-----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, qxWp5ajHHXCH9zJm+DHpRcpxHWujblfNnJ1BDAMk+LAVoOy/YrGg9c1+i29DB5HT H/GJcFUnSKue8aHI0Q7EeQ== 0000073020-94-000024.txt : 19941111 0000073020-94-000024.hdr.sgml : 19941111 ACCESSION NUMBER: 0000073020-94-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941110 SROS: NASD 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: 94558569 BUSINESS ADDRESS: STREET 1: 220 NW SECOND AVE CITY: PORTLAND STATE: OR ZIP: 97209 BUSINESS PHONE: 5032264211 10-Q 1 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 September 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 -- 13,347,735 shares Convertible Preference Stock, $2.375 Series -- 63,230 shares NORTHWEST NATURAL GAS COMPANY September 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 nine month periods ended September 30, 1994 and 1993 and Consolidated Statements of Earnings Invested in the Business for the nine month periods ended September 30, 1994 and 1993. 3 (2) Consolidated Balance Sheets at September 30, 1994 and 1993 and December 31, 1993. 4 (3) Consolidated Statements of Cash Flows for the nine month periods ended September 30, 1994 and 1993. 6 (4) Consolidated Statements of Capitalization at September 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 Operations 10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 21 Signature 21 - 2 - NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (1) Consolidated Statements of Income (Thousands, Except Per Share Amounts) Three Months Nine Months Ended Ended September 30, September 30, ----------------- ------------------ 1994 1993 1994 1993 ------- ------- ------- ------- Net Operating Revenues: Operating revenues $48,474 $47,451 $243,513 $237,954 Cost of sales 21,552 16,646 107,047 84,892 ------- ------- -------- -------- Net operating revenues 26,922 30,805 136,466 153,062 ------- ------- -------- -------- Operating Expenses: Operations and maintenance 16,378 17,009 51,929 52,344 Taxes other than income taxes 5,316 5,078 19,391 18,517 Depreciation, depletion and amortization 9,884 9,330 27,904 27,700 ------- ------- -------- -------- Total operating expenses 31,578 31,417 99,224 98,561 ------- ------- -------- -------- Income (Loss) from Operations (4,656) (612) 37,242 54,501 ------- ------- -------- -------- Other Income 3,137 1,266 8,088 1,626 ------- ------- -------- -------- Interest Charges - net 6,144 6,306 18,221 18,807 ------- ------- -------- -------- Income (Loss) Before Income Taxes (7,663) (5,652) 27,109 37,320 Income Taxes (3,889) (1,229) 9,638 14,323 ------- ------- -------- -------- Net Income (Loss) (3,774) (4,423) 17,471 22,997 Preferred and preference stock dividend requirements 746 855 2,243 2,673 ------- ------- -------- -------- Earnings (Loss) Applicable to Common Stock $(4,520) $(5,278) $ 15,228 $ 20,324 ======= ======= ======== ======== Average Common Shares Outstanding 13,322 13,100 13,267 13,048 Primary Earnings (Loss) Per Share of Common Stock $(0.34) $(0.40) $1.15 $1.56 Fully-Diluted Earnings Per Share of Common Stock * * $1.14 $1.53 Dividends Per Share of Common Stock $0.44 $0.44 $1.32 $1.31 *Anti-dilutive See accompanying Notes to Consolidated Financial Statements. ============================================================================= Consolidated Statements of Earnings Invested in the Business (Thousands, Nine Month Periods Ended September 30) 1994 1993 -------- -------- Balance at Beginning of Period $88,497 $77,690 Net Income 17,471 22,997 Cash Dividends: Preferred and preference stock (2,296) (2,575) Common stock (17,487) (17,073) Foreign Currency Translation Adjustment (323) (416) ------- ------- Balance at End of Period $85,862 $80,623 ======= ======= See accompanying Notes to Consolidated Financial Statements. - 3 - NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (2) Consolidated Balance Sheets (Thousands of Dollars) Sept. 30, Sept. 30, Dec. 31, 1994 1993 1993 -------- -------- -------- Assets: Plant and Property in Service: Utility plant in service $889,791 $825,583 $840,030 Less accumulated depreciation 276,315 252,826 255,282 -------- -------- -------- Utility plant - net 613,476 572,757 584,748 Non-utility property 46,300 41,295 42,764 Less accumulated depreciation and depletion 23,213 19,203 20,646 -------- -------- -------- Non-utility property - net 23,087 22,092 22,118 -------- -------- -------- Total plant and property in service 636,563 594,849 606,866 -------- -------- -------- Investments and Other: Investments 35,745 34,273 32,818 Restricted cash and long-term notes receivable 6,887 7,266 1,756 -------- -------- -------- Total investments and other 42,632 41,539 34,574 -------- -------- -------- Current Assets: Cash and cash equivalents 4,969 4,715 4,198 Accounts receivable - customers 18,558 19,839 45,340 Allowance for uncollectible accounts (1,100) (642) (1,368) Accrued unbilled revenue 5,984 5,874 25,890 Inventories of gas, materials and supplies 16,458 18,487 16,838 Prepayments and other current assets 11,143 11,420 16,412 -------- -------- -------- Total current assets 56,012 59,693 107,310 -------- -------- -------- Regulatory Tax Assets 60,430 62,130 62,130 -------- -------- -------- Deferred Debits and Other 40,066 36,467 38,156 -------- -------- -------- Total Assets $835,703 $794,678 $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) Sept. 30, Sept. 30, Dec. 31, 1994 1993 1993 -------- -------- -------- Capitalization and Liabilities: Capitalization: Common stock $175,413 $168,455 $170,068 Earnings invested in the business 85,862 80,623 88,497 -------- -------- -------- Total common stock equity 261,275 249,078 258,565 Preference stock 26,581 26,649 26,633 Redeemable preferred stock 15,950 17,066 17,041 Long-term debt 292,179 288,002 272,931 -------- -------- -------- Total capitalization 595,985 580,795 575,170 -------- -------- -------- Current Liabilities: Notes payable 40,460 32,357 72,548 Accounts payable 23,735 25,171 44,318 Taxes accrued 5,049 4,563 6,757 Interest accrued 6,983 6,781 4,438 Other current and accrued liabilities 10,528 9,231 10,180 -------- -------- -------- Total current liabilities 86,755 78,103 138,241 -------- -------- -------- Deferred Investment Tax Credits 14,033 14,905 14,567 -------- -------- -------- Deferred Income Taxes 110,825 104,759 104,300 -------- -------- -------- Regulatory Balancing Accounts and Other 28,105 16,116 16,758 -------- -------- -------- Commitments and Contingent Liabilities - - - -------- -------- -------- Total Capitalization and Liabilities $835,703 $794,678 $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) Nine Months Ended September 30, ----------------- 1994 1993 ------- ------- Operating Activities: Net income $17,471 $22,997 Adjustments to reconcile net income to net cash provided by (used for) operations: Depreciation, depletion and amortization 27,904 27,700 Deferred income taxes and investment tax credits 7,691 7,002 Equity in earnings of unconsolidated affiliates (3,088) (1,000) Allowance for funds used during construction and capitalized interest (234) (94) Regulatory balancing accounts and other - net 9,437 (9,707) Funds From Operations Before Working ------- ------- Capital Changes 59,181 46,898 Changes in current operating assets and liabilities: Accounts receivable 26,514 13,811 Accrued unbilled revenue 19,906 14,864 Inventories of gas, materials and supplies 380 (2,690) Accounts payable (20,583) (15,111) Accrued interest and taxes 837 (238) Other current operating assets and liabilities 117 (3,356) ------- ------- Cash Provided by Operating Activities 86,352 54,178 ------- ------- Investing Activities: Acquisition and construction of utility plant assets (53,219) (50,022) Investment in non-utility plant (4,148) 2,605 Investments and other 530 (203) ------- ------- Cash Used in Investing Activities (56,837) (47,620) ------- ------- Financing Activities: Common stock issued 4,559 4,256 Preferred stock retired (1,091) (11,152) Long-term debt: Issued 20,000 90,000 Retired (18) (57,668) Change in short-term debt (32,088) (14,752) Cash dividend payments: Preferred and preference stock (2,296) (2,575) Common stock (17,487) (17,073) Foreign currency translation adjustment (323) (416) ------- ------- Cash Used in Financing Activities (28,744) (9,380) ------- ------- Increase (Decrease) in Cash and Cash Equivalents 771 (2,822) Cash and Cash Equivalents - Beginning of Period 4,198 7,537 ------- ------- Cash and Cash Equivalents - End of Period $ 4,969 $ 4,715 ======= ======= ============================================================================= Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest $15,289 $18,442 Income Taxes $ 8,454 $ 9,853 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) Sept. 30, Sept. 30, Dec. 31, 1994 1993 1993 - ------------------------------------------------------------------------------- Common Stock Equity: Common stock - par value $3-1/6 per share $ 42,268 $ 41,568 $ 41,728 Premium on common stock 