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 June 30, 1999
---------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------------- ----------------------
Commission file number 0-994
---------
NORTHWEST NATURAL GAS COMPANY
----------------------------------------
(Exact name of registrant as specified in its charter)
Oregon 93-0256722
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 N. W. Second Avenue, Portland, Oregon 97209
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (503) 226-4211
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
At August 3, 1999, 24,987,466 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
June 30, 1999
Summary of Information Reported
The registrant submits herewith the following information:
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements Number
------
(1) Consolidated Statements of Income for the three and six 3
month periods ended June 30, 1999 and 1998, and
Consolidated Statements of Earnings Invested in the
Business for the six-month periods ended June 30, 1999 and
1998.
(2) Consolidated Balance Sheets at June 30, 1999 4
and 1998 and December 31, 1998.
(3) Consolidated Statements of Cash Flows for the six-month 5
periods ended June 30, 1999 and 1998.
(4) Consolidated Statements of Capitalization at
June 30, 1999 and 1998 and December 31, 1998. 6
(5) Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. Exhibits and Reports on Form 8-K 23
Signature 23
2
<PAGE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(1) Consolidated Statements of Income
(Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1999 1998 1999 1998
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Operating Revenues:
Gross operating revenues $ 97,985 $83,654 $269,034 $219,351
Cost of sales 39,011 33,651 120,979 91,041
-------- ------- -------- --------
Net operating revenues 58,974 50,003 148,055 128,310
-------- ------- -------- --------
Operating Expenses:
Operations and maintenance 18,258 19,882 40,781 40,141
Taxes other than income taxes 5,613 4,986 14,015 12,011
Depreciation, depletion and
amortization 13,220 12,696 26,775 24,641
-------- ------- -------- --------
Total operating expenses 37,091 37,564 81,571 76,793
-------- ------- -------- --------
Income from Operations 21,883 12,439 66,484 51,517
Other Income 2,116 1,610 3,614 4,687
Interest Charges - net 6,693 7,559 14,861 15,968
-------- ------- -------- --------
Income Before Income Taxes 17,306 6,490 55,237 40,236
Income Taxes 6,522 2,397 20,410 12,957
-------- ------- -------- --------
Net Income 10,784 4,093 34,827 27,279
Redeemable Preferred and Preference
Stock Dividend Requirements 633 648 1,270 1,301
-------- ------- -------- --------
Earnings Applicable to Common Stock $ 10,151 $ 3,445 $ 33,557 $ 25,978
======== ======= ======== ========
Average Common Shares Outstanding 24,946 24,444 24,915 23,673
Earnings Per Share of Common Stock:
Basic $0.41 $0.14 $1.35 $1.10
Diluted $0.40 $0.14 $1.33 $1.08
Dividends Per Share of Common Stock $0.305 $0.305 $0.61 $0.61
</TABLE>
See Notes to Consolidated Financial Statements.
===============================================================================
Consolidated Statements of Earnings Invested in the Business
(Thousands, Six-Months Ended June 30)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---------------------- -----------------------
<S> <C> <C> <C> <C>
Earnings Invested in the Business:
Balance at Beginning of Period $ 106,513 $ 113,098
Net Income 34,827 $ 34,827 27,279 $ 27,279
Dividends Declared or Paid:
Redeemable preferred and preference
stock (1,281) (1,312)
Common stock (15,183) (14,504)
Common Stock Expense
-- (1,697)
--------- ---------
Balance at End of Period $ 124,876 $ 122,864
========= =========
Accumulated Other Comprehensive Income:
Balance at Beginning of Period $ (2,460) $ (2,235)
Other comprehensive income -
Foreign currency translation
adjustment (516) (516) 48 48
--------- --------- --------- --------
Comprehensive Income $ 34,311 $ 27,327
========= ========
Balance at End of Period $ (2,976) $ (2,187)
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(2) Consolidated Balance Sheets
(Thousands of Dollars)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
June 30, June 30, Dec. 31,
1999 1998 1998
---------- ---------- -----------
<S> <C> <C> <C>
Assets:
Plant and Property:
Utility plant $1,284,049 $1,201,817 $1,239,690
Less accumulated depreciation 423,704 385,970 404,117
---------- ---------- ----------
Utility plant - net 860,345 815,847 835,573
---------- ---------- ----------
Non-utility property 84,577 83,534 89,050
Less accumulated depreciation and depletion 32,179 25,740 29,927
---------- ---------- ----------
Non-utility property - net 52,398 57,794 59,123
---------- ---------- ----------
Total plant and property 912,743 873,641 894,696
---------- ---------- ----------
Investments and Other:
Investments 15,008 32,803 15,898
Long-term notes receivable 507 772 816
---------- ---------- ----------
Total investments and other 15,515 33,575 16,714
---------- ---------- ----------
Current Assets:
Cash and cash equivalents 20,693 13,481 7,383
Accounts receivable - net 29,248 29,321 47,476
Accrued unbilled revenue 6,955 6,070 34,258
Inventories of gas, materials and supplies 19,283 15,262 21,258
Property held for sale 12,293 - -
Prepayments and other current assets 11,099 8,447 16,105
---------- ---------- ----------
Total current assets 99,571 72,581 126,480
Regulatory Tax Assets 56,860 56,860 56,860
Deferred Gas Costs Receivable 19,744 30,912 27,795
Deferred Debits and Other 78,467 63,030 69,191
---------- ---------- ----------
Total Assets $1,182,900 $1,130,599 $1,191,736
========== ========== ==========
Capitalization and Liabilities:
Capitalization:
Common stock $311,247 $ 305,220 $ 308,351
Earnings invested in the business 124,876 122,864 106,513
Accumulated other comprehensive income (2,976) (2,187) (2,460)
---------- ---------- ----------
Total common stock equity 433,147 425,897 412,404
Redeemable preference stock 25,000 25,000 25,000
Redeemable preferred stock 10,564 11,499 11,499
Long-term debt 366,607 347,016 366,738
---------- ---------- ----------
Total capitalization 835,318 809,412 815,641
---------- ---------- ----------
Minority Interest 16,115 18,002 16,322
---------- ---------- ----------
Current Liabilities:
Notes payable 55,646 28,369 87,264
Accounts payable 55,049 48,012 56,039
Long-term debt due within one year - 25,000 10,000
Taxes accrued 11,076 4,637 7,486
Interest accrued 5,227 5,848 6,204
Other current and accrued liabilities 35,798 21,728 23,477
---------- ---------- ----------
Total current liabilities 162,796 133,594 190,470
Deferred Investment Tax Credits 10,628 11,406 11,248
Deferred Income Taxes 139,676 141,911 140,310
Regulatory Accounts and Other 18,367 16,274 17,745
Commitments and Contingencies - - -
---------- ---------- ----------
Total Capitalization and Liabilities $1,182,900 $1,130,599 $1,191,736
========== ========== ==========
See Notes to Consolidated Financial Statements
4
<PAGE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(3) Consolidated Statements of Cash Flows
(Thousands of Dollars)
(Unaudited)
Six Months Ended
June 30,
----------------------
1999 1998
---- ----
<S> <C> <C>
Operating Activities:
Net income $ 34,827 $ 27,279
Adjustments to reconcile net income to cash provided
by operations:
Depreciation, depletion and amortization 26,775 24,641
Gain on sale of assets (1,691) (3,789)
Deferred income taxes and investment tax credits (1,254) 1,415
Equity in losses of investments 332 829
Allowance for funds used during construction (278) (691)
Deferred gas costs receivable 8,051 (2,284)
Regulatory accounts and other - net (8,654) (3,419)
-------- --------
Cash from operations before working capital changes 58,108 43,981
Changes in operating assets and liabilities:
Accounts receivable 18,228 10,099
Accrued unbilled revenue 27,303 17,841
Inventories of gas, materials and supplies 1,975 2,123
Accounts payable (990) (10,763)
Accrued interest and taxes 2,613 (229)
Other current assets and liabilities 17,327 9,017
-------- --------
Cash Provided By Operating Activities 124,564 72,069
-------- --------
Investing Activities:
Acquisition and construction of utility plant assets (46,942) (38,929)
Investment in non-utility plant (12,066) (9,400)
Proceeds from sale of non-utility assets 3,862 -
Investments and other 660 822
-------- --------
Cash Used In Investing Activities (54,486) (47,507)
-------- --------
Financing Activities:
Common stock issued 2,765 49,531
Redeemable preferred stock retired (935) (930)
Long-term debt issued - 32,000
