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, 1997
-----------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to ________________
Commission file number 0-994
NORTHWEST NATURAL GAS COMPANY
(Exact name of registrant as specified in its charter)
Oregon 93-0256722
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 N. W. Second Avenue, Portland, Oregon 97209
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (503) 226-4211
-------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
At November 7, 1997, 22,780,914 shares of the registrant's Common Stock, $3-1/6
par value (the only class of Common Stock) were outstanding.
<PAGE>
NORTHWEST NATURAL GAS COMPANY
September 30, 1997
Summary of Information Reported
The registrant submits herewith the following information:
PART I. FINANCIAL INFORMATION
Page Number
-----------
Item 1. Financial Statements
(1) Consolidated Statements of Income for the three 3
and nine month periods ended September 30,
1997 and 1996, and Consolidated Statements of
Earnings Invested in the Business for the
nine-month periods ended September 30, 1997
and 1996.
(2) Consolidated Balance Sheets at September 30, 4
1997 and 1996 and December 31, 1996.
(3) Consolidated Statements of Cash Flows for 5
the nine-month periods ended September 30,
1997 and 1996.
(4) Consolidated Statements of Capitalization at 6
September 30, 1997 and 1996 and December 31,
1996.
(5) Notes to Consolidated Financial Statements. 7
Item 2. Management's Discussion and Analysis of 8
Results of Operations and Financial Condition
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
<PAGE>
<TABLE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(1) Consolidated Statements of Income
(Thousands, Except Per Share Amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Operating Revenues:
Operating revenues ............ $ 46,283 $ 50,585 $246,485 $260,030
Cost of sales ................. 13,795 16,007 86,232 95,765
-------- -------- -------- --------
Net operating revenues ... 32,488 34,578 160,253 164,265
Operating Expenses:
Operations and maintenance .... 18,481 17,326 57,613 55,440
Taxes other than income taxes . 3,493 3,802 15,003 16,697
Depreciation, depletion
and amortization ............. 10,875 8,736 31,797 32,170
-------- -------- -------- --------
Total operating expenses . 32,849 29,864 104,413 104,307
-------- -------- -------- --------
Income (Loss) from Operations ...... (361) 4,714 55,840 59,958
Other Income ....................... 1,598 1,949 2,439 6,955
Interest Charges - net ............. 7,320 6,617 20,765 19,389
-------- -------- -------- --------
Income (Loss) Before Income Taxes .. (6,083) 46 37,514 47,524
Income Taxes ....................... (3,635) (209) 12,849 18,405
-------- -------- -------- --------
Net Income (Loss) .................. (2,448) 255 24,665 29,119
Redeemable preferred and
preference stock dividend
requirements ...................... 653 673 1,992 2,049
-------- -------- -------- --------
Earnings (Loss) Applicable
to Common Stock $ (3,101) $ (418) $ 22,673 $ 27,070
======== ======== ======== ========
Average Common Shares
Outstanding ....................... 22,734 22,435 22,662 22,351
Earnings (Loss) per share
of common stock:
Primary ....................... $ (0.14) $ (0.02) $1.00 $1.21
Fully-Diluted ................. * * $0.99 $1.20
Dividends Per Share of
Common Stock ...................... $ 0.30 $ 0.30 $0.90 $0.90
</TABLE>
See Notes to Consolidated Financial Statements
* Anti-dilutive
================================================================================
<TABLE>
Consolidated Statements of Earnings Invested in the Business
(Thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
Balance at Beginning of Period ....................... $ 98,376 $ 105,651
Net Income ........................................... 24,665 29,119
Cash dividends:
Redeemable preferred and preference stock ......... (2,006) (2,061)
Common stock ...................................... (20,373) (20,091)
Stock Dividend ....................................... -- (23,704)
Foreign currency translation and capital stock expense (1) (614)
--------- ---------
Balance at End of Period ............................. $ 100,661 $ 88,300
========= =========
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(2) Consolidated Balance Sheets
(Thousands of Dollars)
<CAPTION>
(Unaudited) (Unaudited)
September 30, September 30, Dec. 31,
1997 1996 1996
---------- ---------- ----------
<S> <C> <C> <C>
Assets:
Plant and Property in Service:
Utility plant in service .................. $1,122,500 $1,028,941 $1,055,112
Less accumulated depreciation ............. 359,378 329,997 336,141
---------- ---------- ----------
Utility plant - net .................. 763,122 698,944 718,971
Non-utility property ...................... 52,252 44,259 45,689
Less accumulated depreciation and depletion 21,577 15,493 19,388
---------- ---------- ----------
Non-utility property - net ........... 30,675 28,766 26,301
---------- ---------- ----------
Total plant and property in service .. 793,797 727,710 745,272
Investments and Other:
Investments ............................... 35,230 32,764 33,008
Long-term notes receivable ................ 1,211 1,684 1,715
---------- ---------- ----------
Total investments and other .......... 36,441 34,448 34,723
Current Assets:
Cash and cash equivalents ................. 4,332 4,034 8,219
Accounts receivable - net ................. 19,165 19,890 40,833
Accrued unbilled revenue .................. 6,467 6,549 22,340
Inventories of gas, materials and supplies 18,779 16,778 14,439
Prepayments and other current assets ...... 9,047 8,745 12,483
---------- ---------- ----------
Total current assets ................. 57,790 55,996 98,314
Regulatory Tax Assets .......................... 59,640 60,430 57,940
Deferred Debits and Other ...................... 70,027 50,216 52,620
---------- ---------- ----------
Total Assets ......................... $1,017,695 $ 928,800 $ 988,869
========== ========== ==========
Capitalization and Liabilities:
Capitalization:
Common stock ............................. $ 253,353 $ 246,570 $ 248,402
Earnings invested in the business ........ 100,661 88,300 98,376
----------- ---------- ----------
Total common stock equity ........... 354,014 334,870 346,778
Redeemable preference stock .............. 25,000 25,000 25,000
Redeemable preferred stock ............... 12,429 13,749 13,749
Long-term debt ........................... 325,396 253,189 271,838
----------- ---------- ----------
Total capitalization ................ 716,839 626,808 657,365
----------- ---------- ----------
Current Liabilities:
Notes payable ............................ 60,850 48,170 50,058
Accounts payable ......................... 32,980 27,469 64,795
Long-term debt due within one year ....... 15,000 25,000 26,000
Taxes accrued ............................ (56) 3,798 3,196
Interest accrued ......................... 8,939 7,255 5,396
Other current and accrued liabilities .... 20,289 13,584 19,418
----------- ---------- ----------
Total current liabilities ........... 138,002 125,276 168,863
Deferred Investment Tax Credits ............... 12,344 11,999 11,668
Deferred Income Taxes ......................... 135,295 123,999 123,625
Regulatory Accounts and Other ................. 15,215 40,718 27,348
Commitments and Contingencies.................. - - -
----------- ---------- ----------
Total Capitalization and Liabilities $ 1,017,695 $ 928,800 $ 988,869
=========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(3) Consolidated Statements of Cash Flows
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Operating Activities:
Net income ........................................................ $ 24,665 $ 29,119
Adjustments to reconcile net income to cash provided by operations:
Depreciation, depletion and amortization ...................... 31,797 32,170
Gain on sale of assets ........................................ -- (2,897)
Deferred income taxes and investment tax credits .............. 12,346 4,813
Equity in losses of investments ............................... (1,143) (1,257)
Allowance for funds used during construction .................. (1,261) (1,138)
Regulatory accounts and other - net ........................... (19,107) (1,063)
-------- --------
Cash from operations before working capital changes ...... 47,297 59,747
Changes in operating assets and liabilities:
Accounts receivable ...................................... 21,668 14,495
Accrued unbilled revenue ................................. 15,873 14,944
Inventories of gas, materials and supplies ............... (4,340) (2,524)
Accounts payable ......................................... (31,815) (14,315)
Accrued interest and taxes ............................... 291 (3,845)
Other current assets and liabilities ..................... (7,726) 5,781
-------- --------
Cash Provided By Operating Activities ......................... 41,248 74,283