133,145 126,887 128,340 Earnings invested in business 85,862 80,623 88,497 -------- -------- -------- Total common stock equity 261,275 44% 249,078 43% 258,565 45% -------- ---- ------- ---- -------- ---- Preference Stock: $2.375 Series, convertible, stated value $25 per share 1,581 1,649 1,633 $6.95 Series, stated value $100 per share 25,000 25,000 25,000 -------- -------- -------- Total preference stock 26,581 4% 26,649 4% 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 $7.125 Series 14,250 - 15,000 $8.75 Series - 15,000 - -------- -------- -------- Total redeemable preferred stock 15,950 3% 17,066 3% 17,041 3% -------- ---- ------- ---- -------- ---- Long-Term Debt: First Mortgage Bonds -------------------- 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 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 20,000 6.34% Series B due 2005 5,000 5,000 5,000 6.38% Series B due 2005 5,000 5,000 5,000 6.45% Series B due 2005 5,000 5,000 5,000 6.50% Series B due 2008 5,000 5,000 5,000 8.26% Series B due 2014 10,000 - - 8.31% Series B due 2019 10,000 - - 9.05% Series A due 2021 10,000 10,000 10,000 7.25% Series B due 2023 20,000 20,000 20,000 7.50% Series B due 2023 4,000 4,000 4,000 7.52% Series B due 2023 11,000 11,000 11,000 Unsecured: 4.90% Series A due 1996 10,000 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 12,179 13,064 12,931 -------- -------- -------- Total long-term debt 292,179 49% 288,002 50% 272,931 47% -------- ---- -------- ---- -------- ---- Total Capitalization $595,985 100% $580,795 100% $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 nine month periods ended September 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 LLP ------------------------------------------------------------ 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 September 30, 1994 and 1993, and the related consolidated statements of income for the three- and nine-month periods, ended September 30, 1994 and 1993, and the consolidated statements of earnings invested in the business and cash flows for the nine-month periods ended September 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 LLP November 10, 1994 - 9 - NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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" below and Part II, Item 8., Note 2, "Notes to 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 nine months ended September 30, 1994 and 1993. Earnings and Dividends - ---------------------- The Company incurred a loss applicable to common stock of $0.34 per share for its third quarter ended September 30, 1994, compared to a loss of $0.40 per share in last year's third quarter. The Company had a loss of $0.49 per share from utility operations in the third quarter of 1994, compared to a loss of $0.39 per share from utility operations in the same period in 1993. Improved subsidiary results for the three and nine months ended September 30, 1994, compared to the same periods of the prior year, helped to offset the effect on gas utility results of warmer weather in the Company's service territory for these same periods. A third quarter loss is customary for the Company, reflecting low summertime use of natural gas. The weather in Northwest Natural's service territory during the first nine months of 1994 was 14 percent warmer than the 20 year average, and 17 percent warmer than the same period of 1993. The warmer weather resulted in significant decreases in gas deliveries to, and related margin (revenues less cost of gas) from, weather-sensitive customers. The Company estimates that the weather-related reduction in margin during the first nine months of 1994 was equivalent to about $0.58 per share compared to a similar period with average weather, and about $0.98 per share compared to actual conditions during the first nine months of - 10 - 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.) Earnings from subsidiary operations for the third quarter of 1994 were equivalent to $0.15 per share, compared to a loss equivalent to $0.01 per share for the same period in 1993. The increased earnings were primarily due to the improved operating performance of Financial Corporation's investments in windpower electric generating projects in California. The improved performance of these projects resulted from better wind conditions in 1994 in the region where the investments are located (see "Subsidiary Operations"). The Board of Directors of the Company declared a quarterly dividend of $0.44 per