-----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, NkEjl1dQxWxTQy9xUQq3opMDRdgeDYmnia3o5SHYQMbWvWoP+t4s6iZfSmPnQdtR n7h0OgN8d+JHUdHV6LZQSw== 0000073020-98-000021.txt : 19980817 0000073020-98-000021.hdr.sgml : 19980817 ACCESSION NUMBER: 0000073020-98-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: SEC FILE NUMBER: 000-00994 FILM NUMBER: 98689025 BUSINESS ADDRESS: STREET 1: 220 NW SECOND AVE CITY: PORTLAND STATE: OR ZIP: 97209 BUSINESS PHONE: 5032264211 10-Q 1 BODY SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 ------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ 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 August 10, 1998, 24,740,454 shares of the registrant's Common Stock, $3-1/6 par value (the only class of Common Stock) were outstanding. NORTHWEST NATURAL GAS COMPANY June 30, 1998 Summary of Information Reported The registrant submits herewith the following information: PART I. FINANCIAL INFORMATION Page Number ------ Item 1. Financial Statements (1) Consolidated Statements of Income for the three and 3 six month periods ended June 30, 1998 and 1997, and Consolidated Statements of Earnings Invested in the Business for the six-month periods ended June 30, 1998 and 1997. (2) Consolidated Balance Sheets at June 30, 1998 4 and 1997 and December 31, 1997. (3) Consolidated Statements of Cash Flows for the 5 six-month periods ended June 30, 1998 and 1997. (4) Consolidated Statements of Capitalization at 6 June 30, 1998 and 1997 and December 31, 1997. (5 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of 9 Results of Operations and Financial Condition Item 3. Quantitative and Qualitative Disclosures About 19 Market Risk PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 19 Item 5. Other Information 20 Item 6. Exhibits and Reports on Form 8-K 21 Signature 21 NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (1) Consolidated Statements of Income (Thousands, Except Per Share Amounts) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------ 1998 1997 1998 1997 ---- ---- ---- ---- Operating Revenues: Gross operating revenues $83,654 $65,688 $219,351 $199,925 Cost of sales 33,651 22,389 91,041 72,820 ------- ------- -------- -------- Net operating revenues 50,003 43,299 128,310 127,105 ------- ------- -------- -------- Operating Expenses: Operations and maintenance 19,882 19,690 40,141 39,132 Taxes other than income taxes 4,986 4,631 12,011 11,510 Depreciation, depletion and amortization 12,696 10,680 24,641 20,922 ------- ------- -------- -------- Total operating expenses 37,564 35,001 76,793 71,564 ------- ------- -------- -------- Income from Operations 12,439 8,298 51,517 55,541 Other Income 1,610 1,920 4,687 1,501 Interest Charges - net 7,559 6,723 15,968 13,445 ------- ------- -------- -------- Income Before Income Taxes 6,490 3,495 40,236 43,597 Income Taxes 2,397 1,135 12,957 16,484 ------- ------- -------- -------- Net Income 4,093 2,360 27,279 27,113 Redeemable preferred and preference stock dividend requirements 648 666 1,301 1,339 ------- ------- -------- -------- Earnings Applicable to Common Stock $ 3,445 $ 1,694 $ 25,978 $ 25,774 ======= ======= ======== ======== Average Common Shares Outstanding 24,444 22,661 23,673 22,625 Earnings per share of common stock: Basic $0.14 $0.07 $1.10 $1.14 Diluted $0.14 $0.07 $1.08 $1.12 Dividends Per Share of Common Stock $0.305 $0.30 $0.61 $0.60 See Notes to Consolidated Financial Statements. =============================================================================== Consolidated Statements of Earnings Invested in the Business (Thousands, Six-Months Ended June 30) (Unaudited) 1998 1997 -------------------------------------- Earnings invested in the business: Balance at Beginning of Period $113,098 $100,026 Net Income 27,279 $27,279 27,113 $27,113 Dividends declared or paid: Redeemable preferred and preference stock (1,312) (1,353) Common stock (14,504) (13,560) Common stock expense (1,697) - -------- -------- Balance at End of Period $122,864 $112,226 ======== ======== Accumulated other comprehensive income: Balance at Beginning of Period $ (2,235) $ (1,650) Other comprehensive income- Foreign currency translation adjustment 48 48 (169) (169) -------- ------- -------- ------- Comprehensive income $ 27,327 $26,944 ======== ======= Balance at End of Period $ (2,187) $ (1,819) ========== ========= See Notes to Consolidated Financial Statements. NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (2) Consolidated Balance Sheets (Thousands of Dollars) (Unaudited) (Unaudited) June 30, June 30, Dec. 31, 1998 1997 1997 ---------- ---------- --------- Assets: Plant and Property: Utility plant $1,201,817 $1,094,450 $1,164,499 Less accumulated depreciation 385,970 351,499 366,607 ---------- ---------- ---------- Utility plant - net 815,847 742,951 797,892 Non-utility property 83,534 48,573 52,422 Less accumulated depreciation and depletion 25,740 20,690 22,843 ---------- ---------- ---------- Non-utility property - net 57,794 27,883 29,579 ---------- ---------- ---------- Total plant and property 873,641 770,834 827,471 ---------- ---------- ---------- Investments and Other: Investments 32,803 34,008 34,148 Long-term notes receivable 772 1,184 978 ---------- ---------- ---------- Total investments and other 33,575 35,192 35,126 Current Assets: Cash and cash equivalents 13,481 7,429 6,731 Accounts receivable - net 29,321 21,305 39,420 Accrued unbilled revenue 6,070 5,248 23,911 Inventories of gas, materials and supplies 15,262 13,487 17,385 Prepayments and other current assets 8,447 7,492 17,226 ---------- ---------- ---------- Total current assets 72,581 54,961 104,673 Regulatory Tax Assets 56,860 59,640 56,860 Deferred Gas Costs Receivable 30,912 12,844 28,628 Deferred Debits and Other 63,030 53,605 58,859 ---------- ----------- ---------- Total Assets $1,130,599 $ 987,076 $1,111,617 ========== =========== ========== Capitalization and Liabilities: Capitalization: Common stock $ 305,220 $ 251,697 $ 255,402 Earnings invested in the business 122,864 112,226 113,098 Accumulated other comprehensive income (2,187) (1,819) (2,235) ---------- ----------- ----------- Total common stock equity 425,897 362,104 366,265 Redeemable preference stock 25,000 25,000 25,000 Redeemable preferred stock 11,499 12,429 12,429 Long-term debt 347,016 300,600 344,303 ----------- ----------- ----------- Total capitalization 809,412 700,133 747,997 ----------- ----------- ----------- Minority Interest 18,002 - - ----------- ----------- ----------- Current Liabilities: Notes payable 28,369 52,943 89,317 Accounts payable 48,012 43,608 58,775 Long-term debt due within one year 25,000 - 16,000 Taxes accrued 4,637 785 4,656 Interest accrued 5,848 5,448 6,058 Other current and accrued liabilities 21,728 19,948 21,390 ---------- ---------- ----------- Total current liabilities 133,594 122,732 196,196 Deferred Investment Tax Credits 11,406 12,263 11,949 Deferred Income Taxes 141,911 136,609 139,953 Regulatory Accounts and Other 16,274 15,339 15,522 Commitments and Contingencies - - - ---------- ----------- ----------- Total Capitalization and Liabilities $1,130,599 $ 987,076 $1,111,617 ========== =========== ========== See Notes to Consolidated Financial Statements. NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (3) Consolidated Statements of Cash Flows (Thousands of Dollars) (Unaudited) Six Months Ended June 30, --------------------- 1998 1997 Operating Activities: Net income $ 27,279 $ 27,113 Adjustments to reconcile net income to cash provided by operations: Depreciation, depletion and amortization 24,641 20,922 Gain on sale of assets (3,789) - Deferred income taxes and investment tax credits 1,415 13,579 Equity in losses of investments 829 107 Allowance for funds used during construction (691) (875) Deferred gas costs receivable (2,284) (12,844) Regulatory accounts and other - net (3,419) (2,685) -------- -------- Cash from operations before working capital changes 43,981 45,317 Changes in operating assets and liabilities: Accounts receivable 10,099 19,528 Accrued unbilled revenue 17,841 17,092 Inventories of gas, materials and supplies 2,123 952 Accounts payable (10,763) (21,187) Accrued interest and taxes (229) (2,359) Other current assets and liabilities 9,017 (6,388) -------- -------- Cash Provided By Operating Activities 72,069 52,955 -------- -------- Investing Activities: Acquisition and construction of utility plant assets (38,929) (41,934) Investment in non-utility plant (9,400) (3,675) Investments and other 822 (676) -------- -------- Cash Used In Investing Activities (47,507) (46,285) -------- -------- Financing Activities: Common stock issued 49,531 3,057 Redeemable preferred stock retired (930) (1,320) Long-term debt issued 32,000 30,000 Long-term debt retired (20,000) (27,000) Change in short-term debt (60,948) 2,885 Cash dividend payments: Redeemable preferred and preference stock (1,312) (1,353) Common stock (14,504) (13,560) Foreign currency translation and capital stock expense (1,649) (169) -------- -------- Cash Used For Financing Activities (17,812) (7,460) -------- ------- Increase (Decrease) In Cash and Cash Equivalents 6,750 (790) Cash and Cash Equivalents - Beginning of Period 6,731 8,219 --------- -------- Cash and Cash Equivalents - End of Period $ 13,481 $ 7,429 ========= ======== =============================================================================== Supplemental Disclosure of Cash Flow Information Cash paid during the period for: Interest $16,515 $13,733 Income Taxes $ 7,650 $ 7,034 =============================================================================== Supplemental Disclosure of Noncash Financing Activities Conversion to common stock: 7-1/4 percent Series of Convertible Debentures $287 $238 =============================================================================== See Notes to Consolidated Financial Statements. NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (4) Consolidated Statements of Capitalization (Thousands, Except Per Share Amounts)