-------- --------
Investing Activities:
Acquisition and construction of utility plant assets .............. (71,520) (54,742)
Investment in non-utility plant ................................... (7,541) (3,920)
Investments and other ............................................. (675) 2,941
-------- --------
Cash Used In Investing Activities ............................. (79,736) (55,721)
-------- --------
Financing Activities:
Common stock issued ............................................... 4,509 4,209
Redeemable preferred stock retired ................................ (1,320) (1,091)
Long-term debt issued ............................................. 70,000 --
Long-term debt retired ............................................ (27,000) (26,000)
Change in short-term debt ......................................... 10,792 23,338
Cash dividend payments:
Redeemable preferred and preference stock ..................... (2,006) (2,061)
Common stock .................................................. (20,373) (20,091)
Foreign currency translation and capital stock expense ............ (1) (614)
-------- --------
Cash Used For Financing Activities ............................ 34,601 (22,310)
-------- --------
Increase In Cash and Cash Equivalents .................................. (3,887) (3,748)
Cash and Cash Equivalents - Beginning of Period ........................ 8,219 7,782
-------- --------
Cash and Cash Equivalents - End of Period .............................. $ 4,332 $ 4,034
======== ========
===============================================================================================
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest ...................................................... $17,718 $16,623
Income Taxes .................................................. $ 7,284 $19,900
===============================================================================================
Supplemental Disclosure of Noncash Financing Activities
Conversion to common stock:
7-1/4 percent Series of Convertible Debentures ................ $442 $756
===============================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(4) Consolidated Statements of Capitalization
(Thousands, Except Per Share Amounts)
<CAPTION>
(Unaudited) (Unaudited)
September 30, 1997 September 30, 1996 Dec. 31, 1996
------------------ ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK EQUITY:
Common stock - par value $3-1/6 per share ..... $ 72,105 $ 71,170 $ 71,425
Premium on common stock ....................... 181,248 175,400 176,977
Earnings invested in the business ............. 100,661 88,300 98,376
-------- -------- --------
Total common stock equity ................ $354,014 50% $334,870 53% $346,778 53%
-------- ---- -------- ---- -------- ----
REDEEMABLE PREFERENCE STOCK:
$6.95 Series, stated value $100 per share ...... 25,000 25,000 25,000
-------- -------- --------
Total redeemable preference stock ......... 25,000 3% 25,000 4% 25,000 4%
-------- ---- -------- ---- -------- ----
REDEEMABLE PREFERRED STOCK, stated value
$100 per share:
$4.68 Series .................................. - 391 391
$4.75 Series .................................. 429 608 608
$7.125 Series .................................. 12,000 12,750 12,750
-------- -------- --------
Total redeemable preferred stock .......... 12,429 2% 13,749 2% 13,749 2%
-------- ---- -------- ---- -------- ----
LONG-TERM DEBT:
First Mortgage Bonds
9-3/4% Series due 2015 .................... 50,000 50,000 50,000
9-1/8% Series due 2019 .................... 20,000 22,000 22,000
Medium-Term Notes
First Mortgage Bonds:
7.38% Series A due 1997 ................... - 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
6.80% Series B due 2007 ................... 10,000 - -
6.50% Series B due 2008 ................... 5,000 5,000 5,000
8.26% Series B due 2014 ................... 10,000 10,000 10,000
7.00% Series B due 2017 ................... 40,000 - -
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
6.52% Series B due 2025 ................... 10,000 10,000 10,000
7.05% Series B due 2026 ................... 20,000 - 20,000
7.00% Series B due 2027 ................... 20,000 - -
Unsecured:
7.40% Series A due 1997 ................... - 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 .................... 10,396 11,189 10,838
-------- -------- --------
340,396 278,189 297,838
Less long-term debt due within one year ............. 15,000 25,000 26,000
-------- -------- --------
Total long-term debt ........................... 325,396 45% 253,189 41% 271,838 41%
-------- ---- -------- ---- -------- ----
TOTAL CAPITALIZATION ........................... $716,839 100% $626,808 100% $657,365 100%
======== ==== ========= ==== ======== ====
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(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 management 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 1996 Annual Report on Form 10-K (1996 Form 10-K). A significant part
of the business of the Company is of a seasonal nature; therefore, results of
operations for the interim periods are not necessarily indicative of the results
for a full year.
Certain amounts from prior periods have been reclassified to
conform with the 1997 presentation.
2. Recently Issued Accounting Standard
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share
and Disclosure of Information About Capital Structure." SFAS No. 128 applies to
entities with publicly held common stock and is effective for financial
statements issued for periods ending after December 15, 1997. SFAS No. 128
replaces Accounting Principles Board Opinion No. 15, "Earnings Per Share", and
simplifies the computation of earnings per share by replacing the presentation
of primary earnings per share with a presentation of basic earnings per share.
The impact of the SFAS No. 128 calculation for the first nine months of 1997 is
not material.
3. Contingencies
See Part II, Item 7., "Contingent Liabilities" and "Environmental
Matters" in the 1996 Form 10-K.
<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, doing business as NW Natural
(NW Natural)
Non-regulated wholly-owned businesses:
NNG Financial Corporation (Financial Corporation)
Canor Energy, Ltd. (Canor)
One other subsidiary, Oregon Natural Gas Development Corporation
(Oregon Natural), was merged with and into NW Natural during the second quarter
of 1996.
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 1996 Annual Report on
Form 10-K (1996 Form 10-K)).
The following is management's assessment of the Company's
financial condition including the principal factors that affect results of
operations. The discussion refers to the consolidated activities of the Company
for the three and nine months ended September 30, 1997 and 1996.
Forward-Looking Statements
- --------------------------
This report and other presentations made by the Company from
time to time may contain forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements include statements concerning plans, objectives, goals, strategies,
future events or performance, and other statements which are other than
statements of historical facts. The Company's expectations, beliefs and
projections are expressed in good faith and are believed by the Company to have
a reasonable basis. However, each such forward-looking statement involves
uncertainties and is qualified in its entirety by reference to the following
important factors that could cause the actual results of the Company to differ
materially from those projected in such forward-looking statements: (i)
prevailing governmental policies and regulatory actions, including those of the
Oregon Public Utility Commission (OPUC) and the Washington Utilities and
Transportation Commission (WUTC), with respect to allowed rates of return,
industry and rate structure, purchased gas and investment recovery, acquisitions
and dispositions of assets and facilities, operation and construction of plant
facilities, present or prospective wholesale and retail competition, changes in
tax laws and policies and changes in and compliance with environmental and
safety laws and policies; (ii) weather conditions and other natural phenomena;
(iii) unanticipated population growth or decline, and changes in market demand
and demographic patterns; (iv) competition for retail and wholesale customers;
(v) pricing of natural gas relative to other energy sources; (vi) unanticipated
changes in interest rates or in rates of inflation; (vii) unanticipated changes
in operating expenses and capital
<PAGE>
expenditures; (viii) capital market conditions; (ix) competition for new energy
development opportunities; and (x) legal and administrative proceedings and
settlements. All subsequent forward-looking statements, whether written or oral
and whether made by or on behalf of the Company, also are expressly qualified by
these cautionary statements.
