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 June 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
---------
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 -- 14,739,065 shares
<PAGE>
NORTHWEST NATURAL GAS COMPANY
June 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 six month periods ended
June 30, 1995 and 1994 and Consolidated
Statements of Earnings Invested in the
Business for the six month periods ended
June 30, 1995 and 1994. 3
(2) Consolidated Balance Sheets at June 30,
1995 and 1994 and December 31, 1994. 4
(3) Consolidated Statements of Cash Flows for
the six month periods ended June 30, 1995
and 1994. 6
(4) Consolidated Statements of Capitalization
at June 30, 1995 and 1994 and December 31,
1994. 7
(5) Notes to Consolidated Financial Statements. 8
Independent Accountants' Report 10
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders 22
Item 5. Other Events 22
Item 6. Exhibits and Reports on Form 8-K 23
Signature 24
<PAGE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(1) Consolidated Statements of Income
(Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1995 1994 1995 1994
------- ------- -------- -------
<S> <C> <C> <C> <C>
Net Operating Revenues:
Operating revenues $71,029 $66,505 $196,418 $195,039
Cost of sales 29,224 29,286 80,768 85,495
------- ------- -------- --------
Net operating revenues 41,805 37,219 115,650 109,544
------- ------- -------- --------
Operating Expenses:
Operations and maintenance 18,550 17,695 36,131 35,551
Taxes other than income taxes 5,936 6,022 13,390 14,075
Depreciation, depletion and
amortization 9,780 8,912 19,689 18,020
------- ------- -------- --------
Total operating expenses 34,266 32,629 69,210 67,646
------- ------- -------- --------
Income from Operations 7,539 4,590 46,440 41,898
------- ------- -------- --------
Other Income 4,267 4,880 3,180 4,951
------- ------- -------- --------
Interest Charges - net 6,361 5,900 12,923 12,077
------- ------- -------- --------
Income Before Income Taxes 5,445 3,570 36,697 34,772
Income Taxes 1,937 1,105 14,137 13,527
------- ------- -------- --------
Net Income 3,508 2,465 22,560 21,245
Preferred and preference stock
dividend requirements 690 757 1,425 1,497
------- ------- -------- --------
Earnings Applicable to Common Stock $ 2,818 $ 1,708 $ 21,135 $ 19,748
======= ======= ======== ========
Average Common Shares Outstanding 14,700 13,270 14,308 13,239
Primary Earnings Per Share of
Common Stock $0.19 $0.13 $1.48 $1.49
Fully-Diluted Earnings Per Share
of Common Stock * * $1.45 $1.46
Dividends Per Share of Common Stock $0.44 $0.44 $0.88 $0.88
*Anti-dilutive
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
============================================================================
Consolidated Statements of Earnings Invested in the Business
(Thousands, Six Month Periods Ended June 30)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Balance at Beginning of Period $ 97,275 $ 88,497
Net Income 22,560 21,245
Cash Dividends:
Preferred and preference stock (1,455) (1,550)
Common stock (12,375) (11,634)
Capital stock expense and other (1,402) (104)
-------- --------
Balance at End of Period $104,603 $ 96,454
======== ========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(2) Consolidated Balance Sheets
(Thousands of Dollars)
<TABLE>
<CAPTION>
June 30, June 30, Dec. 31,
1995 1994 1994
-------- -------- --------
<S> <C> <C> <C>
Assets:
Plant and Property in Service:
Utility plant in service $936,695 $874,210 $908,238
Less accumulated depreciation 293,789 269,033 279,112
-------- -------- --------
Utility plant - net 642,906 605,177 629,126
Non-utility property 52,211 45,555 49,586
Less accumulated depreciation
and depletion 25,985 22,295 24,456
-------- -------- --------
Non-utility property - net 26,226 23,260 25,130
-------- -------- --------
Total plant and property
in service 669,132 628,437 654,256
-------- -------- --------
Investments and Other:
Investments 32,934 33,996 34,183
Long-term notes receivable 4,551 6,873 2,914
-------- -------- --------
Total investments and other 37,485 40,869 37,097
-------- -------- --------
Current Assets:
Cash and cash equivalents 18,686 2,337 8,068
Accounts receivable - net 19,253 22,056 42,152
Accrued unbilled revenue 5,843 5,728 20,320
Inventories of gas, materials
and supplies 14,387 12,045 14,958
Prepayments and other current
assets 6,160 5,692 10,041
-------- -------- --------
Total current assets 64,329 47,858 95,539
-------- -------- --------
Regulatory Tax Assets 60,430 60,430 60,430
