-----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, Q+prYxvfe0kqUgNzXxwRMChubsOlYugRSVQBDGbhb7XVCtnD0o0G18RWcgSsuQQv wQQ2us28lgP90F600IghrA== 0000950120-00-000114.txt : 20000515 0000950120-00-000114.hdr.sgml : 20000515 ACCESSION NUMBER: 0000950120-00-000114 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 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: 628219 BUSINESS ADDRESS: STREET 1: 220 NW SECOND AVE CITY: PORTLAND STATE: OR ZIP: 97209 BUSINESS PHONE: 5032264211 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 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 No. 0-994 [NORTHWEST NATURAL GAS COMPANY LOGO] 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 May 5, 2000, 25,171,469 shares of the registrant's Common Stock, $3-1/6 par value (the only class of Common Stock) were outstanding. NORTHWEST NATURAL GAS COMPANY March 31, 2000 Summary of Information Reported The registrant submits herewith the following information: PART I. FINANCIAL INFORMATION Item 1. Financial Statements Page Number ------- (1) Consolidated Statements of Income for the three-month periods ended March 31, 2000 and 1999 3 (2) Consolidated Statements of Earnings Invested in the Business for the three-month periods ended March 31, 2000 and 1999 4 (3) Consolidated Balance Sheets at March 31, 2000 and 1999 and Dec. 31, 1999 5 (4) Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2000 and 1999 6 (5) Consolidated Statements of Capitalization at March 31, 2000 and 1999 and Dec. 31, 1999 7 (6) Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 18 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 18 Signature 18 2 NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (1) Consolidated Statements of Income (Thousands, Except Per Share Amounts) (Unaudited) Three Months Ended March 31, --------- 2000 1999 ---- ---- Operating Revenues: Gross operating revenues ........................ $ 186,649 $ 167,873 Cost of sales ................................... 93,561 81,968 --------- --------- Net operating revenues ...................... 93,088 85,905 Operating Expenses: Operations and maintenance ...................... 19,006 20,663 Taxes other than income taxes ................... 8,664 8,402 Depreciation, depletion and amortization ........ 11,439 11,288 --------- --------- Total operating expenses .................... 39,109 40,353 --------- --------- Income from Operations ............................... 53,979 45,552 Other Income ......................................... 689 581 Interest Charges - net ............................... 8,565 8,087 --------- --------- Income Before Income Taxes ........................... 46,103 38,046 Income Taxes ......................................... 16,911 13,862 --------- --------- Net Income from Continuing Operations ................ 29,192 24,184 Discontinued Segment: Loss from discontinued segment - net of tax ..... -- (141) Gain on sale of discontinued segment - net of tax 2,470 -- --------- --------- Net Income ........................................... 31,662 24,043 Redeemable Preferred and Preference Stock Dividend Requirements ........................... 622 637 --------- --------- Earnings Applicable to Common Stock .................. $ 31,040 $ 23,406 ========= ========= Average Common Shares Outstanding .................... 25,129 24,833 Basic earnings (loss) per share of common stock: From continuing operations ...................... $ 1.14 $ .95 From discontinued segment ....................... -- (.01) From gain on sale of discontinued segment ....... .10 -- --------- --------- Total basic earnings per share .............. $ 1.24 $ .94 ========= ========= Diluted earnings (loss) per share of common stock: From continuing operations ...................... $ 1.12 $ .94 From discontinued segment ....................... -- (.01) From gain on sale of discontinued segment ....... .10 -- --------- --------- Total diluted earnings per share ............ $ 1.22 $ .93 ========= ========= Dividends Per Share of Common Stock .................. $ 0.31 $ 0.305 See Notes to Consolidated Financial Statements 3 NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (2) Consolidated Statements of Earnings Invested in the Business (Thousands, Three Months Ended March 31) (Unaudited)
2000 1999 ---------------------- ---------------------- Earnings Invested in the Business: Balance at Beginning of Period .............. $ 118,711 $ 106,513 Net Income .................................. 31,662 $ 31,662 24,043 $ 24,043 Dividends Declared or Paid: Redeemable preferred and preference stock (622) (637) Common stock ............................. (7,782) (7,583) --------- --------- Balance at End of Period .................... $ 141,969 $ 122,336 ========= ========= Accumulated Other Comprehensive Income (Loss): Balance at Beginning of Period .............. $ (3,181) $ (2,460) Other comprehensive income-net of tax: Unrealized gain on securities ......... 51 51 -- -- Foreign currency translation adjustment -- -- (433) (433) Recognition of foreign currency translation adjustment included in gain on sale of discontinued segment .............................. 3,181 3,181 -- -- --------- --------- --------- --------- Comprehensive Income ........................ $ 34,894 $ 23,610 ========= ========= Balance at End of Period .................... $ 51 $ (2,893) ========= =========
