-----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, BZqBN2ZB50JllRzKS/dI1YLxuC16eoIn72BoE4yAWBT5t5WegDDZpYdWqRTIjkvC Nd2WVSvpm9Pey7ion+Z4lQ== 0000950120-01-500131.txt : 20010814 0000950120-01-500131.hdr.sgml : 20010814 ACCESSION NUMBER: 0000950120-01-500131 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWEST NATURAL GAS CO CENTRAL INDEX KEY: 0000073020 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 930256722 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15973 FILM NUMBER: 1707556 BUSINESS ADDRESS: STREET 1: 220 NW SECOND AVE CITY: PORTLAND STATE: OR ZIP: 97209 BUSINESS PHONE: 5032264211 10-Q 1 form10qsb.txt FORM 10Q 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 JUNE 30, 2001 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 [LOGO] NW NATURAL 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 6, 2001, 25,115,249 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, 2001 Summary of Information Reported The registrant submits herewith the following information: PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements Number ------ (1) Consolidated Statements of Income for the three and six-month periods ended June 30, 2001 and 2000 3 (2) Consolidated Statements of Earnings Invested in the Business for the six-month periods ended June 30, 2001 and 2000 4 (3) Consolidated Balance Sheets at June 30, 2001 and 2000 and Dec. 31, 2000 5 (4) Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2001 and 2000 7 (5) Consolidated Statements of Capitalization at June 30, 2001 and 2000 and Dec. 31, 2000 8 (6) Notes to Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 14 Item 3. Quantitative and Qualitative Disclosures About Market Risk 22 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 22 Item 6. Exhibits and Reports on Form 8-K 23 Signature 23 2 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, -------------------- -------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Operating Revenues: Gross operating revenues $ 114,717 $ 86,136 $ 332,058 $ 272,785 Cost of sales 59,991 40,250 185,679 133,811 --------- --------- --------- --------- Net operating revenues 54,726 45,886 146,379 138,974 Operating Expenses: Operations and maintenance 20,986 18,571 42,029 37,577 Taxes other than income taxes 6,265 5,722 15,959 14,386 Depreciation, depletion and amortization 12,287 11,779 24,415 23,218 --------- --------- --------- --------- Total operating expenses 39,538 36,072 82,403 75,181 --------- --------- --------- --------- Income from Operations 15,188 9,814 63,976 63,793 Other Income (Expense) (9) 1,426 597 2,115 Interest Charges - net 7,926 7,936 16,186 16,501 --------- --------- --------- --------- Income Before Income Taxes 7,253 3,304 48,387 49,407 Income Taxes 2,388 806 17,615 17,717 --------- --------- --------- --------- Net Income from Continuing Operations 4,865 2,498 30,772 31,690 Discontinued Segment: Gain (loss) on sale of discontinued segment - net of tax - (35) - 2,435 --------- --------- --------- --------- Net Income 4,865 2,463 30,772 34,125 Redeemable preferred and preference stock dividend requirements 604 622 1,212 1,244 --------- --------- --------- --------- Earnings Applicable to Common Stock $ 4,261 $ 1,841 $ 29,560 $ 32,881 ========= ========= ========= ========= Average Common Shares Outstanding 25,103 25,195 25,155 25,162 Basic Earnings Per Share of Common Stock: From continuing operations $ 0.17 $ 0.07 $ 1.18 $ 1.21 From gain on sale of discontinued segment - - - 0.10 --------- --------- --------- --------- Total basic earnings per share $ 0.17 $ 0.07 $ 1.18 $ 1.31 ========= ========= ========= ========= Diluted Earnings Per Share of Common Stock: From continuing operations $ 0.17 $ 0.07 $ 1.16 $ 1.19 From gain on sale of discontinued segment - - - 0.10 --------- --------- --------- --------- Total diluted earnings per share $ 0.17 $ 0.07 $ 1.16 $ 1.29 ========= ========= ========= ========= Dividends Per Share of Common Stock $ 0.31 $ 0.31 $ 0.62 $ 0.62 ========= ========= ========= =========
---------------------------------------------- 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 of Dollars) (Unaudited)
Six Months Ended June 30, 2001 2000 - ---------------------------------------------------------------------------------------- Earnings Invested in the Business: Balance at Beginning of Period $ 134,189 $ 118,711 Net Income 30,772 $ 30,772 34,125 $ 34,125 Cash Dividends Paid: Redeemable preferred and preference stock (1,221) (1,249) Common stock (15,592) (15,585) Common Stock Repurchased (2,688) (459) --------- --------- Balance at End of Period $ 145,460 $ 135,543 ========= ========= Accumulated Other Comprehensive Income (Loss): Balance at Beginning of Period $ - $ (3,181) Other comprehensive income - net of tax: Unrealized gain on securities - - 37 37 Recognition of foreign currency translation adjustment included in gain on sale of discontinued segment - - 3,181 3,181 ------------------- ------------------- Comprehensive Income $ 30,772 $ 37,343 ======== ======== Balance at End of Period $ - $ 37 ========= =========
---------------------------------------------- See Notes to Consolidated Financial Statements 4 NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (3) Consolidated Balance Sheets (Thousands of Dollars)
(Unaudited) (Unaudited) June 30, June 30, Dec. 31, 2001 2000 2000 - ------------------------------------------------------------------------------------ Assets: Plant and Property : Utility plant $ 1,438,183 $ 1,367,202 $ 1,406,970 Less accumulated depreciation 497,489 457,040 478,138 ----------- ----------- ----------- Utility plant - net 940,694 910,162 928,832 ----------- ----------- ----------- Non-utility property 8,653 8,532 8,649 Less accumulated depreciation and depletion 3,499 7,706 3,451 ----------- ----------- ----------- Non-utility property - net 5,154 826 5,198 ----------- ----------- ----------- Total plant and property 945,848 910,988 934,030 Investments and Other 13,877 15,716 14,526 Current Assets: Cash and cash equivalents 17,812 10,419 11,283 Accounts receivable 30,698 24,145 62,620 Allowance for doubtful accounts (2,257) (1,663) (1,867) Accrued unbilled revenue 10,346 7,201 45,619 Inventories of gas, materials and supplies 32,274 29,121 46,883 Property held for sale - 17,286 - Prepayments and other current assets 19,683 14,054 22,834 ----------- ----------- ----------- Total current assets 108,556 100,563 187,372 Regulatory Assets: Income tax asset 49,515 51,060 49,515 Deferred gas costs receivable 15,244 17,520 16,973 Non-trading derivative assets 76,502 - - Unamortized loss on debt redemption 7,202 4,934 7,433 Other 6,585 14,345 9,524 ----------- ----------- ----------- Total regulatory assets 155,048 87,859 83,445 ----------- ----------- ----------- Other Assets: Investment in life insurance 51,098 47,075 49,112 Other 10,998 9,976 10,228 ----------- ----------- ----------- Total other assets 62,096 57,051 59,340 ----------- ----------- ----------- Total Assets $ 1,285,425 $ 1,172,177 $ 1,278,713 =========== =========== ===========
---------------------------------------------- See Notes to Consolidated Financial Statements 5 NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (3) Consolidated Balance Sheets (Thousands of Dollars)
(Unaudited) (Unaudited) June 30, June 30, Dec. 31, 2001 2000 2000 - ------------------------------------------------------------------------------------ Capitalization and Liabilities: Capitalization: Common stock $ 317,748 $ 316,347 $ 318,120 Earnings invested in the business 145,460 135,543 134,189 Accumulated other comprehensive income - 37 - ----------- ----------- ----------- Total common stock equity 463,208 451,927 452,309 Redeemable preference stock 25,000 25,000 25,000 Redeemable preferred stock 9,000 9,793 9,750 Long-term debt 408,498 396,080 400,790 ----------- ----------- ----------- Total capitalization 905,706 882,800 887,849 ----------- ----------- ----------- Current Liabilities: Notes payable 17,961 10,307 56,263 Accounts payable 47,692 51,805 110,698 Long-term debt due within one year 30,000 10,000 20,000 Taxes accrued 10,020 5,380 8,066 Interest accrued 2,689 4,707 2,696 Other current and accrued liabilities 24,825 39,899 23,638 ----------- ----------- ----------- Total current liabilities 133,187 122,098 221,361 Regulatory Liabilities 1,766 1,743 1,720 Other Liabilities: Deferred income tax liabilities 142,185 140,828 141,656 Deferred investment tax credits 8,983 9,821 9,538 Other 93,598 14,887 16,589 ----------- ----------- ----------- Total other liabilities 244,766 165,536 167,783 ----------- ----------- ----------- Commitments and Contingencies - - - ----------- ----------- ----------- Total Capitalization and Liabilities $ 1,285,425 $ 1,172,177 $ 1,278,713 =========== =========== ===========
---------------------------------------------- See Notes to Consolidated Financial Statements 6 NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (4) Consolidated Statements of Cash Flows (Thousands of Dollars) (Unaudited)
Six Months Ended June 30, 2001 2000 - --------------------------------------------------------------------------------------------- Operating Activities: Net income from continuing operations $ 30,772 $ 31,690 Adjustments to reconcile net income to cash provided by operations: Depreciation, depletion and amortization 24,415 23,218 Deferred income taxes and investment tax credits (26) 4,106 Equity in (earnings) losses of investments (233) 166 Allowance for funds used during construction (414) (251) Deferred gas costs receivable 1,729 3,430 Regulatory accounts and other - net 967 1,076 -------- -------- Cash from continuing operations before working capital changes 57,210 63,435 Changes in operating assets and liabilities: Accounts receivable - net 32,312 20,867 Accrued unbilled revenue 35,273 24,349 Inventories of gas, materials and supplies 14,609 4,798 Accounts payable (63,006) (16,358) Accrued interest and taxes 1,947 1,313 Other current assets and liabilities 4,338 5,041 -------- -------- Cash Provided By Continuing Operating Activities 82,683 103,445 -------- -------- Investing Activities: Acquisition and construction of utility plant assets (35,815) (38,005) Investment in non-utility property (4) (601) Proceeds from sale of discontinued segment - 34,779 Investments and other 882 675 -------- -------- Cash Used In Investing Activities (34,937) (3,152) -------- -------- Financing Activities: Common stock issued 2,440 2,544 Common stock repurchased (5,792) (1,021) Redeemable preferred stock retired (750) (771) Long-term debt issued 18,000 - Change in short-term debt (38,302) (83,842) Cash dividend payments: Redeemable preferred and preference stock (1,221) (1,249) Common stock (15,592) (15,585) Foreign currency translation and capital stock expense - 37 -------- -------- Cash Used in Financing Activities (41,217) (99,887) -------- -------- Increase In Cash and Cash Equivalents 6,529 406 Cash and Cash Equivalents - Beginning of Period 11,283 10,013 -------- -------- Cash and Cash Equivalents - End of Period $ 17,812 $ 10,419 ======== ======== Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest $ 16,213 $ 16,607 Income Taxes $ 13,402 $ 17,391 Supplemental Disclosure of Non-cash Financing Activities: Conversion to common stock: 7-1/4 % Series of Convertible Debentures $ 292 $ 299
---------------------------------------------- See Notes to Consolidated Financial Statements 7 NORTHWEST NATURAL GAS COMPANY PART I. FINANCIAL INFORMATION (5) Consolidated Statements of Capitalization (Thousands, Except Per Share Amounts)
