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 March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-994
NORTHWEST NATURAL GAS COMPANY
(Exact name of registrant as specified in its charter)
Oregon 93-0256722
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 N. W. Second Avenue, Portland, Oregon 97209
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (503) 226-4211
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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 -- 13,243,893 shares
Convertible Preference Stock, $2.375 Series -- 64,680 shares
<PAGE>
NORTHWEST NATURAL GAS COMPANY
March 31, 1994
Summary of Information Reported
The registrant submits herewith the following information:
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements Number
-------
(1) Condensed Consolidated Statements of Income
for the three-month periods ended March 31,
1994 and 1993, and Consolidated Statements
of Earnings Invested in the Business for the
three month periods ended March 31, 1994
and 1993. 3
(2) Condensed Consolidated Balance Sheets at
March 31, 1994 and 1993 and December 31,
1993. 4
(3) Consolidated Statements of Cash Flows for
the three month periods ended March 31,
1994 and 1993. 5
(4) Consolidated Statements of Capitalization
at March 31, 1994 and 1993 and December 31,
1993. 6
(5) Notes to Condensed Consolidated Financial
Statements. 7
Independent Accountants' Report 8
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 18
-2-
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(1) Condensed Consolidated Statements of Income
(Thousands, Except Per Share Amounts)
Three Months Ended
March 31,
-------------------
1994 1993
-------- -------
Net Operating Revenues:
Operating revenues. . . . . . . . . . . . . . $128,534 $128,714
Cost of sales . . . . . . . . . . . . . . . . 56,209 46,598
-------- --------
Net operating revenues . . . . . . . . . 72,325 82,116
-------- --------
Operating Expenses:
Operations and maintenance. . . . . . . . . . 17,856 18,740
Taxes other than income taxes . . . . . . . . 8,053 7,978
Depreciation, depletion and amortization. . . 9,108 8,982
-------- --------
Total operating expenses. . . . . . . . . 35,017 35,700
-------- --------
Income from Operations . . . . . . . . . . . . . 37,308 46,416
-------- --------
Other Income (Expense) . . . . . . . . . . . . . 71 (1,230)
-------- --------
Interest Charges - net . . . . . . . . . . . . . 6,177 6,357
-------- --------
Income Before Income Taxes . . . . . . . . . . . 31,202 38,829
Income Taxes . . . . . . . . . . . . . . . . . . 12,422 14,176
-------- --------
Net Income . . . . 18,780 24,653
Preferred and preference stock dividend
requirements . . . . . . . . . . . . . . . . 740 956
-------- --------
Earnings Applicable to Common Stock. . . . . . . $ 18,040 $ 23,697
======== ========
Average Common Shares Outstanding. . . . . . . . 13,209 12,997
Primary Earnings Per Share of Common Stock . . . $1.37 $1.82
Fully-Diluted Earnings Per Share of Common
Stock. . . . $1.32 $1.76
Dividends Per Share of Common Stock. . . . . . . $0.44 $0.43
See accompanying Notes to Condensed Consolidated Financial Statements.
=====================================================================
Consolidated Statements of Earnings Invested in the Business
(Thousands, Three Month Periods Ended March 31)
1994 1993
-------- -------
Balance at Beginning of Period . . . . . . . . .$ 88,497 $ 77,690
Net Income. . . . . . . . . . . . . . . . . . 18,780 24,653
Cash dividends:
Preferred and preference stock. . . . . . (781) (844)
Common stock. . . . . . . . . . . . . . . (5,803) (5,581)
Foreign currency translation adjustment . . . 70 (145)
-------- --------
Balance at End of Period . . . . . . . . . . . .$100,763 $ 95,773
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
- 3 -
<TABLE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(2) Condensed Consolidated Balance Sheets
(Thousands of Dollars)
<CAPTION>
Mar. 31, Mar. 31, Dec. 31,
1994 1993 1993
-------- -------- --------
<S> <C> <C> <C>
Assets:
Plant and Property in Service:
Utility plant in service . . . . . . . $857,970 $792,539 $840,030
Less accumulated depreciation. . . . . 262,152 239,867 255,282
-------- -------- --------
Utility plant - net . . . . . . . . 595,818 552,672 584,748
Non-utility property . . . . . . . . . 45,100 45,397 42,764
Less accumulated depreciation and
depletion . . . . . . . . . . . . . . 21,607 16,934 20,646
-------- -------- --------
Non-utility property - net. . . . . 23,493 28,463 22,118
-------- -------- --------
Total plant and property in service 619,311 581,135 606,866
-------- -------- --------
Investments and Other:
Investments. . . . . . . . . . . . . . 31,345 31,139 32,818
Restricted cash and long-term notes
receivable. . . . . . . . . . . . . . 1,347 7,512 1,756
-------- -------- --------
