SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(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, 1998
---------------------------------------------
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
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NORTHWEST NATURAL GAS COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Oregon 93-0256722
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 N. W. Second Avenue, Portland, Oregon 97209
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (503) 226-4211
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
At November 10, 1998, 24,804,098 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, 1998
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 and 3
nine month periods ended September 30, 1998 and 1997,
and Consolidated Statements of Earnings Invested in
the Business for the nine-month periods ended
September 30, 1998 and 1997.
(2) Consolidated Balance Sheets at September 30, 1998 4
and 1997 and December 31, 1997.
(3) Consolidated Statements of Cash Flows for the 5
nine-month periods ended September 30, 1998 and 1997.
(4) Consolidated Statements of Capitalization at 6
September 30, 1998 and 1997 and December 31, 1997.
(5) Notes to Consolidated Financial Statements. 7
Item 2. Management's Discussion and Analysis of 9
Results of Operations and Financial Condition
Item 3. Quantitative and Qualitative Disclosures About 19
Market Risk
PART II. OTHER INFORMATION
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 21
Signature 22
<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,
------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating Revenues:
Gross operating revenues ................ $ 53,810 $ 46,068 $273,161 $245,993
Cost of sales ........................... 19,350 14,171 110,391 86,991
-------- -------- -------- --------
Net operating revenues ............ 34,460 31,897 162,770 159,002
Operating Expenses:
Operations and maintenance ............. 20,941 18,481 61,082 57,613
Taxes other than income taxes .......... 4,361 3,493 16,372 15,003
Depreciation, depletion and amortization 13,496 10,875 38,137 31,797
-------- -------- -------- --------
Total operating expenses .......... 38,798 32,849 115,591 104,413
-------- -------- -------- --------
Income (Loss) from Operations ............... (4,338) (952) 47,179 54,589
Other Income ................................ 2,550 2,189 7,237 3,690
Interest Charges - net ...................... 7,647 7,320 23,615 20,765
-------- -------- -------- --------
Income (Loss) Before Income Taxes ........... (9,435) (6,083) 30,801 37,514
Income Taxes ................................ (3,515) (3,635) 9,442 12,849
-------- -------- -------- --------
Net Income (Loss) ........................... (5,920) (2,448) 21,359 24,665
Redeemable preferred and preference stock
dividend requirements ..................... 638 653 1,939 1,992
-------- -------- -------- --------
Earnings (Loss) Applicable to Common Stock .. $ (6,558) $ (3,101) $ 19,420 $ 22,673
======== ======== ======== ========
Average Common Shares Outstanding ........... 24,763 22,734 24,037 22,662
Earnings (Loss) Per Share of Common Stock:
Basic .................................. $ (0.26) $ (0.14) $ 0.81 $ 1.00
Diluted ................................ $ (0.26) $ (0.14) $ 0.80 $ 0.99
Dividends Per Share of Common Stock ......... $ 0.305 $ 0.30 $ 0.915 $ 0.90
</TABLE>
See Notes to Consolidated Financial Statements.
================================================================================
<TABLE>
Consolidated Statements of Earnings Invested in the Business
(Thousands,Unaudited)
<CAPTION>
Nine Months Ended September 30,
1998 1997
------------------ ----------------------
<S> <C> <C> <C> <C>
Earnings invested in the business:
Balance at Beginning of Period $113,098 $100,026
Net Income 21,359 $21,359 24,665 $24,665
Dividends Declared or Paid:
Redeemable preferred and preference stock (1,949) (2,006)
Common stock (22,050) (20,373)
Common Stock Expense (1,697) -
-------- -------
Balance at End of Period $108,761 $102,312
========= ========
Accumulated Other Comprehensive Income:
Balance at Beginning of Period $ (2,235) $ (1,650)
Other comprehensive income-
Foreign currency translation adjustment 167 167 (1) (1)
-------- ------- -------- -------
Comprehensive Income $21,526 $24,664
======= =======
Balance at End of Period $ (2,068) $ (1,651)
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<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,
1998 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
Assets:
Plant and Property:
Utility plant ............................. $ 1,218,380 $ 1,122,500 $ 1,164,499
Less accumulated depreciation ............. 395,323 359,378 366,607
----------- ----------- -----------
Utility plant - net .................. 823,057 763,122 797,892
Non-utility property ...................... 90,901 52,252 52,422
Less accumulated depreciation and depletion 27,731 21,577 22,843
----------- ----------- -----------
Non-utility property - net ........... 63,170 30,675 29,579
----------- ----------- -----------
Total plant and property ............. 886,227 793,797 827,471
----------- ----------- -----------
Investments and Other:
Investments ............................... 34,022 35,230 34,148
Long-term notes receivable ................ 794 1,211 978
----------- ----------- -----------
Total investments and other .......... 34,816 36,441 35,126
Current Assets:
Cash and cash equivalents ................. 6,469 4,332 6,731
Accounts receivable - net ................. 21,791 19,165 39,420
Accrued unbilled revenue .................. 7,180 6,467 23,911
Inventories of gas, materials and supplies 23,310 18,779 17,385
Prepayments and other current assets ...... 10,126 9,047 17,226
----------- ----------- -----------
Total current assets ................. 68,876 57,790 104,673
Regulatory Tax Assets .......................... 56,860 59,640 56,860
Deferred Gas Costs Receivable .................. 28,499 14,133 28,628
Deferred Debits and Other ...................... 65,643 55,894 58,859
----------- ----------- -----------
Total Assets ......................... $ 1,140,921 $ 1,017,695 $ 1,111,617
=========== =========== ===========
Capitalization and Liabilities:
Capitalization:
Common stock .............................. $ 306,802 $ 253,353 $ 255,402
Earnings invested in the business ......... 108,761 102,312 113,098
Accumulated other comprehensive income .... (2,068) (1,651) (2,235)
----------- ----------- -----------
Total common stock equity ............ 413,495 354,014 366,265
Redeemable preference stock ............... 25,000 25,000 25,000
Redeemable preferred stock ................ 11,499 12,429 12,429
Long-term debt ............................ 346,953 325,396 344,303
----------- ----------- -----------
Total capitalization ................. 796,947 716,839 747,997
----------- ----------- -----------
Minority Interest .............................. 17,672 -- --
----------- ----------- -----------
Current Liabilities:
Notes payable ............................. 75,056 60,850 89,317
Accounts payable .......................... 37,788 32,980 58,775
Long-term debt due within one year ........ 10,000 15,000 16,000
Taxes accrued ............................. 371 (56) 4,656
Interest accrued .......................... 9,809 8,939 6,058
Other current and accrued liabilities ..... 21,889 20,289 21,390
----------- ----------- -----------
Total current liabilities ............ 154,913 138,002 196,196
Deferred Investment Tax Credits ................ 11,525 12,344 11,949
Deferred Income Taxes .......................... 142,629 135,295 139,953
Regulatory Liabilities and Other ............... 17,235 15,215 15,522
Commitments and Contingencies .................. -- -- --
----------- ----------- -----------
Total Capitalization and Liabilities . $ 1,140,921 $ 1,017,695 $ 1,111,617
=========== =========== ===========
</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,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Operating Activities:
Net income ..................................................... $ 21,359 $ 24,665
Adjustments to reconcile net income to cash provided
by operations:
Depreciation, depletion and amortization ................... 38,137 31,797
Gain on sale of assets ..................................... (3,794) --
Deferred income taxes and investment tax credits ........... 2,252 12,346
Equity in (earnings) of investments ........................ (399) (1,143)
Allowance for funds used during construction ............... (1,109) (1,261)
Deferred gas costs receivable .......................... 129 (22,191)
Regulatory liabilities (assets) and other - net ............ (5,071) (9,049)
-------- --------
Cash from operations before working capital changes ... 51,504 35,164
Changes in operating assets and liabilities:
Accounts receivable ................................... 17,629 21,668
Accrued unbilled revenue .............................. 16,731 15,873
Inventories of gas, materials and supplies ............ (5,925) (4,340)
Accounts payable ...................................... (20,987) (31,815)
Accrued interest and taxes ............................ (534) 291
Other current assets and liabilities .................. 7,499 4,407
-------- --------
Cash Provided By Operating Activities ...................... 65,917 41,248
-------- --------
Investing Activities:
Acquisition and construction of utility plant assets ........... (56,735) (71,520)
Investment in non-utility property ............................. (17,583) (7,541)
Investments and other .......................................... 809 (675)
-------- --------
Cash Used In Investing Activities .......................... (73,509) (79,736)
-------- --------
Financing Activities:
Common stock issued ............................................ 51,050 4,509
Redeemable preferred stock retired ............................. (930) (1,320)
Long-term debt issued .......................................... 32,000 70,000
Long-term debt retired ......................................... (35,000) (27,000)
Change in short-term debt ...................................... (14,261) 10,792
Cash dividend payments:
Redeemable preferred and preference stock .................. (1,949) (2,006)
Common stock ............................................... (22,050) (20,373)
Foreign currency translation and capital stock expense ......... (1,530) (1)
-------- --------
Cash Provided By Financing Activities ...................... 7,330 34,601
-------- --------
Increase (Decrease) In Cash and Cash Equivalents .................... (262) (3,887)
Cash and Cash Equivalents - Beginning of Period ..................... 6,731 8,219
-------- --------
Cash and Cash Equivalents - End of Period ........................... $ 6,469 $ 4,332
======== ========
============================================================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest ................................................... $ 20,444 $ 17,718
Income taxes ............................................... $ 8,205 $ 7,284
============================================================================================
Supplemental Disclosure of Noncash Financing Activities:
Conversion to common stock:
7-1/4 percent Series of Convertible Debentures ............. $ 350 $ 442
============================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<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, 1998 September 30, 1997 Dec. 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK EQUITY:
Common stock - par value $3-1/6 per share $ 78,512 $ 72,105 72,404
Premium on common stock 228,290 181,248 182,998
Earnings invested in the business 108,761 102,312 113,098
Accumulated other comprehensive income (2,068) (1,651) (2,235)
-------- -------- -------
Total common stock equity 413,495 52% 354,014 50% 366,265 49%
-------- ---- -------- ---- ------- ----
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 3% 25,000 3%
-------- ---- -------- ---- -------- ----
REDEEMABLE PREFERRED STOCK, stated value $100 per share:
$4.75 Series 249 429 429
$7.125 Series 11,250 12,000 12,000
-------- -------- -------
Total redeemable preferred stock 11,499 1% 12,429 2% 12,429 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 20,000
Medium-Term Notes
First Mortgage Bonds:
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 10,000 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 40,000 40,000
6.60% Series B due 2018 22,000 - -
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 20,000
7.00% Series B due 2027 20,000 20,000 20,000
6.65% Series B due 2027 20,000 - 20,000
6.65% Series B due 2028 10,000 - -
Unsecured:
8.93% Series A due 1998 - 5,000 5,000
8.95% Series A due 1998 - 10,000 10,000
8.47% Series A due 2001 10,000 10,000 10,000
Convertible Debentures
7-1/4% Series due 2012 9,953 10,396 10,303
-------- -------- --------
356,953 340,396 360,303
Less long-term debt due within one year 10,000 15,000 16,000
-------- -------- --------
Total long-term debt 346,953 44% 325,396 45% 344,303 46%
-------- ---- -------- ---- -------- ----
TOTAL CAPITALIZATION $796,947 100% $716,839 100% $747,997 100%
======== ==== ======== ==== ======== ====
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(5) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of financial statements
The consolidated financial statements include:
Regulated utility:
Northwest Natural Gas Company (NW Natural)
Non-regulated subsidiary businesses:
NNG Financial Corporation (Financial Corporation), a
wholly-owned subsidiary
Canor Energy, Ltd. (Canor), a majority-owned
subsidiary
Together these businesses are referred to herein as the
"Company." Intercompany accounts and transactions have been eliminated.
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 1997 Annual Report on Form 10-K (1997
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 1998 presentation.
2. Recently Issued Accounting Standards
In the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and display of elements of
comprehensive income, including foreign currency translation adjustments,
unrealized gains and losses on certain investments in debt and equity securities
and minimum pension liability adjustments.
In June 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," which requires disclosure of segment data based on how management
makes decisions about allocating resources to segments and measuring
performance. The Company principally operates in a single line of business
consisting of the distribution of natural gas. Therefore, management does not
believe SFAS No. 131 will have a significant impact on the Company's financial
reporting.
In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits." This standard is
effective for financial statements issued for fiscal years beginning after
December 15, 1997. Adoption of this standard may result in additional financial
disclosures but the impact of SFAS No. 132 for both the three month and nine
month periods ended September 30, 1998 is immaterial.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This standard is effective for
all fiscal quarters of all fiscal years beginning after June 15, 1999 (January
1, 2000 for the Company). SFAS No. 133 requires that all derivative instruments
be recorded on the balance sheet at their fair value. Changes in the fair value
of derivatives will be recorded each period either in current earnings or in
other comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if so designated, what type of hedge
transaction it is. Management anticipates that the adoption of SFAS No. 133 will
not have a significant effect on the Company's results of operations or its
financial position.
3. Minority Interest
The Company reported a minority interest of $17.7 million in
the Consolidated Balance Sheet at September 30, 1998, resulting from a
transaction involving its Canadian energy exploration and production subsidiary,
Canor Energy, Ltd. (Canor). In March 1998, Canor acquired all of the capital
stock of Southlake Energy, Inc. (Southlake), an indirect subsidiary of NIPSCO
Industries, Inc. (NI), in exchange for shares of common stock representing a 34
percent interest in Canor. After the acquisition, Southlake was amalgamated with
Canor. The transaction resulted in a $3.5 million gain to the Company,
equivalent to 15 cents a share, due to Canor's assets having represented a lower
percentage of the total assets of the amalgamated corporation than the Company's
resulting percentage interest in Canor's common stock. The minority interest in
Canor, formerly held by NIPSCO Energy Services Canada Ltd. (NESCL), was
transferred to NI Canada ULC (NICULC), effective as of August 31, 1998. Both
NESCL and NICULC are indirect subsidiaries of NI. For financial reporting
purposes, the assets, liabilities and earnings of Canor are consolidated in the
Company's financial statements, and NICULC's common stock interest has been
recorded as "Minority Interest" in the Balance Sheet.
