-----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, WNtRkpoYL0ITu9PSiBz+y/gq9rNG8MRWL094aR6RJXlKWfhDeakM4Gq20kpI8V4S JcFvA69sA/p2cseLmkfjAA== 0000073020-96-000017.txt : 19961115 0000073020-96-000017.hdr.sgml : 19961115 ACCESSION NUMBER: 0000073020-96-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 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: 96660307 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 UNITED STATES 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, 1996 ------------------------------ 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 ------ ------ At November 8, 1996, 22,484,940 shares of the registrant's Common Stock, $3-1/6 par value (the only class of Common Stock) were outstanding. NORTHWEST NATURAL GAS COMPANY September 30, 1996 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, 1996 and 1995 and Consolidated Statements of Earnings Invested in the Business for the nine month periods ended September 30, 1996 and 1995. 3 (2) Consolidated Balance Sheets at September 30, 1996 and 1995 and December 31, 1995. 4 (3) Consolidated Statements of Cash Flows for the nine month periods ended September 30, 1996 and 1995. 6 (4) Consolidated Statements of Capitalization at September 30, 1996 and 1995 and December 31, 1995. 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 3. Changes in Securities 23 Item 5. Other Information 23 Item 6. Exhibits and Reports on Form 8-K 24 Signature 24 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, ----------------- ------------------ 1996 1995 1996 1995 ------- ------- -------- -------- Net Operating Revenues: Operating revenues $50,585 $48,644 $260,030 $245,062 Cost of sales 16,007 20,613 95,765 101,381 ------- ------- -------- -------- Net operating revenues 34,578 28,031 164,265 143,681 ------- ------- -------- -------- Operating Expenses: Operations and maintenance 17,326 16,953 55,440 53,084 Taxes other than income taxes 3,802 4,913 16,697 18,303 Depreciation, depletion and amortization 8,736 10,377 32,170 30,066 ------- ------- -------- -------- Total operating expenses 29,864 32,243 104,307 101,453 ------- ------- -------- -------- Income (Loss) from Operations 4,714 (4,212) 59,958 42,228 ------- ------- -------- -------- Other Income 1,949 3,542 6,955 6,722 ------- ------- -------- -------- Interest Charges - net 6,617 6,298 19,389 19,221 ------- ------- -------- -------- Income (Loss) Before Income Taxes 46 (6,968) 47,524 29,729 Income Taxes (209) (2,620) 18,405 11,517 ------- ------- -------- -------- Net Income (Loss) 255 (4,348) 29,119 18,212 Preferred and preference stock dividend requirements 673 690 2,049 2,115 ------- ------- -------- -------- Earnings (Loss) Applicable to Common Stock $ (418) $(5,038) $ 27,070 $ 16,097 ======= ======= ======== ======== Average Common Shares Outstanding 22,435 22,141 22,351 21,688 Primary Earnings (Loss) Per Share of Common Stock $(0.02) $ (0.23) $ 1.21 $ 0.74 Fully-Diluted Earnings Per Share of Common Stock * * $ 1.20 $ 0.74 Dividends Per Share of Common Stock $ 0.30 $ 0.293 $ 0.90 $ 0.88 *Anti-dilutive See accompanying Notes to Consolidated Financial Statements. ============================================================================== Consolidated Statements of Earnings Invested in the Business (Thousands, Nine Month Periods Ended September 30) 1996 1995 ------- ------- Balance at Beginning of Period $105,651 $97,275 Net Income 29,119 18,212 Cash Dividends: Preferred and preference stock (2,061) (2,146) Common stock (20,091) (18,862) Stock Dividend (23,704) - Capital stock expense and other (614) (1,633) ------- ------- Balance at End of Period $ 88,300 $92,846 ======== ======= 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, 1996 1995 1995 -------- -------- ------- Assets: Plant and Property in Service: Utility plant in service $1,028,941 $952,435 $969,075 Less accumulated depreciation 329,997 302,528 308,702 -------- -------- -------- Utility plant - net 698,944 649,907 660,373 Non-utility property 44,259 49,669 53,807 Less accumulated depreciation and depletion 15,493 23,077 16,997 -------- -------- -------- Non-utility property - net 28,766 26,592 36,810 -------- -------- -------- Total plant and property in service 727,710 676,499 697,183 -------- -------- -------- Investments and Other: Investments 32,764 36,618 34,126 Long-term notes receivable 1,684 3,722 3,756 -------- -------- -------- Total investments and other 34,448 40,340 37,882 -------- -------- -------- Current Assets: Cash and cash equivalents 4,034 2,914 7,782 Accounts receivable - net 19,890 18,225 34,385 Notes Receivable 1,750 - - Accrued unbilled revenue 6,549 5,996 21,493 Inventories of gas, materials and supplies 16,778 17,138 14,254 Prepayments and other current assets 6,995 11,197 12,396 -------- -------- -------- Total current assets 55,996 55,470 90,310 -------- -------- -------- Regulatory