Total investments and other . . . . 32,692 38,651 34,574
-------- -------- --------
Current Assets:
Cash and cash equivalents. . . . . . . 5,909 4,802 4,198
Accounts receivable - net. . . . . . . 39,125 37,019 43,972
Accrued unbilled revenue . . . . . . . 11,906 10,036 25,890
Inventories of gas, materials and
supplies. . . . . . . . . . . . . . . 6,653 8,106 16,838
Prepayments and other current assets . 13,037 6,628 16,412
-------- -------- --------
Total current assets . . . . . . . 76,630 66,591 107,310
-------- -------- --------
Other Regulatory Tax Credits . . . . . . 62,130 63,273 62,130
Deferred Debits and Other. . . . . . . . 38,030 31,136 38,156
-------- -------- --------
Total Assets. . . . . . . . . . . . $828,793 $780,786 $849,036
======== ======== ========
Capitalization and Liabilities:
Capitalization:
Common stock . . . . . . . . . . . . . $172,208 $165,262 $170,068
Earnings invested in the business. . . 100,763 95,773 88,497
-------- -------- --------
Total common stock equity . . . . . 272,971 261,035 258,565
Preference stock . . . . . . . . . . . 26,617 26,716 26,633
Redeemable preferred stock . . . . . . 17,033 19,169 17,041
Long-term debt . . . . . . . . . . . . 272,330 253,756 272,931
-------- -------- --------
Total capitalization. . . . . . . . 588,951 560,676 575,170
-------- -------- --------
Current Liabilities:
Notes payable. . . . . . . . . . . . . 35,585 25,106 72,548
Accounts payable . . . . . . . . . . . 31,578 30,733 44,318
Long-term debt due within one year . . - 2,138 -
Taxes accrued. . . . . . . . . . . . . 6,967 8,066 6,757
Interest accrued . . . . . . . . . . . 6,913 7,375 4,438
Other current and accrued liabilities. 10,470 9,757 10,180
-------- -------- --------
Total current liabilities . . . . . 91,513 83,175 138,241
-------- -------- --------
Deferred Investment Tax Credits. . . . . 13,980 14,958 14,567
Deferred Income Taxes. . . . . . . . . . 114,127 104,626 104,300
Regulatory Balancing Accounts and Other. 20,222 17,351 16,758
-------- -------- --------
Total Capitalization and Liabilities . . . $828,793 $780,786 $849,036
======== ======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
- 4 -
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(3) Consolidated Statements of Cash Flows
(Thousands of Dollars)
Three Months Ended
March 31,
------------------
1994 1993
-------- -------
Operating Activities:
Net income . . . . . . . . . . . . . . . . . . $ 18,780 $ 24,653
Adjustments to reconcile net income to net cash
provided by (used for) operations:
Depreciation, depletion and amortization. . . . 9,108 8,982
Deferred income taxes and investment tax
credits . . . . 9,240 5,779
Equity in losses of unconsolidated affiliates . 1,099 1,202
Allowance for funds used during construction
and capitalized interest . . . . . . . . . . . (61) (15)
Regulatory balancing accounts and other - net . 3,590 (3,141)
Changes in current operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . 4,847 (4,011)
Accrued unbilled revenue. . . . . . . . . . . . 13,984 10,702
Inventories of gas, materials and supplies. . . 10,185 7,691
Accounts payable. . . . . . . . . . . . . . . . (12,740) (9,549)
Accrued interest and taxes. . . . . . . . . . . 2,685 3,859
Other current operating assets and liabilities. 3,665 1,962
-------- --------
Cash Provided By Operating Activities . . 64,382 48,114
-------- --------
Investing Activities:
Acquisition and construction of utility plant
assets. . . . . . . . . . . . . . . . . . . . . . (19,132) (14,520)
Investment in non-utility plant. . . . . . . . . . (2,360) (544)
Investments and other. . . . . . . . . . . . . . . 783 483
-------- --------
Cash Used In Investing Activities . . . . . . (20,709) (14,581)
-------- --------
Financing Activities:
Common stock issued. . . . . . . . . . . . . . . . 1,523 1,364
Preferred stock retired. . . . . . . . . . . . . . (8) (9,049)
Long-term debt retired . . . . . . . . . . . . . . - (10)
Change in short-term debt. . . . . . . . . . . . . (36,963) (22,003)
Cash dividend payments:
Preferred and preference stock. . . . . . . . . (781) (844)
Common stock. . . . . . . . . . . . . . . . . . (5,803) (5,581)
Foreign currency translation adjustment. . . . . . 70 (145)
-------- --------
Cash Used in Financing Activities . . . . . . (41,962) (36,268)
-------- --------
Increase (Decrease) In Cash and Cash Equivalents . . 1,711 (2,735)
Cash and Cash Equivalents - Beginning of Period. . 4,198 7,537
-------- --------
Cash and Cash Equivalents - End of Period. . . . . . $ 5,909 $ 4,802
======== ========
============================================================================
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . . . . $ 3,541 $ 5,645
Income Taxes. . . . . . . . . . . . . . . . . . $ 2,000 $ 2,000
See accompanying Notes to Condensed Consolidated Financial Statements.