(Unaudited) (Unaudited) June 30, 1998 June 30, 1997 Dec. 31, 1997 - ------------------------------------------------------------------------------------------------- COMMON STOCK EQUITY: Common stock - par value $3-1/6 per share $ 78,319 $ 71,886 $ 72,404 Premium on common stock 226,901 179,811 182,998 Earnings invested in the business 122,864 112,226 113,098 Accumulated other comprehensive income (2,187) (1,819) (2,235) -------- -------- -------- Total common stock equity $425,897 53% $362,104 52% $366,265 49% -------- ---- -------- ---- -------- ---- REDEEMABLE PREFERENCE STOCK: $6.95 Series, stated value $100 per share 25,000 25,000 25,000 -------- -------- -------- Total redeemable preference stock 25,000 3% 25,000 3% 25,000 3% -------- ---- -------- ---- -------- ---- REDEEMABLE PREFERRED STOCK, stated value $100 per share: $4.75 Series 249 429 429 $7.125 Series 11,250 12,000 12,000 -------- -------- -------- Total redeemable preferred stock 11,499 1% 12,429 2% 12,429 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 - 20,000 20,000 Medium-Term Notes ----------------- First Mortgage Bonds: 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 6.80% Series B due 2007 10,000 10,000 10,000 6.50% Series B due 2008 5,000 5,000 5,000 8.26% Series B due 2014 10,000 10,000 10,000 7.00% Series B due 2017 40,000 - 40,000 6.60% Series B due 2018 22,000 - - 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 10,000 7.05% Series B due 2026 20,000 20,000 20,000 7.00% Series B due 2027 20,000 20,000 20,000 6.65% Series B due 2027 20,000 - 20,000 6.65% Series B due 2028 10,000 - - Unsecured: 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 10,016 10,600 10,303 -------- -------- -------- 372,016 300,600 360,303 Less long-term debt due within one year 25,000 - 16,000 -------- -------- -------- Total long-term debt 347,016 43% 300,600 43% 344,303 46% -------- ---- -------- ---- -------- ---- TOTAL CAPITALIZATION $809,412 100% $700,133 100% $747,997 100% ======== ==== ======== ==== ======== ==== See Notes to Consolidated Financial Statements.
NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (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 1997 Annual Report on Form 10-K (1997 Form 10-K). A significant part of the business of the Company is of a seasonal nature; therefore, results of operations for the interim periods are not necessarily indicative of the results for a full year. Certain amounts from prior periods have been reclassified to conform with the 1998 presentation. 2. Recently Issued Accounting Standards In the first quarter of 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for the reporting and display of elements of comprehensive income including foreign currency translation adjustments, unrealized gains and losses on certain investments in debt and equity securities and minimum pension liability adjustments. In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," which requires disclosure of segment data based on how management makes decisions about allocating resources to segments and measuring performance. The Company principally operates in a single line of business consisting of the distribution of natural gas and therefore is not subject to disclosure of segment reporting. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures About Pensions and Other Postretirement Benefits." This standard is effective for financial statements issued for periods beginning after December 15, 1997. Adoption of this standard may result in additional financial disclosures but the impact of SFAS No. 132 for both the three month and six month periods ended June 30, 1998 is immaterial. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This standard is effective for all fiscal years beginning after June 15, 1999 (January 1, 2000 for the Company). SFAS No. 133 requires all derivative instruments to be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives will be recorded each period either in other comprehensive income or in current earnings, depending on whether the derivative is designated as part of a hedge transaction, and if it is so designated, what type of hedge transaction it is. Management anticipates that the adoption of SFAS No. 133 will not have a significant effect on the Company's results of operations or its financial position. 3. Minority Interest The Company reported a minority interest of $18.0 million in the Consolidated Balance Sheet at June 30, 1998, resulting from a transaction involving its Canadian energy exploration and production subsidiary, Canor Energy, Ltd. (Canor). In March 1998, Canor acquired all of the capital stock of Southlake Energy, Inc. (Southlake), an indirect subsidiary of NIPSCO Industries, Inc. (NI), in exchange for shares of common stock representing a 34 percent interest in Canor. After the acquisition, Southlake was amalgamated with Canor. The transaction resulted in a $3.5 million gain to the Company, equivalent to 15 cents a share, due to Canor's assets having represented a lower percentage of the total assets of the amalgamated corporation than the Company's resulting percentage interest in Canor's common stock. The minority interest in Canor is held by NIPSCO Energy Services Canada Ltd. (NESCL), also an indirect subsidiary of NI. For financial reporting purposes, the assets, liabilities and earnings of Canor are consolidated in the Company's financial statements, and NESCL's common stock interest has been recorded as "Minority Interest" in the Balance Sheet. 4. Income Taxes No U.S. taxes were provided for a gain in the first quarter of 1998 from the combination of Canor and Southlake (see Note 3, "Minority Interest"), since it is the Company's intention to indefinitely reinvest Canor's earnings. Determination of the amount of unrecognized deferred tax liability on these unremitted earnings is not practicable. Undistributed net earnings amounted to $1.9 million at June 30, 1998. The amount of foreign withholding taxes that would be payable upon remittance of those earnings is approximately $0.2 million. 5. Contingencies See Part II, Item 7., "Contingent Liabilities" and "Environmental Matters" in the 1997 Form 10-K. 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 (NW Natural) Non-regulated subsidiary businesses: NNG Financial Corporation (Financial Corporation), a wholly-owned subsidiary Canor Energy, Ltd. (Canor), a majority-owned subsidiary 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 1997 Annual Report on Form 10-K (1997 Form 10-K)). The following is management's assessment of the Company's financial condition including the principal factors that affect results of operations. The discussion refers to the consolidated activities of the Company for the three and six months ended June 30, 1998 and 1997. Forward-Looking Statements - -------------------------- This report and other presentations made by the Company from time to time may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and other statements which are other than statements of historical facts. The Company's expectations, beliefs and projections are expressed in good faith and are believed by the Company to have a reasonable basis. However, each such forward-looking statement involves uncertainties and is qualified in its entirety by reference to the following important factors that could cause the actual results of the Company to differ materially from those projected in such forward-looking statements: (i) prevailing governmental policies and regulatory actions, including those of the Oregon Public Utility Commission (OPUC) and the Washington Utilities and Transportation Commission (WUTC), with respect to allowed rates of return, industry and rate structure, purchased gas and investment recovery, acquisitions and dispositions of assets and facilities, operation and construction of plant facilities, present or prospective wholesale and retail competition, changes in tax laws and policies and changes in and compliance with environmental and safety laws and policies; (ii) weather conditions and other natural phenomena; (iii) unanticipated population growth or decline, and changes in market demand and demographic patterns; (iv) competition for retail and wholesale customers; (v) pricing of natural gas relative to other energy sources; (vi) unanticipated changes in interest or foreign currency exchange rates or in rates of inflation; (vii) unanticipated changes in operating expenses and capital expenditures; (viii) capital market conditions; (ix) competition for new energy development opportunities; and (x) legal and administrative proceedings and settlements. All subsequent forward-looking statements, whether written or oral and whether made by or on behalf of the Company, also are expressly qualified by these cautionary statements. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for the Company to predict all such factors, nor can it assess the impact of each such factor or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Earnings and Dividends - ---------------------- The Company's earnings applicable to common stock were $3.4 million, or 14 cents a share, in the quarter ended June 30, 1998, up from $1.7 million, or 7 cents a share, in the second quarter of 1997. NW Natural earned 13 cents a share from utility operations in the second quarter of 1998, compared to 3 cents a share in the same period in 1997. Weather during the three months ended June 30, 1998 was 8 percent colder than average and 18 percent colder than the second quarter of 1997. The Company estimates that the weather-related increase in net operating revenues (margin) from sales to residential and commercial customers during the second quarter of 1998 was equivalent to about 1 cent a share of earnings compared to a similar period with average weather and 12 cents a share compared to the same period in 1997. These estimates are derived from the Company's internal planning model (see Part II, Item 7., "Earnings and Dividends," in the 1997 Form 10-K). The model also estimates that customer growth in the residential and commercial segments since June 30, 1997 contributed $2.2 million of margin during the second quarter of 1998. The Company earned $26.0 million, or $1.10 a share, and $25.8 million, or $1.14 a share, for the six months ended June 30, 1998 and 1997, respectively. Year-to-date, NW Natural earned 97 cents a share from utility operations compared to $1.11 a share in the same period in 1997. Weather in the first half of 1998 was 4 percent warmer than in 1997, resulting in an estimated 15 cents a share decrease in margin from residential and commercial customers. Earnings from NW Natural's non-utility operations in the first quarter of 1998 included 15 cents a share due to a transaction involving Canor, the Company's Canadian gas and oil exploration and production subsidiary (see "Other Income (Expense)," below). NW Natural's subsidiaries earned 1 cent a share during the second quarter of 1998, compared to 4 cents in the second quarter of 1997. Year-to-date subsidiary results were a loss of 2 cents a share in the first half of 1998 compared to earnings of 3 cents in 1997. See "Subsidiary