-----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, qFtIbuo+PumPzaYluIzeCOikn1UJ0ZFYc5JQOKd6ri7x+WeBKbWtrHVCbkGMkaMC OinMqlCzVb4xfthHzz+Uwg== 0000073020-95-000005.txt : 19950807 0000073020-95-000005.hdr.sgml : 19950807 ACCESSION NUMBER: 0000073020-95-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950804 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWEST NATURAL GAS CO CENTRAL INDEX KEY: 0000073020 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [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: 95559075 BUSINESS ADDRESS: STREET 1: 220 NW SECOND AVE CITY: PORTLAND STATE: OR ZIP: 97209 BUSINESS PHONE: 5032264211 10-Q 1 BODY OF DOCUMENT 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, 1995 ------------------------------ 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 -- 14,739,065 shares NORTHWEST NATURAL GAS COMPANY June 30, 1995 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, 1995 and 1994 and Consolidated Statements of Earnings Invested in the Business for the six month periods ended June 30, 1995 and 1994. 3 (2) Consolidated Balance Sheets at June 30, 1995 and 1994 and December 31, 1994. 4 (3) Consolidated Statements of Cash Flows for the six month periods ended June 30, 1995 and 1994. 6 (4) Consolidated Statements of Capitalization at June 30, 1995 and 1994 and December 31, 1994. 7 (5) Notes to Consolidated Financial Statements. 8 Independent Accountants' Report 10 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 11 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 22 Item 5. Other Events 22 Item 6. Exhibits and Reports on Form 8-K 23 Signature 24 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, ------------------- ------------------- 1995 1994 1995 1994 ------- ------- -------- ------- Net Operating Revenues: Operating revenues $71,029 $66,505 $196,418 $195,039 Cost of sales 29,224 29,286 80,768 85,495 ------- ------- -------- -------- Net operating revenues 41,805 37,219 115,650 109,544 ------- ------- -------- -------- Operating Expenses: Operations and maintenance 18,550 17,695 36,131 35,551 Taxes other than income taxes 5,936 6,022 13,390 14,075 Depreciation, depletion and amortization 9,780 8,912 19,689 18,020 ------- ------- -------- -------- Total operating expenses 34,266 32,629 69,210 67,646 ------- ------- -------- -------- Income from Operations 7,539 4,590 46,440 41,898 ------- ------- -------- -------- Other Income 4,267 4,880 3,180 4,951 ------- ------- -------- -------- Interest Charges - net 6,361 5,900 12,923 12,077 ------- ------- -------- -------- Income Before Income Taxes 5,445 3,570 36,697 34,772 Income Taxes 1,937 1,105 14,137 13,527 ------- ------- -------- -------- Net Income 3,508 2,465 22,560 21,245 Preferred and preference stock dividend requirements 690 757 1,425 1,497 ------- ------- -------- -------- Earnings Applicable to Common Stock $ 2,818 $ 1,708 $ 21,135 $ 19,748 ======= ======= ======== ======== Average Common Shares Outstanding 14,700 13,270 14,308 13,239 Primary Earnings Per Share of Common Stock $0.19 $0.13 $1.48 $1.49 Fully-Diluted Earnings Per Share of Common Stock * * $1.45 $1.46 Dividends Per Share of Common Stock $0.44 $0.44 $0.88 $0.88 *Anti-dilutive See accompanying Notes to Consolidated Financial Statements.
============================================================================ Consolidated Statements of Earnings Invested in the Business (Thousands, Six Month Periods Ended June 30)
1995 1994 -------- -------- Balance at Beginning of Period $ 97,275 $ 88,497 Net Income 22,560 21,245 Cash Dividends: Preferred and preference stock (1,455) (1,550) Common stock (12,375) (11,634) Capital stock expense and other (1,402) (104) -------- -------- Balance at End of Period $104,603 $ 96,454 ======== ======== See accompanying Notes to Consolidated Financial Statements.
NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (2) Consolidated Balance Sheets (Thousands of Dollars)
June 30, June 30, Dec. 31, 1995 1994 1994 -------- -------- -------- Assets: Plant and Property in Service: Utility plant in service $936,695 $874,210 $908,238 Less accumulated depreciation 293,789 269,033 279,112 -------- -------- -------- Utility plant - net 642,906 605,177 629,126 Non-utility property 52,211 45,555 49,586 Less accumulated depreciation and depletion 25,985 22,295 24,456 -------- -------- -------- Non-utility property - net 26,226 23,260 25,130 -------- -------- -------- Total plant and property in service 669,132 628,437 654,256 -------- -------- -------- Investments and Other: Investments 32,934 33,996 34,183 Long-term notes receivable 4,551 6,873 2,914 -------- -------- -------- Total investments and other 37,485 40,869 37,097 -------- -------- -------- Current Assets: Cash and cash equivalents 18,686 2,337 8,068 Accounts receivable - net 19,253 22,056 42,152 Accrued unbilled revenue 5,843 5,728 20,320 Inventories of gas, materials and supplies 14,387 12,045 14,958 Prepayments and other current assets 6,160 5,692 10,041 -------- -------- -------- Total current assets 64,329 47,858 95,539 -------- -------- -------- Regulatory Tax Assets 60,430 60,430 60,430 -------- -------- -------- Deferred Debits and Other 45,555 38,588 41,982 -------- -------- -------- Total Assets $876,931 $816,182 $889,304 ======== ======== ======== See accompanying Notes to Consolidated Financial Statements.
NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (2) Consolidated Balance Sheets (Thousands of Dollars)
June 30, June 30, Dec. 31, 1995 1994 1994 -------- -------- --------- Capitalization and Liabilities: Capitalization: Common stock $215,133 $173,784 $177,133 Earnings invested in the business 104,603 96,454 97,275 -------- -------- -------- Total common stock equity 319,736 270,238 274,408 Preference stock 25,000 26,587 26,252 Redeemable preferred stock 14,840 15,950 15,950 Long-term debt 276,066 272,229 291,076 -------- -------- -------- Total capitalization 635,642 585,004 607,686 -------- -------- -------- Current Liabilities: Notes payable 16,321 37,780 53,654 Accounts payable 27,903 25,933 48,517 Long-term debt due within one year 16,000 - 1,000 Taxes accrued 5,335 4,446 6,584 Interest accrued 4,574 4,448 4,570 Other current and accrued liabilities 11,793 10,500 11,757 -------- -------- -------- Total current liabilities 81,926 83,107 126,082 -------- -------- -------- Deferred Investment Tax Credits 12,877 13,892 13,530 -------- -------- -------- Deferred Income Taxes 116,990 109,981 112,433 -------- -------- -------- Regulatory Balancing Accounts and Other 29,496 24,198 29,573 -------- -------- -------- Contingent Liabilities (Note 3) - - - -------- -------- -------- Total Capitalization and Liabilities $876,931 $816,182 $889,304 ======== ======== ======== See accompanying Notes to Consolidated Financial Statements.
NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (3) Consolidated Statements of Cash Flows (Thousands of Dollars) Six Months Ended June 30, ------------------ 1995 1994 ------- ------- Operating Activities: Net income $22,560 $21,245 Adjustments to reconcile net income to net cash provided by (used for) operations: Depreciation, depletion and amortization 19,689 18,020 Deferred income taxes and investment tax credits 3,904 6,706 Equity in (earnings) losses of investments 455 (259) Allowance for funds used during construction (272) (138) Regulatory balancing accounts and other - net (3,650) 7,008 Cash from operations before working ------- ------- capital changes 42,686 52,582 Changes in operating assets and liabilities: Accounts receivable 22,899 21,916 Accrued unbilled revenue 14,477 20,162 Inventories of gas, materials and supplies 571 4,793 Accounts payable (20,614) (18,385) Accrued interest and taxes (1,245) (2,301) Other current assets and liabilities 3,917 5,540 ------- ------- Cash Provided By Operating Activities 62,691 84,307 ------- ------- Investing Activities: Acquisition and construction of utility plant assets (31,412) (36,656) Investment in non-utility plant (2,881) (2,797) Investments and other (843) (536) ------- ------- Cash Used In Investing Activities (35,136) (39,989) ------- ------- Financing Activities: Common stock issued 36,922 2,968 Preference stock retired (174) - Preferred stock retired (1,110) (1,091) Long-term debt retired (10) - Change in short-term debt (37,333) (34,768) Cash dividend payments: Preferred and preference stock (1,455) (1,550) Common stock (12,375) (11,634) Capital stock expense and other (1,402) (104) ------- ------- Cash Used For Financing Activities (16,937) (46,179) ------- ------- Increase (Decrease) in Cash and Cash Equivalents 10,618 (1,861) Cash and Cash Equivalents - Beginning of Period 8,068 4,198 ------- ------- Cash and Cash Equivalents - End of Period $18,686 $ 2,337 ======= ======= ============================================================================= Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest $12,752 $11,786 Income Taxes $12,504 $ 7,704 ============================================================================= Supplemental Disclosure of Noncash Financing Activities Conversion to common stock: $2.375 Series of Convertible Preference Stock $ 1,078 $ 46 7-1/4 percent Series of Convertible Debentures $ - $ 702 ============================================================================= See accompanying Notes to Consolidated Financial Statements.
NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (4) Consolidated Statements of Capitalization (Thousands, except share amounts)
Jun. 30, 1995 Jun. 30, 1994 Dec. 31, 1994 - ------------------------------------------------------------------------------ COMMON STOCK EQUITY: Common stock - par value $3-1/6 per share $ 46,674 $ 42,103 $ 42,492 Premium on common stock 168,459 131,681 134,641 Earnings invested in business 104,603 96,454 97,275 -------- -------- -------- Total common stock equity 319,736 50% 270,238 46% 274,408 45% -------- ---- -------- ---- -------- ---- PREFERENCE STOCK: $2.375 Series, convertible, stated value $25 per share - 1,587 1,252 $6.95 Series, stated value $100 per share 25,000 25,000 25,000 -------- -------- -------- Total preference stock 25,000 4% 26,587 5% 26,252 4% -------- ---- -------- ---- -------- ---- REDEEMABLE PREFERRED STOCK, stated value $100 per share: $4.68 Series 552 732 732 $4.75 Series 788 968 968 $7.125 Series 13,500 14,250 14,250 -------- -------- -------- Total redeemable preferred stock 14,840 2% 15,950 3% 15,950 3% -------- ---- -------- ---- -------- ---- LONG-TERM DEBT: First Mortgage Bonds -------------------- 9-3/4% Series due 2015 50,000 50,000 50,000 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 5,000 5.98% Series B due 2000 5,000 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 - 10,000 8.31% Series B due 2019 10,000 - 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 12,066 12,229 12,076 -------- -------- -------- 292,066 272,229 292,076 Less long-term debt due within one-year 16,000 - 1,000 -------- -------- -------- Total long-term debt 276,066 44% 272,229 46% 291,076 48% -------- ---- -------- ---- -------- ---- TOTAL CAPITALIZATION $635,642 100% $585,004 100% $607,686 100% ======== ==== ======== ==== ======== ==== - ------------------------------------------------------------------------------ See accompanying Notes to Consolidated Financial Statements.
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 1994 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, 1995 and 1994 are not indicative of the results for a full year. Certain amounts from the prior year have been reclassified to conform with the 1995 presentation. 2. Capital stock In the first quarter of 1995, Northwest Natural Gas Company (Northwest Natural) sold 1.15 million shares of its Common Stock. The net proceeds of $33.0 million received from the offering were added to the general funds of the Company and were used for corporate purposes, primarily to fund, in part, Northwest Natural's construction program, and to repay short-term debt incurred for such purpose. The projected annual dilution of earnings per share resulting from this sale is estimated at five percent. 3. Contingent Liabilities On July 21, 1995, a jury returned a verdict against the Company which, if reduced to judgment, could cost the Company as much as $5.0 million, or $0.20 per share. For further information, see Part II, Item 5., "Other Events". In June 1995, the Eugene Water and Electric Board in Eugene, Oregon requested Northwest Natural's participation in its review of an environmental assessment of property in Eugene. Within the property was a manufactured gas plant which formerly was owned but never operated by Northwest Natural. Northwest Natural has not obtained sufficient information to determine the extent of any liability or responsibility it may have for any remediation at this site. For further information as to environmental matters, see Part II, Item 7., "Environmental Matters", in the Company's 1994 Annual Report on Form 10-K. 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 June 30, 1995 and 1994, and the related consolidated statements of income for the three- and six- month periods ended June 30, 1995 and 1994, and the consolidated statements of earnings invested in the business and cash flows for the six-month periods ended June 30, 1995 and 1994. These financial statements are the responsibility of the Company s management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted 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, 1994, 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 22, 1995 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, 1994 is fairly stated in all material respects in relation to the consolidated financial statements from which it has been derived. DELOITTE & TOUCHE LLP July 31, 1995 NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The consolidated financial statements include: Regulated Utility: Northwest Natural Gas Company (Northwest Natural) Non-regulated wholly-owned businesses: Oregon Natural Gas Development Corporation (Oregon Natural) NNG Energy Systems, Inc. (Energy Systems) NNG Financial Corporation (Financial Corporation) Pacific Square Corporation (Pacific Square)- (dissolved during the second quarter of 1995) Together these businesses are referred to herein as the "Company" (see "Subsidiary Operations" below and Part II, Item 8., Note 2, "Notes