Long-term debt retired (10,000) (20,000)
Change in short-term debt (31,618) (60,948)
Cash dividend payments:
Redeemable preferred and preference stock (1,281) (1,312)
Common stock (15,183) (14,504)
Foreign currency translation and capital stock expense (516) (1,649)
-------- --------
Cash Used For Financing Activities (56,768) (17,812)
-------- --------
Increase In Cash and Cash Equivalents 13,310 6,750
Cash and Cash Equivalents - Beginning of Period 7,383 6,731
-------- --------
Cash and Cash Equivalents - End of Period $ 20,693 $ 13,481
======== ========
====================================================================================
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest $15,762 $16,515
Income Taxes $17,300 $ 7,650
====================================================================================
Supplemental Disclosure of Noncash Financing Activities
Conversion to common stock:
7-1/4 percent Series of Convertible Debentures $131 $287
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(4) Consolidated Statements of Capitalization
(Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
June 30, 1999 June 30, 1998 Dec. 31, 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK EQUITY:
Common stock - par value
$3-1/6 per share $ 79,094 $ 78,319 $ 78,701
Premium on common stock 232,153 226,901 229,650
Earnings invested in the business 124,876 122,864 106,513
Accumulated other
comprehensive income (2,976) (2,187) (2,460)
-------- -------- ---------
Total common stock equity 433,147 52% 425,897 53% 412,404 51%
-------- ---- -------- ---- --------- ----
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 64 249 249
$7.125 Series 10,500 11,250 11,250
-------- -------- ---------
Total redeemable
preferred stock 10,564 1% 11,499 1% 11,499 1%
-------- ---- -------- ---- --------- ----
LONG-TERM DEBT:
First Mortgage Bonds
9-3/4% Series due 2015 50,000 50,000 50,000
Medium-Term Notes
First Mortgage Bonds:
7.69% Series A due 1999 -- 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
5.55% Series B due 2002 20,000 - 20,000
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 22,000 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 20,000
6.65% Series B due 2028 10,000 10,000 10,000
Unsecured:
8.93% Series A due 1998 -- 5,000 --
8.95% Series A due 1998 -- 10,000 --
8.47% Series A due 2001 10,000 10,000 10,000
Convertible Debentures
- ----------------------
7-1/4% Series due 2012 9,607 10,016 9,738
-------- -------- ---------
366,607 372,016 376,738
Less long-term debt due within one
year -- 25,000 10,000
-------- -------- ---------
Total long-term debt 366,607 44% 347,016 43% 366,738 45%
-------- ---- -------- ---- --------- ----
TOTAL CAPITALIZATION $835,318 100% $809,412 100% $ 815,641 100%
======== ==== ======== ==== ========= ====
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE>
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(5) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Financial Statements
The information presented in the consolidated financial statements is
unaudited, but includes all adjustments, consisting of only normal recurring
accruals, which 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 1998 Annual Report on Form 10-K (1998
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 1999 presentation.
2. Recently Issued Accounting Standards
In June 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133 - an amendment of FASB Statement No. 133," which
postponed the effective date of SFAS No. 133, "Accounting for Derivative
Financial Instruments and Hedging Activities," to all fiscal years beginning
after June 15, 2000 (Jan. 1, 2001 for the Company). SFAS No. 133 requires that
all changes in the fair value of derivative instruments 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. The Company has not determined
the impact that adoption of SFAS No. 133 will have on its results of operation
or financial position.
The Accounting Standards Executive Committee issued Statement of Position
(SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use," and SOP 98-5, "Reporting on the Costs of Start-Up
Activities," which are effective for years beginning after Dec. 31, 1998. The
Company's adoption of SOP 98-1 and SOP 98-5 had no material effect on its
results of operations or financial position.
3. Segment Reporting
The Company principally operates in a single line of business consisting of
the distribution of natural gas, which constitutes the "utility" segment. Other
lines of business are primarily investments in oil and gas exploration
properties in Canada and in alternative energy projects in California, which
constitute the "other" segment.
7
<PAGE>
The following table presents information about reportable segments for the
three and six months ended June 30, 1999 and 1998. Inter-segment transactions
are insignificant.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
Thousands of Dollars Utility Other Total Utility Other Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999
Net operating revenues 55,170 3,804 58,974 140,972 7,083 148,055
Income (loss) from operations 22,133 (250) 21,883 67,726 (1,242) 66,484
Depreciation expense 11,250 1,970 13,220 22,448 4,327 26,775
Net income 10,157 627 10,784 34,566 261 34,827
Assets - end of period 1,091,252 91,648 1,182,900 1,091,252 91,648 1,182,900
1998
Net operating revenues 46,554 3,449 50,003 122,849 5,461 128,310
Income (loss) from operations 12,665 (226) 12,439 52,091 (574) 51,517
Depreciation expense 10,877 1,819 12,696 21,665 2,976 24,641
Net income 3,902 191 4,093 24,244 3,035 27,279
Assets - end of period 1,032,339 98,260 1,130,599 1,032,339 98,260 1,130,599
</TABLE>
4. Property Held for Sale
Property held for sale is a new headquarters building being constructed for
the Port of Portland. Construction and sale of the building are expected to be
completed within 90 days.
5. Contingencies
See Part II, Item 7., "Contingent Liabilities" and "Environmental Matters,"
in the 1998 Form 10-K.
8
<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 1998 Annual Report on
Form 10-K (1998 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 six months ended June 30, 1999 and 1998.
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
9
<PAGE>
opportunities; (x) legal and administrative proceedings and settlements; and
(xi) estimates of future costs or the effect on future operations as a result of
events that could result from the Year 2000 issue described further herein. 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's earnings applicable to common stock were $10.2 million,
or 40 cents a diluted share, in the quarter ended June 30, 1999, up from
$3.4 million, or 14 cents a diluted share, in the second quarter of 1998.
NW Natural earned 38 cents a share from utility operations in the
second quarter of 1999, compared to 13 cents a share in the same period in 1998.
Results for the second quarter of 1999 include reductions to the litigation and
interest reserves for the Chase Gardens case equivalent to 9 cents a share. (See
-------------
"Operating Expenses - Operations and Maintenance" and "Interest Charges - net,"
below, and Part II, Item 1, "Legal Proceedings," herein.) Weather during the
three months ended June 30, 1999 was 35 percent colder than average and 24
percent colder than the second quarter of 1998. NW Natural estimates that the
weather-related increase in net operating revenues (margin) from sales to
residential and commercial customers during the second quarter of 1999 was
equivalent to about 20 cents a share of earnings compared to a similar period
with average weather and 10 cents a share compared to the same period in 1998.
NW Natural also estimates that customer growth in the residential and commercial
segments since June 30, 1998 contributed $2.1 million of margin during the
second quarter of 1999.
The Company earned $33.6 million, or $1.33 a diluted share, and
$26.0 million, or $1.08 a diluted share, for the six months ended June 30, 1999
and 1998, respectively. Year-to-date, NW Natural earned $1.32 a share from
utility operations compared to 97 cents a share in the same period in 1998.
Weather in the first half of the year was 14 percent colder in 1999 than in
1998, resulting in an increase in margin from residential and commercial
customers equivalent to an estimated 27 cents a share of earnings.
NW Natural's subsidiaries earned 2 cents a share during the second
quarter of 1999 compared to 1 cent in the second quarter of 1998. Year to date
subsidiary results were income of 1 cent a share for 1999 compared to a loss of
2 cents for 1998. See "Subsidiary Operations," below.
