assets for deferred income tax .......................... 168,585 171,037
Conservation programs .............................................. 46,484 49,114
Unamortized debt expense ........................................... 28,382 28,414
Other-net .......................................................... 33,464 33,523
---------- ----------
Total deferred charges ........................................... 276,915 282,088
---------- ----------
TOTAL .......................................................... $3,742,227 $3,253,636
========== ==========
LIABILITIES AND CAPITALIZATION:
CURRENT LIABILITIES:
Accounts payable ................................................... $ 610,969 $ 406,457
Energy commodity liabilities ....................................... 526,989 348,387
Taxes and interest accrued ......................................... 17,095 38,628
Other .............................................................. 61,883 70,721
---------- ----------
Total current liabilities ........................................ 1,216,936 864,193
---------- ----------
NON-CURRENT LIABILITIES AND DEFERRED CREDITS:
Non-current liabilities ............................................ 39,002 34,815
Deferred revenue ................................................... 137,407 145,124
Energy commodity liabilities ....................................... 404,124 207,948
Deferred income taxes .............................................. 369,573 357,702
Other deferred credits ............................................. 10,897 11,571
---------- ----------
Total non-current liabilities and deferred credits ............... 961,003 757,160
---------- ----------
CAPITALIZATION (See Consolidated Statements of Capitalization) ........ 1,564,288 1,632,283
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 6)
TOTAL .......................................................... $3,742,227 $3,253,636
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
5
6
CONSOLIDATED STATEMENTS OF CAPITALIZATION
Avista Corporation
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Thousands of Dollars
June 30, December 31,
1999 1998
------------ ------------
LONG-TERM DEBT:
First Mortgage Bonds:
7 1/8% due December 1, 2013 .......................................... $ 66,700 $ 66,700
7 2/5% due December 1, 2016 .......................................... 17,000 17,000
Secured Medium-Term Notes:
Series A - 6.13% to 7.90% due 2000 through 2023 .................... 139,400 211,500
Series B - 6.20% to 8.25% due 1999 through 2010 .................... 145,000 150,000
------------ ------------
Total first mortgage bonds ......................................... 368,100 445,200
------------ ------------
Pollution Control Bonds:
6% Series due 2023 ................................................... 4,100 4,100
Unsecured Medium-Term Notes:
Series A - 7.94% to 9.57% due 1999 through 2007 ...................... 38,500 38,500
Series B - 6.75% to 8.23% due 2001 through 2023 ...................... 96,000 115,000
Series C - 5.99% to 6.88% due 2007 through 2028 ...................... 84,000 84,000
------------ ------------
Total unsecured medium-term notes .................................. 218,500 237,500
------------ ------------
Notes payable (due within one year) to be refinanced ................... 58,400 --
Other .................................................................. 31,804 43,222
------------ ------------
Total long-term debt ................................................. 680,904 730,022
------------ ------------
COMPANY-OBLIGATED MANDATORILY REDEEMABLE
PREFERRED TRUST SECURITIES:
7 7/8%, Series A, due 2037 ........................................... 60,000 60,000
Floating Rate, Series B, due 2037 .................................... 50,000 50,000
------------ ------------
Total company-obligated mandatorily redeemable preferred
trust securities ................................................ 110,000 110,000
------------ ------------
PREFERRED STOCK-CUMULATIVE:
10,000,000 shares authorized:
Subject to mandatory redemption:
$6.95 Series K; 350,000 shares outstanding ($100 stated value) ....... 35,000 35,000
------------ ------------
Total subject to mandatory redemption .............................. 35,000 35,000
------------ ------------
CONVERTIBLE PREFERRED STOCK:
Not subject to mandatory redemption:
$12.40 Convertible Series L; 1,540,460 shares outstanding
($182.80 stated value) ............................................. 268,855 269,227
------------ ------------
Total convertible preferred stock .................................. 268,855 269,227
------------ ------------
COMMON EQUITY:
Common stock, no par value; 200,000,000 shares authorized;
38,880,529 and 40,453,729 shares outstanding ......................... 360,635 381,401
Note receivable from employee stock ownership plan ..................... (8,785) (9,295)
Capital stock expense and other paid in capital ........................ (4,248) (4,176)
Other comprehensive income ............................................. 278 (341)
Retained earnings ...................................................... 121,649 120,445
------------ ------------
Total common equity .................................................. 469,529 488,034
------------ ------------
TOTAL CAPITALIZATION ...................................................... $ 1,564,288 $ 1,632,283
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
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7
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Avista Corporation
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For the Six Months Ended June 30
Thousands of Dollars
1999 1998
---------- --------
OPERATING ACTIVITIES:
Net income ............................................................. $ 27,897 $ 47,875
NON-CASH ITEMS INCLUDED IN NET INCOME:
Depreciation and amortization ........................................ 38,297 34,602
Provision for deferred income taxes .................................. 14,928 9,923
Allowance for equity funds used during construction .................. (496) (692)
Power and natural gas cost deferrals and amortizations ............... (3,340) 71
Gain on sale of subsidiary investments and other-net ................. (28,112) (17,194)
(Increase) decrease in working capital components:
Sale of customer accounts receivables-net .......................... 35,000 --
Receivables and prepaid expense .................................... (230,496) (63,139)
Materials & supplies, fuel stock and natural gas stored ............ (2,568) (6,425)
Payables and other accrued liabilities ............................. 218,528 60,802
Other .............................................................. 7,436 3,892
---------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................. 77,074 69,715
---------- --------
INVESTING ACTIVITIES:
Construction expenditures (excluding AFUDC-equity funds) ............... (39,716) (39,933)
Other capital requirements ............................................. (12,964) (5,760)
(Increase) decrease in other noncurrent balance sheet items-net ........ 9,801 14,398
Proceeds from sale of subsidiary investments ........................... 62,014 16,385
Assets acquired and investments in subsidiaries ........................ (21,718) (33,517)
---------- --------
NET CASH USED IN INVESTING ACTIVITIES ..................................... (2,583) (48,427)
---------- --------
FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings ........................... 51,088 (41,759)
Proceeds from issuance of long-term debt ............................... 809 74,170
Redemption and maturity of long-term debt .............................. (101,324) (6,000)
Redemption of preferred stock .......................................... (372) (10,000)
Sale (repurchase) of common stock ...................................... (26,489) --
Cash dividends paid .................................................... (20,475) (36,343)
Other-net .............................................................. (3,144) (1,563)
---------- --------
NET CASH USED IN FINANCING ACTIVITIES ..................................... (99,907) (21,495)
---------- --------
NET DECREASE IN CASH & CASH EQUIVALENTS ................................... (25,416) (207)
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD ............................ 72,836 30,593
---------- --------
CASH & CASH EQUIVALENTS AT END OF PERIOD .................................. $ 47,420 $ 30,386
========== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period:
Interest ............................................................. $ 31,976 $ 31,764
Income taxes ......................................................... 10,329 29,296
Noncash financing and investing activities:
Property purchased under capitalized leases .......................... 919 396
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
7
8
SCHEDULE OF INFORMATION BY BUSINESS SEGMENTS
Avista Corporation
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For the Three Months Ended June 30
Thousands of Dollars
1999 1998
------------ ------------
OPERATING REVENUES:
Energy Delivery ............................................ $ 80,404 $ 81,883
Generation and Resources ................................... 140,687 120,127
National Energy Trading and Marketing ...................... 1,160,621 380,864
Non-energy ................................................. 30,379 53,429
Intersegment eliminations .................................. (355) (3,308)
------------ ------------
Total operating revenues ................................. $ 1,411,736 $ 632,995
============ ============
RESOURCE COSTS:
Energy Delivery:
Natural gas purchased for resale ......................... $ 20,916 $ 18,570
PCA and other ............................................ (821) (734)
Generation and Resources:
Power purchased .......................................... 86,333 73,613
Fuel for generation ...................................... 9,770 7,819
Other .................................................... 11,560 10,188
National Energy Trading and Marketing:
Cost of sales ............................................ 1,169,807 366,106
Intersegment eliminations .................................. (355) (3,308)
------------ ------------
Total resource costs (excluding Non-energy) .............. $ 1,297,210 $ 472,254
============ ============
GROSS MARGINS:
Energy Delivery ............................................ $ 60,309 $ 64,047
Generation and Resources ................................... 33,024 28,507
National Energy Trading and Marketing ...................... (9,186) 14,758
------------ ------------
Total gross margins (excluding Non-energy) ............... $ 84,147 $ 107,312
============ ============
OPERATIONS AND MAINTENANCE EXPENSES:
Energy Delivery ............................................ $ 13,049 $ 14,682
National Energy Trading and Marketing ...................... 742 410
Non-energy ................................................. 23,262 39,309
------------ ------------
Total operations and maintenance expenses ................ $ 37,053 $ 54,401
============ ============
ADMINISTRATIVE AND GENERAL EXPENSES:
Energy Delivery ............................................ $ 12,522 $ 14,618
Generation and Resources ................................... 3,429 4,855
National Energy Trading and Marketing ...................... 7,443 7,717
Non-energy ................................................. 5,542 8,605
------------ ------------
Total administrative and general expenses ................ $ 28,936 $ 35,795
============ ============
DEPRECIATION AND AMORTIZATION EXPENSES:
Energy Delivery ............................................ $ 9,104 $ 8,639
Generation and Resources ................................... 6,632 6,260
National Energy Trading and Marketing ...................... 1,088 180
Non-energy ................................................. 2,399 2,373
------------ ------------
Total depreciation and amortization expenses ............. $ 19,223 $ 17,452
============ ============
INCOME/(LOSS) FROM OPERATIONS (PRE-TAX):
Energy Delivery ............................................ $ 16,545 $ 17,972
Generation and Resources ................................... 20,473 14,950
National Energy Trading and Marketing ...................... (18,470) 6,449
Non-energy ................................................. (1,168) 2,571
------------ ------------
Total income from operations ............................. $ 17,380 $ 41,942
============ ============
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INCOME AVAILABLE FOR COMMON STOCK:
Energy Delivery and Generation and Resources ............... $ 15,900 $ 9,491
National Energy Trading and Marketing ...................... (11,546) 4,017
Non-energy ................................................. (1,229) 1,347
------------ ------------
Total income available for common stock (Note 5) ........ $ 3,125 $ 14,855
============ ============
ASSETS: (1998 amounts at December 31)
Energy Delivery ............................................ $ 1,078,060 $ 1,120,323
Generation and Resources ................................... 587,620 619,086
Other utility .............................................. 248,338 265,526
National Energy Trading and Marketing ...................... 1,613,111 957,421
Non-energy ................................................. 215,098 291,280
------------ ------------
