SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31,JUNE 30, 2000
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 No. 0-994
[NORTHWEST NATURAL GAS COMPANY LOGO]
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][x] No [ ]
At May 5,August 7, 2000, 25,171,46925,188,747 shares of the registrant's Common Stock, $3-1/6
par value (the only class of Common Stock) were outstanding.
1
NORTHWEST NATURAL GAS COMPANY
March 31,June 30, 2000
Summary of Information Reported
The registrant submits herewith the following information:
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
Number
-------------
(1) Consolidated Statements of Income for the three-monththree and
six-month periods ended March 31,June 30, 2000 and 1999 3
(2) Consolidated Statements of Earnings Invested in the
Business for the three-monthsix-month periods ended March 31,June 30, 2000
and 1999 4
(3) Consolidated Balance Sheets at March 31,June 30, 2000 and 1999
and Dec. 31, 1999 5
(4) Consolidated Statements of Cash Flows for the three-monthsix-month
periods ended March 31,June 30, 2000 and 1999 6
(5) Consolidated Statements of Capitalization at March 31,June 30,
2000 and 1999 and Dec. 31, 1999 7
(6) Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 1820
Signature 1821
2
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(1) Consolidated Statements of Income
(Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended
March 31,
---------
2000 1999
---- ----
Operating Revenues:
Gross operating revenues ........................ $ 186,649 $ 167,873
Cost of sales ................................... 93,561 81,968
--------- ---------
Net operating revenues ...................... 93,088 85,905
Operating Expenses:
Operations and maintenance ...................... 19,006 20,663
Taxes other than income taxes ................... 8,664 8,402
Depreciation, depletion and amortization ........ 11,439 11,288
--------- ---------
Total operating expenses .................... 39,109 40,353
--------- ---------
Income from Operations ............................... 53,979 45,552
Other Income ......................................... 689 581
Interest Charges - net ............................... 8,565 8,087
--------- ---------
Income Before Income Taxes ........................... 46,103 38,046
Income Taxes ......................................... 16,911 13,862
--------- ---------
Net Income from Continuing Operations ................ 29,192 24,184
Discontinued Segment:
Loss from discontinued segment - net of tax ..... -- (141)
Gain on sale of discontinued segment - net of tax 2,470 --
--------- ---------
Net Income ........................................... 31,662 24,043
Redeemable Preferred and Preference Stock
Dividend Requirements ........................... 622 637
--------- ---------
Earnings Applicable to Common Stock .................. $ 31,040 $ 23,406
========= =========
Average Common Shares Outstanding .................... 25,129 24,833
Basic earnings (loss) per share of common stock:
From continuing operations ...................... $ 1.14 $ .95
From discontinued segment ....................... -- (.01)
From gain on sale of discontinued segment ....... .10 --
--------- ---------
Total basic earnings per share .............. $ 1.24 $ .94
========= =========
Diluted earnings (loss) per share of common stock:
From continuing operations ...................... $ 1.12 $ .94
From discontinued segment ....................... -- (.01)
From gain on sale of discontinued segment ....... .10 --
--------- ---------
Total diluted earnings per share ............ $ 1.22 $ .93
========= =========
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
Operating Revenues:
Gross operating revenues $ 86,064 $ 94,252 $ 272,713 $ 262,125
Cost of sales 40,250 39,011 133,811 120,979
---------- ---------- ----------- -----------
Net operating revenues 45,814 55,241 138,902 141,146
Operating Expenses:
Operations and maintenance 18,521 16,254 37,527 36,917
Taxes other than income taxes 5,722 5,613 14,386 14,015
Depreciation, depletion and amortization 11,779 11,238 23,218 22,526
---------- ---------- ----------- -----------
Total operating expenses 36,022 33,105 75,131 73,458
---------- ---------- ----------- ----------
Income from Operations 9,792 22,136 63,771 67,688
Other Income 1,448 1,353 2,137 1,934
Interest Charges - net 7,936 6,591 16,501 14,678
---------- ---------- ----------- -----------
Income Before Income Taxes 3,304 16,898 49,407 54,944
Income Taxes 806 6,369 17,717 20,231
---------- ---------- ----------- -----------
Net Income from Continuing Operations 2,498 10,529 31,690 34,713
Discontinued Segment:
Income from discontinued segment -
net of tax - 255 - 114
Gain (loss) on sale of discontinued segment -
net of tax (35) - 2,435 -
---------- ---------- ----------- ----------
Net Income 2,463 10,784 34,125 34,827
Redeemable Preferred and Preference Stock
Dividend Requirements 622 633 1,244 1,270
---------- ---------- ----------- -----------
Earnings Applicable to Common Stock $ 1,841 $ 10,151 $ 32,881 $ 33,557
========== ========== =========== ===========
Average Common Shares Outstanding 25,195 24,946 25,162 24,915
Basic Earnings Per Share of Common Stock:
From continuing operations $ 0.07 $ 0.40 $ 1.21 $ 1.34
From discontinued segment - 0.01 - 0.01