Any forward-looking statement speaks only as of the date on
which such statement is made, and the Company undertakes no obligation to update
any forward-looking statement to reflect events or circumstances after the date
on which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for the
Company to predict all such factors, nor can it assess the impact of each such
factor or the extent to which any factor, or combination of factors, may cause
results to differ materially from those contained in any forward-looking
statement.
Earnings and Dividends
- ----------------------
The Company incurred a loss of 14 cents a share for the quarter ended
September 30, 1997, compared to a loss of 2 cents a share in last year's third
quarter. The loss applicable to common stock was $3.1 million in the third
quarter of 1997 and $0.4 million in the third quarter of 1996. A third quarter
loss is customary for NW Natural, reflecting low summertime use of natural gas.
NW Natural lost 19 cents a share from utility operations in the third
quarter of 1997, compared to a loss of 8 cents a share in the same period in
1996. The third quarter of 1996 included non-recurring gains totaling 8 cents
a share due to prior-period adjustments relating to depreciation, property tax
and conservation expense. The Company estimates that the weather-related
reduction in gross margin revenues (margin) during the third quarter of 1997 was
equivalent to about 1 cent a share compared to a similar period with average
weather and 3 cents a share compared to the same period in 1996. These estimates
are derived from the Company's internal planning model (see Part II, Item 7.,
"Earnings and Dividends" in the 1996 Form 10-K). The model also estimates that
customer growth in the residential and commercial segments since September 30,
1996 contributed $1.2 million of margin during the third quarter of 1997.
The Company earned $22.7 million, or $1.00 a share, and $27.1
million, or $1.21 a share, for the nine months ended September 30, 1997 and
1996, respectively. Year-to-date, NW Natural earned 92 cents a share from
utility operations compared to $1.12 a share in the same period in 1996. Weather
in the first nine months of the year was 8 percent warmer in 1997 than in 1996,
resulting in an estimated 8 cents a share decrease in margin from residential
and commercial customers. Last year's utility results for the first nine months
included non-recurring gains totaling 8 cents a share due to the prior-period
adjustments relating to property tax and conservation expense.
NW Natural's subsidiaries earned 5 cents a share during the
third quarter of 1997, compared to 6 cents in the third quarter of 1996.
Year-to-date subsidiary results were 8 cents a share for 1997 and 9 cents a
share for 1996. See "Subsidiary Operations" below.
Dividends paid on common stock were 30 cents a share for the
three-month periods ended September 30, 1997 and 1996. In October 1997, the
Company's Board of Directors declared a higher quarterly dividend of 30.5 cents
a share on the common stock,
<PAGE>
payable November 15, 1997, to shareholders of record on October 31, 1997. The
current indicated annual dividend rate is $1.22 a share.
Results of Operations
- ---------------------
Comparison of Gas Operations
----------------------------
<TABLE>
The following table summarizes the composition of gas utility
volumes and revenues:
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ---------------------
1997 1996 1997 1996
------- ------ ------- -------
<S> <C> <C> <C> <C>
Gas Sales and Transportation Volumes
- Therms (000's):
Residential and commercial sales ....... 46,626 46,961 387,258 377,849
Unbilled volumes ....................... 2,725 3,653 (32,953) (28,932)
--------- --------- --------- ---------
Weather-sensitive volumes ......... 49,351 50,614 354,305 348,917
Industrial firm sales .................. 17,862 19,094 62,086 68,763
Industrial interruptible sales ......... 11,879 12,087 39,317 48,606
--------- --------- --------- ---------
Total gas sales ................... 79,092 81,795 455,708 466,286
Transportation deliveries .............. 105,617 98,165 319,495 300,075
--------- --------- --------- ---------
Total volumes sold and delivered ....... 184,709 179,960 775,203 766,361
========= ========= ========= =========
Utility Operating Revenues - Dollars (000's):
Residential and commercial revenues .... $ 27,704 $ 28,626 $ 202,968 $ 206,894
Unbilled revenues ...................... 1,274 1,491 (16,522) (14,943)
--------- --------- --------- ---------
Weather-sensitive revenues ........ 28,978 30,117 186,446 191,951
Industrial firm sales revenues ......... 5,658 6,335 19,861 23,229
Industrial interruptible sales revenues 2,958 3,387 9,981 13,247
--------- --------- --------- ---------
Total gas sales revenues .......... 37,594 39,839 216,288 228,427
Transportation revenues ................ 5,232 5,703 16,395 16,539
Other revenues ......................... 1,079 2,777 6,484 7,973
--------- --------- --------- ---------
Total utility operating revenues ....... $ 43,905 $ 48,319 $ 239,167 $ 252,939
========= ========= ========= =========
Cost of gas sold - Dollars (000's) .......... $ 13,710 $ 15,969 $ 86,047 $ 95,727
========= ========= ========= =========
Total number of customers (end of period) ... 441,906 418,116 441,906 418,116
========= ========= ========= =========
Actual degree days .......................... 49 137 2,565 2,790
========= ========= ========= =========
20-year average degree days ................. 106 104 2,638 2,647
========= ========= ========= =========
</TABLE>
<PAGE>
Residential and Commercial
--------------------------
Typically, 75 percent or more of NW Natural's annual operating
revenues are derived from gas sales to weather-sensitive residential and
commercial customers. Accordingly, variations in temperatures between periods
will affect volumes of gas sold to these customers. Average weather conditions
are calculated from the most recent 20 years of temperature data measured by
heating degree days. Weather conditions as measured in degree days (see Part II,
Item 7, "Earnings and Dividends" in the 1996 Form 10-K) were 54 percent warmer
than average in the third quarter of 1997 and 64 percent warmer than in the
third quarter of 1996.
NW Natural continues to experience rapid customer growth, with
23,790 customers added since September 30, 1996, for a growth rate of 5.7
percent. In the three years ended December 31, 1996, almost 61,000 customers
were added to the system, representing an average annual growth rate of 5.2
percent.
Although the volumes of gas sold to residential and commercial
customers were 2 percent, or 5.4 million therms, higher in the first nine months
of 1997 than in the first nine months of 1996, related margin increased by only
$0.6 million, or less than 1 percent. The increased margin relating to customer
growth was offset by rate reductions effective December 1, 1996 which
incorporated a lower cost of gas than the year-to-date actual cost of gas.
Volumes of gas sold to residential and commercial customers
were lower by 1.3 million therms, or 2 percent, in the third quarter of 1997
compared to the third quarter of 1996. Margin was $0.3 million, or 1 percent,
lower reflecting both the warmer weather and the rate reductions referred to
above.
