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, 1995
------------------------------
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 -- 14,780,757 shares
<PAGE>
NORTHWEST NATURAL GAS COMPANY
September 30, 1995
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, 1995 and 1994 and Consolidated
Statements of Earnings Invested in the
Business for the nine month periods ended
September 30, 1995 and 1994. 3
(2) Consolidated Balance Sheets at September 30,
1995 and 1994 and December 31, 1994. 4
(3) Consolidated Statements of Cash Flows for
the nine month periods ended September 30,
1995 and 1994. 6
(4) Consolidated Statements of Capitalization
at September 30, 1995 and 1994 and December 31,
1994. 7
(5) Notes to Consolidated Financial Statements. 8
Independent Accountants' Report 9
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 10
PART II. OTHER INFORMATION
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 23
Signature 23
<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,
----------------- ------------------
1995 1994 1995 1994
------- ------- -------- --------
Net Operating Revenues:
Operating revenues $48,644 $48,474 $245,062 $243,513
Cost of sales 20,613 21,552 101,381 107,047
------- ------- -------- --------
Net operating revenues 28,031 26,922 143,681 136,466
------- ------- -------- --------
Operating Expenses:
Operations and maintenance 16,953 16,378 53,084 51,929
Taxes other than income taxes 4,913 5,316 18,303 19,391
Depreciation, depletion and
amortization 10,377 9,884 30,066 27,904
------- ------- -------- --------
Total operating expenses 32,243 31,578 101,453 99,224
------- ------- -------- --------
Income (Loss) from Operations (4,212) (4,656) 42,228 37,242
------- ------- -------- --------
Other Income 3,542 3,137 6,722 8,088
------- ------- -------- --------
Interest Charges - net 6,298 6,144 19,221 18,221
------- ------- -------- --------
Income (Loss) Before Income Taxes (6,968) (7,663) 29,729 27,109
Income Taxes (2,620) (3,889) 11,517 9,638
------- ------- -------- --------
Net Income (Loss) (4,348) (3,774) 18,212 17,471
Preferred and preference stock
dividend requirements 690 746 2,115 2,243
------- ------- -------- --------
Earnings (Loss) Applicable to
Common Stock $(5,038) $(4,520) $ 16,097 $ 15,228
======= ======= ======== ========
Average Common Shares Outstanding 14,760 13,322 14,459 13,267
Primary Earnings (Loss) Per
Share of Common Stock $(0.34) $(0.34) $1.11 $1.15
Fully-Diluted Earnings Per Share
of Common Stock * * $1.11 $1.14
Dividends Per Share of
Common Stock $ 0.44 $ 0.44 $1.32 $1.32
*Anti-dilutive
See accompanying Notes to Consolidated Financial Statements.
==============================================================================
Consolidated Statements of Earnings Invested in the Business
(Thousands, Nine Month Periods Ended September 30)
1995 1994
------- -------
Balance at Beginning of Period $97,275 $88,497
Net Income 18,212 17,471
Cash Dividends:
Preferred and preference stock (2,146) (2,296)
Common stock (18,862) (17,487)
Capital stock expense and other (1,633) (323)
------- -------
Balance at End of Period $92,846 $85,862
======= =======
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(2) Consolidated Balance Sheets
(Thousands of Dollars)
Sept. 30, Sept. 30, Dec. 31,
1995 1994 1994
-------- -------- -------
Assets:
Plant and Property in Service:
Utility plant in service $952,435 $889,791 $908,238
Less accumulated depreciation 302,528 276,315 279,112
-------- -------- --------
Utility plant - net 649,907 613,476 629,126
Non-utility property 49,669 46,300 49,586
Less accumulated depreciation
and depletion 23,077 23,213 24,456
-------- -------- --------
Non-utility property - net 26,592 23,087 25,130
-------- -------- --------
Total plant and property
in service 676,499 636,563 654,256
-------- -------- --------
Investments and Other:
Investments 36,618 35,745 34,183
Long-term notes receivable 3,722 6,887 2,914
-------- -------- --------
Total investments and other 40,340 42,632 37,097
-------- -------- --------
Current Assets:
Cash and cash equivalents 2,914 4,969 8,068
Accounts receivable - net 18,225 17,458 42,152
Accrued unbilled revenue 5,996 5,984 20,320
Inventories of gas, materials
and supplies 17,138 16,458 14,958
Prepayments and other current assets 11,197 11,143 10,041
-------- -------- --------
Total current assets 55,470 56,012 95,539
-------- -------- --------
Regulatory Tax Assets 60,430 60,430 60,430
-------- -------- --------