From gain on sale of discontinued segment - - 0.10 -
---------- ---------- ----------- ----------
Total basic earnings per share $ 0.07 $ 0.41 $ 1.31 $ 1.35
========== ========== =========== ===========
Diluted Earnings Per Share of Common Stock:
From continuing operations $ 0.07 $ 0.39 $ 1.19 $ 1.32
From discontinued segment - 0.01 - 0.01
From gain on sale of discontinued segment - - 0.10 -
---------- ---------- ----------- -----------
Total diluted earnings per share $ 0.07 $ 0.40 $ 1.29 $ 1.33
========== ========== =========== ===========
Dividends Per Share of Common Stock .................. $ 0.31 $ 0.305 $ .62 $ .61
See Notes to Consolidated Financial Statements
3
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(2) Consolidated Statements of Earnings Invested in the Business
(Thousands, ThreeSix Months Ended March 31)June 30)
(Unaudited)
2000 1999
---------------------- ----------------------
Earnings Invested in the Business:
Balance at Beginning of Period .............. $ 118,711 $ 106,513
Net Income .................................. 31,66234,125 $ 31,662 24,04334,125 34,827 $ 24,04334,827
Dividends Declared or Paid:
Redeemable preferred and preference stock (622) (637)(1,249) (1,281)
Common stock ............................. (7,782) (7,583)
--------- ---------(15,585) (15,183)
Common Stock Repurchased (459) -
----------- -----------
Balance at End of Period .................... $ 141,969135,543 $ 122,336
========= =========124,876
=========== ===========
Accumulated Other Comprehensive Income
(Loss):
Balance at Beginning of Period .............. $ (3,181) $ (2,460)
Other comprehensive income-net of tax:
Unrealized gain on securities ......... 51 51 -- --37 37 - -
Foreign currency translation adjustment -- -- (433) (433)- - (516) (516)
Recognition of foreign currency
translation adjustment included
in gain on sale of discontinued
segment .............................. 3,181 3,181 -- --
--------- --------- --------- ---------- -
----------- ---------- ----------- ----------
Comprehensive Income ........................ $ 34,89437,343 $ 23,610
========= =========34,311
========== ==========
Balance at End of Period .................... $ 5137 $ (2,893)
========= =========(2,976)
=========== ===========
See Notes to Consolidated Financial Statements
4
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(3) Consolidated Balance Sheets
(Thousands of Dollars)
(Unaudited) (Unaudited)
March 31, March 31,June 30, June 30, Dec. 31,
2000 1999 1999
----------- ----------- ------------------- -------- ------
Assets:
Plant and Property:
.........................Utility plant $ 1,347,4851,367,202 $ 1,263,5991,284,049 $ 1,331,415
Utility plant
Less accumulated depreciation ............... 446,419 413,763457,040 423,704 436,386
----------- ----------- ------------------------ ------------- -------------
Utility plant - net .................... 901,066 849,836910,162 860,345 895,029
----------- ----------- ------------------------ ------------- -------------
Non-utility property ........................ 8,548 91,6678,532 84,577 8,548
Less accumulated depreciation and depletion . 7,676 31,1707,706 32,179 7,654
----------- ----------- ------------------------ ------------- -------------
Non-utility property - net ............. 872 60,497826 52,398 894
----------- ----------- ------------------------ ------------- -------------
Total plant and property ............... 901,938 910,333910,988 912,743 895,923
----------- ----------- ------------------------ ------------- -------------
Investments and Other ........................... 16,087 15,49515,716 15,515 16,557
Current Assets:
Cash and cash equivalents ................... 24,749 8,92110,419 20,693 10,013
Accounts receivable - net ................... 56,895 53,02522,482 29,248 43,349
Accrued unbilled revenue .................... 19,289 16,4247,201 6,955 31,550
Inventories of gas, materials and supplies .. 17,717 9,83329,121 19,283 33,919
Investment in discontinued segment .......... -- --- - 29,163
Property held for sale ...................... 16,712 --17,286 12,293 16,712
Prepayments and other current assets ........ 16,350 14,41314,054 11,099 18,349
----------- ----------- ------------------------ ------------- -------------
Total current assets ................... 151,712 102,616100,563 99,571 183,055
Regulatory Tax Assets ........................... 51,060 56,860 51,060
Deferred Gas Costs Receivable ................... 17,472 22,17117,520 19,744 20,950
Deferred Debits and Other ....................... 75,820 75,04776,330 78,467 76,878
----------- ----------- ------------------------ ------------- -------------
Total Assets ........................... $ 1,214,0891,172,177 $ 1,182,5221,182,900 $ 1,244,423
=========== =========== ======================== ============= =============
Capitalization and Liabilities:
Capitalization:
Common stock ................................ $ 315,560316,347 $ 309,835311,247 $ 314,066
Earnings invested in the business ........... 141,969 122,336135,543 124,876 118,711
Accumulated other comprehensive income (loss) 51 (2,893)37 (2,976) (3,181)
----------- ----------- ------------------------ ------------- -------------
Total common stock equity .............. 457,580 429,278451,927 433,147 429,596
Redeemable preference stock ................. 25,000 25,000 25,000