10
<PAGE>
Dividends paid on common stock were 30.5 cents a share for both the
three-month periods ended June 30, 1999 and 1998. In July 1999, the Company's
Board of Directors declared a quarterly dividend of 30.5 cents a share on its
common stock, payable August 13, 1999, to shareholders of record on July 30,
1999. The current indicated annual dividend rate is $1.22 a share.
Results of Operations
- ---------------------
Comparison of Gas Operations
----------------------------
The following table summarizes the composition of gas utility volumes
and revenues:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gas Sales and Transportation Volumes
- Therms (000's):
Residential and commercial sales 134,629 112,925 402,533 340,131
Unbilled volumes (16,545) (12,807) (46,999) (39,302)
Weather-sensitive volumes 118,084 100,118 355,534 300,829
Industrial firm sales 21,355 21,564 48,667 47,553
Industrial interruptible sales 13,210 12,534 27,701 26,965
------- ------- -------- --------
Total gas sales 152,649 134,216 431,902 375,347
Transportation deliveries 110,399 111,898 217,409 234,046
------- ------- -------- --------
Total volumes sold and delivered 263,048 246,114 649,311 609,393
======= ======= ======== ========
Utility Operating Revenues - Dollars (000's):
Residential and commercial revenues $85,032 $68,899 $248,888 $194,310
Unbilled revenues (9,167) (6,328) (26,443) (18,871)
------- ------- -------- --------
Weather-sensitive revenues 75,865 62,571 222,445 175,439
Industrial firm sales revenues 8,954 8,529 20,418 18,177
Industrial interruptible sales revenues 3,989 3,532 8,656 8,047
------- ------- -------- --------
Total gas sales revenues 88,808 74,632 251,519 201,663
Transportation revenues 4,877 4,805 9,683 10,136
Other revenues 456 733 669 2,003
------- ------- -------- --------
Total utility operating revenues $94,141 $80,170 $261,871 $213,802
======= ======= ======== ========
Cost of gas sold - Dollars (000's) $38,971 $33,616 $120,899 $ 90,954
======= ======= ======== ========
Total number of customers (end of period) 487,516 464,784 487,516 464,784
======= ======= ======== ========
Actual degree days 887 715 2,742 2,412
=== === ===== =====
20-year average degree days 658 663 2,506 2,517
=== === ===== =====
</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 were 35 percent colder than average in
the second quarter of 1999 and 24 percent colder than in the second quarter of
11
<PAGE>
1998. For the first six months of 1999, weather was 9 percent colder than
average and 14 percent colder than 1998.
NW Natural continues to experience rapid customer growth, with 22,732
customers added since June 30, 1998 for a growth rate of 4.9 percent. In the
three years ended December 31, 1998, more than 67,000 customers were added to
the system, representing an average annual growth rate of 5.2 percent per year.
Residential and commercial revenues in the three months and six months
ended June 30, 1999 increased 21 percent and 27 percent, respectively, over the
corresponding 1998 periods. The increased residential and commercial revenues in
both 1999 periods over the comparable 1998 periods were due to increased volumes
and to rate increases effective in 1998. Effective Jan. 1, April 1 and Dec. 1,
1998, the OPUC approved rate increases averaging 11.4 percent, 6.1 percent and
3.4 percent, respectively, for NW Natural's Oregon customers. These rate
increases reflected changes in NW Natural's purchased gas costs, the application
of temporary rate adjustments to amortize regulatory balancing accounts and the
removal of temporary rate adjustments effective in 1997. Effective Dec. 1, 1998,
the WUTC approved a rate increase averaging 5.8 percent primarily to pass
through to Washington customers increases in purchased gas costs.
Volumes of gas sold to residential and commercial customers were 18.0
million therms, or 18 percent, higher in the second quarter of 1999 than in the
second quarter of 1998. Margin increased $6.7 million, an increase of 14
percent. Sales volumes to these customers were 18 percent higher in the first
six months of 1999 than in the first six months of 1998; related margin
increased by 14 percent.
The Company previously reported that NW Natural filed a general rate
case in Oregon in October 1998, proposing a revenue increase of $14.7 million
per year from Oregon operations through rate increases averaging 3.8 percent.
(See Part I, Item 2., "Regulation and Rates," of the 1998 Form 10-K, and Part I,
Item 2, "Results of Operations - Residential and Commercial," of the Company's
Form 10-Q for the quarter ended March 31, 1999.) The OPUC is expected to make
its decision in the rate case in October 1999.
In order to match revenues with related purchased gas costs, NW
Natural records unbilled revenues for gas delivered but not yet billed to
customers through the end of the period.
Industrial, Transportation and Other Revenues
---------------------------------------------
Total volumes of gas delivered to industrial firm, industrial
interruptible, and transportation customers decreased 1.0 million therms, or
less than 1 percent, in the second quarter of 1999 as compared to the same
period in 1998. Transportation volumes decreased 1.5 million therms while gas
sales to industrial firm and interruptible customers increased 0.5 million
therms compared to the second quarter of 1998. Margin from these customers was
$11.4 million in both the second quarter of 1999 and 1998.
For the current six-month period, total sales and transportation
volumes delivered to industrial customers were lower by 14.8 million therms, or
12
<PAGE>
5 percent, in 1999. Margin from these customers was $1.1 million, or 4 percent,
lower than in the first six months of 1998.
Other revenues, which relate primarily to accumulations or
amortizations of regulatory accounts (see Part II, Item 8., Note 1, "Notes to
Consolidated Financial Statements," in the 1998 Form 10-K), decreased $0.3
million, or 38 percent, during the second quarter of 1999 compared to the second
quarter of 1998. Year-to-date other revenues decreased $1.3 million, or 67
percent, compared to the first six months of 1998. The principal factors were a
decrease in amortizations of property tax savings ($2.9 million) offset in part
by the completion of amortizations of revenue reductions negotiated with the
OPUC as part of the Jan. 1, 1998 rate change ($1.3 million) and an increase in
miscellaneous gas revenues ($0.3 million).
Cost of Gas
-----------
The total cost per therm of gas sold was 2 percent higher in the
second quarter of 1999 compared to the second quarter of 1998, and was 16
percent higher year-to-date. The cost per therm of gas sold includes current gas
purchases, gas drawn from storage, demand cost equalization and regulatory
deferrals less Company use. The cost of gas sold was reduced by non-regulated
net gas sales of $0.7 million and $1.3 million for the first six months of 1999
and 1998, respectively. Under an agreement with the OPUC, revenues from these
sales are treated as a reduction of gas costs.
The average cost per therm of gas purchased was 2 percent higher in
the second quarter of 1999 and 4 percent higher year-to-date than in the same
periods last year. NW Natural has a Purchased Gas Adjustment (PGA) tariff in
Oregon, under which its net income from Oregon operations is affected only
within defined limits by changes in purchased gas costs. NW Natural recognizes
33 percent of the difference between actual and projected gas costs in current
operating results while the remaining 67 percent is deferred for recovery from
or refund to customers in future rates.
13
<PAGE>
Subsidiary Operations
---------------------
The following table summarizes financial information for the Company's
consolidated subsidiaries:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Consolidated Subsidiaries (Thousands):
Net Operating Revenues $ 3,804 $ 3,449 $ 7,083 $ 5,461
Operations and Maintenance Expense 2,084 1,856 3,998 3,059
Depreciation 1,970 1,819 4,327 2,976
----- ----- ----- -----
Income (Loss) from Operations (250) (226) (1,242) (574)
Income (Loss) from Financial Investments 357 450 (274) (829)
Other Income and Interest 865 92 1,751 373
Minority Interest (131) 81 (58) 81
----- ----- ----- -----
Income (Loss) Before Income Taxes 841 397 177 (949)
Income Tax Expense (Benefit) 215 230 (40) (396)
----- ----- ----- -----
Net Income (Loss) $ 626 $ 167 $ 217 $ (553)
======== ======== ========== ==========
</TABLE>
Results of operations for the individual subsidiaries for the
second quarter of 1999 were net income of $0.2 million for Canor compared to a
loss of $0.2 million in the second quarter of 1998, and net income of $0.4
million for Financial Corporation compared to net income of $0.3 million for the
second quarter of 1998. These results are equivalent to net income of 2 cents a
share in 1999 and 1 cent a share in 1998.
For the six months ended June 30, 1999, the subsidiaries' net
results were income of $0.1 million each for Canor and Financial Corporation,
compared to losses of $0.2 million for Canor and $0.4 million for Financial
Corporation in the first six months of 1998. These results are equivalent to net
income of 1 cent a share in 1999 compared to a loss of 2 cents a share in 1998.