(Unaudited) (Unaudited) June 30, 2001 June 30, 2000 Dec. 31, 2000 - ------------------------------------------------------------------------------------------------ COMMON STOCK EQUITY: Common stock - par value $3-1/6 per share $ 79,502 $ 79,750 $ 79,905 Premium on common stock 238,246 236,597 238,215 Earnings invested in the business 145,460 135,543 134,189 Accumulated other comprehensive income - 37 - -------- -------- -------- Total common stock equity 463,208 51% 451,927 51% 452,309 51% -------- -------- -------- PREFERENCE STOCK: $6.95 Series, stated value $100 per share 25,000 3% 25,000 3% 25,000 3% -------- -------- -------- Total redeemable preference stock 25,000 25,000 25,000 REDEEMABLE PREFERRED STOCK: Stated value $100 per share: $4.75 Series - 43 - $7.125 Series 9,000 9,750 9,750 -------- -------- -------- Total redeemable preferred stock 9,000 1% 9,793 1% 9,750 1% -------- -------- -------- LONG-TERM DEBT: First Mortgage Bonds 9-3/4% Series due 2015 - 50,000 - Medium-Term Notes First Mortgage Bonds: 5.960% Series B due 2000 - 5,000 - 5.980% Series B due 2000 - 5,000 - 6.620% Series B due 2001 10,000 10,000 10,000 8.050% Series A due 2002 10,000 10,000 10,000 6.750% Series B due 2002 10,000 10,000 10,000 5.550% Series B due 2002 20,000 20,000 20,000 6.400% Series B due 2003 20,000 20,000 20,000 6.340% Series B due 2005 5,000 5,000 5,000 6.380% Series B due 2005 5,000 5,000 5,000 6.450% Series B due 2005 5,000 5,000 5,000 6.050% Series B due 2006 8,000 - - 6.800% Series B due 2007 10,000 10,000 10,000 6.500% Series B due 2008 5,000 5,000 5,000 7.450% Series B due 2010 25,000 - 25,000 6.665% Series B due 2011 10,000 - - 8.260% Series B due 2014 10,000 10,000 10,000 7.000% Series B due 2017 40,000 40,000 40,000 6.600% Series B due 2018 22,000 22,000 22,000 8.310% Series B due 2019 10,000 10,000 10,000 7.630% Series B due 2019 20,000 20,000 20,000 9.050% Series A due 2021 10,000 10,000 10,000 7.250% Series B due 2023 20,000 20,000 20,000 7.500% Series B due 2023 4,000 4,000 4,000 7.520% Series B due 2023 11,000 11,000 11,000 7.720% Series B due 2025 20,000 - 20,000 6.520% Series B due 2025 10,000 10,000 10,000 7.050% Series B due 2026 20,000 20,000 20,000 7.000% Series B due 2027 20,000 20,000 20,000 6.650% Series B due 2027 20,000 20,000 20,000 6.650% Series B due 2028 10,000 10,000 10,000 7.740% Series B due 2030 20,000 - 20,000 7.850% Series B due 2030 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 8,498 9,080 8,790 -------- -------- -------- 438,498 406,080 420,790 Less long-term debt due within one year 30,000 10,000 20,000 -------- -------- -------- Total long-term debt 408,498 45% 396,080 45% 400,790 45% -------- ---- -------- ---- -------- ---- TOTAL CAPITALIZATION $905,706 100% $882,800 100% $887,849 100% ======== ==== ======== ==== ======== ====
---------------------------------------------- See Notes to Consolidated Financial Statements 8 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 2000 Annual Report on Form 10-K, as amended (2000 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 2001 presentation. These reclassifications had no impact on prior period results of operations. 2. Revenue Recognition The Company's utility revenues are derived primarily from the sale and transportation of natural gas. The Company recognizes utility revenue from gas sales and transportation when the gas is delivered to customers. Estimated revenues are accrued for gas deliveries not billed to customers from meter reading dates to month end (unbilled revenue) and are reversed in the following month when actual billings occur. Revenues from non-utility services, including gas storage services, are recognized upon delivery of the service to customers. Guaranteed minimum obligations for gas storage services are recognized over the term of the contract. 3. Derivatives Policy NW Natural's Derivatives Policy allows the use of selected financial derivative products to support prudent risk management strategies within designated parameters for natural gas commodity prices, for foreign currency exchange rates related to the Company's natural gas purchase commitments, for oil or propane commodity prices related to natural gas sales or transportation under rate schedules pegged to commodities other than natural gas, and for interest rates on outstanding long-term debt instruments maturing in less than five years. The objective is to use derivative products to structure "hedge" positions as defined by the policy. Use of derivatives is permitted only after the purchase price, exchange rate, oil or propane index price, and interest rate exposures that have been identified are determined to exceed defined tolerance levels and are considered to be unavoidable because they are necessary or support normal business activities. The Derivatives Policy is intended to decrease the Company's net exposures to commodity price, exchange rate and interest rate risks (market risks) by using hedging strategies and derivative structures within certain limitations. The policy is intended to prevent speculative risk. The Company believes that any increase in market risk created by the use of the derivatives should be offset by the exposures they modify. 9 4. New Accounting Standards In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedge accounting. It requires that an entity measure all derivatives at fair value and recognize those derivatives as either assets or liabilities on the balance sheet. If the derivative is designated as a fair value hedge, the net changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in current earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income (OCI), or in deferred asset accounts for regulated activities (see Note 5, below), and recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in current earnings. Some of the Company's gas purchase, sales and transportation contracts are derivative instruments as defined under SFAS No. 133. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," amending portions of SFAS No. 133. Among other things, SFAS No. 138 provides an exception for contracts intended for the normal purchase and normal sale of something other than a financial instrument or derivative instrument, for which physical delivery is probable. 5. Adoption of New Accounting Standard The Company adopted SFAS No. 133, as amended, on Jan. 1, 2001. The Company's primary derivatives hedging activities are being accounted for as cash flow hedges under this statement. Unrealized gains or losses resulting from mark-to-market valuations of the underlying hedge contracts are subject to deferral under the Company's tariffs with the Oregon Public Utility Commission (OPUC) and the Washington Utilities and Transportation Commission (WUTC). Pursuant to SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation," contracts representing unrealized gain or loss positions are reported as derivative assets or liabilities and are offset by a corresponding deferred account included under "Regulatory Assets" or "Regulatory Liabilities." Due to their regulatory deferral treatment, effective portions of changes in the fair value of these derivatives are not recorded in OCI, but are deferred as a regulatory asset or liability. Effectiveness is measured by comparing changes in cash flows of the hedged item to gains or losses on derivative instruments. The Company formally documents all relationships between hedging contracts and hedged items, as well as its risk management objective and strategy for undertaking the hedge. This process includes specific identification of the hedging contract and the hedge transaction, the nature of the risk being hedged and how the hedging instrument's effectiveness will be measured. Both at the inception of the hedge and on an ongoing basis, the Company measures effectiveness of the derivatives used in hedging transactions. NW Natural enters into short-term and long-term natural gas purchase contracts with demand and commodity fixed-price and variable-price components, along with associated short-term and long-term natural gas transportation contracts. The prices of natural gas commodity are subject to fluctuations due to unpredictable factors including weather, pipeline transportation congestion and the economy, each of which affects short-term supply and demand. NW Natural uses natural gas commodity swap and cap agreements to convert certain of its long-term purchase contracts from floating prices to fixed prices. 10 Many of the purchases made under these gas purchase contracts are priced in Canadian dollars. The costs of natural gas commodity and pipeline services purchased from certain Canadian suppliers are subject to changes in the value of Canadian currency in relation to U.S. currency. NW Natural uses foreign currency forward contracts to hedge against fluctuations in currency exchange rates with respect to its purchases of natural gas from suppliers in Canada. The adoption of SFAS No. 133 effective Jan. 1, 2001 resulted in the Company recording a one-time transition adjustment by debiting a derivative asset account and crediting an offsetting regulatory asset account on the balance sheet for approximately $165 million. This transition adjustment represented the initial recognition of the fair values of hedge derivatives outstanding on the adoption date. At June 30, 2001, the Company had two types of natural gas commodity cash flow hedges open: a series of 17 natural gas price swap agreements and four call option agreements. The net decrease in the fair value of these hedge derivatives for the six months ended June 30, 2001 ($241.5 million), included net gains of $86.9 million realized as reductions to the cost of gas upon settlement of various cash flow hedges. During the six months ended June 30, 2001, the amount of hedge ineffectiveness recognized in earnings from derivatives that are designated and qualify as cash flow hedges was negligible. All remaining outstanding derivative instruments in these categories at June 30, 2001, were determined to be 100 percent effective (see Part I, Item 2., "Results of Operations - Cost of Gas," below). The estimated fair values for these derivative hedge instruments at Jan. 1 and June 30, 2001 are presented below: Jan. 1, June 30, --------- --------- 2001 2001 --------- --------- Non-trading derivative assets ($000): Fixed-price natural gas commodity swaps $ 122,588 $ 404 Fixed-price natural gas call options 41,980 152 Foreign currency forward contracts 405 79 Non-trading derivative liabilities ($000): Fixed-price natural gas commodity swaps - (77,137) Fixed-price natural gas call options - - Foreign currency forward contracts - - --------- --------- Total non-trading derivative assets (liabilities) $ 164,973 $ (76,502) ========= ========= The fair value of fixed-price contracts as of June 30, 2001 was estimated based on market prices for the periods covered by the contracts. The net differential between the prices in each contract and market prices for future periods, as adjusted for estimated basis, where applicable, has been applied to the volumes stipulated in each contract to arrive at an estimated future value. As of June 30, 2001, a total of nine natural gas price swap agreements have contract periods that extend beyond Dec. 31, 2001. As of June 30, 2001, the Company had not entered into any natural gas call option contracts extending beyond Dec. 31, 2001. The Company recorded a $0.1 million loss for the first six months of 2001, representing the change in value of an embedded derivative relating to a contract for an equipment financing program under which NW Natural guarantees a minimum level of return for the lender. The Derivatives Implementation Group (DIG), a group sponsored by the FASB, continues to develop interpretive guidance relating to SFAS No. 133. 11 Future interpretations of SFAS No. 133 by the DIG or the FASB could impact the Company's application of the standard and, thereby, its financial statement disclosures. 6. Segment Reporting The Company principally operates in a segment of business consisting of the distribution of natural gas ("Utility"). Another segment, which was immaterial prior to Jan. 1, 2001, represents natural gas storage services provided to upstream customers using storage capacity not required from time to time for service to utility customers ("Gas Storage"). The remaining segment primarily consists of non-regulated investments in alternative energy projects in California, the oil and gas exploration properties sold in 2000 and a Boeing 737-300 aircraft which is leased to Continental Airlines ("Other"). The following table presents information about the reportable segments for the three and six months ended June 30, 2001 and 2000. Inter-segment transactions are insignificant.