Deferred Debits and Other 47,070 40,066 41,982
-------- -------- --------
Total Assets $879,809 $835,703 $889,304
======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(2) Consolidated Balance Sheets
(Thousands of Dollars)
Sept. 30, Sept. 30, Dec. 31,
1995 1994 1994
-------- -------- --------
Capitalization and Liabilities:
Capitalization:
Common stock $216,457 $175,413 $177,133
Earnings invested in the business 92,846 85,862 97,275
-------- -------- --------
Total common stock equity 309,303 261,275 274,408
Preference stock 25,000 26,581 26,252
Redeemable preferred stock 14,840 15,950 15,950
Long-term debt 271,048 292,179 291,076
-------- -------- --------
Total capitalization 620,191 595,985 607,686
-------- -------- --------
Current Liabilities:
Notes payable 23,204 40,460 53,654
Accounts payable 30,191 23,735 48,517
Long-term debt due within one year 21,000 - 1,000
Taxes accrued 4,762 5,049 6,584
Interest accrued 7,473 6,983 4,570
Other current and accrued
liabilities 11,933 10,528 11,757
-------- -------- --------
Total current liabilities 98,563 86,755 126,082
-------- -------- --------
Deferred Investment Tax Credits 12,966 14,033 13,530
-------- -------- --------
Deferred Income Taxes 116,761 110,825 112,433
-------- -------- --------
Regulatory Balancing Accounts
and Other 31,328 28,105 29,573
-------- -------- --------
Contingent Liabilities (Note 3) - - -
-------- -------- --------
Total Capitalization and
Liabilities $879,809 $835,703 $889,304
======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(3) Consolidated Statements of Cash Flows
(Thousands of Dollars)
Nine Months Ended
September 30,
-----------------
1995 1994
------- -------
Operating Activities:
Net income $18,212 $17,471
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation, depletion and amortization 30,066 27,904
Deferred income taxes and investment
tax credits 3,764 7,691
Equity in earnings of investments (3,337) (3,088)
Allowance for funds used during construction (428) (234)
Regulatory balancing accounts and other - net (3,333) 9,437
------- -------
Cash from operations before working
capital changes 44,944 59,181
Changes in operating assets and liabilities:
Accounts receivable 23,927 26,514
Accrued unbilled revenue 14,324 19,906
Inventories of gas, materials and supplies (2,180) 380
Accounts payable (18,326) (20,583)
Accrued interest and taxes 1,081 837
Other current assets and liabilities (980) 117
------- -------
Cash Provided by Operating Activities 62,790 86,352
------- -------
Investing Activities:
Acquisition and construction of utility
plant assets (47,543) (53,219)
Investment in non-utility plant (4,338) (4,148)
Investments and other 94 530
------- -------
Cash Used in Investing Activities (51,787) (56,837)
------- -------
Financing Activities:
Common stock issued 38,228 4,559
Preference stock retired (174) -
Preferred stock retired (1,110) (1,091)
Long-term debt:
Issued - 20,000
Retired (10) (18)
Change in short-term debt (30,450) (32,088)
Cash dividend payments:
Preferred and preference stock (2,146) (2,296)
Common stock (18,862) (17,487)
Capital stock expense and other (1,633) (323)
------- -------
Cash Used for Financing Activities (16,157) (28,744)
------- -------
Increase (Decrease) in Cash and Cash Equivalents (5,154) 771
Cash and Cash Equivalents - Beginning of Period 8,068 4,198
------- -------
Cash and Cash Equivalents - End of Period $ 2,914 $ 4,969
======= =======
================================================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $16,087 $15,289
Income Taxes $15,819 $ 8,454
================================================================================
Supplemental Disclosure of Noncash Financing Activities:
Conversion to common stock:
$2.375 Series of Convertible Preference Stock $ 1,078 $ 52
7-1/4 percent Series of Convertible Debentures $ 18 $ 734
================================================================================
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(4) Consolidated Statements of Capitalization
(Thousands, except share amounts)
Sept. 30, Sept. 30, Dec. 31,
1995 1994 1994
- -------------------------------------------------------------------------------
COMMON STOCK EQUITY:
Common stock - par value
$3-1/6 per share $ 46,806 $ 42,268 $ 42,492
Premium on common stock 169,651 133,145 134,641
Earnings invested in
business 92,846 85,862 97,275
-------- -------- --------
Total common stock
equity 309,3035 0% 261,275 44% 274,408 45%