In the first quarter of 1998 NW Natural recorded a $3.5 million
gain, equivalent to 15 cents a share, from the combination of Canor with
Southlake Energy, Inc. (Southlake), an indirect subsidiary of NIPSCO Industries,
Inc. (now NiSource Inc.). Canor purchased Southlake's stock in exchange for
shares of Canor, with the resulting company owned 66 percent by NW Natural and
34 percent by an indirect subsidiary of NiSource Inc. The resulting gain was not
subject to U.S. income tax. Canor had managed Southlake's assets since 1995
under a previous agreement.
14
<PAGE>
Operating Expenses
------------------
Operations and Maintenance
--------------------------
Operations and maintenance expenses were $0.6 million, or 2
percent, higher in the first six months of 1999 compared to the same period in
1998. NW Natural's operations and maintenance expenses decreased $0.3 million
reflecting reductions to the litigation reserve due to a decision in the Chase
-----
Gardens case ($3.0 million) (see Part II, Item 1, "Legal Proceedings," below)
- -------
offset by higher accruals for bonuses ($1.0 million) and bad debt expense ($0.7
million) and costs of employee severance and special voluntary early retirement
programs ($0.9 million). Subsidiary operations and maintenance expenses
increased by $0.9 million primarily due to increased operating costs for Canor
subsequent to the Canor/Southlake combination.
Taxes Other than Income Taxes
-----------------------------
Taxes other than income taxes for the six months ended June 30,
1999 increased $2.0 million, or 17 percent. Franchise tax expense increased
$1.3 million compared to the first six months of 1998 as a result of higher
revenues reflecting rate increases and increased sales due to colder weather.
Property taxes increased $0.5 million due to more utility plant in service
while regulatory fees and local business taxes each increased $0.1 million.
Depreciation, Depletion and Amortization
----------------------------------------
The Company's depreciation, depletion and amortization expense
increased $2.1 million, or 9 percent, compared to the first six months of 1998.
NW Natural's depreciation expense increased $0.8 million primarily due to the
placement into service in November 1998 of an expansion of its underground gas
storage facility (Mist Phase II) ($0.5 million) and other utility plant
investments. Subsidiary depreciation expense increased $1.3 million in the first
six months of 1999 due to an increase in Canor's total assets following its
combination with Southlake.
Other Income
------------
The Company's other income for the year to date was $1.1 million
lower than in 1998. Results from 1998 included a $3.5 million gain from the
combination of Canor with Southlake (see "Subsidiary Operations," above). The
first six months of 1999 included a gain on sale of assets by Canor ($1.7
million) and a smaller loss from Financial Corporation's alternative energy
investments ($0.6 million).
Interest Charges - net
----------------------
The Company's net interest expense was $1.1 million, or 7
percent, lower in the first six months of 1999 than in the same period in 1998,
reflecting reductions to interest expense of $0.9 million due to a decision in
the Chase Gardens case (see Part II, Item 1, "Legal Proceedings," below).
-------------
Average interest rates on outstanding debt declined due to the redemption or
maturity of $43.0 million of long-term debt bearing interest rates of 7.69
percent to 9.125 percent in the second and third quarters of 1998 and the second
quarter of 1999.
15
<PAGE>
Income Taxes
------------
The effective corporate income tax rates for the six months ended
June 30, 1999 and 1998 were 36.9 percent and 32.2 percent, respectively. The
lower 1998 rate was due in part to the non-taxability of the $3.5 million gain
from the Canor combination with Southlake. (See Part II, Item 8., Note 7, "Notes
to Consolidated Financial Statements," in the 1998 Form 10-K.)
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 1998 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 1998 Form 10-K).
Cash Flows
----------
Operating Activities
--------------------
Operating activities provided net cash of $124.6 million in the
six months ended June 30, 1999 compared to $72.1 million in the first six months
of 1998. The 73 percent increase was due to increased cash from operations
($14.1 million) and decreased working capital requirements ($38.4 million). The
increase in cash from operations compared to 1998 was primarily due to lower
deferred gas costs receivable ($10.3 million), an increase in net income ($7.5
million), a decrease in non-cash gains on the sale of assets ($2.1 million), and
an increase in depreciation, depletion and amortization ($2.1 million), offset
by a reduction in deferred income taxes and investment tax credits ($2.7
million) and an increase in regulatory accounts ($5.2 million). The decrease in
working capital requirements was due to larger decreases in accounts receivable
($8.1 million) and accrued unbilled revenue ($9.5 million); changes in other
current assets and liabilities ($8.3 million), including a progress payment of
$15.0 million received from the Port of Portland for the construction of a
building, and accrued taxes and interest ($2.8 million); and a smaller decrease
in accounts payable ($9.8 million). A non-cash gain of $3.5 million was
16
<PAGE>
recognized in the first quarter of 1998 from Canor's combination with Southlake.
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 12, "Notes to Consolidated Financial Statements," in the
1998 Form 10-K).
Investing Activities
--------------------
Cash requirements for utility construction in the first six
months of 1999 totaled $46.9 million, up $8.0 million, or 21 percent, from the
first six months of 1998. The increase resulted largely from higher expenditures
for the development of underground storage facilities ($7.0 million) and an
increase in computer software related to the development of a new industrial
billing system.
NW Natural's construction expenditures are estimated at $110
million for 1999. Over the five-year period 1999 through 2003, these
expenditures are estimated at between $450 million and $500 million. The
projected level of capital expenditures during the next five years reflects
projected customer growth, a major system reinforcement project and the
development of additional underground storage facilities. It is anticipated that
approximately 50 percent of the funds required for these expenditures will be
internally generated, and that the remainder will be funded through the sale of
long-term debt and equity securities with short-term debt providing liquidity
and bridge financing.
In the first six months of 1999, non-utility capital expenditures
totaled $12.1 million. Canor invested $5.8 million in Canadian exploration and
production properties. NW Natural's non-utility expenditures totaled $6.2
million for the construction of a new headquarters building for the Port of
Portland (see "Lines of Credit," below). During the first quarter of 1998, NW
Natural converted to equity $11.8 million of intercompany loans to Canor.
Financing Activities
--------------------
Cash used for financing activities in the first six months of
1999 totaled $56.8 million, an increase of $39.0 million from the first six
months of 1998. In the first six months of 1999, internally generated cash was
used to reduce long-term debt by $10.0 million and short term debt by $31.6
million. In the first six months of 1998, $44.7 million from the negotiated
public offering of 1,725,000 shares of NW Natural's common stock in April 1998
and proceeds from the sales of $22 million and $10 million of Medium-Term Notes,
Series B, in March and June 1998 were used to reduce short-term debt ($60.9
million) and long-term debt ($20 million).
Lines of Credit
---------------
NW Natural has available through Sept. 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
17
<PAGE>
Sept. 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 June 30, 1999 or
1998.
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 Part I, Item 2, "Investing
Activities," above). This line of credit is available through Nov. 30, 1999.
There was no outstanding balance as of June 30, 1999.
Canor has a $24.0 million (Canadian) revolving credit facility
available for its normal business operations through a Canadian commercial bank.
The amount of the facility is subject to a re-setting at least annually
based upon an analysis of Canor's gas and oil reserves as of December 31 of each
year. Canor had $6.8 million (U.S.) outstanding on this line of credit at June
30, 1999.
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 1998 Form 10-K).
Ratios of Earnings to Fixed Charges
-----------------------------------
For the 12 months ended June 30, 1999 and Dec. 31, 1998, the
Company's ratios of earnings to fixed charges, computed using the Securities and
Exchange Commission method, were 2.62 and 2.12, respectively. For this purpose,
earnings consist of net income before taxes plus fixed charges. 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
- ----------------------
Chase Gardens Litigation
------------------------
In 1996, NW Natural recorded charges to operating expense and
interest totaling $5.6 million as a reserve against payment of a judgment
against it in the Chase Gardens litigation (see Part II, Item 1, "Legal
-------------
Proceedings," below). Following a favorable
18
<PAGE>
decision by the Supreme Court of Oregon in May 1999, NW Natural reduced the
litigation reserve by a total of $3.9 million, reducing operating expense for
the second quarter of 1999 by $3.0 million and interest expense by $0.9 million.
The balance in the reserve account as of June 30, 1999, was $2.7 million, an
amount the Company believes is adequate to cover any remaining liability it may
have in the case.