See Notes to Consolidated Financial Statements 4 NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (3) Consolidated Balance Sheets (Thousands of Dollars)
(Unaudited) (Unaudited) March 31, March 31, Dec. 31, 2000 1999 1999 ----------- ----------- ----------- Assets: Plant and Property: ......................... $ 1,347,485 $ 1,263,599 $ 1,331,415 Utility plant Less accumulated depreciation ............... 446,419 413,763 436,386 ----------- ----------- ----------- Utility plant - net .................... 901,066 849,836 895,029 ----------- ----------- ----------- Non-utility property ........................ 8,548 91,667 8,548 Less accumulated depreciation and depletion . 7,676 31,170 7,654 ----------- ----------- ----------- Non-utility property - net ............. 872 60,497 894 ----------- ----------- ----------- Total plant and property ............... 901,938 910,333 895,923 ----------- ----------- ----------- Investments and Other ........................... 16,087 15,495 16,557 Current Assets: Cash and cash equivalents ................... 24,749 8,921 10,013 Accounts receivable - net ................... 56,895 53,025 43,349 Accrued unbilled revenue .................... 19,289 16,424 31,550 Inventories of gas, materials and supplies .. 17,717 9,833 33,919 Investment in discontinued segment .......... -- -- 29,163 Property held for sale ...................... 16,712 -- 16,712 Prepayments and other current assets ........ 16,350 14,413 18,349 ----------- ----------- ----------- Total current assets ................... 151,712 102,616 183,055 Regulatory Tax Assets ........................... 51,060 56,860 51,060 Deferred Gas Costs Receivable ................... 17,472 22,171 20,950 Deferred Debits and Other ....................... 75,820 75,047 76,878 ----------- ----------- ----------- Total Assets ........................... $ 1,214,089 $ 1,182,522 $ 1,244,423 =========== =========== =========== Capitalization and Liabilities: Capitalization: Common stock ................................ $ 315,560 $ 309,835 $ 314,066 Earnings invested in the business ........... 141,969 122,336 118,711 Accumulated other comprehensive income (loss) 51 (2,893) (3,181) ----------- ----------- ----------- Total common stock equity .............. 457,580 429,278 429,596 Redeemable preference stock ................. 25,000 25,000 25,000 Redeemable preferred stock .................. 10,564 11,499 10,564 Long-term debt .............................. 396,276 366,683 396,379 ----------- ----------- ----------- Total capitalization ................... 889,420 832,460 861,539 ----------- ----------- ----------- Minority Interest ............................... -- 16,026 -- ----------- ----------- ----------- Current Liabilities: Notes payable ............................... 16,493 51,261 94,149 Accounts payable ............................ 63,294 51,981 68,163 Long-term debt due within one year .......... 10,000 10,000 10,000 Taxes accrued ............................... 23,101 19,106 4,101 Interest accrued ............................ 9,372 10,302 4,673 Other current and accrued liabilities ....... 40,408 23,762 39,153 ----------- ----------- ----------- Total current liabilities .............. 162,668 166,412 220,239 Deferred Investment Tax Credits ................. 9,932 10,725 10,393 Deferred Income Taxes ........................... 136,081 138,830 136,150 Regulatory Liabilities and Other ................ 15,988 18,069 16,102 Commitments and Contingencies ................... -- -- -- ----------- ----------- ----------- Total Capitalization and Liabilities ... $ 1,214,089 $ 1,182,522 $ 1,244,423 =========== =========== ===========
See Notes to Consolidated Financial Statements 5 NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (4) Consolidated Statements of Cash Flows (Thousands of Dollars) (Unaudited)
Three Months Ended March 31, --------- 2000 1999 -------- -------- Operating Activities: Net income from continuing operations ............................. $ 29,192 $ 24,184 Adjustments to reconcile net income to cash provided by operations: Depreciation, depletion and amortization ...................... 11,439 11,288 Deferred income taxes and investment tax credits .............. (530) (2,003) Equity in (earnings) losses of investments .................... (234) 341 Allowance for funds used during construction .................. (120) (97) Deferred gas costs receivable ................................. 3,478 5,624 Regulatory accounts and other - net ........................... 944 (5,558) -------- -------- Cash from operations before working capital changes ...... 44,169 33,779 Changes in operating assets and liabilities: Accounts receivable - net ................................ (13,546) (6,220) Accrued unbilled revenue ................................. 