4. Income Taxes
No U.S. taxes were provided for a gain in the first quarter of
1998 from the combination of Canor and Southlake (see Note 3, "Minority
Interest"), since it is the Company's intention to indefinitely reinvest Canor's
earnings. Determination of the amount of unrecognized deferred tax liability on
these unremitted earnings is not practicable. Undistributed net earnings of the
Company's foreign subsidiary were $1.1 million at September 30, 1998. The amount
of foreign withholding taxes that would be payable upon remittance of those
earnings is approximately $0.1 million.
5. Contingencies
See Part II, Item 7., "Contingent Liabilities" and
"Environmental Matters" in the 1997 Form 10-K and Part II, Item 5,
"Environmental Matters," below.
<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 (NW Natural)
Non-regulated subsidiary businesses:
NNG Financial Corporation (Financial Corporation),
a wholly-owned subsidiary
Canor Energy, Ltd. (Canor), a majority-owned
subsidiary
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 1997 Annual
Report on Form 10-K (1997 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, 1998 and 1997.
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 or foreign currency exchange rates or in rates of inflation;
(vii) unanticipated changes in operating expenses and capital 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 26 cents a diluted share for
the quarter ended September 30, 1998, compared to a loss of 14 cents a diluted
share in last year's third quarter. The loss applicable to common stock was $6.6
million in the third quarter of 1998 and $3.1 million in the third quarter of
1997. A third quarter loss is customary for NW Natural, reflecting low
summertime use of natural gas.
NW Natural lost 28 cents a diluted share from utility
operations in the third quarter of 1998, compared to a loss of 19 cents a
diluted share in the same period in 1997. The higher loss from utility
operations in the third quarter was due to a non-recurring benefit in the third
quarter of 1997 from adjustments reconciling the Company's federal and state tax
accruals to the prior year's returns as filed (5 cents), an increase in
depreciation expense for the new Customer Information System (CIS) (2 cents), a
decrease in net operating revenues (margin) from an industrial schedule in which
rates vary with oil prices (2 cents), an increase in interest charges (1 cent)
and revenue reductions required by the OPUC (1 cent), offset by an increase in
margin due to customer growth (3 cents).
The Company earned $19.4 million, or 80 cents a diluted share,
and $22.7 million, or 99 cents a diluted share, for the nine months ended
September 30, 1998 and 1997, respectively. Year-to-date, NW Natural earned 67
cents a diluted share from utility operations compared to 92 cents a diluted
share in the same period in 1997. Weather in the first nine months of the year
was 4 percent warmer in 1998 than in 1997, resulting in a decrease in margin
from residential and commercial customers equivalent to an estimated 15 cents a
share. Other factors affecting utility earnings were an increase in interest
charges (7 cents), a non-recurring benefit in 1997 from adjustments reconciling
the Company's federal and state tax accruals to the prior year's return as filed
(5 cents), an increase in depreciation expense for CIS (4 cents) and other
additional depreciation expense (6 cents), a decrease in margin from an
industrial schedule in which rates vary with oil prices (5 cents) and revenue
reductions required by the OPUC (4 cents). Partially offsetting these negative
factors was NW Natural's residential and commercial customer growth in the past
year which contributed higher margin equivalent to an estimated 20 cents a share
in the first nine months of 1998.
Earnings from NW Natural's non-utility operations in the first
quarter of 1998 included 15 cents a share due to a transaction involving Canor,
the Company's Canadian gas and oil exploration and production subsidiary (see
"Other Income (Expense)," below).
NW Natural's subsidiaries earned 1 cent a share during the
third quarter of 1998, and 5 cents in the third quarter of 1997. Year-to-date
subsidiary results were a loss of 1 cent a share for 1998 compared to income of
8 cents a share for 1997. See "Subsidiary Operations," below.
Dividends paid on common stock were 30.5 cents and 30 cents a
share for the three-month periods ended September 30, 1998 and 1997,
respectively. In October 1998, the Company's Board of Directors declared a
quarterly dividend of 30.5 cents a share on the common stock, payable November
13, 1998, to shareholders of record on October 30, 1998. 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,
--------------------- -----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Gas Sales and Transportation Volumes
- - Therms (000's):
Residential and commercial sales ............. 48,337 46,626 388,468 387,258
Unbilled volumes ............................. 1,876 2,725 (37,426) (32,953)
--------- --------- --------- ---------
Weather-sensitive volumes ............... 50,213 49,351 351,042 354,305
Industrial firm sales ........................ 17,353 17,862 64,906 62,086
Industrial interruptible sales ............... 11,643 11,879 38,608 39,317
--------- --------- --------- ---------
Total gas sales ......................... 79,209 79,092 454,556 455,708
Transportation deliveries .................... 106,644 105,617 340,690 319,495
--------- --------- --------- ---------
Total volumes sold and delivered ............. 185,853 184,709 795,246 775,203
========= ========= ========= =========
Utility Operating Revenues - Dollars (000's):
Residential and commercial revenues .......... $ 33,403 $ 27,704 $ 227,713 $ 202,968
Unbilled revenues ............................ 1,102 1,274 (17,769) (16,522)
--------- --------- --------- ---------
Weather-sensitive revenues .............. 34,505 28,978 209,944 186,446
Industrial firm sales revenues ............... 7,056 5,658 25,233 19,861
Industrial interruptible sales revenues ...... 3,298 2,958 11,345 9,981
--------- --------- --------- ---------
Total gas sales revenues ................ 44,859 37,594 246,522 216,288
Transportation revenues ...................... 4,914 5,232 15,050 16,395
Other revenues ............................... 292 1,079 2,295 6,484
--------- --------- --------- ---------
Total utility operating revenues ............. $ 50,065 $ 43,905 $ 263,867 $ 239,167
========= ========= ========= =========
Cost of gas sold - Dollars (000's) ................ $ 19,303 $ 13,710 $ 110,257 $ 86,047
========= ========= ========= =========
Total number of customers (end of period) ......... 463,743 441,906 463,743 441,906
========= ========= ========= =========
Actual degree days ................................ 48 49 2,460 2,565
========= ========= ========= =========
20-year average degree days ....................... 100 106 2,617 2,638
========= ========= ========= =========
</TABLE>
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 1997 Form 10-K) were 52 percent warmer
than average in the third quarter of 1998 and 2 percent warmer than in the third
quarter of 1997.
NW Natural continues to experience rapid customer growth, with
21,837 customers added since September 30, 1997, for a growth rate of 4.9
percent. In the three years ended December 31, 1997, more than 66,000 customers
were added to the system, representing an average annual growth rate of 5.4
percent.
Volumes of gas delivered to residential and commercial
customers increased 0.9 million therms, or 2 percent, in the third quarter of
1998 compared to the third quarter of 1997. Margin from these customer
categories was $1.0 million, or 4 percent, higher primarily due to customer
growth.
Volumes of gas delivered to residential and commercial
customers were 3.3 million therms, or 1 percent, lower in the first nine months
of 1998 than in the first nine months of 1997. Related margin was lower by $0.1
million, or less than 1 percent. The increased margin from customer growth was
offset by weather that was 4 percent warmer than in the first nine months of
1997.
Industrial, Transportation and Other Revenues
---------------------------------------------
Total volumes delivered to industrial firm, industrial
interruptible, and transportation customers were 0.3 million therms, or less
than 1 percent, higher in the three months ended September 30, 1998 than in the
same period of 1997. Transportation volumes increased 1.0 million therms while
gas sales to industrial firm and interruptible customers decreased 0.7 million
therms as compared to the third quarter of 1997. Margin from these customers
decreased 8 percent from $11.4 million in the third quarter of 1997 to $10.5
million in the third quarter of 1998, due in part to the effect of low oil
prices on an industrial schedule in which rates vary with oil prices.
For the current nine-month period, total volumes delivered to
industrial and transportation customers increased 23.3 million therms from 1997.
However, margin from these customers was $2.0 million, or 5 percent, lower than
in the first nine months of 1997 due to the effect of low oil prices on the
industrial schedule in which rates vary with oil prices, and transfers of some
industrial customers to rate schedules or special contracts with lower margins.
Other revenues, which include amortizations of regulatory
account balances (see Part II, Item 8., Note 1, "Notes to Consolidated Financial
Statements," in the 1997 Form 10-K), were $0.8 million, or 73 percent, lower
during the third quarter of 1998 and $4.2 million, or 65 percent, lower
year-to-date compared to 1997. The principal factors were a decrease in
amortization of property tax savings ($2.6 million) and deferrals of revenue
reductions required under a settlement approved by the OPUC as part of the
January 1, 1998 rate change ($1.5 million).
Cost of Gas
-----------
The average cost per therm of gas purchased was 13 percent
higher in the third quarter of 1998, and was 7 percent higher year-to-date, than
in the same period last year. The increase was due to higher prevailing prices
in the natural gas commodity market.
Total cost per therm of gas sold was 41 percent higher during
the third quarter of 1998, and 28 percent higher year-to-date, than in the same
periods of 1997. The changes in cost of gas sold between respective periods are
greater than the changes in cost of gas purchased due to higher regulatory
deferrals of gas costs in 1997, accounted for as credits to cost of gas. The
cost of gas sold includes current gas purchases, gas drawn from storage, demand
cost equalization, regulatory deferrals, and company use. NW Natural made
off-system sales of $1.7 million and $1.0 million for the first nine months of
1998 and 1997, respectively. Under an agreement with the OPUC, net proceeds from
these sales are treated as a reduction of gas costs.
Under NW Natural's Purchased Gas Adjustment (PGA) tariff in
Oregon, its net income from Oregon operations is affected only within defined
limits by changes in purchased gas costs. In 1997, NW Natural absorbed 20
percent of the higher cost of gas purchased, as compared to projections, under
this tariff. The remaining 80 percent of higher gas costs was recorded as
deferred debits (regulatory assets). Effective January 1, 1998, the incentive
formula for deferred gas costs was modified so that NW Natural now absorbs 33
percent of the difference between actual and projected gas costs and the
remaining 67 percent is deferred for recovery from or refund to customers in
future rates.
Subsidiary Operations
---------------------
<TABLE>
The following table summarizes financial information for the
Company's consolidated subsidiaries:
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Consolidated Subsidiaries (Thousands):
Net Operating Revenues ............... $ 3,699 $ 2,293 $ 9,160 $ 7,133
Operating Expenses ................... 4,879 2,123 10,914 6,110
-------- -------- -------- --------
Income (Loss) from Operations ........ (1,180) 170 (1,754) 1,023
Income from Financial Investments .... 1,228 1,250 399 1,143
Other Income and Interest Charges .... 42 102 415 227
Minority Interest .................... 389 -- 470 --
-------- -------- -------- --------
Income (Loss) Before Income Taxes ... 479 1,522 (470) 2,393
Income Tax Expense (Benefit) ......... 138 380 (258) 633
-------- -------- -------- --------
Net Income (Loss) .................... $ 341 $ 1,142 $ (212) $ 1,760
======== ======== ======== ========
</TABLE>
Results of operations for the individual subsidiaries for the
third quarter of 1998 were a net loss of $0.8 million for Canor, down from net
income of $0.1 million for the same period last year, and net income of $1.1
million for Financial Corporation, up from $1.0 million in the third quarter of
1997. Canor's results were lower than last year due to low oil prices, lower
than expected gas production and charges equivalent to 2 cents a share due to
unsuccessful drilling efforts during the quarter.
For the nine months ended September 30, 1998, the
subsidiaries' net results were a loss of $0.2 million, compared to net income of
$1.8 million in the first nine months of 1997. These results are equivalent to a
loss of 1 cent a share in 1998 compared to net income of 8 cents a share in
1997. The portion of Canor's results applicable to the Company decreased from
net income of $0.5 million in the first nine months of 1997 to a loss of $0.9
million in the first nine months of 1998. Financial Corporation earned $0.7
million, compared to net income of $1.3 million in the first nine months of
1997.
The same factors that reduced Canor's and Financial
Corporation's earnings in the first nine months of 1998 are expected to continue
to depress their operating results during the remaining months of 1998.
In March 1998, Canor purchased the stock of Southlake Energy,
Inc. (Southlake), an indirect subsidiary of NIPSCO Industries, Inc. (NI). Canor
was then amalgamated with Southlake. The resulting company is owned 66 percent
by NW Natural and 34 percent by NI Canada ULC, another indirect subsidiary of
NI. For financial reporting purposes, Canor's operating revenues and expenses
are included in full in the Company's Statements of Income. The 34 percent
portion of Canor's results applicable to the minority interest is included in
Other Income (Expense) as a reduction in the case of earnings, or as an increase
in the case of losses.
The Company's equity investments in its subsidiaries at
September 30, 1998, were $34.1 million for Canor and $18.0 million for Financial
Corporation, up from $20.1 million for Canor and $17.0 million for Financial
Corporation at September 30, 1997. The $14.0 million increase in the Company's
equity investment in Canor includes $11.8 million converted to equity from
intercompany debt in the first quarter of 1998.
Operating Expenses
------------------
Operations and Maintenance
--------------------------
Operations and maintenance expenses were $3.5 million, or 6
percent, higher in the nine months ended September 30, 1998 compared to the same
period in 1997. NW Natural's operations and maintenance expenses increased $1.0
million due primarily to increased information systems costs for network and
communication system upgrades; application service maintenance, including
maintenance of NW Natural's new CIS, and other information system expenses.
Subsidiary operating expenses increased by $2.5 million primarily due to the
combined expenses for Canor following the Canor/Southlake amalgamation.
Taxes Other than Income
-----------------------
Taxes other than income were $1.4 million, or 9 percent,
higher for the nine months ended September 30, 1998. NW Natural's property tax
expense increased $0.8 million due to more plant in service. Franchise taxes,
which are based on gross revenues, increased $0.6 million, reflecting higher
revenues due to rate increases effective January 1 and April 1, 1998.
