-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, rQk3KBkwsVcyQoW/mw0OcOINyrfz5J4KrvrO5El25L+tiXQR60zJsgK8bmFNuAZi DeCh03bpTbpGLxir+OwRkQ== 0000073020-94-000023.txt : 19940817 0000073020-94-000023.hdr.sgml : 19940817 ACCESSION NUMBER: 0000073020-94-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWEST NATURAL GAS CO CENTRAL INDEX KEY: 0000073020 STANDARD INDUSTRIAL CLASSIFICATION: 4924 IRS NUMBER: 930256722 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-00994 FILM NUMBER: 94543485 BUSINESS ADDRESS: STREET 1: 220 NW SECOND AVE CITY: PORTLAND STATE: OR ZIP: 97209 BUSINESS PHONE: 5032264211 10-Q 1 BODY OF 10-Q Form 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (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, 1994 ------------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period to ---------------- ---------------- Commission file number 0-994 --------- NORTHWEST NATURAL GAS COMPANY - - ---------------------------------------------------------------- (Exact name of registrant as specified in its charter) Oregon 93-0256722 - - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 220 N. W. Second Avenue, Portland, Oregon 97209 - - ---------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (503) 226-4211 ------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ Indicate the number of shares outstanding of each of the issuer's classes of common stock (or class convertible into common stock) as of the close of the period covered by this report: Common Stock, $3 1/6 par value -- 13,295,622 shares Convertible Preference Stock, $2.375 Series -- 63,480 shares NORTHWEST NATURAL GAS COMPANY June 30, 1994 Summary of Information Reported The registrant submits herewith the following information: PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements Number ------ (1) Consolidated Statements of Income for the three and six month periods ended June 30, 1994 and 1993 and Consolidated Statements of Earnings Invested in the Business for the six month periods ended June 30, 1994 and 1993. 3 (2) Consolidated Balance Sheets at June 30, 1994 and 1993 and December 31, 1993. 4 (3) Consolidated Statements of Cash Flows for the six month periods ended June 30, 1994 and 1993. 6 (4) Consolidated Statements of Capitalization at June 30, 1994 and 1993 and December 31, 1993. 7 (5) Notes to Consolidated Financial Statements. 8 Independent Accountants' Report 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation 10 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 18 Item 6. Exhibits and Reports on Form 8-K 19 Signature 20 2 NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (1) Consolidated Statements of Income (Thousands, Except Per Share Amounts)
Three Months Ended Six Months Ended June 30, June 30, ---------------- ----------------- 1994 1993 1994 1993 ------- ------- -------- ------ Net Operating Revenues: Operating revenues $66,505 $61,789 $195,039 $190,503 Cost of sales 29,286 21,648 85,495 68,246 ------- ------- -------- -------- Net operating revenues 37,219 40,141 109,544 122,257 ------- ------- -------- -------- Operating Expenses: Operations and maintenance 17,695 16,595 35,551 35,335 Taxes other than income taxes 6,022 5,461 14,075 13,439 Depreciation, depletion and amortization 8,912 9,388 18,020 18,370 ------- ------- -------- -------- Total operating expenses 32,629 31,444 67,646 67,144 ------- ------- -------- -------- Income from Operations 4,590 8,697 41,898 55,113 ------- ------- -------- -------- Other Income 4,880 1,590 4,951 360 ------- ------- -------- -------- Interest Charges - net 5,900 6,144 12,077 12,501 ------- ------- -------- -------- Income Before Income Taxes 3,570 4,143 34,772 42,972 Income Taxes 1,105 1,376 13,527 15,552 ------- ------- -------- -------- Net Income 2,465 2,767 21,245 27,420 Preferred and preference stock dividend requirements 757 862 1,497 1,818 ------- ------- -------- -------- Earnings Applicable to Common Stock $ 1,708 $ 1,905 $ 19,748 $ 25,602 ======= ======= ======== ======== Average Common Shares Outstanding 13,270 13,048 13,239 13,023 Primary Earnings Per Share of Common Stock $0.13 $0.15 $1.49 $1.97 Fully-Diluted Earnings Per Share of Common Stock * $0.15 $1.46 $1.91 Dividends Per Share of Common Stock $0.44 $0.44 $0.88 $0.87 *Anti-dilutive See accompanying Notes to Consolidated Financial Statements. =============================================================================== Consolidated Statements of Earnings Invested in the Business (Thousands, Six Month Periods Ended June 30) 1994 1993 -------- -------- Balance at Beginning of Period $ 88,497 $ 77,690 Net Income 21,245 27,420 Cash Dividends: Preferred and preference stock (1,550) (1,708) Common stock (11,634) (11,316) Foreign Currency Translation Adjustment (104) (194) -------- -------- Balance at End of Period $ 96,454 $ 91,892 ======== ======== See accompanying Notes to Consolidated Financial Statements. 3
NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (2) Consolidated Balance Sheets (Thousands of Dollars)