-------- ---- -------- ---- -------- ----
PREFERENCE STOCK:
$2.375 Series, convertible,
stated value $25 per share - 1,581 1,252
$6.95 Series, stated value
$100 per share 25,000 25,000 25,000
-------- -------- --------
Total preference stock 25,000 4% 26,581 4% 26,252 4%
-------- ---- -------- ---- -------- ----
REDEEMABLE PREFERRED STOCK,
stated value $100 per share:
$4.68 Series 552 732 732
$4.75 Series 788 968 968
$7.125 Series 13,500 14,250 14,250
-------- -------- --------
Total redeemable
preferred stock 14,840 2% 15,950 3% 15,950 3%
-------- ---- -------- ---- -------- ----
LONG-TERM DEBT:
First Mortgage Bonds
--------------------
9-3/4% Series due 2015 50,000 50,000 50,000
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 5,000
5.98% Series B due 2000 5,000 5,000 5,000
8.05% Series A due 2002 10,000 10,000 10,000
6.40% Series B due 2003 20,000 20,000 20,000
6.34% Series B due 2005 5,000 5,000 5,000
6.38% Series B due 2005 5,000 5,000 5,000
6.45% Series B due 2005 5,000 5,000 5,000
6.50% Series B due 2008 5,000 5,000 5,000
8.26% Series B due 2014 10,000 10,000 10,000
8.31% Series B due 2019 10,000 10,000 10,000
9.05% Series A due 2021 10,000 10,000 10,000
7.25% Series B due 2023 20,000 20,000 20,000
7.50% Series B due 2023 4,000 4,000 4,000
7.52% Series B due 2023 11,000 11,000 11,000
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 12,048 12,179 12,076
-------- -------- --------
292,048 292,179 292,076
Less long-term debt due
within one year 21,000 - 1,000
-------- -------- --------
Total long-term debt 271,048 44% 292,179 49% 291,076 48%
-------- ---- -------- ---- -------- ----
TOTAL CAPITALIZATION $620,191 100% $595,985 100% $607,686 100%
======== ==== ======== ==== ======== ====
- ------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
<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 1994 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, 1995 and 1994
are not indicative of the results for a full year.
Certain amounts from the prior year have been
reclassified to conform with the 1995 presentation.
2. Capital stock
In the first quarter of 1995, Northwest Natural Gas
Company (Northwest Natural) sold 1.15 million shares of its
Common Stock. The net proceeds of $33.0 million received from
the offering were added to the general funds of the Company and
were used for corporate purposes, primarily to fund, in part,
Northwest Natural's construction program, and to repay short-term
debt incurred for such purpose. The projected dilution of
earnings per share in 1995 resulting from this sale is estimated
at five percent.
3. Contingent Liabilities
On July 21, 1995, a jury returned a $5.0 million
verdict against the Company which, if not reversed, reduced or
reimbursed by insurance, would reduce net income on an after-tax
basis by about $0.20 per share. For further information, see
Part II, Item 5. "Other Information."
<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, 1995 and 1994, and the related
consolidated statements of income for the three- and nine-month
periods ended September 30, 1995 and 1994, and the consolidated
statements of earnings invested in the business and cash flows for the
nine-month periods ended September 30, 1995 and 1994. These financial
statements are the responsibility of the Company s management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted 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, 1994, 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 22,
1995 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, 1994 is fairly stated in all
material respects in relation to the consolidated financial statements
from which it has been derived.
DELOITTE & TOUCHE LLP
October 31, 1995
<PAGE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The consolidated financial statements include:
Regulated Utility:
Northwest Natural Gas Company (Northwest Natural)
Non-regulated wholly-owned businesses:
Oregon Natural Gas Development Corporation (Oregon
Natural)
NNG Energy Systems, Inc. (Energy Systems)
NNG Financial Corporation (Financial Corporation)
Pacific Square Corporation (Pacific Square)-
(dissolved during the second quarter of 1995)
Together these businesses are referred to herein as the
"Company" (see "Subsidiary Operations" below and Part II, Item
8., Note 2, "Notes to Consolidated Financial Statements", in the
Company's 1994 Annual Report on Form 10-K).
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 and nine
months ended September 30, 1995 and 1994.