Depreciation, Depletion and Amortization
----------------------------------------
The Company's depreciation expense for the nine months ended
September 30, 1998 increased $6.3 million, or 20 percent, compared to the first
nine months of 1997. NW Natural's depreciation expense increased by $4.0 million
due to the placement into service in November 1997 of its new CIS ($1.7
million), Mobile Data Terminals ($0.2 million), investments in computer
equipment ($0.4 million) and additional utility plant ($1.6 million). Canor's
depreciation expense increased $2.3 million due to the increase in total assets
after the Canor/Southlake amalgamation and increased dry hole and abandonment
expense of $0.8 million in the first nine months of 1998 as compared to $0.4
million in the same period in 1997.
Other Income (Expense)
----------------------
The Company's other income was $3.5 million higher in the
first nine months of 1998 than in the same period in 1997. In the first quarter
of 1998, NW Natural recorded as other income a $3.5 million gain, equivalent to
15 cents a share, from the amalgamation of Canor with Southlake. The resulting
gain was not subject to U.S. income tax (see Item 1, Notes 3 and 4, "Notes to
Consolidated Financial Statements," above).
Other income now includes interest income on deferred
regulatory accounts; other income for the comparable periods in 1997 has been
reclassified to conform to this presentation. Prior to January 1, 1998, interest
earned on deferred regulatory accounts was included in miscellaneous operating
income or was treated as a reduction in the cost of gas. Interest income on
deferred regulatory accounts was $1.2 million higher in the first nine months of
1998 than in the same period in 1997, while other interest income decreased $0.3
million. This net increase was offset by a decrease in the Allowance for Funds
Used During Construction (AFUDC) ($0.2 million), a decrease in net merchandise
revenue ($0.5 million), and a decrease in the income from Financial
Corporation's investments ($0.7 million).
Interest Charges - net
----------------------
The Company's interest charges - net increased $2.9 million,
or 14 percent, in the first nine months of 1998 compared to the same period in
1997. The increase was due to interest charges that were capitalized last year
as AFUDC, plus interest on a $16.6 million increase in long-term debt over the
prior year and a $5.4 million increase in average commercial paper balances
outstanding compared to the first nine months of 1997. The higher commercial
paper balances were due to increased gas costs, construction spending to fund
customer growth and other spending for general corporate purposes.
Income Taxes
------------
The effective corporate income tax rates for the nine months
ended September 30, 1998 and 1997 were 30.7 percent and 34.3 percent,
respectively. The lower 1998 rate was due primarily to the non-taxable gain from
Canor's amalgamation with Southlake (see Item 1, Notes 3 and 4, "Notes to
Consolidated Financial Statements," and "Other Income (Expense)," above), and in
part to permanent tax savings resulting from a change in book depreciation rates
and increased tax credits. The 1997 effective tax rate was lower than statutory
rates due to the adjustments of the 1996 income tax accruals to actual and the
flow through treatment of property tax refunds. Last year's third quarter
results included a non-recurring benefit equivalent to 5 cents a share due to
adjustments reconciling the Company's federal and state tax accruals to the
prior year's return as filed.
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 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 1997 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 1997 Form 10-K). In March
and June 1998, NW Natural issued and sold $22 million and $10 million,
respectively, of its Medium-Term Notes, Series B. In April 1998, NW Natural
issued and sold, through a negotiated public offering, 1,725,000 shares of its
common stock.
Cash Flows
----------
Operating Activities
--------------------
Operating activities provided net cash of $65.9 million for
the first nine months of 1998, compared to $41.2 million for the first nine
months of 1997. The increase of $24.6 million, or 60 percent, was due to
increased cash from operations ($16.3 million) and lower working capital
requirements ($8.3 million). The increase in cash from operations over the same
period last year was primarily due to lower deferred gas cost receivables ($22.3
million) and an increase in depreciation, depletion and amortization expense
($6.3 million), partially offset by lower net income ($3.3 million) and a
reduction in deferred income taxes and investment tax credits ($10.1 million).
The reduction in working capital requirements was due to a $10.8 million smaller
reduction in accounts payable and a $3.1 million greater increase in other
current assets and liabilities during the current nine-month period, partially
offset by a $4.0 million smaller increase in accounts receivable and a $1.6
million greater reduction in inventories of gas, materials and supplies.
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
1997 Form 10-K).
Investing Activities
--------------------
Cash requirements for utility construction in the first nine
months of 1998 totaled $56.7 million, a decrease of $14.8 million, or 21
percent, from the first nine months of 1997. The decrease resulted largely from
a reduction of construction expenditures relating to the completion of the CIS
($5.9 million) and several other special projects ($4.0 million), lower
equipment and structures expenditures ($1.6 million), reduced replacement and
reinforcement expenditures ($1.7 million) and lower construction overhead ($0.9
million).
NW Natural's construction expenditures are estimated to total
$90 million for 1998. Over the five-year period 1998 through 2002, these
expenditures are estimated at between $500 million and $550 million. The
projected level of capital expenditures during the next five years reflects
forecasted customer growth, the development of additional underground storage
facilities and a major system reinforcement project. 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 1998, non-utility capital
expenditures totaled $17.6 million. Canor invested $13.0 million in Canadian
exploration and production properties. NW Natural's non-utility expenditures
totaling $4.6 million included expenditures relating to a contract for the
construction of a new headquarters building for the Port of Portland on land
currently owned by NW Natural ($4.3 million) and additions to existing
facilities ($0.3 million). During the first quarter of 1998, NW Natural
converted $11.8 million of intercompany loans to Canor to equity.
Financing Activities
--------------------
Cash provided by financing activities in the first nine months
of 1998 totaled $7.3 million, compared to $27.3 million during the first nine
months of 1997. Proceeds from the sales of $22 million and $10 million of
Medium-Term Notes, Series B, in March and June 1998, respectively, and $44.7
million from the negotiated public offering and sale of 1,725,000 shares of NW
Natural's common stock in April 1998, were used in part to reduce short-term
debt ($14.2 million) and long-term debt ($35.0 million). NW Natural issued $38.0
million less long-term debt in the first nine months of 1998 than in the first
nine months of 1997. Short-term debt balances went down $14.3 million in the
current nine-month period, compared to a $10.8 million increase in short-term
debt in the same period last year.
Lines of Credit
---------------
NW Natural has available through September 30, 1999, 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, 1999, 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, 1998
or 1997.
In April 1998, NW Natural entered into an additional $18
million line of credit with a commercial bank for the purpose of constructing
the new headquarters building for the Port of Portland (see "Investing
Activities," above). This line of credit is available through November 30, 1999.
The outstanding balance at September 30, 1998 was $4.4 million.
Canor has a $30 million (Canadian) revolving credit facility
available for its normal business operations through a Canadian commercial bank.
The amount of the facility declines by $1.2 million per quarter, subject to a
re-setting annually based upon an analysis of gas and oil reserves as of March
31 each year. Canor had $5.8 million (U.S.) of its bank line of credit
outstanding at September 30, 1998.
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 1997 Form 10-K). NW Natural had $64.8 million of
commercial paper notes outstanding at September 30, 1998. Financial Corporation
had no commercial paper notes outstanding at that date.
Ratios of Earnings to Fixed Charges
-----------------------------------
For the 12 months ended September 30, 1998 and December 31,
1997, the Company's ratios of earnings to fixed charges, computed using the
Securities and Exchange Commission method, were 2.63 and 2.99, respectively. For
this purpose, earnings consist of net income before taxes plus fixed charges,
and fixed charges consist of interest on all indebtedness, the amortization of
debt expense and discount or premium and the estimated interest portion of
rentals charged to income.
Contingent Liabilities
----------------------
The Company has identified and is in the process of correcting
the information technology (IT) and non-IT systems within its control that could
be affected by the Year 2000 issue. See Part II, Item 7., "Contingent
Liabilities," in the 1997 Form 10-K. It completed an assessment of these issues
in July 1997, in which its consultant estimated that the cost of renovating its
remaining applications that were not yet Year 2000-ready would be about $4.0
million.
In early 1997, NW Natural established a Year 2000 Project
Office with technical specialists experienced in the Year 2000 issue, sponsored
by two senior executives. The project office has achieved various stages of
correction for impacted IT systems and non-IT equipment and, overall, NW Natural
has maintained and expects to continue its planned schedule for correction. NW
Natural plans to complete renovations of of its internal applications with the
highest risk ratings by June 30, 1999, and to evaluate and develop appropriate
plans to address risks of failure in its remaining lower-risk systems by the end
of 1999. The Company has not quantified its worst-case exposure from the Year
2000 issue, but the project office intends to make such estimates while
prioritizing the highest-risk systems for correction.
The Company's objective in its Year 2000 program is to reduce
the risk of business disruption or serious financial loss due to IT and non-IT
systems failures relating to the Year 2000 issue. In November 1997, NW Natural
replaced its largest operating system, its customer information system,
incorporating billing, customer order, credit and other programs, with a fully
Year 2000-ready system. The program for its remaining systems which commenced in
October 1997 includes maintaining and managing the inventory of its
date-sensitive IT and non-IT systems; researching and managing the degree of
Year 2000 readiness of IT and non-IT systems of the suppliers and vendors with
whom it has material relationships; identifying and assessing the cost of
renovating or replacing non-IT systems within its control that could be affected
by the Year 2000 issue; assigning risk ratings to its IT and non-IT systems in
order to prioritize renovation and replacement efforts; and developing
contingency plans for high-risk systems or vendor products where products are
known to be non-compliant or readiness levels cannot be independently verified.
NW Natural's costs in 1997 for Year 2000 assessment, planning
and renovation were $0.4 million. Its costs in 1998 through September 30 for
renovation, vendor management and other Year 2000 activities were $2.3 million.
These amounts do not include the costs incurred in replacing its customer
information system or costs for other IT systems that will be replaced rather
than renovated.
Despite the Company's efforts, there can be no assurance that
all material Year 2000 risks relating to systems within its control will have
been adequately identified and corrected before the end of 1999. In addition,
while the Company is in the process of researching the Year 2000 readiness of
its suppliers and vendors, the Company can make no assurances regarding the Year
2000 compliance status of systems or parties outside its control, and currently
cannot assess the effect on it of any non-compliance by such systems or parties.
However, as a result of its Year 2000 program and the replacement of the
customer information system, the Company does not believe that, in the
aggregate, Year 2000 issues will be material to its business, operations or
financial condition.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Currently not applicable.
PART II. OTHER INFORMATION
Item 5. OTHER INFORMATION
General and PGA Rate Cases
--------------------------
In October 1998, NW Natural filed its first general rate case
in Oregon since 1989. The filing proposes a revenue increase of $14.7 million
per year from Oregon operations through rate increases averaging 3.8 percent.
The proposed increase is designed to cover the costs of the additional gas
storage at Mist, NW Natural's new CIS, and making NW Natural's computer systems
compliant with Year 2000 requirements.
Also in October 1998, NW Natural filed its annual rate
adjustments under its PGA tariffs in Oregon and Washington. These filings
propose rate increases averaging 7 percent in Oregon and 5.8 percent in
Washington. The increases are due to higher costs of natural gas to be purchased
under contracts with gas producers during the coming year, and an increase in
temporary rate surcharges for recovery of balances in deferred gas cost and
other regulatory accounts.
All three filings propose that rate increases go into effect
on December 1, 1998. NW Natural expects the OPUC and the WUTC to approve the PGA
filings on approximately the terms proposed, while it expects the OPUC,
following normal procedures, to suspend the general rate case filing for
investigation and hearings.
Even assuming the residential rates proposed to be effective
December 1, 1998, NW Natural would continue to enjoy a significant price
advantage over competing fuels. Compared with rates charged by the electric
utility which serves approximately half of NW Natural's customers, gas would
cost about 50 percent less annually for space heating and about 41 percent less
annually for water heating, assuming typical consumption and appliance
efficiencies.
Environmental Matters
---------------------
NW Natural owns property in Linnton, Oregon, that is the site
of a former gas manufacturing plant that was closed in 1956. In 1993, pursuant
to Oregon Department of Environmental Quality (ODEQ) procedures, NW Natural
submitted a notice of intent to participate in ODEQ's Voluntary Cleanup Program
and in 1994, the site was listed on ODEQ's confirmed Release List and Inventory.
During 1995, initial tests revealed environmental contamination, but the extent
or the estimated cost of remediation cannot yet be determined. The ODEQ and the
U. S. Environmental Protection Agency (EPA) have recently completed a study of
sediments in a 5.5 mile segment of the Willamette River that includes the area
adjacent to the site. Remediation of the site may be affected by the sediments
management plan now being developed in response to the ODEQ/EPA sediments study.
NW Natural expects that its costs of investigation and any
remediation at the Linnton site for which it may be responsible should be
recoverable, in large part, from insurance. In the event these costs are not
recovered from insurance, NW Natural will seek recovery through future rates.
During the period from 1993 through the third quarter of 1998, NW Natural
recorded as expense a total of $1.6 million for the estimated costs of
consultants' fees, ODEQ oversight and the voluntary investigation.
Medium-Term Note Program
------------------------
In November 1998, NW Natural issued and sold $20 million of
Secured Medium-Term Notes, Series B, with a coupon rate of 5.55 percent. These
notes mature in 2002; they have no call or put options.
On September 30, 1998, NW Natural filed a Registration
Statement on Form S-3 with the Securities and Exchange Commission relating to an
additional $143 million of its Medium-Term Notes, Series B, which NW Natural
intends to sell from time to time over the next several years.
Gas Storage
-----------
Effective November 1, 1998, NW Natural placed into service the
$30 million Calvin Creek I phase of the storage facility at Mist, Oregon, the
first of several planned expansions totaling $120 million in NW Natural's
underground gas storage field. Additional phases are planned over the next eight
years to meet growing customer needs.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10(a) - Amendment 1998-1 to the Company's Executive
Supplemental Retirement Income Plan (1995 Restatement).
Exhibit 10(b) - ESRIP Change in Control Amendment to the Company's
Executive Supplemental Retirement Income Plan (1995
Restatement).
Exhibit 10(c) - Amendment No. 4 to the Company's Executive Deferred
Compensation Plan, effective September 24, 1998.
Exhibit 10(d) - Amendment No. 1 to the Company's Directors Deferred
Compensation Plan (December 1, 1997 Restatement), effective
September 24, 1998.
Exhibit 10(e) - Amendment dated September 24, 1998 to employee
agreement dated November 2, 1995, as previously amended,
between the Company and an executive officer.