12,261 17,834 Inventories of gas, materials and supplies ............... 16,202 11,425 Accounts payable ......................................... (4,869) (4,109) Accrued interest and taxes ............................... 23,699 15,718 Other current assets and liabilities ..................... 148 2,140 -------- -------- Cash Provided by Operating Activities ......................... 78,064 70,567 -------- -------- Cash Provided by Discontinued Segment - net ................... 34,695 88 -------- -------- Investing Activities: Acquisition and construction of utility plant assets .............. (17,334) (25,364) Investments in non-utility property ............................... -- (2,518) Investments and other ............................................. 749 737 -------- -------- Cash Used in Investing Activities ............................. (16,585) (27,145) -------- -------- Financing Activities: Common stock issued ............................................... 1,391 1,429 Change in short-term debt ......................................... (77,656) (35,181) Cash dividend payments: Redeemable preferred and preference stock ..................... (622) (637) Common stock .................................................. (7,782) (7,583) Foreign currency translation and capital stock expense ............ 3,231 -- -------- -------- Cash Used in Financing Activities ............................. (81,438) (41,972) -------- -------- Increase in Cash and Cash Equivalents .................................. 14,736 1,538 Cash and Cash Equivalents - Beginning of Period ........................ 10,013 7,383 -------- -------- Cash and Cash Equivalents - End of Period .............................. $ 24,749 $ 8,921 ======== ======== =============================================================================================== Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest ...................................................... $ 3,806 $ 3,984 Income taxes .................................................. $ 4,342 $ 3,950 =============================================================================================== Supplemental Disclosure of Non-cash Financing Activities: Conversion to common stock: 7-1/4% Series of Convertible Debentures ....................... $ 103 $ 55 ===============================================================================================
See Notes to Consolidated Financial Statements 6 NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (5) Consolidated Statements of Capitalization (Thousands, Except Per Share Amounts)
(Unaudited) (Unaudited) March 31, 2000 March 31, 1999 Dec. 31, 1999 ---------------- ----------------- --------------- Common Stock Equity: Common stock - par value $3-1/6 per share ... $ 79,688 $ 78,894 $ 79,458 Premium on common stock ..................... 235,872 230,941 234,608 Earnings invested in the business ........... 141,969 122,336 118,711 Accumulated other comprehensive income (loss) 51 (2,893) (3,181) --------- --------- --------- Total common stock equity ............... 457,580 51% 429,278 52% 429,596 50% --------- ---- --------- ---- --------- ---- Redeemable Preference Stock: $6.95 Series, stated value $100 per share ... 25,000 3% 25,000 3% 25,000 3% --------- ---- --------- ---- --------- ---- Redeemable Preferred Stock: Stated value $100 per share: $4.75 Series ................................ 64 249 64 $7.125 Series ............................... 10,500 11,250 10,500 --------- --------- --------- Total redeemable preferred stock ........ 10,564 1% 11,499 1% 10,564 1% --------- ---- --------- ---- --------- ---- Long-Term Debt: First Mortgage Bonds -------------------- 9-3/4% Series due 2015 .................. 50,000 50,000 50,000 Medium-Term Notes ----------------- First Mortgage Bonds: 7.69% Series A due 1999 ................. -- 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 6.62% Series B due 2001 ................. 10,000 -- 10,000 8.05% Series A due 2002 ................. 10,000 10,000 10,000 6.75% Series B due 2002 ................. 10,000 -- 10,000 5.55% Series B due 2002 ................. 20,000 20,000 20,000 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 40,000 6.60% Series B due 2018 ................. 22,000 22,000 22,000 8.31% Series B due 2019 ................. 10,000 10,000 10,000 7.63% Series B due 2019 ................. 20,000 -- 20,000 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 20,000 6.65% Series B due 2028 ................. 10,000 10,000 10,000 Unsecured: 8.47% Series A due 2001 ................. 10,000 10,000 10,000 Convertible Debentures ---------------------- 7-1/4% Series due 2012 .................. 9,276 9,683 9,379 --------- --------- --------- 406,276 376,683 406,379 Less long-term debt due within one year .......... 10,000 10,000 10,000 --------- --------- --------- Total long-term debt ........................ 396,276 45% 366,683 44% 396,379 46% --------- ---- --------- ---- --------- ---- Total Capitalization ........................ $ 889,420 100% $ 832,460 100% $ 861,539 100% ========= ==== ========= ==== ========= ====