Operations," below. Dividends paid on common stock were 30.5 cents and 30 cents a share, respectively, for the three-month periods ended June 30, 1998 and 1997. In July 1998, the Company's Board of Directors declared a quarterly dividend of 30.5 cents a share on its common stock, payable August 14, 1998, to shareholders of record on July 31, 1998. The current indicated annual dividend rate is $1.22 a share. Results of Operations - --------------------- Comparison of Gas Operations ---------------------------- The following table summarizes the composition of gas utility volumes and revenues: Three Months Ended Six Months Ended June 30, June 30, --------------- ----------------- 1998 1997 1998 1997 ------- ------ ------ ------- Gas Sales and Transportation Volumes - - Therms (000's): Residential and commercial sales 112,925 100,927 340,131 340,632 Unbilled volumes (12,807) (14,665) (39,302) (35,678) ------- ------- ------- ------- Weather-sensitive volumes 100,118 86,262 300,829 304,954 Industrial firm sales 21,564 19,563 47,553 44,224 Industrial interruptible sales 12,534 12,039 26,965 27,438 ------- ------- ------- ------- Total gas sales 134,216 117,864 375,347 376,616 Transportation deliveries 111,898 103,408 234,046 213,878 ------- ------- ------- ------- Total volumes sold and delivered 246,114 221,272 609,393 590,494 ======= ======= ======= ======= Utility Operating Revenues - Dollars (000's): Residential and commercial revenues $68,899 $53,880 $194,310 $175,264 Unbilled revenues (6,328) (7,118) (18,871) (17,796) ------- ------- -------- ------- Weather-sensitive revenues 62,571 46,762 175,439 157,468 Industrial firm sales revenues 8,529 6,328 18,177 14,203 Industrial interruptible sales revenues 3,532 2,977 8,047 7,023 ------- ------- -------- ------- Total gas sales revenues 74,632 56,067 201,663 178,694 Transportation revenues 4,805 5,213 10,136 11,163 Other revenues 733 1,960 2,003 5,128 ------- ------- -------- ------- Total utility operating revenues $80,170 $63,240 $213,802 $194,985 ======= ======= ======== ======== Cost of gas sold - Dollars (000's) $33,616 $22,371 $ 90,954 $ 72,720 ======= ======= ======== ======== Total number of customers (end of period) 464,784 441,126 464,784 441,126 ======= ======= ======= ======= Actual degree days 715 608 2,412 2,516 ======= ======= ======= ======= 20-year average degree days 663 671 2,517 2,532 ======= ======= ======= ======= Residential and Commercial -------------------------- Typically, 75 percent or more of NW Natural's annual operating revenues are derived from gas sales to weather-sensitive residential and commercial customers. Accordingly, variations in temperatures between periods will affect volumes of gas sold to these customers. Average weather conditions are calculated from the most recent 20 years of temperature data measured by heating degree days. Weather conditions were 8 percent colder than average in the second quarter of 1998 and 18 percent colder than in the second quarter of 1997. For the first six months of 1998, weather was 4 percent warmer than average and 4 percent warmer than 1997. NW Natural continues to experience rapid customer growth, with 23,658 customers added since June 30, 1997 for a growth rate of 5.4 percent. In the three years ended December 31, 1997, more than 66,000 customers were added to the system, representing an average annual growth rate of 5.4 percent. For the year-to-date through June 30, 1998, NW Natural installed 11,510 meters to serve new residential and commercial customers, about 7 percent fewer than for the same period in 1997 when it added a record number of new customers. The 7,754 meters installed in the new construction market were 5 percent behind the pace of additions in 1997, while the 3,756 meters installed in the conversion market were 10 percent behind. Volumes of gas delivered to residential and commercial customers increased 13.9 million therms, or 16 percent, in the second quarter of 1998 compared to the second quarter of 1997. Operating revenues from these customers were up $15.8 million, or 34 percent, due to a combination of colder weather, customer growth and rate increases. Effective January 1 and April 1, 1998, the OPUC approved rate increases averaging 11.4 percent and 6.1 percent, respectively, for NW Natural's customers in Oregon. These rate increases and a similar increase in Washington effective December 1, 1997, were for the recovery of higher gas costs and the amortization of balances in regulatory accounts and did not affect margin (see Part II, Item 7., "Results of Operations Regulatory Matters," in the 1997 Form 10-K). Margin from residential and commercial customers in the second quarter increased $6.4 million, or 16 percent, due to the combination of colder weather and customer growth. Volumes of gas delivered to residential and commercial customers were 1 percent lower in the first six months of 1998 than in the first six months of 1997. Operating revenues from these customers were 11 percent higher, however, due to customer growth and the rate increases cited above. The related margin decreased by 1 percent. The impact on margin in this period of higher sales volumes relating to customer growth was partially offset by the impact of warmer weather. Industrial Sales, Transportation and Other Revenues --------------------------------------------------- Total volumes delivered to industrial firm, industrial interruptible and transportation customers were 11.0 million therms, or 8 percent, higher in the second quarter of 1998 than in the same period of 1997. Transportation volumes increased 8.5 million therms while gas sales to industrial firm and interruptible customers increased 2.5 million therms. Gross revenues from these customers were $2.3 million, or 16 percent, higher in the second quarter of 1998. However, margin from these customers of $11.3 million in the second quarter of 1998 was down 4 percent from $11.9 million in the second quarter of 1997, due to transfers of some of these customers from higher margin schedules either to lower margin schedules or to special contract rates. For the current six-month period, total volumes delivered to industrial customers increased 23 million therms, or 8 percent, compared to the same period in 1997. Margin from these customers was 4 percent lower than in the first six months of 1997, again due to transfers of customers to lower margin rate schedules. Other revenues, which relate primarily to deferrals to or amortizations from regulatory accounts (see Part II, Item 8., Note 1, "Notes to Consolidated Financial Statements," in the 1997 Form 10-K), decreased $1.2 million, or 63 percent, during the second quarter of 1998 compared to the second quarter of 1997. Year-to-date other revenues decreased $3.1 million, or 61 percent, as compared to the first six months of 1997. The principal factors were a decrease in amortization of property tax savings ($1.4 million) and deferrals of revenue reductions required under the settlement approved by the OPUC as part of the January 1, 1998 rate change ($1.3 million). Cost of Gas ----------- The cost per therm of gas sold was 32 percent higher in the second quarter of 1998, compared to the second quarter of 1997, and increased 25 percent year to date. The cost per therm of gas sold includes current gas purchases, gas drawn from storage, demand cost equalization, regulatory deferrals, and company use. NW Natural made off-system sales of $1.3 million and $0.6 million for the first six months of 1998 and 1997, respectively. Under an agreement with the OPUC, net proceeds from these sales are treated as a reduction of gas costs. The average cost per therm of gas purchased was 19 percent higher in the second quarter of 1998 and 4 percent higher year-to-date than in the same periods last year, in both cases due to higher prevailing prices in the natural gas commodity market. Under NW Natural's Purchased Gas Adjustment (PGA) tariff in Oregon, its net income from Oregon operations is affected only within defined limits by changes in purchased gas costs. In 1997, NW Natural absorbed 20 percent of the higher cost of gas purchased, as compared to projections, under this tariff. The remaining 80 percent of such higher gas costs was recorded as deferred debits (regulatory assets). Effective January 1, 1998, the incentive formula for deferred gas costs was modified so that NW Natural now absorbs 33 percent of the difference between actual and projected gas costs and the remaining 67 percent is deferred for recovery or refund to customers in future rates. Subsidiary Operations --------------------- The following table summarizes financial information for the Company's consolidated subsidiaries: Three Months Ended Six Months Ended June 30, June 30, --------------- --------------- 1998 1997 1998 1997 ---- ---- ---- ---- Consolidated Subsidiaries (Thousands): Net Operating Revenues $3,449 $2,429 $5,461 $4,840 Operating Expenses 3,675 2,109 6,035 3,987 -------------------------------------- Income (Loss) from Operations (226) 320 (574) 853 Income (Loss) from Financial Investments 450 1,121 (829) (107) Other Income and Interest Charges 92 86 373 125 Minority Interest 81 - 81 - --------------------------------------- Income (Loss) Before Income Taxes 397 1,527 (949) 871 Income Tax Expense (Benefit) 230 490 (396) 253 --------------------------------------- Net Income (Loss) $ 167 $1,037 $ (553) $ 618 ======================================= Results of operations for the subsidiaries for the second quarter of 1998 were net income of $0.2 million, equivalent to 1 cent a share, down from net income of $1.0 million, or 4 cents a share, in the second quarter of 1997. The portion of Canor's results applicable to the Company was a loss of $0.2 million, compared to earnings of $0.2 million in last year's second quarter. Canor's results were lower due to declines in prices for production from its oil properties and lower production volumes from its natural gas properties. Financial Corporation earned $0.3 million in the second quarter, down from $0.8 million in the second quarter of 1997. Financial Corporation's results were lower due to weaker operating results from its investments in solar, hydropower and windpower electric generation projects in California. For the six months ended June 30, 1998, the subsidiaries' net results were a loss of $0.6 million, compared to net income of $0.6 million in the first six months of 1997. These results are equivalent to a loss of 2 cents a share in 1998 compared to earnings of 3 cents a share in 1997. The portion of Canor's