share on its common stock, payable November 15, 1994, to shareholders of record on October 31, 1994. The current indicated annual dividend rate is $1.76 per share. - 11 - Results of Operations - --------------------- Comparison of Gas Utility Operations ------------------------------------ The following table summarizes the composition of gas utility volumes and revenues: Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 1994 1993 1994 1993 ---- ---- ---- ---- Gas Sales and Transportation Deliveries - Therms (000's): Residential and commercial sales 42,215 43,619 318,742 347,443 Unbilled volumes 541 1,779 (34,412) (30,347) ------- ------- ------- ------- Weather-sensitive volumes 42,756 45,398 284,330 317,096 Industrial firm sales 17,599 17,175 59,734 59,625 Industrial interruptible sales 20,923 20,580 64,911 41,474 ------- ------- ------- ------- Total gas sales 81,278 83,153 408,975 418,195 Transportation deliveries 86,675 93,910 265,095 321,438 ------- ------- ------- ------- Total volumes sold and delivered 167,953 177,063 674,070 739,633 ======= ======= ======= ======= Utility Operating Revenues - Dollars (000's): Residential and commercial revenues $ 28,466 $ 27,640 $198,739 $193,748 Unbilled revenues 256 1,118 (19,907) (14,863) -------- -------- -------- -------- Weather-sensitive revenues 28,722 28,758 178,832 178,885 Industrial firm revenues 7,424 6,691 25,574 22,724 Industrial interruptible revenues 6,543 5,760 19,523 11,948 -------- -------- -------- -------- Total gas revenues 42,689 41,209 223,929 213,557 Transportation revenues 3,657 3,956 10,600 14,244 Other revenues (368) (327) 103 2,127 -------- -------- -------- -------- Total utility operating revenues $ 45,978 $ 44,838 $234,632 $229,928 ======== ======== ======== ======== Cost of gas $ 21,552 $ 16,646 $107,047 $ 84,892 ======== ======== ======== ======== Number of customers (end of period) 377,200 357,200 377,200 357,200 ======== ======== ======== ======== - 12 - Residential and Commercial -------------------------- Typically, 75 percent or more of Northwest Natural's annual operating revenues are derived 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 20,000 customers added since September 30, 1993 represent a growth rate of 5.6 percent. Customer growth partially offset the depressing effect on sales volumes of 65 percent fewer degree days for the three months ended September 30, 1994 compared to the same period in 1993. The net result was a six percent decrease in volumes sold to residential and commercial customers. Despite the warmer weather, the combination of customer growth and rate increases approved in 1993 to compensate for higher costs of gas (see Part I, Item 1., "Business - Regulation and Rates," in the Company's 1993 Annual Report on Form 10-K) resulted in stable 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 were ten percent lower during the nine month period ended September 30, 1994, compared to the same period in 1993, while corresponding revenues were little changed due to the same factors discussed for the third 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 related purchased gas costs. Industrial, Transportation and Other ------------------------------------ The combined net operating revenues (margin) from industrial firm and interruptible sales and transportation customers decreased eight percent, from $10.7 million in the third quarter of 1993 to $9.8 million in the third quarter of 1994. For the current nine month period, net operating revenue from these customers decreased four percent, from $33.2 million in 1993 to $32.0 million in 1994. Total volumes delivered to industrial firm, industrial interruptible and transportation customers were five percent lower in the third quarter of 1994, and eight percent lower for the nine months ended September 30, 1994, compared to the same periods of 1993. In 1993, Oregon Natural and Portland General - 13 - 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 following the delivery of 12 million therms to this customer during the first quarter of 1993. Also contributing to lower volumes was a 28 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's (NPC) system 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 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 seven percent higher in the third quarter of 1994, and 14 percent higher for the nine month period ended September 30, 1994, compared to the same periods of the prior year. The revenue increase was primarily