See Notes to Consolidated Financial Statements 7 NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (6) 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 1999 Annual Report on Form 10-K (1999 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 2000 presentation. 2. Segment Reporting The Company principally operates in a single line of business consisting of the distribution of natural gas, which constitutes the "utility" segment. The "other" segment consists primarily of investments in alternative energy projects in California and a discontinued gas and oil exploration business in Canada. The following table presents information about reportable segments for the three months ended March 31, 2000 and 1999. Inter-segment transactions are insignificant. Three Months Ended March 31, ------------------------------------- Thousands Utility Other Total - -------------------------------------------------------------------------------- 2000 Net operating revenues .................. $ 93,003 $ 85 $ 93,088 Income from operations .................. 53,857 122 53,979 Loss from financial investments ......... -- (78) (78) Net income from continuing operations ... 28,944 248 29,192 Net income from discontinued segment .... -- 2,470 2,470 Total assets ............................ 1,192,887 21,202 1,214,089 1999 Net operating revenues .................. $ 85,802 $ 103 $ 85,905 Income from operations .................. 45,525 27 45,552 Loss from financial investments ......... -- (644) (644) Net income (loss) from continuing operations .......................... 24,409 (225) 24,184 Loss from discontinued segment .......... -- (141) (141) Total Assets ............................ 1,105,131 77,391 1,182,522 8 3. Property Held for Sale Property held for sale is a new headquarters building which was constructed for the Port of Portland. This property has been classified as a current asset. See Part I, Item 2., "Financial Condition - Cash Flows - Investing Activities," below. 4. Discontinued Segment On Jan. 26, 2000, the Company sold its interest in Canor Energy Ltd. (Canor), an Alberta, Canada corporation engaged in natural gas and oil exploration, development and production in Alberta and Saskatchewan, Canada. The after-tax gain resulting from the sale of Canor was $2.5 million, net of Canadian tax on dividends ($0.6 million) and U.S. income tax ($2.8 million). The consolidated financial statements of the Company have been restated to reflect the reclassification of Canor as a discontinued segment. Accordingly, operating revenues and expenses of Canor are included in net income from discontinued segment for 1999, and cash flows of this segment have been reported as "Cash Provided by Discontinued Segment - net" for all periods presented. 5. Other Comprehensive Income Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," establishes guidelines for the reporting and display of comprehensive income and its components in financial statements. Comprehensive income includes unrealized gains or losses on debt and equity securities held and available-for-sale, with any resulting gain or loss included as a component of stockholders' equity. At March 31, 2000, the Company recorded an unrealized gain of $51,000, net of tax, from equity shares received in an insurance company as the result of a demutualization during 1999. 6. Contingencies NW Natural owns property in Linnton, Oregon that is the site of a former gas manufacturing plant that was closed in 1956. The site has been under investigation by the Company in recent years under program oversight by the Oregon Department of Environmental Quality (ODEQ). During 1998, the ODEQ and the U.S. Environmental Protection Agency (EPA) completed a study of sediments in a 5.5 mile segment of the Willamette River (the Portland Harbor) that includes the area adjacent to the site. On March 31, 2000, Region 10 of the EPA reported that it would recommend the Portland Harbor for listing as a Superfund site and that it was seeking the concurrence of the governor of Oregon to propose such a listing to the EPA. Future remediation of NW Natural's Linnton site may be affected by any EPA management plan for the Portland Harbor. (See Part II, Item 8, Note 12, "Environmental Matters," in the 1999 Form 10-K). 9 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, reclassified as a discontinued segment in 1999 and sold in the first quarter of 2000 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 1999 Annual Report on Form 10-K (1999 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 months ended March 31, 2000 and 1999. Earnings and Dividends - ---------------------- The Company's earnings applicable to common stock were $31.0 million in the quarter ended March 31, 2000, up 33 percent from $23.4 million in the first quarter of 1999. Earnings from consolidated continuing operations were $1.12 a diluted share, compared to 94 cents a diluted share in last year's first quarter. In addition, the Company recorded a gain equivalent to 10 cents a diluted share from the sale of a discontinued segment (Canor) in the first quarter of 2000, compared to a loss of 1 cent a diluted share from Canor's operations in last year's first quarter. NW Natural earned $1.11 a diluted share from utility operations in the first quarter of 2000, compared to 95 cents a diluted share in the same period in 1999. Weather conditions in NW Natural's service territory in the first quarter of 2000 were 7 percent colder than the first quarter of 1999. Weather conditions in the first quarter of 1999 were close to average. NW Natural's subsidiaries, excluding the discontinued segment, earned 1 cent a share during the first quarter of 2000, compared to a loss of 1 cent a share during the first quarter of 1999. See "Subsidiary Operations," below. 