results applicable to the Company decreased from net income of $0.4 million in the first six months of 1997 to a loss of $0.2 million in the first six months of 1998. Financial Corporation lost $0.4 million, compared to net income of $0.2 million in the first six months of 1997. The same factors that reduced Canor's and Financial Corporation's earnings in the first six months of 1998 are expected to continue to depress their operating results during the second half of 1998. In March 1998, Canor acquired the stock of Southlake Energy, Inc. (Southlake), an indirect subsidiary of NIPSCO Industries, Inc. (NI), in exchange for shares of Canor's common stock. Canor was then amalgamated with Southlake. The resulting company is owned 66 percent by NW Natural and 34 percent by NIPSCO Energy Services Canada Ltd., another indirect subsidiary of NI. For financial reporting purposes, Canor's operating revenues and expenses are included in full in the Company's Statements of Income. The 34 percent portion of Canor's results applicable to the minority interest is included in other income (expense), as a reduction in the case of earnings or as an increase in the case of losses. The Company's equity investments in its subsidiaries at June 30, 1998, were $34.9 million for Canor and $16.9 million for Financial Corporation, up from $20.0 million for Canor and $16.0 for Financial Corporation at June 30, 1997. The $14.9 million increase in the Company's equity investment in Canor includes $11.8 million converted to equity from intercompany debt in the first quarter of 1998. Operating Expenses ------------------ Operations and Maintenance -------------------------- Operations and maintenance expenses were $1.0 million, or 3 percent, higher in the first six months of 1998 than in the same period in 1997. NW Natural's utility operations and maintenance expenses decreased $0.2 million primarily due to lower accruals for employee bonuses and uncollectible accounts, offset by increased market development costs. Subsidiary operations and maintenance expenses increased by $1.2 million, reflecting the combined expenses for Canor subsequent to the Canor/Southlake amalgamation. Taxes Other than Income Taxes ----------------------------- Taxes other than income for the six months ended June 30, 1998 increased $0.5 million, or 4 percent. Increases in property taxes ($0.2 million) and franchise taxes ($0.5 million) were offset in part by decreases in local business taxes ($0.1 million) and regulatory commission and other governmental fees ($0.1 million). Depreciation, Depletion and Amortization ---------------------------------------- The Company's depreciation, depletion and amortization expense increased $3.7 million, or 18 percent, compared to the first six months of 1997. NW Natural's utility depreciation expense increased $2.8 million primarily due to the placement into service in November 1997 of its new Customer Information System (CIS) ($1.2 million), Mobile Data Terminals ($0.3 million) and additional utility plant ($1.0 million). Canor's depreciation expense increased $0.9 million primarily due to the increase in total assets after the Canor/Southlake amalgamation. Other Income (Expense) ---------------------- Other income was $3.2 million higher in the first six months of 1998 than in the same period in 1997. In the first quarter of 1998, NW Natural recorded as other income a $3.5 million gain, equivalent to 15 cents a share, from the amalgamation of Canor with Southlake. The resulting gain was not subject to U.S. income tax. (See Item 1, Notes 3 and 4, "Notes to Consolidated Financial Statements," and "Subsidiary Operations," above). Other income now includes interest income on deferred regulatory accounts; other income for the comparable periods in 1997 has been reclassified to conform to this presentation. Prior to January 1, 1998, interest earned on deferred regulatory accounts was included in miscellaneous operating income or was treated as a reduction in the cost of gas. Interest income on deferred regulatory accounts increased $1.0 million in the first six months of 1998 as compared to the same period in 1997. This increase was offset by a decrease in the allowance for funds used during construction ($0.2 million), an increased loss from Financial Corporation's investments ($0.7 million) and a decrease in net merchandise revenues ($0.5 million). Interest Charges - net ---------------------- Interest expense charges - net increased $2.5 million, or 19 percent, in the first six months of 1998 compared to the same period in 1997. The increase was due in part to a net increase of $71.4 million in long-term debt outstanding at June 30, 1998 compared to one year ago. In addition, average commercial paper balances were higher than in the first six months of 1997 primarily due to increased costs of gas purchased. Income Taxes ------------ The effective corporate income tax rates for the six months ended June 30, 1998 and 1997, were 32.2 percent and 37.8 percent, respectively. The lower 1998 rate was due primarily to the non-taxable gain from Canor's amalgamation with Southlake (see Item 1, Notes 3 and 4, "Notes to Consolidated Financial Statements," and "Other Income (Expense)," above), and in part to permanent tax savings resulting from a change in book depreciation rates and increased tax credits. Financial Condition - ------------------- Capital Structure ----------------- NW Natural's capital expenditures are primarily related to utility construction resulting from customer growth and system improvements. NW 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 revenue derived from gas usage by NW Natural's residential and commercial customers influences the Company's 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 1997 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 1997 Form 10-K). In March and June 1998, NW Natural issued and sold $22 million and $10 million, respectively, of its Medium-Term Notes, Series B. In April 1998, NW Natural issued and sold, through a negotiated public offering, 1,725,000 shares of its common stock. (See Part II, Item 5, "Other Information," below). Cash Flows ---------- Operating Activities -------------------- Cash provided by operating activities increased $19.1 million, or 36 percent, in the first six months of 1998 compared to the same period in 1997. The increase was primarily due to a $10.6 million reduction in the amount of deferred gas costs receivable between the two years; a $10.4 million smaller reduction in accounts payable during the current six-month period; and a $9.0 million increase in other current assets and liabilities during the current six-month period compared to a $6.4 million reduction during last year's equivalent period; partially offset by a $12.2 million reduction in deferred income taxes and investment tax credits between the two years and a $9.4 million smaller increase in accounts receivable in the current six-month period. The Company has lease and purchase commitments relating to its operating activities which are financed with cash flows from operations (see Part II, Item 8., Note 13, "Notes to Consolidated Financial Statements," in the 1997 Form 10-K). Investing Activities -------------------- Cash requirements for utility construction in the first six months of 1998 totaled $38.9 million, down $3.0 million, or 7 percent, from the first six months of 1997. The decrease resulted largely from a reduction of construction expenditures relating to the completion of the CIS ($2.7 million) and several other special projects ($1.9 million), lower equipment and structure expenditures ($1.7 million) and lower construction overhead ($0.8 million), offset in part by outlays for additional underground gas storage ($5.4 million). NW Natural's construction expenditures are estimated to total $90 million for 1998. Over the five-year period 1998 through 2002, these expenditures are projected to total between $500 million and $550 million. The projected level of capital expenditures during the next five years reflects forecasted customer growth, the development of additional underground storage facilities and a major system reinforcement project. 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 the sale of long-term debt and equity securities with short-term debt providing liquidity and bridge financing. In the first six months of 1998, non-utility capital expenditures totaled $9.4 million. Canor invested $7.1 million in Canadian exploration and production properties. NW Natural's non-utility expenditures totaling $2.3 million included expenditures relating to a contract for the construction of a new headquarters building for the Port of Portland on land currently owned by NW Natural ($2.0 million) and additions to existing facilities ($0.3 million). During the first quarter of 1998, NW Natural converted $11.8 million of intercompany loans to Canor to equity. Financing Activities -------------------- Cash used for financing activities in the first six months of 1998 totaled $17.8 million, an increase of $10.4 million from the first six months of 1997. Proceeds from the sales of $22 million and $10 million of Medium-Term Notes, Series B, in March and June 1998, respectively, and $44.7 million from the negotiated public offering and sale of 1,725,000 shares of NW Natural's common stock in April 1998, were used to reduce short-term debt ($60.9 million) and long-term debt ($20 million). Lines of Credit --------------- NW Natural has available through September 30, 1998, 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 NW Natural's option, on a monthly basis. Financial Corporation has available through September 30, 1998, committed lines of credit with two commercial banks 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 NW Natural. Under the terms of these lines of credit, which are used as backup lines for commercial paper programs, NW 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 on either the NW Natural or Financial Corporation lines of credit as of June 30, 1998 or June 30, 1997. In April 1998, NW Natural entered into an additional $18 million line of credit with a commercial bank for the purpose of constructing the new headquarters building for the Port of Portland (see "Investing Activities," above). This line of credit is available through November 30, 1999. The outstanding balance as of June 30, 1998 was $2.0 million. Canor has a $30 million (Canadian) revolving credit facility available for its normal business operations through a Canadian commercial bank. The amount of the