Year 2000 Readiness
-------------------
Overview
--------
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. 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 Company's objective in its Year 2000 project 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 application, its customer information system for
residential and small commercial customers incorporating billing, customer
order, credit and other programs, with a fully Year 2000-ready system.
Additional project work 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 suppliers and vendors;
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.
Readiness of Systems
--------------------
The Year 2000 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. For
example, besides installing the new residential and commercial customer
information system, NW Natural has completed renovations or Year 2000-ready
upgrades of its gas supply and gas management systems, its general ledger
accounting system, its distribution construction system, its stockholder system
and its distributed facilities system.
As of June 30, 1999, renovations of all high priority internal
applications had been completed except for NW Natural's industrial billing
system, its accounts payable system and a small number of other systems. All of
these remaining systems are scheduled for replacement or retirement before the
end of the year. Upgrades of NW Natural's internal network (Unix) infrastructure
are scheduled to be completed by Sept. 30, with some testing of the network
systems extending into the fourth quarter. NW Natural is developing appropriate
plans to renovate or address risks of failure in its remaining lower-risk
systems by the end of 1999.
19
<PAGE>
NW Natural has been developing a new billing system for
industrial and large commercial (I&C) customers to replace a legacy system that
was not Year 2000 compliant. The development project for the new I&C system is
close to its original schedule, but NW Natural has implemented a contingency
plan by renovating code in the legacy system so that it could be operated into
2000. This effort will be terminated if it appears that the I&C replacement
project is reaching its key milestones on schedule for implementation in
November 1999.
Suppliers and Vendors
---------------------
NW Natural is evaluating the status of Year 2000 compliance
efforts of critical suppliers and vendors. These contacts include written
communication or face-to-face meetings with providers of interstate pipeeline
capacity and gas storage, natural gas suppliers, financial institutions and
electric and telephone companies. In addition, the project office has
investigated 574 vendor-supplied products. As of June 30, 1999, 514 of these
products either have been determined to be compliant or have been represented by
the vendors to be compliant if used in connection with other compliant systems.
Another 52 products have been deemed non-compliant of which 41 have been
determined to pose no significant risk to operations. Eight other products are
still under active investigation. If warranted, the Company will identify
alternative vendor sources to the extent alternatives are available, and develop
contingency plans for any critical vendor products considered at risk where
alternatives are not available.
Risks and Contingency Planning
------------------------------
The Company has not quantified its worst-case exposure from the
Year 2000 issue. With respect to its internal operations, NW Natural believes
its most significant risks are its ability to render timely bills to its
industrial and large commercial customers, its ability to use electronic devices
to control and operate its distribution system and its ability to maintain
continuous operation of its internal network and other computer systems. In the
event that any Year 2000-related problems may occur, the Company intends to
implement contingency plans to mitigate the impact of such failures to the
extent possible. These plans will include options for manual control and
operation of the gas distribution system.
With respect to external factors, NW Natural relies on the
suppliers of natural gas and interstate pipeline transportation to deliver
natural gas to the Company's distribution system. External infrastructure such
as electric and telephone service is necessary for the Company's basic operation
as well as the operations of many of its customers. A failure by any of these
critical vendors could challenge the Company's ability to meet the demands of
its customers. As part of its normal business practice, NW Natural maintains
plans to follow during emergencies. These plans have been incorporated into its
contingency plan for potential Year 2000-related problems.
Financial Impact
----------------
NW Natural's total estimated cost for its Year 2000 readiness
program is $7.6 million. This amount includes its costs of assessment, planning,
vendor management, project management and other project costs as well as the
costs of renovating and testing internal applications. NW Natural's costs for
Year 2000 activities from 1997 through June 30, 1999, totaled $6.1 million.
20
<PAGE>
Neither the total estimated cost nor the costs to date include the costs
incurred in replacing NW Natural's customer information system or costs for
other IT systems that are being replaced rather than renovated. In accordance
with an order of the OPUC, NW Natural's incremental operating costs for Year
2000 readiness are being deferred and will be amortized over a five-year period.
Disclaimer
----------
As a result of its Year 2000 program and the replacement of the
residential and small commercial 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. However, 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 and evaluating 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.
The Year 2000 statements in this report are Year 2000 Readiness
Disclosures under the Year 2000 Information and Readiness Disclosure Act and are
made to the best knowledge and belief of the Company.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the information provided
in Part II, Item 7A., "Quantitative and Qualitative Disclosures About Market
Risk," in the 1998 Form 10-K.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In July 1995, a jury in an Oregon state court returned a verdict
against NW Natural in the case of Northwest Natural Gas Company v. Chase
--------------------------------------
Gardens, Inc. (Lane County Circuit Court Case No. 16-91-01370). (See Part II,
- -------------
Item 8., Note 12, "Notes to Consolidated Financial Statements," in the 1998 Form
10-K.) In the fourth quarter of 1996, after the Oregon Court of Appeals affirmed
the trial court decision, NW Natural recorded charges to operating expense and
interest expense totaling $5.6 million as a reserve against payment of the
judgment. NW Natural petitioned for review by the Oregon Supreme Court, which
issued its opinion in May 1999 reversing the Court of Appeals' decision,
overturning the trial court verdict on the larger of the two claims in the case
and remanding the case to the Court of Appeals for further proceedings on NW
Natural's appeal of the judgment on the smaller of the two claims. Reflecting
that decision, NW Natural reduced the litigation reserve by a total of $3.9
million, reducing operating expense for the second quarter of 1999 by $3.0
million and interest expense by $0.9 million. The balance in the reserve
account as of June 30, 1999 was $2.7 million, an amount the Company believes is
adequate to cover any remaining liability it may have in the case.
21
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NW Natural's Annual Meeting of Shareholders was held in Portland,
Oregon on May 27, 1999. At the meeting, four director-nominees were elected to
three-year terms, as follows:
Term Share Votes Share Votes
Director-nominee Expiring For Withheld
------------------------------ ----------- ----------------- ----------------
Mary Arnstad 2002 21,864,895 352,249
Thomas E. Dewey, Jr. 2002 21,859,362 357,782
Richard G. Reiten 2002 21,851,147 365,997
Benjamin R. Whiteley 2002 21,853,829 363,315
There were no broker non-votes with respect to the election of
the director-nominees.
The other eight directors whose terms of office as directors
continued after the annual meeting are: Tod R. Hamachek, Richard B. Keller,
Wayne D. Kuni, Randall C. Pape, Robert L. Ridgley, Dwight A. Sangrey, Melody C.
Teppola and Russell F. Tromley.
The shareholders also elected PricewaterhouseCoopers LLP,
certified public accountants, as NW Natural's auditors for the year 1999 by the
following vote: 21,996,141 shares for; 94,676 against; and 126,327 abstained.
There were no broker non-votes on this item.
22
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10 - Employment Agreement dated May 11, 1999, 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 June
30, 1999.
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: August 5, 1999 /s/ Stephen P. Feltz
------------------------
Stephen P. Feltz
Principal Accounting Officer,
Controller and Treasurer
23
<PAGE>
NORTHWEST NATURAL GAS COMPANY
EXHIBIT INDEX
To
Quarterly Report on Form 10-Q
For Quarter Ended
June 30, 1999
Exhibit
Document Number
- -------- -------
Employment Agreement dated May 11, 1999, between the Company and
an executive officer 10
Statement re: Computation of Per Share Earnings 11
Computation of Ratios of Earnings to Fixed Charges 12
Financial Data Schedule 27
EXHIBIT 10
----------
SPECIAL EMPLOYMENT AGREEMENT
THIS AGREEMENT is between NORTHWEST NATURAL GAS COMPANY ("Company") and
DWAYNE L. FOLEY ("Employee"), and is made on May 11, 1999.
RECITALS:
Employee has served as a valued employee involved in the management of
the Company. The Company President has determined that it is in the best
interests of Company that Employee's employment with Company continue on the
terms and conditions set forth herein.
Employee wishes to continue his employment with Company on the terms set
forth below.
AGREEMENT:
The parties agree as follows:
1. Employment. Company agrees to employ Employee, and Employee
----------
accepts such employment on the terms and conditions set forth in this Agreement.