10 Dividends paid on common stock were 31 cents a share and 30.5 cents a share for the three-month periods ended March 31, 2000 and 1999, respectively. In April 2000, the Company's Board of Directors declared a quarterly dividend of 31 cents a share on the common stock, payable May 15, 2000, to shareholders of record on April 28, 2000. The current indicated annual dividend rate is $1.24 a share. Results of Operations - --------------------- Comparison of Gas Operations ---------------------------- The following table summarizes the composition of gas utility volumes and revenues: Three Months Ended March 31, ----------------------------- 2000 1999 ----------------------------- Gas Sales and Transportation Volumes - Therms (000's): Residential and commercial sales 268,088 267,905 Unbilled volumes (19,359) (30,455) ------------ ------------ Weather-sensitive volumes 248,729 237,450 Industrial firm sales 24,066 27,312 Industrial interruptible sales 15,570 14,491 ----------- ----------- Total gas sales 288,365 279,253 Transportation deliveries 127,831 107,010 ----------- ----------- Total volumes sold and delivered 416,196 386,263 =========== =========== Utility Operating Revenues - Dollars (000's): Residential and commercial sales $ 178,352 $ 163,856 Unbilled revenues (12,649) (17,276) ----------- ----------- Weather-sensitive revenues 165,703 146,580 Industrial firm sales 10,959 11,464 Industrial interruptible sales 5,833 4,667 ----------- ----------- Total gas sales 182,495 162,711 Transportation revenues 5,985 4,806 Other revenues (1,968) 213 ----------- ----------- Total utility operating revenues $ 186,512 $ 167,730 =========== =========== Cost of gas sold - Dollars (000's) $ 93,509 $ 81,928 =========== =========== Total number of customers (end of period) 507,756 485,297 =========== =========== Actual degree days 1,979 1,855 =========== =========== 20-year average degree days 1,835 1,848 =========== =========== 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 first quarter of 2000 and 7 percent colder than in the first quarter of 1999. 11 NW Natural continues to experience rapid customer growth, with 22,459 customers added since March 31, 1999 for a growth rate of 4.6 percent. In the three years ended Dec. 31, 1999, approximately 68,000 customers were added to the system, representing an average annual growth rate of 5 percent. Volumes of gas sold to residential and commercial customers increased 11.3 million therms, or 5 percent, in the first quarter of 2000 compared to the first quarter of 1999. Related revenues increased $19.1 million, or 13 percent, due to increased volumes and rate increases effective during 1999. (See Part II, Item 7, "Results of Operations - Regulatory Matters," in the 1999 Form 10-K.) Customer growth in the residential and commercial segments since March 31, 1999, contributed an estimated $3.4 million of additional margin during the first quarter of 2000. In order to match revenues with related purchased gas costs, NW Natural records unbilled revenues for gas delivered but not yet billed to customers through the end of the period. Industrial, Transportation and Other Revenues --------------------------------------------- Total volumes delivered to industrial firm, industrial interruptible, and transportation customers were 18.7 million therms, or 13 percent, higher in the first quarter of 2000 than in the same period of 1999. Margin from these customers increased from $12.6 million in the first quarter of 1999 to $13.3 million in the first quarter of 2000. The primary factor contributing to the increase in industrial margin was a $1.0 million, or 56 percent, increase in margin from customers on an industrial schedule in which rates vary with oil prices. Other revenues, which relate primarily to accumulations or amortizations of regulatory accounts (see Part II, Item 8., Note 1, "Notes to Consolidated Financial Statements," in the 1999 Form 10-K), decreased $2.2 million during the first quarter of 2000 compared to the first quarter of 1999. In 2000, other revenues consisted of regulatory adjustments totaling $2.0 million, including amortizations relating to Y2K costs ($0.5 million) and conservation program costs ($1.3 million). Other revenue in the first three months of 1999 included customer fees ($0.4 million), offset in part by regulatory adjustments ($0.2 million). Cost of Gas ----------- The cost per therm of gas sold was 11 percent higher during the first quarter of 2000 than in the first quarter of 1999. The cost of gas sold includes current gas purchases, gas withdrawals from storage, system demand costs adjusted for seasonal volumes and regulatory deferrals. The cost of gas sold was reduced by non-regulated sales of $1.2 million and $0.4 million for the first quarters of 2000 and 1999, respectively. Under an agreement with the OPUC, net proceeds from these sales are treated as a reduction to cost of gas sold. The cost per therm of gas purchased in the first quarter of 2000 was 15 percent higher than in the first three months of 1999, due to higher prevailing prices in the natural gas commodity market. 