Three Months Ended June 30, Six Months Ended June 30, ------------------------------------------ -------------------------------------------- Thousands Utility Gas Storage Other Total Utility Gas Storage Other Total - ----------------------------------------------------------------------- -------------------------------------------- 2001 - ---- Net operating revenues $ 53,936 $ 769 $ 21 $ 54,726 $ 144,320 $ 1,992 $ 67 $ 146,379 Depreciation, depletion and amortization 12,263 24 - 12,287 24,367 48 - 24,415 Other operating expenses 27,179 53 19 27,251 57,972 86 (70) 57,988 Income from operations 14,494 692 2 15,188 61,981 1,858 137 63,976 Net income from continuing operations 4,246 392 227 4,865 29,305 1,085 382 30,772 Income (loss) from financial investments - - (91) (91) - - (233) (233) Total assets 1,259,914 4,871 20,640 1,285,425 1,259,914 4,871 20,640 1,285,425 2000 - ---- Net operating revenues $ 45,724 $ 72 $ 90 $ 45,886 $ 138,727 $ 72 $ 175 $ 138,974 Depreciation, depletion and amortization 11,706 - 73 11,779 23,123 - 95 23,218 Other operating expenses 24,226 50 17 24,293 51,955 50 (42) 51,963 Income from operations 9,792 22 - 9,814 63,649 22 122 63,793 Net income (loss) from continuing operations 2,849 22 (373) 2,498 31,821 22 (153) 31,690 Income (loss) from financial investments - - (33) (33) - - (111) (111) Gain (loss) on sale of discontinued segment - - (35) (35) - - 2,435 2,435 Total assets 1,151,221 - 20,956 1,172,177 1,151,221 - 20,956 1,172,177
7. Property Held for Sale Property held for sale at June 30, 2000 consisted of a new headquarters building that was constructed for the Port of Portland. This property was sold during the third quarter of 2000 (see Part II, Item 7., "Financial Condition - Cash Flows - Port of Portland Building," in the 2000 Form 10-K). 12 8. 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. As of March 31, 2000, the Company realized an after-tax gain from the sale of Canor of $2.4 million, net of Canadian tax on dividends ($0.6 million) and U.S. income tax ($2.8 million) (see Part II, Item 8., Note 2, "Canor Energy, Ltd.," in the 2000 Form 10-K). Proceeds from the sale of Canor are reflected in the statement of cash flows (Investing Activities) as proceeds from sale of discontinued segment. 9. Contingencies Environmental Matters --------------------- The Company owns property in Linnton, Oregon that is the site of a former gas manufacturing plant that was closed in 1956 (the Linnton site). The Company previously owned property adjacent to the Linnton site that now is the location of a manufacturing plant owned by Wacker Siltronic Corporation (the Wacker site). The Linnton site and the Wacker site have been under investigation by the Company under program oversight by the Oregon Department of Environmental Quality (ODEQ). In 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 Linnton site and the Wacker site. In 2000, the EPA listed the Portland Harbor as a Superfund site. See Part II, Item 8., Note 12, "Notes to Consolidated Financial Statements," in the 2000 Form 10-K. NW Natural has accrued all material loss contingencies which it believes to be probable of assertion, including those relating to the Linnton site, the Wacker site and the Portland Harbor Superfund site. However, due to the preliminary nature of these environmental investigations, the range of any additional possible loss cannot be presently estimated. The Company expects that its costs of investigation and any remediation for which it may be responsible with respect to the Linnton site, the Wacker site and the Portland Harbor Superfund site should be recoverable, in large part, from insurance. In the event these costs are not recovered from insurance, NW Natural will seek recovery through future rates. Litigation ---------- NW Natural is party to a lawsuit, Northwest Natural Gas Company v. Chase Gardens, Inc. (Lane County Circuit Court Case No. 16-91-01370), involving claims by a commercial customer. In 1999, the Oregon Supreme Court ruled in the Company's favor on the larger of the two claims in the case and the Oregon Court of Appeals ruled in the Company's favor on the smaller (contract) claims. The Oregon Supreme Court initially declined to review the Court of Appeals' decision on the contract claims, including a verdict against the Company in the amount of $2.0 million plus interest. On reconsideration, however, in December 2000 the Supreme Court agreed to review the Court of Appeals' decision on the contract claims and is expected to issue an opinion in 2001. See Part I, Item 3., "Legal Proceedings," in the 2000 Form 10-K. 13 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 and sold in the first quarter of 2000 Together these businesses are referred to herein as the "Company" (see "Non-utility Operations," below, and Part II, Item 8., Note 2, "Notes to Consolidated Financial Statements," in the Company's 2000 Annual Report on Form 10-K, as amended (2000 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, 2001 and 2000. Earnings and Dividends - ---------------------- The Company's earnings applicable to common stock were $4.3 million or 17 cents a diluted share in the quarter ended June 30, 2001, up from $1.8 million or 7 cents a diluted share in the second quarter of 2000. NW Natural earned 14 cents a diluted share from gas utility operations in the second quarter of 2001, compared to 9 cents in the same period in 2000. Weather conditions in its service territory in the second quarter of 2001 were 19 percent colder than the 20-year average and 29 percent colder than the second quarter of 2000. Sales to residential customers were 12 percent higher in the second quarter of 2001 than in the second quarter of 2000. However, reflecting the effect of recent tracking rate increases to recover higher gas costs (see "Results of Operations - Comparison of Gas Operations - Residential and Commercial," below), residential customers' consumptions per heating degree day were about 10 percent lower during the second quarter of 2001 than in the second quarter of 2000. Sales to commercial customers were 9 percent higher in the second quarter of 2001 than in the second quarter of 2000, but their consumptions per heating degree day were about 11 percent lower. The Company earned $29.6 million, or $1.16 a diluted share, and $32.9 million, or $1.29 a diluted share, for the six months ended June 30, 2001 and 2000, respectively. Year-to-date, NW Natural earned $1.10 a share from utility operations compared to $1.20 a share in the same period in 2000. Weather in the first half of the year was 8 percent colder than the 20-year average and 3.5 percent colder than in 2000. Residential customers' consumptions per heating degree day were about 9 percent lower during the first six months of 2001 than in the first half of 2000, while commercial customers' consumptions were about 8.5 percent lower. Non-utility operating results for the second quarter of 2001 were earnings of 3 cents a share compared to a loss of 2 cents a share from these operations in 2000. Non-utility operating results year-to-date were earnings of 6 cents a share compared to a loss of 1 cent a share from these operations during the comparable period in 2000. See "Non-utility Operations," below. 14 Dividends paid on common stock were 31 cents a share for each of the three-month periods ended June 30, 2001 and 2000. In July 2001, the Company's Board of Directors declared a quarterly dividend of 31 cents a share on the common stock, payable Aug. 15, 2001, to shareholders of record on July 31, 2001. 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:
Thousands Three Months Ended Six Months Ended (Except customers and degree days) June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 ---------------------- ---------------------- Gas Sales and Transportation Volumes - Therms: - ---------------------------------------------- Residential and commercial sales 127,105 114,246 385,978 382,334 Unbilled volumes (20,678) (19,044) (44,901) (38,403) --------- --------- --------- --------- Weather-sensitive volumes 106,427 95,202 341,077 343,931 Industrial firm sales 18,830 17,843 42,294 41,909 Industrial interruptible sales 14,761 12,950 28,559 28,520 --------- --------- --------- --------- Total gas sales 140,018 125,995 411,930 414,360 Transportation deliveries 91,866 109,829 204,339 237,660 --------- --------- --------- --------- Total volumes sold and delivered 231,884 235,824 616,269 652,020 ========= ========= ========= ========= Utility Operating Revenues - Dollars: - ------------------------------------- Residential and commercial sales $ 107,406 $ 79,995 $ 318,287 $ 258,347 Unbilled revenues (15,645) (11,687) (33,984) (24,336) --------- --------- --------- --------- Weather-sensitive revenues 91,761 68,308 284,303 234,011 Industrial firm sales 11,008 8,099 24,666 19,058 Industrial interruptible sales 7,273 4,861 14,498 10,694 --------- --------- --------- --------- Total gas sales 110,042 81,268 323,467 263,763 Transportation revenues 4,299 5,208 8,718 11,193 Other revenues (466) (548) (2,248) (2,516) --------- --------- --------- --------- Total utility operating revenues $ 113,875 $ 85,928 $ 329,937 $ 272,440 ========= ========= ========= ========= Cost of gas sold $ 59,942 $ 40,204 $ 185,620 $ 133,713 ========= ========= ========= ========= Total number of customers (end of period) 528,602 508,795 528,602 508,795 ========= ========= ========= ========= Actual degree days 796 616 2,686 2,595 ========= ========= ========= ========= 20-year average degree days 670 673 2,497 2,508 ========= ========= ========= =========
15 Residential and Commercial -------------------------- NW Natural continues to experience rapid customer growth, with 19,807 customers added since June 30, 2000, for a growth rate of 3.9 percent. In the three years ended Dec. 31, 2000, more than 65,000 customers were added to the system, representing an average annual growth rate of 4.6 percent. 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 in the second quarter of 2001 were 19 percent colder than average and 29 percent colder than in the second quarter of 2000. For the first six months of 2001, weather was 8 percent colder than average and 3.5 percent colder than in the first six months of 2000. Volumes of gas sold to residential and commercial customers increased 11.2 million therms, or 12 percent, in the second quarter of 2001 compared to the second quarter of 2000. Related revenues increased $23.5 million, or 34 percent, due to the higher volumes of gas sold and to rate increases averaging 23 percent during 2000. (See Part II, Item 7, "Results of Operations - Regulatory Matters," in the 2000 Form 10-K.) Customer growth in the residential and commercial segments since June 30, 2000 contributed an estimated 3 million therms in sales volumes and $1.4 million in additional margin during the first six months of 2001. NW Natural believes the recent reductions in its customers' gas consumptions per degree day (see "Earnings and Dividends," above) are caused by the Company's much higher cost of purchased gas, which NW Natural passed through to customers as rate increases last fall, and to efforts throughout the region to conserve energy. NW Natural has filed with the Oregon Public Utility Commission (OPUC) for approval of a new regulatory mechanism that is intended to stabilize margin revenues in the face of variable consumption patterns. If approved, this mechanism would increase margin revenues during periods when residential and commercial customers' consumptions are less than the average assumed in the Company's 1998 general rate case. Conversely, margin revenues would be reduced when consumptions were higher than the average. The mechanism also would allow the Company to be more proactive in encouraging customers' efforts to use energy efficiently in their homes and businesses and to manage their energy bills. The Company's goal is to have such a mechanism in place before the next heating season starts in October, thereby reducing future earnings volatility. Industrial, Transportation and Other Revenues --------------------------------------------- Total volumes delivered to industrial firm, industrial interruptible, and transportation customers were 11 percent lower in the second quarter of 2001 than in the same period of 2000. Margin from these customers decreased from $10.8 million in the second quarter of 2000 to $10.3 million in the second quarter of 2001. The primary factor contributing to this decrease was a $0.5 million decrease in margin from customers who used oil during this period because the cost of oil was lower than the cost of natural gas purchased on the spot market. Besides its core market, another developing market for NW Natural is the delivery of natural gas for use in the generation of electricity. A number of generation projects are being developed in the Company's service area in order to help meet the demand for power in the western United States. NW Natural commenced gas deliveries in July 2001 to Clark Public Utility District (Clark PUD) in Vancouver, Washington, for a one-year term of service. Clark PUD will use the gas to produce up to 50 megawatts of electricity. 