Tax Assets 60,430 60,430 60,430 -------- -------- -------- Deferred Debits and Other 50,216 47,070 43,472 -------- -------- -------- Total Assets $928,800 $879,809 $929,277 ======== ======== ======== 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, 1996 1995 1995 -------- -------- -------- Capitalization and Liabilities: Capitalization: Common stock $246,570 $216,457 $217,901 Earnings invested in the business 88,300 92,846 105,651 -------- -------- -------- Total common stock equity 334,870 309,303 323,552 Redeemable preference stock 25,000 25,000 25,000 Redeemable preferred stock 13,749 14,840 14,840 Long-term debt 253,189 271,048 279,945 -------- -------- -------- Total capitalization 626,808 620,191 643,337 -------- -------- -------- Current Liabilities: Notes payable 48,170 23,204 28,832 Accounts payable 27,469 30,191 41,784 Long-term debt due within one year 25,000 21,000 21,000 Taxes accrued 3,798 4,762 10,281 Interest accrued 7,255 7,473 4,617 Other current and accrued liabilities 13,584 11,933 13,204 -------- -------- -------- Total current liabilities 125,276 98,563 119,718 -------- -------- -------- Deferred Investment Tax Credits 11,999 12,966 12,493 -------- -------- -------- Deferred Income Taxes 123,999 116,761 118,692 -------- -------- -------- Regulatory Balancing Accounts and Other 40,718 31,328 35,037 -------- -------- -------- Contingent Liabilities (Note 4) - - - -------- -------- -------- Total Capitalization and Liabilities $928,800 $879,809 $929,277 ======== ======== ======== 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, ----------------- 1996 1995 ------- ------- Operating Activities: Net income $29,119 $18,212 Adjustments to reconcile net income to net cash provided by operations: Depreciation, depletion and amortization 32,170 30,066 Gain on Sale of Assets (2,897) - Deferred income taxes and investment tax credits 4,813 3,764 Equity in earnings of investments (1,257) (3,337) Allowance for funds used during construction (1,138) (428) Regulatory balancing accounts and other - net (1,063) (3,333) ------- ------- Cash from operations before working capital changes 59,747 44,944 Changes in operating assets and liabilities: Accounts receivable 14,495 23,927 Accrued unbilled revenue 14,944 14,324 Inventories of gas, materials and supplies (2,524) (2,180) Accounts payable (14,315) (18,326) Accrued interest and taxes (3,845) 1,081 Other current assets and liabilities 5,781 (980) ------- ------- Cash Provided by Operating Activities 74,283 62,790 ------- ------- Investing Activities: Acquisition and construction of utility plant assets (54,742) (47,543) Investment in non-utility plant (3,920) (4,338) Investments and other 2,941 94 ------- ------- Cash Used in Investing Activities (55,721) (51,787) ------- ------- Financing Activities: Common stock issued 4,209 38,228 Preference stock retired - (174) Preferred stock retired (1,091) (1,110) Long-term debt retired (26,000) (10) Change in short-term debt 23,338 (30,450) Cash dividend payments: Preferred and preference stock (2,061) (2,146) Common stock (20,091) (18,862) Capital stock expense and other (614) (1,633) ------- ------- Cash Used for Financing Activities (22,310) (16,157) ------- ------- Increase (Decrease) in Cash and Cash Equivalents (3,748) (5,154) Cash and Cash Equivalents - Beginning of Period 7,782 8,068 ------- ------- Cash and Cash Equivalents - End of Period $ 4,034 $ 2,914 ======= ======= ================================================================================ Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest $16,623 $16,087 Income Taxes $19,900 $15,819 ================================================================================ Supplemental Disclosure of Noncash Financing Activities: Conversion to common stock: $2.375 Series of Convertible Preference Stock - $ 1,078 7-1/4 percent Series of Convertible Debentures $ 756 $ 18 ================================================================================ 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, 1996 1995 1995 - ---------------------------------------------------------------------------------------- COMMON STOCK EQUITY: Common stock - par value $3-1/6 per share $ 71,170 $ 46,806 $ 46,958 Premium on common stock 175,400 169,651 170,943 Earnings invested in the business 88,300 92,846 105,651 -------- -------- -------- Total common stock equity 334,870 53% 309,303 50% 323,552 50% -------- ---- -------- ---- -------- ---- REDEEMABLE PREFERENCE STOCK: $6.95 Series, stated value $100 per share 25,000 25,000 25,000 -------- -------- -------- Total redeemable preference stock 25,000 4% 25,000 4% 25,000 4% -------- ---- -------- ---- -------- ---- REDEEMABLE PREFERRED STOCK, stated value $100 per share: $4.68 Series 391 552 552 $4.75 Series 608 788 788 $7.125 Series 12,750 13,500 13,500 -------- -------- -------- Total redeemable preferred stock 