12 NW Natural has a Purchased Gas Adjustment (PGA) tariff in Oregon, under which its net income from Oregon operations is affected only within defined limits by changes in purchased gas costs. NW Natural recognizes 33 percent of the difference between actual and projected gas costs in current operating results while the remaining 67 percent is deferred for recovery from, or refund to, customers in future rates. Subsidiary Operations --------------------- The following table summarizes financial information for Financial Corporation: Three Months Ended March 31, -------------------------- 2000 1999 -------------------------- Consolidated Subsidiary (Thousands): Net Operating Revenues $ 85 $ 103 Operations and Maintenance Expense (59) 54 Depreciation, Depletion and Amortization 22 22 ---------- ---------- Income from Operations 122 27 Loss from Financial Investments (78) (644) Other Income - net 123 68 ---------- ---------- Income (Loss) Before Income Taxes 167 (549) Income Tax Expense (Benefit) (67) (281) ---------- ---------- Net Income (Loss) $ 234 $ (268) ========== ========== Results from Financial Corporation's operations in the first quarter of 2000 were earnings equivalent to 1 cent a share, compared to a loss of 1 cent a share for the first quarter of 1999. Financial Corporation's net assets at March 31, 2000, were $7.4 million, compared to $6.4 million at March 31, 1999. Discontinued Segment -------------------- In the fourth quarter of 1999, the Company decided to sell its interest in Canor with the effect that Canor was reclassified as a discontinued segment. The Company sold Canor in the first quarter of 2000 and recorded a gain of $2.5 million, equivalent to 10 cents a share (see Part I, Note 4, above). Net income from the discontinued segment in the first quarter of 1999 was a loss of $0.1 million, net of tax, equivalent to 1 cent a share. Operating Expenses ------------------ Operations and Maintenance -------------------------- Operations and maintenance expenses were $1.7 million, or 8 percent, lower in the first quarter of 2000 compared to the same period in 1999. NW Natural's expenses decreased $1.5 million, or 7 percent, primarily due to higher costs in the first quarter of 1999 from a special voluntary early retirement program ($0.8 million) and lower bad debt accruals in the first quarter of 2000 ($0.6 million). 13 Taxes Other than Income Taxes ----------------------------- Taxes other than income taxes increased $0.3 million, or 3 percent, in the first quarter of 2000 compared to the first quarter of 1999. Franchise tax expense increased $0.1 million, property taxes increased $0.2 million, and regulatory fees increased $0.1 million, while payroll taxes decreased $0.1 million. Depreciation, Depletion and Amortization ---------------------------------------- The Company's depreciation, depletion and amortization expense increased $0.2 million, or 1 percent, compared to the first quarter of 1999. NW Natural's depreciation expense increased by $0.2 million primarily due to the placement into service in December 1999 of an expansion of its Mist underground gas storage facilities. Other Income ------------ The Company's other income increased $0.1 million in the first quarter of 2000 compared to the same period in 1999. The increase was primarily due to an increase in subsidiary investment income ($0.6 million), offset by a decrease in interest income from regulatory account balances ($0.5 million). Interest Charges - net ---------------------- The Company's net interest expense increased $0.5 million, or 6 percent, in the first quarter of 2000 compared to the same period in 1999 due to a $29.6 million increase in long-term debt outstanding. Income Taxes ------------ The effective corporate income tax rates from continuing operations during the three months ended March 31, 2000 and 1999 were 36.7 percent and 36.4 percent, respectively. 