-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UyBwWNbQBTDnysp6AXvtjErhy3QrJrFmdzX0KwaJy3Ii2+mFJd5k4Ea6pMnOtH7P 76Tdx1nhmHaFDge9PnmvEw== 0000073020-95-000007.txt : 19951106 0000073020-95-000007.hdr.sgml : 19951106 ACCESSION NUMBER: 0000073020-95-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951103 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: 95587270 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 September 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 -- 14,780,757 shares NORTHWEST NATURAL GAS COMPANY September 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 nine month periods ended September 30, 1995 and 1994 and Consolidated Statements of Earnings Invested in the Business for the nine month periods ended September 30, 1995 and 1994. 3 (2) Consolidated Balance Sheets at September 30, 1995 and 1994 and December 31, 1994. 4 (3) Consolidated Statements of Cash Flows for the nine month periods ended September 30, 1995 and 1994. 6 (4) Consolidated Statements of Capitalization at September 30, 1995 and 1994 and December 31, 1994. 7 (5) Notes to Consolidated Financial Statements. 8 Independent Accountants' Report 9 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 10 PART II. OTHER INFORMATION Item 5. Other Information 22 Item 6. Exhibits and Reports on Form 8-K 23 Signature 23 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, ----------------- ------------------ 1995 1994 1995 1994 ------- ------- -------- -------- Net Operating Revenues: Operating revenues $48,644 $48,474 $245,062 $243,513 Cost of sales 20,613 21,552 101,381 107,047 ------- ------- -------- -------- Net operating revenues 28,031 26,922 143,681 136,466 ------- ------- -------- -------- Operating Expenses: Operations and maintenance 16,953 16,378 53,084 51,929 Taxes other than income taxes 4,913 5,316 18,303 19,391 Depreciation, depletion and amortization 10,377 9,884 30,066 27,904 ------- ------- -------- -------- Total operating expenses 32,243 31,578 101,453 99,224 ------- ------- -------- -------- Income (Loss) from Operations (4,212) (4,656) 42,228 37,242 ------- ------- -------- -------- Other Income 3,542 3,137 6,722 8,088 ------- ------- -------- -------- Interest Charges - net 6,298 6,144 19,221 18,221 ------- ------- -------- -------- Income (Loss) Before Income Taxes (6,968) (7,663) 29,729 27,109 Income Taxes (2,620) (3,889) 11,517 9,638 ------- ------- -------- -------- Net Income (Loss) (4,348) (3,774) 18,212 17,471 Preferred and preference stock dividend requirements 690 746 2,115 2,243 ------- ------- -------- -------- Earnings (Loss) Applicable to Common Stock $(5,038) $(4,520) $ 16,097 $ 15,228 ======= ======= ======== ======== Average Common Shares Outstanding 14,760 13,322 14,459 13,267 Primary Earnings (Loss) Per Share of Common Stock $(0.34) $(0.34) $1.11 $1.15 Fully-Diluted Earnings Per Share of Common Stock * * $1.11 $1.14 Dividends Per Share of Common Stock $ 0.44 $ 0.44 $1.32 $1.32 *Anti-dilutive See accompanying Notes to Consolidated Financial Statements. ============================================================================== Consolidated Statements of Earnings Invested in the Business (Thousands, Nine Month Periods Ended September 30) 1995 1994 ------- ------- Balance at Beginning of Period $97,275 $88,497 Net Income 18,212 17,471 Cash Dividends: Preferred and preference stock (2,146) (2,296) Common stock (18,862) (17,487) Capital stock expense and other (1,633) (323) ------- ------- Balance at End of Period $92,846 $85,862 ======= ======= See accompanying Notes to Consolidated Financial Statements. NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (2) Consolidated Balance Sheets (Thousands of Dollars) Sept. 30, Sept. 30, Dec. 31, 1995 1994 1994 -------- -------- ------- Assets: Plant and Property in Service: Utility plant in service $952,435 $889,791 $908,238 Less accumulated depreciation 302,528 276,315 279,112 -------- -------- -------- Utility plant - net 649,907 613,476 629,126 Non-utility property 49,669 46,300 49,586 Less accumulated depreciation and depletion 23,077 23,213 24,456 -------- -------- -------- Non-utility property - net 26,592 23,087 25,130 -------- -------- -------- Total plant and property in service 676,499 636,563 654,256 -------- -------- -------- Investments and Other: Investments 36,618 35,745 34,183 Long-term notes receivable 3,722 6,887 2,914 -------- -------- -------- Total investments and other 40,340 42,632 37,097 -------- -------- -------- Current Assets: Cash and cash equivalents 2,914 4,969 8,068 Accounts receivable - net 18,225 17,458 42,152 Accrued unbilled revenue 5,996 5,984 20,320 Inventories of gas, materials and supplies 17,138 16,458 14,958 Prepayments and other current assets 11,197 11,143 10,041 -------- -------- -------- Total current assets 55,470 56,012 95,539 -------- -------- -------- Regulatory Tax Assets 60,430 60,430 60,430 -------- -------- -------- Deferred Debits and Other 47,070 40,066 41,982 -------- -------- -------- Total