13,749 2% 14,840 2% 14,840 2% -------- ---- -------- ---- -------- ---- LONG-TERM DEBT: First Mortgage Bonds -------------------- 9-3/4% Series due 2015 50,000 50,000 50,000 9-1/8% Series due 2019 22,000 25,000 24,000 Medium-Term Notes ----------------- First Mortgage Bonds: 4.80% Series A due 1996 - 5,000 5,000 7.38% Series A due 1997 20,000 20,000 20,000 7.69% Series A due 1999 10,000 10,000 10,000 5.96% Series B due 2000 5,000 5,000 5,000 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 6.52% Series B due 2025 10,000 - 10,000 Unsecured: 4.90% Series A due 1996 - 10,000 10,000 8.69% Series A due 1996 - 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 11,189 12,048 11,945 -------- -------- -------- 278,189 292,048 300,945 Less long-term debt due within one year 25,000 21,000 21,000 -------- -------- -------- Total long-term debt 253,189 41% 271,048 44% 279,945 44% -------- ---- -------- ---- -------- ---- TOTAL CAPITALIZATION $626,808 100% $620,191 100% $643,337 100% ======== ==== ======== ==== ======== ==== - --------------------------------------------------------------------------------------- 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 1995 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, 1996 and 1995 are not indicative of the results for a full year. Certain amounts from the prior year have been reclassified to conform with the 1996 presentation. 2. Common Stock Dividend All share and per share data for prior periods have been restated to reflect the three-for-two split of the Company's Common Stock, effected in the form of a 50 percent stock dividend, effective September 6, 1996. 3. Accounting Pronouncements In the first quarter of 1996, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of." SFAS No. 121 requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever the carrying amount of the asset may not be recoverable, and requires that assets committed to be disposed of be recorded at the lower of the carrying amount or fair value less cost to sell. As a result of adopting SFAS No. 121, Oregon Natural Gas Development Corporation (Oregon Natural), formerly a wholly-owned subsidiary of the Company, recorded an impairment loss with respect to producing wells of $1.3 million, equivalent to a loss of 4 cents per share, during the first quarter of 1996. No impairment was recorded for certain other operating wells held for sale because, in the opinion of management, the fair value of this group of wells is greater than the carrying amount. In addition, in accordance with SFAS No. 19, "Financial Accounting and Reporting by Oil and Gas Producing Companies," Oregon Natural recorded write-downs of 3 cents per share. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 requires expanded disclosures of stock-based compensation arrangements with employees and encourages (but does not require) compensation cost to be measured based on the fair value of the equity instrument awarded. Companies are permitted, however, to continue to apply Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," which recognizes compensation cost based on the intrinsic value of the equity instrument awarded. The Company will continue to apply APB Opinion No. 25 to its stock-based compensation awards to employees and will disclose the required pro forma effect on net income and earnings per share in its 1996 annual report. 4. Contingent Liabilities See Part I, Item 2., "Environmental Matters" below, and Part II, Item 7., "Contingent Liabilities" and "Environmental Matters" in the Company's 1995 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 reviewed the accompanying consolidated balance sheets and statements of capitalization of Northwest Natural Gas Company and subsidiaries as of September 30, 1996 and 1995, and the related consolidated statements of income for the three- and nine-month periods ended September 30, 1996 and 1995, and consolidated statements of earnings invested in the business and of cash flows for the nine-month periods ended September 30, 1996 and 1995. 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, 1995, 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 20, 1996, we expressed an unqualified opinion on those consolidated financial statements which includes an explanatory paragraph relating to the change in the Company's method of accounting for income taxes and postretirement benefits. In our opinion, the information set forth in the accompanying consolidated balance sheet and consolidated statement of capitalization as of December 31, 1995 is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived. DELOITTE & TOUCHE LLP November 12, 1996 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) - (merged with Northwest Natural during the second quarter of 1996) NNG Financial Corporation (Financial Corporation) Canor Energy, Ltd. (Canor) Two other subsidiaries, Pacific Square Corporation (Pacific Square) and NNG Energy Systems, Inc.