- 5 -
</TABLE>
<TABLE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(4) Consolidated Statements of Capitalization
(Thousands, except share amounts)
<CAPTION>
Mar. 31, 1994 Mar. 31, 1993 Dec. 31, 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK EQUITY:
Common stock - par value
$3-1/6 per share . . . . . $ 41,939 $ 41,237 $ 41,728
Premium on common stock . . 130,269 124,025 128,340
Earnings invested in
business . . . 100,763 95,773 88,497
-------- -------- --------
Total common stock equity 272,971 46% 261,035 47% 258,565 45%
-------- ---- -------- ---- -------- ----
PREFERENCE STOCK:
$2.375 Series, convertible,
stated value $25 per share. 1,617 1,716 1,633
$6.95 Series, stated value
$100 per share. . . . . . . 25,000 25,000 25,000
-------- -------- --------
Total preference stock. . . 26,617 5% 26,716 5% 26,633 5%
-------- ---- -------- ---- -------- ----
REDEEMABLE PREFERRED STOCK, stated
value $100 per share:
$4.68 Series . . . . . . . . 922 1,121 930
$4.75 Series . . . . . . . . 1,111 1,136 1,111
$6.875 Series . . . . . . . . - 1,912 -
$7.125 Series . . . . . . . . 15,000 - 15,000
$8.75 Series . . . . . . . . - 15,000 -
-------- -------- --------
Total redeemable
preferred stock. . . . . . 17,033 3% 19,169 3% 17,041 3%
-------- ---- -------- ---- -------- ----
LONG-TERM DEBT:
First Mortgage Bonds
--------------------
8-5/8% Series due 1996. . . - 11,658 -
9-3/8% Series due 2011. . . - 46,000 -
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
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
6.34% Series B due 2005 . . 5,000 - 5,000
6.38% Series B due 2005 . . 5,000 - 5,000
6.45% Series B due 2005 . . 5,000 - 5,000
6.50% Series B due 2008 . . 5,000 - 5,000
9.05% Series A due 2021 . . 10,000 10,000 10,000
7.25% Series B due 2023 . . 20,000 - 20,000
7.50% Series B due 2023 . . 4,000 - 4,000
7.52% Series B due 2023 . . 11,000 - 11,000
Unsecured:
4.90% Series A due 1996 . . 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. . . 12,330 13,298 12,931
-------- -------- --------
272,330 255,894 272,931
Less long-term debt due
within one-year . . . . . . . . - 2,138 -
-------- -------- --------
Total long-term debt.. 272,330 46% 253,756 45% 272,931 47%
-------- ---- -------- ---- -------- ----
TOTAL CAPITALIZATION.. $588,951 100% $560,676 100% $575,170 100%
======== ==== ======== ==== ======== ====
- ------------------------------------------------------------------------
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
- 6 -
NORTHWEST NATURAL GAS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of financial statements
The information presented in the condensed 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-month periods ended March 31,
1994 and 1993 are not indicative of the results for a full year.
Certain amounts from prior years have been reclassified
to conform with the 1994 presentation.
2. Contingencies
See discussion of environmental matters in
"Management's Discussion and Analysis of Results of Operations
and Financial Condition" in the Company's 1993 Annual Report on
Form 10-K.