Total assets ............................................. $ 3,742,227 $ 3,253,636
============ ============
CAPITAL EXPENDITURES (excluding AFUDC/AFUCE):
Energy Delivery ............................................ $ 20,670 $ 16,268
Generation and Resources ................................... 2,529 3,990
National Energy Trading and Marketing ...................... 2,234 742
Non-energy ................................................. 3,786 2,733
------------ ------------
Total capital expenditures ............................... $ 29,219 $ 23,733
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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10
SCHEDULE OF INFORMATION BY BUSINESS SEGMENTS
Avista Corporation
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For the Six Months Ended June 30
Thousands of Dollars
1999 1998
------------ ------------
OPERATING REVENUES:
Energy Delivery ............................................ $ 197,820 $ 209,176
Generation and Resources ................................... 290,057 247,038
National Energy Trading and Marketing ...................... 2,080,021 651,921
Non-energy ................................................. 81,016 101,113
Intersegment eliminations .................................. (983) (4,584)
------------ ------------
Total operating revenues ................................. $ 2,647,931 $ 1,204,664
============ ============
RESOURCE COSTS:
Energy Delivery:
Natural gas purchased for resale ......................... $ 56,107 $ 56,489
PCA and other ............................................ (1,315) (1,960)
Generation and Resources:
Power purchased .......................................... 196,098 159,508
Fuel for generation ...................................... 17,771 17,289
Other .................................................... 22,848 22,503
National Energy Trading and Marketing:
Cost of sales ............................................ 2,094,737 630,249
Intersegment eliminations .................................. (983) (4,584)
------------ ------------
Total resource costs (excluding Non-energy) .............. $ 2,385,263 $ 879,494
============ ============
GROSS MARGINS:
Energy Delivery ............................................ $ 143,028 $ 154,647
Generation and Resources ................................... 53,340 47,738
National Energy Trading and Marketing ...................... (14,716) 21,672
------------ ------------
Total gross margins (excluding Non-energy) ............... $ 181,652 $ 224,057
============ ============
OPERATIONS AND MAINTENANCE EXPENSES:
Energy Delivery ............................................ $ 26,085 $ 28,812
National Energy Trading and Marketing ...................... 1,507 1,176
Non-energy ................................................. 62,414 73,638
------------ ------------
Total operations and maintenance expenses ................ $ 90,006 $ 103,626
============ ============
ADMINISTRATIVE AND GENERAL EXPENSES:
Energy Delivery ............................................ $ 24,036 $ 25,790
Generation and Resources ................................... 6,405 8,379
National Energy Trading and Marketing ...................... 13,903 11,720
Non-energy ................................................. 15,104 16,529
------------ ------------
Total administrative and general expenses ................ $ 59,448 $ 62,418
============ ============
DEPRECIATION AND AMORTIZATION EXPENSES:
Energy Delivery ............................................ $ 18,345 $ 17,315
Generation and Resources ................................... 12,844 12,442
National Energy Trading and Marketing ...................... 1,740 346
Non-energy ................................................. 5,368 4,499
------------ ------------
Total depreciation and amortization expenses ............. $ 38,297 $ 34,602
============ ============
INCOME/(LOSS) FROM OPERATIONS (PRE-TAX):
Energy Delivery ............................................ $ 53,971 $ 63,370
Generation and Resources ................................... 28,947 21,713
National Energy Trading and Marketing ...................... (31,888) 8,418
Non-energy ................................................. (3,143) 5,141
------------ ------------
Total income from operations ............................. $ 47,887 $ 98,642
============ ============
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INCOME AVAILABLE FOR COMMON STOCK:
Energy Delivery and Generation and Resources ............... $ 29,966 $ 31,759
National Energy Trading and Marketing ...................... (19,217) 6,080
Non-energy ................................................. 6,381 8,424
------------ ------------
Total income available for common stock (Note 5) ........ $ 17,130 $ 46,263
============ ============
ASSETS: (1998 amounts at December 31)
Energy Delivery ............................................ $ 1,078,060 $ 1,120,323
Generation and Resources ................................... 587,620 619,086
Other utility .............................................. 248,338 265,526
National Energy Trading and Marketing ...................... 1,613,111 957,421
Non-energy ................................................. 215,098 291,280
------------ ------------
Total assets ............................................. $ 3,742,227 $ 3,253,636
============ ============
CAPITAL EXPENDITURES (excluding AFUDC/AFUCE):
Energy Delivery ............................................ $ 33,285 $ 32,300
Generation and Resources ................................... 5,832 6,663
National Energy Trading and Marketing ...................... 6,152 902
Non-energy ................................................. 6,776 5,208
------------ ------------
Total capital expenditures ............................... $ 52,045 $ 45,073
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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12
AVISTA CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying financial statements of Avista Corporation (Avista Corp. or the
Company) for the interim periods ended June 30, 1999 and 1998 are unaudited but,
in the opinion of management, reflect all adjustments, consisting only of normal
recurring accruals, necessary for a fair statement of the results of operations
for those interim periods. The results of operations for the interim periods are
not necessarily indicative of the results to be expected for the full year.
These financial statements do not contain the detail or footnote disclosure
concerning accounting policies and other matters which would be included in full
fiscal year financial statements; therefore, they should be read in conjunction
with the Company's audited financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998 (1998 Form 10-K).
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NEW ACCOUNTING STANDARDS
The FASB issued FAS No. 133, entitled "Accounting for Derivative Instruments and
Hedging Activities" which was originally to be effective for fiscal years
beginning after June 15, 1999. In May 1999, implementation was delayed for one
year, so it is now effective for fiscal years beginning after June 15, 2000. The
statement requires that all derivative financial instruments be recognized as
either assets or liabilities on a company's balance sheets at fair value. The
accounting for changes in the fair value of a derivative will depend on the
intended use of the derivative and the resulting designation. Avista Energy
currently accounts for derivative commodity instruments entered into for trading
purposes using the mark-to-market method of accounting, in compliance with EITF
98-10, "Accounting for Energy Trading and Risk Management Activities." The
Company is in the process of researching the statement and determining its
impact on the Company's financial position and results of operations.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current
statement format. These reclassifications were made for comparative purposes and
have not affected previously reported total net income or common shareholders'
equity.
NOTE 2. ENERGY COMMODITY TRADING
Contract Amounts and Terms Under Avista Energy's derivative instruments, Avista
Energy either (i) as "fixed price payor," is obligated to pay a fixed price or
amount and is entitled to receive the commodity (or currency) or a fixed amount
or (ii) as "fixed price receiver," is entitled to receive a fixed price or
amount and is obligated to deliver the commodity (or currency) or pay a fixed
amount or (iii) as "index price payor," is obligated to pay an indexed price or
amount and is entitled to receive the commodity or a variable amount or (iv) as
"index price receiver," is entitled to receive an indexed price or amount and is
obligated to deliver the commodity or pay a variable amount. The contract or
notional amounts and terms of Avista Energy's derivative commodity investments
outstanding at June 30, 1999 are set forth below (volumes in thousands of mmBTUs
and MWhs, dollars in thousands):
Fixed Price Fixed Price Maximum
Payor Receiver Terms in Years
----------- ----------- --------------
Energy commodities (volumes)
Natural gas 626,745 614,204 4
Electric 134,095 117,204 11
Coal (tons) 2,793 2,188 1
Financial products
Foreign currency $ 1,300 $ -- 4
Index Price Index Price Maximum
Payor Receiver Terms in Years
----------- ----------- --------------
Energy commodities (volumes)
Natural gas 1,363,481 1,140,244 5
Electric 4,042 924 1
Coal (tons) 60 246 1
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Contract or notional amounts reflect the volume of transactions, but do not
necessarily represent the amounts exchanged by the parties to the derivative
commodity instruments. Accordingly, contract or notional amounts do not
accurately measure Avista Energy's exposure to market or credit risks. The
maximum terms in years detailed above are not indicative of likely future cash
flows as these positions may be offset in the markets at any time.
Fair Value The fair value of Avista Energy's derivative commodity instruments
outstanding at June 30, 1999, and the average fair value of those instruments
held during the six months ended June 30, 1999 are set forth below (dollars in
thousands):
Fair Value Average Fair Value for the
as of June 30, 1999 six months ended June 30, 1999
--------------------------------------------------- ----------------------------------------------------
Current Long-term Current Long-term Current Long-term Current Long-term
Assets Assets Liabilities Liabilities Assets Assets Liabilities Liabilities
-------- --------- ----------- ----------- -------- --------- ----------- -----------
Natural gas $186,392 $ 31,810 $204,362 $ 21,740 $149,676 $ 58,983 $161,000 $ 49,155
Electric 341,229 409,732 319,637 381,924 298,344 235,609 288,267 211,053
Coal 2,767 459 2,990 460 3,841 390 4,054 375
-------- -------- -------- -------- -------- -------- -------- --------
Total $530,388 $442,001 $526,989 $404,124 $451,861 $294,982 $453,321 $260,583
The weighted average term of Avista Energy's natural gas and related derivative
commodity instruments as of June 30, 1999 was approximately three months. The
weighted average term of Avista Energy's electric derivative commodity
instruments at June 30, 1999 was approximately four months. The weighted average
term of Avista Energy's coal commodity instruments at June 30, 1999 was
approximately four months. The change in the fair value position of Avista
Energy's energy commodity portfolio, net of the reserves for credit and market
risk from December 31, 1998 to June 30, 1999 was $3.1 million and is included on
the Consolidated Statements of Income in operating revenues.
NOTE 3. FINANCINGS
Reference is made to the information relating to financings and borrowings as
discussed under the caption "Liquidity and Capital Resources" in Item 2.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
NOTE 4. COMMON STOCK REPURCHASE PLAN
On May 12, 1999, the Company's Board of Directors authorized a common stock
repurchase program in which the Company may repurchase in the open market or
through privately negotiated transactions up to an aggregate of 10 percent of
its common stock and common stock equivalents over the next two years. The
repurchased shares will be retired as authorized but unissued shares. As of June
30, 1999, the Company had repurchased approximately 1.6 million shares.
NOTE 5. EARNINGS PER SHARE
Average shares outstanding for basic earnings per share (EPS) were 40,185,205
and 40,318,725 for the quarter and six months ended June 30, 1999, respectively.
At June 30, 1999, 1,540,460 shares of $12.40 Convertible Preferred Stock, Series
L, which were convertible into 15,404,595 million shares of common stock, were
outstanding. All of these potential common shares were excluded from the
computation of diluted EPS for the quarter and six months ended June 30, 1999
because their inclusion, including the related increased preferred stock
dividend requirements, had an antidilutive effect on EPS. Options to purchase
603,800 shares of common stock were outstanding during the quarter and six
months ended June 30, 1999, but 588,800 shares were not included in the
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of the common shares for the periods
and, therefore, the effect was antidilutive. The average number of common
shares outstanding for both basic and diluted EPS was 55,960,360 for both
periods in 1998 as the Company did not have any common stock equivalents
outstanding in either of those periods.