Assets $879,809 $835,703 $889,304 ======== ======== ======== See accompanying Notes to Consolidated Financial Statements. NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (2) Consolidated Balance Sheets (Thousands of Dollars) Sept. 30, Sept. 30, Dec. 31, 1995 1994 1994 -------- -------- -------- Capitalization and Liabilities: Capitalization: Common stock $216,457 $175,413 $177,133 Earnings invested in the business 92,846 85,862 97,275 -------- -------- -------- Total common stock equity 309,303 261,275 274,408 Preference stock 25,000 26,581 26,252 Redeemable preferred stock 14,840 15,950 15,950 Long-term debt 271,048 292,179 291,076 -------- -------- -------- Total capitalization 620,191 595,985 607,686 -------- -------- -------- Current Liabilities: Notes payable 23,204 40,460 53,654 Accounts payable 30,191 23,735 48,517 Long-term debt due within one year 21,000 - 1,000 Taxes accrued 4,762 5,049 6,584 Interest accrued 7,473 6,983 4,570 Other current and accrued liabilities 11,933 10,528 11,757 -------- -------- -------- Total current liabilities 98,563 86,755 126,082 -------- -------- -------- Deferred Investment Tax Credits 12,966 14,033 13,530 -------- -------- -------- Deferred Income Taxes 116,761 110,825 112,433 -------- -------- -------- Regulatory Balancing Accounts and Other 31,328 28,105 29,573 -------- -------- -------- Contingent Liabilities (Note 3) - - - -------- -------- -------- Total Capitalization and Liabilities $879,809 $835,703 $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) Nine Months Ended September 30, ----------------- 1995 1994 ------- ------- Operating Activities: Net income $18,212 $17,471 Adjustments to reconcile net income to net cash provided by operations: Depreciation, depletion and amortization 30,066 27,904 Deferred income taxes and investment tax credits 3,764 7,691 Equity in earnings of investments (3,337) (3,088) Allowance for funds used during construction (428) (234) Regulatory balancing accounts and other - net (3,333) 9,437 ------- ------- Cash from operations before working capital changes 44,944 59,181 Changes in operating assets and liabilities: Accounts receivable 23,927 26,514 Accrued unbilled revenue 14,324 19,906 Inventories of gas, materials and supplies (2,180) 380 Accounts payable (18,326) (20,583) Accrued interest and taxes 1,081 837 Other current assets and liabilities (980) 117 ------- ------- Cash Provided by Operating Activities 62,790 86,352 ------- ------- Investing Activities: Acquisition and construction of utility plant assets (47,543) (53,219) Investment in non-utility plant (4,338) (4,148) Investments and other 94 530 ------- ------- Cash Used in Investing Activities (51,787) (56,837) ------- ------- Financing Activities: Common stock issued 38,228 4,559 Preference stock retired (174) - Preferred stock retired (1,110) (1,091) Long-term debt: Issued - 20,000 Retired (10) (18) Change in short-term debt (30,450) (32,088) Cash dividend payments: Preferred and preference stock (2,146) (2,296) Common stock (18,862) (17,487) Capital stock expense and other (1,633) (323) ------- ------- Cash Used for Financing Activities (16,157) (28,744) ------- ------- Increase (Decrease) in Cash and Cash Equivalents (5,154) 771 Cash and Cash Equivalents - Beginning of Period 8,068 4,198 ------- ------- Cash and Cash Equivalents - End of Period $ 2,914 $ 4,969 ======= ======= ================================================================================ Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest $16,087 $15,289 Income Taxes $15,819 $ 8,454 ================================================================================ Supplemental Disclosure of Noncash Financing Activities: Conversion to common stock: $2.375 Series of Convertible Preference Stock $ 1,078 $ 52 7-1/4 percent Series of Convertible Debentures $ 18 $ 734 ================================================================================ See accompanying Notes to Consolidated Financial Statements. NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (4) Consolidated Statements of Capitalization (Thousands, except share amounts) Sept. 30, Sept. 30, Dec. 31, 1995 1994 1994 - ------------------------------------------------------------------------------- COMMON STOCK EQUITY: Common stock - par value $3-1/6 per share $ 46,806 $ 42,268 $ 42,492 Premium on common stock 169,651 133,145 134,641 Earnings invested in business 92,846 85,862 97,275 -------- -------- -------- Total common stock equity 309,3035 0% 261,275 44% 274,408 45% -------- ---- -------- ---- -------- ---- PREFERENCE STOCK: $2.375 Series, convertible, stated value $25 per share - 1,581 1,252 $6.95 Series, stated value $100 per share 25,000 25,000 25,000 -------- -------- -------- Total preference stock 25,000 4% 26,581 4% 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 10,000 8.31% Series B due 2019 10,000 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 12,048 12,179 12,076 -------- -------- -------- 292,048 292,179 292,076 Less long-term debt due within one year 21,000 - 1,000 -------- -------- -------- Total long-term debt 271,048 44% 292,179 49% 291,076 48% -------- ---- -------- ---- -------- ---- TOTAL CAPITALIZATION $620,191 100% $595,985 100% $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 nine month periods ended September 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 dilution of earnings per share in 1995 resulting from this sale is estimated at five percent. 