16 Other revenues include amortizations from regulatory accounts and miscellaneous fees charged to gas sales customers (see Part II, Item 8., Note 1, "Notes to Consolidated Financial Statements," in the 2000 Form 10-K). Other revenues increased $0.1 million during the second quarter of 2001 compared to the second quarter of 2000. Year-to-date, other revenues increased $0.3 million compared to the first six months of 2000. Factors contributing to the increase in the first six months of 2001 were higher amortizations from regulatory accounts covering conservation programs ($2.6 million), partially offset by higher property tax amortizations ($1.7 million) and higher revenues from customer late payment and reconnection fees ($1.1 million). Cost of Gas ----------- The cost per therm of gas sold was 34 percent higher during the second quarter of 2001 than in the second quarter of 2000, primarily due to higher prices in the natural gas commodity market. The cost of gas sold includes current gas purchases, gas drawn from storage inventory, gains or losses from commodity hedges, demand cost equalization, regulatory deferrals and company use. Results for the three months ended June 30, 2001 include an adjustment reducing the cost of gas and a partially offsetting adjustment reducing interest income (see "Other Income (Expense)," below). These adjustments were based on a clarification of the treatment of gas storage inventory, approved by the OPUC effective June 30, 2001, under NW Natural's Purchased Gas Adjustment (PGA) mechanism in Oregon. Excluding this adjustment ($3.0 million), the cost per therm of gas sold was 41 percent higher during the second quarter of 2001 than in the second quarter of 2000 and was 40 percent higher year-to-date. Of the total adjustment to the cost of gas, $1.6 million applied to deferrals in the first and second quarters of 2001 and $1.4 million applied to a prior period from Dec. 1, 1999 through Dec. 31, 2000. Under an agreement between the Company and the OPUC staff, the methodology applied in this adjustment to cost of gas will continue to be applied in the future. NW Natural offset some of the impact of its higher gas costs during the second quarter of 2001 through an active natural gas commodity hedge program conducted under the terms of the Company's Derivatives Policy (see Item 1, Note 3., "Notes to Consolidated Financial Statements," above). NW Natural recorded net gains from commodity swap and call option contracts of $13.4 million in the second quarter of 2001, compared to net gains of $4.1 million in the second quarter of 2000. Year-to-date, NW Natural recorded net gains of $86.9 million, compared to net gains of $3.2 million during the first six months of 2000. Gains (losses) from commodity hedges are recorded as reductions (increases) to the cost of gas. The cost of gas sold also was reduced by off-system gas sales of $1.2 million and $1.4 million for the first six months of 2001 and 2000, respectively. Under an agreement with the OPUC, revenues from these sales are treated as a reduction of gas costs. NW Natural has a 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 absorbs 33 percent of the higher cost of gas sold, or retains 33 percent of the lower cost, in either case as compared to projections. The remaining 67 percent of the higher or lower gas costs is recorded as deferred debits or credits (regulatory assets or liabilities) for recovery from or refund to customers in future rates. NW Natural deferred $2.3 million of higher gas costs during the second quarter of 2001 and $6.2 million year-to-date, and expects to recover these amounts from customers during the next two years. The combined impact of NW Natural's higher gas costs and its partially offsetting off-system gas sales under the PGA sharing mechanism during the second quarter of 2001 was that the Company absorbed $0.7 million of its higher gas costs, reducing earnings by about 2 cents a share. 17 Non-utility Operations ---------------------- At June 30, 2001 and 2000, the Company had one active subsidiary, Financial Corporation, a wholly-owned subsidiary. One discontinued segment, Canor, a majority-owned subsidiary, was sold in January 2000 (see "Discontinued Segment," below). Financial Corporation --------------------- Financial Corporation's operating results for the three months ended June 30, 2001 were net income of $0.2 million, equivalent to 1 cent a share, compared to a loss of $0.4 million, or 2 cents a share, for the second quarter of 2000. Year-to-date, operating results were net income of $0.3 million, compared to a loss of $0.2 million for the comparable period in 2000. Results were weaker for the six months ended June 30, 2000 due to adjustments totaling $0.6 million to Financial Corporation's deferred income tax accounts recorded in the second quarter of 2000. Financial Corporation's net assets at June 30, 2001 were $7.6 million, compared to $7.0 million at June 30, 2000. Discontinued Segment -------------------- During the first quarter of 2000, the Company sold its interest in Canor at a gain of $2.5 million, equivalent to 10 cents a share (see Item 1, Note 8., "Notes to Consolidated Financial Statements," above, and Part II, Item 7., "Results of Operations - Discontinued Segment," in the 2000 Form 10-K). Gas Storage Services -------------------- The Company realized net income after-tax of $0.4 million, or 1 cent a share, in the three months ended June 30, 2001 and $1.1 million, or 4 cents a share, year-to-date, from gas storage services to customers using storage capacity not required from time to time for utility services. Gas storage net income for the three and six months ended June 30, 2000 was negligible. Operating Expenses ------------------ Operations and Maintenance -------------------------- Operations and maintenance expenses increased $2.4 million, or 13 percent, and $4.5 million, or 12 percent, in the three and six month periods ended June 30, 2001, respectively, compared to the same periods in 2000. Key factors that contributed to the increases in the current year periods were higher employees' health and life insurance benefit costs, higher uncollectible accounts expense, higher payroll costs due to wage and salary increases and increases in weatherization program costs. Taxes Other than Income Taxes ----------------------------- Taxes other than income taxes increased $1.6 million, or 11 percent, in the first six months of 2001 compared to the first half of 2000. Franchise tax expense increased $0.9 million due to higher utility operating revenues and property taxes increased $0.4 million due to utility plant additions. Also, regulatory fees and payroll tax expenses increased slightly. Depreciation, Depletion and Amortization ---------------------------------------- The Company's depreciation, depletion and amortization expense increased $1.2 million, or 5 percent, compared to the first six months of 2000. The increase was primarily due to a 5 percent increase in utility plant in service. Depreciation, depletion and amortization expense was approximately 2 percent of average plant and property for the six months ended June 30, 2001 and 2000. 18 Other Income (Expense) ---------------------- The Company's other income (expense) decreased $1.4 million and $1.5 million in the three and six month periods ended June 30, 2001, respectively, compared to the same periods in 2000. The decreases in both periods were primarily due to lower interest income on deferred regulatory account balances, miscellaneous non-operating income and investment income from Company-owned life insurance policies, offset by higher net rental income. During the three months ended June 30, 2001, an adjustment relating to the treatment of gas storage inventory under NW Natural's PGA mechanism reduced interest income by $0.4 million (see "Cost of Gas," above). Interest Charges - net ---------------------- The Company's net interest expense decreased by $0.3 million, or 2 percent, in the six months ended June 30, 2001 compared to the same period in 2000 due to lower average balances of short term debt and lower average interest rates. Income Taxes ------------ The effective corporate income tax rates from continuing operations for the three months ended June 30, 2001 and 2000, were 32.9 percent and 24.4 percent, respectively. The difference in tax rates between the respective quarters was primarily due to a reduction in income tax expense ($0.2 million) at June 30, 2000 as a result of true-up adjustments to the 1999 federal and state income tax returns. Year-to-date, the effective corporate income tax rates from continuing operations was 36.4 percent, compared to 35.9 percent at June 30, 2000. 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 2000 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 2000 Form 10-K). 19 Cash Flows ---------- Operating Activities -------------------- Continuing operations provided net cash of $82.7 million in the six months ended June 30, 2001, compared to $103.4 million in the first six months of 2000. The 20 percent decrease was due to decreased cash from operations before working capital changes ($6.2 million) and higher working capital requirements ($14.5 million). The decrease in cash from continuing operations before working capital changes was due to a larger increase in deferred income taxes and investment tax credits in 2001 ($4.1 million), lower income from continuing operations ($0.9 million) and smaller reductions in deferred gas cost receivable ($1.7 million) and earnings of equity investments ($0.4 million) in 2001, partially offset by an increase in depreciation, depletion and amortization in 2001 ($1.2 million). The increase in working capital requirements was primarily due to a larger reduction in accounts payable ($46.6 million), partially offset by larger reductions in accounts receivable ($11.4 million), accrued unbilled revenues ($10.9 million) and inventories of gas, materials and supplies ($9.8 million). 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 2000 Form 10-K). Investing Activities -------------------- Cash requirements for utility construction in the first six months of 2001 totaled $35.8 million, down $2.2 million from the first six months of 2000. NW Natural's construction expenditures for 2001 were initially estimated at $75 million. In April 2001, however, the Company accelerated plans for an additional $10 million investment in storage facilities, increasing the projected total construction budget for 2001 to $85 million. Over the five-year period 2001 through 2005, 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. Investments in non-utility property during the first six months of 2001 were negligible. The $0.6 million investment in non-utility property in the first six months of 2000 consisted of final costs for the construction of the new headquarters building for the Port of Portland (see Item 1, Note 7, "Notes to Consolidated Financial Statements," above). The discontinued segment provided net cash of $34.8 million in the first quarter of 2000 from sale of the Company's interest in Canor. Financing Activities -------------------- Cash used for financing activities in the first six months of 2001 totaled $41.2 million, a decrease of $58.7 million from the first six months of 2000. Proceeds from the sales of $18 million of Medium-Term Notes, Series B, in June 2001, together with internally generated cash, were used to reduce short-term debt ($38.3 million). Internally generated cash, including proceeds from the sale of Canor ($34.8 million), was used to reduce short-term debt ($83.8 million) in the first six months of 2000. In May 2000, the Company commenced a program to repurchase up to 2 million shares, or up to $35 million in value, of NW Natural's common stock through a repurchase program which has been extended through May 2002. The 20 purchases are made in the open market or through privately negotiated transactions. The Company used $5.8 million for the repurchase of 246,700 shares under the program in the first six months of 2001. The Company has repurchased 355,400 shares of common stock at a total cost of $8.2 million from the program's inception through June 30, 2001. 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 2000 Form 10-K). NW Natural had $18.0 million of commercial paper notes outstanding at June 30, 2001, compared to $10.3 million and $56.3 million at June 30 and Dec. 31, 2000, respectively. Financial Corporation had no commercial paper notes outstanding at Dec. 31, 2000, or June 30, 2001 or 2000. Lines of Credit --------------- NW Natural has available through Sept. 30, 2001 committed lines of credit with four commercial banks totaling $120 million which are used as backup lines for the commercial paper program. In addition, Financial Corporation has available through Sept. 30, 2001 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 Dec. 31, 2000, or June 30, 2001 or 2000. Ratios of Earnings to Fixed Charges ----------------------------------- For the 6 months and 12 months ended June 30, 2001, and the 12 months ended Dec. 31, 2000, the Company's ratios of earnings to fixed charges, computed using the Securities and Exchange Commission method, were 3.77, 3.05 and 3.14, 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. 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 OPUC and the 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 21 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. 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 2000 Form 10-K. 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 24, 2001. At the meeting, one Class I director-nominee was elected to a two-year term and four Class II director-nominees were elected to three-year terms, as follows: Term Share Votes Share Votes Director-nominee Expiring For Withheld ------------------------------------------------------------------ Richard L. Woolworth 2003 21,573,535 395,214 Tod R. Hamachek 2004 21,579,293 389,456 Wayne D. Kuni 2004 21,562,407 406,342 Melody C. Teppola 2004 21,584,761 383,988 Russell F. Tromley 2004 21,589,296 379,453 The other seven directors whose terms of office as directors continued after the Annual Meeting are: Mary Arnstad, Thomas E. Dewey, Jr., Randall C. Pape, Richard G. Reiten, Robert L. Ridgley, Dwight A. Sangrey and Benjamin R. Whiteley. In accordance with the Company's Bylaws, Richard B. Keller retired as a director at the conclusion of the meeting following 18 years of distinguished service. 22 The shareholders approved the Company's Long-Term Incentive Plan by the following vote: 19,252,474 shares voted for; 2,195,521 shares voted against; and 520,453 shares abstained from voting. The shareholders also elected PricewaterhouseCoopers LLP, certified public accountants, as NW Natural's independent auditors for the year 2001 by the following vote: 21,716,631 shares for; 99,495 against; and 152,623 abstained. There were no broker non-votes on either the election of directors or auditors at the 2001 annual meeting. There were 301 shares that were broker non-votes with respect to the approval of the Company's Long-Term Incentive Plan. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 10(a) - Form of amended and restated executive change in control severance agreement as entered into between the Company and each executive officer Exhibit 10(b) - Restricted stock retention agreement, dated August 1, 2001, as entered into between the Company and an executive officer Exhibit 10(c) - Long-Term Incentive Plan as amended and restated July 26, 2001 Exhibit 11 - Statement re: Computation of Per Share Earnings Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges (b) Reports on Form 8-K On April 5, 2001 and May 24, 2001, the Company filed its Current Reports on Form 8-K relating, respectively, to (a) estimated first quarter 2001 earnings and the potential effect on earnings for the year 2001 of declining customer consumptions, and (b) the appointment of a new president and chief operating officer. 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 13, 2001 /s/ Stephen P. Feltz -------------------------------------- Stephen P. Feltz Principal Accounting Officer Treasurer and Controller 23 NORTHWEST NATURAL GAS COMPANY EXHIBIT INDEX To Quarterly Report on Form 10-Q For Quarter Ended June 30, 2001 Exhibit Number ------- Document - -------- Form of amended and restated executive change in control severance agreement as entered into between the Company and each executive officer 10(a) Restricted stock retention agreement, dated August 1, 2001, as entered into between the Company and an executive officer 10(b) Long-Term Incentive Plan as amended and restated July 26, 2001 10(c) Statement re: Computation of Per Share Earnings 11 Computation of Ratios of Earnings to Fixed Charges 12 EX-10 3 exhibit10a.txt EXHIBIT 10(A) Exhibit 10(a) __________, 2001 _____________________________ _____________________________ _____________________________ RE: CHANGE IN CONTROL SEVERANCE AGREEMENT Dear _______________________: Northwest Natural Gas Company, an Oregon corporation (the "Company"), considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of the Company. In this connection, the Company recognizes that, as is the case with many publicly held corporations, the possibility of a change in control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company, its customers and its shareholders. Accordingly, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management to their assigned duties without distraction in circumstances arising from the possibility of a change in control of the Company. In order to induce you to remain in the employ of the Company, this letter agreement, which has been approved by the Board, sets forth severance benefits which the Company agrees will be provided to you in the event your employment with the Company is terminated subsequent to a "change in control" of the Company under the circumstances described below. The Company and you have entered into a prior letter agreement regarding change in control severance benefits dated ___________, _____. Upon your signature of this letter agreement, the prior agreement shall be superceded and replaced by this agreement. 1. Agreement to Provide Services; Right to Terminate. ------------------------------------------------- (i) Except as otherwise provided in paragraph (ii) below, the Company or you may terminate your employment at any time, subject to the Company's providing the benefits hereinafter specified in accordance with the terms hereof. (ii) In the event of a potential change in control of the Company as defined in Section 3 hereof, you agree that you will not leave the employ of the Company (other than as a result of Disability or upon Retirement, as such terms are hereinafter defined) and will render the services contemplated in the recitals to this Agreement until the earliest of (a) a date which is 270 days Page 2 from the occurrence of such potential change in control of the Company, or (b) a termination of your employment pursuant to which you become entitled under this Agreement to receive the benefits provided in Section 5(iii) below. 2. Term of Agreement. This Agreement shall commence on the date hereof ----------------- and shall continue in effect until December 31, 2001; provided, however, that commencing on January 1, 2002 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless at least 90 days prior to such January 1 date, the Company or you shall have given notice that this Agreement shall not be extended (provided that no such notice may be given by the Company during the pendency of a potential change in control); and provided, further, that this Agreement shall continue in effect for a period of twenty-four (24) months beyond the term provided herein if a change in control of the Company, as defined in Section 3 hereof, shall have occurred during such term. Notwithstanding anything in this Section 2 to the contrary, this Agreement shall terminate if you or the Company terminate your employment prior to a change in control of the Company as defined in Section 3 hereof. In addition, the Company may terminate this Agreement during your employment if, prior to a change in control of the Company as defined in Section 3 hereof, you cease to hold your current position with the Company, except by reason of a promotion. 3. Change in Control; Potential Change in Control; Person. ------------------------------------------------------ (i) For purposes of this Agreement, a "change in control" of the Company shall mean the occurrence of any of the following events: (A) The approval by the shareholders of the Company of: (1) any consolidation, merger or plan of share exchange involving the Company (a "Merger") in which the Company is not the continuing or surviving corporation or pursuant to which shares of Common Stock of the Company ("Company Shares") would be converted into cash, securities or other property, other than a Merger involving Company Shares in which the holders of Company Shares immediately prior to the Merger have the same proportionate ownership of common stock of the surviving corporation immediately after the Merger; (2) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, the assets of the Company; or (3) the adoption of any plan or proposal for the liquidation or dissolution of the Company; (B) At any time during a period of two consecutive years, individuals who at the beginning of such period constituted the Board ("Incumbent Directors") shall cease for any reason to constitute at least a majority thereof; provided, however, that the term "Incumbent Director" shall also include each new director elected during such two-year period whose Page 3 nomination or election was approved by two-thirds of the Incumbent Directors then in office; or (C) Any Person (as hereinafter defined) shall, as a result of a tender or exchange offer, open market purchases or privately negotiated purchases from anyone other than the Company, have become the beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of securities of the Company ordinarily having the right to vote for the election of directors ("Voting Securities") representing twenty percent (20%) or more of the combined voting power of the then outstanding Voting Securities. Notwithstanding anything in the foregoing to the contrary, unless otherwise determined by the Board, no change in control shall be deemed to have occurred for purposes of this Agreement if (1) you acquire (other than on the same basis as all other holders of Company Shares) an equity interest in an entity that acquires the Company in a change in control otherwise described under subparagraph (A) above, or (2) you are part of a group that constitutes a Person which becomes a beneficial owner of Voting Securities in a transaction that otherwise would have resulted in a change in control under subparagraph (C) above. (ii) For purposes of this Agreement, a "potential change in control" of the Company shall be deemed to have occurred if: (A) the Company enters into an agreement, the approval of which by the shareholders would result in the occurrence of a change in control of the Company; (B) any Person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a change in control of the Company; or (C) the Board adopts a resolution to the effect that, for purposes of this Agreement, a potential change in control of the Company has occurred. (iii) For purposes of this Agreement, the term "Person" shall mean and include any individual, corporation, partnership, group, association or other "person," as such term is used in Section 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other than the Company or any employee benefit plan(s) sponsored by the Company. 4. Termination Following Change in Control. If any of the events --------------------------------------- described in Section 3 hereof constituting a change in control of the Company shall have occurred, you shall be entitled to the benefits provided in Section 5(iii) hereof upon the termination of your employment within twenty-four (24) months after such event, unless such termination is (a) because of your death or Retirement, (b) by the Company for Cause or Disability or (c) by you other than for Good Reason based on an event occurring concurrent with or subsequent to a change in control (as all such capitalized terms are hereinafter defined). Page 4 (i) Disability. Termination by the Company of your employment ---------- based on "Disability" shall mean termination because of your absence from your duties with the Company on a full-time basis for one hundred eighty (180) consecutive days as a result of your incapacity due to physical or mental illness, unless within thirty (30) days after Notice of Termination (as hereinafter defined) is given to you following such absence you shall have returned to the full-time performance of your duties. (ii) Retirement. Termination by you or by the Company of your ---------- employment based on "Retirement" shall mean termination on or after your 62nd birthday. (iii) Cause. Termination by the Company of your employment for ----- "Cause" shall mean termination upon (a) the willful and continued failure by you to perform substantially your reasonably assigned duties with the Company consistent with those duties assigned to you prior to the change in control (other than any such failure resulting from your incapacity due to physical or mental illness) after a demand for substantial performance is delivered to you by the Chairman of the Board or President of the Company which specifically identifies the manner in which such executive believes that you have not substantially performed your duties, or (b) the willful engaging by you in illegal conduct which is materially and demonstrably injurious to the Company. For purposes of this paragraph (iii), no act, or failure to act, on your part shall be considered "willful" unless done, or omitted to be done, by you in knowing bad faith and without reasonable belief that your action or omission was in, or not opposed to, the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by you in good faith and in the best interests of the corporation. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of the conduct set forth above in (a) or (b) of this paragraph (iii) and specifying the particulars thereof in detail. (iv) Good Reason. Termination by you of your employment for "Good ----------- Reason" shall mean termination based on: (A) a change in your status, title, position(s) or responsibilities as an officer of the Company which, in your reasonable judgment, does not represent a promotion from your status, title, position(s) and responsibilities as in effect immediately prior to the change in control, or the assignment to you of any duties or responsibilities which, in your reasonable judgment, are inconsistent with such status, title or position(s), or any removal of you from or any failure to reappoint or reelect you to such position(s), except in connection with the termination of your employment for Cause, Disability or Retirement or as a result of your death or by you other than for Good Reason; Page 5 (B) a reduction by the Company in your base salary as in effect immediately prior to the change in control; (C) the failure by the Company to continue in effect any Plan (as hereinafter defined) in which you are participating at the time of the change in control of the Company (or Plans providing you with at least substantially similar benefits) other than as a result of the normal expiration of any such Plan in accordance with its terms as in effect at the time of the change in control, or the taking of any action, or the failure to act, by the Company which would adversely affect your continued participation in any of such Plans on at least as favorable a basis to you as is the case on the date of the change in control or which would materially reduce your benefits in the future under any of such Plans or deprive you of any material benefit enjoyed by you at the time of the change in control; (D) the failure by the Company to provide and credit you with the number of paid vacation days to which you are then entitled in accordance with the Company's normal vacation policy as in effect immediately prior to the change in control; (E) the Company's requiring you to be based anywhere other than where your office is located immediately prior to the change in control except for required travel on the Company's business to an extent substantially consistent with the business travel obligations which you undertook on behalf of the Company prior to the change in control; (F) the failure by the Company to obtain from any Successor (as hereinafter defined) the assent to this Agreement contemplated by Section 7 hereof; or (G) any purported termination by the Company of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (v) below (and, if applicable, paragraph (iii) above); and for purposes