-------- -------- --------
Deferred Debits and Other 45,555 38,588 41,982
-------- -------- --------
Total Assets $876,931 $816,182 $889,304
======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(2) Consolidated Balance Sheets
(Thousands of Dollars)
<TABLE>
<CAPTION>
June 30, June 30, Dec. 31,
1995 1994 1994
-------- -------- ---------
<S> <C> <C> <C>
Capitalization and Liabilities:
Capitalization:
Common stock $215,133 $173,784 $177,133
Earnings invested in the business 104,603 96,454 97,275
-------- -------- --------
Total common stock equity 319,736 270,238 274,408
Preference stock 25,000 26,587 26,252
Redeemable preferred stock 14,840 15,950 15,950
Long-term debt 276,066 272,229 291,076
-------- -------- --------
Total capitalization 635,642 585,004 607,686
-------- -------- --------
Current Liabilities:
Notes payable 16,321 37,780 53,654
Accounts payable 27,903 25,933 48,517
Long-term debt due within one year 16,000 - 1,000
Taxes accrued 5,335 4,446 6,584
Interest accrued 4,574 4,448 4,570
Other current and accrued
liabilities 11,793 10,500 11,757
-------- -------- --------
Total current liabilities 81,926 83,107 126,082
-------- -------- --------
Deferred Investment Tax Credits 12,877 13,892 13,530
-------- -------- --------
Deferred Income Taxes 116,990 109,981 112,433
-------- -------- --------
Regulatory Balancing Accounts and
Other 29,496 24,198 29,573
-------- -------- --------
Contingent Liabilities (Note 3) - - -
-------- -------- --------
Total Capitalization and
Liabilities $876,931 $816,182 $889,304
======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(3) Consolidated Statements of Cash Flows
(Thousands of Dollars)
<TABLE>
Six Months Ended
June 30,
------------------
1995 1994
------- -------
<S> <C> <C>
Operating Activities:
Net income $22,560 $21,245
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Depreciation, depletion and amortization 19,689 18,020
Deferred income taxes and investment tax credits 3,904 6,706
Equity in (earnings) losses of investments 455 (259)
Allowance for funds used during construction (272) (138)
Regulatory balancing accounts and other - net (3,650) 7,008
Cash from operations before working ------- -------
capital changes 42,686 52,582
Changes in operating assets and liabilities:
Accounts receivable 22,899 21,916
Accrued unbilled revenue 14,477 20,162
Inventories of gas, materials and supplies 571 4,793
Accounts payable (20,614) (18,385)
Accrued interest and taxes (1,245) (2,301)
Other current assets and liabilities 3,917 5,540
------- -------
Cash Provided By Operating Activities 62,691 84,307
------- -------
Investing Activities:
Acquisition and construction of utility plant assets (31,412) (36,656)
Investment in non-utility plant (2,881) (2,797)
Investments and other (843) (536)
------- -------
Cash Used In Investing Activities (35,136) (39,989)
------- -------
Financing Activities:
Common stock issued 36,922 2,968
Preference stock retired (174) -
Preferred stock retired (1,110) (1,091)
Long-term debt retired (10) -
Change in short-term debt (37,333) (34,768)
Cash dividend payments:
Preferred and preference stock (1,455) (1,550)
Common stock (12,375) (11,634)
Capital stock expense and other (1,402) (104)
------- -------
Cash Used For Financing Activities (16,937) (46,179)
------- -------
Increase (Decrease) in Cash and Cash Equivalents 10,618 (1,861)
Cash and Cash Equivalents - Beginning of Period 8,068 4,198
------- -------
Cash and Cash Equivalents - End of Period $18,686 $ 2,337
======= =======
=============================================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $12,752 $11,786
Income Taxes $12,504 $ 7,704
=============================================================================
Supplemental Disclosure of Noncash Financing Activities
Conversion to common stock:
$2.375 Series of Convertible Preference Stock $ 1,078 $ 46
7-1/4 percent Series of Convertible Debentures $ - $ 702
=============================================================================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(4) Consolidated Statements of Capitalization
(Thousands, except share amounts)
<TABLE>
<CAPTION>
Jun. 30, 1995 Jun. 30, 1994 Dec. 31, 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK EQUITY:
Common stock - par value $3-1/6
per share $ 46,674 $ 42,103 $ 42,492
Premium on common stock 168,459 131,681 134,641
Earnings invested in business 104,603 96,454 97,275
-------- -------- --------
Total common stock equity 319,736 50% 270,238 46% 274,408 45%
-------- ---- -------- ---- -------- ----