3. Contingent Liabilities On July 21, 1995, a jury returned a $5.0 million verdict against the Company which, if not reversed, reduced or reimbursed by insurance, would reduce net income on an after-tax basis by about $0.20 per share. For further information, see Part II, Item 5. "Other Information." 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, 1995 and 1994, and the related consolidated statements of income for the three- and nine-month periods ended September 30, 1995 and 1994, and the consolidated statements of earnings invested in the business and cash flows for the nine-month periods ended September 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 October 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 nine months ended September 30, 1995 and 1994. Earnings and Dividends - ---------------------- The Company incurred a loss of $5.0 million, or $0.34 per share, for the third quarter ended September 30, 1995, compared to a loss of $4.5 million, or $0.34 per share, in last year's third quarter. Northwest Natural had a loss of $0.44 per share from utility operations in the third quarter of 1995, compared to a loss of $0.49 per share in the same period in 1994. A third quarter loss is customary for Northwest Natural, reflecting low summertime use of natural gas. Compared to the previous year's third quarter, margin (revenues less cost of gas) from residential and commercial customers increased eight percent while industrial margin increased 17 percent. The Company's subsidiaries earned the equivalent of $0.10 per share in this year's third quarter, down from $0.15 per share in last year's third quarter when operating results were unusually strong. Favorable wind conditions in the summer of 1994 boosted earnings from Financial Corporation's windpower energy investments in California, while this year's low natural gas prices have continued to depress results from Oregon Natural, the Company's exploration and production subsidiary. The Company earned $16.1 million, or $1.11 per share, and $15.2 million, or $1.15 per share, for the nine months ended September 30, 1995 and September 30, 1994, respectively. Year-to- date, Northwest Natural earned $0.98 per share from utility operations, compared to $0.76 per share in the same period in 1994. The weather in Northwest Natural's service territory during the first nine months of 1995 was 11 percent warmer than normal, and two percent cooler than the same period in 1994. The warmer than normal weather resulted in significant reductions in gas deliveries to, and related margin from, weather-sensitive customers. The Company estimates that, had temperatures during the first three quarters of 1995 been at the 20-year average, margin would have been higher by the equivalent of $0.44 per share. Nevertheless, weather conditions during the first nine months of 1995 compared to the same period during 1994 improved margins by the equivalent of $0.10 per share. 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. Year-to-date earnings from subsidiary operations for 1995 were equivalent to $0.13 per share, compared to year-to-date earnings equivalent to $0.39 per share for 1994. 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 partnership interest in two commercial office buildings. In addition, for the comparable year-to-date periods, Oregon Natural's 1995 earnings declined $1.4 million, equivalent to $0.10 per share, due to depressed natural gas prices and lower production volumes. The Board of Directors of the Company declared an increase in the quarterly dividend on its common stock from $0.44 to $0.45 per share, payable November 15, 1995, to shareholders of record on October 31, 1995. 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, ------------------ ----------------- 1995 1994 1995 1994 Gas Sales and Transportation ---- ---- ---- ---- Volumes - Therms (000's): Residential and commercial sales 43,929 42,215 331,224 318,742 Unbilled volumes 362 541 (26,380) (34,412) ------- ------- ------- ------- Weather-sensitive volumes 44,291 42,756 304,844 284,330 Industrial firm sales 17,767 17,599 61,491 59,734 Industrial interruptible sales 18,369 20,923 62,113 64,911 ------- ------- ------- ------- Total gas sales 80,427 81,278 428,448 408,975 Transportation deliveries 90,118 86,675 280,785 265,095 ------- ------- ------- ------- Total volumes sold and delivered 170,545 167,953 709,233 674,070 ======= ======= ======= ======= Utility Operating Revenues - Dollars (000's): Residential and commercial revenues $ 