Industrial, Transportation and Other Revenues
---------------------------------------------
Total volumes delivered to industrial firm, industrial
interruptible, and transportation customers were 6.0 million therms, or 5
percent, higher in the three months ended September 30, 1997 than in the same
period of 1996. Transportation volumes increased 7.4 million therms while gas
sales to industrial firm and interruptible customers decreased 1.4 million
therms as compared to the third quarter of 1996. Margin from these customers
decreased 9 percent from $12.5 million in the third quarter of 1996 to $11.4
million in the third quarter of 1997, due to transfers of some of these
customers from a higher margin to a lower margin schedule or special contract
rates.
For the current nine-month period, total volumes delivered to
industrial and transportation customers increased 3.5 million therms from 1996.
Margin from these customers was 6 percent lower than in the first nine months of
1996.
Other revenues, which primarily consist of amortizations of
regulatory account balances (see Part II, Item 8., Note 1, "Notes to
Consolidated Financial Statements" in the 1996 Form 10-K), decreased $1.7
million, or 61 percent, during the third quarter of 1997 and $1.5 million, or 19
percent, year-to-date compared to 1996. During the third quarter of 1996, other
revenues included two non-recurring gains. NW Natural recorded a gain equivalent
to 2 cents a share due to an increase, retroactive to January 1994, in the
amount recoverable through its rates for costs and lost revenues in connection
with an energy conservation program approved by the OPUC. NW Natural also
<PAGE>
recorded a gain equivalent to 2 cents a share due to a settlement with the OPUC
concerning amounts to be refunded to Oregon customers from NW Natural's
prior-year savings in property taxes and Oregon income taxes.
Cost of Gas
-----------
Total cost per therm of gas sold was 11 percent lower during
the third quarter of 1997, and 8 percent lower year-to-date, than in the same
periods of 1996. The cost of gas sold includes current gas purchases, gas drawn
from storage, demand cost equalization, regulatory deferrals, and company use.
The average cost per therm of gas purchased was 6 percent lower in the third
quarter of 1997, but was 15 percent higher year-to-date than in the same period
last year, due to fluctuations in prices NW Natural paid for the portion of its
gas supplies tied to monthly market price indexes.
NW Natural absorbed 20 percent of the higher cost of gas
purchased, as compared to projections, under its Purchased Gas Adjustment (PGA)
tariff in Oregon. The remaining 80 percent of such higher gas costs was recorded
as deferred debits (regulatory assets) and is expected to be recovered under the
Oregon PGA tariff through temporary rate surcharges commencing in December 1997.
NW Natural's ability to recover these amounts is subject to a review by the OPUC
to determine whether its weather-normalized earnings during the 12 months ended
June 30, 1997, were higher than a reasonable cost of equity capital during that
period so as to warrant the absorption of some or all of such excess costs.
On October 24, 1997, NW Natural filed with the OPUC for a rate
increase of $33 million per year. The proposed increase would recover over two
years the deferred debit balance of $20 million estimated as of November 30,
1997, for higher gas costs experienced in the year ended June 30, 1997,
partially offset in the first year by about $6 million in deferred credit
balances in other accounts. The proposed increase also would recover higher gas
costs of $29 million per year expected to be experienced under gas supply
contracts for the year ending October 31, 1998. The proposed rate increase
averages 9.4 percent for NW Natural's Oregon residential customers and would be
effective December 1, 1997. In the event the OPUC were not to allow recovery of
any portion of such costs, NW Natural may be required to recognize as current
expense any disallowed deferred debits, and to charge to expense as incurred any
disallowed higher future gas costs.
<PAGE>
Subsidiary Operations
---------------------
<TABLE>
The following table summarizes financial information for the
Company's consolidated wholly-owned subsidiaries:
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Consolidated Subsidiaries (Thousands):
Net Operating Revenues ............... $ 2,293 $ 2,228 $ 7,133 $ 7,053
Operating Expenses ................... 2,123 2,103 6,110 8,971
------- ------- ------- -------
Income (Loss) from Operations ........ 170 125 1,023 (1,918)
Income from Financial Investments .... 1,250 1,548 1,143 1,220
Other Income and Interest Charges .... 102 121 227 3,633
------- ------- ------- -------
Income Before Income Taxes .......... 1,522 1,794 2,393 2,935
Income Tax Expense ................... 380 453 633 994
------- ------- ------- -------
Net Income ........................... $ 1,142 $ 1,341 $ 1,760 $ 1,941
======= ======= ======= =======
</TABLE>
Results of operations for the individual subsidiaries for the
third quarter of 1997 were net income of $100 thousand for Canor, as compared to
$80 thousand for the same period last year, and net income of $1.0 million for
Financial Corporation, down from $1.3 million in the third quarter of 1996.
Results for Financial Corporation were lower due to poorer operating results
from its investments in windpower energy facilities in California.
Operating Expenses
------------------
Operations and Maintenance
--------------------------
Operations and maintenance expenses were $2.2 million, or 4 percent,
higher in the nine months ended September 30, 1997 compared to the same
period in 1996. NW Natural's operations and maintenance expenses increased $2.7
million due to higher payroll and benefits costs resulting from a new labor
agreement effective April 1, 1997; increased marketing expenses in the
commercial and industrial customer segments; information systems costs for
network and communication system upgrades; and cost increases associated with
customer growth. Subsidiary operating expenses decreased by $0.5 million
primarily due to decreased gas and oil exploration and production costs.
Taxes Other than Income
-----------------------
Taxes other than income for the nine months ended September 30, 1997
decreased $1.7 million, or 10 percent. NW Natural's property tax expense was
lower than last year because of settlements reached in 1996 relating to property
valuations and regulatory treatment of reduced property taxes ($2.0 million).
Payroll taxes were higher due to increased payroll costs ($0.4 million), while
franchise taxes declined ($0.2 million) due to lower revenues.
<PAGE>
Depreciation, Depletion and Amortization
----------------------------------------
The Company's depreciation expense decreased $0.4 million, or
1 percent, as compared to the first nine months of 1996. Depreciation expense
for NW Natural increased by $1.9 million year-to-date over 1996 due to an
increase of more than $64 million in net utility plant in service. Customer
growth contributed to an increase of $1.6 million in depreciation expense for
mains and services in the first nine months of 1997, while investments in
technology increased depreciation expense by $0.2 million. Depreciation expense
for the subsidiaries was lower by $2.3 million in the first nine months of 1997
due to charges for impairment ($1.3 million) and abandonment ($1.0 million)
recorded by Oregon Natural in 1996 pursuant, respectively, to the adoption of
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," and the write-down of unproven properties.
Other Income (Expense)
----------------------
The Company's other income was $4.5 million lower in the first
nine months of 1997 compared with the same period in 1996. A one-time $2.9
million gain was recorded in the first quarter of 1996 from the sale of Oregon
Natural's underground gas storage assets to NW Natural. In addition, a gain of
$1.0 million was recorded in the second quarter of 1996 due to a refund of
property taxes in connection with a settlement of a property valuation appeal in
Oregon. Interest income for the first nine months of 1997 declined $0.9 million
due to a reduction in earnings from funds used during construction ($0.4
million) and a reduction in interest income from lower cash balances invested.