PREFERENCE STOCK:
$2.375 Series, convertible,
stated value $25 per share - 1,587 1,252
$6.95 Series, stated value
$100 per share 25,000 25,000 25,000
-------- -------- --------
Total preference stock 25,000 4% 26,587 5% 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
8.31% Series B due 2019 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 12,066 12,229 12,076
-------- -------- --------
292,066 272,229 292,076
Less long-term debt due within
one-year 16,000 - 1,000
-------- -------- --------
Total long-term debt 276,066 44% 272,229 46% 291,076 48%
-------- ---- -------- ---- -------- ----
TOTAL CAPITALIZATION $635,642 100% $585,004 100% $607,686 100%
======== ==== ======== ==== ======== ====
- ------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<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 six month periods ended June 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 annual dilution of
earnings per share resulting from this sale is estimated at five
percent.
3. Contingent Liabilities
On July 21, 1995, a jury returned a verdict against the
Company which, if reduced to judgment, could cost the Company as
much as $5.0 million, or $0.20 per share. For further
information, see Part II, Item 5., "Other Events".
In June 1995, the Eugene Water and Electric Board in
Eugene, Oregon requested Northwest Natural's participation in its
review of an environmental assessment of property in Eugene.
Within the property was a manufactured gas plant which formerly
was owned but never operated by Northwest Natural. Northwest
Natural has not obtained sufficient information to determine the
extent of any liability or responsibility it may have for any
remediation at this site. For further information as to
environmental matters, see Part II, Item 7., "Environmental
Matters", in the Company's 1994 Annual Report on Form 10-K.
<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 June 30, 1995 and 1994, and the
related consolidated statements of income for the three- and six-
month periods ended June 30, 1995 and 1994, and the consolidated
statements of earnings invested in the business and cash flows for
the six-month periods ended June 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
July 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 six months ended
June 30, 1995 and 1994.
Earnings and Dividends
- ----------------------
The Company earned $2.8 million, or $0.19 per share, for
the second quarter ended June 30, 1995, compared to $1.7 million,
or $0.13 per share, in last year's second quarter. Northwest
Natural's results improved by $2.9 million while subsidiary results
were lower by $1.8 million.
Northwest Natural earned $0.09 per share from utility
operations in the second quarter of 1995, compared to a loss of
$0.12 per share in the same period in 1994.
The 1995 subsidiary results included a gain equivalent to
$0.06 per share resulting from a final distribution to Energy
Systems under the bankruptcy reorganization plan of its California
cogeneration subsidiary. 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 investments (see
"Subsidiary Operations").
The Company earned $21.1 million, or $1.48 per share,
and $19.7 million, or $1.49 per share, for the six months ended
June 30, 1995 and June 30, 1994, respectively. Year-to-date,
Northwest Natural earned $1.45 per share from utility operations,
compared to $1.26 per share in the same period in 1994.
The primary factor affecting second quarter and year-to-
date 1995 earnings was cooler weather in Northwest Natural's
service territory during the second quarter. Weather conditions
were 19 percent cooler than the second quarter of 1994, resulting
in significant increases in gas deliveries to, and related margin
(revenues less cost of gas) from, weather-sensitive customers.
However, during the second quarter of 1995, weather conditions were
six percent warmer than the 20 year average.
The Company estimates that, had temperatures during the
second quarter of 1995 been at the 20-year average, margin would
have been higher by the equivalent of $0.05 per share.
Nevertheless, the cooler weather in this year's second quarter and
the year-to-date period as compared to last year improved margins
by the equivalent of $0.17 per share and $0.07 per share,
respectively. The Company also estimates that permanent rate
changes reduced margins in this year's second quarter and the year-
to-date period by the equivalent of $0.02 per share and $0.06 per
share, respectively. 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.