28,725 $ 28,466 $194,802 $198,739 Unbilled revenues 154 256 (14,323) (19,907) -------- -------- -------- -------- Weather-sensitive revenues 28,879 28,722 180,479 178,832 Industrial firm sales revenues 6,685 7,424 23,376 25,574 Industrial interruptible sales revenues 5,563 6,543 18,076 19,523 -------- -------- -------- -------- Total gas sales revenues 41,127 42,689 221,931 223,929 Transportation revenues 4,241 3,657 12,018 10,600 Other revenues 999 (368) 5,159 103 -------- -------- -------- -------- Total utility operating revenues $ 46,367 $ 45,978 $239,108 $234,632 ======== ======== ======== ======== Cost of gas $ 20,613 $ 21,552 $101,381 $107,047 ======== ======== ======== ======== Total number of customers (end of period) 396,900 377,200 396,900 377,200 ======== ======== ======== ======== Actual degree days 38 39 2,377 2,332 ======== ======== ======== ======== 20-year average degree days 108 110 2,671 2,702 ======== ======== ======== ======== 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 heating degree days. Customer growth continues at a rapid rate relative to others in the industry. The 19,700 customers added since September 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. Weather conditions were 65 percent warmer than average in both of the third quarters presented. Despite the warmer weather, total volumes sold to residential and commercial customers for the three month period ended September 30, 1995 increased four percent compared to the same period in 1994, due to sales to new customers. Corresponding revenues increased less than 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. Although year-to-date weather conditions in 1995 were 11 percent warmer than average, they were two percent cooler than the comparable 1994 period. The seven percent increase in year- to-date volumes sold to residential and commercial customers in 1995 compared to year-to-date volumes in 1994 primarily reflects added sales from customer growth which was augmented by slightly cooler weather. Related revenues increased only one percent due to the rate decreases associated with lower gas costs discussed above. 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 ------------------------------------ Total volumes delivered to industrial firm, industrial interruptible and transportation customers were 1.1 million therms, or one percent, higher in the third quarter of 1995, and 14.6 million therms, or four percent, higher for the nine months ended September 30, 1995, compared to the same periods in 1994. The combined margin from industrial firm and interruptible sales and transportation customers increased 17 percent, from $9.8 million in the third quarter of 1994 to $11.6 million in the third quarter of 1995. For the current nine month period, margin from these customers increased 13 percent, from $32.0 million in 1994 to $36.3 million in 1995. The increases were primarily due to the termination of the Interruptible Sales Adjustment (ISA) tariff schedule in Oregon 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 $1.9 million relating to amortizations of the ISA account and $2.0 million resulting from other amortizations. Cost of Gas ----------- The cost of gas sold decreased $0.9 million, or four percent, from $21.5 million in the third quarter of 1994 to $20.6 million in the third quarter of 1995 on total gas sales volumes which were one percent lower in the third quarter of 1995 than in the third quarter of 1994. The average cost of gas per therm was three percent lower in the third quarter of 1995 compared to the same period during 1994. The year-to-date cost of gas decreased $5.7 million, or five percent, from $107.0 million in 1994 to $101.4 million in 1995 on total gas sales volumes which were five percent higher in 1995 than in 1994. The average cost of gas per therm was ten percent lower year-to-date in 1995 than during the same period in 1994. 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): 1995 1994 1995 1994 - ------------------------- ---- ---- ---- ---- Net Operating Revenues $2,277 $2,552 $5,954 $9,049 Operating Expenses 2,237 2,636 7,107 8,371 ------ ------ ------ ------ Income(Loss) from Operations 40 (84) (1,153) 678 Income from Financial Investments 3,772 2,814 3,278 2,975 Other Income(Expense) and Interest Charges (706) (46) 1,670 3,849 ------ ------ ------ ------ Income Before Income Taxes 3,106 2,684 3,795 7,502 Income Tax Expense 1,588 627 1,848 2,344 ------ ------ ------ ------ Net Income $1,518 $2,057 $1,947 $5,158 ====== ====== ====== ====== For the three months ended September 30, 1995 and 1994, the consolidated subsidiaries contributed $0.10 per share and $0.15 per share, respectively, to net income. Results for the individual subsidiaries for the third quarter of 1995 were net income of $2.0 million for Financial Corporation and a net loss of $0.5 million for Oregon Natural. Neither Pacific Square nor Energy Systems realized a gain or a loss for the third quarter of 1995. The $0.5 million