Interest Charges - net
----------------------
The Company's net interest expense increased $1.4 million, or
7 percent, in the first nine months of 1997 compared to the same period in 1996.
Long-term debt and short-term commercial paper balances were higher in the first
nine months of 1997 primarily due to increased gas purchase costs and
construction expenditures. Partially offsetting the higher interest charges was
an increase in the Allowance for Funds Used During Construction (AFUDC) due to
increased construction work in progress principally relating to the development
of NW Natural's new customer information system.
Income Taxes
------------
The effective corporate income tax rates for the nine months ended
September 30, 1997 and 1996 were 34.3 percent and 38.7 percent, respectively.
This year's effective rate was lower due to the adjustment of the prior year
estimate to actual and the flow-through treatment of property tax refunds.
Financial Condition
- -------------------
Capital Structure
-----------------
NW Natural's capital expenditures are primarily related to utility
construction resulting from customer growth and system improvements. NW Natural
finances these expenditures from cash provided by operations and from short-term
borrowings which are periodically refinanced through the sale of long-term debt
or equity securities. In addition to its capital expenditures, the weather-
sensitive nature of revenue
<PAGE>
derived from gas usage by NW Natural's residential
and commercial customers influences the Company's financing requirements from
one quarter to the next. Short-term liquidity is satisfied primarily through
the sale of commercial paper, which is supported by commercial bank lines of
credit (see Part II, Item 8., Note 6, "Notes to Consolidated Financial
Statements" in the 1996 Form 10-K).
The Company's long-term goal is to maintain a capital structure
comprised of 45 to 50 percent common stock equity, 5 to 10 percent preferred
and preference stock and 45 to 50 percent short-term and long-term debt. When
additional capital is required, the Company issues debt or equity securities
depending upon both the target capital structure and market conditions. The
Company also uses these sources to meet long-term debt and preferred stock
redemption requirements (see Part II, Item 8., Notes 3 and 5, "Notes to
Consolidated Financial Statements" in the 1996 Form 10-K).
Cash Flows
----------
Operating Activities
--------------------
Cash provided by operating activities was $33.0 million, or 44
percent, lower in the first nine months of 1997 than in the same period in 1996.
The decline was primarily due to reduced earnings ($4.5 million), a decrease in
accounts payable ($17.5 million), a net increase in regulatory accounts ($18.0
million) and a change in other current assets and liabilities ($13.5 million).
Offsetting the reductions were a decrease in accounts receivable ($7.2 million),
a reduction in the gain on sale of assets ($2.9 million), a net increase in
accrued interest and taxes ($4.1 million), and increases in deferred income
taxes and investment tax credits ($7.5 million).
The Company has lease and purchase commitments relating to its
operating activities which are financed with cash flows from operations (see
Part II, Item 8., Note 13, "Notes to Consolidated Financial Statements" in the
1996 Form 10-K).
Investing Activities
--------------------
Cash requirements for utility construction in the first nine
months of 1997 totaled $71.5 million, up $16.8 million, or 31 percent, from the
first nine months of 1996. The increase resulted largely from construction of
new mains and services; replacement and reinforcement of existing mains and
services; vehicle fleet additions; special projects relating to system
expansion; expansion of the Mist underground gas storage facility; and the
development of a new customer information system.
NW Natural's construction expenditures are estimated at $110
million for 1997. Over the five-year period 1997 through 2001, these
expenditures are estimated at between $500 and $550 million. The high capital
expenditures during the next five years reflect projected customer growth, a
higher level of system reinforcement and the development of additional
underground storage facilities. It is anticipated that approximately 50 percent
of the funds required for these expenditures will be internally generated, and
that the remainder will be funded through the sale of long-term debt and equity
securities with short-term debt providing liquidity and bridge financing.
In the first nine months of 1997, non-utility expenditures of
$7.5 million were Canor's investments in Canadian exploration and production
properties. Canor has
<PAGE>
used its internally generated funds, in addition to $3.0
million invested by NW Natural in the first quarter of 1997, for the development
of Canadian gas exploration and production properties during the current year.
(See Part II, Item 7. Financial Condition, "Investing Activities," in the 1996
Form 10-K.)
Financing Activities
--------------------
Cash provided by financing activities in the first nine months
of 1997 totaled $34.6 million, up $56.9 million from the first nine months of
1996. Proceeds from the sale of $70 million of medium-term notes in the first
nine months of 1997 (see Part II, Item 5, "Medium-Term Note Program") were used
to retire $27 million in maturing long-term debt and for other corporate
purposes. In the first nine months of 1996, $26.0 million of long-term debt was
retired.
Lines of Credit
---------------
NW Natural has available through September 30, 1998, committed
lines of credit with five commercial banks totaling $100 million, consisting of
a primary fixed amount of $50 million plus an excess amount of up to $50 million
available as needed, at NW Natural's option, on a monthly basis. Financial
Corporation has available through September 30, 1998, committed lines of credit
with two commercial banks totaling $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 NW Natural.
Under the terms of these lines of credit, which are used as
backup lines for commercial paper programs, NW 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 on either
the NW Natural or Financial Corporation lines of credit as of September 30, 1997
or September 30, 1996.
Commercial Paper
----------------
The Company's primary source of short-term funds is commercial
paper. Both NW 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 NW Natural (see Part II, Item 8., Note 6, "Notes to Consolidated
Financial Statements" in the 1996 Form 10-K).
Ratios of Earnings to Fixed Charges
-----------------------------------
For the 12 months ended September 30, 1997 and December 31,
1996, the Company's ratios of earnings to fixed charges, computed by the
Securities and Exchange Commission method, were 3.06 and 3.53, 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.
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Currently not applicable.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Chase Gardens Litigation
------------------------
In July 1995, a jury in an Oregon state court returned a verdict
against NW Natural in the case of Northwest Natural Gas Company v. Chase
--------------------------------------
Gardens, Inc. (Lane County Circuit Court Case No. 16-91-01370). The Oregon Court
- -------------
of Appeals (Oregon Court of Appeals Case No. CA A90481) affirmed the trial court
decision in February 1997. (See Part I, Item 3, "Legal Proceedings" and Part II,
Item 8., Note 13, "Commitments and Contingencies" in the 1996 Form 10-K, and
Part II, Item 1, "Legal Proceedings" in each of the Company's Quarterly Reports
on Form 10-Q for the periods ended March 31 and June 30, 1997.) NW Natural filed
a petition for review of the Court of Appeals' decision by the Oregon Supreme
Court. In August 1997, the Oregon Supreme Court agreed to hear the case on
appeal and is expected to render a final ruling during 1998.
Item 5. OTHER INFORMATION
Washington General Rate Case
----------------------------
In October 1997, the WUTC approved a settlement agreement
providing for a general rate increase averaging 3 percent for NW Natural's
customers in Washington. Revenue from Washington operations will increase by
approximately $608 thousand annually due to the combined effects of the general
rate increase of about $550 thousand and a temporary surcharge to recover over
five years the balance of deferred SFAS No. 106 ("Employers' Accounting for
Postretirement Benefits Other than Pensions") expense attributable to Washington
operations. The WUTC authorized a return on common equity of 11.25 percent.
