Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period to
---------------- ----------------
Commission file number 0-994
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NORTHWEST NATURAL GAS COMPANY
- ----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Oregon 93-0256722
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 N. W. Second Avenue, Portland, Oregon 97209
- ----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (503) 226-4211
--------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock (or class convertible into common stock)
as of the close of the period covered by this report:
Common Stock, $3 1/6 par value -- 13,347,735 shares
Convertible Preference Stock, $2.375 Series -- 63,230 shares
<PAGE>
NORTHWEST NATURAL GAS COMPANY
September 30, 1994
Summary of Information Reported
The registrant submits herewith the following information:
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements Number
------
(1) Consolidated Statements of Income for the
three and nine month periods ended
September 30, 1994 and 1993 and Consolidated
Statements of Earnings Invested in the
Business for the nine month periods ended
September 30, 1994 and 1993. 3
(2) Consolidated Balance Sheets at September 30,
1994 and 1993 and December 31, 1993. 4
(3) Consolidated Statements of Cash Flows for
the nine month periods ended September 30, 1994
and 1993. 6
(4) Consolidated Statements of Capitalization
at September 30, 1994 and 1993 and December 31,
1993. 7
(5) Notes to Consolidated Financial Statements. 8
Independent Accountants' Report 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
Signature 21
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<PAGE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(1) Consolidated Statements of Income
(Thousands, Except Per Share Amounts)
Three Months Nine Months
Ended Ended
September 30, September 30,
----------------- ------------------
1994 1993 1994 1993
------- ------- ------- -------
Net Operating Revenues:
Operating revenues $48,474 $47,451 $243,513 $237,954
Cost of sales 21,552 16,646 107,047 84,892
------- ------- -------- --------
Net operating revenues 26,922 30,805 136,466 153,062
------- ------- -------- --------
Operating Expenses:
Operations and maintenance 16,378 17,009 51,929 52,344
Taxes other than income taxes 5,316 5,078 19,391 18,517
Depreciation, depletion and
amortization 9,884 9,330 27,904 27,700
------- ------- -------- --------
Total operating expenses 31,578 31,417 99,224 98,561
------- ------- -------- --------
Income (Loss) from Operations (4,656) (612) 37,242 54,501
------- ------- -------- --------
Other Income 3,137 1,266 8,088 1,626
------- ------- -------- --------
Interest Charges - net 6,144 6,306 18,221 18,807
------- ------- -------- --------
Income (Loss) Before Income Taxes (7,663) (5,652) 27,109 37,320
Income Taxes (3,889) (1,229) 9,638 14,323
------- ------- -------- --------
Net Income (Loss) (3,774) (4,423) 17,471 22,997
Preferred and preference stock
dividend requirements 746 855 2,243 2,673
------- ------- -------- --------
Earnings (Loss) Applicable to
Common Stock $(4,520) $(5,278) $ 15,228 $ 20,324
======= ======= ======== ========
Average Common Shares Outstanding 13,322 13,100 13,267 13,048
Primary Earnings (Loss) Per Share
of Common Stock $(0.34) $(0.40) $1.15 $1.56
Fully-Diluted Earnings Per Share
of Common Stock * * $1.14 $1.53
Dividends Per Share of Common
Stock $0.44 $0.44 $1.32 $1.31
*Anti-dilutive
See accompanying Notes to Consolidated Financial Statements.
=============================================================================
Consolidated Statements of Earnings Invested in the Business
(Thousands, Nine Month Periods Ended September 30)
1994 1993
-------- --------
Balance at Beginning of Period $88,497 $77,690
Net Income 17,471 22,997
Cash Dividends:
Preferred and preference stock (2,296) (2,575)
Common stock (17,487) (17,073)
Foreign Currency Translation Adjustment (323) (416)
------- -------
Balance at End of Period $85,862 $80,623
======= =======
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(2) Consolidated Balance Sheets
(Thousands of Dollars)
Sept. 30, Sept. 30, Dec. 31,
1994 1993 1993
-------- -------- --------
Assets:
Plant and Property in Service:
Utility plant in service $889,791 $825,583 $840,030
Less accumulated depreciation 276,315 252,826 255,282
-------- -------- --------
Utility plant - net 613,476 572,757 584,748
Non-utility property 46,300 41,295 42,764
Less accumulated depreciation
and depletion 23,213 19,203 20,646
-------- -------- --------
Non-utility property - net 23,087 22,092 22,118
-------- -------- --------
Total plant and property
in service 636,563 594,849 606,866
-------- -------- --------
Investments and Other:
Investments 35,745 34,273 32,818
Restricted cash and long-term
notes receivable 6,887 7,266 1,756
-------- -------- --------
Total investments and other 42,632 41,539 34,574
-------- -------- --------
Current Assets:
Cash and cash equivalents 4,969 4,715 4,198
Accounts receivable - customers 18,558 19,839 45,340
Allowance for uncollectible accounts (1,100) (642) (1,368)
Accrued unbilled revenue 5,984 5,874 25,890
Inventories of gas, materials
and supplies 16,458 18,487 16,838
Prepayments and other current assets 11,143 11,420 16,412
-------- -------- --------
Total current assets 56,012 59,693 107,310
-------- -------- --------