decline in subsidiary earnings during the third quarter of 1995 compared with the third quarter of 1994 was due to both lower natural gas production and prices received by Oregon Natural. Year-to-date for 1995 and 1994, the consolidated subsidiaries contributed $0.13 per share and $0.39 per share, respectively, to net income. Year-to-date 1995 results for the individual subsidiaries were net income of $2.0 million for Financial Corporation; net income of $0.9 million for Energy Systems; and a net loss of $1.0 million for Oregon Natural. The strong subsidiary performance for the first nine months of 1994 included higher earnings of $1.4 million for Oregon Natural compared with the first nine months of 1995, and a one-time $1.9 million after-tax gain from the sale of Pacific Square's partnership interest in two commercial office buildings. Oregon Natural's earnings have declined due to lower natural gas production and prices. Pacific Square was dissolved during the second quarter of 1995. Energy Systems no longer has any significant operating activities. The following discussion summarizes operating expenses, other income, interest charges - net, and income taxes. Operating Expenses ------------------ Operations and Maintenance -------------------------- Operations and maintenance expenses were $1.2 million, or two percent, higher for the nine months ended September 30, 1995, than for the equivalent period in 1994. Northwest Natural's expenses increased $2.1 million primarily due to increased computer network expenses ($0.8 million), operating claims ($0.4 million), advertising expenses ($0.3 million), severance expenses ($0.3 million), and environmental management expenses ($0.2 million). Subsidiary expenses decreased $0.9 million primarily due to a decline in Oregon Natural's production costs. Taxes Other Than Income Taxes ----------------------------- Taxes other than income taxes declined $1.1 million, or six percent, in the first nine months of 1995, compared to the same period in 1994, primarily due to a reduction in accrued property tax expense. Depreciation, Depletion and Amortization ---------------------------------------- The Company's depreciation expense increased $2.2 million, or eight percent, in the first nine months of 1995 compared to the same period in 1994. The increase was due to additional utility plant in service. Other Income ------------ Other income decreased $1.4 million, or 17 percent, in the first nine months of 1995 compared to the same period in 1994, due to two non-recurring events. 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 resulting from a final distribution under the reorganization plan of its California cogeneration subsidiary. Interest Charges - Net ---------------------- Interest charges increased $1.0 million, or five percent, for the nine months ended September 30, 1995 compared to the same period in 1994 primarily due to the sale of $20 million of Northwest Natural's Medium-Term Notes in September 1994. Income Taxes ------------ The effective corporate income tax rates for the nine month periods ended September 30, 1995 and 1994 were 39 percent and 36 percent, respectively, which approximate the Company's statutory tax rates 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 $23.6 million, or 27 percent, lower in the first nine months of 1995 compared to the same period in 1994. The reduction was primarily due to rate changes effective in December 1994 to amortize credit balances in regulatory balancing accounts, and also was due to the effects of weather on accounts receivable, 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 in the first nine months of 1995, primarily related to system improvements and customer growth, totalled $47.5 million, down $5.7 million, or 11 percent, from the first nine months of 1994. The decrease resulted largely from a $3.0 million reduction in costs to construct new mains and services which was partially offset by a $1.1 million increase in costs to acquire transportation vehicles. In addition, last year's utility construction expenditures for the first nine months included $1.7 million more in long-term storage gas purchases and $2.6 million more in expenditures related to a project initiated in 1993 to replace the existing customer information system. During the first nine months of 1995 and 1994, non-utility capital expenditures were primarily for exploration and development of Oregon Natural's Canadian gas and oil properties. Oregon Natural anticipates investing up to $10 million, in addition to internally generated cash, in its Canadian 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 nine months of 1995 totalled $16.2 million, down $12.6 million, or 44 percent, from the first nine months of 1994. This reduction was due principally to the sale by Northwest Natural of $33 million of its Common Stock in February 1995 as compared to the sale of $20 million of Northwest Natural's Medium-Term Notes during the third quarter of 1994. The proceeds from the stock 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 one percent due to the dilution effect of this offering. The proceeds from the sale of $20 million of Northwest Natural's Medium-Term Notes in September 1994 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, 1996, committed lines of credit with five commercial banks 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, 1996, 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. 