1.1 Present to March 31, 2000. During the period from the date of
-------------------------
this Agreement through March 31, 2000, Employee agrees to devote such time,
attention, effort and ability needed to perform any storage or pipeline work, or
other work, that the Company shall need, at times and under circumstances that
are mutually agreeable to Company and Employee. Company and Employee agree to
cooperate to accommodate their respective needs. Employee shall not be required
to be present at any Company facility or report to any Company employee, except
as separately so agreed. During this period of paid absence where Employee is
subject to being called to perform work for the Company, Employee shall receive
monthly his current regular monthly salary of $16,041.67, together with all
fringe benefits set forth in Appendix A under "Eligibility 4/23/99 - 9/30/00."
1.2 April 1, 2000 to September 30, 2000. During the period April
-----------------------------------
1, 2000 to September 30, 2000, Employee shall not be subject to call to perform
work for the Company and shall not receive a monthly salary, but shall receive
the following compensation:
(a) A minimum bonus of $38,500 payable on or about
3/1/2000.
(b) Accrued vacation payable in six monthly installments
of $9,650 each starting April 1, 2000, which is one-sixth of the dollar
value of Employee's 625 hours of banked and accrued vacation pay as of
February 28, 1999.
(c) All fringe benefits set forth in Appendix A under
"Eligibility 4/23/99 - 9/30/00."
(d) A single cash payment on or about October 1, 2000
equal to the dollar value of any hours of paid vacation accrued from
March 1, 1999 to September 30, 2000 which have not been used for paid
vacation during that time.
1.3 October 1, 2000 and after. Employee's employment under this
-------------------------
Agreement shall terminate at midnight on September 30, 2000, and thereafter he
shall be eligible to begin receiving retirement benefits under the Company's
post-retirement plans. Such retirement shall not prevent the Company from
arranging with Employee to perform services for the Company as an independent
contractor or employee under mutually agreed terms. Any such service after
September 30, 2000, shall be subject to the terms of any retirement plan
regarding suspension of plan benefits during reemployment.
2. Retirement Plan and ESRIP. Employee shall be entitled to coverage and
-------------------------
credit under Company's Retirement Plan for Non-Bargaining Unit Employees
("Retirement Plan") and Executive Supplemental Retirement Income Plan ("ESRIP")
as follows:
2.1 November 1, 1998 to October 31, 1999. Employee shall receive
------------------------------------
service credit under the Retirement Plan of 900 hours of service for the period
of service from November 1, 1998 to April 23, 1999; plus two additional months
of service credit at 83 hours per month for two months of paid absence from
April 23, 1999 to October 31, 1999, resulting in one full Accredited Year of
Service ("AYS") of at least 1,000 hours for his Benefit Accrual Year ("BAY")
from November 1, 1998 to October 31, 1999.
2.2 November 1, 1999 to September 30, 2000. For the eleven (11)
--------------------------------------
month period November 1, 1999 to September 30, 2000, Employee shall receive
monthly service credit at 83 hours per month comprised of four months of paid
absence credit from November 1, 1999 to February 28, 2000; plus seven months of
service credit for booked and accrued vacation; resulting in 11/12ths AYS for
BAY starting November 1, 1999.
2.3 October 1, 2000. Employee shall be an active employee and
---------------
Plan member during the month of his 55th birthday (September 25, 2000), and
shall be entitled to begin Early Retirement and to receive benefit payments if
he so elects under the Retirement Plan and ESRIP on October 1, 2000.
(a) ESRIP benefit 10/1/00. For early retirement on or
---------------------
after October 1, 2000, Employee shall be entitled to receive, as a
single life annuity under the ESRIP (i) the 70% target percentage, (ii)
times his highest per year average of three (3) consecutive highest
years of salary and performance awards during his final ten (10) years
of employment (currently $245,567), (iii) resulting in a yearly target
benefit starting at age 65 of $171,896.90 (based on (ii)), (iv) reduced
by 0.25 percent (.0025) per month for each month of age before age 62
during the period starting on the date the first early retirement
payment is to be made and ending on Employee's 62nd birthday (e.g., on
10/1/00, the reduction is 21%), (v) resulting in a yearly single life
annuity amount on 10/1/00 of $135,798.55 (.79 times $171,896.90) and
(vi) a monthly amount of $11,316.55. If Employee elects to start
receiving payments after 10/1/00, the reduction amount will change and
result in a larger monthly ESRIP target amount starting on the first
payment month (e.g., a 6% reduction to $13,465.26 on 10/1/05, or no
reduction of $14,324.74 on or after 10/1/07). The portion of the ESRIP
benefit payable monthly by the Company is reduced by the following
(vii)-(ix), also determined as a single life annuity starting at the
same first date of payment: (vii) the monthly amount payable to Employee
under the Retirement Plan, (viii) the monthly supplemental retirement
benefit payable to Employee under the Company's Executive Deferred
Compensation Plan ("EDCP"), and (ix) the amount which Employee will be
entitled to receive as a retirement benefit from Social Security
starting at age 65, which amount shall be determined by using the age 65
amount under the Social Security OASDI table in effect for the calendar
year which includes the earliest effective date to receive ESRIP
payments and without taking into account any offset that might be
imposed because of nonretirement earnings by Employee; provided,
however, that solely for payments made before Employee's 65th birthday,
the Company shall pay to Employee the Social Security amount deducted
under this (ix). Employee shall be entitled to elect to receive payment
in any of the forms provided under present ESRIP Article III, or in any
other form provided in the ESRIP at the time he elects to begin
receiving ESRIP benefit payments, and his single life annuity amount
shall be reduced for any benefit form providing survivorship benefits
after his death using the actuarial equivalent conversion criteria
applicable to all ESRIP beneficiaries at the time of Employee's
retirement. An illustration of the estimated amount payable under this
2.3(a) based on information and assumptions at the time this Agreement
is signed is attached as Appendix B.
(b) Other retirement plan benefits. At retirement on or
------------------------------
after October 1, 2000, Employee shall be entitled to receive the
benefits he is entitled to receive under the terms of the Company's
Retirement Plan, EDCP and Retirement K Savings Plan.
3. Other Benefits. Employee shall receive the following other
--------------
benefits:
3.1 Lump Sum Payment. If Employee is married on October 1, 2000,
----------------
Employee then shall receive a single cash payment that is the actuarial
equivalent lump sum present value of the lifetime payments that the Company
would be expected to make to provide post-retirement medical coverage to such
spouse under the Company's retiree medical plan for qualified non-bargaining
unit employees and their spouses, assuming that such coverage for the spouse
will start when Employee is age 62 (9/25/07) and that the cost of each future
year will equal what the Company pays to provide post-retirement benefits to a
qualified spouse during 2000. The lump sum will be calculated using an interest
rate of 5.25% per annum and the GAM 83 (50/50) mortality table. As a condition
precedent to receiving such lump sum, Employee shall sign a document (attached
Appendix C) confirming his agreement to the provisions of 7 - 14 below as
applied to the period from the date this Agreement is signed to the date such
confirmation is signed.
3.2 Outplacement. Company shall pay $20,000.00 to provide
------------
executive outplacement services for Employee by Right, Chapel & Stowell.
3.3 No Severance; Change in Control. In consideration of the
-------------------------------
benefits under this Agreement, Employee shall not be entitled to receive
benefits under any Company severance pay plan, program or practice; provided,
however, that Employee shall be entitled to receive the benefits he is entitled
to in the event of a change in control under the Company's executive severance
agreement applicable to Employee or under the ESRIP.
4. Withholdings. Payments made to Employee under 1, 2 and 3 shall
------------
be subject to applicable tax withholding and reporting rules.
5. Proprietary Information. In the course of employment with Company, it
-----------------------
is anticipated that Employee may acquire knowledge (both orally and in writing)
regarding confidential affairs of Company and confidential or proprietary
information relating to Company including but not limited to:
(a) business plans and strategies;
(b) personnel information;
(c) matters under litigation or potential litigation;
and
(d) other proprietary information and trade secrets
which are not required to be disclosed by Company to the public.
All such information is referred to collectively hereafter as "Confidential
Information."
Employee agrees that during the term of this Agreement and
thereafter, Employee (i) will keep secret and retain in the strictest confidence
all Confidential Information, (ii) not disclose Confidential Information to
anyone except employees of Company authorized to receive it and third parties to
whom such disclosure is specifically authorized, and (iii) not use any
Confidential Information for any purpose other than performance of services
under this Agreement without prior written permission from Company.