of this Agreement, no such purported termination shall be effective. For purposes of this Agreement, "Plan" shall mean any compensation plan such as an incentive, stock option or restricted stock plan or any employee benefit plan such as a thrift, pension, profit sharing, deferred compensation, medical, disability, accident, life insurance, or relocation plan or policy or any other plan, program or policy of the Company intended to benefit employees. (v) Notice of Termination. Any purported termination by the --------------------- Company or by you following a change in control shall be communicated by Written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. Page 6 (vi) Date of Termination. "Date of Termination" following a ------------------- change in control shall mean (a) if your employment is to be terminated for Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the performance of your duties on a full-time basis during such thirty (30) day period), (b) if your employment is to be terminated by the Company for Cause, the date on which a Notice of Termination is given, and (c) if your employment is to be terminated by you or by the Company for any other reason, the date specified in the Notice of Termination, which shall be a date no earlier than ninety (90) days after the date on which a Notice of Termination is given (provided that if the termination is by you for Good Reason the circumstances giving rise to the Good Reason have not been fully corrected by the specified date), unless an earlier date has been agreed to by the party receiving the Notice of Termination either in advance of, or after, receiving such Notice of Termination. Notwithstanding anything in the foregoing to the contrary, if the party receiving the Notice of Termination has not previously agreed to the termination, then within thirty (30) days after any Notice of Termination is given, the party receiving such Notice of Termination may notify the other party that a dispute exists concerning the termination, in which event the Date of Termination shall be the date set either by mutual written agreement of the parties or by the arbitrators in a proceeding as provided in Section 13 hereof. 5. Compensation Upon Termination or During Disability. -------------------------------------------------- (i) During any period following a change in control that you fail to perform your duties as a result of incapacity due to physical or mental illness, you shall continue to receive your full base salary at the rate then in effect and any benefits or awards under any Plans shall continue to accrue during such period, to the extent not inconsistent with such Plans, until your employment is terminated pursuant to and in accordance with Sections 4(i) and 4(vi) hereof. Thereafter, your benefits shall be determined in accordance with the Plans then in effect. (ii) If your employment shall be terminated for Cause or as a result of Retirement or Death following a change in control of the Company, the Company shall pay you your full base salary through the Date of Termination at the rate in effect just prior to the time a Notice of Termination is given plus any benefits or awards which pursuant to the terms of any Plans have been earned or become payable, but which have not yet been paid to you. Thereupon the Company shall have no further obligations to you under this Agreement. (iii) If, within twenty-four (24) months after a change in control of the Company shall have occurred, as defined in Section 3 above, your employment by the Company shall be terminated (a) by the Company other than for Cause, Disability or Retirement or (b) by you for Good Reason based on an event occurring concurrent with or subsequent to a change in control, then, by no later than the fifth day following the Date of Termination (except as otherwise provided), you shall be entitled, without regard to any contrary provisions of any Plan, to a severance benefit as follows: (A) the Company shall pay your full base salary through the Date of Termination at the rate in effect just prior to the time a Notice of Page 7 Termination is given plus any benefits or awards which pursuant to the terms of any Plans have been earned or become payable, but which have not yet been paid to you; (B) as severance pay and in lieu of any further salary for periods subsequent to the Date of Termination, the Company shall pay to you in a single payment an amount in cash equal to [two (2) or three (3)] times the sum of (1) the greater of (i) your annual rate of base salary in effect on the Date of Termination or (ii) your annual rate of base salary in effect immediately prior to the change in control of the Company and (2) the greater of (i) the average of the last three annual bonuses (annualized in the case of any bonus paid with respect to a partial year) paid to you preceding the Date of Termination or (ii) the average of the last three annual bonuses (annualized in the case of any bonus paid with respect to a partial year) paid to you preceding such change in control; and (C) for a thirty-six (36) month period after the Date of Termination, the Company shall arrange to provide you, your spouse and your dependents with life, accident and health insurance benefits substantially similar to those which you were receiving immediately prior to the change in control of the Company. Notwithstanding the foregoing, the Company shall not provide any benefit otherwise receivable by you pursuant to this subparagraph (C) to the extent that a similar benefit is actually received by you from a subsequent employer during such thirty-six (36) month period, and any such benefit actually received by you shall be reported to the Company. (iv) The amount of any payment provided for in this Section 5 shall not be reduced, offset or subject to recovery by the Company by reason of any compensation earned by you as the result of employment by another employer after the Date of Termination, or otherwise. Your entitlements under Section (5)(iii) are in addition to, and not in lieu of, any rights, benefits or entitlements you may have under the terms or provisions of any Plan. 6. Tax Gross-Up Payments. --------------------- (i) Whether or not your employment is terminated, if any of the payments provided for in Section 5(iii) or any other payment or benefit received or to be received by you in connection with a change in control of the Company or the termination of your employment (collectively, the "Change in Control Payments") will be subject to the tax imposed by section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any similar tax that may hereafter be imposed (the "Excise Tax"), the Company shall pay to you at the time any such Change in Control Payment is paid an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Change in Control Payments and any federal, state and local income tax and Excise Tax upon the Gross-Up Payment, shall be equal to the Change in Control Payments. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in federal income taxes which Page 8 could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder, you shall repay to the Company at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment directly and indirectly attributable to such reduction plus interest on the amount of such repayment at the rate provided for in section 1274(d) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder (including by reason of any Change in Control Payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest payable to the taxing authorities with respect to such excess) at the time that the amount of such excess is finally determined. (ii) The Company shall withhold the Excise Tax determined under paragraph (i) above in accordance with section 4999(b) of the Code, and shall withhold federal, state and local income taxes from Change in Control Payments and Gross-Up Payments as required by law. 7. Successors; Binding Agreement. ----------------------------- (i) Upon your written request, the Company will seek to have any Successor (as hereinafter defined), by agreement in form and substance satisfactory to you, assent to the fulfillment by the Company of its obligations under this Agreement. Failure of the Company to obtain such assent prior to or at the time a Person becomes a Successor shall constitute Good Reason for termination by you of your employment and, if a change in control of the Company has occurred, shall entitle you immediately to the benefits provided in Section 5(iii) hereof upon delivery by you of a Notice of Termination which the Company, by executing this Agreement, hereby assents to. For purposes of this Agreement, "Successor" shall mean any Person that succeeds to, or has the practical ability to control (either immediately or with the passage of time), the Company's business directly, by merger, consolidation or purchase of assets, or indirectly, by purchase of the Company's Voting Securities or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there be no such designee, to your estate. 8. Fees and Expenses. The Company shall pay all legal fees and related ----------------- expenses incurred by you as a result of (i) your termination following a change in control of the Company (including all such fees and expenses, if any, incurred in contesting or disputing any such termination) or (ii) your seeking to obtain or enforce any right or benefit provided by this Agreement. Page 9 9. Survival. The respective obligations of, and benefits afforded to, -------- the Company and you as provided in Sections 5, 6, 7(ii), 8 and 13 of this Agreement shall survive termination of this Agreement. 10. Notice. For the purposes of this Agreement, notices and all other ------ communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid and addressed to the address of the respective party set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Chairman of the Board or President of the Company, with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 11. Miscellaneous. No provision of this Agreement may be modified, ------------- waived or discharged unless such modification, waiver or discharge is agreed to in a writing signed by you and the Chairman of the Board or President of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Oregon. 12. Validity. The invalidity or unenforceability of any provision of -------- this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 13. Arbitration. Any dispute or controversy arising under or in ----------- connection with this Agreement shall be settled exclusively by arbitration in Portland, Oregon by three arbitrators in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrators' award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. The Company shall bear all costs and expenses arising in connection with any arbitration proceeding pursuant to this Section 13. 14. Related Agreements. To the extent that any provision of any other ------------------ agreement between the Company or any of its subsidiaries and you shall limit, qualify or be inconsistent with any provision of this Agreement, then for purposes of this Agreement, while the same shall remain in force, the provision of this Agreement shall control and such provision of such other agreement shall be deemed to have been superseded, and to be of no force or effect, as if such other agreement had been formally amended to the extent necessary to accomplish such purpose. Page 10 15. Counterparts. This Agreement may be executed in several ------------ counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same instrument. If this letter correctly sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, NORTHWEST NATURAL GAS COMPANY By ------------------------------------- Richard G. Reiten Chairman and CEO Agreed to this ____ day of ____________, 2001. __________________________________ EX-10 4 exhibit10b.txt EXHIBIT 10(B) Exhibit 10(b) RESTRICTED STOCK RETENTION AGREEMENT This Agreement is entered into as of August 1, 2001, between Northwest Natural Gas Company, an Oregon corporation (the "Company"), and Bruce R. DeBolt ("Recipient"). The Company has awarded restricted stock to Recipient pursuant to Section 6 of the Company's Long Term Incentive Plan (the "Plan") and Recipient desires to accept the award subject to the terms and conditions of this Agreement. NOW, THEREFORE, the parties agree as follows: 1. Award of Restricted Stock. Subject to the terms and conditions of ------------------------- this Agreement, the Company hereby grants to Recipient 4,500 shares of Common Stock of the Company (the "Restricted Shares"). The Restricted Shares are subject to forfeiture to the Company as set forth in Section 3. 2. Shares Purchased on Open Market; Stock Certificate. -------------------------------------------------- 2.1 As soon as practicable after execution of this Agreement by the Company and Recipient, the Company shall pay to a securities broker or other third party an amount equal to the market price of the Restricted Shares, with instructions to purchase the Restricted Shares on the open market in Recipient's name and to deliver the certificates representing the Restricted Shares in Recipient's name to the Company to hold pursuant to Section 2.2. 2.2 To secure the rights of the Company under Sections 3 and 5, the Company will retain the certificate or certificates representing the Restricted Shares. Upon any forfeiture of Restricted Shares covered by this Agreement, the Company shall have the right to cancel such Restricted Shares in accordance with this Agreement without any further action by Recipient. Upon any failure of the Recipient to pay required withholding under Section 5, the Company shall have the right to cancel vested Restricted Shares with a value equal to the required withholding amount without any further action by the Recipient. After Restricted Shares have vested and all required withholding has been paid to the Company in connection with such vesting, the Company shall deliver a certificate for the vested Restricted Shares to Recipient (unless Recipient shall have made a deferral election as provided for in Section 5.3). 