due to a higher level of industrial interruptible sales and a correspondingly lower level of 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 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 - 14 - 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 third quarter of 1994 was 29 percent higher than in the same period of 1993. The primary contributing factors were a 32 percent increase in the cost of gas per therm, including purchased gas costs, related tariff adjustments, and gas storage activity, and a two percent decrease in total volumes sold. Increased gas costs resulted from higher market prices from suppliers, as well as higher demand charges by NPC, Northwest Natural's primary pipeline supplier, implemented pursuant to Federal Energy Regulatory Commission Order No. 636. The cost of gas was 26 percent higher during the nine month period ended September 30, 1994, compared to the same period in 1993, due to the same factors discussed for the third quarter. Subsidiary Operations --------------------- The following table summarizes financial information for the Company's consolidated wholly-owned subsidiaries: Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- Consolidated Subsidiaries (Thousands): 1994 1993 1994 1993 - ------------------------- ---- ---- ---- ---- Net Operating Revenues $2,552 $2,613 $9,049 $8,026 Operating Expenses: Operations and maintenance 1,039 1,533 5,033 4,775 Taxes other than income taxes 73 10 159 73 Depreciation, depletion and amortization 1,524 1,408 3,179 4,452 ------ ------ ------ ------ Total Operating Expenses 2,636 2,951 8,371 9,300 ------ ------ ------ ------ Income(Loss) from Operations (84) (338) 678 (1,274) Income from Financial Investments 2,814 892 2,975 770 Other Income(Expense) and Interest Charges (46) (95) 3,849 (19) ------ ------ ------ ------ Income(Loss) Before Income Taxes 2,684 459 7,502 (523) Income Tax Expense(Benefit) 627 562 2,344 (604) ------ ------ ------ ------ Net Income (Loss) $2,057 $ (103) $5,158 $ 81 ====== ====== ====== ====== Consolidated subsidiary earnings for the nine months ended September 30, 1994 and 1993, were equivalent to $0.39 per - 15 - share, and $0.01 per share, respectively. Net income for the individual subsidiaries for the nine months ended September 30, 1994 was $2.3 million for Financial Corporation; $0.4 million for Oregon Natural; $0.3 million for Energy Systems; and $2.2 million for Pacific Square. The improved subsidiary results for the first nine months of 1994 resulted primarily from two factors. First, Pacific Square sold its interest in two office buildings, including the Company's headquarters building, in the second quarter of 1994. 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 operating activities. Second, Financial Corporation's investments in windpower electric generating projects in California (see Part II, Item 8., Note 11, "Notes to Consolidated Financial Statements," in the Company's 1993 Annual Report on Form 10-K) benefitted from favorable wind conditions which significantly improved their operating results in the third quarter of 1994. As a result, Financial Corporation's net income increased $2.0 million for the nine months ended September 30, 1994 compared to the same period in 1993. The following discussion summarizes the Company's operating expenses, other income, interest charges, income taxes and preferred and preference stock dividend requirements. Operating Expenses ------------------ Operations and Maintenance -------------------------- Northwest Natural's utility operations and maintenance expenses were $0.7 million lower for the nine months ended September 30, 1994, than for the equivalent period in 1993. The reduction was primarily due to a $1.7 million decrease in accruals for estimated employee bonuses, offset by a negotiated wage increase of 3.75 percent for union employees which became effective April 1, 1994. Subsidiary operations and maintenance expenses increased $0.3 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 $0.2 million higher for the three months and $0.9 million higher for the nine months ended September 30, 1994, compared to the same periods of the prior year, primarily due to increases in property taxes and utility franchise taxes. Increased property taxes resulted - 16 - primarily from plant additions. Increased utility franchise taxes resulted from increased gas revenues. Depreciation, Depletion and Amortization ---------------------------------------- Northwest