to Consolidated Financial Statements", in the Company's 1994 Annual Report on Form 10-K). The following is management's assessment of the Company's financial condition including the principal factors that impact results of operations. The discussion refers to the consolidated activities of the Company for the three and six months ended June 30, 1995 and 1994. Earnings and Dividends - ---------------------- The Company earned $2.8 million, or $0.19 per share, for the second quarter ended June 30, 1995, compared to $1.7 million, or $0.13 per share, in last year's second quarter. Northwest Natural's results improved by $2.9 million while subsidiary results were lower by $1.8 million. Northwest Natural earned $0.09 per share from utility operations in the second quarter of 1995, compared to a loss of $0.12 per share in the same period in 1994. The 1995 subsidiary results included a gain equivalent to $0.06 per share resulting from a final distribution to Energy Systems under the bankruptcy reorganization plan of its California cogeneration subsidiary. The 1994 subsidiary results included a one-time gain of $1.9 million, equivalent to $0.14 per share, resulting from the sale of Pacific Square's investments (see "Subsidiary Operations"). The Company earned $21.1 million, or $1.48 per share, and $19.7 million, or $1.49 per share, for the six months ended June 30, 1995 and June 30, 1994, respectively. Year-to-date, Northwest Natural earned $1.45 per share from utility operations, compared to $1.26 per share in the same period in 1994. The primary factor affecting second quarter and year-to- date 1995 earnings was cooler weather in Northwest Natural's service territory during the second quarter. Weather conditions were 19 percent cooler than the second quarter of 1994, resulting in significant increases in gas deliveries to, and related margin (revenues less cost of gas) from, weather-sensitive customers. However, during the second quarter of 1995, weather conditions were six percent warmer than the 20 year average. The Company estimates that, had temperatures during the second quarter of 1995 been at the 20-year average, margin would have been higher by the equivalent of $0.05 per share. Nevertheless, the cooler weather in this year's second quarter and the year-to-date period as compared to last year improved margins by the equivalent of $0.17 per share and $0.07 per share, respectively. The Company also estimates that permanent rate changes reduced margins in this year's second quarter and the year- to-date period by the equivalent of $0.02 per share and $0.06 per share, respectively. These estimates are derived from the Company's internal planning model which is described in Part II, Item 7., "Earnings and Dividends", in the Company's 1994 Annual Report on Form 10-K. Subsidiary net income was $1.6 million for the second quarter ended June 30, 1995, compared to $3.3 million in last year's second quarter, which included the gain from the sale of Pacific Square's investments discussed above. Dividends paid on common stock were $0.44 per share for both three-month periods ended June 30, 1995 and June 30, 1994. In July 1995, the Board of Directors of the Company declared a quarterly dividend of $0.44 per share on its common stock, payable August 15, 1995, to shareholders of record on July 31, 1995. The current indicated annual dividend rate is $1.76 per share. 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, ------------------ ----------------- 1995 1994 1995 1994 ---- ---- ---- ---- Gas Sales and Transportation Volumes - Therms (000's): Residential and commercial sales 95,408 82,286 287,295 276,527 Unbilled volumes (11,176) (10,731) (26,742) (34,953) ------- ------- ------- -------- Weather-sensitive volumes 84,232 71,555 260,553 241,574 Industrial firm sales 19,992 18,692 43,724 42,135 Industrial interruptible sales 19,725 20,360 43,744 43,988 ------- ------- ------- -------- Total gas sales 123,949 110,607 348,021 327,697 Transportation deliveries 92,837 89,571 190,667 178,420 ------- ------- ------- -------- Total volumes sold and delivered 216,786 200,178 538,688 506,117 ======= ======= ======= ======== Utility Operating Revenues - Dollars (000's): Residential and commercial revenues $56,600 $51,856 $166,077 $170,273 Unbilled revenues (5,866) (6,178) (14,477) (20,163) ------- ------- -------- -------- Weather-sensitive revenues 50,734 45,678 151,600 150,110 Industrial firm sales revenues 7,569 7,989 16,691 18,150 Industrial interruptible sales revenues 5,649 5,931 12,513 12,980 ------- ------- -------- -------- Total gas sales revenues 63,952 59,598 180,804 181,240 Transportation revenues 3,964 3,477 7,777 6,943 Other revenues 1,553 236 4,160 471 ------- ------- -------- -------- Total utility operating revenues $69,469 $63,311 $192,741 $188,654 ======= ======= ======== ======== Cost of gas $29,224 $29,286 $ 80,768 $ 85,495 ======= ======= ======== ======== Total number of customers (end of period) 396,500 376,800 396,500 376,800 ======= ======= ======= ======== Actual degree days 649 544 2,339 2,293 ======= ======= ======= ======== 20-year average degree days 689 701 2,563 2,592 ======= ======= ======= ========