facility declines by $1.2 million per quarter, subject to a re-setting annually based upon an analysis of gas and oil reserves as of March 31 of each year. Commercial Paper ---------------- The Company's primary source of short-term funds is commercial paper. Both NW 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 NW Natural (see Part II, Item 8., Note 6, "Notes to Consolidated Financial Statements," in the 1997 Form 10-K). Ratios of Earnings to Fixed Charges ----------------------------------- For the 12 months ended June 30, 1998 and December 31, 1997, the Company's ratios of earnings to fixed charges, computed using the Securities and Exchange Commission method, were 2.79 and 2.99, respectively. For this purpose, earnings consist of net income before taxes plus fixed charges, and fixed charges consist of interest on all indebtedness, the amortization of debt expense and discount or premium and the estimated interest portion of rentals charged to income. Contingent Liabilities - ---------------------- The Company has identified and is in the process of correcting the information technology (IT) and non-IT systems within its control that could be affected by the Year 2000 issue. See Part II, Item 7., "Contingent Liabilities," in the 1997 Form 10-K. It completed an assessment of these issues in July 1997, in which its consultant estimated that the cost of renovating its remaining applications that were not yet Year 2000-ready would be about $4.0 million. The Company's objective in its Year 2000 program is to reduce the risk of business disruption or serious financial loss due to IT and non-IT systems failures relating to the Year 2000 issue. In November 1997, NW Natural replaced its largest operating system, its customer information system, incorporating billing, customer order, credit and other programs, with a system intended to be fully Year 2000-ready. The program for its remaining systems, which commenced in October 1997, includes maintaining and managing the inventory of its date-sensitive IT and non-IT systems; researching and managing the degree of Year 2000 readiness of IT and non-IT systems of the suppliers and vendors with whom it has material relationships; identifying and assessing the cost of renovating or replacing non-IT systems within its control that could be affected by the Year 2000 issue; assigning risk ratings to its IT and non-IT systems in order to prioritize renovation and replacement efforts; and developing contingency plans for high-risk systems or vendor products where products are known to be non-compliant or readiness levels cannot be independently verified. At June 30, 1998, NW Natural had a Year 2000 project office with more than 25 technical specialists experienced in the Year 2000 issue, sponsored by two senior executives. The project office has achieved various stages of correction for impacted IT systems and non-IT equipment and, overall, NW Natural has maintained and expects to continue its planned schedule for correction. NW Natural plans to complete renovations of the 80 percent of its internal applications with the highest risk ratings by June 30, 1999, and to evaluate and develop appropriate contingency plans to address risks of failure in the remaining 20 percent of its systems with the lowest risk ratings by the end of 1999. The Company has not quantified its worst-case exposure from the Year 2000 issue, but the project office intends to make such estimates while prioritizing the highest-risk systems for correction. NW Natural's costs in 1997 for Year 2000 assessment, planning and renovation were $0.4 million. Its costs in 1998 through June 30 for renovation, vendor management and other Year 2000 activities were $1.3 million. These amounts do not include the costs incurred in replacing its customer information system or costs for other IT systems that are being replaced rather than renovated. Despite the Company's efforts, there can be no assurance that all material Year 2000 risks relating to systems within its control will have been adequately identified and corrected before the end of 1999. In addition, while the Company is in the process of researching the Year 2000 readiness of its suppliers and vendors, the Company can make no assurances regarding the Year 2000 compliance status of systems or parties outside its control, and currently cannot assess the effect on it of any non-compliance by such systems or parties. However, as a result of its Year 2000 program and the replacement of the customer information system, the Company does not believe that, in the aggregate, Year 2000 issues will be material to its business, operations or financial condition. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Currently not applicable. PART II. OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NW Natural's Annual Meeting of Shareholders was held in Portland, Oregon on May 28, 1998. At the meeting, four director-nominees were elected to three-year terms, as follows: Term Share Votes Share Votes Director-nominee Expiring For Withheld - ------------------------------------------------------------------------- Tod R. Hamachek 2001 20,127,732 298,449 Wayne D. Kuni 2001 20,125,057 301,124 Melody C. Teppola 2001 20,131,312 294,869 Russell F. Tromley 2001 20,139,058 287,123 There were no broker non-votes with respect to the election of the director-nominees. The other eight directors whose terms of office as directors continued after the annual meeting are: Mary Arnstad, Thomas E. Dewey, Jr., Richard B. Keller, Randall C. Pape, Richard G. Reiten, Robert L. Ridgley, Dwight A. Sangrey and Benjamin R. Whiteley. The shareholders also elected Price Waterhouse LLP (now PricewaterhouseCoopers LLP), certified public accountants, as NW Natural's auditors for the year 1998 by the following vote: 20,220,678 shares for; 65,178 against; and 140,325 abstained. There were no broker non-votes on this item. Item 5. OTHER INFORMATION 1999 Annual Meeting of Shareholders - ----------------------------------- Rule 14a-4(c) of the Securities and Exchange Commission's proxy rules allows the Company to use discretionary voting authority to vote on a matter coming before an annual meeting of shareholders which is not included in the Company's proxy statement, if the Company does not have notice of the matter at least 45 days before the date on which the Company first mailed its proxy materials for the prior year's annual meeting of shareholders. In addition, discretionary voting authority may generally also be used if the Company receives timely notice of such matter (as described in the preceding sentence) and if, in the proxy statement, the Company describes the nature of such matter and how the Company intends to exercise its discretion to vote on such matter. Accordingly, for the 1999 Annual Meeting of Shareholders, which is scheduled to be held on Thursday, May 27, 1999, any such notice must be submitted to the Secretary of the Company on or before March 3, 1999. This requirement is separate and apart from the Securities and Exchange Commission's requirements that a shareholder must meet in order to have a shareholder proposal included in the Company's proxy statement and form of proxy. As described in the Company's proxy statement for its 1998 Annual Meeting, specific proposals of common shareholders intended to be presented at the 1999 Annual Meeting of Shareholders must comply with the requirements of the Securities Exchange Act of 1934 and be received by the Secretary of the Company no later than December 18, 1998, in order to be eligible for inclusion in the Company's proxy materials relating to that meeting. Medium-Term Note Program - ------------------------ Pursuant to its Medium-Term Note Program, in March 1998, NW Natural issued and sold $22 million of its Secured Medium-Term Notes, Series B, with a coupon rate of 6.60 percent. These notes mature in 2018; they have no call or put options. In June 1998, NW Natural issued and sold $10 million of its Secured Medium-Term Notes, Series B, with a coupon rate of 6.65 percent. These notes mature in 2028; they have no call or put options. Capital Stock - ------------- In April 1998, NW Natural issued and sold through a negotiated public offering 1,725,000 shares of its common stock at a net price to NW Natural of $25.9275 per share. NW Natural used the net proceeds of $44.7 million from the offering primarily to repay short-term debt incurred to fund its utility construction program. The projected dilution of earnings per share from this sale is estimated at 4 percent, based on a pro forma comparison of a full year with the new shares outstanding with actual results of 1997. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 3 - Northwest Natural Gas Company Bylaws, as amended May 28, 1998. Exhibit 11 - Statement re: Computation of Per Share Earnings. Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges. Exhibit 27 - Financial Data Schedule. (b) Reports on Form 8-K No Current Reports on Form 8-K were filed during the quarter ended June 30, 1998. 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) Dated: August 14, 1998 /s/ D. James Wilson ----------------------- D. James Wilson Principal Accounting Officer, Controller and Treasurer NORTHWEST NATURAL GAS COMPANY EXHIBIT INDEX To Quarterly Report on Form 10-Q For Quarter Ended June 30, 1998 Exhibit Document Number - -------- ------- Northwest Natural Gas Company Bylaws, as amended May 28, 1998 3 Statement re: Computation of Per Share Earnings 11 Computation of Ratios of Earnings to Fixed Charges 12 Financial Data Schedule 27 EX-3.(II) 2 BYLAWS EXHIBIT 3 BYLAWS OF NORTHWEST NATURAL GAS COMPANY AS ADOPTED BY THE BOARD OF DIRECTORS JULY 17, 1975 AS AMENDED THROUGH MAY 28, 1998 CONTENTS ARTICLE I. OFFICES: Page Section 1. Office.................................................... 1 Section 2. Registered Office......................................... 1 ARTICLE II. MEETINGS OF SHAREHOLDERS: Section 1. Annual Meeting............................................ 1 Section 2. Special Meetings.......................................... 1 Section 3. Notice.................................................... 1 Section 4. Fixing Record Date........................................ 1 Section 5. Record of Shareholders.................................... 2 Section 6. Quorum.................................................... 2 Section 7. Voting.................................................... 2 Section 8. Conduct of Meetings....................................... 2 ARTICLE III. BOARD OF DIRECTORS: Section 1. Directors................................................. 