Earnings and Dividends
- ----------------------
The Company incurred a loss of $5.0 million, or $0.34
per share, for the third quarter ended September 30, 1995,
compared to a loss of $4.5 million, or $0.34 per share, in last
year's third quarter. Northwest Natural had a loss of $0.44 per
share from utility operations in the third quarter of 1995,
compared to a loss of $0.49 per share in the same period in 1994.
A third quarter loss is customary for Northwest Natural,
reflecting low summertime use of natural gas. Compared to the
previous year's third quarter, margin (revenues less cost of gas)
from residential and commercial customers increased eight percent
while industrial margin increased 17 percent.
The Company's subsidiaries earned the equivalent of
$0.10 per share in this year's third quarter, down from $0.15 per
share in last year's third quarter when operating results were
unusually strong. Favorable wind conditions in the summer of
1994 boosted earnings from Financial Corporation's windpower
energy investments in California, while this year's low natural
gas prices have continued to depress results from Oregon Natural,
the Company's exploration and production subsidiary.
The Company earned $16.1 million, or $1.11 per share,
and $15.2 million, or $1.15 per share, for the nine months ended
September 30, 1995 and September 30, 1994, respectively. Year-to-
date, Northwest Natural earned $0.98 per share from utility
operations, compared to $0.76 per share in the same period in
1994.
The weather in Northwest Natural's service territory
during the first nine months of 1995 was 11 percent warmer than
normal, and two percent cooler than the same period in 1994. The
warmer than normal weather resulted in significant reductions in
gas deliveries to, and related margin from, weather-sensitive
customers. The Company estimates that, had temperatures during
the first three quarters of 1995 been at the 20-year average,
margin would have been higher by the equivalent of $0.44 per
share. Nevertheless, weather conditions during the first nine
months of 1995 compared to the same period during 1994 improved
margins by the equivalent of $0.10 per share. These estimates are
derived from the Company's internal planning model which is
described in Part II, Item 7., "Earnings and Dividends", in the
Company's 1994 Annual Report on Form 10-K.
Year-to-date earnings from subsidiary operations for
1995 were equivalent to $0.13 per share, compared to year-to-date
earnings equivalent to $0.39 per share for 1994. The 1994
subsidiary results included a one-time gain of $1.9 million,
equivalent to $0.14 per share, resulting from the sale of Pacific
Square's partnership interest in two commercial office buildings.
In addition, for the comparable year-to-date periods, Oregon
Natural's 1995 earnings declined $1.4 million, equivalent to $0.10
per share, due to depressed natural gas prices and lower
production volumes.
The Board of Directors of the Company declared an
increase in the quarterly dividend on its common stock from $0.44
to $0.45 per share, payable November 15, 1995, to shareholders of
record on October 31, 1995.
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,
------------------ -----------------
1995 1994 1995 1994
Gas Sales and Transportation ---- ---- ---- ----
Volumes - Therms (000's):
Residential and commercial
sales 43,929 42,215 331,224 318,742
Unbilled volumes 362 541 (26,380) (34,412)
------- ------- ------- -------
Weather-sensitive
volumes 44,291 42,756 304,844 284,330
Industrial firm sales 17,767 17,599 61,491 59,734
Industrial interruptible
sales 18,369 20,923 62,113 64,911
------- ------- ------- -------
Total gas sales 80,427 81,278 428,448 408,975
Transportation deliveries 90,118 86,675 280,785 265,095
------- ------- ------- -------
Total volumes sold and
delivered 170,545 167,953 709,233 674,070
======= ======= ======= =======
Utility Operating Revenues
- Dollars (000's):
Residential and commercial
revenues $ 28,725 $ 28,466 $194,802 $198,739
Unbilled revenues 154 256 (14,323) (19,907)
-------- -------- -------- --------
Weather-sensitive
revenues 28,879 28,722 180,479 178,832
Industrial firm sales
revenues 6,685 7,424 23,376 25,574
Industrial interruptible
sales revenues 5,563 6,543 18,076 19,523
-------- -------- -------- --------
Total gas sales
revenues 41,127 42,689 221,931 223,929
Transportation revenues 4,241 3,657 12,018 10,600
Other revenues 999 (368) 5,159 103
-------- -------- -------- --------
Total utility operating
revenues $ 46,367 $ 45,978 $239,108 $234,632
======== ======== ======== ========
Cost of gas $ 20,613 $ 21,552 $101,381 $107,047
======== ======== ======== ========
Total number of customers (end
of period) 396,900 377,200 396,900 377,200
======== ======== ======== ========
Actual degree days 38 39 2,377 2,332
======== ======== ======== ========
20-year average degree days 108 110 2,671 2,702
======== ======== ======== ========
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
heating degree days.