Exhibit 10(f) - Form of amended and restated executive change in
control severance agreement between the Company and each of
10 executives.
Exhibit 10(g) - Amendment dated September 24, 1998 to employment
agreement dated July 2, 1997, as previously amended, 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
No Current Reports on Form 8-K were filed during the quarter
ended September 30, 1998.
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 16, 1998 /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, 1998
Exhibit
Document Number
- -------- --------
Amendment 1998-1 to the Company's Executive Supplemental
Retirement Income Plan (1995 Restatement) 10(a)
ESRIP Change in Control Amendment to the Company's Executive
Supplemental Retirement Income Plan (1995 Restatement) 10(b)
Amendment No. 4 to the Company's Executive Deferred Compensation
Plan, effective September 24, 1998 10(c)
Amendment No. 1 to the Company's Directors Deferred Compensation Plan
(December 1, 1997 Restatement), effective September 24, 1998 10(d)
Amendment dated September 24, 1998 to employee agreement dated
November 2, 1995, as previously amended, between the
Company and an executive officer 10(e)
Form of amended and restated executive change in control severance
agreement between the Company and each of 10 executives 10(f)
Amendment dated September 24, 1998 to employment agreement dated
July 2, 1997, as previously amended, between the Company and
an executive officer 10(g)
Statement re: Computation of Per Share Earnings 11
Computation of Ratios of Earnings to Fixed Charges 12
Financial Data Schedule 27
Exhibit 10(a)
AMENDMENT 1998-1
TO
EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME PLAN
OF
NORTHWEST NATURAL GAS COMPANY
(1995 Restatement)
The Executive Supplemental Retirement Income Plan is amended to
implement action by the Board of Directors of Northwest Natural Gas Company on
September 24, 1998, to take effect on and after September 24, 1998:
1. Section 1.05 is amended to change the definition and method of determining
------------
"final annual compensation":
1.05 "Final annual compensation" means the annual average determined by
---------------------------
taking the sum of the total compensation paid to the Participant during the
three (3) consecutive compensation years out of the Participant's final ten (10)
years of employment with the Company which produce the highest three (3) year
total amount, and dividing such sum by three (3).
1.05-1 "Total compensation" means the sum of (a) plus (b),
--------------------
subject to (c) and to adjustment under (d) if applicable:
(a) The annual salary approved by the Board of
Directors and paid by the Company to take effect starting March 1 of
the compensation year;
(b) Plus the award for prior performance approved by
the Board of Directors by such March 1 date; provided, however, that if
a Participant terminates employment during the 61 day period
immediately preceding March 1, and if the sum of the prior March 1
salary plus the post retirement performance award is greater than the
total compensation using the prior March 1 salary and prior March 1
performance award, final average compensation shall be recalculated for
the first ten (10) years combining March 1 salary plus the performance
award twelve (12) months later for each of the ten (10) years, and used
if the resulting final average compensation is higher;
(c) Without reduction under (a) or (b) for any such
amounts which are subject to a payment deferral election under the
Company's Executive Deferred Compensation Plan (effective January 1,
1987) or Retirement K Savings Plan; and
(d) Subject to pro rata adjustment by months if
salary is changed during the compensation year.
1.05-2 "Compensation year" means the twelve (12) month
-----------------
period from March 1 to February 28/29.
2. Section 1.11 is amended to distinguish "service" recognized for benefit
------------
accrual, vesting, and other purposes:
1.11 "Service" depends on the context:
(a) Benefit Accrual. Service for benefit accrual
---------------
under 2.01 means years of actual participation, including service
credited under 1.11(c), after becoming a Participant under this Plan,
plus any additional years of benefit accrual credit earned or awarded
under 2.01-2(b)(2) and (3).
(b) Vesting Service. Service for vesting under 2.05
---------------
means all service with the Company from date of hire, including service
credited under 1.11(c), plus any additional grant under 2.05-3.
(c) Other Service. To the extent "service" is not
-------------
addressed by (a) or (b) above, it means all accredited years of service
with the Company credited under the Retirement Plan and includes all
periods of Company paid disability and long-term disability leave.
3. Section 2.01 is amended to change the method of accruing benefit target
------------
percentages that are used to determine benefits payable under this Plan:
2.01 Normal Retirement Supplemental Income. Upon normal retirement at
-------------------------------------
or after becoming vested under 2.05 and at or after the normal retirement date,
a retired Participant shall receive during Participant's lifetime, subject to
2.07, the monthly supplemental retirement payments determined under 2.01-1
through 2.01-5.
2.01-1 Determining ESRIP Benefit Amount. The amount to be paid
--------------------------------
at normal retirement under this Plan shall be determined by a three step process
under the following (a), (b) and (c):
(a) This Plan's target percentage of final annual
compensation (determined under 1.05) shall be the sum of the
Participant's accrued target percentage credits under 2.01-2.
(b) The amount to be paid at normal retirement
under three (3) other plans shall be determined under 2.01-3.
(c) If the target percentage amount under (a) exceeds
the total payments from the other three plans under (b), the excess
shall be paid under 2.01-4 or, if applicable, 2.01-5.
2.01-2 Accrued Target Percentage. First, Participant's accrued
-------------------------
target percentage shall be the sum of the Participant's percentage of final
annual compensation accruals at the rate specified below in (a) for each year of
participation (defined below in (b)) credited under this Plan.
(a) Yearly Accrual Percentage Schedule (9/24/98):
----------------------------------
(1) Years 1-15. The yearly target percentage accrual
----------
for all participants actively employed on and after September
24, 1998, shall be:
Accrued Target Percentage Maximum Total
Years of Participation Per Year Target Percentage
---------------------- ------------------------- -----------------
Years 1 - 15 4.33% per year 65% for year 15
and later years
(2) Years 16-25. In addition, each of the nine
-----------
(9) participants named in the attached 1998 ESRIP Appendix
shall be entitled to additional accruals for years 16-25 as
follows:
Accrued Target Percentage Maximum Total
Years of Participation Per Year Target Percentage
---------------------- ------------------------- -----------------
Years 16 - 25 0.50% per year 70% for year 25
and later years
(b) Year of Participation means
---------------------
(1) Each consecutive twelve (12) month
period of Company service measured by each anniversary of the
date of first becoming a Participant under this Plan.
(2) All additional years of participation
credit awarded to a Participant by the Committee in the
exercise of its discretion.
(3) All years of service credit earned for
Company service and awarded by the Committee for each of the
nine (9) Participants in the Plan on September 1, 1998, as set
forth in the attached 1998 ESRIP Appendix.
2.01-3. Payments From Other Plans. Second, the total annual
-------------------------
payments from three other plans listed below in (a), (b) and (c) shall be
determined, all calculated as a single life annuity starting at Participant's
normal retirement date.
(a) Company's Retirement Plan.
(b) Social Security (as determined under
2.01-4(b)(2)).
(c) Supplemental Retirement payments under
Company's Executive Deferred Compensation Plan.
2.01-4 Supplement Under This Plan. Third, the monthly
--------------------------
supplemental payment under this Plan shall be the monthly excess of the
percentage amount under 2.01-2 over the total monthly payments under 2.01-3,
determined as follows:
(a) The total monthly retirement pay shall be
one-twelfth (1/12) of the annual percentage of final annual
compensation determined under 2.01-2 above;
MINUS
(b) The sum of (1) plus (2) plus (3):
(1) One-twelfth (1/12) of Participant's
normal retirement allowance under the Retirement Plan;
PLUS
(2) One-twelfth (1/12) of Participant's
annual primary Social Security benefit determined in the same
manner and based on the same earnings as are used to compute
the actual Social Security benefit (including, if appropriate,
all compensation deferred by the executive under any plan as
though it had been "paid" to or "received" by the executive in
the year when the deferral was made);
PLUS
(3) One-twelfth (1/12) of Participant's
annual supplemental retirement benefit under the Executive
Deferred Compensation Plan determined as a supplement to the
normal annual retirement allowance under 2.01-4(b)(1).
(c) For each of the nine (9) Participants named in
the attached 1998 ESRIP Appendix, the payment amount accrued for such
Participant as of December 31, 1998, shall be the amount determined
under ESRIP Amendment 1998-1 or, if greater, the amount determined
under the ESRIP in effect on January 1, 1998, without any change by
ESRIP Amendment 1998-1.
2.01-5 Deferred Retirement. Payment shall be deferred to
-------------------
actual retirement if the Participant works for the Company after the normal
retirement date. The supplemental benefit shall be based on the final annual
compensation at date of actual retirement.
4. Section 2.02 is amended to change the service eligibility threshold for early
------------
retirement from fifteen (15) years to ten (10) years and to change the reduction
percentages for early retirement in 2.02-3:
2.02 Early Retirement Supplemental Income. Upon retirement at or after
------------------------------------
age fifty-five (55) with at least ten (10) years of service credited for vesting
under 1.11(b), a retired Participant shall receive during Participant's
lifetime, subject to 2.07, the reduced monthly supplemental retirement payments
determined as follows:
2.02-1 First, the total annual retirement pay at normal
retirement date shall be determined under 2.01-2 and -3, using the Participant's
final annual compensation and service at the time employment by the Company
ends.
2.02-2 Second, the monthly supplemental payment under this
Plan starting at normal retirement date shall be determined under 2.01-4, using
the Participant's early annual retirement allowance payable at the normal
retirement date (under Retirement Plan 7.02-1), projected annual primary Social
Security benefit under the Retirement Plan and annual retirement benefits under
the Executive Deferred Compensation Plan determined as a supplement to such
payment under the Retirement Plan.
2.02-3 Third, if supplemental payments start before the
Participant's normal retirement date, to achieve the necessary reduction of the
target benefit under 2.01 and 2.02-1, the monthly amount under 2.02-2 shall be
reduced by 0.50 percent (.0050) per month for each month of age before
Participant's 62nd birthday.
ESRIP Supplemental Benefit if Payment Starts at the Specified Age
-----------------------------------------------------------------
Retirement Retirement
Age Percentage* Age Percentage*
---------- ----------- --------- -----------
55 58% 59 82%
56 64% 60 88%
57 70% 61 94%
58 76% 62-64 100%
*The actual reduction percentage will be based on months, rather than
the 12-month intervals shown in this schedule.
5. Section 2.04 is amended to change the special death benefit under 2.04(c):
------------
2.04 Death Benefits. A death benefit shall be paid if an eligible
--------------
Participant should die during employment or before the first one hundred twenty
(120) monthly payments have been made under this Plan on account of such
Participant, as follows:
2.04-1 Entitlement and Amount.
----------------------
(a) Preretirement Elective Spousal Annuity. For any
--------------------------------------
married Participant who (i) is fifty-five (55) or older, (ii) has
completed at least ten (10) years of service credited for vesting under
1.11(b), and (iii) so elects in writing within ninety (90) days after
September 21, 1995, or within ninety (90) days after becoming vested
under 2.05, upon the death of such Participant before any
post-retirement form of payment under Article III takes effect, the
Participant's lawful spouse shall receive for life the actuarial
equivalent value (as determined by the Plan's actuary) of the surviving
spouse's annuity payable under the full (100 percent) joint and
survivor annuity form provided under 3.01-3. It is understood that in
this circumstance the Retirement Plan only provides a half (50 percent)
joint and survivor annuity, and that this full (100 percent) form will
pay more to such spouse than the half (50 percent) form. Any
pre-retirement election of this death benefit shall supersede the
regular death benefit under 2.04-1(b) and shall continue until the
earlier of (iv) or (v): (iv) if participant should die before
retirement without a spouse (e.g., prior death or divorce of spouse),
2.04-1(b) shall apply; or (v) at retirement the Participant shall be
entitled to receive any form of post-retirement benefit provided under
Article III. If no election of this 2.04-1(a) benefit form is made or
in effect at Participant's death, the only death benefit shall be the
benefit under 2.04-1(b).
(b) Regular Death Benefit. For regular death benefit
---------------------
payments determined under 2.01, 2.02, 2.03 or 2.05, as applicable, the
death of the Participant must occur after the Participant has, during
active employment of at least ten (10) years of service credited for
vesting under 1.11(b), satisfied the age and service requirements to
receive normal, early or disability retirement payments under this Plan
(whether the Participant was working or retired at date of death) and
prior to the 120th monthly payment, and there must be no supervening
spousal annuity benefit pursuant to election under 2.04-1(a). The
regular death benefit guarantees that a total of 120 monthly payments
of the applicable supplemental payment under this Plan shall be made to
Participant and, if applicable, Participant's surviving designated
beneficiary. Under no circumstances shall any supplemental payment
under this (b) be made after the later of the 120th monthly payment or
the Participant's death.
(c) Special Preretirement Death Benefit. For special death
-----------------------------------
benefit payments where 2.04-1(a) and (b) do not apply, the death of the
Participant can occur at any age while actively employed by the Company
on or after September 24, 1998. The Participant's accrued benefit under
2.01 at date of death shall be 100% vested and nonforfeitable, and
shall be paid under (1) or (2):
(1) Surviving Spouse Annuity. If Participant is
------------------------
survived by a spouse, such spouse shall receive a fifty
percent (50%) survivorship annuity determined under 3.01-2 as
though the Participant had retired on the day before dying.
(2) Unmarried Participant. If Participant is not
---------------------
married at date of death, Participant's survivor under 2.04-2
shall receive one hundred twenty (120) monthly payments equal
to 1/12th of twenty-five percent (25%) (or 2.08333%) of the
Participant's final annual compensation determined at date of
death.
2.04-2 Recipient of Nonannuity Benefits. The recipient of
--------------------------------
death benefits paid under the 120 month guarantee of 2.04-1(b) or (c) shall be
Participant's designated death beneficiary or estate, as determined under the
following (a), (b) or (c):
(a) On the death of the Participant before the 120th
monthly payment, Participant's surviving designated beneficiary(ies)
shall receive the balance of the one hundred twenty (120) payments, in
monthly or annual payments or in a single lump sum payment, as
determined by the Committee in its discretion.
(b) If no designated beneficiary survives the
Participant, the unpaid balance of the one hundred twenty (120)
payments shall be paid lump sum to the Participant's estate.