- 7 -
INDEPENDENT ACCOUNTANTS' REPORT
- -------------------------------
Northwest Natural Gas Company
Portland, Oregon
We have made a review of the accompanying condensed consolidated
balance sheets and statements of capitalization of Northwest
Natural Gas Company and subsidiaries as of March 31, 1994 and
1993, and the related consolidated statements of income, earnings
invested in the business, and cash flows for the three-month
periods ended March 31, 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 condensed consolidated
balance sheet as of December 31, 1993 is fairly stated in all
material respects in relation to the consolidated balance sheet
from which it has been derived.
/s/ Deloitte & Touche
DELOITTE & TOUCHE
April 28, 1994
- 8 -
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
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 Note 2, "Notes to the
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 impact results of operations. The discussion refers to the
consolidated activities of the Company for the three months ended
March 31, 1994, and 1993.
Earnings and Dividends
- ----------------------
The Company earned $1.37 per share for its first
quarter ended March 31, 1994, compared to $1.82 per share in last
year's first quarter. The Company earned $1.39 per share from
utility operations in the first quarter of 1994, compared to
$1.86 per share in the same period in 1993.
The lower first quarter 1994 earnings resulted
primarily from warmer weather. Weather conditions in the
Company's service territory were 16 percent warmer in the first
quarter of 1994 compared to the same period in 1993.
The Company estimates that the weather-related
reduction in margin revenues during the first quarter was
equivalent to about 24 cents per share as compared to a March
quarter with average weather, and about 68 cents per share as
compared to actual conditions during the colder-than-average
first quarter of 1993. These estimates are derived from the
Company's internal planning model. The model calculates expected
sales to, and revenues from, residential and commercial customers
for "base usage," representing gas use for water heaters, ranges,
and other appliances not sensitive to outside temperatures. The
model also calculates expected sales to, and revenues from, these
customers for "heat sensitive" usage, primarily furnaces, as a
function of heating degree days (the difference between 65
degrees and the average of a day's high and low temperature).
The model then estimates the earnings effect of the difference
between expected sales and revenues under actual temperature
- 9 -
conditions, and expected sales and revenues under average weather
conditions.
Dividends paid on common stock were $0.44 per share for
the three-month period ended March 31, 1994 compared to $0.43 for
the same period in 1993. In April 1994, the Board of Directors
of the Company declared a quarterly dividend of $0.44 per share
on its common stock, payable May 16, 1994, to shareholders of
record on April 29, 1994. The current indicated annual dividend
rate is $1.76 per share.
- 10 -
Results of Operations
- ---------------------
Comparison of Gas Utility Operations
------------------------------------
The following table summarizes the composition of gas
utility volumes and revenues:
Three Months
Ended March 31,
-----------------
1994 1993
---- ----
Gas Sales and Transportation
Deliveries - Therms (000's):
Residential and commercial sales. . 194,241 218,756
Unbilled volumes. . . . (24,222) (21,070)
------- -------
Weather-sensitive volumes . . 170,019 197,686
Industrial firm sales . . . . . . . 23,443 23,850
Industrial interruptible sales. . . 23,628 9,254
------- -------
Total gas sales. . . 217,090 230,790
Transportation deliveries . . . . . 88,849 123,313
------- -------
Total volumes sold and delivered. . 305,939 354,103
======= =======
Utility Operating Revenues - Dollars (000's):
Residential and commercial sales
revenues . . . . . . . . . . . . . $118,417 $117,658
Unbilled revenues . . . . . . . . . (13,985) (10,701)
-------- --------
Weather-sensitive revenues. . 104,432 106,957
Industrial firm sales revenues. . . 10,161 8,971
Industrial interruptible sales
revenues . . . . . . . . . . . . . 7,049 2,911
-------- --------
Total gas sales revenues. . . 121,642 118,839
Transportation revenues . . . . . . 3,466 5,496
Other revenues. . . . . . . . . . . 235 1,481
-------- --------
Total utility operating revenues. . $125,343 $125,816
======== ========
Cost of gas. . . . . . . . . . . . . . . . . $ 56,209 $ 46,500
======== ========
Number of customers (end of period) . . . . 377,100 358,200
- 11 -
Residential and Commercial
--------------------------
Typically, 75 percent or more of the Company's annual
utility 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 impact
volumes of gas sold to these customers. Normal weather
conditions are based upon a 20 year average measured by degree
days.