Regulatory Tax Assets 60,430 62,130 62,130
-------- -------- --------
Deferred Debits and Other 40,066 36,467 38,156
-------- -------- --------
Total Assets $835,703 $794,678 $849,036
======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(2) Consolidated Balance Sheets
(Thousands of Dollars)
Sept. 30, Sept. 30, Dec. 31,
1994 1993 1993
-------- -------- --------
Capitalization and Liabilities:
Capitalization:
Common stock $175,413 $168,455 $170,068
Earnings invested in the business 85,862 80,623 88,497
-------- -------- --------
Total common stock equity 261,275 249,078 258,565
Preference stock 26,581 26,649 26,633
Redeemable preferred stock 15,950 17,066 17,041
Long-term debt 292,179 288,002 272,931
-------- -------- --------
Total capitalization 595,985 580,795 575,170
-------- -------- --------
Current Liabilities:
Notes payable 40,460 32,357 72,548
Accounts payable 23,735 25,171 44,318
Taxes accrued 5,049 4,563 6,757
Interest accrued 6,983 6,781 4,438
Other current and accrued
liabilities 10,528 9,231 10,180
-------- -------- --------
Total current liabilities 86,755 78,103 138,241
-------- -------- --------
Deferred Investment Tax Credits 14,033 14,905 14,567
-------- -------- --------
Deferred Income Taxes 110,825 104,759 104,300
-------- -------- --------
Regulatory Balancing Accounts
and Other 28,105 16,116 16,758
-------- -------- --------
Commitments and Contingent
Liabilities - - -
-------- -------- --------
Total Capitalization and
Liabilities $835,703 $794,678 $849,036
======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(3) Consolidated Statements of Cash Flows
(Thousands of Dollars)
Nine Months Ended
September 30,
-----------------
1994 1993
------- -------
Operating Activities:
Net income $17,471 $22,997
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Depreciation, depletion and amortization 27,904 27,700
Deferred income taxes and investment
tax credits 7,691 7,002
Equity in earnings of unconsolidated
affiliates (3,088) (1,000)
Allowance for funds used during
construction and capitalized interest (234) (94)
Regulatory balancing accounts and
other - net 9,437 (9,707)
Funds From Operations Before Working ------- -------
Capital Changes 59,181 46,898
Changes in current operating assets and liabilities:
Accounts receivable 26,514 13,811
Accrued unbilled revenue 19,906 14,864
Inventories of gas, materials and supplies 380 (2,690)
Accounts payable (20,583) (15,111)
Accrued interest and taxes 837 (238)
Other current operating assets and
liabilities 117 (3,356)
------- -------
Cash Provided by Operating Activities 86,352 54,178
------- -------
Investing Activities:
Acquisition and construction of utility
plant assets (53,219) (50,022)
Investment in non-utility plant (4,148) 2,605
Investments and other 530 (203)
------- -------
Cash Used in Investing Activities (56,837) (47,620)
------- -------
Financing Activities:
Common stock issued 4,559 4,256
Preferred stock retired (1,091) (11,152)
Long-term debt:
Issued 20,000 90,000
Retired (18) (57,668)
Change in short-term debt (32,088) (14,752)
Cash dividend payments:
Preferred and preference stock (2,296) (2,575)
Common stock (17,487) (17,073)
Foreign currency translation adjustment (323) (416)
------- -------
Cash Used in Financing Activities (28,744) (9,380)
------- -------
Increase (Decrease) in Cash and Cash Equivalents 771 (2,822)
Cash and Cash Equivalents - Beginning of Period 4,198 7,537
------- -------
Cash and Cash Equivalents - End of Period $ 4,969 $ 4,715
======= =======
=============================================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $15,289 $18,442
Income Taxes $ 8,454 $ 9,853
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(4) Consolidated Statements of Capitalization
(Thousands, except share amounts)
Sept. 30, Sept. 30, Dec. 31,
1994 1993 1993
- -------------------------------------------------------------------------------
Common Stock Equity:
Common stock - par value
$3-1/6 per share $ 42,268 $ 41,568 $ 41,728
Premium on common stock 133,145 126,887 128,340
Earnings invested in business 85,862 80,623 88,497
-------- -------- --------
Total common stock equity 261,275 44% 249,078 43% 258,565 45%
-------- ---- ------- ---- -------- ----
Preference Stock:
$2.375 Series, convertible,
stated value $25 per share 1,581 1,649 1,633
$6.95 Series, stated value
$100 per share 25,000 25,000 25,000
-------- -------- --------
Total preference stock 26,581 4% 26,649 4% 26,633 5%
-------- ---- -------- ---- -------- ----
Redeemable Preferred Stock,
stated value $100 per share:
$4.68 Series 732 930 930
$4.75 Series 968 1,136 1,111
$7.125 Series 14,250 - 15,000
$8.75 Series - 15,000 -
-------- -------- --------
Total redeemable preferred
stock 15,950 3% 17,066 3% 17,041 3%
-------- ---- ------- ---- -------- ----
Long-Term Debt:
First Mortgage Bonds
--------------------
9-3/4% Series due 2015 50,000 50,000 50,000
9.80% Series due 2018 - 24,938 -
9-1/8% Series due 2019 25,000 25,000 25,000
Medium-Term Notes
-----------------
First Mortgage Bonds:
4.80% Series A due 1996 5,000 5,000 5,000
7.38% Series A due 1997 20,000 20,000 20,000
7.69% Series A due 1999 10,000 10,000 10,000
5.96% Series B due 2000 5,000 - 5,000
5.98% Series B due 2000 5,000 - 5,000
8.05% Series A due 2002 10,000 10,000 10,000
6.40% Series B due 2003 20,000 20,000 20,000
6.34% Series B due 2005 5,000 5,000 5,000
6.38% Series B due 2005 5,000 5,000 5,000