June 30, June 30, Dec. 31, 1994 1993 1993 -------- -------- -------- Assets: Plant and Property in Service: Utility plant in service $874,210 $810,307 $840,030 Less accumulated depreciation 269,033 246,705 255,282 -------- -------- -------- Utility plant - net 605,177 563,602 584,748 Non-utility property 45,555 42,597 42,764 Less accumulated depreciation and depletion 22,295 17,509 20,646 -------- -------- -------- Non-utility property - net 23,260 25,088 22,118 -------- -------- -------- Total plant and property in service 628,437 588,690 606,866 -------- -------- -------- Investments and Other: Investments 33,996 33,671 32,818 Restricted cash and long-term notes receivable 6,873 7,316 1,756 -------- -------- -------- Total investments and other 40,869 40,987 34,574 -------- -------- -------- Current Assets: Cash and cash equivalents 2,337 4,310 4,198 Accounts receivable - customers 23,730 22,295 45,340 Allowance for uncollectible accounts (1,674) (1,208) (1,368) Accrued unbilled revenue 5,728 4,757 25,890 Inventories of gas, materials and supplies 12,045 12,898 16,838 Prepayments and other current assets 5,692 8,691 16,412 -------- -------- -------- Total current assets 47,858 51,743 107,310 -------- -------- -------- Regulatory Tax Assets 60,430 63,273 62,130 -------- -------- -------- Deferred Debits and Other 38,588 32,485 38,156 -------- -------- -------- Total Assets $816,182 $777,178 $849,036 ======== ======== ======== See accompanying Notes to Consolidated Financial Statements. 4
NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (2) Consolidated Balance Sheets (Thousands of Dollars)
June 30, June 30, Dec. 31, 1994 1993 1993 -------- -------- -------- Capitalization and Liabilities: Capitalization: Common stock $173,784 $166,801 $170,068 Earnings invested in the business 96,454 91,892 88,497 -------- -------- -------- Total common stock equity 270,238 258,693 258,565 Preference stock 26,587 26,696 26,633 Redeemable preferred stock 15,950 18,806 17,041 Long-term debt 272,229 253,746 272,931 -------- -------- -------- Total capitalization 585,004 557,941 575,170 -------- -------- -------- Current Liabilities: Notes payable 37,780 37,365 72,548 Accounts payable 25,933 25,408 44,318 Long-term debt due within one year - 2,138 - Taxes accrued 4,446 2,579 6,757 Interest accrued 4,448 6,746 4,438 Other current and accrued liabilities 10,500 9,068 10,180 -------- -------- -------- Total current liabilities 83,107 83,304 138,241 -------- -------- -------- Deferred Investment Tax Credits 13,892 14,841 14,567 -------- -------- -------- Deferred Income Taxes 109,981 107,211 104,300 -------- -------- -------- Regulatory Balancing Accounts and Other 24,198 13,881 16,758 -------- -------- -------- Total Capitalization and Liabilities $816,182 $777,178 $849,036 ======== ======== ======== See accompanying Notes to Consolidated Financial Statements. 5
NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (3) Consolidated Statements of Cash Flows (Thousands of Dollars)
Six Months Ended June 30, -------------------- 1994 1993 -------- -------- Operating Activities: Net income $ 21,245 $ 27,420 Adjustments to reconcile net income to net cash provided by (used for) operations: Depreciation, depletion and amortization 18,020 18,370 Deferred income taxes and investment tax credits 6,706 8,247 Equity in earnings of unconsolidated affiliates (259) (79) Allowance for funds used during construction and capitalized interest (138) (49) Regulatory balancing accounts and other - net 7,008 (7,960) Funds From Operations Before Working -------- -------- Capital Changes 52,582 45,949 Changes in current operating assets and liabilities: Accounts receivable 21,916 11,921 Accrued unbilled revenue 20,162 15,981 Inventories of gas, materials and supplies 4,793 2,899 Accounts payable (18,385) (14,874) Accrued interest and taxes (2,301) (2,257) Other current operating assets and liabilities 5,540 (790) -------- -------- Cash Provided by Operating Activities 84,307 58,829 -------- -------- Investing Activities: Acquisition and construction of utility plant assets (36,656) (32,990) Investment in non-utility plant (2,797) 1,017 Investments and other (536) (572) -------- -------- Cash Used in Investing Activities (39,989) (32,545) -------- -------- Financing Activities: Common stock issued 2,968 2,883 Preferred stock retired (1,091) (9,412) Long-term debt retired - (20) Change in short-term debt (34,768) (9,744) Cash dividend payments: Preferred and preference stock (1,550) (1,708) Common stock (11,634) (11,316) Foreign currency translation adjustment (104) (194) -------- -------- Cash Used in Financing Activities (46,179) (29,511) -------- -------- Decrease in Cash and Cash Equivalents (1,861) (3,227) Cash and Cash Equivalents - Beginning of Period 4,198 7,537 -------- -------- Cash and Cash Equivalents - End of Period $ 2,337 $ 4,310 ======== ======== ============================================================================== Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest $ 11,786 $ 12,308 Income Taxes $ 7,704 $ 7,100 See accompanying Notes to Consolidated Financial Statements. 6
NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (4) Consolidated Statements of Capitalization (Thousands, except share amounts)