(Energy Systems) were dissolved during 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 1995 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, 1996 and 1995. Earnings and Dividends - ---------------------- The Company incurred a loss of $0.4 million, or 2 cents per share, for the third quarter ended September 30, 1996, compared to a loss of $5.0 million, or 23 cents per share, in last year's third quarter. Northwest Natural had a loss of 8 cents per share from utility operations in the third quarter of 1996, compared to a loss of 30 cents per share in the same period in 1995. A third quarter loss is customary for Northwest Natural, reflecting low summertime use of natural gas. Compared to the previous year's third quarter, operating margin (revenues less cost of gas) from residential and commercial customers increased 12 percent while industrial margin increased 8 percent. The Company estimates that cooler weather conditions improved margin in the third quarter by 4 cents per share over 1995 results. The Company's subsidiaries earned the equivalent of 6 cents per share in this year's third quarter, down from 7 cents per share in last year's third quarter. Year-to-date earnings from subsidiary operations for both 1996 and 1995 were equivalent to 9 cents per share. The Company earned $27.1 million, or $1.21 per share, and $16.1 million, or 74 cents per share, for the nine months ended September 30, 1996 and September 30, 1995, respectively. Year-to-date, Northwest Natural earned $1.12 per share from utility operations, compared to 65 cents per share in the same period in 1995. The weather in Northwest Natural's service territory during the first nine months of 1996 was 5 percent cooler than normal, and 17 percent cooler than the same period in 1995. The cool weather contributed to increases in gas deliveries to, and related margin from, weather-sensitive customers. The cooler weather conditions improved year-to-date margin revenues by an estimated 30 cents per share over last year's results. The Board of Directors of the Company declared a quarterly dividend on its Common Stock of 30 cents per share, payable November 15, 1996, to shareholders of record on October 31, 1996. The current indicated annual dividend rate is $1.20 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 Nine Months Ended September 30, September 30, ------------------ ----------------- 1996 1995 1996 1995 Gas Sales and Transportation ---- ---- ---- ---- Volumes - Therms (000's): Residential and commercial sales 46,961 43,929 377,849 331,224 Unbilled volumes 3,653 362 (28,932) (26,380) ------- ------- ------- ------- Weather-sensitive volumes 50,614 44,291 348,917 304,844 Industrial firm sales 19,094 17,767 68,763 61,491 Industrial interruptible sales 12,087 18,369 48,606 62,113 ------- ------- ------- ------- Total gas sales 81,795 80,427 466,286 428,448 Transportation deliveries 98,165 90,118 300,075 280,785 ------- ------- ------- ------- Total volumes sold and delivered 179,960 170,545 766,361 709,233 ======= ======= ======= ======= Utility Operating Revenues - Dollars (000's): Residential and commercial revenues $ 28,626 $ 28,725 $206,894 $194,802 Unbilled revenues 1,491 154 (14,943) (14,323) -------- -------- -------- -------- Weather-sensitive revenues 30,117 28,879 191,951 180,479 Industrial firm sales revenues 6,335 6,685 23,229 23,376 Industrial interruptible sales revenues 3,387 5,563 13,247 18,076 -------- -------- -------- -------- Total gas sales revenues 39,839 41,127 228,427 221,931 Transportation revenues 5,703 4,241 16,539 12,018 Other revenues 2,777 999 7,973 5,159 -------- -------- -------- -------- Total utility operating revenues $ 48,319 $ 46,367 $252,939 $239,108 ======== ======== ======== ======== Cost of gas $ 15,969 $ 20,613 $ 95,727 $101,381 ======== ======== ======== ======== Total number of customers (end of period) 418,100 396,900 418,100 396,900 ======== ======== ======== ======== Actual degree days 137 38 2,790 2,377 ======== ======== ======== ======== 20-year average degree days 104 108 2,647 2,671 ======== ======== ======== ======== 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 21,186 customers added since September 30, 1995 represent a growth rate of 5.3 percent. In the three years ended December 31, 1995, almost 57,000 customers were added to the system, representing an average growth rate of 5.1 percent. Weather conditions were 32 percent cooler than average for the third quarter of 1996 compared to 65 percent warmer than average in the third quarter of 1995. Total volumes sold to residential and commercial customers for the three-month period ended September 30, 1996 increased 14 percent compared to the same period in 1995, due to the cooler weather and sales to new customers. Corresponding revenues increased only 4 percent due to