2 Section 2. Chairman of the Board..................................... 2 Section 3. Lead Director............................................. 3 Section 4. Retired Directors......................................... 3 Section 5. Compensation.............................................. 3 ARTICLE IV. MEETINGS OF THE BOARD OF DIRECTORS: Section 1. Regular Meetings.......................................... 3 Section 2. Special Meetings.......................................... 3 Section 3. Waiver of Notice.......................................... 3 Section 4. Quorum.................................................... 3 Section 5. Manner of Acting.......................................... 3 Section 6. Action Without a Meeting.................................. 4 ARTICLE V. COMMITTEES OF THE BOARD: Section 1. Executive Committee....................................... 4 Section 2. Audit Committee........................................... 4 Section 3. Retirement Committee...................................... 4 Section 4. Pension Committee......................................... 4 Section 5. Organization and Executive Compensation Committee......... 4 Section 6. Environmental Policy Committee............................ 4 Section 7. Finance Committee......................................... 5 Section 8. Other Committees.......................................... 5 Section 9. Changes of Size and Function.............................. 5 Section 10. Conduct of Meetings....................................... 5 Section 11. Compensation.............................................. 5 ARTICLE VI. NOTICES: Section 1. Form and Manner........................................... 5 Section 2. Waiver.................................................... 5 ARTICLE VII. OFFICERS: Section 1. Election.................................................. 5 Section 2. Compensation.............................................. 6 Section 3. Term...................................................... 6 Section 4. Removal................................................... 6 Section 5. President................................................. 6 Section 6. Vice Presidents........................................... 6 Section 7. Secretary ................................................ 6 Section 8. Treasurer................................................. 6 ARTICLE VIII. CONTRACTS, LOANS, CHECKS AND DEPOSITS: Section 1. Contracts................................................. 6 Section 2. Loans..................................................... 6 Section 3. Checks and Drafts......................................... 7 Section 4. Deposits.................................................. 7 ARTICLE IX. CERTIFICATES FOR SHARES AND THEIR TRANSFER: Section 1. Certificates for Shares................................... 7 Section 2. Transfer.................................................. 7 Section 3. Owner of Record........................................... 7 ARTICLE X. INDEMNIFICATION AND INSURANCE: Section 1. Indemnification........................................... 7 Section 2. Insurance................................................. 8 ARTICLE XI. SEAL..................................................................... 8 ARTICLE XII. AMENDMENTS............................................................... 8 The following Bylaws were adopted by Northwest Natural Gas Company on July 17, 1975 superseding amended Bylaws originally adopted in conformity with an order of the District Court of the United States for the District of Oregon enforcing a plan for rearrangement of the Company's capital structure effective December 31, 1951, and subsequently amended by the stockholders on May 17, 1954, May 20, 1957, May 21, 1973, and May 20, 1974. BYLAWS OF NORTHWEST NATURAL GAS COMPANY ARTICLE I. OFFICES SECTION 1. OFFICE. The principal office of the company shall be located in the City of Portland, Oregon. The company also may have offices at such other places both within and without the State of Oregon as the board of directors from time to time may determine. SECTION 2. REGISTERED OFFICE. The registered office of the company required by law to be maintained in the state shall be at the same location as the principal office unless otherwise designated by resolution of the board of directors. ARTICLE II. MEETINGS OF SHAREHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of shareholders of the company for the election of directors and for the transaction of other business shall be held at the company's office in the City of Portland, Oregon, or such other place in that City as shall be determined by the board of directors, on the fourth Thursday of May in each year, unless such day shall be a legal holiday, in which event such meeting shall be held on the next business day. If such meeting shall not be held on such day in any year, it shall be held within 60 days thereafter on such day as shall be fixed by the board of directors and be specified in the notice of the meeting. Every such meeting shall be held at the hour of two o'clock p.m., or at such other hour as shall be fixed by the board and specified in such notice. SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders of the company may be called by the board of directors or the holders of not less than one-tenth of all shares entitled to vote at the meeting. Each special meeting shall be held for such purposes, at such place in the City of Portland, Oregon, and at such time as shall be specified in the notice thereof. SECTION 3. NOTICE. Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than 10 nor more than 50 days before the date of the meeting, either personally or by mail, by or at the direction of the board of directors or the persons calling the meeting, to each shareholder of record entitled to vote at such meeting. SECTION 4. FIXING RECORD DATE. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than 50 days and, in the case of a meeting of shareholders, not less than 10 days prior to the date on which the particular action requiring such determination of shareholders is to be taken. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the board declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof. SECTION 5. RECORD OF SHAREHOLDERS. The officer or agent having charge of the transfer books for shares of the company shall make, at least 10 days before each meeting of shareholders, a complete record of the shareholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order with the address of and the number of shares held by each, which record, for a period of 10 days prior to such meeting, shall be kept on file at the registered office of the company and shall be subject to inspection by any shareholder at any time during usual business hours. Such record also shall be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original transfer books for shares shall be prima facie evidence as to who are the shareholders entitled to examine such record or transfer books or to vote at any meeting of the shareholders. SECTION 6. QUORUM. A majority of the shares of the company entitled to vote, represented in person or by proxy, shall constitute a quorum at all meetings of shareholders. If a quorum is present, in person or by proxy, the affirmative vote of a majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the shareholders, unless the vote of a greater number, or voting by classes, is required by law or the Restated Articles of Incorporation. If a quorum shall not be represented at any meeting of shareholders, the shareholders represented may adjourn the meeting from time to time without further notice. At such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. The shareholders represented at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. SECTION 7. VOTING. Each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders, except to the extent that the voting rights of the shares of any class or classes are limited or denied by law or the Restated Articles of Incorporation. At each election of directors holders of shares of common stock have the right to cumulative voting as provided for in the Restated Articles of Incorporation. A shareholder may vote either in person or by proxy executed in writing by the shareholder or by his or her duly authorized attorney-in-fact. Such proxy shall be filed with the secretary of the company before or at the time of the meeting. SECTION 8. CONDUCT OF MEETINGS. Every meeting of shareholders shall be presided over by the chairman of the board, in his or her absence by the president, in their absence by a vice president or, if none be present, by a chairman appointed by the shareholders present at the meeting. The minutes of such meeting shall be recorded by the secretary or an assistant secretary but, if neither be present, by a secretary appointed for that purpose by the chairman of the meeting. ARTICLE III. BOARD OF DIRECTORS SECTION 1. DIRECTORS. The business and affairs of the company shall be managed by its board of directors. The number of members of the board, their classification and terms of office, and the manner of their election and removal shall be determined as provided by the Restated Articles of Incorporation. Directors need not be residents of the State of Oregon or shareholders of the company. No person who has reached the age of 72 years shall be eligible to be elected a director, but a director may serve until the next annual meeting of shareholders after reaching that age. SECTION 2. CHAIRMAN OF THE BOARD. The board of directors may elect one of its members as chairman of the board. The chairman of the board, if that position be filled, shall preside at all meetings of the shareholders and the board of directors and shall have such other duties and responsibilities as may be prescribed by the board of directors. If there shall be no chairman of the board, or in his or her absence or disability, the president also shall exercise the duties and responsibilities of that position. SECTION 3. LEAD DIRECTOR. The board of directors shall elect one of its members as lead director. The lead director shall, in the absence of the chairman of the board, preside at meetings of the board of directors and shall preside at all meetings of the executive committee. The lead director shall have such other duties and responsibilities as may be prescribed by the board of directors. SECTION 4. RETIRED DIRECTORS. Any person who, upon retirement as a director after reaching age 72, shall have served as a director of the