6.45% Series B due 2005 5,000 5,000 5,000
6.50% Series B due 2008 5,000 5,000 5,000
8.26% Series B due 2014 10,000 - -
8.31% Series B due 2019 10,000 - -
9.05% Series A due 2021 10,000 10,000 10,000
7.25% Series B due 2023 20,000 20,000 20,000
7.50% Series B due 2023 4,000 4,000 4,000
7.52% Series B due 2023 11,000 11,000 11,000
Unsecured:
4.90% Series A due 1996 10,000 10,000 10,000
8.69% Series A due 1996 5,000 5,000 5,000
7.40% Series A due 1997 5,000 5,000 5,000
8.93% Series A due 1998 5,000 5,000 5,000
8.95% Series A due 1998 10,000 10,000 10,000
8.47% Series A due 2001 10,000 10,000 10,000
Convertible Debentures
----------------------
7-1/4% Series due 2012 12,179 13,064 12,931
-------- -------- --------
Total long-term debt 292,179 49% 288,002 50% 272,931 47%
-------- ---- -------- ---- -------- ----
Total Capitalization $595,985 100% $580,795 100% $575,170 100%
======== ==== ======== ==== ======== ====
- ----------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
NORTHWEST NATURAL GAS COMPANY
(5) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of financial statements
The information presented in the consolidated financial
statements is unaudited, but includes all adjustments, consisting
of only normal recurring accruals, which the management of the
Company considers necessary for a fair presentation of the
results of such periods. These consolidated financial statements
should be read in conjunction with the financial statements and
related notes included in the Company's 1993 Annual Report on
Form 10-K. A significant part of the business of the Company is
of a seasonal nature; therefore, results of operations for the
three and nine month periods ended September 30, 1994 and 1993
are not indicative of the results for a full year.
Certain amounts from the prior year have been
reclassified to conform with the 1994 presentation.
2. Contingencies
See discussion of environmental matters in Part II,
Item 7., "Management's Discussion and Analysis of Results of
Operations and Financial Condition" in the Company's 1993 Annual
Report on Form 10-K.
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<PAGE>
Deloitte & Touche LLP
------------------------------------------------------------
3900 US Bancorp Tower Telephone: (503) 222-1341
111 SW Fifth Avenue Facsimile: (503) 224-2172
Portland, OR 97204-3698
INDEPENDENT ACCOUNTANTS' REPORT
Northwest Natural Gas Company
Portland, Oregon
We have made a review of the accompanying consolidated balance
sheets and statements of capitalization of Northwest Natural Gas
Company and subsidiaries as of September 30, 1994 and 1993, and
the related consolidated statements of income for the three- and
nine-month periods, ended September 30, 1994 and 1993, and the
consolidated statements of earnings invested in the business and
cash flows for the nine-month periods ended September 30, 1994
and 1993, in accordance with standards established by the
American Institute of Certified Public Accountants.
A review of interim financial information consists principally of
obtaining an understanding of the system for the preparation of
interim financial information, applying analytical review
procedures to financial data, and making inquiries of persons
responsible for financial and accounting matters. It is
substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material
modifications that should be made to such consolidated financial
statements for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet and statement
of capitalization of Northwest Natural Gas Company and
subsidiaries as of December 31, 1993, and the related
consolidated statements of income, earnings invested in the
business, and cash flows for the year then ended (not presented
herein), and in our report dated February 25, 1994 (which
includes an explanatory paragraph relating to a change in the
method of accounting for income taxes and other postretirement
benefits), we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance
sheet and consolidated statement of capitalization as of
December 31, 1993 is fairly stated in all material respects in
relation to the consolidated financial statements from which it
has been derived.
DELOITTE & TOUCHE LLP
November 10, 1994
- 9 -
<PAGE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Northwest Natural Gas Company's (Northwest Natural)
consolidated wholly-owned subsidiaries consist of Oregon Natural
Gas Development Corporation (Oregon Natural); NNG Energy Systems,
Inc. (Energy Systems); NNG Financial Corporation (Financial
Corporation); and Pacific Square Corporation (Pacific Square)
(see "Subsidiary Operations" below and Part II, Item 8., Note 2,
"Notes to Consolidated Financial Statements," in the Company's
1993 Annual Report on Form 10-K). Together, Northwest Natural
and these subsidiaries are referred to herein as the "Company."
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 nine
months ended September 30, 1994 and 1993.
Earnings and Dividends
- ----------------------
The Company incurred a loss applicable to common stock
of $0.34 per share for its third quarter ended September 30,
1994, compared to a loss of $0.40 per share in last year's third
quarter. The Company had a loss of $0.49 per share from utility
operations in the third quarter of 1994, compared to a loss of
$0.39 per share from utility operations in the same period in
1993.