Jun. 30, 1994 Jun. 30, 1993 Dec. 31, 1993 - - ------------------------------------------------------------------------------- Common Stock Equity: Common stock - par value $3-1/6 per share $ 42,103 $ 41,398 $ 41,728 Premium on common stock 131,681 125,403 128,340 Earnings invested in business 96,454 91,892 88,497 -------- -------- -------- Total common stock equity 270,238 46% 258,693 46% 258,565 45% -------- ---- -------- ---- -------- ---- Preference Stock: $2.375 Series, convertible, stated value $25 per share 1,587 1,696 1,633 $6.95 Series, stated value $100 per share 25,000 25,000 25,000 -------- -------- -------- Total preference stock 26,587 5% 26,696 5% 26,633 5% -------- ---- -------- ---- -------- ---- Redeemable Preferred Stock, stated value $100 per share: $4.68 Series 732 930 930 $4.75 Series 968 1,136 1,111 $6.875 Series - 1,740 - $7.125 Series 14,250 - 15,000 $8.75 Series - 15,000 - -------- -------- -------- Total redeemable preferred stock 15,950 3% 18,806 3% 17,041 3% -------- ---- -------- ---- -------- ---- Long-Term Debt: First Mortgage Bonds -------------------- 8-5/8% Series due 1996 - 11,658 - 9-3/8% Series due 2011 - 46,000 - 9-3/4% Series due 2015 50,000 50,000 50,000 9.80% Series due 2018 - 24,938 - 9-1/8% Series due 2019 25,000 25,000 25,000 Medium-Term Notes ----------------- First Mortgage Bonds: 4.80% Series A due 1996 5,000 - 5,000 7.38% Series A due 1997 20,000 20,000 20,000 7.69% Series A due 1999 10,000 10,000 10,000 5.96% Series B due 2000 5,000 - 5,000 5.98% Series B due 2000 5,000 - 5,000 8.05% Series A due 2002 10,000 10,000 10,000 6.40% Series B due 2003 20,000 - 20,000 6.34% Series B due 2005 5,000 - 5,000 6.38% Series B due 2005 5,000 - 5,000 6.45% Series B due 2005 5,000 - 5,000 6.50% Series B due 2008 5,000 - 5,000 9.05% Series A due 2021 10,000 10,000 10,000 7.25% Series B due 2023 20,000 - 20,000 7.50% Series B due 2023 4,000 - 4,000 7.52% Series B due 2023 11,000 - 11,000 Unsecured: 4.90% Series A due 1996 10,000 - 10,000 8.69% Series A due 1996 5,000 5,000 5,000 7.40% Series A due 1997 5,000 5,000 5,000 8.93% Series A due 1998 5,000 5,000 5,000 8.95% Series A due 1998 10,000 10,000 10,000 8.47% Series A due 2001 10,000 10,000 10,000 Convertible Debentures ---------------------- 7-1/4% Series due 2012 12,229 13,288 12,931 -------- -------- -------- 272,229 255,884 272,931 Less long-term debt due within one-year - 2,138 - -------- -------- -------- Total long-term debt 272,229 46% 253,746 46% 272,931 47% -------- ---- -------- ---- -------- ---- Total Capitalization $585,004 100% $557,941 100% $575,170 100% ======== ==== ======== ==== ======== ==== - - ------------------------------------------------------------------------------- See accompanying Notes to Consolidated Financial Statements. 7
NORTHWEST NATURAL GAS COMPANY (5) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of financial statements The information presented in the consolidated financial statements is unaudited, but includes all adjustments, consisting of only normal recurring accruals, which the management of the Company considers necessary for a fair presentation of the results of such periods. These consolidated financial statements should be read in conjunction with the financial statements and related notes included in the Company's 1993 Annual Report on Form 10-K. A significant part of the business of the Company is of a seasonal nature; therefore, results of operations for the three and six month periods ended June 30, 1994 and 1993 are not indicative of the results for a full year. Certain amounts from the prior year have been reclassified to conform with the 1994 presentation. 2. Contingencies See discussion of environmental matters in Part II, Item 7., "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the Company's 1993 Annual Report on Form 10-K. 8 Deloitte & Touche --------------------------------------------------- 3900 US Bancorp Tower Telephone: (503) 222-1341 111 SW Fifth Avenue Facsimile: (503) 224-2172 Portland, OR 97204-3698 INDEPENDENT ACCOUNTANTS' REPORT - - ------------------------------- Northwest Natural Gas Company Portland, Oregon We have made a review of the accompanying consolidated balance sheets and statements of capitalization of Northwest Natural Gas Company and subsidiaries as of June 30, 1994 and 1993, and the related consolidated statements of income for the three- and six-month periods, ended June 30, 1994 and 1993, and the consolidated statements of earnings invested in the business and cash flows for the six-month periods ended June 30, 1994 and 1993, in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of obtaining an understanding of the system for the preparation of interim financial information, applying analytical review procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet and statement of capitalization of Northwest Natural Gas Company and subsidiaries as of December 31, 1993, and the related consolidated statements of income, earnings invested in the business, and cash flows for the year then ended (not presented herein), and in our report dated February 25, 1994 (which includes an explanatory paragraph relating to a change in the method of accounting for income taxes and other postretirement benefits), we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet and consolidated statement of capitalization as of December 31, 1993 is fairly stated in all material respects in relation to the consolidated financial statements from which it has been derived. DELOITTE & TOUCHE August 3, 1994 9 NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Northwest Natural Gas Company's (Northwest Natural) consolidated wholly-owned subsidiaries consist of Oregon Natural Gas Development Corporation (Oregon Natural); NNG Energy Systems, Inc. (Energy Systems); NNG Financial Corporation (Financial Corporation); and Pacific Square Corporation (Pacific Square) (see "Subsidiary Operations" and Part II, Item 