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The computation of basic and diluted earnings per common share is as follows (in
thousands, except per share amounts):
Six Months Ended
2nd Quarter June 30
-------------------- -------------------
1999 1998 1999 1998
------- ------- ------- -------
Net income $ 8,509 $15,643 $27,897 $47,875
Less: Preferred stock dividends 5,384 788 10,767 1,612
------- ------- ------- -------
Income available for common stock-basic 3,125 14,855 17,130 46,263
Convertible Preferred Stock, Series L,
dividend requirements -- -- -- --
------- ------- ------- -------
Income available for common stock-diluted $ 3,125 $14,855 $17,130 $46,263
------- ------- ------- -------
Weighted-average number of common shares
outstanding-basic 40,185 55,960 40,319 55,960
Conversion of Convertible Preferred Stock,
Series L -- -- -- --
Restricted stock 115 -- 108 --
Exercise of stock options -- -- -- --
------- ------- ------- -------
Weighted-average number of common shares
outstanding-diluted 40,300 55,960 40,427 55,960
------- ------- ------- -------
Earnings per common share
Basic $ 0.08 $ 0.27 $ 0.42 $ 0.83
Diluted $ 0.08 $ 0.27 $ 0.42 $ 0.83
NOTE 6. COMMITMENTS AND CONTINGENCIES
The Company believes, based on the information presently known, the ultimate
liability for the matters discussed in this note, individually or in the
aggregate, taking into account established accruals for estimated liabilities,
will not be material to the consolidated financial position of the Company, but
could be material to results of operations or cash flows for a particular
quarter or annual period. No assurance can be given, however, as to the ultimate
outcome with respect to any particular lawsuit.
SPOKANE GAS PLANT
The Spokane Natural Gas Plant site (which was operated as a coal gasification
plant for approximately 60 years until 1948) was acquired by the Company through
a merger in 1958. The Company no longer owns the property. Initial core samples
taken from the site indicate environmental contamination at the site. On January
15, 1999, the Company received notice from the State of Washington's Department
of Ecology (DOE) that it had been designated as a potentially liable person
(PLP) with respect to any hazardous substances located on this site, stemming
from the Company's past ownership of the former Gas Plant. In its notice, the
DOE stated that it intended to complete an on-going remedial investigation of
this site, complete a feasibility study to determine the most effective means of
halting or controlling future releases of substances from the site, and
implement appropriate remedial measures.
The Company responded to the DOE acknowledging its listing as a PLP, but
requested that additional parties also be listed as PLPs. In the spring of 1999,
the DOE named two other parties as additional PLPs. The Company is continuing
additional characterization of the site for the remedial investigation (RI). The
PLPs will be negotiating with the DOE on an Agreement Order. The Agreement Order
will specify the scope of work for the RI and the feasibility study (FS). The
Order is expected to be in place by November 1.
EASTERN PACIFIC ENERGY
On October 9, 1998, Eastern Pacific Energy (Eastern Pacific), an energy
aggregator participating in the restructured retail energy market in California,
filed suit against the Company and its affiliates, Avista Advantage and Avista
Energy in the United States District Court for the Central District of
California. Eastern Pacific alleges, among other things, a breach of an oral or
implied joint venture agreement whereby the Company agreed to supply not less
than
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300 megawatts of power to Eastern Pacific's California customers and that
Avista Advantage agreed to provide energy-related products and services. The
complaint seeks an unspecified amount of damages and also seeks to recover any
future profits earned from sales of the aforementioned amount of power to
California consumers. The Company and its affiliates intend to vigorously defend
against all of the claims.
On December 4, 1998, Avista Advantage, Avista Energy and the Company jointly
filed a motion to dismiss the complaint for failure to state a claim upon which
relief can be granted. On May 4, 1999, the Court granted the Company's and its
affiliates' motion to dismiss the case and granted the plaintiff the opportunity
to file and serve an Amended Complaint, which it did. The Company and its
affiliates renewed their motion to dismiss and the matter awaits decision by the
Court.
THE POWER COMPANY OF AMERICA
On June 25, 1999, the trustee ("Trustee") of the PCA Liquidating Trust
("Trust"), the successor of The Power Company of America, L.P. ("PCA"), demanded
that Avista Energy pay the Trust approximately $22,400,000. Until June 1998,
Avista Energy and PCA had entered into forward contracts for the purchase/sale
of electric power. In early July 1998, PCA defaulted on its contract obligations
with Avista Energy and numerous other counterparties. Accordingly, on July 6,
1998, Avista Energy suspended all business dealings with PCA. On August 17,
1998, an involuntary petition was filed against PCA in the U.S. Bankruptcy Court
for the District of Connecticut, and on January 5, 1999, the Court approved a
plan of reorganization and established the Trust. Avista Energy has filed a
Proof of Claim for approximately $2.6 million, representing the net amount owing
by PCA to Avista Energy for power delivered to or received from PCA prior to
July 6, 1998.
The Trustee's primary claim is based on the allegation that Avista Energy
wrongfully terminated the forward contracts on July 6, 1998, resulting in
alleged damages to PCA of about $18.5 million, recoverable under contract and/or
bankruptcy law, in connection with those contracts in which Avista Energy was
the seller and PCA was the buyer. The Trustee's demand threatens to commence a
lawsuit against Avista Energy in the Bankruptcy Court if its claims cannot be
settled.
Based on an evaluation of the Trustee's demand, the Company and Avista Energy
believe that the Trustee's claims (including the referenced $18.5 million claim)
lack substantial merit and they intend to contest them vigorously. Furthermore,
the Company and Avista Energy believe that the Trustee's claim under the forward
sell contracts, to the extent found to be valid, is subject to significantly
offsetting claims from Avista Energy against PCA. Accordingly, while the Company
cannot predict the ultimate outcome of this matter, the Company does not believe
that the Trustee's claims will be material to the Company's consolidated
financial position.
NOTE 7. ACQUISITIONS AND DISPOSITIONS
Effective February 1, 1999, Avista Energy completed and closed the purchase of
Vitol Gas & Electric, LLC (Vitol), based in Boston, Massachusetts. Vitol was one
of the top 20 energy marketing companies in the United States. Vitol trades gas,
electricity, coal and SO2 allowances in markets in the eastern half of the
United States.
During the first quarter of 1999, Pentzer Corporation (Pentzer) sold its
Creative Solutions Group, a group of five portfolio companies that provide
point-of-purchase displays and other merchandising and packaging services to
retailers and consumer product companies. The sale resulted in a gain of $10.1
million, net of taxes.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Avista Corporation (Avista Corp. or the Company) operates as a regional utility
providing electric and natural gas sales and services and as a national entity
providing both energy and non-energy products and services. The utility portion
of the Company, doing business as Avista Utilities, consists of two lines of
business which are subject to state and federal price regulation -- (1) Energy
Delivery and (2) Generation and Resources. The national businesses are conducted
under Avista Capital, which is the parent company to the Company's subsidiaries.
The Energy Delivery line of business includes transmission and distribution
services for retail electric operations, all natural gas operations, and other
energy products and services. The Generation and Resources line of business
includes the generation and production of electric energy, and short- and
long-term electric and natural gas sales, trading and wholesale marketing
primarily to other utilities and power brokers in the Western Systems
Coordinating Council.
Avista Capital is the parent company to the National Energy Trading and
Marketing and Non-energy businesses. The National Energy Trading and Marketing
business is comprised of Avista Energy, Avista Advantage and Avista Power.
Avista Energy focuses on commodity trading, energy marketing and other related
businesses on a national basis. Avista Energy's primary trading offices are
located in Boston, MA, Houston, TX and Spokane, WA, and its principal
administrative office is in Boston, MA. Avista Advantage, which is based in
Spokane, WA, provides a variety of energy-related products and services, such as
consolidated billing and resource accounting, to commercial and industrial
customers on a national basis. Avista Power was formed in December 1998 to
develop and own generation assets primarily in support of Avista Energy.
The Non-energy business is conducted primarily by Pentzer Corporation (Pentzer),
which is the parent company to the majority of the Company's Non-energy
businesses. Other non-energy subsidiaries under Avista Capital include Avista
Development, Avista Labs, Avista Communications and Avista Fiber. Avista
Development manages and markets the corporation's community investments,
including real estate and other assets. Avista Labs develops fuel cells and
multiple fuel processing approaches using propane, methane and methanol as base
fuels to integrate into its fuel cell subsystem. Avista Communications, formed
in January 1999, is the newest of the non-energy subsidiaries. It will provide
local high-speed telecommunications services to under-served Northwest
communities. Avista Communications is a sister company to Avista Fiber, which
focuses on building high-speed local dark fiber networks in Northwest
communities.
Changes underway in the utility and energy industries are creating new
opportunities to expand the Company's businesses and serve new markets. In
pursuing such opportunities, the Company is shifting its strategic direction to
growth, which could subject the Company to a higher degree of risk than that of
a traditional regulated public utility company.
RESULTS OF OPERATIONS
OVERALL OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Basic and diluted earnings per share for the second quarter of 1999 were $0.08
as compared to $0.27 in the second quarter of 1998. In December 1998, the
Company exchanged 15,404,595 shares of its common stock for shares of
Convertible Preferred Stock, Series L, which resulted in an increase of $4.6
million in preferred stock dividend requirements in the second quarter of 1999
over 1998. Excluding the effects of this transaction, earnings per share would
have been $0.14 for the second quarter of 1999.
Second quarter 1999 net income available for common stock was $3.1 million, an
$11.7 million decrease from second quarter 1998. The decrease in earnings was
primarily the result of an $11.5 million loss from the National Energy Trading
and Marketing line of business due to warmer than normal weather, soft national
energy markets and a lack of volatility within those markets, as compared to net
income of that line of business of $4.0 million in the second quarter of 1998.
In addition, earnings from non-energy operations declined $2.6 million from
second quarter 1998 primarily from the loss of income due to the first quarter
1999 sale of a group of Pentzer's portfolio companies. The decreased earnings
were partially offset by a $6.4 million increase in earnings from the utility
operations due to improved operating results, primarily from the Generation and
Resources line of business, and the resolution of a number of environmental
issues during the quarter.
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Energy Delivery and Generation and Resources contributed $0.40 to earnings per
share for the second quarter of 1999 compared to $0.17 in the second quarter of
1998. National Energy Trading and Marketing operations had a loss of $0.29 per
share in the second quarter of 1999 compared to a contribution of $0.07 in the
same period in 1998. Non-energy operations had a loss of $0.03 per share for the
second quarter of 1999 compared to a contribution of $0.03 in the same period in
1998.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Earnings per share for the first half of 1999 were $0.42 as compared to $0.83 in
the first six months of 1998. As a result of the exchange of shares of common
stock for shares of the Convertible Preferred Stock mentioned above, preferred
stock dividend requirements increased $9.2 million in the first half of 1999
over 1998. Excluding the effects of this transaction, earnings per share would
have been $0.48 for the first six months of 1999.