Improved subsidiary results for the three and nine
months ended September 30, 1994, compared to the same periods of
the prior year, helped to offset the effect on gas utility
results of warmer weather in the Company's service territory for
these same periods.
A third quarter loss is customary for the Company,
reflecting low summertime use of natural gas. The weather in
Northwest Natural's service territory during the first nine
months of 1994 was 14 percent warmer than the 20 year average,
and 17 percent warmer than the same period of 1993. The warmer
weather resulted in significant decreases in gas deliveries to,
and related margin (revenues less cost of gas) from,
weather-sensitive customers. The Company estimates that the
weather-related reduction in margin during the first nine months
of 1994 was equivalent to about $0.58 per share compared to a
similar period with average weather, and about $0.98 per share
compared to actual conditions during the first nine months of
- 10 -
<PAGE>
1993. These estimates are derived from the Company's internal
planning model. (For an explanation of the Company's internal
planning model from which these estimates are derived, see the
Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1994.)
Earnings from subsidiary operations for the third
quarter of 1994 were equivalent to $0.15 per share, compared to a
loss equivalent to $0.01 per share for the same period in 1993.
The increased earnings were primarily due to the improved
operating performance of Financial Corporation's investments in
windpower electric generating projects in California. The
improved performance of these projects resulted from better wind
conditions in 1994 in the region where the investments are
located (see "Subsidiary Operations").
The Board of Directors of the Company declared a
quarterly dividend of $0.44 per share on its common stock,
payable November 15, 1994, to shareholders of record on
October 31, 1994. The current indicated annual dividend rate is
$1.76 per share.
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<PAGE>
Results of Operations
- ---------------------
Comparison of Gas Utility Operations
------------------------------------
The following table summarizes the composition of gas
utility volumes and revenues:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
Gas Sales and Transportation
Deliveries - Therms (000's):
Residential and commercial
sales 42,215 43,619 318,742 347,443
Unbilled volumes 541 1,779 (34,412) (30,347)
------- ------- ------- -------
Weather-sensitive
volumes 42,756 45,398 284,330 317,096
Industrial firm sales 17,599 17,175 59,734 59,625
Industrial interruptible
sales 20,923 20,580 64,911 41,474
------- ------- ------- -------
Total gas sales 81,278 83,153 408,975 418,195
Transportation deliveries 86,675 93,910 265,095 321,438
------- ------- ------- -------
Total volumes sold and
delivered 167,953 177,063 674,070 739,633
======= ======= ======= =======
Utility Operating Revenues
- Dollars (000's):
Residential and commercial
revenues $ 28,466 $ 27,640 $198,739 $193,748
Unbilled revenues 256 1,118 (19,907) (14,863)
-------- -------- -------- --------
Weather-sensitive
revenues 28,722 28,758 178,832 178,885
Industrial firm revenues 7,424 6,691 25,574 22,724
Industrial interruptible
revenues 6,543 5,760 19,523 11,948
-------- -------- -------- --------
Total gas revenues 42,689 41,209 223,929 213,557
Transportation revenues 3,657 3,956 10,600 14,244
Other revenues (368) (327) 103 2,127
-------- -------- -------- --------
Total utility operating
revenues $ 45,978 $ 44,838 $234,632 $229,928
======== ======== ======== ========
Cost of gas $ 21,552 $ 16,646 $107,047 $ 84,892
======== ======== ======== ========
Number of customers (end
of period) 377,200 357,200 377,200 357,200
======== ======== ======== ========
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<PAGE>
Residential and Commercial
--------------------------
Typically, 75 percent or more of Northwest Natural's
annual operating revenues are derived from gas sales to
weather-sensitive residential and commercial customers.
Accordingly, shifts in temperatures from one period to the next
will affect volumes of gas sold to these customers. Normal
weather conditions are based upon a 20 year average measured by
degree days.
Customer growth continues at a rapid rate relative to
others in the industry. The 20,000 customers added since
September 30, 1993 represent a growth rate of 5.6 percent.
Customer growth partially offset the depressing effect on sales
volumes of 65 percent fewer degree days for the three months
ended September 30, 1994 compared to the same period in 1993.
The net result was a six percent decrease in volumes sold to
residential and commercial customers. Despite the warmer
weather, the combination of customer growth and rate increases
approved in 1993 to compensate for higher costs of gas (see Part
I, Item 1., "Business - Regulation and Rates," in the Company's
1993 Annual Report on Form 10-K) resulted in stable revenues.
The rate increases did not affect margin since the cost of gas
increased by a comparable amount (see "Cost of Gas").
Volumes sold to residential and commercial customers
were ten percent lower during the nine month period ended
September 30, 1994, compared to the same period in 1993, while
corresponding revenues were little changed due to the same
factors discussed for the third quarter.
Unbilled revenues are a recognition of revenues for all
gas consumption by customers through the end of the period,
regardless of the meter reading date, in order to better match
revenues with related purchased gas costs.
Industrial, Transportation and Other
------------------------------------
The combined net operating revenues (margin) from
industrial firm and interruptible sales and transportation
customers decreased eight percent, from $10.7 million in the
third quarter of 1993 to $9.8 million in the third quarter of
1994. For the current nine month period, net operating revenue
from these customers decreased four percent, from $33.2 million
in 1993 to $32.0 million in 1994.