8., Note 2, "Notes to the Consolidated Financial Statements," in the Company's 1993 Annual Report on Form 10-K). Together, Northwest Natural and these subsidiaries are referred to herein as the "Company." The following is management's assessment of the Company's financial condition including the principal factors that affect results of operations. The discussion refers to the consolidated activities of the Company for the three and six months ended June 30, 1994 and 1993. Earnings and Dividends - - ---------------------- The primary factors affecting second quarter and year- to-date 1994 earnings were warmer weather in the Company's service territory and the sale of Pacific Square's investments. The weather in Northwest Natural's service territory during the second quarter of 1994 was 22 percent warmer than the 20 year average, and 9 percent warmer than the second quarter of 1993, resulting in significant decreases in gas deliveries to, and related margin (revenues less cost of gas) from, weather- sensitive customers. The sale of Pacific Square's investments resulted in an after tax gain equivalent to $0.14 per share (see "Subsidiary Operations"). The Company estimates that the weather-related reduction in margin during the second quarter of 1994 was equivalent to about 26 cents per share compared to a second quarter with average weather, and about 16 cents per share compared to actual conditions during the second quarter of 1993. These estimates are derived from the Company's internal planning model. (For an explanation of the Company's internal planning model from which these estimates are derived, see the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1994). The Board of Directors of the Company declared a quarterly dividend of $0.44 per share on its common stock, payable August 15, 1994, to shareholders of record on July 29, 1994. The current indicated annual dividend rate is $1.76 per share. 10 Results of Operations - - --------------------- Comparison of Gas Utility Operations ------------------------------------ The following table summarizes the composition of gas utility volumes and revenues:
Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 1994 1993 1994 1993 ---- ---- ---- ---- Gas Sales and Transportation Deliveries - Therms (000's): Residential and commercial sales 82,286 85,068 276,527 303,824 Unbilled volumes (10,731) (11,056) (34,953) (32,126) ------- ------- ------- ------- Weather-sensitive volumes 71,555 74,012 241,574 271,698 Industrial firm sales 18,692 18,600 42,135 42,450 Industrial interruptible sales 20,360 11,640 43,988 20,894 ------- ------- ------- ------- Total gas sales 110,607 104,252 327,697 335,042 Transportation deliveries 89,571 104,215 178,420 227,528 ------- ------- ------- ------- Total volumes sold and delivered 200,178 208,467 506,117 562,570 ======= ======= ======= ======= Utility Operating Revenues - Dollars (000's): Residential and commercial revenues $ 51,856 $ 48,450 $170,273 $166,108 Unbilled revenues (6,178) (5,280) (20,163) (15,981) -------- -------- -------- -------- Weather-sensitive revenues 45,678 43,170 150,110 150,127 Industrial firm revenues 7,989 7,062 18,150 16,033 Industrial interruptible revenues 5,931 3,277 12,980 6,188 -------- -------- -------- -------- Total gas revenues 59,598 53,509 181,240 172,348 Transportation revenues 3,477 4,792 6,943 10,288 Other revenues 236 973 471 2,454 -------- -------- -------- -------- Total utility operating revenues $ 63,311 $ 59,274 $188,654 $185,090 ======== ======== ======== ======== Cost of gas $ 29,286 $ 21,746 $ 85,495 $ 68,246 ======== ======== ======== ======== Number of customers (end of period) 376,800 357,300 376,800 357,300 ======== ======== ======== ========
Residential and Commercial -------------------------- Typically, 75 percent or more of Northwest Natural's annual operating revenues are from gas sales to weather-sensitive residential and commercial customers. Accordingly, shifts in temperatures from one period to the next will affect volumes of gas sold to these customers. Normal weather conditions are based upon a 20 year average measured by degree days. Customer growth continues at a rapid rate relative to others in the industry. The 19,500 customers added since June 30, 1993 represent a growth rate of 5.5 percent. In the 11 three years ended December 31, 1993, almost 52,500 customers were added to the system, representing an average growth rate of 5.2 percent. This customer growth partially offset the effect of 9 percent fewer degree days for the three months ended June 30, 1994, compared to the same period in 1993. The net result was a 3 percent decrease in volumes sold to residential and commercial customers. Despite the warmer weather, the combination of customer growth and rate increases to compensate for higher costs of gas approved in 1993 (see Part I, Item 1., "Business - Regulation and Rates," in the Company's 1993 Annual Report on Form 10-K), resulted in a net 6 percent increase in revenues. The rate increases did not affect margin since the cost of gas increased by a comparable amount (see "Cost of Gas"). Volumes sold to residential and commercial customers decreased by 11% for the six month period ended June 30, 1994, compared to the same period in 1993, while corresponding revenues remained unchanged, due to the same factors discussed for the second quarter. Unbilled revenues are a recognition