Net income available for common stock for the first half of 1999 was $17.1
million compared to $46.3 million for the first six months of 1998. The decrease
in earnings was primarily the result of a $19.2 million loss from the National
Energy Trading and Marketing line of business due to warmer than normal weather,
soft national energy markets and a lack of volatility within those markets, as
compared to net income of that line of business of $6.1 million in the first six
months of 1998. In addition, earnings from non-energy operations declined $2.0
million, while earnings from utility operations decreased $1.8 million from the
first six months of 1998. Non-energy income for 1999 included a transactional
gain totaling $10.1 million, net of taxes, recorded by Pentzer as a result of
the sale of a group of portfolio companies. However, this gain was partially
offset by the loss of income from these same companies. Non-energy income for
1998 included a $5.5 million transactional gain, net of taxes, from the sale of
a portfolio company by Pentzer which occurred in the first quarter of 1998.
Utility income decreased from 1998 primarily due to higher purchased power costs
and lower wholesale sales prices experienced by the Generation and Resources
line of business in the first quarter of 1999.
Energy Delivery and Generation and Resources contributed $0.74 to earnings per
share for the first half of 1999 compared to $0.57 in the first six months of
1998. This increase in utility earnings per share despite the decrease in
operating income occurred as a result of a decrease in the number of shares of
common stock outstanding due primarily to the exchange of shares of common stock
for Preferred Stock Series L. National Energy Trading and Marketing operations
had a loss of $0.48 per share in the first six months of 1999 compared to a
contribution of $0.11 in the same period in 1998. Non-energy operations
contributed $0.16 to earnings per share for the first half of 1999 compared to
$0.15 in the same period in 1998.
ENERGY DELIVERY
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Energy Delivery's pre-tax income from operations decreased $1.4 million, or 8%,
in the second quarter of 1999 from the same period in 1998. The decrease was
primarily the result of an increase in the transfer price between the two
utility lines of business representing the revenue from the sale of the electric
energy commodity used to serve Energy Delivery's customers. This transfer of
revenues between the two utility lines of business occurs through the use of a
transfer price, primarily based on cost of production studies, that is
associated with the sale of a kilowatthour of electricity. The electric energy
commodity revenues are collected by Energy Delivery and transferred to
Generation and Resources. The increase in the transfer price represents the
increased cost of purchased power. This amounted to an additional $5.7 million
that was transferred from Energy Delivery to Generation and Resources, but this
additional amount was not collected from the customers. Energy Delivery's
operating revenues decreased $1.5 million during the second quarter of 1999 as
compared to 1998.
Retail electric revenues, excluding the effect of the revenues transferred to
Generation and Resources, increased $4.2 million and natural gas revenues
increased $3.8 million in the second quarter of 1999 over 1998 due to customer
growth and slightly cooler weather in the second quarter of 1999.
Total operating expenses were unchanged in the second quarter of 1999 from 1998.
Purchased natural gas costs increased $2.3 million in the second quarter of
1999, primarily from increased therm sales due to customer growth and cooler
weather in 1999. Other operating and maintenance expenses decreased $1.6 million
as a result of fewer storms, resulting in less storm damage, and realizing the
benefit of preventive maintenance programs such as cable replacement, pole test
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and treat, and tree trimming. Administrative and general expenses decreased $2.1
million in the second quarter of 1999 primarily due to increased expenses during
1998 associated with the change in executive officers.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Energy Delivery's pre-tax income from operations decreased $9.4 million, or 15%,
in the first six months of 1999 from the same period in 1998. The decrease was
primarily the result of the increase in the transfer price between the two
utility lines of business that is discussed above. The increase in the transfer
price amounted to an additional $12.4 million that was transferred from Energy
Delivery to Generation and Resources, but this additional amount was not
collected from the customers. Energy Delivery's operating revenues and expenses
decreased $11.4 million and $2.0 million, respectively, during the first half of
1999 as compared to 1998.
Retail electric revenues, excluding the effect of the revenues transferred to
Generation and Resources, increased $6.0 million and natural gas revenues
increased $1.9 million in the first half of 1999 over 1998 due to customer
growth and slightly cooler weather in the first six months of 1999 as compared
to 1998.
Total operating expenses decreased $2.0 million in the first six months of 1999
from 1998. Other operations and maintenance expenses decreased $2.7 million
primarily due to fewer storms, resulting in less storm damage, and realizing the
benefit of preventive maintenance programs such as cable replacement, pole test
and treat, and tree trimming. Administrative and general expenses decreased $1.8
million from the first half of 1998 as a result of increased expenses during
1998 associated with the change in executive officers.
GENERATION AND RESOURCES
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Generation and Resources' pre-tax income from operations increased $5.5 million,
or 37%, in the second quarter of 1999 over the same period in 1998. The increase
was primarily due to the increase in the transfer price between the two utility
lines of business, which resulted in a $5.7 million increase in the electric
energy commodity revenues transferred to Generation and Resources by Energy
Delivery.
Generation and Resources' revenues for the second quarter of 1999 increased
$20.6 million over the same period in 1998. Wholesale revenues increased $12.5
million, or 16%, while sales volumes decreased 2% during the second quarter of
1999 from 1998, reflecting higher prices for purchased power in the region. The
majority of the remainder of the increased revenues resulted from the higher
electric commodity revenues transferred from Energy Delivery.
Streamflows in the second quarter of 1999 were 106% of normal, compared to 86%
in the second quarter of 1998, which resulted in hydroelectric generation 9%
higher in the second quarter of 1999 compared to 1998. This led to a 5% decrease
in the volume of purchased power. However, purchased power prices were 24%
higher than last year, which resulted in a $12.7 million, or 17%, increase in
purchased power expenses in the second quarter of 1999 over 1998. This increase
accounts for the majority of the increase in Generation and Resources' operating
expenses.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Generation and Resources' pre-tax income from operations increased $7.2 million,
or 33%, in the first six months of 1999 over the same period in 1998. The
increase was primarily due to the increase in the transfer price between the two
utility lines of business, which resulted in a $12.4 million increase in the
electric energy commodity revenues transferred to Generation and Resources by
Energy Delivery. This increase was partially offset by purchased power costs
that increased more than the associated wholesale revenues during the first
quarter of 1999. The Company committed to electric energy purchases in 1998
based on region-wide forecasts for colder temperatures and the expected higher
demand for energy from both retail and wholesale customers during the first
quarter. When those forecasted colder temperatures did not materialize as
anticipated in the first quarter, the Company sold that energy into wholesale
markets at lower prices.
Generation and Resources' revenues for the first half of 1999 increased $43.0
million over the same period in 1998. Streamflows in the first six months of
1999 were 107% of normal, compared to 91% in the first half of 1998, which
resulted in hydroelectric generation 10% higher in the first half of 1999
compared to 1998. This led to higher volumes of wholesale sales. Wholesale
revenues increased $26.1 million, or 17%, while sales volumes increased only 2%
during the
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first half of 1999 over 1998, reflecting higher prices for purchased power in
the region. The majority of the remainder of the increased revenues resulted
from the higher electric commodity revenues transferred from Energy Delivery.
Increased wholesale sales caused purchased power volumes to increase 2%, which,
combined with purchased power prices 21% higher than last year, resulted in a
$37.0 million, or 23%, increase in purchased power costs in the first half of
1999 over 1998. This increase accounts for the majority of the increase in
Generation and Resources' operating expenses.
NATIONAL ENERGY TRADING AND MARKETING
National Energy Trading and Marketing includes the results of Avista Energy, the
national energy marketing subsidiary; Avista Advantage, the energy services
subsidiary; and Avista Power, formed in December 1998 to develop and own
generation assets primarily in support of Avista Energy. Avista Power operations
have had minimal impact on earnings to date. Avista Energy maintains a trading
portfolio that it marks to fair market value on a daily basis (mark-to-market
accounting), which causes earnings variability.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
National Energy Trading and Marketing income available for common stock for the
second quarter of 1999 was a loss of $11.5 million, compared to second quarter
1998 earnings of $4.0 million. Avista Energy's operations were primarily
affected by warmer than normal weather, soft national energy markets and a lack
of volatility within those markets. Avista Energy lost income (1) on positions
taken in anticipation of certain weather patterns in particular areas of the
country, which lost value when the expected patterns did not occur, and (2) on
options, also taken in anticipation of certain weather patterns in particular
areas of the country, which expired unexercised when the expected patterns did
not occur.
National Energy Trading and Marketing's revenues and operating expenses
increased $779.8 million and $804.7 million, respectively, in the second quarter
of 1999 over 1998. The increase in revenues and expenses is primarily the result
of Avista Energy continuing to grow its business. Since its inception in 1997,
Avista Energy has been developing and expanding its business and adding
experienced traders and staff. This growth has continued into 1999 with Avista
Energy's purchase of Vitol Gas & Electric, LLC (Vitol) in the first quarter.
Vitol, located in Boston, Massachusetts, was one of the top 20 energy marketing
companies in the United States.
The decreased earnings were primarily the result of declines in market values
resulting from mild weather conditions and a general lack of volatility in the
electric and natural gas commodity markets. Changing market conditions and the
addition of new systems, new leadership, and new financial and trading personnel
caused results to turn around before the end of the second quarter, but were not
large enough to overcome earlier losses.
Late in the second quarter of 1999, Avista Energy added a significant number of
energy professionals in its Spokane, Houston and Boston offices. The integration
of Vitol operations into Avista Energy began during the second quarter and is
continuing, with the consolidation of back-office support, improvements in
accounting and trading processes and personnel, and continued enhancements in
risk management systems across Avista Energy.
Avista Energy marks its trading portfolio to fair market value on a daily basis,
which can cause earnings variability. For additional information about market
risk and credit risk, see Energy Trading Business on page 24.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
National Energy Trading and Marketing income available for common stock for the
first six months of 1999 was a loss of $19.2 million, compared to earnings of
$6.1 million in the first half of 1998. Avista Energy's operations were
primarily affected by warmer than normal weather, soft national energy markets
and a lack of volatility within those markets. Avista Energy lost income when
positions lost value and options expired unexercised when the anticipated
weather patterns in particular areas of the country on which certain trades were
based did not occur as expected.
National Energy Trading and Marketing's revenues and operating expenses
increased $1.428 billion and $1.468 billion, respectively, in the first half of
1999 over 1998. The increase in revenues and expenses is primarily the result of
Avista Energy continuing to grow its business.
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National Energy Trading and Marketing's total assets and liabilities increased
$655.7 million from December 1998 to June 1999. Avista Energy's energy commodity
assets and liabilities increased as a result of additional trading volumes,
which were partially offset by market price declines. Trade receivables and
payables increased due to additional volumes of sales and purchases.
NON-ENERGY
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Non-energy operations primarily reflect the results from Pentzer. Non-energy
income available for common stock for the second quarter of 1999 was a loss of
$1.2 million, compared to second quarter 1998 earnings of $1.3 million. The 1999
loss primarily resulted from the loss of income due to the sale of a group of
Pentzer's portfolio companies during the first quarter of 1999 and a loss on the
sale of equipment as a portfolio company consolidates its locations.