company for ten or more years shall be appointed a retired director of the company for life. Any other person who shall have served as a director of the company may be elected by the board as a retired director of the company for one or more terms of one year or less. A retired director may attend meetings of the board but shall not have the right to vote at such meetings. SECTION 5. COMPENSATION. Directors shall receive such reasonable compensation for their services as may be fixed from time to time by resolution of the board of directors, and shall be reimbursed for their expenses properly incurred in the performance of their duties as directors. No such payment shall preclude any director from serving the company in any other capacity and receiving such reasonable compensation for such services as may be fixed by resolution of the board. Retired directors who retired prior to January 1, 1998 shall receive such compensation as from time to time may be fixed by resolution of the board of directors as the annual retainer for members of the board of directors. Directors who retire subsequent to December 31, 1997 shall not be entitled to receive such compensation. ARTICLE IV. MEETINGS OF THE BOARD OF DIRECTORS SECTION 1. REGULAR MEETINGS. Regular meetings of the board of directors shall be held in the company's offices at two o'clock p.m., Pacific Time, on the fourth Thursday of February, April, May, July and September, and on the third Thursday of December, or on such other date or at such other hour and place as shall be specified in the notice of meeting. The date, time and place for holding regular meetings of the board of directors may be changed upon the giving of notice to all directors by or at the request of the chairman of the board or the president. The board may provide by resolution the time and place either within or without the State of Oregon for holding of meetings or may omit the holding of any meeting without other notice than such resolution. SECTION 2. SPECIAL MEETINGS. Special meetings of the board of directors may be called by or at the request of the chairman of the board, the lead director, the president or any two directors. The person or persons authorized to call special meetings of the board may fix any place, either within or without the State of Oregon, as the place for holding any special meeting of the board called by them. Notice of the time and place of special meetings shall be given to each director at least one day in advance by the secretary or other officer performing his or her duties. SECTION 3. WAIVER OF NOTICE. Any director may waive notice of any meeting. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Except as otherwise provided by law or the Restated Articles of Incorporation, neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting. SECTION 4. QUORUM. A majority of the number of directors at any time fixed by resolution adopted by the affirmative vote of a majority of the entire board of directors shall constitute a quorum for the transaction of business. If a quorum shall not be present at any meeting of directors, the directors present may adjourn the meeting from time to time without further notice until a quorum shall be present. SECTION 5. MANNER OF ACTING. Except as otherwise provided by law or the Restated Articles of Incorporation, the act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors. SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted to be taken at a meeting of the board of directors may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors entitled to vote with respect to the subject matter thereof. ARTICLE V. COMMITTEES OF THE BOARD SECTION 1. EXECUTIVE COMMITTEE. The board of directors at any time, by resolution adopted by a majority of the board of directors, may appoint an executive committee composed of the chairman of the board, the lead director, and such other number of directors as the board may from time to time determine. The lead director, or in his or her absence, the chairman of the board, shall act as chairman. The committee shall have and may exercise all of the authority of the board of directors in the management of the company, except with respect to matters upon which by law only the board of directors may act. The duties of the committee shall include recommending to the board nominees for election as directors, the conduct of periodic reviews of board effectiveness and the performance of such other functions as the board by resolution from time to time may direct. SECTION 2. AUDIT COMMITTEE. The board of directors at any time, by resolution adopted by a majority of the board of directors, may appoint an audit committee composed of three or more directors, none of whom shall be an officer of the company. The board shall designate one member of the committee as chairman. The duties of the committee shall be to discuss and review with the company's independent auditors the annual audit of the company, including the scope of the audit, and report the results of this review to the board; to meet with the independent auditors at such other times as the committee shall deem to be advisable; and to perform such other functions as the board by resolution from time to time may direct. SECTION 3. RETIREMENT COMMITTEE. The board of directors at any time, by resolution adopted by a majority of the board of directors, shall appoint a retirement committee composed of three or more directors, none of whom shall be members under the company's Non-Bargaining Unit Employees Retirement Plan established by the board. The duties of the committee shall be to monitor the general administration of the company's Non-Bargaining Unit Employees Retirement Plan and the committee shall be responsible for monitoring the carrying out of its provisions as more fully set forth under the terms of the Plan. SECTION 4. PENSION COMMITTEE. The board of directors at any time, by resolution adopted by a majority of the board of directors, shall appoint three or more directors to serve on the pension committee provided for in the company's Bargaining Unit Employees Retirement Plan established by the board. The duties of the committee shall be to monitor the general administration of the Bargaining Unit Employees Retirement Plan and the committee shall be responsible for monitoring the carrying out of its provisions as more fully set forth under the terms of the Plan. SECTION 5. ORGANIZATION AND EXECUTIVE COMPENSATION COMMITTEE. The board of directors at any time, by resolution adopted by a majority of the board of directors, may appoint an organization and executive compensation committee composed of three or more directors, none of whom shall be an officer of the company. The board shall designate one member of the committee as chairman. The duties of the committee shall be to discuss and review the management of the affairs of the company relating to its organization and to executive personnel and their compensation, and to perform such other functions as the board by resolution from time to time may direct. SECTION 6. ENVIRONMENTAL POLICY COMMITTEE. The board of directors at any time, by resolution adopted by a majority of the board of directors, may appoint an environmental policy committee composed of three or more directors, none of whom shall be an officer of the company. The board shall designate one member of the committee as chairman. The duties of the committee shall be to develop and recommend to the board appropriate environmental policies and to perform such other functions as the board by resolution from time to time may direct. SECTION 7. FINANCE COMMITTEE. The board of directors at any time, by resolution adopted by a majority of the board of directors, may appoint a finance committee composed of three or more directors, none of whom shall be an officer of the company. The board shall designate one member of the committee as chairman. The duties of the committee shall be to discuss and review the management of the affairs of the company relating to financing, including the development of long-range financial planning goals and financial policy, and to perform such other functions as the board by resolution from time to time may direct. SECTION 8. OTHER COMMITTEES. The board of directors at any time, by resolution adopted by a majority of the board of directors, may appoint from among its members such other committees and the chairmen thereof as it may deem to be advisable. Each such committee shall have such powers and authority as are set forth in the resolutions pertaining thereto from time to time adopted by the board. SECTION 9. CHANGES OF SIZE AND FUNCTION. Subject to the provisions of law, the board of directors shall have the power at any time to increase or decrease the number of members of any committee, to fill vacancies thereon, to change any members thereof and to change the functions and terminate the existence thereof. SECTION 10. CONDUCT OF MEETINGS. Each committee shall conduct its meetings in accordance with the applicable provisions of these bylaws relating to the conduct of meetings of the board of directors. Each committee shall adopt such further rules and regulations regarding its conduct, keep such minutes and other records and appoint such subcommittees and assistants as it shall deem to be appropriate. SECTION 11. COMPENSATION. Persons serving on any committee shall receive such reasonable compensation for their services on such committee as may be fixed by resolution of the board of directors, provided that no person shall receive compensation for his or her services on any committee while serving as an officer of the company. ARTICLE VI. NOTICES SECTION 1. FORM AND MANNER. Whenever, under the provisions of law or the Restated Articles of Incorporation, notice is required to be given to any director or shareholder, unless otherwise specified, it shall be given in writing by mail addressed to such director or shareholder at his or her address as it appears on the stock transfer books or other records of the company, with postage thereon prepaid, and such notice shall be deemed to be delivered when deposited in the United States Mail. Notice to directors also may be given by telephone or in any other manner which is reasonably calculated to give adequate notice. SECTION 2. WAIVER. Whenever any notice whatever is required to be given under the provisions of law, the Restated Articles of Incorporation or these bylaws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE VII. OFFICERS SECTION 1. ELECTION. The board of directors, at its first