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 the volumes of gas sold to these customers. Normal weather conditions are based upon a 20-year average measured by heating degree days. Weather conditions were six percent warmer than average in the second quarter of 1995, and 19 percent cooler than the second quarter of 1994. Year-to-date weather conditions in 1995 were nine percent warmer than average, and two percent cooler than year-to-date in 1994. The year-to-date effect of the cooler weather on volumes of gas sold was augmented by the addition of 19,700 new customers since June 30, 1994. Despite the eight percent increase in volumes of gas sold attributable to residential and commercial customers, related revenues increased only one percent due to rate decreases reflecting lower gas costs effective in December 1994 which averaged 5.6 percent in Oregon and 7.0 percent in Washington. Customer growth continues at a rapid rate relative to others in the industry. The residential and commercial customers added since June 30, 1994 represent a growth rate of 5.2 percent. In the three years ended December 31, 1994, over 55,000 customers were added to the system, representing an average growth rate of 5.2 percent. Volumes sold to residential and commercial customers increased by 18 percent for the three month period ended June 30, 1995, compared to the same period in 1994, while corresponding revenues increased 11 percent, due to the same factors discussed for the year-to-date results. 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 gas costs. Industrial, Transportation and Other ------------------------------------ Total volumes delivered to industrial firm, industrial interruptible and transportation customers were 3.9 million therms, or three percent, higher in the second quarter of 1995, and 13.6 million therms, or five percent, higher for the six months ended June 30, 1995, compared to the same periods in 1994. The volume increases were primarily due to increased transportation deliveries to two high volume interruptible customers. The combined margin from industrial firm and interruptible sales and transportation customers increased by 14 percent, from $10.2 million in the second quarter of 1994 to $11.6 million in the second quarter of 1995. For the current six month period, margin from these customers increased 12 percent, from $22.2 million in 1994 to $24.8 million in 1995. The increases were primarily due to termination of the Interruptible Sales Adjustment (ISA) tariff schedule in Oregon which became effective December 1, 1994 (see Part I, Item 1., "Regulation and Rates", in the Company's 1994 Annual Report on Form 10-K). Other revenues are primarily related to additions to or amortizations of regulatory balancing accounts (see Part II, Item 8., Note 1, "Notes to Consolidated Financial Statements", in the Company's 1994 Annual Report on Form 10-K). The primary components of other revenue in 1995 were $1.6 million relating to amortizations of the ISA account and $1.8 million resulting from other amortizations. Cost of Gas ----------- The cost of gas sold was $29 million during the second quarters of both 1995 and 1994. During the second quarter of 1995, total gas sales volumes increased 12 percent compared to the second quarter of 1994 while the cost of gas per therm declined 11 percent. The cost of gas sold was six percent lower during the six month period ended June 30, 1995 compared to the same period in 1994. The decrease was due to the combined effect of a six percent increase in gas sales volumes and an 11 percent decrease in the cost of gas per therm. 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): 1995 1994 1995 1994 - ---------------------------- ---- ---- ---- ---- Net Operating Revenues $1,560 $3,250 $3,677 $6,497 Operating Expenses 2,534 2,563 4,870 5,735 ------ ------ ------ ------ Income(Loss) from Operations (974) 687 (1,193) 762 Income(Loss) from Financial Investments 1,044 1,312 (494) 161 Other Income and Interest Charges 2,318 3,225 2,376 3,895 ------ ------ ------ ------ Income Before Income Taxes 2,388 5,224 689 4,818 Income Tax Expense 835 1,901 260 1,717 ------ ------ ------ ------ Net Income $1,553 $3,323 $ 429 $3,101 ====== ====== ====== ======