Total volumes delivered to industrial firm, industrial
interruptible and transportation customers were five percent
lower in the third quarter of 1994, and eight percent lower for
the nine months ended September 30, 1994, compared to the same
periods of 1993. In 1993, Oregon Natural and Portland General
- 13 -
<PAGE>
Electric Company completed a natural gas pipeline to an electric
generation plant. As a result, there were no transportation
deliveries by Northwest Natural to this plant following the
delivery of 12 million therms to this customer during the first
quarter of 1993. Also contributing to lower volumes was a 28
million therm reduction in transportation deliveries to an
industrial customer, the James River Corp. paper mill in Camas,
Washington, which placed a direct (bypass) connection to
Northwest Pipeline Corporation's (NPC) system into operation in
October 1993. Northwest Natural does not expect a significant
number of its other large customers to bypass its system in the
foreseeable future since these customers typically are served
under tariffs which are designed to be competitive with the
capital and operating costs of direct connections to NPC's system
(see Part II, Item 7., "Comparison of Gas Operations -
Industrial, Transportation and Other," in the Company's 1993
Annual Report on Form 10-K).
Although volumes decreased, Northwest Natural's
revenues from industrial firm sales and industrial interruptible
sales and transportation deliveries were seven percent higher in
the third quarter of 1994, and 14 percent higher for the nine
month period ended September 30, 1994, compared to the same
periods of the prior year. The revenue increase was primarily
due to a higher level of industrial interruptible sales and a
correspondingly lower level of transportation deliveries for
these same periods. Since 1992, over half of Northwest Natural's
transportation customers have switched to sales service. These
customers, which have the option of purchasing natural gas from
Northwest Natural or of purchasing gas directly from suppliers
and shipping it on the systems of Northwest Natural and its
pipeline suppliers for a fee, select the option which from time
to time provides the lowest cost. The migration from
transportation to sales tariffs by these customers reflects the
fact that Northwest Natural's industrial sales tariffs were lower
than the cost to these customers of purchasing and shipping their
own gas. Since transportation charges typically are the same as
the margin on an equivalent sale of gas, the increase in revenue
attributable to the migration from transportation to sales
tariffs was substantially offset by an increase in Northwest
Natural's cost of gas.
Other revenues are primarily related to regulatory
balancing accounts (see Part II, Item 8., Note 1, "Notes to
Consolidated Financial Statements," in the Company's 1993 Annual
Report on Form 10-K).
Cost of Gas
-----------
In Oregon, where approximately 95 percent of its gas
sales occur, Northwest Natural has a Purchased Gas Cost
Adjustment tariff under which its net income from Oregon
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<PAGE>
operations is affected only within defined limits by changes in
purchased gas costs (see Part I, Item 1., "Business - Regulation
and Rates," in the Company's 1993 Annual Report on Form 10-K).
The cost of gas sold during the third quarter of 1994
was 29 percent higher than in the same period of 1993. The
primary contributing factors were a 32 percent increase in the
cost of gas per therm, including purchased gas costs, related
tariff adjustments, and gas storage activity, and a two percent
decrease in total volumes sold. Increased gas costs resulted
from higher market prices from suppliers, as well as higher
demand charges by NPC, Northwest Natural's primary pipeline
supplier, implemented pursuant to Federal Energy Regulatory
Commission Order No. 636.
The cost of gas was 26 percent higher during the nine
month period ended September 30, 1994, compared to the same
period in 1993, due to the same factors discussed for the third
quarter.
Subsidiary Operations
---------------------
The following table summarizes financial information
for the Company's consolidated wholly-owned subsidiaries:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
Consolidated Subsidiaries
(Thousands): 1994 1993 1994 1993
- ------------------------- ---- ---- ---- ----
Net Operating Revenues $2,552 $2,613 $9,049 $8,026
Operating Expenses:
Operations and maintenance 1,039 1,533 5,033 4,775
Taxes other than income taxes 73 10 159 73
Depreciation, depletion and
amortization 1,524 1,408 3,179 4,452
------ ------ ------ ------
Total Operating Expenses 2,636 2,951 8,371 9,300
------ ------ ------ ------
Income(Loss) from Operations (84) (338) 678 (1,274)
Income from Financial Investments 2,814 892 2,975 770
Other Income(Expense) and
Interest Charges (46) (95) 3,849 (19)
------ ------ ------ ------
Income(Loss) Before Income Taxes 2,684 459 7,502 (523)
Income Tax Expense(Benefit) 627 562 2,344 (604)
------ ------ ------ ------
Net Income (Loss) $2,057 $ (103) $5,158 $ 81
====== ====== ====== ======
Consolidated subsidiary earnings for the nine months
ended September 30, 1994 and 1993, were equivalent to $0.39 per
- 15 -
<PAGE>
share, and $0.01 per share, respectively. Net income for the
individual subsidiaries for the nine months ended September 30,
1994 was $2.3 million for Financial Corporation; $0.4 million for
Oregon Natural; $0.3 million for Energy Systems; and $2.2 million
for Pacific Square.