Weather conditions were 8 percent warmer than normal in
the first quarter of 1994, and 16 percent warmer than the first
quarter of 1993. The effect on revenues of the warmer weather
was offset in part by increased revenues from the addition of
18,900 new customers, and in part by rate increases approved by
the Oregon Public Utility Commission (OPUC) and the Washington
Utilities and Transportation Commission (WUTC) in 1993 (see
"Management's Discussion and Analysis of Results of Operations
and Financial Condition" in the Company's 1993 Annual Report on
Form 10-K). These factors combined to produce a 2 percent
decrease in revenues from residential and commercial customers in
the first quarter of 1994 compared to the same period in 1993, on
therm deliveries to these customers which were 14 percent lower.
The Company's residential and commercial customer
growth continued at a rapid pace. The 18,900 residential and
commercial customers added since March 31, 1993 represent a
growth rate of 5.3 percent. In the three years ended
December 31, 1993, almost 52,500 of these customers have been
added to the system, representing an average growth rate of 5.2
percent.
Unbilled revenues are a recognition of revenues for all
gas consumption by customers through the end of the month,
regardless of the meter reading date, in order to better match
revenues with associated purchased gas costs.
Industrial, Transportation and Other
------------------------------------
The combined net operating revenue (margin) from
industrial firm and interruptible sales and transportation
customers increased by 3 percent from $11.6 million in the first
quarter of 1993 to $12.0 million in the first quarter of 1994.
Total volumes delivered to industrial firm, industrial
interruptible and transportation customers were 20 million
therms, or 13 percent, lower in the first quarter of 1994 than in
the same period of 1993. The volume reduction was due to a 12
million therm reduction in deliveries to an electric generation
plant now served by a new natural gas pipeline which is a joint
venture between Oregon Natural and Portland General Electric
Company, and an 11 million therm reduction in deliveries to an
industrial customer, previously served under a high-volume
- 12 -
interruptible transportation agreement, that placed into service
a bypass connection to Northwest Pipeline Corporation in October
1993.
However, Northwest Natural's revenues from industrial
deliveries were $3.3 million higher in the first quarter of 1994
than in the first quarter of 1993. The reason for this disparity
is primarily in the 14 million therm increase in first quarter
industrial interruptible sales and the concurrent 34 million
therm reduction, or 28 percent, in transportation deliveries.
Since 1992, approximately 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 transporting 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 was primarily
due to the fact that, in 1993 and the first quarter of 1994,
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 the cost of
gas.
Other revenues are primarily related to regulatory
balancing accounts (see Note 1, "Notes to the Consolidated
Financial Statements" in the Company's 1993 Annual Report on
Form 10-K).
Cost of Gas
-----------
The cost of gas sold during the first quarter of 1994
was 21 percent greater than in the same period of 1993. The
primary contributing factor was a 26 percent increase in the cost
of gas per therm, including purchased gas cost adjustments and
net storage gas activity, which was partially offset by a 6
percent decrease in total volumes sold. Increased gas costs per
therm resulted from higher market prices as well as higher demand
charges from Northwest Pipeline Corporation, Northwest Natural's
primary pipeline supplier, implemented by the pipeline pursuant
to Federal Energy Regulatory Commission Order No. 636.
- 13 -
Subsidiary Operations
---------------------
The following table summarizes financial information
for the Company's consolidated wholly-owned subsidiaries:
Three Months Ended
March 31,
------------------
1994 1993
---- ----
Consolidated Subsidiaries (Thousands):
- --------------------------------------
Net Operating Revenues . . . . . . . . . $ 3,247 $ 2,800
Operating Expenses:
Operations and maintenance. . . . . . . . 2,170 1,668
Taxes other than income taxes . . . . . . 17 19
Depreciation, depletion and
amortization . . . . . . . . . . . . . . 985 1,230
------- -------
Total Operating Expenses . . . . . . 3,172 2,917
------- -------
Income (Loss) from Operations. . . . . . . 75 (117)
Interest Charges and Other Expense . . . . 481 1,400
------- -------
Loss Before Income Taxes . . . . . . . . . (406) (1,517)
Income Tax Benefit . . . . . . . . . . . . 184 988
------- -------
Net Loss . . . . . . . . . . . . . . . . $ (222) $ (529)
======= =======
Consolidated subsidiary results for the three months
ended March 31, 1994 and 1993, were losses equivalent to $0.02
per share, and $0.04 per share, respectively. Results of
operations for the individual subsidiaries for the first quarter
of 1994, were net income of $0.4 million for Energy Systems; a
net loss of $0.7 million for Financial Corporation; and net
income of $0.1 million for Pacific Square. Oregon Natural
realized neither a gain nor a loss for the first quarter of 1994.