Subsidiary net income was $1.6 million for the second
quarter ended June 30, 1995, compared to $3.3 million in last
year's second quarter, which included the gain from the sale of
Pacific Square's investments discussed above.
Dividends paid on common stock were $0.44 per share for
both three-month periods ended June 30, 1995 and June 30, 1994. In
July 1995, the Board of Directors of the Company declared a
quarterly dividend of $0.44 per share on its common stock, payable
August 15, 1995, to shareholders of record on July 31, 1995. The
current indicated annual dividend rate is $1.76 per share.
<PAGE>
Results of Operations
- ---------------------
Comparison of Gas Utility Operations
------------------------------------
The following table summarizes the composition of gas
utility volumes and revenues:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gas Sales and Transportation
Volumes - Therms (000's):
Residential and commercial sales 95,408 82,286 287,295 276,527
Unbilled volumes (11,176) (10,731) (26,742) (34,953)
------- ------- ------- --------
Weather-sensitive volumes 84,232 71,555 260,553 241,574
Industrial firm sales 19,992 18,692 43,724 42,135
Industrial interruptible sales 19,725 20,360 43,744 43,988
------- ------- ------- --------
Total gas sales 123,949 110,607 348,021 327,697
Transportation deliveries 92,837 89,571 190,667 178,420
------- ------- ------- --------
Total volumes sold and delivered 216,786 200,178 538,688 506,117
======= ======= ======= ========
Utility Operating Revenues
- Dollars (000's):
Residential and commercial
revenues $56,600 $51,856 $166,077 $170,273
Unbilled revenues (5,866) (6,178) (14,477) (20,163)
------- ------- -------- --------
Weather-sensitive revenues 50,734 45,678 151,600 150,110
Industrial firm sales revenues 7,569 7,989 16,691 18,150
Industrial interruptible sales
revenues 5,649 5,931 12,513 12,980
------- ------- -------- --------
Total gas sales revenues 63,952 59,598 180,804 181,240
Transportation revenues 3,964 3,477 7,777 6,943
Other revenues 1,553 236 4,160 471
------- ------- -------- --------
Total utility operating revenues $69,469 $63,311 $192,741 $188,654
======= ======= ======== ========
Cost of gas $29,224 $29,286 $ 80,768 $ 85,495
======= ======= ======== ========
Total number of customers (end
of period) 396,500 376,800 396,500 376,800
======= ======= ======= ========
Actual degree days 649 544 2,339 2,293
======= ======= ======= ========
20-year average degree days 689 701 2,563 2,592
======= ======= ======= ========
</TABLE>
<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
the volumes of gas sold to these customers. Normal weather
conditions are based upon a 20-year average measured by heating
degree days.
Weather conditions were six percent warmer than average
in the second quarter of 1995, and 19 percent cooler than the
second quarter of 1994. Year-to-date weather conditions in 1995
were nine percent warmer than average, and two percent cooler
than year-to-date in 1994.
The year-to-date effect of the cooler weather on volumes
of gas sold was augmented by the addition of 19,700 new customers
since June 30, 1994. Despite the eight percent increase in
volumes of gas sold attributable to residential and commercial
customers, related revenues increased only 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.
Customer growth continues at a rapid rate relative to
others in the industry. The residential and commercial customers
added since June 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.
Volumes sold to residential and commercial customers
increased by 18 percent for the three month period ended June 30,
1995, compared to the same period in 1994, while corresponding
revenues increased 11 percent, due to the same factors discussed
for the year-to-date results.
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 gas costs.
Industrial, Transportation and Other
------------------------------------
Total volumes delivered to industrial firm, industrial
interruptible and transportation customers were 3.9 million
therms, or three percent, higher in the second quarter of 1995,
and 13.6 million therms, or five percent, higher for the six
months ended June 30, 1995, compared to the same periods in 1994.
The volume increases were primarily due to increased
transportation deliveries to two high volume interruptible
customers.