The improved subsidiary results for the first nine
months of 1994 resulted primarily from two factors. First,
Pacific Square sold its interest in two office buildings,
including the Company's headquarters building, in the second
quarter of 1994. The Company's gain on the sale was $1.9 million
after tax, equivalent to $0.14 per share. As a result of the
sale of these investments, Pacific Square no longer has any
operating activities. Second, Financial Corporation's
investments in windpower electric generating projects in
California (see Part II, Item 8., Note 11, "Notes to Consolidated
Financial Statements," in the Company's 1993 Annual Report on
Form 10-K) benefitted from favorable wind conditions which
significantly improved their operating results in the third
quarter of 1994. As a result, Financial Corporation's net income
increased $2.0 million for the nine months ended September 30,
1994 compared to the same period in 1993.
The following discussion summarizes the Company's
operating expenses, other income, interest charges, income taxes
and preferred and preference stock dividend requirements.
Operating Expenses
------------------
Operations and Maintenance
--------------------------
Northwest Natural's utility operations and maintenance
expenses were $0.7 million lower for the nine months ended
September 30, 1994, than for the equivalent period in 1993. The
reduction was primarily due to a $1.7 million decrease in
accruals for estimated employee bonuses, offset by a negotiated
wage increase of 3.75 percent for union employees which became
effective April 1, 1994. Subsidiary operations and maintenance
expenses increased $0.3 million primarily due to increased
production expenses related to Oregon Natural's Canadian
operations.
Taxes Other Than Income Taxes
-----------------------------
Taxes other than income taxes were $0.2 million higher
for the three months and $0.9 million higher for the nine months
ended September 30, 1994, compared to the same periods of the
prior year, primarily due to increases in property taxes and
utility franchise taxes. Increased property taxes resulted
- 16 -
<PAGE>
primarily from plant additions. Increased utility franchise
taxes resulted from increased gas revenues.
Depreciation, Depletion and Amortization
----------------------------------------
Northwest Natural's utility depreciation expense
increased $0.4 million and $1.5 million, respectively, in the
third quarter and nine months ended September 30, 1994, compared
to the same periods in 1993, due to additional utility plant in
service. Subsidiary depreciation expense decreased $1.3 million
for the nine months ended September 30, 1994 compared to the same
period of the prior year, due to Oregon Natural's write-downs of
unproven properties in the first and second quarters of 1993.
Other Income
------------
The increase in other income for the three and nine
month periods ended September 30, 1994, compared to the same
periods in 1993, resulted primarily from a $3.2 million pre-tax
gain related to the sale of Pacific Square's investments and a
$2.2 million increase due to improved operating results from
Financial Corporation's investments (see "Subsidiary Operations"
above).
Interest Charges
----------------
Interest charges were lower for the three and nine
month periods ended September 30, 1994 compared to the same
periods in 1993 as a result of debt refinancings which occurred
in late 1993 (see Part II, Item 7., "Interest Charges," in the
Company's 1993 Annual Report on Form 10-K). Due to early
redemption costs of $5.6 million related to these refinancings,
the balance of deferred debits and other assets was greater at
September 30, 1994 compared to September 30, 1993. Consistent
with prior regulatory practice, these costs are being amortized
over the lives of medium-term notes issued for the purpose of
refunding the redeemed debt.
Income Taxes
------------
The effective corporate income tax rates for the nine
month periods ended September 30, 1994 and 1993 were 36 percent
and 38 percent, respectively, which approximate the Company's
statutory tax rates for these periods.
- 17 -
<PAGE>
Preferred and Preference Stock Dividend Requirements
----------------------------------------------------
Preferred and preference stock dividend requirements
for the three and nine month periods ended September 30, 1994
were lower by $0.1 million and $0.4 million, respectively,
compared to the same periods in 1993, due to redemptions and
refundings of preferred stock in 1993. The principal amount of
preferred stock outstanding was $1.1 million, or 7 percent, lower
at September 30, 1994, than at September 30, 1993.
Financial Condition
- -------------------
The weather-sensitive nature of gas usage by Northwest
Natural's residential and commercial customers influences the
Company's financial condition, including its financing
requirements, from one quarter to the next. Liquidity
requirements are satisfied primarily through the use of
commercial paper, which is supported by commercial bank lines of
credit (see "Lines of Credit" and "Commercial Paper").
Capital Structure
-----------------
The Company's long-term goal is to maintain a capital
structure comprised of 40 to 45 percent common stock equity, 5 to
10 percent preferred and preference stock and 45 to 50 percent
short-term and long-term debt. This target structure is managed
by issuing new debt or equity securities in response to market
conditions and the status of accumulated earnings. The Company
also uses these sources to meet long-term debt and preferred
stock redemption requirements (see Part II, Item 8., Notes 4 and
6, "Notes to Consolidated Financial Statements," in the Company's
1993 Annual Report on Form 10-K).
At September 30, 1994, the Company's ratio of short-
term and long-term debt to total capital was 52 percent, slightly
above its target range for this ratio. Management believes that
accumulated earnings and the anticipated issuance or sale of
additional common stock will be sufficient to bring all
components of the Company's capital structure within targeted
ranges during 1995.
Cash Flows
----------
Operating Activities
--------------------
Cash provided from operating activities was 59 percent
higher in the first nine months of 1994 compared to the same
period in 1993. The increase is primarily due to rate increases
- 18
<PAGE>
in late 1993 that reflect completion of amortizations of credit
balances in regulatory accounts.