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 1999 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 14 preferred stock redemption requirements (see Part II, Item 8., Notes 3 and 5, "Notes to Consolidated Financial Statements," in the 1999 Form 10-K). Cash Flows ---------- Operating Activities -------------------- Continuing operations provided net cash of $78.1 million in the three months ended March 31, 2000 compared to $70.6 million in the first three months of 1999. The 11 percent increase was due to increased cash from operations ($10.4 million) offset by higher working capital requirements ($2.9 million). The increase in cash from continuing operations compared to the first quarter of 1999 was primarily due a decrease in regulatory account net debit balances in 2000 compared to an increase in 1999 ($6.5 million), higher income from continuing operations ($5.0 million) and a smaller decrease in deferred income taxes and investment tax credits ($1.5 million), offset by a smaller decrease in deferred gas costs receivable ($2.1 million). The increase in working capital requirements was due to a larger increase in accounts receivable ($7.3 million), a smaller decrease in accrued unbilled revenues ($5.6 million), a smaller decrease in other current assets and liabilities ($2.0 million) and a larger decrease in accounts payable ($0.8 million); offset by a larger increase in accrued interest and taxes ($8.0 million) and a larger reduction of inventories of gas, materials and supplies ($4.8 million). The discontinued segment provided net cash of $34.7 million in the first quarter of 2000, due to the sale of the Company's interest in Canor, compared to net cash provided by Canor of $0.1 million in the first quarter of 1999. 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 12, "Notes to Consolidated Financial Statements," in the 1999 Form 10-K). Investing Activities -------------------- Cash requirements for utility construction in the first quarter of 2000 totaled $17.3 million, down $8.0 million from the first quarter of 1999. The decrease was primarily due to the completion of additional underground storage facilities in 1999. NW Natural's construction expenditures are estimated to total $82 million for 2000. Over the five-year period 2000 through 2004, these expenditures are estimated at between $450 million and $500 million. The level of capital expenditures over the next five years reflects projected high customer growth plus a major system reinforcement project and the development of additional underground gas storage facilities. An estimated 60 percent of the required funds is expected to be internally generated over the five-year period, with the remainder funded through a combination of long-term debt and equity securities with short-term debt providing liquidity and bridge financing. There were no expenditures for non-utility assets during the first quarter of 2000, compared to expenditures totaling $2.5 million in the first quarter of 1999, primarily relating to a contract for the construction of a new headquarters building for the Port of Portland. The purchase and sale agreement between NW Natural and the Port of Portland provides for the Port to pay at closing an established purchase price for construction of the core and 15 shell of the building plus NW Natural's costs for construction and tenant improvements. NW Natural anticipates that closing will occur during the current fiscal year. In June and August 1999, the Port made construction progress payments in advance of closing totaling $18.8 million, which were used to pay off the balance outstanding under a line of credit used for construction of the building. There were no new capital investments by Financial Corporation during the first quarters of 2000 and 1999. Financing Activities -------------------- Internally generated cash was used to reduce short-term debt by $77.7 million in the first quarter of 2000, compared to a reduction of $35.2 million in the first quarter of 1999. Commercial Paper ---------------- The Company's primary source of short-term funds is commercial paper. Both NW Natural and Financial Corporation issue commercial paper under agency agreements with a commercial bank. The commercial paper is supported by bank lines of credit (see "Lines of Credit," below). 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 1999 Form 10-K). NW Natural had $16.5 million of commercial paper notes outstanding at March 31, 2000. Financial Corporation had no commercial paper notes outstanding at that date. Lines of Credit --------------- NW Natural has available through Sept. 30, 2000, committed lines of credit with five commercial banks totaling $120 million which are used as backup lines for the commercial paper program. These credit lines consist of a primary fixed amount of $60 million plus an additional amount of up to $60 million available as needed, at NW Natural's option, on a monthly basis. In addition, Financial Corporation has available through Sept. 30, 2000, committed lines of credit with two commercial banks totaling $20 million. Financial Corporation's lines are supported by the guaranty of NW Natural. Under the terms of these lines of credit, NW Natural and Financial Corporation pay commitment fees but are not required to maintain compensating bank balances. The interest rates on borrowings 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 March 31, 2000 or 1999. Ratios of Earnings to Fixed Charges ----------------------------------- For the 12 months ended March 31, 2000, and Dec. 31, 1999, the Company's ratios of earnings to fixed charges, computed using the Securities and Exchange Commission method, were 3.42 and 3.12, 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. 