Non-energy operating revenues and expenses decreased $23.1 million and $19.3
million, respectively, during the second quarter of 1999, as compared to 1998,
primarily as a result of the sale of a group of Pentzer's portfolio companies
during the first quarter of 1999.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Non-energy income available for common stock for the first six months of 1999
was $6.4 million, compared to 1998 earnings of $8.4 million. The 1999 earnings
include a transactional gain totaling $10.1 million, net of taxes, recorded by
Pentzer as a result of the sale of a group of portfolio companies. The 1998
earnings included a transactional gain totaling $5.5 million, net of taxes,
recorded by Pentzer as a result of the sale of one of its portfolio companies,
Systran Financial Services. Non-transactional income from portfolio companies
decreased $5.7 million in the first six months of 1999 from 1998 primarily due
to the loss of income from the sale of a group of Pentzer's portfolio companies
in the first quarter of 1999, a loss on the sale of equipment and decreased
business activities.
Non-energy operating revenues and expenses decreased $20.1 million and $11.8
million, respectively, during the first six months of 1999, as compared to 1998,
primarily as a result of the sale of a group of Pentzer's portfolio companies
during the first quarter of 1999.
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LIQUIDITY AND CAPITAL RESOURCES
OVERALL OPERATIONS
Operating Activities Cash provided by operating activities in the first six
months of 1998 totaled $77.1 million, an increase of $7.4 million from the same
period in 1998. Net income for the first half of 1999 was $20.0 million below
that of 1998. The primary reason for increased cashflows was the sale of an
additional $35.0 million of customer accounts receivables during 1999. Various
working capital components, such as receivable and payables, increased
substantially in the 1999 period primarily due to Avista Energy's operations.
Investing Activities Cash used in investing activities totaled $2.6 million in
the first six months of 1999 compared to $48.4 million in the same period in
1998. Net cash used in investing activities during 1999 was primarily due to the
purchase of Vitol and capital expenditures, nearly offset by proceeds from the
sale of subsidiary investments by Pentzer.
Financing Activities Cash used in financing activities totaled $99.9 million in
the first half of 1999 compared to $21.5 million in 1998. Short-term borrowings
increased $51.1 million, while $101.3 million of long-term debt matured or was
redeemed in the first six months of 1999. In the first half of 1998, short-term
borrowings decreased $41.8 million, $74.2 million of long-term debt was issued
and $16.0 million of preferred stock and debt was redeemed or matured. The
repurchase of company stock (see paragraph below) used $26.5 million in 1999.
Dividends paid decreased $15.9 million in the first half of 1999 compared to
1998 as a result of the Company's dividend restructuring that occurred in
December 1998.
On May 12, 1999, the Company's Board of Directors authorized a common stock
repurchase program in which the Company may repurchase in the open market or
through privately negotiated transactions up to an aggregate of 10 percent of
its common stock and common stock equivalents over the next two years. The
repurchased shares will be retired as authorized but unissued shares. As of June
30, 1999, the Company had repurchased approximately 1.6 million shares.
In July 1999, the Company filed a Registration Statement with the Securities and
Exchange Commission for authorization to issue up to and including $400 million
of debt securities.
The Company's total common equity decreased $18.5 million during the first six
months of 1999 to $469.5 million, primarily due to losses experienced by the
National Energy Trading and Marketing business and the repurchase and retirement
of shares of the Company's common stock. The Company's consolidated capital
structure at June 30, 1999, was 44% debt, 26% preferred securities and 30%
common equity, compared to 45% debt, 25% preferred securities and 30% common
equity at year-end 1998. Had the convertible preferred stock been converted back
to common stock, the Company's consolidated capital structure at June 30, 1999,
would have been 44% debt, 9% preferred securities and 47% common equity.
ENERGY DELIVERY AND GENERATION AND RESOURCES OPERATIONS
The Company funds capital expenditures with a combination of
internally-generated cash and external financing. The level of cash generated
internally and the amount that is available for capital expenditures fluctuates
annually. Cash provided by operating activities remains the Company's primary
source of funds for operating needs, dividends and capital expenditures.
Capital expenditures are financed on an interim basis with notes payable (due
within one year). The Company has $260 million in committed lines of credit. In
addition, the Company may currently borrow up to $100 million through other
borrowing arrangements with banks. As of June 30, 1999, $58.4 million was
outstanding under other short-term borrowing arrangements and there were no
outstanding borrowings under the committed line of credit.
NATIONAL ENERGY TRADING AND MARKETING OPERATIONS
Avista Energy and its subsidiary, Avista Energy Canada, Ltd., as co-borrowers,
have a credit agreement with two commercial banks in the aggregate amount of
$110 million, expiring May 31, 2000. The credit agreement may be terminated by
the banks at any time and all extensions of credit under the agreement are
payable upon demand, in either case at the banks' sole discretion. The agreement
also provides, on an uncommitted basis, for the issuance of
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letters of credit to secure contractual obligations to counterparts. The
facility is guaranteed by Avista Capital and is secured by substantially all of
Avista Energy's assets. The maximum amount of credit extended by the banks for
cash advances is $30 million, with availability of up to $110 million (less the
amount of outstanding cash advances, if any) for the issuance of letters of
credit. At June 30, 1999, there were no cash advances (demand notes payable)
outstanding, and letters of credit outstanding under the facility totaled $69.3
million.
At June 30, 1999, National Energy Trading and Marketing operations had $36.3
million in cash and marketable securities with $3.1 million in long-term debt
outstanding.
Avista Power earlier announced the purchase of a site in New Mexico on which it
planned to construct a 120 megawatt combined cycle natural gas-fired electrical
generating plant estimated to cost approximately $70 million. After completing
due diligence on the site, it was determined that the project was not
economically beneficial, so Avista Power decided not to proceed with the
project.
NON-ENERGY OPERATIONS
The non-energy operations have $44.7 million in short-term borrowing
arrangements available ($9.5 million outstanding as of June 30, 1999) to fund
Pentzer's portfolio companies' requirements on an interim basis. At June 30,
1999, the non-energy operations had $9.9 million in cash and marketable
securities with $38.9 million in long-term debt outstanding (the current
portions of which are included on the Consolidated Balance Sheets as other
current liabilities).
YEAR 2000
State of Readiness
As of the end of June 1999, the Company believes all of its internal business
critical systems that could affect the Company's ability to deliver electric and
natural gas are Year 2000 ready. During the remainder of 1999, the Company will
complete the remaining non-mission critical tasks, continue to work with key
suppliers, and refine and test contingency plans. Key activities include the
assignment of resources to key locations for the evening of December 31, 1999
and the morning of January 1, 2000, training of personnel, testing of
contingency procedures and completion of other tasks that support the Company's
contingency plans. The Company participated in a region-wide contingency
planning drill coordinated by the Western Systems Coordinating Council (WSCC) on
April 9, 1999 and is making plans to participate in a second region-wide
contingency planning drill on September 8-9, 1999.
Desktop Computer Systems The Company performed Year 2000 testing on all desktop
computer hardware and inventoried and assessed desktop resident third-party
software. All non-compliant third-party software programs and critical business
desktop applications have been made Year 2000 ready while 99% of the desktop
hardware requiring remediation has either been fixed or replaced.
Business Systems Several of the Company's business systems would not have
operated correctly in the year 2000 and beyond. The Company has completed Year
2000 remediation and testing of mainframe computer code. A failure of these
systems would not jeopardize the Company's ability to deliver energy services to
customers, but might affect its ability to perform selected accounting and
business-related functions.
Supply Chain The Company recognizes its dependence on outside suppliers of goods
and services and is working to assure that the necessary products and services
are available. The Company identified and communicated with critical suppliers
in order to investigate their efforts to become Year 2000 ready. In addition,
the Company has made site visits to selected key suppliers and is reviewing
their contingency plans.
Embedded Systems Inventory, assessment, testing and remediation of
microprocessor-controlled devices is complete. Very few embedded systems
required remediation, and none requiring remediation would have caused a
disruption in service to customers.
Contingency Planning The Company has developed contingency plans for the
Company's electric and natural gas services and continues to participate in the
development of region-wide contingency plans for electric service through the
WSCC, the Company's electric reliability region.
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Costs
The Company estimates that the cost of its Year 2000 project will be
approximately $6-7 million in incremental costs during the 1997-1999 time
period. Through June 30, 1999, the Company has spent $5.6 million in incremental
costs. These costs are being funded through operating cashflows. The Company
does not expect costs associated with the Year 2000 project to materially affect
the Company's earnings in any one year.
Risks
Based upon information to date, the Company believes that, in the most
reasonably likely worst-case scenario, Year 2000 issues could result in abnormal
operating conditions, such as short-term interruption of generation,
transmission and distribution functions, as well as Company-wide loss of system
monitoring and control functions and loss of voice communications. These
conditions, along with disruptions in natural gas service caused by failures of
gas suppliers or interstate gas pipelines coupled with power outages due to the
possible instability of the regional electric transmission grid, could result in
the possible temporary interruption of service to customers. The Company does
not believe the overall impact of this scenario will have a material impact on
its financial condition or operations due to the anticipated short-term nature
of interruptions.
The Company believes the primary areas of Year 2000 risk to be internal business
systems, which are discussed above, and external factors, which include the
regional electric transmission grid and natural gas pipelines. There can be no
guarantee that systems of other companies on which the Company's systems rely
will be timely converted. A failure to convert by another company or a
conversion that is incompatible with the Company's systems could have an effect
on the Company's ability to provide energy services.
Electric The Company is working with the other energy suppliers in the area to
address risks related to the regional electric transmission grid, which consists
of the interconnected transmission systems of each utility within the WSCC. Such
interconnected systems are critical to the reliability of each interconnected
electric service provider, as the failure of one such interconnected provider to
achieve Year 2000 compliance could disrupt the others from providing electric
services. Should the regional electric transmission grid become unstable, power
outages may occur. The Company cannot assure Year 2000 compliance or assess the
effect of non-compliance by systems or parties that the Company does not
control.
In addition to the traditional electric utility operations of the Company, the
energy trading business conducted by Avista Energy is subject to Year 2000 risk.
Most of Avista Energy's internal business systems do not require any significant
upgrading and those that do have been addressed. With the integration of Avista
Energy's and Vitol's systems, an entire new infrastructure is being implemented,
scheduled to be complete by the end of September, which will be Year 2000
compliant. However, if any of Avista Energy's counterparties experience Year
2000 problems (including, but not limited to, problems arising out of failures
in the generation or transmission systems of utilities or other energy
suppliers), such problems could impair the ability of Avista Energy or any of
its counterparties to fulfill their contractual obligations. Avista Energy has
contacted its counterparties and various power pools to assess their Year 2000
readiness and is developing contingency plans. See "Energy Trading Business".
Natural Gas The Company has performed an inventory and assessment of the
equipment in its natural gas distribution systems and believes that there are no
devices in the systems that will cause a disruption in the delivery of natural
gas to customers due to a Year 2000 problem. However, the Company depends on
natural gas pipelines which it does not own or control, and if one or more of
the pipelines is unable to deliver natural gas, the Company in turn will be
unable to deliver natural gas to customers. In order to address this issue, the
Company has contacted each of the natural gas pipeline companies with which it
has contracts to assess their Year 2000 readiness efforts and will continue to
take reasonable steps to ensure that these suppliers are addressing any Year
2000 related problems that would result in a disruption in natural gas services
to customers.