Customer growth continues at a rapid rate relative to
others in the industry. The 19,700 customers added since
September 30, 1994 represent a growth rate of 5.2 percent. In
the three years ended December 31, 1994, over 55,000 customers
were added to the system, representing an average growth rate of
5.2 percent.
Weather conditions were 65 percent warmer than average
in both of the third quarters presented. Despite the warmer
weather, total volumes sold to residential and commercial
customers for the three month period ended September 30, 1995
increased four percent compared to the same period in 1994, due
to sales to new customers. Corresponding revenues increased less
than one percent due to rate decreases reflecting lower gas costs
effective in December 1994 which averaged 5.6 percent in Oregon
and 7.0 percent in Washington.
Although year-to-date weather conditions in 1995 were
11 percent warmer than average, they were two percent cooler than
the comparable 1994 period. The seven percent increase in year-
to-date volumes sold to residential and commercial customers in
1995 compared to year-to-date volumes in 1994 primarily reflects
added sales from customer growth which was augmented by slightly
cooler weather. Related revenues increased only one percent due
to the rate decreases associated with lower gas costs discussed
above.
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
------------------------------------
Total volumes delivered to industrial firm, industrial
interruptible and transportation customers were 1.1 million
therms, or one percent, higher in the third quarter of 1995, and
14.6 million therms, or four percent, higher for the nine months
ended September 30, 1995, compared to the same periods in 1994.
The combined margin from industrial firm and
interruptible sales and transportation customers increased 17
percent, from $9.8 million in the third quarter of 1994 to $11.6
million in the third quarter of 1995. For the current nine month
period, margin from these customers increased 13 percent, from
$32.0 million in 1994 to $36.3 million in 1995. The increases
were primarily due to the termination of the Interruptible Sales
Adjustment (ISA) tariff schedule in Oregon effective December 1,
1994 (see Part I, Item 1., "Regulation and Rates", in the
Company's 1994 Annual Report on Form 10-K).
Other revenues are primarily related to additions to or
amortizations of regulatory balancing accounts (see Part II,
Item 8., Note 1, "Notes to Consolidated Financial Statements", in
the Company's 1994 Annual Report on Form 10-K). The primary
components of other revenue in 1995 were $1.9 million relating to
amortizations of the ISA account and $2.0 million resulting from
other amortizations.
Cost of Gas
-----------
The cost of gas sold decreased $0.9 million, or four
percent, from $21.5 million in the third quarter of 1994 to
$20.6 million in the third quarter of 1995 on total gas sales
volumes which were one percent lower in the third quarter of 1995
than in the third quarter of 1994. The average cost of gas per
therm was three percent lower in the third quarter of 1995
compared to the same period during 1994.
The year-to-date cost of gas decreased $5.7 million, or
five percent, from $107.0 million in 1994 to $101.4 million in
1995 on total gas sales volumes which were five percent higher in
1995 than in 1994. The average cost of gas per therm was ten
percent lower year-to-date in 1995 than during the same period in
1994.
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): 1995 1994 1995 1994
- ------------------------- ---- ---- ---- ----
Net Operating Revenues $2,277 $2,552 $5,954 $9,049
Operating Expenses 2,237 2,636 7,107 8,371
------ ------ ------ ------
Income(Loss) from Operations 40 (84) (1,153) 678
Income from Financial Investments 3,772 2,814 3,278 2,975
Other Income(Expense) and
Interest Charges (706) (46) 1,670 3,849
------ ------ ------ ------
Income Before Income Taxes 3,106 2,684 3,795 7,502
Income Tax Expense 1,588 627 1,848 2,344
------ ------ ------ ------
Net Income $1,518 $2,057 $1,947 $5,158
====== ====== ====== ======
For the three months ended September 30, 1995 and 1994,
the consolidated subsidiaries contributed $0.10 per share and
$0.15 per share, respectively, to net income. Results for the
individual subsidiaries for the third quarter of 1995 were net
income of $2.0 million for Financial Corporation and a net loss
of $0.5 million for Oregon Natural. Neither Pacific Square nor
Energy Systems realized a gain or a loss for the third quarter of
1995. The $0.5 million decline in subsidiary earnings during the
third quarter of 1995 compared with the third quarter of 1994 was
due to both lower natural gas production and prices received by
Oregon Natural.