16 Contingent Liabilities - ---------------------- Environmental Matters --------------------- NW Natural owns property in Linnton, Oregon that is the site of a former gas manufacturing plant that was closed in 1956. The site has been under investigation by the Company in recent years under program oversight by the Oregon Department of Environmental Quality (ODEQ). During 1998, the ODEQ and the U.S. Environmental Protection Agency (EPA) completed a study of sediments in a 5.5 mile segment of the Willamette River (the Portland Harbor) that includes the area adjacent to the site. On March 31, 2000, Region 10 of the EPA reported that it would recommend the Portland Harbor for listing as a Superfund site and that it was seeking the concurrence of the governor of Oregon to propose such a listing to the EPA. Future remediation of NW Natural's Linnton site may be affected by any EPA management plan for the Portland Harbor. (See Part II, Item 8, Note 12, "Environmental Matters," in the 1999 Form 10-K). 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 17 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. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes to the information provided in Part II, Item 7A., "Quantitative and Qualitative Disclosures About Market Risk," in the 1999 Form 10-K. PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 11 - Statement re: Computation of Per Share Earnings Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K No Current Reports on Form 8-K were filed during the quarter ended March 31, 2000. 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: May 12, 2000 /s/ Stephen P. Feltz ------------------------------------- Stephen P. Feltz Principal Accounting Officer Treasurer and Controller 18 NORTHWEST NATURAL GAS COMPANY EXHIBIT INDEX To Quarterly Report on Form 10-Q For Quarter Ended March 31, 2000 Exhibit Document Number - -------- ------ Statement re: Computation of Per Share Earnings 11 Computation of Ratios of Earnings to Fixed Charges 12 Financial Data Schedule 27 EX-11 2 EXHIBIT 11 EXHIBIT 11 NORTHWEST NATURAL GAS COMPANY Statement re: Computation of Per Share Earnings (Thousands, except per share amounts) (Unaudited) Three Months Ended March 31, -------------------------- 2000 1999 -------------------------- Earnings Applicable to Common Stock $ 31,040 $ 23,406 Debenture Interest Less Taxes 103 107 ----------- ----------- Net Income Available for Diluted Common Stock $ 31,143 $ 23,513 =========== =========== Average Common Shares Outstanding 25,129 24,883 Stock Options * 19 Convertible Debentures 466 487 ----------- ----------- Diluted Common Shares 25,595 25,389 =========== =========== Diluted Earnings per Share of Common Stock $ 1.22 $ 0.93 =========== =========== * Anti-dilutive, not included in calculation EX-12 3 EXHIBIT 12 EXHIBIT 12 NORTHWEST NATURAL GAS COMPANY Computation of Ratio of Earnings to Fixed Charges January 1, 1995 - March 31, 2000
Twelve Months Year Ended Dec. 31, Ended --------------------------------------------------------------------- March 31, 1995 1996 1997 1998 1999 2000 ----------- ------------ ----------- ----------- ------------ --------- Fixed Charges, as Defined: Interest on Long-Term Debt $ 23,141 $ 23,176 $ 24,904 $ 27,389 $ 27,728 $ 28,163 Other Interest 2,252 3,448 4,500 4,909 2,778 2,766 Amortization of Debt Discount and Expense 882 865 730 714 699 696 Interest Portion of Rentals 1,764 1,798 2,111 1,986 1,707 1,707 ----------- ------------ ----------- ----------- ------------ ------------ Total Fixed Charges, as defined $ 28,039 $ 29,287 $ 32,245 $ 34,998 $ 32,912 $ 33,332 =========== ============ =========== =========== ============ ============ Earnings, as defined: Net Income $ 38,065 $ 46,793 $ 43,059 $ 27,301 $ 45,296 $ 52,915 Taxes on Income 22,120 27,347 21,034 14,604 24,591 27,640 Fixed Charges, as above 28,039 29,287 32,245 34,998 32,912 33,332 ----------- ------------ ----------- ----------- ------------ ------------ Total Earnings, as defined $ 88,224 $ 103,427 $ 96,338 $ 76,903 $ 102,799 $ 113,887 =========== ============ =========== =========== ============ ============ Ratio of Earnings to Fixed Charges 3.15 3.53 2.99 2.20 3.12 3.42 =========== ============ =========== =========== ============ ============
EX-27 4 FDS FOR 1ST QRT 10-Q
UT This schedule contains summary financial information extracted from the consolidated financial statements and is qualified in its entirety by reference to such financial statements. 0000073020 NORTHWEST NATURAL GAS COMPANY 3-MOS DEC-31-1999 MAR-31-2000 PER-BOOK 901,066 16,959 151,712 93,292 51,060 1,214,089 79,688 235,872 142,020 457,580 34,750 0 396,276 0 0 16,493 10,000 814 0 0 298,176 1,214,089 186,649 16,911 132,670 149,581 37,068 3,159 40,227 8,565 31,662 622 31,040 7,782 7,085 78,064 $1.24 $1.22
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