Medium-Term Note Program
------------------------
In May 1997, NW Natural entered into a Distribution Agreement
relating to an additional $165 million of its Medium-Term Notes, Series B, of
which $75 million remains unsold and which NW Natural intends to sell from time
to time over the next several years.
Pursuant to its Medium-Term Note Program, in May 1997, NW
Natural issued and sold $20 million of its Secured Medium-Term Notes, Series B,
with a coupon rate of 7.00 percent. These notes mature in 2027 and have a
one-time put option in 2007.
<PAGE>
Also in May 1997, NW Natural issued and sold $10 million of
its Secured Medium-Term Notes, Series B, with a coupon rate of 6.80 percent.
These notes mature in 2007 and have a one-time put option in 2002.
In August 1997, NW Natural issued and sold $40 million of Secured
Medium-Term Notes, Series B, with a coupon rate of 7.00 percent. These
notes mature in 2017; they have no call or put options.
In November 1997, NW Natural issued and sold $20 million of its
Secured Medium-Term Notes, Series B, with a coupon rate of 6.65 percent.
These notes mature in 2027 and have a one-time put option in 2009.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10 - Northwest Natural Gas Company Non-Employee Directors
Stock Compensation Plan as amended effective July 1, 1997.
Exhibit 10(a) - Employment agreement dated July 2, 1997, between the
Company and an executive officer.
Exhibit 11 - Statement re: Computation of Per Share Earnings.
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K
On July 17, 1997, the Company filed a Current Report on Form 8-K
regarding the formation of an alliance with PacifiCorp for the joint
marketing of gas and energy services and, as the market opens, electric
commodity to commercial and industrial customers in Oregon and Washington.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
NORTHWEST NATURAL GAS COMPANY
(Registrant)
Dated: November 13, 1997 /s/ D. James Wilson
-----------------------
D. James Wilson
Principal Accounting Officer,
Controller and Treasurer
<PAGE>
NORTHWEST NATURAL GAS COMPANY
EXHIBIT INDEX
To
Quarterly Report on Form 10-Q
For Quarter Ended
September 30, 1997
Exhibit
Document Number
- -------- -------
Northwest Natural Gas Company Non-Employee Directors Stock
Compensation Plan as amended effective July 1, 1997 10
Employment agreement dated July 2, 1997, between the Company
and an executive officer 10(a)
Statement re: Computation of Per Share Earnings 11
Computation of Ratios of Earnings to Fixed Charges 12
Financial Data Schedule 27
EXHIBIT 10
NORTHWEST NATURAL GAS COMPANY
NON-EMPLOYEE DIRECTORS STOCK COMPENSATION PLAN
January 1, 1989
Northwest Natural Gas Company
an Oregon corporation
220 NW Second Avenue
Portland, OR 97209 the Company
The Company believes it desirable that members of its board of
directors, who represent the Company's shareholders, be themselves shareholders.
To supplement the efforts of the directors towards this end, the Company wishes
to increase the ownership interest of non-employee directors through awards of
Company Common Stock. The Company expects by this means to increase the
community of interest of its shareholders at large and the Company's directors
and to make stock ownership a dynamic influence on the attitudes of its board of
directors.
The following plan is therefore adopted:
1. Administration.
---------------
Unless otherwise determined pursuant to this section, this plan shall
be administered by the corporate secretary of the Company (the Administrator),
who may delegate all or part of that authority and responsibility. The
Administrator shall interpret the plan, arrange for the purchase and delivery of
shares, determine forfeitures, and otherwise assume general responsibility for
administration of the plan. Any decision by the Administrator shall be final and
bind all parties. The Administrator may be replaced from time to time in the
discretion of the chief executive officer of the Company.
2. Awards.
-------
2.1 Each non-employee director of the Company, including
those directors who have been employees of the Company in the past but are not
employees at the time of any award under this plan, shall be awarded Common
Stock of the Company pursuant to 2.2 as of the following award dates:
(a) January 1, 1989; or
(b) In the case of (i) directors elected after
January 1, 1989 and (ii) persons who become non-employee directors after
January 1, 1989 by ceasing to be employees of the Company, the date on which
such director is first elected, whether by the shareholders or board of
directors of the Company, or ceases to be an employee of the Company, as the
case may be; and
(c) On every fifth anniversary of the date determined
pursuant to (a) or (b) above.
2.2 As of the award date, a participant shall, subject to
2.3, be awarded $50,000 worth of Common Stock as follows:
(a) As soon as practicable after the award date, the
Administrator shall deliver cash in the amount of the award and applicable
commissions to one or more brokers or other persons with instructions to
purchase Company Common Stock in the open market. It is understood
<PAGE>
that market conditions or regulations affecting the purchases by a corporation
of its own shares may extend the period of purchase over several days or weeks.
(b) When several participants have the same award
date, all of the stock shall be purchased and then divided among the
participants in proportion to their respective awards, regardless of any changes
in price that occur while purchases are being carried out.
(c) When all of the stock has been purchased with
respect to any award date, certificates in the names of the participants for
their respective shares shall be delivered to the Administrator. Each
participant shall deliver to the Administrator a blank stock power duly executed
in a form satisfactory to the Administrator for each certificate for shares
issued in the participant's name.
(d) The Administrator shall hold the certificates
and stock powers until the shares are vested and released as provided in 3.4.
2.3 If, assuming a participant were reelected, a
participant's term as a director would end because of age before the fifth
anniversary of an award date, the amount awarded shall be reduced
proportionately in relation to the number of calendar months fewer than 60 that
will end after the award date and before the first calendar month after the date
the director's term ends.
2.4 Upon any amendment of this plan to increase dollar
amount of awards set forth in 2.2, each participant shall receive an additional
award in accordance with the procedures set forth in 2.2. The amount of the
additional award for each participant shall be determined by dividing the amount
of the increase in the award amount by 60, and then multiplying the resulting
quotient by the number of month ends remaining until the participant's most
recent prior award under 2.2 or 2.3 will be fully vested. The resulting dollar
amount shall then be used to purchase Common Stock for the participant as set
forth in 2.2.
3. Vesting; Delivery of Shares; Forfeitures.
-----------------------------------------
3.1 Subject to 3.2, one-sixtieth (1/60th) of the awarded
shares shall vest as of the last day of each calendar month following the award,
commencing with the month in which the award is made.
3.2 If a participant receives a reduced award under 2.3, the
vesting rate shall be accelerated so that the entire award vests evenly over the
calendar months that end before the date the director's term ends. If a
participant receives an award under 2.4, the vesting rate shall be accelerated
so that the entire award vests evenly over the number of month ends remaining
until the participant's most recent prior award under 2.2 or 2.3 will be fully
vested.