The Company has lease and purchase commitments related
to its operating activities which are financed with cash flows
from operations (see Part II, Item 8., Note 12, "Notes to
Consolidated Financial Statements," in the Company's 1993 Annual
Report on Form 10-K).
Investing Activities
--------------------
Cash requirements for Northwest Natural's utility
construction program in the first nine months of 1994 were up six
percent from the same period of 1993. The increase related
primarily to expenditures for system improvements and customer
growth. In the first nine months of 1994, non-utility
expenditures were primarily for Oregon Natural's Canadian gas
exploration and production program (see Part II, Item 7.,
"Financial Condition - Investing Activities," in the Company's
1993 Annual Report on Form 10-K).
"Restricted Cash and Long-Term Notes Receivable" shown
on the Consolidated Balance Sheets for September 30, 1994 and
1993, includes a $5.5 million restricted cash deposit with a
commercial bank related to Pacific Square. In December 1993,
this deposit was reclassified as a current asset due to the then
pending sale of Pacific Square's primary real estate investments,
pursuant to which sale the funds were expected to be released.
However, upon completion of the sale in the second quarter of
1994, the deposit was again reclassified as a long term asset
based upon the final terms of the sale agreement, which provides
for the funds to be released no later than December 1996.
Financing Activities
--------------------
In the first nine months of 1994, the Company used the
increased cash provided by operating activities to reduce
short-term debt.
In September 1994, Northwest Natural sold $10 million
of its Medium-Term Notes, 8.31% Series B, due 2019, and $10
million of its Medium-Term Notes, 8.26% Series B, due 2014. The
proceeds were used to repay short term debt incurred to fund
Northwest Natural's utility construction program.
Lines of Credit
---------------
Northwest Natural has available through September 30,
1995, committed lines of credit totalling $80 million, consisting
of a primary fixed amount of $40 million plus an excess amount of
- 19 -
<PAGE>
up to $40 million available as needed, at Northwest Natural's
option, on a monthly basis. Financial Corporation has available
through September 30, 1995, lines of credit with two commercial
banks totalling $20 million, including a primary fixed amount of
$15 million plus an excess amount of up to $5 million available
as needed, at Financial Corporation's option, on a monthly basis.
Financial Corporation's lines of credit are supported by the
unconditional guaranty of Northwest Natural. There were no
outstanding balances as of September 30, 1994 under either the
Northwest Natural or the Financial Corporation bank lines.
Commercial Paper
----------------
The Company's primary source of short-term funds is
commercial paper. Both Northwest Natural and Financial
Corporation issue commercial paper which is supported by the bank
lines discussed above. Financial Corporation's commercial paper
is unconditionally guarantied by Northwest Natural (see Part II,
Item 8., Note 7, "Notes to Consolidated Financial Statements," in
the Company's 1993 Annual Report on Form 10-K).
Ratio of Earnings to Fixed Charges
----------------------------------
For the 12 months ended September 30, 1994, and
December 31, 1993, the Company's ratios of earnings to fixed
charges, computed by the Securities and Exchange Commission
method, were 2.87 and 3.22, respectively. Earnings consist of
net income to which has been added taxes on income and fixed
charges. Fixed charges consist of interest on all indebtedness,
amortization of debt expense and discount or premium, and the
estimated interest portion of rentals charged to income.
===============================================================
The consolidated financial statements as of
September 30, 1994 and 1993 and for the three and nine month
periods then ended, have been reviewed by Deloitte & Touche LLP,
independent public accountants, in accordance with standards
established by the American Institute of Certified Public
Accountants. A copy of their report is included herein.
================================================================
- 20 -
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 11 - Statement re: computation of per share
earnings.
Exhibit 12 - Computation of ratio of earnings to fixed
charges.
Exhibit 15 - Letter re: unaudited interim financial
information.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K
No reports were filed by the Company on Form 8-K for
the three month period ended September 30, 1994.
SIGNATURE
- ---------
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
NORTHWEST NATURAL GAS COMPANY
(Registrant)
/s/ Bruce R. DeBolt
Dated: November 10, 1994 ---------------------------------
Bruce R. DeBolt
Principal Financial Officer,
Senior Vice President and Chief
Financial Officer
- 21 -
<PAGE>
NORTHWEST NATURAL GAS COMPANY
EXHIBIT INDEX
to
Quarterly Report on Form 10-Q
For Quarter Ended
September 30, 1994
Exhibit
Document Number
- -------- -------
Statement Re: Computation of Per Share Earnings 11
Computation of Ratio of Earnings to Fixed Charges 12
Letter Re: Unaudited Interim Financial Information 15
Financial Data Schedule 27
EXHIBIT 11
NORTHWEST NATURAL GAS COMPANY
Statement Re: Computation of Per Share Earnings
(Thousands, except per share amounts)
(Unaudited)
Three Months Nine Months
Ended Ended
September 30, September 30,
---------------- ----------------
1994 1993 1994 1993
------- ------- ------- -------
Earnings (Loss) Applicable to
Common Stock $(4,520) $(5,278) $15,228 $20,324
Preference Stock Dividends 37 39 112 118
Debenture Interest Less Taxes 135 145 404 433
------- ------- ------- -------
Net Income (Loss) Available for
Fully-Diluted Common Stock $(4,348) $(5,094) $15,744 $20,875
======= ======= ======= =======
Average Common Shares Outstanding 13,322 13,100 13,267 13,048
Stock Options 19 26 19 26
Convertible Preference Stock 104 109 104 109
Convertible Debentures 408 438 408 438
------- ------- ------- -------
Fully-Diluted Common Shares 13,853 13,673 13,798 13,621
======= ======= ======= =======
Fully-Diluted Earnings (Loss)Per
Share of Common Stock $(0.31)* $(0.37)* $1.14 $1.53
====== ====== ===== =====
*Anti-dilutive
Note: Primary earnings per share are computed on the weighted daily
average number of common shares outstanding each period. Outstanding
stock options are common stock equivalents but are excluded from
primary earnings per share computations due to immateriality.