(c) If the last surviving designated beneficiary
should die before the last of the one hundred twenty (120) payments,
the unpaid balance shall be paid lump sum to the estate of such last
survivor.
2.04-3 Other Death Benefits. This supplemental plan death
--------------------
benefit shall be in addition to any death benefit provided by any other Company
sponsored plan or insurance program.
6. Section 2.05 is amended to change from fifteen (15) year cliff vesting to
------------
graduated vesting starting at fifty percent (50%) after year 5 and increasing at
ten percent (10%) per year of vesting service credit to one hundred percent
(100%) after year 10 using vesting service credit earned from date of hire or
granted by the Committee:
2.05 Vested Benefits. Subject to 2.07, the Participant shall be
---------------
entitled to receive a vested percentage of the supplemental payments under this
Plan based on benefit accruals under 2.01 and fully completed years of vesting
service credit, according to the following vesting schedule:
Completed Years
of
Vesting Service Vested Percentage
--------------- -----------------
Years 1 - 4 0%
Year 5 50%
Year 6 60%
Year 7 70%
Year 8 80%
Year 9 90%
Year 10 and above 100%
2.05-1 Vesting Service Credit. One (1) year of vesting service
----------------------
credit is awarded for each consecutive twelve (12) month period of employment by
the Company which ends on the anniversary of Participant's date of starting
employment.
2.05-2 Payment of Vested Benefit. A vested Participant who is
-------------------------
not entitled to early or disability retirement benefits under 2.02 or 2.03 shall
be entitled to begin receiving payment of vested benefits under the following
(a) or (b):
(a) Terminated Before 55. If Participant's employment
--------------------
terminates before age 55, payment can begin at or after age 55, but if
payment starts before age 65, the vested percentage of the supplemental
normal retirement benefit under 2.01 will be reduced under the
following table:
ESRIP Supplemental Benefit if Payment Starts at the Specified Age
-----------------------------------------------------------------
Retirement Retirement
Age Percentage* Age Percentage*
---------- ----------- --------- -----------
55 40% 60 70%
56 46% 61 76%
57 52% 62 82%
58 58% 63 88%
59 64% 64 94%
* Percentage will be increased on a monthly pro rata basis if payment starts
after the Participant's birthday month.
(b) Terminated Age 55 or Older. If Participant's
--------------------------
employment terminates at or after age 55, the vested percentage of the
supplemental retirement benefit under 2.01 will be subject to the same
reduction percentages applicable to early retirement benefits under
2.02.
2.05-3 Committee Discretion. For any specified Participant,
--------------------
the Committee may, in its discretion, grant additional vesting service credit,
waive the minimum service requirement, reduce the early retirement reduction
percentage for payments starting before age 65, or make any appropriate
adjustment of the benefit amount or time of payment under this Plan.
NORTHWEST NATURAL GAS COMPANY
APPROVED: By /s/ R. G. Reiten
-------------------------
Richard G. Reiten
President and CEO
Date: September 28, 1998
<PAGE>
1998 ESRIP APPENDIX
TO
NORTHWEST NATURAL GAS COMPANY
EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME PLAN
(Effective September 24, 1998)
1. Accrued Participation Credit and Vesting Credit under ESRIP
Section. 2.01-2 and 2.05
----------------------------------------------------------------------
For purposes of ESRIP benefits, the following executives employed on
September 1, 1998, are entitled to the years of participation credit and vesting
credit set forth below on 9/1/98 based on credit earned for prior Company
service and credit awarded by the Board.
Years of Years of
Participation Vesting
Credit Credit
Executive Born Hired on 9/1/98 on 9/1/98
---------------------- -------- -------- ------------- ---------
DeBolt, Bruce R. 12/07/47 02/15/80 18.55 18.55
Dodson, Mark S. 01/26/45 09/15/97 0.96 (2) 0.96 (2)
Foley, Dwayne L. 09/25/45 10/30/67 30.84 30.84
Harper, William R., Jr. 10/09/53 12/07/92 5.74 5.74
Johnston, Diana J. 12/16/44 05/20/66 32.29 32.29
Kantor, Gregg S. 04/30/57 09/15/96 0.67 1.96
McCoy, Michael S. 05/28/43 11/06/69 28.82 28.82
Reiten, Richard G. 07/01/39 12/31/95 10.67 (1,2) 5.67 (3)
Rue, Conrad J. 11/25/45 10/29/74 23.85 23.85
- --------
(1) Years of participation include a Board grant of 8 years to Reiten.
(2) Benefits also are subject to terms of Board approved Employment Agreement
for Dodson and Reiten.
(3) Subject to Board approved amendment of Reiten's Employment Agreement
granting three (3) years of Vesting Credit.
Exhibit 10(b)
1998 ESRIP CHANGE IN CONTROL AMENDMENT
TO
EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME PLAN
OF
NORTHWEST NATURAL GAS COMPANY
(1995 Restatement)
The Executive Supplemental Retirement Income Plan is amended to
implement action by the Board of Directors of Northwest Natural Gas Company on
September 24, 1998, effective on and after September 24, 1998.
1. Section 2.09 and the attached 1998 ESRIP Change in Control Appendix are added
------------
to incorporate benefit changes which apply to certain terminations of employment
that occur within 24 months after a change in control:
2.09 Change in Control. The Plan benefits of any actively employed
-----------------
Participant who has a Qualified Termination of employment within twenty-four
(24) months after a Change in Control shall be vested, determined and paid
under the Plan as modified by the following provisions set forth in the
attached 1998 ESRIP CHANGE IN CONTROL APPENDIX:
Section Subject
------- -------
1.05A "Final Average Compensation" defined
(replaces 1.05).
1.11(a) Additional years of participation for benefit accrual
credit (supplements 1.11).
1.14 "Change in Control; Potential Change in Control;
Person" defined.
1.15 "Qualifying Termination" defined.
2.01-2(b)(4) Additional years of participation for benefit accrual
credit (supplements 2.01-2(b)).
2.02A Change in eligibility to receive and the reduction
percentage for early retirement (replaces 2.02).
2.05A Vesting (replaces 2.05).
4.02A No reduction of Change in Control benefits once a
Potential Change in Control occurs (replaces 4.02).
5.02A Substitute 1.14 for previous definition of "change in
control."
<PAGE>
1998 ESRIP CHANGE IN CONTROL APPENDIX
TO
NORTHWEST NATURAL GAS COMPANY
EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME PLAN
(Effective September 24, 1998)
The benefits of any actively employed Participant covered under the
Company's Executive Supplemental Retirement Income Plan (ESRIP) who has a
Qualified Termination of employment within twenty-four (24) months after a
Change in Control shall be vested, determined and paid under the Plan as
modified by the provisions set forth below in 1.05A, 1.11(a), 1.14, 1.15,
2.01-2(a)(4), 2.02A, 2.05A, and 4.02A:
1. Section 1.05A defining "final annual compensation" replaces Plan Section.
-------------
1.05 for any Participant who has a Qualifying Termination under 1.15:
1.05A "Final Annual Compensation: means:
--------------------------
1.05A-1 The annual salary of the Participant last approved by
the Board of Directors and being paid by the Company at the date of the
Qualified Termination;
1.05A-2 Plus the average annual performance award determined
by taking the sum of the awards (if any) paid on the three (3) consecutive March
1 award payment dates, which immediately precede the Qualifying Termination
date, and dividing such sum by three (3); provided, however, that if a
participant terminates employment during the 61-day period immediately preceding
March 1, and if the sum of the post termination performance award plus the two
(2) consecutive preceding awards is greater than the above determined 3-year
total of awards, such greater sum shall be divided by three (3) and used to
determine final average compensation;
1.05A-3 Without reduction under 1.05A-1 or 1.05A-2 for any
such amounts which are subject to a payment deferral election under the
Company's Executive Deferred Compensation Plan (effective January 1, 1987) or
Retirement K Savings Plan.
2. Section 1.11(a) is amended to cross reference new 2.01-2(b)(4):
--------------
(a) Benefit Accrual. Service for benefit accrual
---------------
under 2.01 means years of actual participation, including service
credited under 1.11(c), after becoming a Participant under this Plan,
plus any additional years of benefit accrual credit earned or awarded
pursuant to 2.01-2(b)(2), (3), or (4).
3. Section 1.14 is added to define "Change in Control," "Potential Change in
------------
Control" and "Person."
1.14 Change in Control; Potential Change in Control; Person.
------------------------------------------------------
1.14-1 Change in Control. For purposes of this Plan, a "Change
------------------------
in Control" of the Company shall mean the occurrence of any of the events
described below in (a), (b) or (c), subject to the limitation described in (d):
(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 of the Company
("Company Shares") would be converted into cash, securities or
other property, other than a Merger involving Company Shares
in which the holders of Company Shares 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
(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 (2)
consecutive years, individuals who at the beginning of such period
constituted the Board ("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 hereinafter defined) 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.
(d) Notwithstanding anything in the foregoing to the
contrary, unless otherwise determined by the Board, no Change in
Control shall be deemed to have occurred for purposes of this Plan for
any Participant who (1) acquires (other than on the same basis as all
other holders of Company Shares) an equity interest in an entity that
acquires the Company in a Change in Control otherwise described above
in (a), or (2) is part of a group that constitutes a Person which
becomes a beneficial owner of Voting Securities in a transaction that
otherwise would have resulted in a Change in Control described above in
(c).
1.14-2 Potential Change in Control. For purposes of this Plan,
---------------------------
a "potential Change in Control" of the Company shall be deemed to have occurred
if the following (a), (b) or (c) occurs:
(a) the Company enters into an agreement, the
approval of which by the shareholders would result in the occurrence of
a Change in Control of the Company;
(b) any Person (including the Company) publicly
announces an intention to take or to consider taking actions which, if
consummated, would constitute a Change in Control of the Company; or
(c) the Board adopts a resolution to the effect that,
for purposes of this Plan, a potential Change in Control of the Company
has occurred.
1.14-3 Person. For purposes of this Plan, the term "Person"
------
shall mean and include any individual, corporation, partnership, group,
association or other "person," as such term is used in Section 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"), other than the Company or
any employee benefit plan(s) sponsored by the Company.
4. Section 1.15 is added defining the termination of employment that qualifies
------------
for increased benefits in connection with a Change in Control:
1.15 Qualifying Termination means the termination of the employment of
----------------------
any Participant within twenty-four (24) months after a Change in Control event
under 1.14, for a reason other than:
(a) Participant's death;
(b) termination after Participant's 62nd birthday;
(c) disability (under 1.15-1)
(d) termination by the Company for Cause (under
1.15-2); or
(e) termination by the Participant without Good
Reason (defined in 1.15-3) based on an event occurring concurrent with
or after a Change in Control.
1.15-1 Disability. Termination by the Company of Participant's
----------
employment based on "Disability" shall mean termination because of absence from
duties with the Company on a full-time basis for one hundred eighty (180)
consecutive days as a result of Participant's incapacity due to physical or
mental illness, unless within thirty (30) days after Notice of Termination (as
hereinafter defined) is given following such absence Participant shall have
returned to the full-time performance of Company duties.
1.15-2 Cause. Termination by the Company of a Participant's
-----
employment for "Cause" shall mean termination upon:
(a) the willful and continued failure of Participant
to perform substantially the reasonably assigned duties with the
Company consistent with those duties assigned prior to the Change in
Control (other than any such failure resulting from incapacity due to
physical or mental illness) after a demand for substantial performance
is delivered to Participant by the Chairman of the Board or Chief
Executive Officer of the Company which specifically identifies the
manner in which such executive believes that Participant has not
substantially performed such duties; or
(b) the willful engaging by Participant in illegal
conduct which is materially and demonstrably injurious to the Company.
(c) For purposes of 1.15-2, no act, or failure to
act, shall be considered "willful" unless done, or omitted to be done,
in knowing bad faith and without reasonable belief that the action or
omission was in, or not opposed to, the best interests of the Company.
Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or
omitted to be done, by Participant in good faith and in the best
interests of the corporation. Notwithstanding the foregoing,
Participant shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered a copy of the
resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of
the Board called and held for the purpose (after reasonable notice and
an opportunity for Participant, together with Participant's counsel, to
be heard before the Board), finding that in the good faith opinion of
the Board, Participant was guilty of the conduct set forth above in (a)
or (b), and specifying the particulars thereof in detail.
1.15-3 Good Reason. Termination of a Participant's
-----------
employment for "Good Reason" shall mean termination based on:
(a) a change in Participant's status, title,
position(s) or responsibilities as an officer of the Company which, in
Participant's reasonable judgment, does not represent a promotion from
Participant's status, title, position(s) and responsibilities as in
effect immediately prior to the Change in Control, or the assignment to
Participant of any duties or responsibilities which, in Participant's
reasonable judgment, are inconsistent with such status, title or
position(s), or any removal of Participant from or any failure to
reappoint or reelect Participant to such position(s), except in
connection with the termination of Participant's employment for Cause,
Disability or Retirement or as a result of Participant's death or by
Participant other than for Good Reason;
(b) a reduction by the Company in Participant's base
salary as in effect immediately prior to the Change in Control;
(c) the failure by the Company to continue in effect
any Plan (as hereinafter defined) in which Participant is participating
at the time of the Change in Control of the Company (or Plans providing
Participant with at least substantially similar benefits) other than as
a result of the normal expiration of any such Plan in accordance with
its terms as in effect at the time of the Change in Control, or the
taking of any action, or the failure to act, by the Company which would
adversely affect Participant's continued participation in any of such
Plans on at least as favorable a basis to Participant as is the case on
the date of the Change in Control or which would materially reduce
Participant's benefits in the future under any of such Plans or deprive
Participant of any material benefit enjoyed by Participant at the time
of the Change in Control. For purposes of this 1.15-3(c), "Plan" shall
mean any compensation plan such as an incentive, stock option or
restricted stock plan or any employee benefit plan such as a thrift,
pension, profit sharing, deferred compensation, medical, disability,
accident, life insurance, or relocation plan or policy or any other
plan, program or policy of the Company intended to benefit employees.