3.3 Notwithstanding 3.1 and 3.2, all awarded shares shall vest
upon a change in control of the Company. For purposes of this plan, a "change in
control" of the Company shall mean the occurrence of any of the following
events:
(a) The approval by the shareholders of the Company of:
(1) any consolidation, merger or plan of share
exchange involving the Company (a "Merger") in which the Company is not the
continuing or surviving corporation or pursuant to which shares of Common Stock
would be converted into cash, securities or other property, other than a Merger
involving shares of Common Stock in which the holders of shares of Common Stock
immediately prior to the Merger have the same proportionate ownership of common
stock of the surviving corporation immediately after the Merger;
(2) any sale, lease, exchange or other transfer (in
one transaction or a series of related transactions) of all, or substantially
all, the assets of the Company; or
<PAGE>
(3) the adoption of any plan or proposal for
the liquidation or dissolution of the Company;
(b) At any time during a period of two consecutive years,
individuals who at the beginning of such period constituted the board of
directors of the Company ("Incumbent Directors") shall cease for any reason to
constitute at least a majority thereof; provided, however, that the term
"Incumbent Director" shall also include each new director elected during such
two-year period whose nomination or election was approved by two-thirds of the
Incumbent Directors then in office; or
(c) Any person (as such term is used in Section 14(d) of
the Securities Exchange Act of 1934, other than the Company or any employee
benefit plan sponsored by the Company) shall, as a result of a tender or
exchange offer, open market purchases or privately negotiated purchases from
anyone other than the Company, have become the beneficial owner (within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of securities of the Company ordinarily having the right to vote for
the election of directors ("Voting Securities") representing twenty percent
(20%) or more of the combined voting power of the then outstanding Voting
Securities.
3.4 The certificate and stock power for vested shares shall be
delivered to the participant or in accordance with 5.2 as soon as practicable
after the participant ceases to be a director of the Company or, if earlier, as
soon as practicable after a change in control of the Company.
3.5 If a participant ceases to be a director (other than
pursuant to a simultaneous change in control of the Company), awarded shares
remaining unvested shall be forfeited. The Administrator, acting for the
participant pursuant to the executed stock power, shall transfer the unvested
shares to the Company, and these shares shall be cancelled. The participant or
the participant's representative shall execute any documents reasonably
requested by the Administrator to facilitate the transfer.
4. Status Before Full Vesting; Transfer of Shares.
-----------------------------------------------
4.1 Each participant shall be a shareholder of record with
respect to all shares awarded, whether or not vested, and shall be entitled to
all of the rights of such a holder, except that a participant's share
certificates shall be held by the Administrator until delivered in accordance
with 3.4.
4.2 Any dividends or communications to shareholders received
by the Administrator with respect to shares held by the Administrator shall
promptly be transmitted to the participant.
4.3 No participant may transfer any interest in unvested shares
to any person other than the Company.
4.4 No participant may transfer any interest in any shares
awarded under this plan, whether vested or not, until he or she ceases to be a
director of the Company.
5. Death of a Participant.
-----------------------
5.1 Any vested shares held by the Administrator for a
participant who has died shall be delivered as soon as practicable to the
participant's death beneficiary under 5.2.
5.2 Any vested shares to be delivered on death of a
participant under 5.1 shall go to a participant's beneficiary in the following
order of priority:
(a) To the surviving beneficiary designated by the
participant in writing to the Administrator;
(b) To the participant's surviving spouse; or
<PAGE>
(c) To the participant's estate.
6. Amendment or Termination; Miscellaneous.
----------------------------------------
6.1 The board of directors of the Company may amend or
terminate this plan at any time. No amendment or termination shall adversely
affect any outstanding award.
6.2 Subject to the rights of amendment and termination in 6.1,
this plan shall continue indefinitely and future awards will be made in
accordance with 2.1.
6.3 Nothing in this plan shall create any obligation on the
part of the board of directors of the Company to nominate any director for
reelection by the shareholders or the board of directors.
Adopted by the board of directors of Northwest Natural Gas Company on
November 17, 1988, effective January 1, 1989. Amended by the board of directors
of Northwest Natural Gas Company on May 23, 1991, effective July 1, 1991.
Amended by the board of directors of Northwest Natural Gas Company on July 24,
1997, effective July 1, 1997.
EXHIBIT 10(a)
EMPLOYMENT AGREEMENT
This agreement is between Northwest Natural Gas Company, an Oregon
corporation hereinafter referred to as "NNG", and Mark S. Dodson, hereafter
referred to as "Dodson."
WHEREAS, Dodson has chosen to withdraw as a senior partner from the law
firm of Ater, Wynne, Hewitt, Dodson and Skerritt effective September 15, 1997;
and
WHEREAS, NNG has undertaken an extensive search for a successor to its
retiring senior vice president and general counsel, Bruce B. Samson, who has
announced his intention to retire effective February 28, 1998; and
WHEREAS, the parties have reached an agreement for the employment of
Dodson, subject to ratification by the NNG Board of Directors at its meeting on
July 24, 1997;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:
1. POSITIONS AND RESPONSIBILITIES
1.1 Dodson shall be employed by NNG as a senior vice president on
September 15, 1997.
1.2 Effective on January 1, 1998 Dodson shall be appointed Senior
Vice President, Public Affairs and General Counsel of NNG.
Samson will continue to serve as a senior vice president until
February 28, 1998 at which time he will retire from NNG.
1.3 As Senior Vice President, Public Affairs and General Counsel,
Dodson shall report directly to the President and CEO and
shall have responsibility for legal, regulatory, governmental
affairs, public relations, risk management and safety and
environmental activities of the Company and for such other
activities assigned to him by the President and CEO.
<PAGE>
1.4 Subject to the provisions of this Agreement, the Board shall
retain at all times its inherent authority to elect and remove
all officers, including the Senior Vice President, Public
Affairs and General Counsel.
2. TERMS
2.1 The term of Dodson's employment shall be from September 15,
1997 to December 31, 2002 ("Initial Term") with an option to
renew for a five year second term through December 31, 2007
("Second Term").
3. SALARY
3.1 Dodson's salary commencing on September 15, 1997 shall be
$175,000 per year.
3.2 The salaries of all officers are adjusted by the Board of
Directors annually.
4. OTHER BENEFITS
4.1 The benefits granted to Dodson include those made available to
all non-bargaining unit employees, as determined from time to
time. A summary of those benefits in effect as of the date of
this Agreement has been provided to Dodson.
4.2 In addition to regular employee benefits, Dodson shall be
eligible for special executive benefits made available by the
Board of Directors to the officers of NNG. These include the
Executive Supplemental Retirement Income Plan ("ESRIP"), the
Executive Deferred Compensation Plan, the 1985 Stock Option
Plan, the Executive Annual Incentive Plan, the Executive
Severance Agreement and the executive vehicle allowance and
parking benefit.
4.3 Dodson is eligible immediately upon employment for
participation in all of the benefits described above with the
exception of the Retirement K Savings Plan which has a 90-day
period of service before participation begins and the Employee
Stock Purchase Plan which has a six-month waiting period.
<PAGE>
5. ESRIP BENEFITS FOR RETIREMENT, TERMINATION, DISABILITY OR DEATH
5.1 In General. Executive supplemental retirement income benefits
under the ESRIP normally are available upon vesting at age 55
with 15 years of prior service credit. This agreement provides
for payment of ESRIP benefits even though, at any time of
determination or payment, Dodson has not or will not have
completed 15 years of service with the Company, or will not be
eligible to receive early or disability benefits under the
Company's Retirement Plan. For determination of any ESRIP
payment starting before Dodson's age 65 normal retirement
date, Dodson shall be treated as though he does qualify for
and will receive an "early annual retirement allowance" under
the Company's Retirement Plan, and the age 65 ESRIP amount
shall be reduced under the applicable schedule in the Appendix
to the ESRIP if so required because of Dodson's age when the
ESRIP payments begin.