Consolidated subsidiary results for the three months ended June 30, 1995 and 1994, were net income equivalent to $0.10 per share, and $0.25 per share, respectively. Results of operations for the individual subsidiaries for the second quarter of 1995 were net income of $1.0 million for Energy Systems; net income of $0.8 million for Financial Corporation; and a net loss of $0.2 million for Oregon Natural. Pacific Square realized neither a gain nor a loss for the second quarter of 1995. The strong 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. Upon completion of this sale, Pacific Square no longer had any significant operating activities and was dissolved during the second quarter of 1995. The following discussion summarizes operating expenses, other income, interest charges - net, and income taxes. Operating Expenses ------------------ Operations and Maintenance -------------------------- Operations and maintenance expenses were $0.6 million, or two percent, higher for the six months ended June 30, 1995, than for the equivalent period in 1994. Northwest Natural's expenses increased $1.6 million primarily due to the timing of advertising expenses ($0.5 million), increased plant maintenance charges ($0.3 million), increased computer network operating expenses ($0.4 million), and increased payroll expenses ($0.2 million). Subsidiary expenses decreased $1.0 million primarily due to a decline in Oregon Natural's production costs. Taxes Other Than Income Taxes ----------------------------- Taxes other than income taxes decreased $0.7 million, or five percent, in the first six months of 1995, compared to the same period in 1994 due to a reduction in accrued property tax expense. Depreciation, Depletion and Amortization ---------------------------------------- The Company's depreciation expense increased $1.7 million, or nine percent, in the first six months of 1995 compared to the same period in 1994. This increase was due to additional utility plant in service. Other Income ------------ The decrease in other income for the three and six month periods ended June 30, 1995, compared to the same periods in 1994, resulted from two factors. First, in the second quarter of 1994, Pacific Square realized a $3.2 million pre-tax gain from the sale of its investments (see "Subsidiary Operations"). Second, in the second quarter of 1995, Energy Systems recorded a $2.0 million pre- tax gain due to a final distribution under the reorganization plan of its California cogeneration subsidiary. Interest Charges - Net ---------------------- Interest charges increased $0.8 million, or seven percent, for the six months ended June 30, 1995 compared to the same period in 1994 primarily due to the sale of $20 million of Northwest Natural's Medium-Term Notes during the third quarter of 1994. Income Taxes ------------ The effective corporate income tax rate was 39 percent for both the six month periods ended June 30, 1995 and 1994. This rate approximates the Company's statutory tax rate for these periods. Financial Condition - ------------------- Capital Structure ----------------- Northwest Natural's capital expenditures are required for utility construction resulting from customer growth and system improvements. Northwest Natural finances these expenditures from cash provided by operations, and from short-term borrowings which are periodically refinanced through the sale of long-term debt or equity securities. In addition to its capital expenditures, 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. Short-term liquidity is satisfied primarily through the sale of commercial paper, which is supported by commercial bank lines of credit (see Part II, Item 8., Note 6, "Notes to Consolidated Financial Statements", in the Company's 1994 Annual Report on Form 10-K). 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. When additional capital is required, the Company issues debt or equity securities depending upon both the target capital structure and market conditions. The Company also uses these sources to meet long-term debt and preferred stock redemption requirements (see Part II, Item 8., Notes 3 and 5, "Notes to Consolidated Financial Statements", in the Company's 1994 Annual Report on Form 10-K). Cash Flows ---------- Operating Activities -------------------- Cash provided from operating activities was $21.6 million, or 26 percent, lower in the first six months of 1995 compared to the same period in 1994, primarily due to rate changes effective in December 1994 for the amortization of credit balances in regulatory balancing accounts and the effects of weather on unbilled revenue, inventories of gas, and accounts payable. 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 1994 Annual Report on Form 10-K). Investing Activities -------------------- Cash requirements for utility construction in the first six months of 1995, primarily related to system improvements and customer growth, totalled $31.4 million, down $5.2 million, or 14 percent, from the first six months of 1994. The decrease resulted largely from a $2.4 million reduction in costs to construct new mains and services. In addition, last year's results for the first six months included $1.7 million in additional long-term storage gas and $1.5 million in additional expenditures related to a project initiated in 1993 to replace the existing customer information system. Northwest Natural's construction expenditures are estimated at $76 million for 1995. Over the five-year period 1995 through 1999, these expenditures are estimated at between $350 and $375 million. It is