rate decreases reflecting lower gas costs effective in December 1995 which averaged 6.7 percent in Oregon and 8.0 percent in Washington. Year-to-date weather conditions in 1996 were 5 percent cooler than average and 17 percent cooler than the comparable 1995 period. The 14 percent increase in year-to-date volumes sold to residential and commercial customers in 1996 compared to year-to-date volumes in 1995 primarily reflects added sales from customer growth augmented by cooler weather. Related revenues increased only 6 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 3.1 million therms, or 2 percent, higher in the third quarter of 1996, and 13.1 million therms, or 3 percent, higher for the nine months ended September 30, 1996, compared to the same periods in 1995. The combined margin from industrial firm and interruptible sales and transportation customers increased 8 percent, from $11.6 million in the third quarter of 1995 to $12.5 million in the third quarter of 1996. For the current nine-month period, margin from these customers increased 10 percent, from $36.3 million in 1995 to $40.1 million in 1996. The margin increases were primarily due to more deliveries in the higher margin-per-therm industrial firm customer category, and to higher margins per therm in the Company's interruptible incentive category where rates fluctuate with the price of residual oil. Other revenues are primarily additions to or amortizations of regulatory balancing accounts (see Part II, Item 8., Note 1, "Notes to Consolidated Financial Statements", in the Company's 1995 Annual Report on Form 10-K). In addition, during the third quarter of 1996, other revenues included two non-recurring gains. Northwest Natural recorded a gain equivalent to 2 cents per share due to an increase, retroactive to January 1994, in the amount it will be able to recover through its rates for its costs and lost revenues in connection with an energy conservation program approved by the Oregon Public Utility Commission (OPUC). Northwest Natural also recorded a gain equivalent to 2 cents per share due to a settlement with the OPUC concerning amounts to be refunded to Oregon customers from Northwest Natural's prior-year savings in property taxes and Oregon income taxes (see Part II, Item 7., "Operating Expense - Taxes Other Than Income" in the Company's 1995 Annual Report on Form 10-K). Cost of Gas ----------- The cost of gas in the third quarter decreased $4.6 million, or 23 percent, from $20.6 million in 1995 to $16.0 million in 1996, on total gas sales volumes that were 2 percent higher in 1996 than in 1995. The average cost of gas per therm was 24 percent lower in the third quarter of 1996 compared to the same period during 1995. Third quarter and year-to-date results reflect a difference from 1995 in the timing of Northwest Natural's recognition of expense during the year for demand charges paid to interstate pipelines. Although Northwest Natural pays the demand charges in levelized amounts each month, this year it recorded the demand charges as expense in direct proportion to its expected firm gas deliveries for each month of a year. The current year's allocation of demand charges to the third quarter and the first nine months were lower by amounts equivalent to 8 cents and 2 cents per share, respectively, improving net income by the same amounts as compared to the third quarter and first nine months of 1995. The timing differences affect only interim results and will have no effect on net income for the entire year. The year-to-date cost of gas decreased $5.7 million, or 6 percent, from $101.4 million in 1995 to $95.7 million in 1996, on total gas sales volumes that were 9 percent higher in 1996 than in 1995. The average cost of gas per therm was 13 percent lower year-to-date in 1996 than during the same period in 1995. 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): 1996 1995 1996 1995 - ------------------------- ---- ---- ---- ---- Net Operating Revenues $2,228 $2,277 $7,053 $5,954 Operating Expenses 2,103 2,237 8,971 7,107 ------ ------ ------ ------ Income(Loss) from Operations 125 40 (1,918) (1,153) Income from Financial Investments 1,548 3,772 1,220 3,278 Other Income(Expense) and Interest Charges 121 (706) 3,633 1,670 ------ ------ ------ ------ Income Before Income Taxes 1,794 3,106 2,935 3,795 Income Tax Expense 453 1,588 994 1,848 ------ ------ ------ ------ Net Income $1,341 $1,518 $1,941 $1,947 ====== ====== ====== ====== For the three months ended September 30, 1996 and 1995, the consolidated subsidiaries contributed 6 cents per share and 7 cents per share, respectively, to net income. Results for the individual subsidiaries for the third quarter of 1996 were net income of $1.3 million for Financial Corporation, down from $2.0 million last year, and net income of $80 thousand for Canor, up from a loss of $0.3 million last year. Financial