EXHIBIT 12
NORTHWEST NATURAL GAS COMPANY
Computation of Ratio of Earnings to Fixed Charges
January 1, 1989 - September 30, 1994
($000)
Twelve
Months
Year Ended December 31 Ended
--------------------------------------- Sept.30,
1989 1990 1991 1992 1993 1994
------- ------- ------- ------- ------- -------
Fixed Charges, as
defined:
Interest on Long-
Term Debt $19,344 $22,244 $21,977 $23,001 $22,578 $21,600
Other Interest 4,011 2,853 4,266 3,223 1,906 2,287
Amortization of Debt
Discount and Expense 401 363 348 511 775 926
Interest Portion of
Rentals 1,235 1,546 1,485 1,439 1,701 1,700
------- ------- ------- ------- ------- -------
Total Fixed
Charges, as
defined $24,991 $27,006 $28,076 $28,174 $26,960 $26,513
======= ======= ======= ======= ======= =======
Earnings, as defined:
Net Income $28,420 $30,724 $14,377 $15,775 $37,647 $32,121
Taxes on Income 15,366 13,629 2,321 6,951 22,096 17,411
Fixed Charges,
as above 24,991 27,006 28,076 28,174 26,960 26,513
------- ------- ------- ------- ------- -------
Total Earnings,
as defined $68,777 $71,359 $44,774 $50,900 $86,703 $76,045
======= ======= ======= ======= ======= =======
Ratio of Earnings to
Fixed Charges 2.75 2.64 1.59 1.81 3.22 2.87
==== ==== ==== ==== ==== ====
Deloitte & Touche LLP
--------------------------------------------------------------
3900 US Bancorp Tower Telephone: (503) 222-1341
111 SW Fifth Avenue Facsimile: (503) 224-2172
Portland, OR 97204-3698
Exhibit 15
November 10, 1994
Northwest Natural Gas Company
220 N.W. Second Avenue
Portland, Oregon 97209
We have made a review, in accordance with standards established
by the American Institute of Certified Public Accountants, of the
unaudited interim financial information of Northwest Natural Gas
Company and subsidiaries for the periods ended September 30, 1994
and 1993, as indicated in our report dated November 10, 1994;
because we did not perform an audit, we expressed no opinion on
that information.
We are aware that our report referred to above, which is included
in your quarterly report on Form 10-Q for the quarter ended
September 30, 1994, is incorporated by reference in Registration
Statement No. 33-34724, Post-Effective Amendment No. 1 to
Registration Statement No. 2-76276, and Post-Effective Amendments
No. 2 to Registration Statement Nos. 2-77195 and 33-19354 on
Form S-8 and in Registration Statement Nos. 33-44827, 33-64014,
33-51271, and 33-53795 and Post-Effective Amendments No. 1 to
Registration Statement Nos. 33-1304 and 33-20384 on Form S-3.
We also are aware that the aforementioned report, pursuant to
Rule 436(c) under the Securities Act, is not considered a part of
the Registration Statement prepared or certified by an accountant
or a report prepared or certified by an accountant within the
meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SECTION OF THE SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE
SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<BOOK-VALUE> $19.57
<TOTAL-NET-UTILITY-PLANT> 613,476
<OTHER-PROPERTY-AND-INVEST> 65,719
<TOTAL-CURRENT-ASSETS> 56,012
<TOTAL-DEFERRED-CHARGES> 40,066
<OTHER-ASSETS> 60,430
<TOTAL-ASSETS> 835,703
<COMMON> 42,268
<CAPITAL-SURPLUS-PAID-IN> 133,145
<RETAINED-EARNINGS> 85,862
<TOTAL-COMMON-STOCKHOLDERS-EQ> 261,275
39,888
1,581
<LONG-TERM-DEBT-NET> 292,179
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 40,460
<LONG-TERM-DEBT-CURRENT-PORT> 0
1,062
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 199,258
<TOT-CAPITALIZATION-AND-LIAB> 835,703
<GROSS-OPERATING-REVENUE> 243,513
<INCOME-TAX-EXPENSE> 9,638
<OTHER-OPERATING-EXPENSES> 206,271
<TOTAL-OPERATING-EXPENSES> 215,909
<OPERATING-INCOME-LOSS> 27,604
<OTHER-INCOME-NET> 8,088
<INCOME-BEFORE-INTEREST-EXPEN> 35,692
<TOTAL-INTEREST-EXPENSE> 18,221
<NET-INCOME> 17,471
2,243
<EARNINGS-AVAILABLE-FOR-COMM> 15,228
<COMMON-STOCK-DIVIDENDS> 17,487
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 86,352
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