The combined margin from industrial firm and
interruptible sales and transportation customers increased by 14
percent, from $10.2 million in the second quarter of 1994 to
$11.6 million in the second quarter of 1995. For the current six
month period, margin from these customers increased 12 percent,
from $22.2 million in 1994 to $24.8 million in 1995. The
increases were primarily due to termination of the Interruptible
Sales Adjustment (ISA) tariff schedule in Oregon which became
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 $1.6 million relating to
amortizations of the ISA account and $1.8 million resulting from
other amortizations.
Cost of Gas
-----------
The cost of gas sold was $29 million during the second
quarters of both 1995 and 1994. During the second quarter of
1995, total gas sales volumes increased 12 percent compared to
the second quarter of 1994 while the cost of gas per therm
declined 11 percent.
The cost of gas sold was six percent lower during the six
month period ended June 30, 1995 compared to the same period in
1994. The decrease was due to the combined effect of a six
percent increase in gas sales volumes and an 11 percent decrease
in the cost of gas per therm.
Subsidiary Operations
---------------------
The following table summarizes financial information for the
Company's consolidated wholly-owned subsidiaries:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
Consolidated Subsidiaries
(Thousands): 1995 1994 1995 1994
- ---------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Operating Revenues $1,560 $3,250 $3,677 $6,497
Operating Expenses 2,534 2,563 4,870 5,735
------ ------ ------ ------
Income(Loss) from Operations (974) 687 (1,193) 762
Income(Loss) from Financial
Investments 1,044 1,312 (494) 161
Other Income and Interest
Charges 2,318 3,225 2,376 3,895
------ ------ ------ ------
Income Before Income Taxes 2,388 5,224 689 4,818
Income Tax Expense 835 1,901 260 1,717
------ ------ ------ ------
Net Income $1,553 $3,323 $ 429 $3,101
====== ====== ====== ======
</TABLE>
Consolidated subsidiary results for the three months ended
June 30, 1995 and 1994, were net income equivalent to $0.10 per
share, and $0.25 per share, respectively. Results of operations for
the individual subsidiaries for the second quarter of 1995 were net
income of $1.0 million for Energy Systems; net income of $0.8
million for Financial Corporation; and a net loss of $0.2 million
for Oregon Natural. Pacific Square realized neither a gain nor a
loss for the second quarter of 1995.
The strong subsidiary performance in the second quarter of
1994 resulted primarily from Pacific Square's sale of its
partnership interest in two commercial office buildings, including
the Company's headquarters building. The Company's gain on the sale
was $1.9 million after tax, equivalent to $0.14 per share. Upon
completion of this sale, Pacific Square no longer had any
significant operating activities and was dissolved during the second
quarter of 1995.
The following discussion summarizes operating expenses, other
income, interest charges - net, and income taxes.
Operating Expenses
------------------
Operations and Maintenance
--------------------------
Operations and maintenance expenses were $0.6 million, or two
percent, higher for the six months ended June 30, 1995, than for the
equivalent period in 1994. Northwest Natural's expenses increased
$1.6 million primarily due to the timing of advertising expenses
($0.5 million), increased plant maintenance charges ($0.3 million),
increased computer network operating expenses ($0.4 million), and
increased payroll expenses ($0.2 million). Subsidiary expenses
decreased $1.0 million primarily due to a decline in Oregon
Natural's production costs.
Taxes Other Than Income Taxes
-----------------------------
Taxes other than income taxes decreased $0.7 million, or five
percent, in the first six months of 1995, compared to the same
period in 1994 due to a reduction in accrued property tax expense.
Depreciation, Depletion and Amortization
----------------------------------------
The Company's depreciation expense increased $1.7 million, or
nine percent, in the first six months of 1995 compared to the same
period in 1994. This increase was due to additional utility plant
in service.
Other Income
------------
The decrease in other income for the three and six month
periods ended June 30, 1995, compared to the same periods in 1994,
resulted from two factors. 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 due to a final distribution under the reorganization plan
of its California cogeneration subsidiary.
Interest Charges - Net
----------------------
Interest charges increased $0.8 million, or seven percent,
for the six months ended June 30, 1995 compared to the same period
in 1994 primarily due to the sale of $20 million of Northwest
Natural's Medium-Term Notes during the third quarter of 1994.