The following discussion summarizes operating expenses,
other income(expense), and income taxes.
Operating Expenses
------------------
Operations and Maintenance
--------------------------
Operations and maintenance expenses were $0.9 million,
or 5 percent, lower in the first quarter of 1994 compared to the
same period in 1993. Utility expenses decreased $1.4 million
primarily due to a $1.1 million decrease in accruals for
- 14 -
estimated employee bonuses. Subsidiary expenses increased $0.5
million primarily due to production expenses related to Oregon
Natural's Canadian operations.
Depreciation, Depletion and Amortization
----------------------------------------
Utility depreciation expense increased $0.3 million, or
5 percent, in the first quarter of 1994 compared to the first
quarter of 1993, primarily due to additional utility plant in
service.
Subsidiary depreciation expense decreased $0.2 million
in the first quarter of 1994 compared to the same period in 1993.
A non-recurring $0.3 million expense was recorded in the first
quarter of 1993 for certain properties of Oregon Natural which
were determined to be non-productive.
Other Income (Expense)
---------------------
Other income increased $1.3 million primarily as a
result of a $0.7 million gain recorded upon the conclusion of the
bankruptcy proceedings related to Agrico Cogeneration Corporation
(Agrico), a subsidiary of Energy Systems, and the subsequent sale
of Agrico's assets (see Part I, Item 3. and Part II, Item 8.,
Note 3, "Notes to the Consolidated Financial Statements" in the
Company's 1993 Annual Report on Form 10-K).
Income Taxes
------------
The effective corporate income tax rates for the three
months ended March 31, 1994, and 1993 were 40 percent, and 37
percent, respectively, which approximate the Company's statutory
tax rates for these periods.
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" below).
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. The Company's capital structure
- 15 -
was within these ranges at March 31, 1994. This target structure
is managed by issuing new debt or equity securities. The Company
also uses these sources to meet long-term debt and preferred
stock redemption requirements (see Notes 4 and 6, "Notes to the
Consolidated Financial Statements" in the Company's 1993 Annual
Report on Form 10-K).
Cash Flows
----------
Operating Activities
--------------------
Cash provided from operating activities was $16.3
million, or 34 percent, higher in the first quarter of 1994
compared to the same period in 1993, primarily due to differences
in accounts receivable, unbilled revenue and deferred regulatory
account balances which resulted due to weather fluctuations for
the comparative periods.
The Company has lease and purchase commitments related
to its operating activities which are financed with cash flows
from operations (see Note 12, "Notes to the Consolidated
Financial Statements" in the Company's 1993 Annual Report on
Form 10-K).
Investing Activities
--------------------
Cash requirements for utility construction in the first
quarter of 1994, primarily related to system improvements and
customer growth, totalled $19.1 million, up $4.6 million, or
32 percent, from the first quarter of 1993. The first quarter
1994 increase resulted largely from higher customer growth and
system reconstruction. It also includes $1.6 million in
expenditures related to a project initiated in 1993 to replace
the existing customer information system, compared to
expenditures of $0.9 million for this system in the first quarter
of 1993. In the first quarter of 1994, non-utility expenditures
were primarily for Canadian exploration and production totalling
$1 million and improvements related to the Mist gathering system
totalling $0.7 million. (See Part II, Item 7. Financial
Condition, "Investing Activities," in the Company's 1993 Annual
Report on Form 10-K.)
Investments shown on the Consolidated Balance Sheets
under "Investments and Other" for the first quarter of 1993
included a $5.5 million restricted cash deposit with a commercial
bank which related to Pacific Square. This deposit was
reclassified as a current asset in 1993 due to the pending sale
of Pacific Square's primary real estate investments to which it
relates. The sale of Pacific Square's investments, which is
expected to close in 1994, is not expected to be at a loss to the
Company.
- 16 -
Financing Activities
--------------------
Cash Used in Financing Activities in the first quarter
of 1994 totalled $42.0 million, up $5.7 million, or 16 percent,
from the first quarter of 1993, due to a greater reduction in
short-term notes payable in the first quarter of 1994 than in the
corresponding quarter of 1993.