anticipated that approximately 60 percent of the funds required for these expenditures will be internally generated, and that the remainder will be funded through short-term borrowings which will be refinanced periodically through the sale of long-term debt and equity securities. During the first six months of 1995 and 1994, non-utility capital expenditures were primarily for exploration and development of Canadian properties. Oregon Natural anticipates investing up to $10 million, in addition to internally generated cash, in its Canadian gas exploration and production program during the three years 1995 through 1997. During the first quarter of 1995, the Company invested $4 million in Oregon Natural for such activities. (See Part II, Item 7. Financial Condition, "Investing Activities", in the Company's 1994 Annual Report on Form 10-K.) Financing Activities -------------------- Cash used for financing activities in the first six months of 1995 totalled $16.9 million, down $29.2 million, or 63 percent, from the first six months of 1994, due to the sale by Northwest Natural of 1.15 million shares of its Common Stock in February 1995. The net proceeds of $33.0 million received from the offering were added to the general funds of the Company and were used for corporate purposes, primarily to fund, in part, Northwest Natural's construction program, and to repay short-term debt incurred for such purpose. Year-to-date earnings per share were reduced by an estimated three percent due to the dilution effect of this offering. 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 up to $40 million available as needed, at Northwest Natural's option, on a monthly basis. Financial Corporation has available through September 30, 1995, committed lines of credit with two commercial banks totalling $20 million, consisting of 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 are supported by the guaranty of Northwest Natural. Northwest Natural and Financial Corporation anticipate extending these lines for an additional year during the third quarter. Under the terms of these lines of credit, which are used as backup lines for commercial paper programs, Northwest Natural and Financial Corporation pay commitment fees but are not required to maintain compensating bank balances. The interest rates on borrowings under these lines of credit are based on current market rates as negotiated. There were no outstanding balances under either the Northwest Natural or the Financial Corporation lines of credit as of June 30, 1995 or June 30, 1994. Commercial Paper ---------------- The Company's primary source of short-term funds is commercial paper. Both Northwest Natural and Financial Corporation issue domestic commercial paper, which is supported by the committed bank lines discussed above, under agency agreements with a commercial bank. Financial Corporation's commercial paper is supported by the guaranty of Northwest Natural (see Part II, Item 8., Note 6, "Notes to Consolidated Financial Statements", in the Company's 1994 Annual Report on Form 10-K). Ratios of Earnings to Fixed Charges ----------------------------------- For the 12 months ended June 30, 1995, and December 31, 1994, the Company's ratios of earnings to fixed charges, computed by the Securities and Exchange Commission method, were 3.07 and 3.08, 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. 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 25, 1995. At the meeting, four director-nominees were elected to three year terms, as follows:
Share Term Share Votes Votes Director-nominee Expiring For Withheld - ---------------- -------- ----------- -------- Tod R. Hamachek 1998 12,691,685 182,767 Wayne D. Kuni 1998 12,687,774 186,678 Melody C. Teppola 1998 12,678,204 196,248 Russell F. Tromley 1998 12,701,616 172,836 There were no broker non-votes with respect to the election of the director-nominees. The other eight directors whose terms of office as directors continued after the annual meeting are: Mary Arnstad, Thomas E. Dewey, Jr., Richard B. Keller, Robert L. Ridgley, Dwight A. Sangrey, Benjamin R. Whiteley, William R. Wiley and Carlton Woodard. The shareholders approved amendments to the Northwest Natural Gas Company 1985 Stock Option Plan by the following vote: 11,240,093 shares for; 1,116,947 against; and 517,412 abstained. There were no broker non-votes on this item. The shareholders also elected Deloitte & Touche LLP, certified public accountants, as Northwest Natural's auditors for the year 1995 by the following vote: 12,614,850 shares for; 75,708 against; and 183,894 abstained. There were no broker non-votes on this item. Item 5. Other Events ------------ On July 21, 1995, a jury in an Oregon state court returned a verdict against the Company in the case of Northwest Natural Gas Company v. Chase Gardens, Inc. (Lane County Circuit Court Case No. 16-91-01370). The case commenced with a crop lien foreclosure action by the Company for recovery of past-due gas service charges. The defendant, Chase