3. Vesting; Forfeiture Restriction. ------------------------------- 3.1 All of the Restricted Shares shall initially be unvested. The Restricted Shares shall vest in accordance with the following schedule: 50% of the Restricted Shares shall vest on January 15, 2005 An additional 25% of the Restricted Shares shall vest on January 15, 2006 The remaining 25% of the Restricted Shares shall vest on January 15, 2007 In addition, all Restricted Shares shall immediately vest if (a) Recipient's employment by the Company is terminated because of death or physical disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986 (the "Code")), or (b) a Change in Control (as defined below) shall occur. 3.2 If Recipient ceases to be employed by the Company for any reason or for no reason, with or without cause, other than death or physical disability (within the meaning of Section 22(e)(3) of the Code), any unvested Restricted Shares shall be forfeited to the Company. 3.3 For purposes of this Agreement, a "Change in Control" of the Company shall mean the occurrence of any of the following events: (a) The approval by the shareholders of the Company of: (1) any consolidation, merger or plan of share exchange involving the Company (a "Merger") in which the Company is not the continuing or surviving corporation or pursuant to which shares of Common Stock of the Company ("Company Shares") would be converted into cash, securities or other property, other than a Merger involving Company Shares in which the holders of Company Shares immediately prior to the Merger have the same proportionate ownership of common stock of the surviving corporation immediately after the Merger; (2) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, the assets of the Company; or (3) the adoption of any plan or proposal for the liquidation or dissolution of the Company; (b) At any time during a period of two consecutive years, individuals who at the beginning of such period constituted the Company's Board of Directors ("Incumbent Directors") shall cease for any reason to constitute at least a majority thereof; provided, however, that the term "Incumbent Director" shall also include each new director elected during such two-year period whose nomination or election was approved by two-thirds of the Incumbent Directors then in office; or (c) Any person (as such term is used in Section 14(d) of the Securities Exchange Act of 1934, other than the Company or any employee benefit plan sponsored by the Company) shall, as a result of a tender or exchange offer, open market purchases or privately negotiated purchases from anyone other than the Company, have become the beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of securities of the Company ordinarily having the right to vote for the election of directors ("Voting Securities") representing twenty percent (20%) or more of the combined voting power of the then outstanding Voting Securities. 4. Restriction on Transfer. Recipient shall not sell, assign, pledge, ----------------------- or in any manner transfer unvested Restricted Shares, or any right or interest in unvested Restricted Shares, whether voluntarily or by operation of law, or by gift, bequest or otherwise. Any sale or transfer, or purported sale or transfer, 2 of unvested Restricted Shares, or any right or interest in unvested Restricted Shares, in violation of this Section 4 shall be null and void. 5. Tax Withholding; Deferral Election. ---------------------------------- 5.1 Except as otherwise provided in Section 5.2 or 5.3, Recipient acknowledges that, on the date (the "Vesting Date") any portion of the Restricted Shares vests, the Value (as defined below) on that date of such vested Restricted Shares will be treated as ordinary compensation income for federal and state income and FICA tax purposes, and that the Company will be required to withhold taxes on this income amount. Promptly following vesting, the Company will notify Recipient of the required withholding amount. Within 10 days of such notice, Recipient shall pay to the Company the required withholding amount in cash or by check. 5.2 If Recipient timely files an election under Section 83(b) of the Code with respect to the Restricted Shares, Recipient acknowledges that the Value of the Restricted Shares as of the date of this Agreement will be treated as ordinary compensation income for federal and state income and FICA tax purposes, and that the Company will be required to withhold taxes on this income amount. Promptly following Recipient's filing of a timely election under Section 83(b) of the Code, the Company will notify Recipient of the required withholding amount. Within 10 days of such notice, Recipient shall pay to the Company the required withholding amount in cash or by check. 5.3 If Recipient makes a valid election to defer receipt of vested Restricted Shares pursuant to the terms of the Company's Executive Deferred Compensation Plan (as such plan may be amended to permit such elections), any vested Restricted Shares covered by such election shall be delivered to the trustee of the Company's Umbrella Trust(TM) For Executives promptly following vesting and withholding of taxes shall be governed by the terms of the Executive Deferred Compensation Plan. 6. Rights as Shareholder; Dividends. Upon the execution and delivery -------------------------------- of this Agreement and the purchase of the Restricted Shares in the market as provided in Section 2.1, the award of the Restricted Shares shall be completed and, except as limited by this Agreement, Recipient shall be the owner of the Restricted Shares with all rights of a shareholder, including the right to vote the Restricted Shares and to receive dividends payable with respect to the Restricted Shares. Until the Restricted Shares become vested, the Restricted Shares will not be treated as issued shares for tax purposes and dividends paid to Recipient with respect to unvested Restricted Shares will be treated for federal and state income and FICA tax purposes as ordinary compensation income subject to applicable withholding. 7. Additional Company Shares. If, prior to vesting of Restricted ------------------------- Shares, the outstanding Common Stock is increased as a result of a stock dividend or stock split, the restrictions and other provisions of this Agreement shall apply to any such additional shares of Common Stock which are issued in respect of the Restricted Shares to the same extent as such restrictions and other provisions apply to the Restricted Shares. 8. No Right to Employment. Nothing contained in this Agreement shall ---------------------- confer upon Recipient any right to be employed by the Company or to continue to provide services to the Company or to interfere in any way with the right of the 3 Company to terminate Recipient's services at any time for any reason, with or without cause. 9. Miscellaneous. ------------- 9.1 Entire Agreement; Amendment. This Agreement constitutes the --------------------------- entire agreement of the parties with regard to the subjects hereof and may be amended only by written agreement between the Company and Recipient. 9.2 Notices. Any notice required or permitted under this ------- Agreement shall be in writing and shall be deemed sufficient when delivered personally to the party to whom it is addressed or when deposited into the United States Mail as registered or certified mail, return receipt requested, postage prepaid, addressed to the Company, Attention: Corporate Secretary, at its principal executive offices or to Recipient at the address of Recipient in the Company's records, or at such other address as such party may designate by ten (10) days' advance written notice to the other party. 9.3 Assignment; Rights and Benefits. Recipient shall not assign ------------------------------- this Agreement or any rights hereunder to any other party or parties without the prior written consent of the Company. The rights and benefits of this Agreement shall inure to the benefit of and be enforceable by the Company's successors and assigns and, subject to the foregoing restriction on assignment, be binding upon Recipient's heirs, executors, administrators, successors and assigns. 9.4 Further Action. The parties agree to execute such further -------------- instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement. 9.5 Applicable Law; Attorneys' Fees. The terms and conditions of ------------------------------- this Agreement shall be governed by the laws of the State of Oregon. In the event either party institutes litigation hereunder, the prevailing party shall be entitled to reasonable attorneys' fees to be set by the trial court and, upon any appeal, the appellate court. 9.6 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. NORTHWEST NATURAL GAS COMPANY By /s/ R. G. Reiten ------------------------------------- Chairman and CEO RECIPIENT /s/ Bruce R. DeBolt --------------------------------------- Bruce R. DeBolt 4 EX-10 5 exhibit10c.txt EXHIBIT 10(C) Exhibit 10(c) NORTHWEST NATURAL GAS COMPANY LONG TERM INCENTIVE PLAN Amended and Restated Effective July 26, 2001 1. PURPOSE. The purpose of this Long Term Incentive Plan (the "Plan") is to enable Northwest Natural Gas Company (the "Company") to attract and retain the services of selected employees, officers and directors of the Company or of any subsidiary of the Company. 2. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided below and in Section 9, the shares to be offered under the Plan shall consist of Common Stock of the Company, and the total number of shares of Common Stock that may be awarded under the Plan shall not exceed 500,000 shares. The shares awarded under the Plan may be authorized and unissued shares, reacquired shares or shares purchased on the open market for delivery to participants. If a Performance-based Award granted under the Plan expires, terminates or is cancelled, the shares subject to such Performance-based Award shall again be available under the Plan. If shares sold or awarded as a bonus or Performance-based Award under the Plan are forfeited to the Company or repurchased by the Company, the number of shares forfeited or repurchased shall again be available under the Plan. 3. EFFECTIVE DATE AND DURATION OF PLAN. (a) EFFECTIVE DATE. The Plan shall become effective as of January 1, 2001. However, all awards under the Plan shall be conditioned on and subject to approval of the Plan by the shareholders of the Company. Subject to this limitation, Performance-based Awards may be granted and shares may be awarded as bonuses or sold under the Plan at any time after the effective date and before termination of the Plan. (b) DURATION. The Plan shall continue in effect until all shares available for award under the Plan have been delivered to participants and all restrictions on such shares have lapsed. The Board of Directors may suspend or terminate the Plan at any time except with respect to Performance-based Awards and shares subject to restrictions then outstanding under the Plan. Termination shall not affect any right of the Company to repurchase shares or the forfeitability of shares awarded under the Plan. 4. ADMINISTRATION. (a) BOARD OF DIRECTORS. The Plan shall be administered by the Board of Directors of the Company, which shall determine and designate from time to time the individuals to whom awards shall be made, the amount of the awards and the other terms and conditions of the awards. Subject to the provisions of the Plan, the Board of Directors may from time to time adopt and amend rules and regulations relating to administration of the Plan, advance the lapse of any waiting period, accelerate any exercise date, waive or modify any restriction applicable to shares (except those restrictions imposed by law) and make all other determinations in the judgment of the Board of Directors necessary or desirable for the administration of the Plan. The interpretation and construction of the provisions of the Plan and related agreements by the Board of Directors shall be final and conclusive. The Board of Directors may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any related agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect, and it shall be the sole and final judge of such expediency. (b) COMMITTEE. The Board of Directors may delegate to a committee of the Board of Directors or specified officers of the Company, or both (the "Committee") any or all authority for administration of the Plan. If authority is delegated to a Committee, all references to the Board of Directors in the Plan shall mean and relate to the Committee except (i) as otherwise provided by the Board of Directors, and (ii) that only the Board of Directors may amend or terminate the Plan as provided in Sections 3 and 10. 5. TYPES OF AWARDS; ELIGIBILITY. The Board of Directors may, from time to time, take the following action, separately or in combination, under the Plan: (i) award stock bonuses as provided in Section 6; (ii) sell shares subject to restrictions as provided in Section 7; and (iii) grant Performance-based Awards as provided in Section 8. An award may be made to any employee, officer or director of the Company or any subsidiary of the Company. The Board of Directors shall select the individuals to whom awards shall be made and shall specify the action taken with respect to each individual to whom an award is made. At the discretion of the Board of Directors, an individual may be given an election to surrender an award in exchange for the grant of a new award. 