Corporation's lower earnings in the third quarter were due to weaker operating results from its investments in windpower energy facilities in California. Year-to-date for both 1996 and 1995, the consolidated subsidiaries contributed 9 cents per share to net income. Year-to-date 1996 results for the individual subsidiaries were net income of $1.3 million for Financial Corporation; a net loss of $30 thousand for Canor; and net income of $0.7 million for Oregon Natural. Oregon Natural was merged with and into Northwest Natural at the end of the second quarter of 1996. The following discussion summarizes operating expenses, other income, interest charges - net, and income taxes. Operating Expenses ------------------ Operations and Maintenance -------------------------- Operations and maintenance expenses were $2.4 million, or 4 percent, higher for the nine months ended September 30, 1996, than for the equivalent period in 1995. Northwest Natural's expenses increased $2.9 million primarily due to work related to cold weather and flood conditions ($0.6 million); increased employee bonus accruals ($1.0 million); an accrual for environmental investigation costs ($0.4 million); and increased customer service costs related to customer growth ($0.3 million). Subsidiary expenses decreased $0.5 million primarily due to a decline in Oregon Natural's production costs. Taxes Other Than Income Taxes ----------------------------- Taxes other than income taxes declined $1.6 million, or 9 percent, in the first nine months of 1996, compared to the same period in 1995, due to a reduction in property tax expense. Accruals of property tax savings and associated interest for refund to customers, which had been charged to other taxes, ceased at the end of the second quarter when a permanent rate reduction incorporating these savings took effect in Oregon. This change resulted in a reduction to other taxes of $1.0 million in the third quarter and for the year-to-date. Northwest Natural recorded an adjustment in the second quarter reducing property tax expense by $0.4 million, representing the current year effect of refunds of property taxes under the settlement of a property tax appeal in Oregon. Depreciation, Depletion and Amortization ---------------------------------------- The Company's depreciation, depletion, and amortization expense increased $2.1 million, or 7 percent, in the first nine months of 1996 compared to the same period in 1995. This increase was primarily due to impairment ($1.3 million) and abandonment ($1.0 million) expenses recorded by Oregon Natural pursuant to the adoption of SFAS No. 121, and the write-down of unproven properties, respectively. Northwest Natural's depreciation expense decreased $0.5 million. Revised depreciation rates approved by the OPUC and the Washington Utilities and Transportation Commission (WUTC) in the third quarter, retroactive to January 1, 1996, reduced depreciation expense by $1.4 million for the year to date. This reduction in expense was offset by increased expense from additional utility plant placed in service. Other Income ------------ Other income increased $0.2 million, or 3 percent, in the first nine months of 1996 compared to the same period in 1995. Oregon Natural recognized a $2.9 million gain in the first quarter of 1996 from the sale of underground gas storage assets to Northwest Natural. In accordance with SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation," the profit from this sale, although intercompany in nature, was not eliminated during consolidation since the sales price was approved by the OPUC and the approximate sales price which resulted in the intercompany gain is expected to be recovered through rates as an allowable cost. Northwest Natural also recorded a $0.8 million pre-tax gain in the second quarter of 1996 due to the prior year portion of refunds of property taxes under the settlement of a property valuation appeal in Oregon. Allowances for funds used during construction also increased $0.6 million in 1996. Other income also reflects a $2.0 million reduction in Financial Corporation's investment income for the nine month period ended September 30, 1996. Energy Systems recorded a $2.0 million pre-tax gain in 1995 due to a final distribution under the reorganization plan of its California subsidiary. Income Taxes ------------ The effective corporate income tax rate for the nine month periods ended September 30, 1996 and 1995 was 39 percent, which approximates 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 1995 Annual Report on Form 10-K). The Company's long-term goal is to maintain a capital structure comprised of 45 to 50 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 1995 Annual Report on Form 10-K). Cash Flows ---------- Operating Activities -------------------- Cash provided from operating activities was $11.5 million, or 18 percent, higher in the first nine months of 1996 compared to the same period in 1995. The increase was primarily due to cooler weather during the first nine months of 1996 and the resulting increases in gas deliveries and related margins from weather-sensitive customers. 