Gardens, Inc., counter-claimed for breach of contract and intentional interference with its business relationship with a bank, based upon an allegation that the filing of the crop liens caused its nursery business to fail. The jury returned a verdict against the Company on the breach of contract counter-claim for actual damages of $1.9 million. Alternatively, the jury brought a verdict on the intentional interference counter-claim for actual damages of $2.1 million, plus punitive damages of $3.0 million. The jury also allowed the Company's offsetting claim for past-due gas service charges in the amount of about $0.2 million. The Company intends to ask the trial court to enter a judgment for the Company, notwithstanding the verdict, on both of Chase Gardens' counter-claims. If that effort is unsuccessful, the Company intends to appeal the decision to the Oregon Court of Appeals. It is unclear how much, if any, of the verdict for either counter-claim would be covered by liability insurance. If the Company is unsuccessful in overturning or reducing the damage award in this case, or in recovering any portion of the loss through insurance, the maximum amount payable by the Company (not including legal fees, costs and post-judgment interest) would be about $4.9 million. A payment of such amount would reduce earnings by about $0.20 per share. After a full review, the Company will determine what portion of this amount to reserve as a charge against income. 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 Current Reports on Form 8-K were filed during the quarter ended June 30, 1995. 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 4, 1995 ------------------------------ D. James Wilson Principal Accounting Officer, Corporate Controller and Treasurer NORTHWEST NATURAL GAS COMPANY EXHIBIT INDEX to Quarterly Report on Form 10-Q For Quarter Ended June 30, 1995 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 Ended Six Months Ended June 30, June 30, ------------------ ---------------- 1995 1994 1995 1994 ---- ---- ---- ---- Earnings Applicable to Common Stock $2,818 $1,708 $21,135 $19,748 Preference Stock Dividends - 38 - 75 Debenture Interest Less Taxes 133 135 267 271 ------ ------ ------- ------- Net Income Available for Fully-Diluted Common Stock $2,951 $1,881 $21,402 $20,094 ====== ====== ======= ======= Average Common Shares Outstanding 14,700 13,270 14,308 13,239 Stock Options 9 18 9 21 Convertible Preference Stock - 105 - 105 Convertible Debentures 404 409 404 409 ------ ------ ------- ------- Fully-Diluted Common Shares 15,113 13,802 14,721 13,774 ====== ====== ======= ======= Fully-Diluted Earnings Per Share of Common Stock $0.20* $0.14* $1.45 $1.46 ====== ====== ======= ======= 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. *Anti-dilutive
EX-12 3 EXHIBIT 12 Northwest Natural Gas Company Computation of Ratio of Earnings to Fixed Charges January 1, 1990 - June 30, 1995 ($000)
Twelve Months -----------Year Ended December 31---------- Ended June 30, 1990 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- ---- Fixed Charges, as defined: Interest on Long-Term Debt $22,244 $21,977 $23,001 $22,578 $21,921 $22,737 Other Interest 2,853 4,266 3,223 1,906 2,473 2,617 Amortization of Debt Discount and Expense 363 348 511 775 850 870 Interest Portion of Rentals 1,546 1,485 1,439 1,701 1,697 1,697 ------- ------- ------- ------- ------- ------- Total Fixed Charges, as defined $27,006 $28,076 $28,174 $26,960 $26,941 $27,921 ======= ======= ======= ======= ======= ======= Earnings, as defined: Net Income $30,724 $14,377 $15,775 $37,647 $35,461 $36,776 Taxes on Income 13,629 2,321 6,951 22,096 20,473 21,083 Fixed Charges, as above 27,006 28,076 28,174 26,960 26,941 27,921 ------- ------- ------- ------- ------- ------- Total Earnings, as defined $71,359 $44,774 $50,900 $86,703 $82,875 $85,780 ======= ======= ======= ======= ======= ======= Ratio of Earnings to Fixed Charges 2.64 1.59 1.81 3.22 3.08 3.07 ======= ======= ======= ======= ======= =======
EX-15 4 EXHIBIT 15 DELOITTE & TOUCHE LLP ---------------------------------------------------- 3900 US Bancorp Tower Telephone: (503) 222-1341 111 SW Fifth Avenue Facsimile: (503) 224-2172 Portland, OR 97204-3698 July 31, 1995 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, 1995 and 1994, as indicated in our report dated July 31, 1995; 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, 1995, 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
UT This section of the schedule contains summary financial information extracted from the consolidated financial statements and is qualified in its entirety by reference to such financial statements. 6-MOS DEC-31-1995 JUN-30-1995 PER-BOOK 642,906 63,711 64,329 45,555 60,430 876,931 46,674 168,459 104,603 319,736 38,778 0 276,066 0 0 16,321 16,000 1,062 0 0 208,968 876,931 196,418 14,137 149,978 164,115 32,303 3,180 35,483 12,923 22,560 1,425 21,135 12,375 0 62,691 $1.48 $1.45
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