The provisions of this Section 5 shall survive termination of
this Agreement.
6. Death. The following 6.1 - 6.4 shall apply if Employee dies
-----
prior to October 1, 2000:
6.1 Monthly Payments. Company shall pay to Employee's estate
----------------
Employee's monthly salary or accrued vacation and fringes, and bonus if
applicable, which is payable under Section 1 through the end of the month in
which Employee's death occurs.
6.2 Accrued Vacation. Company shall pay to Employee's estate the
----------------
lump sum cash value of all accrued but unpaid vacation earned to Employee's date
of death.
6.3 Other Death Benefits. All death benefits payable to
--------------------
Employee's surviving spouse or estate under the terms of the Company's ESRIP as
modified by 2.3(a), Retirement Plan, EDCP, Retirement K Savings Plan and life or
other insurance policy or plan shall be paid pursuant to the terms of such plan
or policy based on Employee's service and compensation under this Agreement
through the month of his date of death.
6.4 Other Provisions. Sections 5, 7 and 11 of this Agreement
----------------
shall survive the death of Employee.
7. Release of Claims. As consideration for this Agreement and the
-----------------
benefits hereunder, and without waiving or compromising Employee's right to
enforce the terms of this Agreement or to receive any post-retirement benefits
to which Employee is entitled under the Company's Retirement Plan or ESRIP or
Executive Deferred Compensation Plan ("EDCP") or Retirement K Savings Plan,
Employee unconditionally releases and forever discharges Northwest Natural Gas
Company, its officers, directors, shareholders, employees, agents, attorneys,
subsidiaries, affiliates, representatives, and employee benefit plans and their
fiduciaries and administrators (collectively referred to as "Released Parties"),
from any and all claims, demands, actions, suits, causes of action, debts,
accounts or controversies of any nature whatsoever (including claims for costs
and other expenses, including attorneys' fees), known or unknown, which Employee
and his heirs, executors, administrators, successors and assigns have or may
have, up to the date of execution of this Agreement, arising out of, or in any
way related to, his employment with the Company, or the termination of his
employment with the Company, or any employment actions taken by the Company
during the course of his employment ("Claims").
The Claims Employee is releasing specifically include, without
limitation, any and all claims (including claims for costs, fees and other
expenses, including attorneys' fees) based upon, or related to Title VII of the
Civil Rights Act of 1964, the Age Discrimination in Employment Act, the WARN
Act, the Equal Pay Act, the Americans with Disabilities Act, the Employee
Retirement Income Security Act of 1974 (other than claims for vested benefits),
all as amended, and any other federal, state or local common law, statute,
regulation or law of any other nature or type, including but not limited to any
claims of equal employment opportunity, wrongful discharge, negligence, tort, or
breach of contract.
Employee agrees that this release is not an admission by the
Company and acknowledges that the Company has acted in good faith.
8. Nondisparagement. Employee and Company each agree not to publish any
----------------
statement (orally, in writing or in any other form), or participate in the
making of any statement which is disparaging or detrimental in any way to the
other party, or to his or its services, affairs or operations.
9. Review Period. Employee agrees that, in compliance with the review
-------------
periods required by the Older Worker Benefit Protection Act of 1990, the
benefits described above in 1, 2 and 3 will be paid or provided after Employee
has (i) been advised and had the opportunity to consult with an attorney, (ii)
had a period of 21 calendar days to consider this Agreement before executing it,
should Employee choose to avail himself of the full 21 days, and (iii) a period
of seven days after execution of this Agreement to consider its revocation.
10. Employee Breach.
---------------
10.1 Agreement to Repay. Employee agrees to repay any amounts
------------------
received under the Agreement and to pay the reasonable attorneys' fees, costs,
and any damages the Company or any Released Parties may incur as a result of
Employee breaching a promise made in this Agreement (such as by suing the
Company or any Released Parties over a released Claim) or if any representation
Employee made in this Agreement is false.
10.2 Other Employment. Employee shall be entitled to accept
----------------
employment by or perform services for any employer or business other than the
Company on and after April 1, 1999. Such employment or service shall not be a
breach of this Agreement so long as Employee is able to comply with 1.2, and the
Company's obligations hereunder shall continue during and after such employment
or service.
11. Dispute Resolution. Employee and the Company each shall make a good
------------------
faith effort to resolve expeditiously any dispute regarding the terms, benefits
or enforcement of this Agreement. If the parties are unable to do so in a
reasonable time, such dispute, and the apportionment of related costs and fees,
shall be submitted for expeditious resolution by a third party selected by
mutual agreement of Employee and the Company. The foregoing provisions are a
condition precedent to either party commencing a court suit or action regarding
this Agreement.
12. Entire Agreement. This Agreement sets forth the entire agreement and
----------------
release between the Company and Employee, and fully supersedes any prior
agreements or understandings between the parties. Employee acknowledges that he
has not relied on any representations, promises, or agreements of any kind made
to him in connection with his decision to sign this Agreement, except for those
set forth in this document.
If any of the provisions of this Agreement are declared by any
court to be illegal, invalid, or otherwise unenforceable, the remaining portion,
terms and provisions of this agreement and release shall nevertheless remain in
full force and effect.
13. Applicable Law. This Agreement will be governed by the laws of the
--------------
state of Oregon. Employee agrees that this Agreement will be deemed to have been
jointly prepared by Employee and Company, and any uncertainty or ambiguity
existing herein shall not be interpreted against any party as a preparer, but
according to the application of other rules on the interpretation of contracts,
if any such uncertainty or ambiguity exists.
14. Acknowledgment and Execution. By signing below, Employee
----------------------------
acknowledges that he: (a) has taken advantage of the time to consider this
Agreement before signing it, (b) carefully read this Agreement, (c) fully
understands what this Agreement means, and (d) enters into it voluntarily.
Employee further acknowledges that the Company or any Released Parties advised
Employee to discuss this Agreement and the release with Employee's attorney (at
his own expense) before signing it and that he did so to the extent he deemed
appropriate.
NOTICE TO EMPLOYEE: TAKE THIS AGREEMENT HOME, READ IT, AND CAREFULLY CONSIDER
ALL OF ITS PROVISIONS BEFORE SIGNING IT. THIS AGREEMENT INCLUDES A RELEASE OF
KNOWN AND UNKNOWN CLAIMS. NEITHER THE COMPANY NOR ITS REPRESENTATIVES ARE IN A
POSITION TO GIVE YOU ADVICE. IF YOU WISH, YOU SHOULD TAKE ADVANTAGE OF THE
CONSIDERATION PERIOD PROVIDED AND CONSULT WITH YOUR ATTORNEY.
<PAGE>
EMPLOYEE NORTHWEST NATURAL GAS COMPANY
/s/ Dwayne L. Foley By /s/ R.G. Reiten
- ---------------------------------------- ------------------------------
(Employee Signature) (Company Representative)
May 11, 1999 May 11, 1999
- ---------------------------------------- ------------------------------
(Date Signed) (Date Signed)
Dwayne L. Foley Richard G. Reiten
- ---------------------------------------- ------------------------------
(Print Employee's Name) (Print Representative's Name)
<PAGE>
APPENDIX A
- ----------
DWAYNE L. FOLEY AGREEMENT WITH NNGC
- -----------------------------------
BENEFIT SUMMARY
- ---------------
- -------------------------- ------------------------ ---------------------------
Benefit Eligibility Post-Retirement
4/23/99 -- 9/30/00 Eligibility
- -------------------------- ------------------------ ---------------------------
Auto allowance Yes No
- -------------------------- ------------------------ ---------------------------
Parking space Yes No
- -------------------------- ------------------------ ---------------------------
Vacation accrual Yes No
- -------------------------- ------------------------ ---------------------------
Retirement Plan accrual Service credit No
per Section 2
- -------------------------- ------------------------ --------------------------
401K deferral and match Yes No
- -------------------------- ------------------------ --------------------------
EDC deferral and match Yes No
- -------------------------- ------------------------ --------------------------
Life insurance Yes Yes,
until age 70
- -------------------------- ------------------------ --------------------------
Standard long-term Yes No
disability insurance
- -------------------------- ------------------------ --------------------------
Supplemental long-term Yes No, but can
disability insurance purchase policy
- -------------------------- ------------------------ --------------------------
Group health care benefits Yes Yes for Employee
- -------------------------- ------------------------ --------------------------
Flex Spending Account Yes No
for medical expenses
- -------------------------- ------------------------ --------------------------
Employee Gas Discount Yes Yes
- -------------------------- ------------------------ --------------------------
Stock Option exercise Yes For 3 months
after retirement
- -------------------------- ------------------------ --------------------------
Change in Control benefits Yes No
- -------------------------- ------------------------ --------------------------
Each benefit shown above that is marked "yes" shall be subject to all terms and
conditions of the Plan, program or policy establishing the benefit, and to all
applicable tax withholding and reporting rules.