Income Taxes
------------
The effective corporate income tax rate was 39 percent for
both the six month periods ended June 30, 1995 and 1994. This rate
approximates the Company's statutory tax rate 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 $21.6 million,
or 26 percent, lower in the first six months of 1995 compared to the
same period in 1994, primarily due to rate changes effective in
December 1994 for the amortization of credit balances in regulatory
balancing accounts and the effects of weather on 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 for utility construction in the first
six months of 1995, primarily related to system improvements and
customer growth, totalled $31.4 million, down $5.2 million, or 14
percent, from the first six months of 1994. The decrease resulted
largely from a $2.4 million reduction in costs to construct new
mains and services. In addition, last year's results for the first
six months included $1.7 million in additional long-term storage gas
and $1.5 million in additional expenditures related to a project
initiated in 1993 to replace the existing customer information
system.
Northwest Natural's construction expenditures are
estimated at $76 million for 1995. Over the five-year period 1995
through 1999, these expenditures are estimated at between $350 and
$375 million. It is anticipated that approximately 60 percent of
the funds required for these expenditures will be internally
generated, and that the remainder will be funded through short-term
borrowings which will be refinanced periodically through the sale of
long-term debt and equity securities.
During the first six months of 1995 and 1994, non-utility
capital expenditures were primarily for exploration and development
of Canadian properties. Oregon Natural anticipates investing up to
$10 million, in addition to internally generated cash, in its
Canadian gas 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 six months
of 1995 totalled $16.9 million, down $29.2 million, or 63 percent,
from the first six months of 1994, due to the sale by Northwest
Natural of 1.15 million shares of its Common Stock in February 1995.
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. Year-to-date earnings per share were reduced by an
estimated three percent due to the dilution effect of this offering.
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 up to
$40 million available as needed, at Northwest Natural's option, on a
monthly basis. Financial Corporation has available through
September 30, 1995, 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. Northwest Natural and Financial Corporation
anticipate extending these lines for an additional year during the
third quarter.
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 lines of
credit as of June 30, 1995 or June 30, 1994.
Commercial Paper
----------------
The Company's primary source of short-term funds is
commercial paper. Both Northwest Natural and Financial Corporation
issue domestic commercial paper, which is supported by the committed
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).
Ratios of Earnings to Fixed Charges
-----------------------------------
For the 12 months ended June 30, 1995, and December 31,
1994, the Company's ratios of earnings to fixed charges, computed by
the Securities and Exchange Commission method, were 3.07 and 3.08,
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.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Northwest Natural's Annual Meeting of Shareholders was
held in Portland, Oregon on May 25, 1995. At the meeting, four
director-nominees were elected to three year terms, as follows:
<TABLE>
<CAPTION>
Share
Term Share Votes Votes
Director-nominee Expiring For Withheld
- ---------------- -------- ----------- --------
<S> <C> <C> <C>
Tod R. Hamachek 1998 12,691,685 182,767
Wayne D. Kuni 1998 12,687,774 186,678
Melody C. Teppola 1998 12,678,204 196,248
Russell F. Tromley 1998 12,701,616 172,836
There were no broker non-votes with respect to the
election of the director-nominees.
The other eight directors whose terms of office as
directors continued after the annual meeting are: Mary Arnstad,
Thomas E. Dewey, Jr., Richard B. Keller, Robert L. Ridgley, Dwight
A. Sangrey, Benjamin R. Whiteley, William R. Wiley and Carlton
Woodard.
The shareholders approved amendments to the Northwest
Natural Gas Company 1985 Stock Option Plan by the following vote:
11,240,093 shares for; 1,116,947 against; and 517,412 abstained.
There were no broker non-votes on this item.
The shareholders also elected Deloitte & Touche LLP,
certified public accountants, as Northwest Natural's auditors for
the year 1995 by the following vote: 12,614,850 shares for; 75,708
against; and 183,894 abstained. There were no broker non-votes on
this item.
Item 5. Other Events
------------
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.
The Company intends to ask the trial court to enter a
judgment for the Company, notwithstanding the verdict, on both of
Chase Gardens' counter-claims. If that effort is unsuccessful, the
Company intends to appeal the decision to the Oregon Court of
Appeals. It is unclear how much, if any, of the verdict for either
counter-claim would be covered by liability insurance.