Year-to-date for 1995 and 1994, the consolidated
subsidiaries contributed $0.13 per share and $0.39 per share,
respectively, to net income. Year-to-date 1995 results for the
individual subsidiaries were net income of $2.0 million for
Financial Corporation; net income of $0.9 million for Energy
Systems; and a net loss of $1.0 million for Oregon Natural. The
strong subsidiary performance for the first nine months of 1994
included higher earnings of $1.4 million for Oregon Natural
compared with the first nine months of 1995, and a one-time $1.9
million after-tax gain from the sale of Pacific Square's
partnership interest in two commercial office buildings. Oregon
Natural's earnings have declined due to lower natural gas
production and prices. Pacific Square was dissolved during the
second quarter of 1995. Energy Systems no longer has any
significant operating activities.
The following discussion summarizes operating expenses,
other income, interest charges - net, and income taxes.
Operating Expenses
------------------
Operations and Maintenance
--------------------------
Operations and maintenance expenses were $1.2 million,
or two percent, higher for the nine months ended September 30,
1995, than for the equivalent period in 1994. Northwest
Natural's expenses increased $2.1 million primarily due to
increased computer network expenses ($0.8 million), operating
claims ($0.4 million), advertising expenses ($0.3 million),
severance expenses ($0.3 million), and environmental management
expenses ($0.2 million). Subsidiary expenses decreased $0.9
million primarily due to a decline in Oregon Natural's production
costs.
Taxes Other Than Income Taxes
-----------------------------
Taxes other than income taxes declined $1.1 million, or
six percent, in the first nine months of 1995, compared to the
same period in 1994, primarily due to a reduction in accrued
property tax expense.
Depreciation, Depletion and Amortization
----------------------------------------
The Company's depreciation expense increased $2.2
million, or eight percent, in the first nine months of 1995
compared to the same period in 1994. The increase was due to
additional utility plant in service.
Other Income
------------
Other income decreased $1.4 million, or 17 percent, in
the first nine months of 1995 compared to the same period in
1994, due to two non-recurring events. First, in the second
quarter of 1994, Pacific Square realized a $3.2 million pre-tax
gain from the sale of its investments (see "Subsidiary
Operations"). Second, in the second quarter of 1995, Energy
Systems recorded a $2.0 million pre-tax gain resulting from a
final distribution under the reorganization plan of its
California cogeneration subsidiary.
Interest Charges - Net
----------------------
Interest charges increased $1.0 million, or five
percent, for the nine months ended September 30, 1995 compared to
the same period in 1994 primarily due to the sale of $20 million
of Northwest Natural's Medium-Term Notes in September 1994.
Income Taxes
------------
The effective corporate income tax rates for the nine
month periods ended September 30, 1995 and 1994 were 39 percent
and 36 percent, respectively, which approximate the Company's
statutory tax rates for these periods.
Financial Condition
- -------------------
Capital Structure
-----------------
Northwest Natural's capital expenditures are required
for utility construction resulting from customer growth and
system improvements. Northwest 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 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. 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 Company's 1994 Annual Report on Form 10-K).
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. 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 Company's 1994 Annual Report on Form 10-K).
Cash Flows
----------
Operating Activities
--------------------
Cash provided from operating activities was $23.6
million, or 27 percent, lower in the first nine months of 1995
compared to the same period in 1994. The reduction was primarily
due to rate changes effective in December 1994 to amortize credit
balances in regulatory balancing accounts, and also was due to
the effects of weather on accounts receivable, unbilled revenue,
inventories of gas, and accounts payable.
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 1994 Annual
Report on Form 10-K).
Investing Activities
--------------------
Cash requirements in the first nine months of 1995,
primarily related to system improvements and customer growth,
totalled $47.5 million, down $5.7 million, or 11 percent, from
the first nine months of 1994. The decrease resulted largely
from a $3.0 million reduction in costs to construct new mains and
services which was partially offset by a $1.1 million increase in
costs to acquire transportation vehicles. In addition, last
year's utility construction expenditures for the first nine
months included $1.7 million more in long-term storage gas
purchases and $2.6 million more in expenditures related to a
project initiated in 1993 to replace the existing customer
information system.