5.2 Full ESRIP. Upon completion of the Second Term, NNG shall be
liable under the ESRIP to pay Dodson the full ESRIP benefit
using the 65 percent normal retirement income target provided
under Section 2.01-1(b) of the ESRIP at the date of
retirement, termination, disability or death, as the case may
be. Dodson may select any of the benefit payment options under
Section 3.01 of the ESRIP for which he is eligible.
5.3 Retirement, Termination, Disability. At the end of the initial
Term, or at any time thereafter prior to completing the Second
Term, NNG shall be liable under the ESRIP to pay Dodson a
one-half ESRIP benefit using a 32.5 percent normal retirement
income target under ESRIP Section 2.01-1(b) in place of the 65
percent target if (a) or (b) apply to Dodson: (a) he elects
early retirement after his corporate job responsibilities,
compensation and future career opportunities become diminished
by actions of NNG, (b) his employment is terminated by the
Board of Directors without cause, where "cause" means gross
misconduct or willful and material breach of this Agreement by
Dodson.
Upon or after completing the Second Term, for any event in
5.3(a) or (b) above, or upon Dodson's becoming totally and
permanently disabled at any time during employment, NNG shall
be liable under ESRIP to pay the full ESRIP benefit under 5.2
above.
5.4 Death During Employment. If Dodson should die in service
during the Initial Term, NNG shall pay to his surviving spouse
50 percent of the 100 percent joint and survivor annuity
amount under ESRIP Section 2.04-1(a) using the full ESRIP
benefit under 5.2 above. If Dodson should die in service
during the Second Term, NNG shall pay to his
<PAGE>
surviving spouse 100 percent of such 100 percent joint and
survivor annuity amount.
6. SPECIAL CONDITIONS
6.1 It is a condition precedent of this Agreement that Dodson will
provide evidence of good health through a physical exam to be
completed prior to September 1, 1997.
6.2 This Agreement will not be effective until approved by the NNG
Board of Directors.
6.3 During his employment Dodson shall be entitled to 2.083 days per
month of vacation.
7. GENERAL PROVISIONS
7.1 This agreement is not assignable without the express approval of
both parties.
7.2 This agreement may not be amended or cancelled except by mutual
agreement in writing.
7.3 NNG will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of NNG to
assume and agree to perform this Agreement as if no such
succession took place. Failure of NNG to obtain such
assumption and agreement shall be a breach of this Agreement,
providing Dodson with a right to compensation from NNG as
provided in the Executive Severance Agreement.
<PAGE>
IT IS SO AGREED:
NORTHWEST NATURAL MARK S. DODSON
GAS COMPANY
By R. G. Reiten By Mark S. Dodson
------------------- --------------------
Its President & CEO Dated: 6/30/97
APPROVED BY THE BOARD OF DIRECTORS OF NORTHWEST
NATURAL GAS COMPANY:
By: Benjamin R. Whiteley
---------------------
Its Lead Director
Dated: 7/2/97
EXHIBIT 11
<TABLE>
NORTHWEST NATURAL GAS COMPANY
Statement re: Computation of Per Share Earnings
(Thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Sept. 30, Six Months Ended Sept. 30,
---------------------------- --------------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Earnings Applicable to Common Stock $ (3,101) $ (418) $ 22,673 $ 27,070
Debenture Interest Less Taxes 115 124 345 371
-------- ------- -------- --------
Net Income Available for Fully-Diluted
Common Stock $ (2,986) $ (294) $ 23,018 $ 27,441
======== ======= ======== ========
Average Common Shares Outstanding 22,734 22,435 22,662 22,351
Stock Options 45 31 45 27
Convertible Debentures 522 562 522 562
-------- ------- -------- --------
Fully-Diluted Common Shares 23,301 23,028 23,229 22,940
======== ======= ======== ========
Fully-Diluted Earnings per Share of
Common Stock $(0.13) * $(0.01) * $0.99 $1.20
======== ======= ======== ========
</TABLE>
* Anti-dilutive
<TABLE>
EXHIBIT 12
NORTHWEST NATURAL GAS COMPANY
Computation of Ratio of Earnings to Fixed Charges
January 1, 1992 - September 30, 1997
<CAPTION>
Twelve
Months
Year Ended December 31, Ended
---------------------------------------------------- Sept 30,
1992 1993 1994 1995 1996 1997
----------------------------------------------------- --------
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges, as Defined:
Interest on Long-
Term Debt $23,001 $22,578 $21,921 $23,141 $ 23,176 $23,962
Other Interest 3,223 1,906 2,473 2,252 3,448 4,662
Amortization of Debt
Discount and Expense 511 775 850 882 865 764
Interest Portion of
Rentals 1,439 1,701 1,697 1,764 1,798 1,798
------- ------- ------- ------- -------- -------
Total Fixed Charges,
as defined $28,174 $26,960 $26,941 $28,039 $ 29,287 $31,186
======= ======= ======= ======= ======== =======
Earnings, as defined:
Net Income $15,775 $37,647 $35,461 $38,065 $ 46,793 $42,339
Taxes on Income 6,951 22,096 20,473 22,120 27,347 21,791
Fixed Charges,
as above 28,174 26,960 26,941 28,039 29,287 31,186
------- ------- ------- ------- -------- -------
Total Earnings,
as defined $50,900 $86,703 $82,875 $88,224 $103,427 $95,316
======= ======= ======= ======= ======== =======
Ratio of Earnings to
Fixed Charges 1.81 3.22 3.08 3.15 3.53 3.06
======= ======= ======= ======= ======== =======
</TABLE>
<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-31-1996
<PERIOD-END> SEP-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 763,122
<OTHER-PROPERTY-AND-INVEST> 67,116
<TOTAL-CURRENT-ASSETS> 57,790
<TOTAL-DEFERRED-CHARGES> 70,027
<OTHER-ASSETS> 59,640
<TOTAL-ASSETS> 1,017,695
<COMMON> 72,105
<CAPITAL-SURPLUS-PAID-IN> 181,248
<RETAINED-EARNINGS> 100,661
<TOTAL-COMMON-STOCKHOLDERS-EQ> 354,014
36,499
0
<LONG-TERM-DEBT-NET> 325,396
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 60,850
<LONG-TERM-DEBT-CURRENT-PORT> 15,000
930
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 225,006
<TOT-CAPITALIZATION-AND-LIAB> 1,017,695
<GROSS-OPERATING-REVENUE> 160,253
<INCOME-TAX-EXPENSE> 12,849
<OTHER-OPERATING-EXPENSES> 104,413
<TOTAL-OPERATING-EXPENSES> 117,262
<OPERATING-INCOME-LOSS> 42,991
<OTHER-INCOME-NET> 2,439
<INCOME-BEFORE-INTEREST-EXPEN> 45,430
<TOTAL-INTEREST-EXPENSE> 20,765
<NET-INCOME> 24,665
1,992
<EARNINGS-AVAILABLE-FOR-COMM> 22,673
<COMMON-STOCK-DIVIDENDS> 20,373
<TOTAL-INTEREST-ON-BONDS> 15,787
<CASH-FLOW-OPERATIONS> 41,248
<EPS-PRIMARY> $1.00
<EPS-DILUTED> $0.99
</TABLE>