ENERGY TRADING BUSINESS
The participants in the emerging wholesale energy market are public utility
companies and, increasingly, power marketers which may or may not be affiliated
with public utility companies or other entities. The participants in this market
trade not only electricity and natural gas as commodities but also derivative
commodity instruments such as futures, forwards, swaps, options and other
instruments. This market is largely unregulated and most transactions are
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conducted on an "over-the-counter" basis, there being no central clearing
mechanism (except in the case of specific instruments traded on the commodity
exchanges). Power marketers, whether or not affiliated with other entities,
generally do not own production facilities and are not subject to net capital or
other requirements of any regulatory agency.
The Company (to the extent that the Generation and Resources segment conducts
energy trading) and Avista Energy are subject to the various risks inherent in
commodity trading including, particularly, market risk and credit risk.
Market risk is, in general, the risk of fluctuation in the market price of the
commodity being traded and is influenced primarily by supply (in the case of
electricity, adequacy of generating reserve margins as well as scheduled and
unscheduled outages of generating facilities) and demand (extreme variations in
the weather, whether or not predicted). Market risk includes the risk of
fluctuation in the market price of associated derivative commodity instruments.
All market risk is influenced to the extent that the performance or
non-performance by market participants of their contractual obligations and
commitments affect the supply of the commodity.
Credit risk relates to the risk of loss that the Company (to the extent of
Generation and Resources' trading activities) and/or Avista Energy would incur
as a result of non-performance by counterparties of their contractual
obligations under the various instruments with the Company or Avista Energy, as
the case may be. Credit risk may be concentrated to the extent that one or more
groups of counterparties have similar economic, industry or other
characteristics that would cause their ability to meet contractual obligations
to be similarly affected by changes in market or other conditions. In addition,
credit risk includes not only the risk that a counterparty may default due to
circumstances relating directly to it, but also the risk that a counterparty may
default due to circumstances which relate to other market participants which
have a direct or indirect relationship with such counterparty. The Company and
Avista Energy seek to mitigate credit risk (and concentrations thereof) by
applying specific eligibility criteria to prospective counterparties. However,
despite mitigation efforts, defaults by counterparties may occur from time to
time. To date, no such default has had a material adverse effect on the Company
or Avista Energy.
Avista Capital provides guarantees for Avista Energy's line of credit agreement,
and in the course of business may provide guarantees to other parties with whom
Avista Energy may be doing business. The Company's investment in Avista Capital
totaled $300.4 million at June 30, 1999.
RISK MANAGEMENT
The risk management process established by the Company is designed to measure
both quantitative and qualitative risk in the business. The Company and Avista
Energy have adopted policies and procedures to manage the risks inherent in
their businesses and have established a comprehensive Risk Management Committee,
separate from the units that create the risk exposure and overseen by the Audit
and Finance Committee of the Company's Board of Directors, to monitor compliance
with the Company's risk management policies and procedures on a regular basis.
Nonetheless, adverse changes in interest rates, commodity prices and foreign
currency exchange rates may result in losses in earnings, cash flow and/or fair
values.
Interest Rate Risk The Company's market risks related to interest rates have not
changed materially from those reported in the 1998 Form 10-K.
Commodity Price Risk The Company's market risks related to commodity prices have
not changed materially from those reported in the 1998 Form 10-K. The following
Value-at-Risk (VAR) information has been updated for the current period. At June
30, 1999, Avista Energy's estimated potential one-day unfavorable impact on
gross margin was $4.2 million, as measured by VAR, related to its commodity
trading and marketing business. The average daily VAR for the first six months
of 1999 was $3.6 million.
Foreign Currency Risk The Company's market risks related to foreign currency
have not changed materially from those reported in the 1998 Form 10-K.
SAFE HARBOR FOR FORWARD LOOKING STATEMENTS.
The Company is including the following cautionary statement in this Form 10-Q to
make applicable and to take
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advantage of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 for any forward-looking statements made by, or on behalf of,
the Company. Forward-looking statements are all statements other than statements
of historical fact, including without limitation those that are identified by
the use of the words "anticipates," "estimates," "expects," "intends," "plans,"
"predicts," and similar expressions. Such statements are inherently subject to a
variety of risks and uncertainties that could cause actual results to differ
materially from those expressed. Such risks and uncertainties include, among
others, changes in the utility regulatory environment, wholesale and retail
competition, weather conditions and various other matters, many of which are
beyond the Company's control. These forward-looking statements speak only as of
the date of the report. The Company expressly undertakes no obligation to update
or revise any forward-looking statement contained herein to reflect any change
in the Company's expectations with regard thereto or any change in events,
conditions, or circumstances on which any such statement is based. See "Safe
Harbor for Forward Looking Statements" in the Company's 1998 Form 10-K under
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Future Outlook.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations: Liquidity and Capital Resources: Risk Management."
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 1999 Annual Meeting of Shareholders of the Company was held on May 13, 1999.
The re-election of three directors with expiring terms and election of a new
director were the only matters voted upon at the meeting. There were 40,555,765
shares of Common Stock issued and outstanding as of March 18, 1999, the proxy
record date, with 33,331,558 shares represented at said meeting. The details of
the voting are shown below:
Against
For or Withheld
---------- -----------
Re-election of Directors
Thomas M. Matthews 31,664,990 1,666,568
Eugene W. Meyer 31,816,630 1,514,928
Daniel J. Zaloudek 31,767,953 1,563,605
Election of New Director
Jessie J. Knight, Jr. 31,784,340 1,547,218
ITEM 5. OTHER INFORMATION
Idaho Electric Rate Increase On December 18, 1998, the Company filed for a
general electric rate increase of $14.2 million or 11.56% with the Idaho Public
Utilities Commission (IPUC), which was later reduced to approximately $13.5
million or 10.9%. In July 1999, the IPUC approved a rate increase of $9.3
million or 7.58%, effective August 1, 1999. The Company is implementing a 2.5%
power cost adjustment (PCA) rebate, also effective August 1, 1999.
Avista Communications In May 1999, Avista Communications finalized an
acquisition agreement with Western Technology Partners, a Billings, Montana
internet service provider, to form Avista Communications of Montana. The merger
added more than 6,000 customers. The new company will provide local dial tone,
data and internet services.
Centralia Power Plant On May 10, 1999, the owners of the Centralia Power Plant
announced an agreement to sell the plant to TransAlta, a Canadian company.
Avista Corp. has a 15% interest in the generating plant. The Company expects to
receive gross proceeds of approximately $60 million for its share of the plant.
Final accounting for the sale of the plant is still being determined. The sale
must be approved by federal and state regulators, as well as the city
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AVISTA CORPORATION
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councils or directors who control the municipal utilities and public utility
districts that also have ownership interests in the Centralia plant. It is
expected that all approvals will be completed by the end of the year.
Avista Labs Avista Labs selected a Spokane company, Logan Industries, Inc., to
manufacture its introductory proton exchange membrane (PEM) fuel cell
generators. A minimum of 200 PEM fuel cell power units will be manufactured,
assembled and tested. Manufacturing began in June. In September and October of
this year, Avista Labs will begin installing demonstration sites throughout the
United States to prove the reliability and ease of operation.
Avista Power On May 6, 1999, Avista Power and STEAG AG, Germany's largest
independent power producer announced that the two companies will form a joint
venture to develop, build and/or buy electric generation assets in strategic
locations throughout North America. STEAG will purchase a 50 percent interest in
Avista Power and invest jointly with Avista Power in future projects. STEAG also
secured an option to purchase a minority interest in Avista Energy.
Coeur d' Alene Lake Court Decision On July 28, 1998, the United States District
Court for the District of Idaho issued its finding that the Coeur d' Alene Tribe
of Idaho owns the bed and banks of the Coeur d' Alene Lake and the St. Joe River
lying within the current boundaries of the Coeur d' Alene Reservation. The
disputed bed and banks comprise approximately the southern one-third of Lake
Coeur d' Alene. This action had been brought by the United States on behalf of
the Tribe against the State of Idaho. While the Company is not a party to this
action, which has been appealed by the State of Idaho to the Ninth Circuit, the
Company is continuing to evaluate the impact of this decision on the operation
of its hydroelectric facilities on the Spokane River, downstream of the Coeur d'
Alene Lake, which is the reservoir for these plants.
ADDITIONAL FINANCIAL DATA
At June 30, 1999, the total long-term debt of the Company and its consolidated
subsidiaries, as shown in the Company's consolidated financial statements, was
approximately $680.9 million. Of such amount, $218.5 million represents
long-term unsecured and unsubordinated indebtedness of the Company, and $372.2
million represents secured indebtedness of the Company. The balance of $90.2
million includes short-term notes to be refinanced as well as indebtedness of
subsidiaries. Consolidated long-term debt does not include the Company's
subordinated indebtedness held by the issuers of Company-obligated preferred
trust securities.
The following table reflects the ratio of earnings to fixed charges and the
ratio of earnings to fixed charges and preferred dividend requirements:
12 Months Ended
------------------------------
June 30, December 31,
1999 1998
-------- ------------
Ratio of Earnings to Fixed Charges 2.17(x) 2.66(x)
Ratio of Earnings to Fixed Charges and
Preferred Dividend Requirements 1.60(x) 2.25(x)
The Company has long-term purchased power arrangements with various Public
Utility Districts and the interest expense components of these contracts are
included in purchased power expenses. These interest amounts are not included in
the fixed charges and would not have a material impact on fixed charges ratios.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
4(a) Bylaws of Avista Corporation, as amended May 13, 1999.
12 Computation of ratio of earnings to fixed charges and
preferred dividend requirements.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
Dated January 6, 1999, regarding the Company's name change to Avista
Corporation. Dated June 15, 1999, regarding anticipated lower second
quarter earnings.
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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.
AVISTA CORPORATION
(Registrant)
Date: August 12, 1999 /s/ J. E. Eliassen
--------------------------------
J. E. Eliassen
Senior Vice President and
Chief Financial Officer
(Principal Accounting and
Financial Officer)
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Exhibit 4(a)
BYLAWS
OF
AVISTA CORPORATION
* * * * *
ARTICLE I.
OFFICES
The principal office of the Corporation shall be in the City of Spokane,
Washington. The Corporation may have such other offices, either within or
without the State of Washington, as the Board of Directors may designate from
time to time.
ARTICLE II.
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The Annual Meeting of Shareholders shall be
held on such date in the month of May in each year as determined by the Board of
Directors for the purpose of electing directors and for the transaction of such
other business as may come before the meeting. If the day fixed for the Annual
Meeting shall be a legal holiday, such meeting shall be held on the next
succeeding business day.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may be
called by the President, the Chairman of the Board, the majority of the Board of
Directors, the Executive Committee of the Board, and shall be called by the
President at the request of the holders of not less than two-thirds (2/3) of the
voting power of all shares of the voting stock voting together as a single
class. Only those matters that are specified in the call of or request for a
special meeting may be considered or voted at such meeting.