In order to meet the Company's capital requirements for
refinancing of short-term and long-term debt and for its ongoing
construction program, the Company is considering the sale during
1994 of up to $30 million of long-term debt and up to 1.1 million
shares of common stock. The timing of the sales will be
dependent upon capital market conditions and the Company's need
for the additional capital.
Lines of Credit
---------------
Northwest Natural has available through September 30,
1994, committed lines of credit totalling $80 million, consisting
of a primary fixed amount of $40 million plus an excess amount of
up to $40 million available as needed, at Northwest Natural's
option, on a monthly basis. Financial Corporation has available
through September 30, 1994, lines of credit with two commercial
banks totalling $20 million, including $10 million committed and
$10 million uncommitted. Financial Corporation's lines of credit
are supported by the unconditional guaranty of Northwest Natural.
There were no outstanding balances as of March 31, 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 Note 7,
"Notes to the 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 March 31, 1994, and 1993, the
Company's ratios of earnings to fixed charges, computed by the
Securities and Exchange Commission method, were 2.94, and 2.44,
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.
- 17 -
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.
(b) Reports on Form 8-K
No reports were filed by the Company on Form 8-K for
the three month period ended March 31, 1994.
SIGNATURES
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: April 28, 1994 /s/ D. James Wilson
--------------------------------
D. James Wilson
Principal Accounting Officer,
Corporate Controller and Treasurer
- 18 -
EXHIBIT 11
NORTHWEST NATURAL GAS COMPANY
Statement Re: Computation of Per Share Earnings
(Thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
------------------
1994 1993
------- -------
Earnings Applicable to Common Stock. . . . $18,040 $23,697
Preference Stock Dividends . . . . . . . . . . 39 41
Debenture Interest Less Taxes. . . . . . . . . 136 149
------- -------
Net Income Available for Fully-Diluted
Common Stock. . . . . . . . . . . . . . . . . $18,215 $23,887
======= =======
Average Common Shares Outstanding. . . . . . . . 13,209 12,997
Stock Options. . . . . . . . . . . . . . . . . 23 26
Convertible Preference Stock . . . . . . . . . 107 113
Convertible Debentures . . . . . . . . . . . 413 446
------- -------
Fully-Diluted Common Shares. . . . . . . . . . .13,752 13,582
======= =======
Fully-Diluted Earnings Per Share of Common
Stock . . . . . . . . . . . . . . . . . . . . . $1.32 $1.76
======= =======
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.
<TABLE>
EXHIBIT 12
Northwest Natural Gas Company
Computation of Ratio of Earnings to Fixed Charges
January 1, 1989 - March 31, 1994
($000)
<CAPTION>
Twelve
------------Year Ended December 31---------- Months Ended
March 31,
1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges, as defined:
Interest on Long-Term Debt . $19,344 $22,244 $21,977 $23,001 $22,578 $22,244
Other Interest . . . . . . . 4,011 2,853 4,266 3,223 1,906 2,028
Amortization of Debt
Discount and Expense. . . . 401 363 348 511 775 853
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 $26,825
======= ======= ======= ======= ======= =======
Earnings, as defined:
Net Income . . . . . . . . . $28,420 $30,724 $14,377 $15,775 $37,647 $31,774
Taxes on Income. . . . . . . 15,366 13,629 2,321 6,951 22,096 20,342
Fixed Charges, as above. . . 24,991 27,006 28,076 28,174 26,960 26,825
------- ------- ------- ------- ------- -------
Total Earnings, as defined . $68,777 $71,359 $44,774 $50,900 $86,703 $78,941
======= ======= ======= ======= ======= =======
Ratio of Earnings to
Fixed Charges . . . . . . . . 2.75 2.64 1.59 1.81 3.22 2.94
==== ==== ==== ==== ==== ====
</TABLE>
EXHIBIT 15
DELOITTE & TOUCHE
- ----------------------------------------------------------------
3900 US Bancorp Tower Telephone: (503) 222-1341
111 SW Fifth Avenue Facsimile: (503) 224-2172
Portland, Oregon 97204-3698
April 28, 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 March 31, 1994 and
1993, as indicated in our report dated April 28, 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
March 31, 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,
and 33-51271, 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.
/s/ Deloitte & Touche
DELOITTE & TOUCHE