(d) the failure by the Company to provide and credit
Participant with the number of paid vacation days to which Participant
is then entitled in accordance with the Company's normal vacation
policy as in effect immediately prior to the Change in Control;
(e) the Company's requiring Participant to be based
anywhere other than where Participant's office is located immediately
prior to the Change in Control except for required travel on the
Company's business to an extent substantially consistent with the
business travel obligations which Participant undertook on behalf of
the Company prior to the Change in Control;
(f) the failure by the Company to obtain from any
Successor (as hereinafter defined) the assent to Participant's
employment or severance agreement (if any); or
(g) any purported termination by the Company of
Participant's employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of 1.15-4 ; and for purposes of
this Plan, no such purported termination shall be effective.
1.15-4 Notice of Termination. Any purported termination by the
---------------------
Company or by Participant following a Change in Control shall be communicated by
Written Notice of Termination to the other party. For purposes of this Plan, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Plan relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
Participant's employment under the provision so indicated.
1.15-5 Date of Termination. "Date of Termination" following a
-------------------
Change in Control shall mean (a) if Participant's employment is to be terminated
for a Disability, thirty (30) days after Notice of Termination is given
(provided that Participant shall not have returned to the performance of his
duties on a full-time basis during such thirty (30) day period, (b) if
Participant's employment is to be terminated by the Company for Cause, the date
on which a Notice of Termination is given, and (c) if Participant's employment
is to be terminated by Participant or by the Company for any other reason, the
date specified in the Notice of Termination, which shall be a date no earlier
than ninety (90) days after the date on which a Notice of Termination is given
(provided that if the termination is by Participant for Good Reason, the
circumstances giving rise to the Good Reason have not been fully corrected by
the specified date), unless an earlier date has been agreed to by the party
receiving the Notice of Termination either in advance of, or after, receiving
such Notice of Termination. Notwithstanding anything in the foregoing to the
contrary, if the party receiving the Notice of Termination has not previously
agreed to the termination, then within thirty (30) days after any Notice of
Termination is given, the party receiving such Notice of Termination may notify
the other party that a dispute exists concerning the termination, in which event
the Date of Termination shall be the date set either by mutual written agreement
of the parties or by the arbitrators in an arbitration proceeding as provided
under the Company's executive employment or severance agreements.
4. Section 2.01-2(b)(4) is added to increase the years of participation benefit
-------------------
accrual by three (3) years for any Participant who has a Qualifying Termination
under 1.15:
(b) Year of Participation means:
----------------------------
(1) Each consecutive twelve (12) month
period of Company service measured by each anniversary of the
date of first becoming a Participant under this Plan.
(2) All additional years of participation
credit awarded to a Participant by the Committee in the
exercise of its discretion.
(3) All years of service credit earned for
Company service and awarded by the Committee for each of the
nine (9) Participants in the Plan on September 1, 1998, as set
forth in the attached 1998 ESRIP Appendix.
(4) Three (3) additional years of
participation credit shall be awarded to any Participant who
has a Qualifying Termination (defined in 1.15) within
twenty-four (24) months after a Change in Control (defined in
1.14) pursuant to the 1998 ESRIP Change in Control Appendix.
5. Section 2.02A shall replace 2.02 regarding eligibility to receive and the
-------------
award of the early retirement benefits for any Participant who has a Qualifying
Termination under 1.15:
2.02A Early Retirement Supplemental Income. Any Participant who has a
------------------------------------
Qualifying Termination (defined in 1.15) within twenty-four (24) months after a
Change in Control (defined in 1.14) shall be entitled at or after age fifty-five
(55) to receive during Participant's lifetime the reduced monthly supplemental
retirement payments determined as follows:
2.02A-1 First, the total annual retirement pay at normal
retirement date shall be determined under 2.01-2 and -3, using the Participant's
final annual compensation and service at the time employment by the Company
ends.
2.02A-2 Second, the monthly supplemental payment under this
Plan starting at normal retirement date shall be determined under 2.01-4, using
the Participant's early annual retirement allowance payable at the normal
retirement date (under Retirement Plan 7.02-1), projected annual primary Social
Security benefit under the Retirement Plan, and annual retirement benefits under
the Executive Deferred Compensation Plan determined as a supplement to such
payment under the Retirement Plan.
2.02A-3 Third, if supplemental payments start before the
Participant's normal retirement date, to achieve the necessary reduction of the
target benefit under 2.01 and 2.02A-1, the monthly amount under 2.02A-2 shall be
reduced 0.25 percent (.0025) per month for each month of age during the period
starting on the date the first early retirement payment is to be made and ending
on Participant's 62nd birthday.
6. Section 2.05A shall replace 2.05 regarding the vested benefits of any
-------------
Participant who has a Qualifying Termination under 1.15:
2.05A Vested Benefits. Any Participant who has a Qualifying Termination
---------------
(defined in 1.15) within twenty-four (24) months after a Change in Control
(defined in 1.14) thereupon shall have a 100% vested and nonforfeitable right to
receive supplemental payments under this Plan starting as early as age 55 under
2.02A.
7. Section 4.02A replaces Section 4.02 and shall apply on and after the date
-------------
there is a Potential Change in Control (defined in 1.14):
4.02A Company. The Company, by action of the Board of Directors,
-------
reserves the exclusive right to amend, modify, or terminate this Plan in whole
or in part without notice to any Participant; provided, however, that the Change
in Control benefits provided by the 1998 ESRIP Change in Control Amendment shall
not be diminished or eliminated (but may be increased) on and after the date
when the first Potential Change in Control (defined in 1.14-2) shall occur after
September 1, 1998. Any such termination, modification or amendment shall not
terminate nor diminish any rights or benefits accrued by any Participant or
surviving beneficiary prior thereto.
8. Section 5.02A replaces Section 5.02 to delete the "change of control"
-------------
definition that is replaced by 1.14 and to affirm the change of control
provisions in this 1998 Amendment:
5.02A Legally Binding. The rights, privileges, benefits and
---------------
obligations under this Plan are intended to be legal obligations of the Company
and binding upon the Company, its successors and assigns. The Company agrees it
will not be a party to any merger, consolidation or reorganization, unless and
until its obligations hereunder shall be expressly assumed by its successor or
successors. Notwithstanding any of the provisions of the Plan to the contrary,
upon a change of control (defined in 1.14), the cessation of the corporate
existence of the Company or the failure to continue such existence in full force
and effect as a result of any circumstances or event, each Participant shall be
entitled to receive any Plan benefits, as determined in accordance with the
terms and conditions of payment set forth in Articles II and III, and, if
applicable, the 1998 ESRIP Change in Control Appendix.
NORTHWEST NATURAL GAS COMPANY
APPROVED: By /s/ R. G. Reiten
--------------------------
President and CEO
Date: September 28, 1998
1998 ESRIP APPENDIX
TO
NORTHWEST NATURAL GAS COMPANY
EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME PLAN
(Effective September 24, 1998)
1. Accrued Participation Credit and Vesting Credit under ESRIP
Section. 2.01-2 and 2.05
----------------------------------------------------------------------
For purposes of ESRIP benefits, the following executives employed on
September 1, 1998, are entitled to the years of participation credit and vesting
credit set forth below on 9/1/98 based on credit earned for prior Company
service and credit awarded by the Board.
Years of Years of
Participation Vesting
Credit Credit
Executive Born Hired on 9/1/98 on 9/1/98
---------------------- -------- -------- ------------- ---------
DeBolt, Bruce R. 12/07/47 02/15/80 18.55 18.55
Dodson, Mark S. 01/26/45 09/15/97 0.96 (2) 0.96 (2)
Foley, Dwayne L. 09/25/45 10/30/67 30.84 30.84
Harper, William R., Jr. 10/09/53 12/07/92 5.74 5.74
Johnston, Diana J. 12/16/44 05/20/66 32.29 32.29
Kantor, Gregg S. 04/30/57 09/15/96 0.67 1.96
McCoy, Michael S. 05/28/43 11/06/69 28.82 28.82
Reiten, Richard G. 07/01/39 12/31/95 10.67 (1,2) 5.67 (3)
Rue, Conrad J. 11/25/45 10/29/74 23.85 23.85
- --------
(1) Years of participation include a Board grant of 8 years to Reiten.
(2) Benefits also are subject to terms of Board approved Employment Agreement
for Dodson and Reiten.
(3) Subject to Board approved amendment of Reiten's Employment Agreement
granting three (3) years of Vesting Credit.
Exhibit 10(c)
Northwest Natural Gas Company
Executive Deferred Compensation Plan
AMENDMENT NO. 4
This Amendment No. 4 to the Northwest Natural Gas Company Executive
Deferred Compensation Plan, 1990 Restatement (the "Plan"), is effective as of
September 24, 1998 and has been executed as of this 24th day of September, 1998.
The Plan is hereby amended as follows:
FIRST: Section 9.1 is amended to read as follows:
9.1 Amendment
The Board may at any time amend the Plan in whole or in part, subject
to the following:
(a) Upon a Change in Control, no amendment shall be effective to
change the payout schedule in Section 9.2(b).
(b) No amendment shall be effective to decrease or restrict the
amount credited to any Account maintained under the Plan as of the date
of the amendment. Changes in the definition of Interest shall be
subject to the following restrictions:
(i) NOTICE. A change shall not become effective before the
first day of the calendar year which follows the adoption of the
amendment and at least thirty (30) days written notice of the
amendment to the Executive.
(ii) CHANGE IN CONTROL. Any change in the definition of
Interest after a Change in Control shall apply only to those
amounts credited to the Executive's Account after the Change in
Control.
SECOND: Section 9.2(b) is amended to read as follows:
(ii) Complete Termination. The Board may completely
--------------------
terminate the Plan by instructing the Committee not to accept any
additional Deferral Commitments, and terminating all ongoing
Deferral Commitments. The Plan shall cease to operate and the
Committee shall pay out to each Executive the balance in the
Executive's Account in a lump sum or in equal annual installments
amortized over the period listed in the payout schedule below
based on the Account balance at the time of such complete
termination:
PAYOUT SCHEDULE
-----------------------------------------------------------------
Appropriate Account Balance Payout Period
-----------------------------------------------------------------
Less than $10,000 Lump sum
$10,000 but less than $50,000 Lesser of 5 years or period
elected in Participation
Agreement
More than $50,000 Period elected in Participation
Agreement
=================================================================
Interest earned on the unpaid balance in the Executive's Account shall
be the applicable Interest rate on the Determination Date immediately preceding
the effective date of such complete termination.
THIRD: A new Section 5.9 shall be added to the Plan to read as
follows:
5.9 Accelerated Distribution
Notwithstanding any other provision of the Plan, an Executive at any
time following a Change in Control shall be entitled to receive, upon written
request to the Committee, a lump sum distribution equal to ninety percent (90%)
of the vested Account balance as of the Determination Date immediately preceding
the date on which the Committee receives the written request. The remaining
balance shall be forfeited by the Executive. An Executive who receives a
distribution under this section shall be suspended from participation in the
plan for twelve (12) months. The amount payable under this section shall be paid
in a lump sum within sixty-five (65) days following the receipt of the notice by
the Committee from the Executive.
FOURTH: Except as provided herein, all other Plan provisions shall
remain in full force and effect.
IN WITNESS WHEREOF, Northwest Natural Gas Company has caused this
Amendment No. 4 to be executed as of the date first written above.
Northwest Natural Gas Company
By: /s/ Richard G. Reiten
------------------------
President and CEO
Exhibit 10(d)
Northwest Natural Gas Company
Directors Deferred Compensation Plan
AMENDMENT NO. 1
This Amendment No. 1 to the Northwest Natural Gas Company Directors
Deferred Compensation Plan, effective June 1, 1981 and restated as of December
1, 1997 (the "Plan"), is effective as of September 24, 1998 and has been
executed as of this 24th day of September, 1998.
The Plan is hereby amended as follows:
FIRST: Section 9(a) is amended to read as follows:
9. Amendment and Termination of the Plan
-------------------------------------
(a) Amendment. The Board may at any time amend the Plan in whole
---------
or in part; provided, however, that upon a Change in Control, no
amendment shall be effective to change the payout schedule in Section
9(b)(ii), and further provided that no amendment shall decrease or
restrict the amount credited to any Account maintained under the Plan
as of the date of amendment. An amendment affecting the interest rate
credited under Paragraph 4 shall not become effective before the first
day of the calendar year which follows the adoption of the amendment
and at least 30 days written notice of the amendment to the Director.
SECOND: Section 9(b)(ii) is amended to read as follows:
9. Amendment and Termination of the Plan
-------------------------------------
(ii) Complete Termination. The Board may completely
--------------------
terminate the Plan by instructing the Committee not to accept any
additional deferrals, and terminating all ongoing deferrals. The
Plan shall cease to operate and the Committee shall pay out to
each Director the balance in each of his or her Accounts in a
lump sum or in equal annual installments amortized over the
period listed in the payout schedule below based on the balance
in the particular Account at the time of such complete
termination:
PAYOUT SCHEDULE
-----------------------------------------------------------------
Appropriate Account Balance Payout Period
-----------------------------------------------------------------
Less than $10,000 Lump sum
$10,000 but less than $50,000 Lesser of 5 years or period
elected in Participation
Agreement
More than $50,000 Period elected in Participation
` Agreement
=================================================================
Interest earned on the unpaid balance in the Director's Cash Account
shall be the applicable interest rate at the end of the calendar quarter
immediately preceding the effective date of such complete termination.
THIRD: A new Section 5(g) shall be added to the Plan to read as
follows:
5. Terms of Payment
----------------
(g) Accelerated Distribution. Notwithstanding any other provision
------------------------
of the Plan, a Director at any time following a Change in Control shall
be entitled to receive, upon written request to the Committee, a lump
sum distribution equal to ninety percent (90%) of the vested Account
balance as of the Determination Date immediately preceding the date on
which the Committee receives the written request. The remaining balance
shall be forfeited by the Director. A Director who receives a
distribution under this section shall be suspended from participation
in the Plan for 12 months. The amount payable under this section shall
be paid in a lump sum within 65 days following the receipt of the
notice by the Committee from the Director.
FOURTH: Except as provided herein, all other Plan provisions shall
remain in full force and effect.
IN WITNESS WHEREOF, Northwest Natural Gas Company has caused this
Amendment No. 1 to be executed as of the date first written above.