SECTION 3. PLACE OF MEETING. Meetings of the shareholders, whether they
be annual or special, shall be held at the principal office of the Corporation,
unless a place, either within or without the state, is otherwise designated by
the Board of Directors in the notice provided to shareholders of such meetings.
SECTION 4. NOTICE OF MEETING. Written or printed notice of every meeting
of shareholders shall be mailed by the Corporate Secretary or any Assistant
Corporate Secretary, not less than ten (10) nor more than fifty (50) days before
the date of the meeting, to each holder of record of stock entitled to vote at
the meeting. The notice shall be mailed to each shareholder at his last known
post office address, provided, however, that if a shareholder is present at a
meeting, or waives notice thereof in writing before or after the meeting, the
notice of the meeting to such shareholders shall be unnecessary.
SECTION 5. VOTING OF SHARES. At every meeting of shareholders each
holder of stock entitled to vote thereat shall be entitled to one vote for each
share of such stock held in his name on the books of the Corporation, subject to
the provisions of applicable law and the Articles of Incorporation, and may vote
and otherwise act in person or by proxy; provided, however, that in elections of
directors there shall be cumulative voting as provided by law and by the
Articles of Incorporation.
2
SECTION 6. QUORUM. The holders of a majority of the number of
outstanding shares of stock of the Corporation entitled to vote thereat, present
in person or by proxy at any meeting, shall constitute a quorum, but less than a
quorum shall have power to adjourn any meeting from time to time without notice.
No change shall be made in this Section 6 without the affirmative vote of the
holders of at least a majority of the outstanding shares of stock entitled to
vote.
SECTION 7. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purposes of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
Corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, fifty (50) days. If the stock
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such books shall
be closed for at least ten (10) days immediately preceding such meeting. In lieu
of closing the stock transfer books, the Board of Directors may fix in advance a
date as the record date for any such determination of shareholders, such date in
any case to be not more than seventy (70) days and, in case of a meeting of
shareholders, not less than ten (10) days prior to the date on which the
particular action, requiring such determination of shareholders, is to be taken.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof.
SECTION 8. VOTING RECORD. The officer or agent having charge of the
stock transfer books for shares of the Corporation shall make, at least ten (10)
days before each meeting of shareholders, a complete record of the shareholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which record, for a period of ten (10) days prior to such meeting, shall be kept
on file at the registered office of the Corporation. Such record shall be
produced and kept open at the time and place of the meeting and shall be subject
to the inspection of any shareholder during the whole time of the meeting for
the purposes thereof.
SECTION 9. CONDUCT OF PROCEEDINGS. The Chairman of the Board shall
preside at all meetings of the shareholders. In the absence of the Chairman, the
President shall preside and in the absence of both, the Executive Vice President
shall preside. The members of the Board of Directors present at the meeting may
appoint any officer of the Corporation or member of the Board to act as Chairman
of any meeting in the absence of the Chairman, the President, or Executive Vice
President. The Corporate Secretary of the Corporation, or in his absence, an
Assistant Corporate Secretary, shall act as Secretary at all meetings of the
shareholders. In the absence of the Corporate Secretary or Assistant Corporate
Secretary at any meeting of the shareholders, the presiding officer may appoint
any person to act as Secretary of the meeting.
SECTION 10. PROXIES. At all meetings of shareholders, a shareholder may
vote in person or by proxy executed in writing by the shareholder or by his duly
authorized attorney in fact. Such proxy shall be filed with the Corporate
Secretary of the Corporation before or at the time of the meeting.
2
3
ARTICLE III.
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The powers of the Corporation shall be
exercised by or under the authority of the Board of Directors, except as
otherwise provided by the laws of the State of Washington and the Articles of
Incorporation.
SECTION 2. NUMBER AND TENURE. The number of Directors of the Corporation
shall be ten (10); provided, however, that if the right to elect a majority of
the Board of Directors shall have accrued to the holders of the Preferred Stock
as provided in paragraph (1) of subdivision (j) of Article THIRD of the Articles
of Incorporation, then, during such period as such holders shall have such
right, the number of directors may exceed ten (10). Directors shall be divided
into three classes, as nearly equal in number as possible. At each Annual
Meeting of Shareholders, directors elected to succeed those directors whose
terms expire shall be elected for a term of office to expire at the third
succeeding Annual Meeting of Shareholders after their election. Notwithstanding
the foregoing, directors elected by the holders of the Preferred Stock in
accordance with paragraph (1) of subdivision (j) of Article THIRD of the
Articles of Incorporation shall be elected for a term which shall expire not
later than the next Annual Meeting of Shareholders. All directors shall hold
office until the expiration of their respective terms of office and until their
successors shall have been elected and qualified.
SECTION 3. REGULAR MEETINGS. The regular annual meeting of the Board of
Directors shall be held immediately following the adjournment of the annual
meeting of the shareholders or as soon as practicable after said annual meeting
of shareholders. But, in any event, said regular annual meeting of the Board of
Directors must be held on either the same day as the annual meeting of
shareholders or the next business day following said annual meeting of
shareholders. At such meeting the Board of Directors, including directors newly
elected, shall organize itself for the coming year, shall elect officers of the
Corporation for the ensuing year, and shall transact all such further business
as may be necessary or appropriate. The Board shall hold regular quarterly
meetings, without call or notice, on such dates as determined by the Board of
Directors. At such quarterly meetings the Board of Directors shall transact all
business properly brought before the Board.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board, the President,
the Executive Vice President or any three (3) directors. Notice of any special
meeting shall be given to each director at least two (2) days in advance of the
meeting.
SECTION 5. EMERGENCY MEETINGS. In the event of a catastrophe or a
disaster causing the injury or death to members of the Board of Directors and
the principal officers of the Corporation, any director or officer may call an
emergency meeting of the Board of Directors. Notice of the time and place of the
emergency meeting shall be given not less than two (2) days prior to the meeting
and may be given by any available means of communication. The director or
directors present at the meeting shall constitute a quorum for the purpose of
filling vacancies determined to exist. The directors present at the emergency
meeting may appoint such officers as necessary to fill any vacancies determined
to exist. All appointments under this section shall be temporary until a special
meeting of the shareholders and directors is held as provided in these Bylaws.
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SECTION 6. CONFERENCE BY TELEPHONE. The members of the Board of
Directors, or of any committee created by the Board, may participate in a
meeting of the Board or of the committee by means of a conference telephone or
similar communication equipment by means of which all persons participating in
the meeting can hear each other at the same time. Participation in a meeting by
such means shall constitute presence in person at a meeting.
SECTION 7. QUORUM. A majority of the number of directors shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors. The action of a majority of the directors present at a meeting at
which a quorum is present shall be the action of the Board.
SECTION 8. ACTION WITHOUT A MEETING. Any action required by law to be
taken at a meeting of the directors of the Corporation, or any action which may
be taken at a meeting of the directors or of a committee, may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors, or all of the members of the committee, as the
case may be. Such consent shall have the same effect as a unanimous vote.
SECTION 9. VACANCIES. Subject to the provisions of paragraph (1) of
subdivision (j) of Article THIRD of the Articles of Incorporation, (a) any
vacancy occurring in the Board of Directors may be filled by the affirmative
vote of a majority of the remaining directors though less than a quorum of the
Board of Directors and any director so elected to fill a vacancy shall be
elected for the unexpired term of his or her predecessor in office and (b) any
directorship to be filled by reason of an increase in the number of directors
may be filled by the Board of Directors for a term of office continuing only
until the next election of directors by the shareholders.
SECTION 10. RESIGNATION OF DIRECTOR. Any director or member of any
committee may resign at any time. Such resignation shall be made in writing and
shall take effect at the time specified therein. If no time is specified, it
shall take effect from the time of its receipt by the Corporate Secretary, who
shall record such resignation, noting the day, hour and minute of its reception.
The acceptance of a resignation shall not be necessary to make it effective.
SECTION 11. REMOVAL. Subject to the provisions of paragraph (1) of
subdivision (j) of Article THIRD of the Articles of Incorporation, any director
may be removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least a majority of the voting power of
all of the shares of capital stock of the Corporation entitled generally to vote
in the election of directors voting together as a single class, at a meeting of
shareholders called expressly for that purpose; provided, however, that if less
than the entire Board of Directors is to be removed, no one of the directors may
be removed if the votes cast against the removal of such director would be
sufficient to elect such director if then cumulatively voted at an election of
the class of directors of which such director is a part. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director.
SECTION 12. ORDER OF BUSINESS. The Chairman of the Board shall preside
at all meetings of the directors. In the absence of the Chairman, the officer or
member of the Board designated by the Board of Directors shall preside. At
meetings of the Board of Directors, business shall be transacted in such order
as the Board may determine. Minutes of all proceedings of the Board of
Directors, or committees appointed by it, shall be prepared and maintained by
the Corporate Secretary or an Assistant Corporate Secretary and the original
shall be maintained in the principal office of the Corporation.
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SECTION 13. NOMINATION OF DIRECTORS. Subject to the provisions of
paragraph (1) of subdivision (j) of Article THIRD of the Articles of
Incorporation, nominations for the election of directors may be made by the
Board of Directors, or a nominating committee appointed by the Board of
Directors, or by any holder of shares of the capital stock of the Corporation
entitled generally to vote in the election of directors (such stock being
hereinafter in this Section called "Voting Stock"). However, any holder of
shares of the Voting Stock may nominate one or more persons for election as
directors at a meeting only if written notice of such shareholder's intent to
make such nomination or nominations has been given, either by personal delivery
or by United States mail, postage prepaid, to the Corporate Secretary not later
than (i) with respect to an election to be held at an annual meeting of
shareholders, ninety (90) days in advance of such meeting and (ii) with respect
to an election to be held at a special meeting of shareholders for the election
of directors, the close of business on the seventh day following the date on
which notice of such meeting is first given to shareholders. Each such notice
shall set forth: (a) the name and address of the shareholder who intends to make
the nomination and of the person or persons to be nominated; (b) a
representation that such shareholder is a holder of record of shares of the
Voting Stock of the Corporation and intends to appear in person or by proxy at
the meeting to nominate the person or persons identified in the notice; (c) a
description of all arrangements or understandings between such shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by such
shareholder; (d) such other information regarding each nominee proposed by such
shareholder as would be required to be included in a proxy statement under the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (or any subsequent revisions replacing such Act, rules or
regulations) if the nominee(s) had been nominated, or were intended to be
nominated, by the Board of Directors; and (e) the consent of each nominee to
serve as a Director of the Corporation if so elected. The Chairman of the
meeting may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedure.