<PAGE>
APPENDIX B
----------
DWAYNE L. FOLEY AGREEMENT WITH NNGC
RETIREMENT INCOME EXAMPLES
Example 1: Assumes ESRIP and qualified plan payments start at age 62
----------------------------- ------------- ----------- ===========
Age 55-61 62-64 65+
----------------------------- ------------- ----------- ===========
----------------------------- ------------- ----------- ===========
Total (Target) 0 $171,800 $171,800
----------------------------- ------------- ----------- ===========
Source Qualified Plan 0 67,600 67,600
----------------------------- ------------- ----------- ===========
----------------------------- ------------- ----------- ===========
Source EDC Supplemental Retirement 0 0 0
----------------------------- ------------- ----------- ===========
----------------------------- ------------- ----------- ===========
Source SS Bridge (from ESRIP) 0 16,400 0
----------------------------- ------------- ----------- ===========
----------------------------- ------------- ----------- ===========
Source SS 0 0 16,400
----------------------------- ------------- ----------- ===========
----------------------------- ------------- ----------- ===========
Source ESRIP 0 87,800 87,800
----------------------------- ------------- ----------- ===========
Example 2: Assumes ESRIP and qualified plan payments start at age 55
---------------------------- ------------------ ====================
Age 55-64 65+
---------------------------- ------------------ ====================
---------------------------- ------------------ ====================
Total (Target) $135,700 $135,700
---------------------------- ------------------ ====================
---------------------------- ------------------ ====================
Source Qualified Plan 45,300 45,300
---------------------------- ------------------ ====================
---------------------------- ------------------ ====================
Source EDC Supplemental Retirement 0 0
---------------------------- ------------------ ====================
---------------------------- ------------------ ====================
Source SS Bridge (from ESRIP) 16,400 0
---------------------------- ------------------ ====================
---------------------------- ------------------ ====================
Source SS 0 16,400
---------------------------- ------------------ ====================
Source ESRIP 74,000 74,000
---------------------------- ------------------ ====================
Note: This appendix illustrates sources of retirement income. All figures are
estimates. Target amounts are based on the 10-Year Certain Annuity option. The
actual Social Security Bridge amount will be based on the age 65 social security
benefit in effect at the time of retirement. The examples assume that social
security payments will begin at age 65 without offset for non-retirement
earnings (if any).
<PAGE>
APPENDIX C
EMPLOYMENT TERMINATION CERTIFICATE
I entered into a Special Employment Agreement which included in
Section 7 my Release of Claims (Agreement and Release) with Northwest Natural
Gas Company (Company) dated May 11, 1999. I hereby acknowledge and certify that:
1. A blank copy of this Employment Termination Certificate was
attached as Appendix C to the Agreement and Release when it was given to me for
review. I have had more time to consider signing this Certificate than the ample
time I was given to consider signing the Agreement and Release. I may revoke
this Certificate within seven days after I sign it by notifying the Company in
writing of such a revocation. I was advised to discuss the Agreement and
Release, including this Certificate, with an attorney before signing either
document.
2. The benefits payable on or about October 1, 2000, under
Section 3.1 of the Agreement shall be paid only if I sign this Certificate and
do not revoke it within seven days after I sign it.
3. In exchange for the benefits under the Agreement, I hereby
agree that this Certificate, even if signed after the termination of my
employment, will be a part of my Agreement and Release and that my Release of
claims under Section 7 of the Agreement shall be construed and applied during
the remainder of my employment after I signed the Agreement and Release through
the date my employment terminated.
4. My signing and agreeing to this Certificate and to the
extension of my prior Release is completely voluntary.
Dated:
----------------------------
---------------------------
Signature
Dwayne L. Foley
---------------------------
Print Name
EXHIBIT 11
NORTHWEST NATURAL GAS COMPANY
Statement re: Computation of Per Share Earnings
(Thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
Earnings Applicable to Common Stock 10,151 $ 3,445 $ 33,557 $ 25,978
Debenture Interest Less Taxes 106 111 212 221
------ -------- ------- -------
Net Income Available for Diluted
Common Stock $ 10,257 $ 3,556 $ 33,769 $ 26,199
======== ======== ======== =========
Average Common Shares Outstanding 24,946 24,444 24,915 23,673
Stock Options 16 41 17 43
Convertible Debentures 483 503 483 503
------ -------- ------- -------
Diluted Common Shares 25,445 24,988 25,415 24,219
====== ======== ======== =========
Diluted Earnings per Share $0.40 $0.14 $1.33 $1.08
of Common Stock ====== ======== ======== =========
EXHIBIT 12
NORTHWEST NATURAL GAS COMPANY
Computation of Ratio of Earnings to Fixed Charges
January 1, 1994 - June 30, 1999
<TABLE>
<CAPTION>
Twelve
Months
Ended
Year Ended December 31, June 30,
----------------------------------------------------------
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges, as Defined:
Interest on Long-
Term Debt $21,921 $23,141 $23,176 $24,918 $27,567 $27,585
Other Interest 2,473 2,252 3,448 4,500 4,902 3,364
Amortization of Debt
Discount and 850 882 865 730 714 714
Expense
Interest Portion of
Rentals 1,697 1,764 1,798 2,111 1,986 1,986
-------- -------- -------- -------- -------- --------
Total Fixed
Charges,
as defined $26,941 $28,039 $29,287 $32,259 $35,169 $33,649
======== ======== ======== ======== ======== ========
Earnings, as defined:
Net Income $35,461 $38,065 $46,793 $43,059 $27,301 $34,849
Taxes on Income 20,473 22,120 27,347 21,106 12,254 19,707
Fixed Charges,
as above 26,941 28,039 29,287 32,259 35,169 33,649
-------- -------- -------- -------- -------- --------
Total Earnings,
as defined $82,875 $88,224 $103,427 $96,424 $74,724 $88,205
======== ======== ======== ======== ======== ========
Ratio of Earnings to
Fixed Charges 3.08 3.15 3.53 2.99 2.12 2.62
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements and is qualifed in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 860,345
<OTHER-PROPERTY-AND-INVEST> 67,913
<TOTAL-CURRENT-ASSETS> 99,571
<TOTAL-DEFERRED-CHARGES> 98,211
<OTHER-ASSETS> 56,860
<TOTAL-ASSETS> 1,182,900
<COMMON> 79,094
<CAPITAL-SURPLUS-PAID-IN> 232,153
<RETAINED-EARNINGS> 121,900
<TOTAL-COMMON-STOCKHOLDERS-EQ> 433,147
34,750
0
<LONG-TERM-DEBT-NET> 366,607
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 55,646
<LONG-TERM-DEBT-CURRENT-PORT> 0
814
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 291,936
<TOT-CAPITALIZATION-AND-LIAB> 1,182,900
<GROSS-OPERATING-REVENUE> 269,034
<INCOME-TAX-EXPENSE> 20,410
<OTHER-OPERATING-EXPENSES> 202,550
<TOTAL-OPERATING-EXPENSES> 222,960
<OPERATING-INCOME-LOSS> 46,074
<OTHER-INCOME-NET> 3,614
<INCOME-BEFORE-INTEREST-EXPEN> 49,688
<TOTAL-INTEREST-EXPENSE> 14,861
<NET-INCOME> 34,847
1,270
<EARNINGS-AVAILABLE-FOR-COMM> 33,557
<COMMON-STOCK-DIVIDENDS> 15,183
<TOTAL-INTEREST-ON-BONDS> 12,962
<CASH-FLOW-OPERATIONS> 124,564
<EPS-BASIC> $1.35
<EPS-DILUTED> $1.33
</TABLE>