meeting following the annual meeting of shareholders each year, shall elect one of its members as president and shall elect a secretary. At such meeting, or at any other time it shall deem appropriate, the board may elect one or more vice presidents and a treasurer. The board also may elect or appoint such other officers and agents as it may deem necessary. Any two or more offices may be held by the same person, except the offices of president and secretary. SECTION 2. COMPENSATION. The officers of the company shall receive such reasonable compensation for their services as from time to time may be fixed by resolution of the board of directors. SECTION 3. TERM. The term of office of all officers shall commence upon their election or appointment and shall continue until the first meeting of the board of directors following the annual meeting of shareholders and thereafter until their successors shall be elected or until their resignation or removal. A vacancy occurring in any office of the company for whatever reason may be filled by the board. SECTION 4. REMOVAL. Any officer or agent elected or appointed by the board of directors may be removed by the board whenever in its judgment the best interests of the company will be served thereby but such removal shall be without prejudice to the contract rights, if any, of the officer or agent so removed. SECTION 5. PRESIDENT. Unless otherwise determined by the board of directors, the president shall be the chief executive officer of the company and, subject to the control of the board of directors, shall be responsible for the general administration and operation of the company. He shall have such other duties and responsibilities as may pertain to such office or be prescribed by the board of directors. In the absence or disability of the president, an officer designated by the board shall exercise the duties and responsibilities of the president. SECTION 6. VICE PRESIDENTS. Each vice president shall have such duties and responsibilities as may be prescribed by the board of directors and the president. The board or the president may confer a special title upon a vice president. SECTION 7. SECRETARY. The secretary shall record and keep the minutes of the shareholders in one or more books provided for that purpose; see that all notices are duly given in accordance with the provisions of these bylaws or as required by law; and perform such other duties as may be prescribed by the board or the president. The secretary shall have custody of the corporate seal of the company and shall affix the seal to any instrument requiring it and attest the same by his or her signature. The assistant secretaries shall have such duties as may be prescribed from time to time by the board, the president or the secretary. In the absence or disability of the secretary, his or her duties shall be performed by an assistant secretary. SECTION 8. TREASURER. The treasurer shall have charge and custody and be responsible for all funds and securities of the company; deposit all moneys and other valuable effects in the name and to the credit of the company in such depositories as may be designated by the board of directors; and disburse the funds of the company as may be authorized by the board and take proper vouchers for such disbursements. The treasurer shall have such other duties as may be prescribed from time to time by the board or the president. In the absence or disability of the treasurer, his or her duties shall be performed by an assistant treasurer. ARTICLE VIII. CONTRACTS, LOANS, CHECKS AND DEPOSITS SECTION 1. CONTRACTS. The board of directors by resolution may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the company, and such authority may be general or confined to specific instances. SECTION 2. LOANS. No loans shall be contracted on behalf of the company and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the board of directors. Such authority may be general or confined to specific instances. SECTION 3. CHECKS AND DRAFTS. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the company shall be signed by such officer or officers, agent or agents of the company and in such manner as shall from time to time be determined by resolution of the board of directors. SECTION 4. DEPOSITS. All funds of the company not otherwise employed shall be deposited from time to time to the credit of the company in such banks, trust companies or other depositories as the board of directors or officers of the company designated by the board may select, or be invested as authorized by the board. ARTICLE IX. CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of the company shall be issued only for whole numbers of shares and shall be in such form as the board of directors may, from time to time, prescribe in accordance with the laws of the State of Oregon. Such certificates shall be signed by the president or a vice president and by the secretary or an assistant secretary and sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles thereof. In case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the company as the board may authorize. SECTION 2. TRANSFER. Shares of stock of the company shall be transferable on the books of the company by the holder of record thereof, or by his or her legal representative who shall furnish proper evidence of authority to transfer, or by his or her attorney thereunto authorized by duly executed power of attorney, and on surrender for cancellation of the certificates for such shares. The board of directors may appoint one or more transfer agents and registrars of stock of the company. SECTION 3. OWNER OF RECORD. The company shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. ARTICLE X. INDEMNIFICATION AND INSURANCE SECTION 1. INDEMNIFICATION. The company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was director, officer, employee or agent of the company, or is or was serving at the request of the company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise or any employee benefit plan, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with the defense or settlement of such action, suit or proceeding to the fullest extent permissible under the Oregon Business Corporation Act or the indemnification provisions of any successor Act. The foregoing rights of indemnification shall not be exclusive of any other rights to which any such person so indemnified may be entitled, under any agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office; shall continue as to a person who has ceased to be a director, officer, employee or agent; and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 2. INSURANCE. The company may purchase and maintain insurance (and pay the entire premium therefor) on behalf of any person who is or was a director, officer, employee or agent of the company, or is or was serving at the request of the company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity or arising out of his or her status as such, whether or not the company would have the power to indemnify him or her against such liability under the provisions of the Oregon Business Corporation Act or any successor Act; and on behalf of any person who is or was a fiduciary under the Employee Retirement Income Security Act of 1974 with regard to an employee benefit plan of the company against any liability asserted against him or her and incurred by him or her in his or her fiduciary capacity. ARTICLE XI. SEAL The corporate seal of the company shall be circular in form and shall bear an inscription containing the name of the company, the year of its organization, the state of its incorporation and the words "Corporate Seal." ARTICLE XII. AMENDMENTS These bylaws, or any of them, may be altered, amended or repealed, or new bylaws adopted, by resolution of a majority of the board of directors, subject to repeal or change by action of the shareholders. EX-11 3 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 NORTHWEST NATURAL GAS COMPANY Statement re: Computation of Per Share Earnings (Thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------ 1998 1997 1998 1997 ---- ---- ---- ---- Earnings Applicable to Common Stock $ 3,445 $ 1,694 $25,978 $25,774 Debenture Interest Less Taxes 111 117 221 234 ------- ------- ------- ------- Net Income Available for Diluted Common Stock $ 3,556 $ 1,811 $26,199 $26,008 ======= ======= ======= ======= Average Common Shares Outstanding 24,444 22,661 23,673 22,625 Stock Options 41 49 43 49 Convertible Debentures 503 533 503 533 ------- ------- ------- ------- Diluted Common Shares 24,988 23,243 24,219 23,207 ======= ======= ======= ======= Diluted Earnings per Share $0.14 $0.07 $1.08 $1.12 of Common Stock ===== ===== ===== ===== EX-12 4 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 NORTHWEST NATURAL GAS COMPANY Computation of Ratio of Earnings to Fixed Charges January 1, 1993 - June 30, 1998
Twelve Months Year Ended December 31, Ended ---------------------------------------------- June 30, 1993 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- -------- Fixed Charges, as Defined: Interest on Long- Term Debt $22,578 $21,921 $23,141 $23,176 $24,918 $27,090 Other Interest 1,906 2,473 2,252 3,448 4,500 3,975 Amortization of Debt Discount and Expense 775 850 882 865 730 701 Interest Portion of Rentals 1,701 1,697 1,764 1,798 2,111 2,111 ------- ------- ------- ------- ------- ------- Total Fixed Charges, as defined $26,960 $26,941 $28,039 $29,287 $32,259 $33,877 ======= ======= ======= ======= ======= ======= Earnings, as defined: Net Income $37,647 $35,461 $38,065 $46,793 $43,059 $43,226 Taxes on Income 22,096 20,473 22,120 27,347 21,106 17,579 Fixed Charges, as above 26,960 26,941 28,039 29,287 32,259 33,877 ------- ------- ------- -------- ------- ------- Total Earnings, as defined $86,703 $82,875 $88,224 $103,427 $96,424 $94,682 ======= ======= ======= ======== ======= ======= Ratio of Earnings to Fixed Charges 3.22 3.08 3.15 3.53 2.99 2.79 ==== ==== ==== ==== ==== ====
EX-27 5 FDS --
UT This schedule contains summary financial information extracted from the consolidatd financial statements and is qualified in its entirety by reference to such financial statements. 0000073020 Northwest Natural Gas Company 6-MOS DEC-31-1997 APR-1-1998 JUN-30-1998 PER-BOOK 815,847 91,369 72,581 93,942 56,860 1,130,599 78,319 226,901 120,677 425,897 35,569 0 347,016 0 0 28,369 25,000 930 0 0 267,818 1,130,599 219,351 12,957 76,793 89,750 38,560 4,687 43,247 15,968 27,279 1,301 25,978 14,504 12,420 72,069 $1.10 $1.08
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