If the Company is unsuccessful in overturning or reducing
the damage award in this case, 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 $4.9 million. A payment of such amount would reduce
earnings by about $0.20 per share. After a full review, the Company
will determine what portion of this amount to reserve as a charge
against income.
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 Current Reports on Form 8-K were filed during the quarter
ended June 30, 1995.
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: August 4, 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
June 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
</TABLE>
EXHIBIT 11
NORTHWEST NATURAL GAS COMPANY
Statement Re: Computation of Per Share Earnings
(Thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings Applicable to
Common Stock $2,818 $1,708 $21,135 $19,748
Preference Stock Dividends - 38 - 75
Debenture Interest Less Taxes 133 135 267 271
------ ------ ------- -------
Net Income Available for
Fully-Diluted Common Stock $2,951 $1,881 $21,402 $20,094
====== ====== ======= =======
Average Common Shares Outstanding 14,700 13,270 14,308 13,239
Stock Options 9 18 9 21
Convertible Preference Stock - 105 - 105
Convertible Debentures 404 409 404 409
------ ------ ------- -------
Fully-Diluted Common Shares 15,113 13,802 14,721 13,774
====== ====== ======= =======
Fully-Diluted Earnings Per
Share of Common Stock $0.20* $0.14* $1.45 $1.46
====== ====== ======= =======
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.
*Anti-dilutive
</TABLE>
EXHIBIT 12
Northwest Natural Gas Company
Computation of Ratio of Earnings to Fixed Charges
January 1, 1990 - June 30, 1995
($000)
<TABLE>
<CAPTION>
Twelve
Months
-----------Year Ended December 31---------- Ended
June 30,
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges, as defined:
Interest on Long-Term
Debt $22,244 $21,977 $23,001 $22,578 $21,921 $22,737
Other Interest 2,853 4,266 3,223 1,906 2,473 2,617
Amortization of Debt
Discount and Expense 363 348 511 775 850 870
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 $27,921
======= ======= ======= ======= ======= =======
Earnings, as defined:
Net Income $30,724 $14,377 $15,775 $37,647 $35,461 $36,776
Taxes on Income 13,629 2,321 6,951 22,096 20,473 21,083
Fixed Charges, as
above 27,006 28,076 28,174 26,960 26,941 27,921
------- ------- ------- ------- ------- -------
Total Earnings, as
defined $71,359 $44,774 $50,900 $86,703 $82,875 $85,780
======= ======= ======= ======= ======= =======
Ratio of Earnings to
Fixed Charges 2.64 1.59 1.81 3.22 3.08 3.07
======= ======= ======= ======= ======= =======
</TABLE>
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
July 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 June 30, 1995 and
1994, as indicated in our report dated July 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
June 30, 1995, 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
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 642,906
<OTHER-PROPERTY-AND-INVEST> 63,711
<TOTAL-CURRENT-ASSETS> 64,329
<TOTAL-DEFERRED-CHARGES> 45,555
<OTHER-ASSETS> 60,430
<TOTAL-ASSETS> 876,931
<COMMON> 46,674
<CAPITAL-SURPLUS-PAID-IN> 168,459
<RETAINED-EARNINGS> 104,603
<TOTAL-COMMON-STOCKHOLDERS-EQ> 319,736
38,778
0
<LONG-TERM-DEBT-NET> 276,066
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 16,321
<LONG-TERM-DEBT-CURRENT-PORT> 16,000
1,062
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 208,968
<TOT-CAPITALIZATION-AND-LIAB> 876,931
<GROSS-OPERATING-REVENUE> 196,418
<INCOME-TAX-EXPENSE> 14,137
<OTHER-OPERATING-EXPENSES> 149,978
<TOTAL-OPERATING-EXPENSES> 164,115
<OPERATING-INCOME-LOSS> 32,303
<OTHER-INCOME-NET> 3,180
<INCOME-BEFORE-INTEREST-EXPEN> 35,483
<TOTAL-INTEREST-EXPENSE> 12,923
<NET-INCOME> 22,560
1,425
<EARNINGS-AVAILABLE-FOR-COMM> 21,135
<COMMON-STOCK-DIVIDENDS> 12,375
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 62,691
<EPS-PRIMARY> $1.48
<EPS-DILUTED> $1.45
</TABLE>