During the first nine months of 1995 and 1994,
non-utility capital expenditures were primarily for exploration
and development of Oregon Natural's Canadian gas and oil
properties. Oregon Natural anticipates investing up to $10
million, in addition to internally generated cash, in its
Canadian exploration and production program during the three
years 1995 through 1997. During the first quarter of 1995, the
Company invested $4 million in Oregon Natural for such
activities. (See Part II, Item 7. Financial Condition -
"Investing Activities", in the Company's 1994 Annual Report on
Form 10-K).
Financing Activities
--------------------
Cash used for financing activities in the first nine
months of 1995 totalled $16.2 million, down $12.6 million, or 44
percent, from the first nine months of 1994. This reduction was
due principally to the sale by Northwest Natural of $33 million
of its Common Stock in February 1995 as compared to the sale of
$20 million of Northwest Natural's Medium-Term Notes during the
third quarter of 1994. The proceeds from the stock offering were
added to the general funds of the Company and were used for
corporate purposes, primarily to fund, in part, Northwest
Natural's construction program, and to repay short-term debt
incurred for such purpose. Year-to-date earnings per share were
reduced by an estimated one percent due to the dilution effect of
this offering.
The proceeds from the sale of $20 million of Northwest
Natural's Medium-Term Notes in September 1994 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,
1996, committed lines of credit with five commercial banks
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, 1996,
committed lines of credit with two commercial banks totalling $20
million, consisting of a primary fixed amount of $15 million plus
an excess amount of up to $5 million available as needed, at
Financial Corporation's option, on a monthly basis. Financial
Corporation's lines are supported by the guaranty of Northwest
Natural.
Under the terms of these lines of credit, which are
used as backup lines for commercial paper programs, Northwest
Natural and Financial Corporation pay commitment fees but are not
required to maintain compensating bank balances. The interest
rates on borrowings under these lines of credit are based on
current market rates as negotiated. There were no outstanding
balances under either the Northwest Natural or the Financial
Corporation line of credit as of September 30, 1995 or
September 30, 1994.
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, under agency agreements with a
commercial bank. Financial Corporation's commercial paper is
supported by the guaranty of Northwest Natural (see Part II,
Item 8., Note 6, "Notes to Consolidated Financial Statements", in
the Company's 1994 Annual Report on Form 10-K).
Ratio of Earnings to Fixed Charges
----------------------------------
For both the 12 months ended September 30, 1995, and
December 31, 1994, the Company's ratio of earnings to fixed
charges, computed by the Securities and Exchange Commission
method, was 3.08. 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.
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
-----------------
On July 21, 1995, a jury in an Oregon state court
returned a verdict against the Company in the case of Northwest
Natural Gas Company v. Chase Gardens, Inc. (Lane County Circuit
Court Case No. 16-91-01370). The case commenced with a crop lien
foreclosure action by the Company for recovery of past-due gas
service charges. The defendant, Chase Gardens, Inc., counter-
claimed for breach of contract and intentional interference with
its business relationship with a bank, based upon an allegation
that the filing of the crop liens caused its nursery business to
fail.
The jury returned a verdict against the Company on the
breach of contract counter-claim for actual damages of $1.9
million. Alternatively, the jury brought a verdict on the
intentional interference counter-claim for actual damages of $2.1
million, plus punitive damages of $3.0 million. The jury also
allowed the Company's offsetting claim for past-due gas service
charges in the amount of about $0.2 million. It is unclear how
much, if any, of the verdict for either counter-claim would be
covered by liability insurance.
The trial court denied a motion by the Company for
entry of a judgment for the Company, notwithstanding the verdict,
on both of Chase Gardens' counter-claims. The Company has
appealed the decision to the Oregon Court of Appeals, which is
expected to reach a decision in mid-1996.
There are ample legal precedents to support a ruling by
the Court of Appeals in the Company's favor. However, should the
Company be unsuccessful in overturning or reducing the damage
award in this case on appeal, or in recovering any portion of the
loss through insurance, the maximum amount payable by the Company
(not including legal fees, costs and post-judgment interest)
would be about $5.0 million. The payment of such amount would
reduce earnings by about $0.20 per share on an after-tax basis.
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
On July 24, 1995, the Company filed a Current Report on
Form 8-K concerning the verdict against the Company in the case
of Northwest Natural Gas Company v. Chase Gardens, Inc. (see
Part II, Item 5.).