of revenues for all gas consumption by customers through the end of the period, regardless of the meter reading date, in order to better match revenues with associated purchased gas costs. Industrial, Transportation and Other ------------------------------------ The combined net operating revenue (margin) from industrial firm and interruptible sales and transportation customers decreased by 7 percent, from $11.0 million in the second quarter of 1993 to $10.2 million in the second quarter of 1994. For the current six month period, net operating revenue from these customers decreased 1 percent, from $22.5 million in 1993 to $22.2 million in 1994. Total volumes delivered to industrial firm, industrial interruptible and transportation customers were 4 percent lower in the second quarter of 1994, and 9 percent lower for the six months ended June 30, 1994, compared to the same periods of 1993. In 1993, Oregon Natural and Portland General Electric Company completed a natural gas pipeline to an electric generation plant. As a result, there were no transportation deliveries by Northwest Natural to this plant after 12 million therms were delivered to this customer during the first quarter of 1993. Also contributing to lower volumes was a 20 million therm reduction in transportation deliveries to an industrial customer, the James River Corp. paper mill in Camas, Washington, which placed a direct (bypass) connection to Northwest Pipeline Corporation (NPC) into operation in October 1993. Northwest Natural does not expect a significant number of its other large customers to bypass its system in the foreseeable future since these customers typically are served under tariffs which are designed to be 12 competitive with the capital and operating costs of direct connections to NPC's system (see Part II, Item 7., "Comparison of Gas Operations - Industrial, Transportation and Other," in the Company's 1993 Annual Report on Form 10-K). Although volumes decreased, Northwest Natural's revenues from industrial firm sales and industrial interruptible sales and transportation deliveries were 15 percent higher in the second quarter of 1994, and 17 percent higher for the six month period ended June 30, 1994, compared to the same periods of the prior year. The revenue increase was primarily due to higher industrial interruptible sales and concurrent lower transportation deliveries for these same periods. Since 1992, over half of Northwest Natural's transportation customers have switched to sales service. These customers, which have the option of purchasing natural gas from Northwest Natural or of purchasing gas directly from suppliers and shipping it on the systems of Northwest Natural and its pipeline suppliers for a fee, select the option which from time to time provides the lowest cost. The migration from transportation to sales tariffs by these customers reflects the fact that Northwest Natural's industrial sales tariffs were lower than the cost to these customers of purchasing and shipping their own gas. Since transportation charges typically are the same as the margin on an equivalent sale of gas, the increase in revenue attributable to the migration from transportation to sales tariffs was substantially offset by an increase in Northwest Natural's cost of gas. Other revenues are primarily related to regulatory balancing accounts (see Part II, Item 8., Note 1, "Notes to the Consolidated Financial Statements," in the Company's 1993 Annual Report on Form 10-K). Cost of Gas ----------- In Oregon, where approximately 95 percent of its gas sales occur, Northwest Natural has a Purchased Gas Cost Adjustment tariff under which its net income from Oregon operations is affected only within defined limits by changes in purchased gas costs (see Part I, Item 1., "Business - Regulation and Rates," in the Company's 1993 Annual Report on Form 10-K). The cost of gas sold during the second quarter of 1994 was 35 percent greater than in the same period of 1993. The primary contributing factors were a 28 percent increase in the cost of gas per therm, including purchased gas costs, related tariff adjustments, and gas storage activity, and a 6 percent increase in total volumes sold. Increased gas costs resulted from higher market prices from suppliers, as well as higher demand charges by Northwest Pipeline Corporation, Northwest Natural's primary pipeline supplier, implemented pursuant to Federal Energy Regulatory Commission Order No. 636. 13 The cost of gas was higher during the six month period ended June 30, 1994, compared to the same period in 1993, for the same reasons discussed for the second quarter. Subsidiary Operations --------------------- The following table summarizes financial information for the Company's consolidated wholly-owned subsidiaries:
Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- Consolidated Subsidiaries (Thousands): 1994 1993 1994 1993 - - ------------------------- ---- ---- ---- ---- Net Operating Revenues $3,250 $2,613 $6,497 $5,413 Operating Expenses: Operations and maintenance 1,824 1,574 3,994 3,242 Taxes other than income taxes 69 44 86 63 Depreciation, depletion and amortization 670 1,814 1,655 3,044 ------ ------ ------ ------ Total Operating Expenses 2,563 3,432 5,735 6,349 ------ ------ ------ ------ Income(Loss) from Operations 687 (819) 762 (936) Other Income(Expense) and Interest Charges 4,537 1,354 4,056 (46) ------ ------ ------ ------ Income(Loss) Before Income Taxes 5,224 535 4,818 (982) Income Tax Expense(Benefit) 1,901 (178) 1,717 (1,166) ------ ------ ------ ------ Net Income $3,323 $ 713 $3,101 $ 184 ====== ====== ====== ======