Northwest Natural Gas Company
By: /s/ Richard G. Reiten
--------------------------
President and CEO
Exhibit 10(e)
AMENDMENT TO EMPLOYMENT AGREEMENT
The Employment Agreement between Northwest Natural Gas Company, an
Oregon corporation ("NNG"), and Richard G. Reiten ("Reiten") dated October 30,
1995, as previously amended on February 22, 1996 and December 18, 1997 (the
"Agreement"), is hereby further amended as follows:
1. Section 5.2 of the Agreement is amended in its entirety to read as follows:
"5.2 So that Reiten will be fully vested and eligible for ESRIP
benefits on February 28, 2003, NNG shall effective as of
February 27, 1996 grant him credit for eight years of prior
service for purposes of benefit accrual under Section 2.01 of
the ESRIP and credit for three years of prior service for
purposes of vesting under Section 2.05 of the ESRIP."
2. Section 6.1 of the Agreement is amended in its entirety to read as follows:
"6.1 If Reiten should die before February 28, 2003 and while he is
employed pursuant to this Agreement, NNG shall grant to his
surviving spouse the full 100% joint and survivor annuity
which would have been available if he had been fully vested
with 15 years of service credit under the ESRIP on the date of
death. In calculating the benefit for his surviving spouse,
there shall not be taken into account any reduction under
Section 2.02-3 of the ESRIP based on his age on the date of
death."
3. Section 6.2 of the Agreement is amended in its entirety to read as follows:
"6.2 NNG shall be liable under the ESRIP to pay Reiten the full
ESRIP benefit as if he were fully vested with 15 years of
service credit under the ESRIP and without reduction under
Section 2.02-3 of the ESRIP based on age at retirement, once
any of the following conditions has been satisfied:
(a) Reiten becomes physically or mentally disabled so
that, in the sole judgment of the Organization and
Executive Compensation Committee of the Board of
Directors, he is unable to fulfill the
responsibilities of his office;
(b) NNG terminates Reiten without cause, where "cause"
has the meaning set forth in paragraph 4(iii) of
Reiten's separate severance agreement dated September
24, 1998; or
(c) Reiten becomes entitled to receive severance benefits
for termination of employment in connection with a
change in control, where such entitlement is
determined under the provisions of Reiten's separate
severance agreement dated September 24, 1998."
4. Section 6.4 of the Agreement is renumbered as Section 6.3.
5. Sections 6.3, 6.5 and 7 and Exhibit B of the Agreement are hereby deleted
in their entirety.
6. Except as otherwise provided herein, all other provisions of the Agreement
shall remain in full force and effect.
IT IS SO AGREED:
NORTHWEST NATURAL RICHARD G. REITEN
GAS COMPANY
/s/ Robert L. Ridgley /s/ Richard G. Reiten
- --------------------- ---------------------
Title: Chairman of the Board Dated: September 24, 1998
Dated: September 24, 1998
APPROVED BY THE BOARD OF DIRECTORS OF NORTHWEST NATURAL GAS COMPANY
By: /s/ Benjamin R. Whiteley
----------------------------
Its Lead Director
Dated: September 24, 1998
Exhibit 10(f)
Dear :
Northwest Natural Gas Company, an Oregon corporation (the
"Company"), considers the establishment and maintenance of a sound and vital
management to be essential to protecting and enhancing the best interests of the
Company. In this connection, the Company recognizes that, as is the case with
many publicly held corporations, the possibility of a change in control may
exist and that such possibility, and the uncertainty and questions which it may
raise among management, may result in the departure or distraction of management
personnel to the detriment of the Company, its customers and its shareholders.
Accordingly, the Board of Directors of the Company (the "Board") has determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction in circumstances arising from the
possibility of a change in control of the Company.
In order to induce you to remain in the employ of the Company,
this letter agreement, which has been approved by the Board, sets forth
severance benefits which the Company agrees will be provided to you in the event
your employment with the Company is terminated subsequent to a "change in
control" of the Company under the circumstances described below. The Company and
you have entered into a prior letter agreement regarding change in control
severance benefits dated ___________, 199_. Upon your signature of this letter
agreement, the prior agreement shall be superceded and replaced by this
agreement.
1. Agreement to Provide Services; Right to Terminate.
-------------------------------------------------
(i) Except as otherwise provided in paragraph (ii) below, the
Company or you may terminate your employment at any time, subject to the
Company's providing the benefits hereinafter specified in accordance with the
terms hereof.
(ii) In the event of a potential change in control of the
Company as defined in Section 3 hereof, you agree that you will not leave the
employ of the Company (other than as a result of Disability or upon Retirement,
as such terms are hereinafter defined) and will render the services contemplated
in the recitals to this Agreement until the earliest of (a) a date which is 270
days from the occurrence of such potential change in control of the Company, or
(b) a termination of your employment pursuant to which you become entitled under
this Agreement to receive the benefits provided in Section 5(iii) below.
2. Term of Agreement. This Agreement shall commence on the date hereof
-----------------
and shall continue in effect until December 31, 1998; provided, however, that
commencing on January 1, 1999 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless at
least 90 days prior to such January 1 date, the Company or you shall have given
notice that this Agreement shall not be extended (provided that no such notice
may be given by the Company during the pendency of a potential change in
control); and provided, further, that this Agreement shall continue in effect
for a period of twenty-four (24) months beyond the term provided herein if a
change in control of the Company, as defined in Section 3 hereof, shall have
occurred during such term. Notwithstanding anything in this Section 2 to the
contrary, this Agreement shall terminate if you or the Company terminate your
employment prior to a change in control of the Company as defined in Section 3
hereof. In addition, the Company may terminate this Agreement during your
employment if, prior to a change in control of the Company as defined in Section
3 hereof, you cease to hold your current position with the Company, except by
reason of a promotion.
3. Change in Control; Potential Change in Control; Person.
------------------------------------------------------
(i) For purposes of this Agreement, 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 of the Company
("Company Shares") would be converted into cash, securities or
other property, other than a Merger involving Company Shares
in which the holders of Company Shares 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
(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
("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 hereinafter defined) 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.
Notwithstanding anything in the foregoing to the contrary, unless otherwise
determined by the Board, no change in control shall be deemed to have occurred
for purposes of this Agreement if (1) you acquire (other than on the same basis
as all other holders of Company Shares) an equity interest in an entity that
acquires the Company in a change in control otherwise described under
subparagraph (A) above, or (2) you are part of a group that constitutes a Person
which becomes a beneficial owner of Voting Securities in a transaction that
otherwise would have resulted in a change in control under subparagraph (C)
above.
(ii) For purposes of this Agreement, a "potential change in
control" of the Company shall be deemed to have occurred if:
(A) the Company enters into an agreement, the approval of
which by the shareholders would result in the occurrence of a change in
control of the Company;
(B) any Person (including the Company) publicly announces an
intention to take or to consider taking actions which if consummated
would constitute a change in control of the Company; or
(C) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a potential change in control of the
Company has occurred.
(iii) For purposes of this Agreement, the term "Person" shall
mean and include any individual, corporation, partnership, group, association or
other "person," as such term is used in Section 14(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"), other than the Company or any employee benefit
plan(s) sponsored by the Company.
4. Termination Following Change in Control. If any of the events
---------------------------------------
described in Section 3 hereof constituting a change in control of the Company
shall have occurred, you shall be entitled to the benefits provided in Section
5(iii) hereof upon the termination of your employment within twenty-four (24)
months after such event, unless such termination is (a) because of your death or
Retirement, (b) by the Company for Cause or Disability or (c) by you other than
for Good Reason based on an event occurring concurrent with or subsequent to a
change in control (as all such capitalized terms are hereinafter defined).
(i) Disability. Termination by the Company of your employment
----------
based on "Disability" shall mean termination because of your absence from your
duties with the Company on a full-time basis for one hundred eighty (180)
consecutive days as a result of your incapacity due to physical or mental
illness, unless within thirty (30) days after Notice of Termination (as
hereinafter defined) is given to you following such absence you shall have
returned to the full-time performance of your duties.
(ii) Retirement. Termination by you or by the Company of your
----------
employment based on "Retirement" shall mean termination on or after your 62nd
birthday.
(iii) Cause. Termination by the Company of your employment for
-----
"Cause" shall mean termination upon (a) the willful and continued failure by you
to perform substantially your reasonably assigned duties with the Company
consistent with those duties assigned to you prior to the change in control
(other than any such failure resulting from your incapacity due to physical or
mental illness) after a demand for substantial performance is delivered to you
by the Chairman of the Board or President of the Company which specifically
identifies the manner in which such executive believes that you have not
substantially performed your duties, or (b) the willful engaging by you in
illegal conduct which is materially and demonstrably injurious to the Company.
For purposes of this paragraph (iii), no act, or failure to act, on your part
shall be considered "willful" unless done, or omitted to be done, by you in
knowing bad faith and without reasonable belief that your action or omission was
in, or not opposed to, the best interests of the Company. Any act, or failure to
act, based upon authority given pursuant to a resolution duly adopted by the
Board or based upon the advice of counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by you in good faith and in the best
interests of the Company. Notwithstanding the foregoing, you shall not be deemed
to have been terminated for Cause unless and until there shall have been
delivered to you a copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters of the entire membership of the Board at a meeting
of the Board called and held for the purpose (after reasonable notice to you and
an opportunity for you, together with your counsel, to be heard before the
Board), finding that in the good faith opinion of the Board you were guilty of
the conduct set forth above in (a) or (b) of this paragraph (iii) and specifying
the particulars thereof in detail.
(iv) Good Reason. Termination by you of your employment for
-----------
"Good Reason" shall mean termination based on:
(A) a change in your status, title, position(s) or
responsibilities as an officer of the Company which, in your reasonable
judgment, does not represent a promotion from your status, title,
position(s) and responsibilities as in effect immediately prior to the
change in control, or the assignment to you of any duties or
responsibilities which, in your reasonable judgment, are inconsistent
with such status, title or position(s), or any removal of you from or
any failure to reappoint or reelect you to such position(s), except in
connection with the termination of your employment for Cause,
Disability or Retirement or as a result of your death or by you other
than for Good Reason;
(B) a reduction by the Company in your base salary as in
effect immediately prior to the change in control;
(C) the failure by the Company to continue in effect any Plan
(as hereinafter defined) in which you are participating at the time of
the change in control of the Company (or Plans providing you with at
least substantially similar benefits) other than as a result of the
normal expiration of any such Plan in accordance with its terms as in
effect at the time of the change in control, or the taking of any
action, or the failure to act, by the Company which would adversely
affect your continued participation in any of such Plans on at least as
favorable a basis to you as is the case on the date of the change in
control or which would materially reduce your benefits in the future
under any of such Plans or deprive you of any material benefit enjoyed
by you at the time of the change in control;
(D) the failure by the Company to provide and credit you with
the number of paid vacation days to which you are then entitled in
accordance with the Company's normal vacation policy as in effect
immediately prior to the change in control;
(E) the Company's requiring you to be based anywhere other
than where your office is located immediately prior to the change in
control except for required travel on the Company's business to an
extent substantially consistent with the business travel obligations
which you undertook on behalf of the Company prior to the change in
control;
(F) the failure by the Company to obtain from any Successor
(as hereinafter defined) the assent to this Agreement contemplated by
Section 6 hereof; or
(G) any purported termination by the Company of your
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of paragraph (v) below (and, if applicable,
paragraph (iii) above); and for purposes of this Agreement, no such
purported termination shall be effective.
For purposes of this Agreement, "Plan" shall mean any compensation plan such as
an incentive, stock option or restricted stock plan or any employee benefit plan
such as a thrift, pension, profit sharing, deferred compensation, medical,
disability, accident, life insurance, or relocation plan or policy or any other
plan, program or policy of the Company intended to benefit employees.
(v) Notice of Termination. Any purported termination by the
---------------------
Company or by you following a change in control shall be communicated by Written
Notice of Termination to the other party hereto. For purposes of this Agreement,
a "Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated.
(vi) Date of Termination. "Date of Termination" following a
-------------------
change in control shall mean (a) if your employment is to be terminated for
Disability, thirty (30) days after Notice of Termination is given (provided that
you shall not have returned to the performance of your duties on a full-time
basis during such thirty (30) day period), (b) if your employment is to be
terminated by the Company for Cause, the date on which a Notice of Termination
is given, and (c) if your employment is to be terminated by you or by the
Company for any other reason, the date specified in the Notice of Termination,
which shall be a date no earlier than ninety (90) days after the date on which a
Notice of Termination is given (provided that if the termination is by you for
Good Reason the circumstances giving rise to the Good Reason have not been fully
corrected by the specified date), unless an earlier date has been agreed to by
the party receiving the Notice of Termination either in advance of, or after,
receiving such Notice of Termination. Notwithstanding anything in the foregoing
to the contrary, if the party receiving the Notice of Termination has not
previously agreed to the termination, then within thirty (30) days after any
Notice of Termination is given, the party receiving such Notice of Termination
may notify the other party that a dispute exists concerning the termination, in
which event the Date of Termination shall be the date set either by mutual
written agreement of the parties or by the arbitrators in a proceeding as
provided in Section 12 hereof.
5. Compensation Upon Termination or During Disability.
--------------------------------------------------
(i) During any period following a change in control that you
fail to perform your duties as a result of incapacity due to physical or mental
illness, you shall continue to receive your full base salary at the rate then in
effect and any benefits or awards under any Plans shall continue to accrue
during such period, to the extent not inconsistent with such Plans, until your
employment is terminated pursuant to and in accordance with Sections 4(i) and
4(vi) hereof. Thereafter, your benefits shall be determined in accordance with
the Plans then in effect.
(ii) If your employment shall be terminated for Cause or as a
result of Retirement or Death following a change in control of the Company, the
Company shall pay you your full base salary through the Date of Termination at
the rate in effect just prior to the time a Notice of Termination is given plus
any benefits or awards which pursuant to the terms of any Plans have been earned
or become payable, but which have not yet been paid to you. Thereupon the
Company shall have no further obligations to you under this Agreement.