SECTION 14. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors, or of a committee thereof, at
which action on any corporate matter is taken, shall be presumed to have
assented to the action unless his dissent shall be entered in the minutes of the
meeting or unless he shall file his written dissent to such action with the
person acting as the Secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Corporate Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
SECTION 15. RETIREMENT OF DIRECTORS. Directors who are seventy (70)
years of age or more shall retire from the Board effective at the conclusion of
the Annual Meeting of Shareholders held in the year in which their term expires,
and any such Director shall not be nominated for election at such Annual
Meeting. The foregoing shall be effective in 1988 and thereafter as to any
Director who is seventy (70) years of age or more during the year in which his
or her term expires.
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ARTICLE IV.
EXECUTIVE COMMITTEE
AND
ADDITIONAL COMMITTEES
SECTION 1. APPOINTMENT. The Board of Directors, by resolution adopted by
a majority of the Board, may designate three or more of its members to
constitute an Executive Committee. The designation of such committee and the
delegation thereto of authority shall not operate to relieve the Board of
Directors, or any member thereof, of any responsibility imposed by law.
SECTION 2. AUTHORITY. The Executive Committee, when the Board of
Directors is not in session, shall have and may exercise all of the authority of
the Board of Directors including authority to authorize distributions or the
issuance of shares of stock, except to the extent, if any, that such authority
shall be limited by the resolution appointing the Executive Committee or by law.
SECTION 3. TENURE. Each member of the Executive Committee shall hold
office until the next regular annual meeting of the Board of Directors following
his designation and until his successor is designated as a member of the
Executive Committee.
SECTION 4. MEETINGS. Regular meetings of the Executive Committee may be
held without notice at such times and places as the Executive Committee may fix
from time to time by resolution. Special meetings of the Executive Committee may
be called by any member thereof upon not less than two (2) days notice stating
the place, date and hour of the meeting, which notice may be written or oral.
Any member of the Executive Committee may waive notice of any meeting and no
notice of any meeting need be given to any member thereof who attends in person.
SECTION 5. QUORUM. A majority of the members of the Executive Committee
shall constitute a quorum for the transaction of business at any meeting
thereof. Actions by the Executive Committee must be authorized by the
affirmative vote of a majority of the appointed members of the Executive
Committee.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the Executive Committee at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the members of the Executive Committee.
SECTION 7. PROCEDURE. The Executive Committee shall select a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these Bylaws. It shall keep regular minutes of its
proceedings and report the same to the Board of Directors for its information at
a meeting thereof held next after the proceedings shall have been taken.
SECTION 8. COMMITTEES ADDITIONAL TO EXECUTIVE COMMITTEE. The Board of
Directors may, by resolution, designate one or more other committees, each such
committee to consist of two (2) or more of the directors of the Corporation. A
majority of the members of any such committee may determine its action and fix
the time and place of its meetings unless the Board of Directors shall otherwise
provide.
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ARTICLE V.
OFFICERS
SECTION 1. NUMBER. The Board of Directors shall elect one of its members
Chairman of the Board. The Board of Directors shall elect a President, who may
also serve as Chairman, one or more Vice Presidents, a Corporate Secretary, a
Treasurer, and may from time to time elect such other officers as the Board
deems appropriate. The same person may be appointed to more than one office
except that the offices of President and Corporate Secretary may not be held by
the same person.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation
shall be elected by the Board of Directors at the annual meeting of the Board.
Each officer shall hold office until his successor shall have been duly elected
and qualified.
SECTION 3. REMOVAL. Any officer or agent may be removed by the Board of
Directors whenever in its judgment the best interests of the Corporation will be
served thereby, but such removal shall be without prejudice to contract rights,
if any, of the person so removed. Election or appointment of an officer or agent
shall not of itself create contract rights.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
SECTION 5. POWERS AND DUTIES. The officers shall have such powers and
duties as usually pertain to their offices, except as modified by the Board of
Directors, and shall have such other powers and duties as may from time to time
be conferred upon them by the Board of Directors.
ARTICLE VI.
CONTRACTS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The Board of Directors may authorize any officer
or officers or agents, to enter into any contract or to execute and deliver any
instrument in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances.
SECTION 2. CHECKS/DRAFTS/NOTES. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
SECTION 3. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors by
resolution may select.
ARTICLE VII.
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
the Corporation shall be in such form as shall be determined by the Board of
Directors and shall contain such
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information as prescribed by law. Such certificates shall be signed by the
President or a Vice President and by either the Corporate Secretary or an
Assistant Corporate Secretary, and sealed with the corporate seal or a facsimile
thereof. The signatures of such officers upon a certificate may be facsimiles.
The name and address of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the Corporation. All certificates surrendered to the
Corporation for transfer shall be cancelled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and cancelled, except that in case of a lost, destroyed or mutilated
certificate a new one may be issued therefor upon such terms and indemnity to
the Corporation as the Board of Directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of the Corporation
shall be made only on the stock transfer books of the Corporation by the holder
of record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Corporate Secretary of the
Corporation, and on surrender for cancellation of the certificate for such
shares. The person in whose name shares stand on the books of the Corporation
shall be deemed by the Corporation to be the owner thereof for all purposes. The
Board of Directors shall have power to appoint one or more transfer agents and
registrars for transfer and registration of certificates of stock.
ARTICLE VIII.
CORPORATE SEAL
The seal of the Corporation shall be in such form as the Board of
Directors shall prescribe.
ARTICLE IX.
INDEMNIFICATION
SECTION 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Corporation
shall indemnify and reimburse the expenses of any person who is or was a
director, officer, agent or employee of the Corporation or is or was serving at
the request of the Corporation as a director, officer, partner, trustee,
employee, or agent of another enterprise or employee benefit plan to the extent
permitted by and in accordance with Article SEVENTH of the Company's Articles of
Incorporation and as permitted by law.
SECTION 2. LIABILITY INSURANCE. The Corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee, or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, other enterprise, or
employee benefit plan against any liability asserted against him and incurred by
him in any such capacity or arising out of his status as such, whether or not
the Corporation would have the power to indemnify him against such liability
under the laws of the State of Washington.
SECTION 3. RATIFICATION OF ACTS OF DIRECTOR, OFFICER OR SHAREHOLDER. Any
transaction questioned in any shareholders' derivative suit on the ground of
lack of authority, defective or irregular execution, adverse interest of
director, officer or shareholder, nondisclosure, miscomputation, or the
application of improper principles or practices of accounting may be ratified
before or after judgment, by the Board of Directors or by the shareholders in
case less
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than a quorum of directors are qualified; and, if so ratified, shall have the
same force and effect as if the questioned transaction had been originally duly
authorized, and said ratification shall be binding upon the Corporation and its
shareholders and shall constitute a bar to any claim or execution of any
judgment in respect of such questioned transaction.
ARTICLE X.
AMENDMENTS
Except as to Section 6 of Article II of these Bylaws, the Board of
Directors may alter or amend these Bylaws at any meeting duly held, the notice
of which includes notice of the proposed amendment. Bylaws adopted by the Board
of Directors shall be subject to change or repeal by the shareholders; provided,
however, that Section 2 of the Article II, Section 2 (other than the provision
thereof specifying the number of Directors of the Corporation), and Sections 9,
11 and 13 of Article III and this proviso shall not be altered, amended or
repealed, and no provision inconsistent therewith or herewith shall be included
in these Bylaws, without the affirmative votes of the holders of at least eighty
percent (80%) of the voting power of all the shares of the Voting Stock voting
together as a single class.
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EXHIBIT 12
AVISTA CORPORATION
Computation of Ratio of Earnings to Fixed Charges and
Preferred Dividend Requirements
Consolidated
(Thousands of Dollars)
12 Mos. Ended Years Ended December 31
June 30, --------------------------------------------
1999 1998 1997 1996 1995
------------- -------- -------- -------- --------
Fixed charges, as defined:
Interest on long-term debt $ 66,760 $ 66,218 $ 63,413 $ 60,256 $ 55,580
Amortization of debt expense
and premium - net 1,605 2,859 2,862 2,998 3,441
Interest portion of rentals 4,348 4,301 4,354 4,311 3,962
-------- -------- -------- -------- --------
Total fixed charges $ 72,714 $ 73,378 $ 70,629 $ 67,565 $ 62,983
======== ======== ======== ======== ========
Earnings, as defined:
Net income from continuing ops $ 58,162 $ 78,139 $114,797 $ 83,453 $ 87,121
Add (deduct):
Income tax expense 26,569 43,335 61,075 49,509 52,416
Total fixed charges above 72,714 73,378 70,629 67,565 62,983
-------- -------- -------- -------- --------
Total earnings $157,445 $194,852 $246,501 $200,527 $202,520
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 2.17 2.66 3.49 2.97 3.22
Fixed charges and preferred dividend
requirements:
Fixed charges above $ 72,714 $ 73,378 $ 70,629 $ 67,565 $ 62,983
Preferred dividend requirements(2) 25,574 13,057 8,261 12,711 14,612
-------- -------- -------- -------- --------
Total $ 98,288 $ 86,435 $ 78,890 $ 80,276 $ 77,595
======== ======== ======== ======== ========
Ratio of earnings to fixed charges
and preferred dividend requirements 1.60 2.25 3.12 2.50 2.61
(1) Preferred dividend requirements have been grossed up to their pre-tax level.
UT
1,000
6-MOS
DEC-31-1999
JUN-30-1999
PER-BOOK
1,482,102
731,754
1,251,456
276,915
0
3,742,227
351,850
(3,970)
121,649
469,529
145,000
268,855
538,348
67,896
26,127
0
64,231
0
4,627
1,715
2,155,899
3,742,227
2,647,931
12,786
2,600,044
2,600,044
47,887
24,554
72,441
31,758
27,897
10,767
17,130
9,684
0
77,074
0.42
0.42
LONG-TERM DEBT-NET DOES NOT MATCH THE AMOUNT REPORTED ON THE COMPANY'S
CONSOLIDATED STATEMENT OF CAPITALIZATION AS LONG-TERM DEBT DUE TO THE OTHER
CATEGORIES REQUIRED BY THIS SCHEDULE.
OTHER ITEMS CAPITAL AND LIABILITIES INCLUDES THE CURRENT LIABILITIES, DEFERRED
CREDITS AND MINORITY INTEREST, LESS CERTAIN AMOUNTS INCLUDED UNDER LONG-TERM
DEBT-CURRENT PORTION AND LEASES-CURRENT, FROM THE COMPANY'S CONSOLIDATED
BALANCE SHEET.
THE COMPANY DOES NOT INCLUDE INCOME TAX EXPENSE AS AN OPERATING EXPENSE ITEM.
IT IS INCLUDED ON THE COMPANY'S STATEMENTS AS A BELOW-THE-LINE ITEM.
INCOME BEFORE INTEREST EXPENSE IS NOT A SPECIFIC LINE ITEM ON THE COMPANY'S
INCOME STATEMENTS. THE COMPANY COMBINES TOTAL INTEREST EXPENSE AND OTHER INCOME
TO CALCULATE INCOME BEFORE INCOME TAXES.