Consolidated subsidiary earnings for the three months ended June 30, 1994 and 1993, were equivalent to $0.25 per share, and $0.05 per share, respectively. Net income for the individual subsidiaries for the second quarter of 1994 was $0.8 million for Financial Corporation; $0.5 million for Oregon Natural; and $2.0 million for Pacific Square. Energy Systems realized neither a gain nor a loss for the second quarter of 1994. The improved subsidiary performance in the second quarter of 1994 resulted primarily from Pacific Square's sale of its partnership interest in two commercial office buildings, including the Company's headquarters building. The Company's gain on the sale was $1.9 million after tax, equivalent to $0.14 per share. As a result of the sale of these investments, Pacific Square no longer has any significant operating activities. The following discussion summarizes operating expenses, other income, interest charges and income taxes. 14 Operating Expenses ------------------ Operations and Maintenance -------------------------- Utility operations and maintenance expenses were $0.6 million lower for the six months ended June 30, 1994, than for the equivalent period in 1993, primarily due to a $1.2 million decrease in accruals for estimated employee bonuses. An offsetting factor was a negotiated wage increase of 3.75 percent which became effective April 1, 1994. Subsidiary operations and maintenance expenses increased $0.8 million primarily due to increased production expenses related to Oregon Natural's Canadian operations. Taxes Other Than Income Taxes ----------------------------- Taxes other than income taxes were higher for the three and six months ended June 30, 1994, compared to the same periods of the prior year, primarily due to a $0.3 million increase in utility franchise taxes for the second quarter of 1994, which resulted from increased second quarter revenues. Depreciation, Depletion and Amortization ---------------------------------------- Utility depreciation expense increased $0.6 million and $1.0 million, respectively, in the second quarter and six months ended June 30, 1994, compared to the same periods in 1993, primarily due to additional utility plant in service. Subsidiary depreciation expense decreased $1.1 million and $1.4 million, respectively, for these same periods, primarily due to Oregon Natural's write-downs of unproven properties of $0.5 million and $0.8 million, respectively, in the first and second quarters of 1993. Other Income ------------ The increase in other income for the three and six month periods ended June 30, 1994, compared to the same periods in 1993, resulted primarily from a $3.2 million pre-tax gain related to the sale of Pacific Square's investments (see "Subsidiary Operations"). Interest Charges ---------------- Interest charges were lower for the three and six month periods ended June 30, 1994 compared to the same periods in 1993 as a result of debt refinancings which occurred in late 1993 (see Part II, Item 7., "Interest Charges," in the Company's 1993 Annual Report on Form 10-K). Due to early redemption costs of 15 $5.6 million related to these refinancings, the balance of deferred debits and other assets was greater at June 30, 1994 compared to June 30, 1993. Consistent with prior regulatory practice, these costs will be amortized over the lives of medium- term notes issued for the purpose of refunding the redeemed debt. Income Taxes ------------ The effective corporate income tax rates for the six month periods ended June 30, 1994 and 1993 were 39 percent and 36 percent, respectively, which approximate the Company's statutory tax rates for these periods. Financial Condition - - ------------------- The weather-sensitive nature of gas usage by Northwest Natural's residential and commercial customers influences the Company's financial condition, including its financing requirements, from one quarter to the next. Liquidity requirements are satisfied primarily through the use of commercial paper, which is supported by commercial bank lines of credit (see "Lines of Credit" and "Commercial Paper"). Capital Structure ----------------- The Company's long-term goal is to maintain a capital structure comprised of 40 to 45 percent common stock equity, 5 to 10 percent preferred and preference stock and 45 to 50 percent short-term and long-term debt. The Company's capital structure was within these ranges as of June 30, 1994. This target structure is managed by issuing new debt or equity securities. The Company also uses these sources to meet long-term debt and preferred stock redemption requirements (see Part II, Item 8., Notes 4 and 6, "Notes to the Consolidated Financial Statements," in the Company's 1993 Annual Report on Form 10-K). Cash Flows ---------- Operating Activities -------------------- Cash provided from operating activities was 43 percent higher in the first six months of 1994 compared to the same period in 1993, primarily due to rate increases in late 1993 upon completion of amortizations of credit balances in regulatory accounts. The Company has lease and purchase commitments related to its operating activities which are financed with cash flows from operations (see Part II, Item 8., Note 12, "Notes to the 16 Consolidated Financial Statements," in the Company's 1993 Annual Report on Form 10-K). Investing Activities -------------------- Cash requirements for utility construction in the first six months of 1994 were up 11 percent from the same period of 1993. The increase, which was primarily related to system improvements and customer growth, also included a $0.6 million increase in the first six months of 1994 compared to the same period in 1993 for expenditures related to a project initiated in 1993 to replace the existing customer information system. In the first six months of 1994, non-utility expenditures were primarily for Canadian and U. S. exploration and production costs (see Part II, Item 7., "Financial Condition - Investing Activities," in the Company's 1993 Annual Report on Form 10-K). "Restricted Cash and Long-Term Notes Receivable" shown on the Consolidated Balance Sheets for June 30, 1994 and 1993, includes a $5.5 million restricted cash deposit with a commercial bank related to Pacific Square. In December 1993, this deposit was reclassified as a current asset due to the then pending sale of Pacific Square's primary real estate investments, pursuant to which sale the funds were expected to be released. However, upon completion of the sale in the second quarter of 1994, the deposit was again reclassified as a long term asset based upon the final terms of the sale agreement, which provides for the funds to be released no later than December 1996. Financing Activities -------------------- In the first six months of 1994, the Company used the increased cash provided by operating activities to reduce short- term debt. In June, Northwest Natural agreed to sell, on September 21, 1994, $10 million of its Medium-Term Notes, 8.31% Series B, due 2019, and $10 million of its Medium-Term Notes, 8.26% Series B, due 2014. The proceeds will be used to repay short term debt incurred to fund Northwest Natural's utility construction program. Lines of Credit --------------- Northwest Natural has available through September 30, 1994, committed lines of credit totalling $80 million, consisting of a primary fixed amount of $40 million plus an excess amount of up to $40 million available as needed, at Northwest Natural's option, on a monthly basis. Financial Corporation has available through September 30, 1994, lines of credit with two commercial banks totalling $20 million, including $10 million committed and $10 million uncommitted. Financial Corporation's lines of credit 17 are supported by the unconditional guaranty of Northwest Natural. There were no outstanding balances as of June 30, 1994 under either the Northwest Natural or the Financial Corporation bank lines. Northwest Natural and Financial Corporation anticipate extending these lines for an additional year during the third quarter. Commercial Paper ---------------- The Company's primary source of short-term funds is commercial paper. Both Northwest Natural and Financial Corporation issue commercial paper which is supported by the bank lines discussed above. Financial Corporation's commercial paper is unconditionally guarantied by Northwest Natural (see Part II, Item 8., Note 7, "Notes to the Consolidated Financial Statements," in the Company's 1993 Annual Report on Form 10-K). Ratio of Earnings to Fixed Charges ---------------------------------- For the 12 months ended June 30, 1994, and December 31, 1993, the Company's ratios of earnings to fixed charges, computed by the Securities and Exchange Commission method, were 2.94 and 3.22, respectively. Earnings consist of net income to which has been added taxes on income and fixed charges. Fixed charges consist of interest on all indebtedness, amortization of debt expense and discount or premium, and the estimated interest portion of rentals charged to income. =============================================================== The consolidated financial statements as of June 30, 1994 and 1993 and for the three and six month periods then ended, have been reviewed by Deloitte & Touche, independent public accountants, in accordance with standards established by the American Institute of Certified Public Accountants. A copy of their report is included herein. =============================================================== PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- Northwest Natural's Annual Meeting of Shareholders was held in Portland, Oregon on May 26, 1994. At the meeting, one director-nominee was elected to a one year term, and four director-nominees were elected to three year terms, as follows: 18 Share Term Share Votes Votes Director-nominee Expiring For Withheld - - ---------------- -------- ----------- -------- Russell F. Tromley 1995 11,193,287 173,413 Richard B. Keller 1997 11,187,646 179,054 Robert L. Ridgley 1997 11,190,658 177,542 Dwight A. Sangrey 1997 11,167,843 198,857 William R. Wiley 1997 11,165,515 201,185 There were no broker non-votes with respect to the election of the director-nominees. The other seven directors whose terms of office as directors continued after the annual meeting are: Mary Arnstad, Thomas E. Dewey, Jr., Tod R. Hamachek, Wayne D. Kuni, Melody C. Teppola, Benjamin R. Whiteley and Carlton Woodard. The shareholders approved an amendment to Northwest Natural's Restated Articles of Incorporation to increase the authorized number of shares of Common Stock from 30 million shares to 60 million shares by the following vote: 9,981,213 shares for; 1,060,991 against; and 279,181 abstained. There were 45,700 broker non-votes on this item. The shareholders also elected Deloitte & Touche, certified public accountants, as Northwest Natural's auditors for the year 1994 by the following vote: 11,122,494 shares for; 79,663 against; and 164,928 abstained. There were no broker non- votes on this item. The shareholder proponents of a proposal to limit executive compensation to no more than two times the salary paid to the President of the United States did not present the proposal at the meeting. Therefore, the matter was not acted upon and no vote was taken. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits Exhibit 11 - Statement re: computation of per share earnings. Exhibit 12 - Computation of ratio of earnings to fixed charges. Exhibit 15 - Letter re: unaudited interim financial information. 19 (b) Reports on Form 8-K On June 23, 1994 Northwest Natural filed as an exhibit to a report on Form 8-K its Supplemental Distribution Agreement for the sale of Medium-Term Notes. 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. NORTHWEST NATURAL GAS COMPANY (Registrant) /s/ D. James Wilson Dated: August 12, 1994 ------------------------------ D. James Wilson Principal Accounting Officer, Corporate Controller and Treasurer 20 NORTHWEST NATURAL GAS COMPANY EXHIBIT INDEX to Quarterly Report on Form 10-Q For Quarter Ended June 30, 1994 Exhibit Document Number - - -------- ------- Statement Re: Computation of Per Share Earnings 11 Computation of Ratio of Earnings to Fixed Charges 12 Letter Re: Unaudited Interim Financial Information 15 EX-11 2 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 NORTHWEST NATURAL GAS COMPANY Statement Re: Computation of Per Share Earnings (Thousands, except per share amounts) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------ 1994 1993 1994 1993 ------ ------ ------- ------- Earnings Applicable to Common Stock $1,708 $1,905 $19,748 $25,602 Preference Stock Dividends 38 40 75 81 Debenture Interest Less Taxes 135 150 271 298 ------ ------ ------- ------- Net Income Available for Fully- Diluted Common Stock $1,881 $2,095 $20,094 $25,981 ====== ====== ======= ======= Average Common Shares Outstanding 13,270 13,048 13,239 13,023 Stock Options 18 29 21 29 Convertible Preference Stock 105 112 105 112 Convertible Debentures 409 445 409 445 ------ ------ ------- ------- Fully-Diluted Common Shares 13,802 13,634 13,774 13,609 ====== ====== ======= ======= Fully-Diluted Earnings Per Share of Common Stock $0.14* $0.15 $1.46 $1.91 ====== ====== ======= ======= *Anti-dilutive Note: Primary earnings per share are computed on the weighted daily average number of common shares outstanding each period. Outstanding stock options are common stock equivalents but are excluded from primary earnings per share computations due to immateriality.
EX-12 3 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 Northwest Natural Gas Company Computation of Ratio of Earnings to Fixed Charges January 1, 1989 - June 30, 1994 ($000)
Twelve Months ----------Year Ended December 31--------- Ended June 30, 1989 1990 1991 1992 1993 1994 ---- ---- ---- ---- ---- -------- Fixed Charges, as defined: Interest on Long-Term Debt $19,344 $22,244 $21,977 $23,001 $22,578 $21,899 Other Interest 4,011 2,853 4,266 3,223 1,906 2,119 Amortization of Debt Discount and Expense 401 363 348 511 775 906 Interest Portion of Rentals 1,235 1,546 1,485 1,439 1,701 1,700 ------- ------- ------- ------- ------- ------- Total Fixed Charges, as defined $24,991 $27,006 $28,076 $28,174 $26,960 $26,624 ======= ======= ======= ======= ======= ======= Earnings, as defined: Net Income $28,420 $30,724 $14,377 $15,775 $37,647 $31,472 Taxes on Income 15,366 13,629 2,321 6,951 22,096 20,071 Fixed Charges, as above 24,991 27,006 28,076 28,174 26,960 26,624 ------- ------- ------- ------- ------- ------- Total Earnings, as defined $68,777 $71,359 $44,774 $50,900 $86,703 $78,167 ======= ======= ======= ======= ======= ======= Ratio of Earnings to Fixed Charges 2.75 2.64 1.59 1.81 3.22 2.94 ==== ==== ==== ==== ==== ====
EX-15 4 LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION Deloitte & Touche --------------------------------------------------- 3900 US Bancorp Tower Telephone: (503) 222-1341 111 SW Fifth Avenue Facsimile: (503) 224-2172 Portland, OR 97204-3698 EXHIBIT 15 August 3, 1994 Northwest Natural Gas Company 220 N.W. Second Avenue Portland, Oregon 97209 We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim financial information of Northwest Natural Gas Company and subsidiaries for the periods ended June 30, 1994 and 1993, as indicated in our report dated August 3, 1994; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your quarterly report on Form 10-Q for the quarter ended June 30, 1994, is incorporated by reference in Registration Statement No. 33-34724, Post-Effective Amendment No. 1 to Registration Statement No. 2-76276, and Post-Effective Amendments No. 2 to Registration Statement Nos. 2-77195 and 33-19354 on Form S-8 and in Registration Statement Nos. 33-44827, 33-64014, 33-51271, and 33-53795 and Post-Effective Amendments No. 1 to Registration Statement Nos. 33-1304 and 33-20384 on Form S-3. We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. DELOITTE & TOUCHE -----END PRIVACY-ENHANCED MESSAGE-----