(iii) If, within twenty-four (24) months after a change in
control of the Company shall have occurred, as defined in Section 3 above, your
employment by the Company shall be terminated (a) by the Company other than for
Cause, Disability or Retirement or (b) by you for Good Reason based on an event
occurring concurrent with or subsequent to a change in control, then, by no
later than the fifth day following the Date of Termination (except as otherwise
provided), you shall be entitled, without regard to any contrary provisions of
any Plan, to a severance benefit as follows:
(A) the Company shall pay your full base salary through the
Date of Termination at the rate in effect just prior to the time a Notice of
Termination is given plus any benefits or awards which pursuant to the terms of
any Plans have been earned or become payable, but which have not yet been paid
to you;
(B) as severance pay and in lieu of any further salary for
periods subsequent to the Date of Termination, the Company shall pay to you in a
single payment an amount in cash equal to [two (2) or three (3)] times the sum
of (1) the greater of (i) your annual rate of base salary in effect on the Date
of Termination or (ii) your annual rate of base salary in effect immediately
prior to the change in control of the Company and (2) the greater of (i) the
average of the last three annual bonuses (annualized in the case of any bonus
paid with respect to a partial year) paid to you preceding the Date of
Termination or (ii) the average of the last three annual bonuses (annualized in
the case of any bonus paid with respect to a partial year) paid to you preceding
such change in control;
(C) for a thirty-six (36) month period after the Date of
Termination, the Company shall arrange to provide you and your dependents with
life, accident and health insurance benefits substantially similar to those
which you were receiving immediately prior to the change in control of the
Company. Notwithstanding the foregoing, the Company shall not provide any
benefit otherwise receivable by you pursuant to this subparagraph (C) to the
extent that a similar benefit is actually received by you from a subsequent
employer during such thirty-six (36) month period, and any such benefit actually
received by you shall be reported to the Company; and
(D) if any of the payments provided for in paragraphs (iii)(B)
or (iii)(C) or any other payment or benefit received or to be received by you in
connection with a change in control of the Company or the termination of your
employment (collectively, the "Severance Payments") will be subject to the tax
imposed by section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), or any similar tax that may hereafter be imposed (the "Excise Tax"),
the Company shall pay to you an additional amount (the "Gross-Up Payment") such
that the net amount retained by you, after deduction of any Excise Tax on the
Severance Payments and any federal, state and local income tax and Excise Tax
upon the Gross-Up Payment, shall be equal to the Severance Payments. For
purposes of determining the amount of the Gross-Up Payment, you shall be deemed
to pay federal income taxes at the highest marginal rate of federal income
taxation in the calendar year in which the Gross-Up Payment is to be made and
state and local income taxes at the highest marginal rate of taxation in the
state and locality of your residence on the Date of Termination, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes. In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at the time
of termination of your employment, you shall repay to the Company at the time
that the amount of such reduction in Excise Tax is finally determined the
portion of the Gross-Up Payment directly and indirectly attributable to such
reduction plus interest on the amount of such repayment at the rate provided for
in section 1274(d) of the Code. In the event that the Excise Tax is determined
to exceed the amount taken into account hereunder at the time of the termination
of your employment (including by reason of any Severance Payment the existence
or amount of which cannot be determined at the time of the Gross-Up Payment),
the Company shall make an additional gross-up payment in respect of such excess
(plus any interest payable to the taxing authorities with respect to such
excess) at the time that the amount of such excess is finally determined.
(iv) Except as specifically provided above, the amount of any
payment provided for in this Section 5 shall not be reduced, offset or subject
to recovery by the Company by reason of any compensation earned by you as the
result of employment by another employer after the Date of Termination, or
otherwise. Your entitlements under Section (5)(iii) are in addition to, and not
in lieu of, any rights, benefits or entitlements you may have under the terms or
provisions of any Plan.
(v) The Company shall withhold the Excise Tax determined under
paragraph (iii)(D) above in accordance with section 4999(b) of the Code, and
shall withhold federal, state and local income taxes from Severance Payments and
Gross-Up Payments as required by law.
6. Successors; Binding Agreement.
-----------------------------
(i) Upon your written request, the Company will seek to have
any Successor (as hereinafter defined), by agreement in form and substance
satisfactory to you, assent to the fulfillment by the Company of its obligations
under this Agreement. Failure of the Company to obtain such assent prior to or
at the time a Person becomes a Successor shall constitute Good Reason for
termination by you of your employment and, if a change in control of the Company
has occurred, shall entitle you immediately to the benefits provided in Section
5(iii) hereof upon delivery by you of a Notice of Termination which the Company,
by executing this Agreement, hereby assents to. For purposes of this Agreement,
"Successor" shall mean any Person that succeeds to, or has the practical ability
to control (either immediately or with the passage of time), the Company's
business directly, by merger, consolidation or purchase of assets, or
indirectly, by purchase of the Company's Voting Securities or otherwise.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amount would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if there be no such designee, to your estate.
7. Fees and Expenses. The Company shall pay all legal fees and related
-----------------
expenses incurred by you as a result of (i) your termination following a change
in control of the Company (including all such fees and expenses, if any,
incurred in contesting or disputing any such termination) or (ii) your seeking
to obtain or enforce any right or benefit provided by this Agreement.
8. Survival. The respective obligations of, and benefits afforded to,
--------
the Company and you as provided in Sections 5, 6(ii), 7 and 12 of this Agreement
shall survive termination of this Agreement.
9. Notice. For the purposes of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid and addressed to the
address of the respective party set forth on the first page of this Agreement,
provided that all notices to the Company shall be directed to the attention of
the Chairman of the Board or President of the Company, with a copy to the
Secretary of the Company, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
10. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such modification, waiver or discharge is agreed to
in a writing signed by you and the Chairman of the Board or President of the
Company. No waiver by either party hereto at any time of any breach by the other
party hereto of, or of compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Oregon.
11. Validity. The invalidity or unenforceability of any provision of
--------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
12. Arbitration. Any dispute or controversy arising under or in
-----------
connection with this Agreement shall be settled exclusively by arbitration in
Portland, Oregon by three arbitrators in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrators' award in any court having jurisdiction; provided, however, that you
shall be entitled to seek specific performance of your right to be paid until
the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement. The Company shall bear all
costs and expenses arising in connection with any arbitration proceeding
pursuant to this Section 12.
13. Related Agreements. To the extent that any provision of any other
------------------
agreement between the Company or any of its subsidiaries and you shall limit,
qualify or be inconsistent with any provision of this Agreement, then for
purposes of this Agreement, while the same shall remain in force, the provision
of this Agreement shall control and such provision of such other agreement shall
be deemed to have been superseded, and to be of no force or effect, as if such
other agreement had been formally amended to the extent necessary to accomplish
such purpose.
14. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
If this letter correctly sets forth our agreement on the
subject matter hereof, kindly sign and return to the Company the enclosed copy
of this letter which will then constitute our agreement on this subject.
Sincerely,
NORTHWEST NATURAL GAS COMPANY
By
--------------------------
(Name and Title)
Agreed to this ____ day of ____________, ____.
Exhibit 10(g)
AMENDMENT TO EMPLOYMENT AGREEMENT
The Employment Agreement between Northwest Natural Gas Company, an
Oregon corporation ("NNG"), and Mark S. Dodson ("Dodson") dated July 2, 1997, as
previously amended on December 18, 1997 (the "Agreement"), is hereby further
amended as follows:
1. Section 5.1 of the Agreement is amended to read in its entirety as
follows:
"5.1 In General. Executive supplemental retirement income benefits
under the ESRIP normally are available upon vesting that
begins after 5 years of service, and the amount of benefits
then increases with additional years of service. This
Agreement provides for payment of ESRIP benefits even though
Dodson is not otherwise vested in such benefits and provides
for benefits at higher levels than Dodson would otherwise be
entitled based on his years of service. For determination of
any ESRIP payment starting before Dodson's age 65 normal
retirement date, Dodson shall be treated as though he
qualifies for and will receive an "early annual retirement
allowance" under the Company's Retirement Plan, and Dodson's
ESRIP benefits shall not be subject to reduction under Section
2.02-3 of the ESRIP based on age at retirement. If entitled
to receive ESRIP benefits under this Agreement, Dodson may
select any of the benefit payment options under Section 3.01
of the ESRIP for which he is eligible."
2. Section 5.2 of the Agreement is amended in its entirety to read as follows:
"5.2 Full ESRIP. 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 2.01-2 of the ESRIP once
any of the following conditions has been satisfied:
(a) Dodson's employment is terminated for any reason
after he completes the Second Term;
(b) Dodson becomes totally and permanently disabled at
any time during employment by NNG;
(c) NNG terminates Dodson without cause, where "cause"
has the meaning set forth in paragraph 4(iii) of
Dodson's separate amended and restated severance
agreement dated September 24, 1998; or
(d) Dodson becomes entitled to receive severance benefits
for termination of employment in connection with a
change in control, where such entitlement is
determined under the provisions of Dodson's separate
amended and restated severance agreement dated
September 24, 1998."
3. Section 5.3 of the Agreement is amended to read in its entirety as follows:
"5.3 One-half ESRIP. If, after the end of the Initial Term but
prior to the end of the Second Term, Dodson terminates
employment with NNG under circumstances where he is not
entitled to full ESRIP benefits under Section 5.2 above, NNG
shall be liable under the ESRIP to pay Dodson the greater of
(a) the benefit he would otherwise be entitled to under the
ESRIP, or (b) a one-half ESRIP benefit using a 32.5 percent
normal retirement income target under ESRIP Section 2.01-2 in
place of the 65 percent target."
4. Except as otherwise provided herein, all other provisions of the Agreement
shall remain in full force and effect.
IT IS SO AGREED:
NORTHWEST NATURAL MARK S. DODSON
GAS COMPANY
/s/ R. G. Reiten /s/ Mark S. Dodson
- ------------------------- ----------------------------
Title: President and CEO Dated: September 24, 1998
Dated: September 24, 1998
APPROVED BY THE BOARD OF DIRECTORS OF NORTHWEST NATURAL GAS COMPANY
By: /s/ Benjamin R. Whiteley
------------------------
Its Lead Director
Dated: September 24, 1998
EXHIBIT 11
<TABLE>
NORTHWEST NATURAL GAS COMPANY
Statement re: Computation of Per Share Earnings
(Thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -----------------
1998 1997 1998 1997
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Earnings Applicable to Common Stock $ (6,558) $ (3,101) $19,420 $22,673
Debenture Interest Less Taxes 110 115 330 345
-------- -------- ------- -------
Net Income Available for Diluted
Common Stock (6,448) $(2,986) $19,750 $23,018
========= ======= ======= =======
Average Common Shares Outstanding 24,763 22,734 24,037 22,662
Stock Options 36 45 40 38
Convertible Debentures 500 522 500 522
-------- -------- ------- -------
Diluted Common Shares 25,299 23,301 24,577 23,222
======== ======== ======= =======
Diluted Earnings per Share of
Common Stock $(0.26) $(0.14) $0.80 $0.99
======== ======== ======= =======
</TABLE>
EXHIBIT 12
<TABLE>
NORTHWEST NATURAL GAS COMPANY
Computation of Ratio of Earnings to Fixed
Charges January 1, 1993 - September 30, 1998
<CAPTION>
Twelve
Months
Ended
Year Ended December 31, Sept 30,
----------------------------------------------------
1993 1994 1995 1996 1997 1998
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges, as Defined:
Interest on Long-
Term Debt ...................... $ 22,578 $ 21,921 $ 23,141 $ 23,176 $ 24,918 $ 27,366
Other Interest .................. 1,906 2,473 2,252 3,448 4,500 4,986
Amortization of Debt
Discount and Expense ........... 775 850 882 865 730 698
Interest Portion of
Rentals ...................... 1,701 1,697 1,764 1,798 2,111 2,111
-------- -------- -------- -------- -------- --------
Total Fixed Charges,
as defined .................... $ 26,960 $ 26,941 $ 28,039 $ 29,287 $ 32,259 $ 35,161
======== ======== ======== ======== ======== ========
Earnings, as defined:
Net Income ...................... $ 37,647 $ 35,461 $ 38,065 $ 46,793 $ 43,059 $ 39,753
Taxes on Income ................. 22,096 20,473 22,120 27,347 21,106 17,699
Fixed Charges,
as above ..................... 26,960 26,941 28,039 29,287 32,259 35,161
-------- -------- -------- -------- -------- --------
Total Earnings,
as defined ................... $ 86,703 $ 82,875 $ 88,224 $103,427 $ 96,424 $ 92,613
======== ======== ======== ======== ======== ========
Ratio of Earnings to
Fixed Charges ....................... 3.22 3.08 3.15 3.53 2.99 2.63
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000073020
<NAME> Northwest Natural Gas Company
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 823,057
<OTHER-PROPERTY-AND-INVEST> 97,986
<TOTAL-CURRENT-ASSETS> 68,876
<TOTAL-DEFERRED-CHARGES> 94,142
<OTHER-ASSETS> 56,860
<TOTAL-ASSETS> 1,140,921
<COMMON> 78,512
<CAPITAL-SURPLUS-PAID-IN> 228,290
<RETAINED-EARNINGS> 106,693
<TOTAL-COMMON-STOCKHOLDERS-EQ> 413,495
35,569
0
<LONG-TERM-DEBT-NET> 346,953
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 75,056
<LONG-TERM-DEBT-CURRENT-PORT> 10,000
930
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 258,918
<TOT-CAPITALIZATION-AND-LIAB> 1,140,921
<GROSS-OPERATING-REVENUE> 273,161
<INCOME-TAX-EXPENSE> 9,442
<OTHER-OPERATING-EXPENSES> 225,982
<TOTAL-OPERATING-EXPENSES> 235,424
<OPERATING-INCOME-LOSS> 37,737
<OTHER-INCOME-NET> 7,237
<INCOME-BEFORE-INTEREST-EXPEN> 44,974
<TOTAL-INTEREST-EXPENSE> 23,615
<NET-INCOME> 21,359
1,939
<EARNINGS-AVAILABLE-FOR-COMM> 19,420
<COMMON-STOCK-DIVIDENDS> 22,050
<TOTAL-INTEREST-ON-BONDS> 18,704
<CASH-FLOW-OPERATIONS> 65,917
<EPS-PRIMARY> $0.81
<EPS-DILUTED> $0.80
</TABLE>