Natural's utility depreciation expense increased $0.4 million and $1.5 million, respectively, in the third quarter and nine months ended September 30, 1994, compared to the same periods in 1993, due to additional utility plant in service. Subsidiary depreciation expense decreased $1.3 million for the nine months ended September 30, 1994 compared to the same period of the prior year, due to Oregon Natural's write-downs of unproven properties in the first and second quarters of 1993. Other Income ------------ The increase in other income for the three and nine month periods ended September 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 and a $2.2 million increase due to improved operating results from Financial Corporation's investments (see "Subsidiary Operations" above). Interest Charges ---------------- Interest charges were lower for the three and nine month periods ended September 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 $5.6 million related to these refinancings, the balance of deferred debits and other assets was greater at September 30, 1994 compared to September 30, 1993. Consistent with prior regulatory practice, these costs are being 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 nine month periods ended September 30, 1994 and 1993 were 36 percent and 38 percent, respectively, which approximate the Company's statutory tax rates for these periods. - 17 - Preferred and Preference Stock Dividend Requirements ---------------------------------------------------- Preferred and preference stock dividend requirements for the three and nine month periods ended September 30, 1994 were lower by $0.1 million and $0.4 million, respectively, compared to the same periods in 1993, due to redemptions and refundings of preferred stock in 1993. The principal amount of preferred stock outstanding was $1.1 million, or 7 percent, lower at September 30, 1994, than at September 30, 1993. 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. This target structure is managed by issuing new debt or equity securities in response to market conditions and the status of accumulated earnings. 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 Consolidated Financial Statements," in the Company's 1993 Annual Report on Form 10-K). At September 30, 1994, the Company's ratio of short- term and long-term debt to total capital was 52 percent, slightly above its target range for this ratio. Management believes that accumulated earnings and the anticipated issuance or sale of additional common stock will be sufficient to bring all components of the Company's capital structure within targeted ranges during 1995. Cash Flows ---------- Operating Activities -------------------- Cash provided from operating activities was 59 percent higher in the first nine months of 1994 compared to the same period in 1993. The increase is primarily due to rate increases - 18 in late 1993 that reflect 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 Consolidated Financial Statements," in the Company's 1993 Annual Report on Form 10-K). Investing Activities -------------------- Cash requirements for Northwest Natural's utility construction program in the first nine months of 1994 were up six percent from the same period of 1993. The increase related primarily to expenditures for system improvements and customer growth. In the first nine months of 1994, non-utility expenditures were primarily for Oregon Natural's Canadian gas exploration and production program (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 September 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 nine months of 1994, the Company used the increased cash provided by operating activities to reduce short-term debt. In September 1994, Northwest Natural sold $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 were 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, 1995, committed lines of credit totalling $80 million, consisting of a primary fixed amount of $40 million plus an excess amount of - 19 - up to $40 million available as needed, at Northwest Natural's option, on a monthly basis. Financial Corporation has available through September 30, 1995, lines of credit with two commercial banks totalling $20 million, including a primary fixed amount of $15 million plus an excess amount of up to $5 million available as needed, at Financial Corporation's option, on a monthly basis. Financial Corporation's lines of credit are supported by the unconditional guaranty of Northwest Natural. There were no outstanding balances as of September 30, 1994 under either the Northwest Natural or the Financial Corporation bank lines. 