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 line of credit as of September 30, 1995 or September 30, 1994. 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, 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). Ratio of Earnings to Fixed Charges ---------------------------------- For both the 12 months ended September 30, 1995, and December 31, 1994, the Company's ratio of earnings to fixed charges, computed by the Securities and Exchange Commission method, was 3.08. 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 5. Other Information ----------------- 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. It is unclear how much, if any, of the verdict for either counter-claim would be covered by liability insurance. The trial court denied a motion by the Company for entry of a judgment for the Company, notwithstanding the verdict, on both of Chase Gardens' counter-claims. The Company has appealed the decision to the Oregon Court of Appeals, which is expected to reach a decision in mid-1996. There are ample legal precedents to support a ruling by the Court of Appeals in the Company's favor. However, should the Company be unsuccessful in overturning or reducing the damage award in this case on appeal, 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 $5.0 million. The payment of such amount would reduce earnings by about $0.20 per share on an after-tax basis. 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 On July 24, 1995, the Company filed a Current Report on Form 8-K concerning the verdict against the Company in the case of Northwest Natural Gas Company v. Chase Gardens, Inc. (see Part II, Item 5.). 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: November 3, 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 September 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 Nine Months Ended Ended September 30, September 30, ---------------- ---------------- 1995 1994 1995 1994 ------- ------- ------- ------- Earnings (Loss) Applicable to Common Stock $(5,038) $(4,520) $16,097 $15,228 Preference Stock Dividends - 37 - 112 Debenture Interest Less Taxes 133 135 400 404 ------- ------- ------- ------- Net Income (Loss) Available for Fully-Diluted Common Stock $(4,905) $(4,348) $16,497 $15,744 ======= ======= ======= ======= Average Common Shares Outstanding 14,760 13,322 14,459 13,267 Stock Options 8 19 7 19 Convertible Preference Stock - 104 - 104 Convertible Debentures 404 408 404 408 ------- ------- ------- ------- Fully-Diluted Common Shares 15,172 13,853 14,870 13,798 ======= ======= ======= ======= Fully-Diluted Earnings (Loss)Per Share of Common Stock $(0.32)* $(0.31)* $1.11 $1.14 ======= ======= ======= ======= *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, 1990 - September 30, 1995 ($000) Twelve Months Year Ended December 31 Ended ----------------------------------------- Sept.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 $23,103 Other Interest 2,853 4,266 3,223 1,906 2,473 2,447 Amortization of Debt Discount and Expense 363 348 511 775 850 888 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 $28,135 ======= ======= ======= ======= ======= ======= Earnings, as defined: Net Income $30,724 $14,377 $15,775 $37,647 $35,461 $36,202 Taxes on Income 13,629 2,321 6,951 22,096 20,473 22,352 Fixed Charges, as above 27,006 28,076 28,174 26,960 26,941 28,135 ------- ------- ------- ------- ------- ------- Total Earnings, as defined $71,359 $44,774 $50,900 $86,703 $82,875 $86,689 ======= ======= ======= ======= ======= ======= Ratio of Earnings to Fixed Charges 2.64 1.59 1.81 3.22 3.08 3.08 ==== ==== ==== ==== ==== ==== 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 October 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 September 30, 1995 and 1994, as indicated in our report dated October 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 September 30, 1995, is incorporated by reference in Registration Statement Nos. 33-63017 and 33-63585, Post-Effective Amendment No. 1 to Registration Statement No. 2-76276, and Post-Effective Amendment No. 2 to Registration Statement No. 2-77195 on Form S-8, and in Registration Statement Nos. 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. 9-MOS DEC-31-1995 SEP-30-1995 PER-BOOK 649,907 66,932 55,470 47,070 60,430 879,809 46,806 169,651 92,846 309,303 38,778 0 271,048 0 0 23,204 21,000 1,062 0 0 215,414 879,809 245,062 11,517 202,834 214,351 30,711 6,722 37,433 19,221 18,212 2,115 16,097 18,862 0 62,790 $1.11 $1.11
-----END PRIVACY-ENHANCED MESSAGE-----