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 1995 Annual Report on Form 10-K). Investing Activities -------------------- Cash requirements in the first nine months of 1996, primarily related to system improvements and customer growth, totaled $54.7 million, up $7.2 million, or 15 percent, from the first nine months of 1995. The increase included higher amounts for gas distribution system investments in areas experiencing significant growth ($3.8 million); development of a new customer information system ($1.2 million); and remote data terminals ($1.4 million). Northwest Natural's construction expenditures are estimated at $92 million for 1996. Over the five-year period 1996 through 2000, these expenditures are estimated at between $500 and $550 million. The increased level of capital expenditures during the next five years reflects projected customer growth plus the development of additional underground storage facilities with related distribution system improvements. It is anticipated that approximately 50 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 nine months of 1996 and 1995, non-utility capital expenditures were primarily for exploration and development by Canor of gas and oil properties in western Canada. (See Part II, Item 7. Financial Condition, "Investing Activities", in the Company's 1995 Annual Report on Form 10-K.) Financing Activities -------------------- Cash used for financing activities in the first nine months of 1996 totaled $22.3 million, up $6.2 million, or 38 percent, from the first nine months of 1995. This increase was due primarily to the retirement of $26.0 million of long-term debt and an increase of $23.0 million in short-term debt during the first nine months of 1996, compared to the repayment of $30.0 million of short-term debt and the sale of $33.0 million of Common Stock in 1995. Dividends paid on Common Stock increased $1.2 million or 7 percent from the same period in 1995. Lines of Credit --------------- Northwest Natural has available through September 30, 1997, committed lines of credit with five commercial banks totaling $100 million, consisting of a primary fixed amount of $50 million plus an excess amount of up to $50 million, available as needed, at Northwest Natural's option, on a monthly basis. Financial Corporation has available through September 30, 1997, committed lines of credit totaling $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, 1996 or September 30, 1995. 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 1995 Annual Report on Form 10-K). Ratio of Earnings to Fixed Charges ---------------------------------- For the 12 months ended September 30, 1996 and December 31, 1995, the Company's ratio of earnings to fixed charges, computed by the Securities and Exchange Commission method, were 3.75 and 3.15, 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. Environmental Matters --------------------- The Company previously reported that the City of Salem had requested Northwest Natural's participation in its review of an environmental assessment of riverfront property in Salem to be developed as a park, including a block previously owned by Northwest Natural which was the site of a former manufactured gas plant. The City had determined that there is environmental contamination on the site, and that a remediation process involving Northwest Natural and other prior owners of the block would be required. In the second quarter of 1996, Northwest Natural agreed to a settlement of the City's claim under which Northwest Natural paid $170,000 to the City as a contribution toward development of the park, in return for a release from any further liability for costs incurred by the City for remediation of the site. The Company also has reported that Northwest Natural may be required to participate in environmental remediation processes for another, currently-owned site in Linnton, Oregon, and that in 1993, the Company recorded an expense of $0.5 million for the estimated costs of consultants' fees in connection with the voluntary investigation at that site. In the second quarter of 1996, the Company recorded an additional $0.4 million of expense for the estimated costs of the continuing investigation. For further information concerning these and other matters with respect to which there have been no material developments during the first nine months of 1996, see Part II, Item 7., "Environmental Matters," in the Company's 1995 Annual Report on Form 10-K. PART II. OTHER INFORMATION Item 3. Changes in Securities ---------------------- Pursuant to the Rights Agreement, dated as of February 