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/ D. James Wilson
Dated: November 3, 1995 ---------------------------------
D. James Wilson
Principal Accounting Officer,
Corporate Controller and Treasurer
<PAGE>
NORTHWEST NATURAL GAS COMPANY
EXHIBIT INDEX
to
Quarterly Report on Form 10-Q
For Quarter Ended
September 30, 1995
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,
---------------- ----------------
1995 1994 1995 1994
------- ------- ------- -------
Earnings (Loss) Applicable to
Common Stock $(5,038) $(4,520) $16,097 $15,228
Preference Stock Dividends - 37 - 112
Debenture Interest Less Taxes 133 135 400 404
------- ------- ------- -------
Net Income (Loss) Available for
Fully-Diluted Common Stock $(4,905) $(4,348) $16,497 $15,744
======= ======= ======= =======
Average Common Shares Outstanding 14,760 13,322 14,459 13,267
Stock Options 8 19 7 19
Convertible Preference Stock - 104 - 104
Convertible Debentures 404 408 404 408
------- ------- ------- -------
Fully-Diluted Common Shares 15,172 13,853 14,870 13,798
======= ======= ======= =======
Fully-Diluted Earnings (Loss)Per
Share of Common Stock $(0.32)* $(0.31)* $1.11 $1.14
======= ======= ======= =======
*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, 1990 - September 30, 1995
($000)
Twelve
Months
Year Ended December 31 Ended
----------------------------------------- Sept.30,
1990 1991 1992 1993 1994 1995
------- ------- ------- ------- ------- --------
Fixed Charges, as
defined:
Interest on Long-
Term Debt $22,244 $21,977 $23,001 $22,578 $21,921 $23,103
Other Interest 2,853 4,266 3,223 1,906 2,473 2,447
Amortization of Debt
Discount and Expense 363 348 511 775 850 888
Interest Portion of
Rentals 1,546 1,485 1,439 1,701 1,697 1,697
------- ------- ------- ------- ------- -------
Total Fixed
Charges, as
defined $27,006 $28,076 $28,174 $26,960 $26,941 $28,135
======= ======= ======= ======= ======= =======
Earnings, as defined:
Net Income $30,724 $14,377 $15,775 $37,647 $35,461 $36,202
Taxes on Income 13,629 2,321 6,951 22,096 20,473 22,352
Fixed Charges,
as above 27,006 28,076 28,174 26,960 26,941 28,135
------- ------- ------- ------- ------- -------
Total Earnings,
as defined $71,359 $44,774 $50,900 $86,703 $82,875 $86,689
======= ======= ======= ======= ======= =======
Ratio of Earnings to
Fixed Charges 2.64 1.59 1.81 3.22 3.08 3.08
==== ==== ==== ==== ==== ====
EXHIBIT 15
DELOITTE & TOUCHE LLP
----------------------------------------------------
3900 US Bancorp Tower Telephone: (503) 222-1341
111 SW Fifth Avenue Facsimile: (503) 224-2172
Portland, OR 97204-3698
October 31, 1995
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, 1995
and 1994, as indicated in our report dated October 31, 1995;
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, 1995, is incorporated by reference in Registration
Statement Nos. 33-63017 and 33-63585, Post-Effective Amendment
No. 1 to Registration Statement No. 2-76276, and Post-Effective
Amendment No. 2 to Registration Statement No. 2-77195 on
Form S-8, and in Registration Statement Nos. 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
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This section of the schedule contains summary financial information
extracted from the consolidated financial statements and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 649,907
<OTHER-PROPERTY-AND-INVEST> 66,932
<TOTAL-CURRENT-ASSETS> 55,470
<TOTAL-DEFERRED-CHARGES> 47,070
<OTHER-ASSETS> 60,430
<TOTAL-ASSETS> 879,809
<COMMON> 46,806
<CAPITAL-SURPLUS-PAID-IN> 169,651
<RETAINED-EARNINGS> 92,846
<TOTAL-COMMON-STOCKHOLDERS-EQ> 309,303
38,778
0
<LONG-TERM-DEBT-NET> 271,048
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<OTHER-INCOME-NET> 6,722
<INCOME-BEFORE-INTEREST-EXPEN> 37,433
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2,115
<EARNINGS-AVAILABLE-FOR-COMM> 16,097
<COMMON-STOCK-DIVIDENDS> 18,862
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<EPS-PRIMARY> $1.11
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