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 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 September 30, 1994, and December 31, 1993, the Company's ratios of earnings to fixed charges, computed by the Securities and Exchange Commission method, were 2.87 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 September 30, 1994 and 1993 and for the three and nine month periods then ended, have been reviewed by Deloitte & Touche LLP, independent public accountants, in accordance with standards established by the American Institute of Certified Public Accountants. A copy of their report is included herein. ================================================================ - 20 - PART II. OTHER INFORMATION 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. Exhibit 27 - Financial Data Schedule. (b) Reports on Form 8-K No reports were filed by the Company on Form 8-K for the three month period ended September 30, 1994. 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/ Bruce R. DeBolt Dated: November 10, 1994 --------------------------------- Bruce R. DeBolt Principal Financial Officer, Senior Vice President and Chief Financial Officer - 21 - NORTHWEST NATURAL GAS COMPANY EXHIBIT INDEX to Quarterly Report on Form 10-Q For Quarter Ended September 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 Financial Data Schedule 27 EX-11 2 EXHIBIT 11 NORTHWEST NATURAL GAS COMPANY Statement Re: Computation of Per Share Earnings (Thousands, except per share amounts) (Unaudited) Three Months Nine Months Ended Ended September 30, September 30, ---------------- ---------------- 1994 1993 1994 1993 ------- ------- ------- ------- Earnings (Loss) Applicable to Common Stock $(4,520) $(5,278) $15,228 $20,324 Preference Stock Dividends 37 39 112 118 Debenture Interest Less Taxes 135 145 404 433 ------- ------- ------- ------- Net Income (Loss) Available for Fully-Diluted Common Stock $(4,348) $(5,094) $15,744 $20,875 ======= ======= ======= ======= Average Common Shares Outstanding 13,322 13,100 13,267 13,048 Stock Options 19 26 19 26 Convertible Preference Stock 104 109 104 109 Convertible Debentures 408 438 408 438 ------- ------- ------- ------- Fully-Diluted Common Shares 13,853 13,673 13,798 13,621 ======= ======= ======= ======= Fully-Diluted Earnings (Loss)Per Share of Common Stock $(0.31)* $(0.37)* $1.14 $1.53 ====== ====== ===== ===== *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 EXHIBIT 12 NORTHWEST NATURAL GAS COMPANY Computation of Ratio of Earnings to Fixed Charges January 1, 1989 - September 30, 1994 ($000) Twelve Months Year Ended December 31 Ended --------------------------------------- Sept.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 $21,600 Other Interest 4,011 2,853 4,266 3,223 1,906 2,287 Amortization of Debt Discount and Expense 401 363 348 511 775 926 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 $26,513 ======= ======= ======= ======= ======= ======= Earnings, as defined: Net Income $28,420 $30,724 $14,377 $15,775 $37,647 $32,121 Taxes on Income 15,366 13,629 2,321 6,951 22,096 17,411 Fixed Charges, as above 24,991 27,006 28,076 28,174 26,960 26,513 ------- ------- ------- ------- ------- ------- Total Earnings, as defined $68,777 $71,359 $44,774 $50,900 $86,703 $76,045 ======= ======= ======= ======= ======= ======= Ratio of Earnings to Fixed Charges 2.75 2.64 1.59 1.81 3.22 2.87 ==== ==== ==== ==== ==== ==== EX-15 4 Deloitte & Touche LLP -------------------------------------------------------------- 3900 US Bancorp Tower Telephone: (503) 222-1341 111 SW Fifth Avenue Facsimile: (503) 224-2172 Portland, OR 97204-3698 Exhibit 15 November 10, 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 September 30, 1994 and 1993, as indicated in our report dated November 10, 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 September 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 LLP EX-27 5 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
UT THIS SECTION OF THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1994 SEP-30-1994 $19.57 613,476 65,719 56,012 40,066 60,430 835,703 42,268 133,145 85,862 261,275 39,888 1,581 292,179 0 0 40,460 0 1,062 0 0 199,258 835,703 243,513 9,638 206,271 215,909 27,604 8,088 35,692 18,221 17,471 2,243 15,228 17,487 0 86,352 $1.15 $1.14
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