27, 1996, between Northwest Natural and Boatmen's Trust Company, the price of shares of the Common Stock purchased pursuant to the exercise of a Right has been reduced by one-third, from $10.00 to $6.67, to reflect a three-for-two split of the Common Stock. The purchase price for each one-tenth of a share of Common Stock shall be $6.67, subject to further adjustment from time to time. Pursuant to the Indenture, dated as of January 15, 1987, between Northwest Natural and Boatmen's Trust Company (formerly Centerre Trust Company of St. Louis) with respect to the Company's 7-1/4% Convertible Debentures Due 2012 (Debentures), effective August 23, 1996 the conversion price of the Debentures was reduced by one-third, from $29.85 to $19.90, to reflect a three-for-two split of the Common Stock. Holders of Debentures who convert their Debentures after August 23, 1996 will receive 50-1/4 shares of Common Stock per $1,000 face amount of Debentures converted, subject to further adjustment from time to time. Northwest Natural will pay cash in lieu of any fractional shares which result from any conversion. Item 5. Other Information ----------------- During the third quarter, the Company's Common Stock was split three-for-two. One additional share of the Common Stock was issued for every two shares outstanding effective September 6, 1996, for shareholders of record on August 23, 1996. All share and per share data for prior periods have been restated to reflect this split. Pursuant to its Medium-Term Note Program, in October 1996, Northwest Natural issued and sold $20 million of its Secured Medium-Term Notes, Series B, with a coupon rate of 7.05 percent, to repay short-term debt incurred to finance 1996 utility construction activities. The notes are due in 2026 and have a one-time put option in 2008 at a price of 96 percent of par. 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 September 30, 1996. 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 12, 1996 --------------------------------- 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, 1996 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, ------------------ ---------------- 1996 1995 1996 1995 ------- ------- ------- ------- Earnings (Loss) Applicable to Common Stock $ (418) $(5,038) $27,070 $16,097 Debenture Interest Less Taxes 124 133 371 400 ------- ------- ------- ------- Net Income (Loss) Available for Fully-Diluted Common Stock $ (294) $(4,905) $27,441 $16,497 ======= ======= ======= ======= Average Common Shares Outstanding 22,435 22,141 22,351 21,688 Stock Options 31 13 27 11 Convertible Debentures 562 605 562 605 ------- ------- ------- ------- Fully-Diluted Common Shares 23,028 22,759 22,940 22,304 ======= ======= ======= ======= Fully-Diluted Earnings (Loss)Per Share of Common Stock $ (0.01)* $(0.22)* $ 1.20 $ 0.74 ======= ======= ======= ======= *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, 1991 - September 30, 1996 ($000) Twelve Months Year Ended December 31 Ended ------------------------------------------ Sept.30, 1991 1992 1993 1994 1995 1996 ------- ------- ------- ------- ------- -------- Fixed Charges, as defined: Interest on Long- Term Debt $21,977 $23,001 $22,578 $21,921 $23,141 $ 23,136 Other Interest 4,266 3,223 1,906 2,473 2,252 2,528 Amortization of Debt Discount and Expense 348 511 775 850 882 885 Interest Portion of Rentals 1,485 1,439 1,701 1,697 1,764 1,764 ------- ------- ------- ------- ------- ------- Total Fixed Charges, as defined $28,076 $28,174 $26,960 $26,941 $28,039 $28,313 ======= ======= ======= ======= ======= ======= Earnings, as defined: Net Income $14,377 $15,775 $37,647 $35,461 $38,065 $ 48,972 Taxes on Income 2,321 6,951 22,096 20,473 22,120 29,008 Fixed Charges, as above 28,076 28,174 26,960 26,941 28,039 28,313 ------- ------- ------- ------- ------- ------- Total Earnings, as defined $44,774 $50,900 $86,703 $82,875 $88,224 $106,293 ======= ======= ======= ======= ======= ======= Ratio of Earnings to Fixed Charges 1.59 1.81 3.22 3.08 3.15 3.75 ==== ==== ==== ==== ==== ==== EX-15 4 EXHIBIT 15 DELOITTE & TOUCHE LLP ---------------------------------------------------- Suite 3900 Telephone: (503) 222-1341 111 SW Fifth Avenue Facsimile: (503) 224-2172 Portland, OR 97204-3698 November 12, 1996 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, 1996 and 1995, as indicated in our report dated November 12, 1996; 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, 1996, 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 of 1933, 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-31-1996 SEP-30-1996 PER-BOOK 698,944 63,214 55,996 50,216 60,430 928,800 71,170 175,400 88,300 334,870 37,668 0 253,189 0 0 48,170 25,000 1,081 0 0 228,822 928,800 260,030 18,405 200,072 218,477 41,553 6,955 48,508 19,389 29,119 2,049 27,070 20,091 0 74,283 $1.21 $1.20
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