6. STOCK BONUSES. The Board of Directors may award shares under the Plan as stock bonuses. Shares awarded as a bonus shall be subject to the terms, conditions and restrictions determined by the Board of Directors. The restrictions may include restrictions concerning transferability and forfeiture of the shares awarded, together with any other restrictions determined by the Board of Directors. The Board of Directors may require the recipient to sign an agreement as a condition of the award, but may not require the recipient to pay any monetary consideration other than amounts necessary to satisfy tax withholding requirements. The agreement may contain any terms, conditions, restrictions, representations and warranties required by the Board of Directors. The certificates representing the shares awarded shall bear any legends required by the Board of Directors. The Company may require any recipient of a stock bonus to pay to the Company in cash or by check upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the recipient fails to pay the amount demanded, the Company may withhold that amount from other amounts payable to the recipient, including salary, subject to applicable law. With the consent of the Board of Directors, a recipient may satisfy this obligation, in whole or in part, by instructing the Company to withhold from any shares to be received or by delivering to the Company other shares of Common Stock; provided, however, that the number of shares so withheld or delivered shall not exceed the minimum amount necessary to satisfy the required withholding obligation. Upon the payment of a stock bonus, the number of shares reserved for award under the Plan shall be reduced by the number of shares paid as a bonus, less the number of shares withheld or delivered to satisfy withholding obligations. 7. RESTRICTED STOCK. The Board of Directors may sell shares under the Plan for any consideration (including promissory notes and services) determined by the Board of Directors. Shares sold under the Plan shall be subject to the 2 terms, conditions and restrictions determined by the Board of Directors. The restrictions may include restrictions concerning transferability, repurchase by the Company and forfeiture of the shares sold, together with any other restrictions determined by the Board of Directors. All Common Stock sold pursuant to this Section 7 shall be subject to a purchase agreement, which shall be executed by the Company and the prospective purchaser of the shares before the delivery of certificates representing the shares to the purchaser. The purchase agreement may contain any terms, conditions, restrictions, representations and warranties required by the Board of Directors. The certificates representing the shares shall bear any legends required by the Board of Directors. The Company may require any purchaser of restricted stock to pay to the Company in cash or by check upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the purchaser fails to pay the amount demanded, the Company may withhold that amount from other amounts payable to the purchaser, including salary, subject to applicable law. With the consent of the Board of Directors, a purchaser may satisfy this obligation, in whole or in part, by instructing the Company to withhold from any shares to be received or by delivering to the Company other shares of Common Stock; provided, however, that the number of shares so withheld or delivered shall not exceed the minimum amount necessary to satisfy the required withholding obligation. Upon the sale of restricted stock, the number of shares reserved for award under the Plan shall be reduced by the number of shares sold, less the number of shares withheld or delivered to satisfy withholding obligations. 8. PERFORMANCE-BASED AWARDS. The Board of Directors may grant awards intended to qualify as qualified performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder ("Performance-based Awards"). Performance-based Awards shall be denominated at the time of grant either in Common Stock ("Stock Performance Awards") or in dollar amounts ("Dollar Performance Awards"). Payment under a Stock Performance Award or a Dollar Performance Award shall be made, at the discretion of the Board of Directors, in Common Stock ("Performance Shares"), or in cash or in any combination thereof. Performance-based Awards shall be subject to the following terms and conditions: (a) AWARD PERIOD. The Board of Directors shall determine the period of time for which a Performance-based Award is made (the "Award Period"). (b) PERFORMANCE GOALS AND PAYMENT. The Board of Directors shall establish in writing objectives ("Performance Goals") that must be met by the Company or any subsidiary, division or other unit of the Company ("Business Unit") during the Award Period as a condition to payment being made under the Performance-based Award. The Performance Goals for each award shall be one or more targeted levels of performance with respect to one or more of the following objective measures with respect to the Company or any Business Unit: earnings, earnings per share, stock price increase, total shareholder return (stock price increase plus dividends), return on equity, return on assets, return on capital, economic value added, revenues, operating income, inventories, inventory turns, cash flows or any of the foregoing before the effect of acquisitions, divestitures, accounting changes, and restructuring and special charges (determined according to criteria established by the Board of Directors). The Board of Directors shall also establish the number of Performance Shares or the amount of cash payment to be made under a Performance-based Award if the 3 Performance Goals are met or exceeded, including the fixing of a maximum payment (subject to Section 8(d)). The Board of Directors may establish other restrictions to payment under a Performance-based Award, such as a continued employment requirement, in addition to satisfaction of the Performance Goals. Some or all of the Performance Shares may be delivered to the participant at the time of the award as restricted shares subject to forfeiture in whole or in part if Performance Goals or, if applicable, other restrictions are not satisfied. (c) COMPUTATION OF PAYMENT. During or after an Award Period, the performance of the Company or Business Unit, as applicable, during the period shall be measured against the Performance Goals. If the Performance Goals are not met, no payment shall be made under a Performance-based Award. If the Performance Goals are met or exceeded, the Board of Directors shall certify that fact in writing and certify the number of Performance Shares earned or the amount of cash payment to be made under the terms of the Performance-based Award. (d) MAXIMUM AWARDS. No participant may receive in any fiscal year Stock Performance Awards under which the aggregate amount payable under the Awards exceeds the equivalent of 50,000 shares of Common Stock or Dollar Performance Awards under which the aggregate amount payable under the Awards exceeds $1,000,000. (e) TAX WITHHOLDING. Each participant who has received Performance Shares shall, upon notification of the amount due, pay to the Company in cash or by check amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If the participant fails to pay the amount demanded, the Company or the Employer may withhold that amount from other amounts payable to the participant, including salary, subject to applicable law. With the consent of the Board of Directors, a participant may satisfy this obligation, in whole or in part, by instructing the Company to withhold from any shares to be received or by delivering to the Company other shares of Common Stock; provided, however, that the number of shares so delivered or withheld shall not exceed the minimum amount necessary to satisfy the required withholding obligation. (f) EFFECT ON SHARES AVAILABLE. The payment of a Performance-based Award in cash shall not reduce the number of shares of Common Stock reserved for award under the Plan. The number of shares of Common Stock reserved for award under the Plan shall be reduced by the number of shares delivered to the participant upon payment of an award, less the number of shares delivered or withheld to satisfy withholding obligations. 9. CHANGES IN CAPITAL STRUCTURE. If the outstanding Common Stock of the Company is hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of any stock split, combination of shares or dividend payable in shares, recapitalization or reclassification, appropriate adjustment shall be made by the Board of Directors in the number and kind of shares available for grants under the Plan. In addition, the Board of Directors shall make appropriate adjustment in the number and kind of shares subject to outstanding Performance-based Awards so that the recipient's proportionate interest before and after the occurrence of the event is maintained. Notwithstanding the 4 foregoing, the Board of Directors shall have no obligation to effect any adjustment that would or might result in the award of fractional shares, and any fractional shares resulting from any adjustment may be disregarded or provided for in any manner determined by the Board of Directors. Any such adjustments made by the Board of Directors shall be conclusive. 10. AMENDMENT OF PLAN. The Board of Directors may at any time, and from time to time, modify or amend the Plan in such respects as it shall deem advisable because of changes in the law while the Plan is in effect or for any other reason. Except as provided in Section 9, however, no change in an award already granted shall be made without the written consent of the holder of such award. 11. APPROVALS. The issuance by the Company of authorized and unissued shares or reacquired shares under the Plan is subject to the approval of the Oregon Public Utility Commission and the Washington Utilities and Transportation Commission, but no such approvals shall be required for the purchase of shares on the open market for delivery to participants in satisfaction of awards under the Plan. The obligations of the Company under the Plan are otherwise subject to the approval of state and federal authorities or agencies with jurisdiction in the matter. The Company will use its best efforts to take steps required by state or federal law or applicable regulations, including rules and regulations of the Securities and Exchange Commission and any stock exchange on which the Company's shares may then be listed, in connection with the grants under the Plan. The foregoing notwithstanding, the Company shall not be obligated to issue or deliver Common Stock under the Plan if such issuance or delivery would violate applicable state or federal securities laws. 12. EMPLOYMENT AND SERVICE RIGHTS. Nothing in the Plan or any award pursuant to the Plan shall (i) confer upon any employee any right to be continued in the employment of the Company or any subsidiary or interfere in any way with the right of the Company or any subsidiary by whom such employee is employed to terminate such employee's employment at any time, for any reason, with or without cause, or to decrease such employee's compensation or benefits, or (ii) confer upon any person engaged by the Company any right to be retained or employed by the Company or to the continuation, extension, renewal, or modification of any compensation, contract, or arrangement with or by the Company. 13. RIGHTS AS A SHAREHOLDER. The recipient of any award under the Plan shall have no rights as a shareholder with respect to any Common Stock until the date the recipient becomes the holder of record of those shares. Except as otherwise expressly provided in the Plan, no adjustment shall be made for dividends or other rights for which the record date occurs prior to the date the recipient becomes the holder of record. 5 EX-11 6 exhibit11.txt EXHIBIT 11 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, ------------------ ------------------ 2001 2000 2001 2000 ------------------ ------------------ Earnings Applicable to Common Stock $ 4,261 $ 1,841 $ 29,560 $ 32,881 Debenture Interest Less Taxes 92 100 188 201 -------- -------- -------- -------- Net Income Available for Diluted Common Stock $ 4,353 $ 1,941 $ 29,748 $ 33,082 ======== ======== ======== ======== Average Common Shares Outstanding 25,103 25,195 25,155 25,162 Stock Options 31 9 34 3 Convertible Debentures 427 456 427 456 -------- -------- -------- -------- Diluted Common Shares 25,561 25,660 25,616 25,621 ======== ======== ======== ======== Diluted Earnings per Share of Common Stock $ 0.17 $ 0.07 $ 1.16 $ 1.29 ======== ======== ======== ========
EX-12 7 exhibit12.txt EXHIBIT 12 EXHIBIT 12 NORTHWEST NATURAL GAS COMPANY Computation of Ratio of Earnings to Fixed Charges January 1, 1996 - June 30, 2001 (Thousands, except ratio of earnings to fixed charges) (Unaudited)
Six Months 12 Months Year Ended December 31, Ended Ended ----------------------------------------------------- June 30, June 30, 1996 1997 1998 1999 2000 2001* 2001 --------- --------- --------- --------- --------- --------- --------- Fixed Charges, as Defined: Interest on Long-Term Debt $ 23,176 $ 24,904 $ 27,389 $ 27,728 $ 29,987 $ 15,049 $ 30,116 Other Interest 3,448 4,500 4,909 2,778 3,628 1,157 3,315 Amortization of Debt Discount and Expense 865 730 714 699 735 394 767 Interest Portion of Rentals 1,798 2,111 1,986 1,707 1,628 849 1,663 --------- --------- --------- --------- --------- --------- --------- Total Fixed Charges, as defined $ 29,287 $ 32,245 $ 34,998 $ 32,912 $ 35,978 $ 17,449 $ 35,861 ========= ========= ========= ========= ========= ========= ========= Earnings, as Defined: Net Income $ 46,793 $ 43,059 $ 27,301 $ 45,296 $ 50,224 $ 30,772 $ 46,871 Taxes on Income 27,347 21,034 14,604 24,591 26,829 17,615 26,727 Fixed Charges, as above 29,287 32,245 34,998 32,912 35,978 17,449 35,861 --------- --------- --------- --------- --------- --------- --------- Total Earnings, as defined $ 103,427 $ 96,338 $ 76,903 $ 102,799 $ 113,031 $ 65,836 $ 109,459 ========= ========= ========= ========= ========= ========= ========= Ratio of Earnings to Fixed Charges 3.53 2.99 2.20 3.12 3.14 3.77 3.05 ========= ========= ========= ========= ========= ========= =========
* A significant part of the business of the Company is of a seasonal nature; therefore, the ratio of earnings to fixed charges for the interim period is not necessarily indicative of the results for a full year. -----END PRIVACY-ENHANCED MESSAGE-----