Redeemable preferred stock ..................9,793 10,564 11,499 10,564
Long-term debt .............................. 396,276 366,683396,080 366,607 396,379
----------- ----------- ------------------------ ------------- -------------
Total capitalization ................... 889,420 832,460882,800 835,318 861,539
----------- ----------- ------------------------ ------------- -------------
Minority Interest ............................... -- 16,026 --
----------- ----------- ------------ 16,115 -
------------- ------------- -------------
Current Liabilities:
Notes payable ............................... 16,493 51,26110,307 55,646 94,149
Accounts payable ............................ 63,294 51,98151,805 55,049 68,163
Long-term debt due within one year .......... 10,000 10,000- 10,000
Taxes accrued ............................... 23,101 19,1065,380 11,076 4,101
Interest accrued ............................ 9,372 10,3024,707 5,227 4,673
Other current and accrued liabilities ....... 40,408 23,76239,899 35,798 39,153
----------- ----------- ------------------------ ------------- -------------
Total current liabilities .............. 162,668 166,412122,098 162,796 220,239
Deferred Investment Tax Credits ................. 9,932 10,7259,821 10,628 10,393
Deferred Income Taxes ........................... 136,081 138,830140,828 139,676 136,150
Regulatory Liabilities and Other ................ 15,988 18,06916,630 18,367 16,102
Commitments and Contingencies ................... -- -- --
----------- ----------- ------------ - -
------------- ------------- -------------
Total Capitalization and Liabilities ... $ 1,214,0891,172,177 $ 1,182,5221,182,900 $ 1,244,423
=========== =========== ======================== ============= =============
See Notes to Consolidated Financial Statements
5
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(4) Consolidated Statements of Cash Flows
(Thousands of Dollars)
(Unaudited)
ThreeSix Months Ended
March 31,
---------June 30,
---------------------
2000 1999
-------- ------------------ ----------
Operating Activities:
Net income from continuing operations ............................. $ 29,19231,690 $ 24,18434,713
Adjustments to reconcile net income to cash provided by operations:
Depreciation, depletion and amortization ...................... 11,439 11,28823,218 22,635
Deferred income taxes and investment tax credits .............. (530) (2,003)4,106 (1,254)
Equity in (earnings) losses of investments .................... (234) 341166 (103)
Allowance for funds used during construction .................. (120) (97)(251) (278)
Deferred gas costs receivable ................................. 3,478 5,6243,430 8,051
Regulatory accounts and other - net ........................... 944 (5,558)
-------- --------1,076 (8,884)
---------- ----------
Cash from operations before working capital changes ...... 44,169 33,77963,435 54,880
Changes in operating assets and liabilities:
Accounts receivable - net ................................ (13,546) (6,220)20,867 18,173
Accrued unbilled revenue ................................. 12,261 17,83424,349 27,303
Inventories of gas, materials and supplies ............... 16,202 11,4254,798 1,975
Accounts payable ......................................... (4,869) (4,109)(16,358) 27
Accrued interest and taxes ............................... 23,699 15,7181,313 2,613
Other current assets and liabilities ..................... 148 2,140
-------- --------5,041 17,242
---------- ----------
Cash Provided by Continuing Operating Activities ......................... 78,064 70,567
-------- --------103,445 122,213
---------- ----------
Cash Provided by Discontinued Segment - net ................... 34,695 88
-------- --------34,779 96
---------- ----------
Investing Activities:
Acquisition and construction of utility plant assets .............. (17,334) (25,364)(38,005) (46,942)
Investments in non-utility property ............................... -- (2,518)(601) (6,293)
Investments and other ............................................. 749 737
-------- --------675 1,416
---------- ----------
Cash Used in Investing Activities ............................. (16,585) (27,145)
-------- --------(37,931) (51,819)
---------- ----------
Financing Activities:
Common stock issued ............................................... 1,391 1,4292,544 2,765
Common stock repurchased (1,021) -
Redeemable preferred stock retired (771) (935)
Long-term debt retired - (10,000)
Change in short-term debt ......................................... (77,656) (35,181)(83,842) (32,546)
Cash dividend payments:
Redeemable preferred and preference stock ..................... (622) (637)(1,249) (1,281)
Common stock .................................................. (7,782) (7,583)
Foreign currency translation and capital(15,585) (15,183)
Capital stock expense ............ 3,231 --
-------- --------and other 37 -
---------- ----------
Cash Used in Financing Activities ............................. (81,438) (41,972)
-------- --------(99,887) (57,180)
---------- ----------
Increase in Cash and Cash Equivalents .................................. 14,736 1,538406 13,310
Cash and Cash Equivalents - Beginning of Period ........................ 10,013 7,383
-------- ------------------ ----------
Cash and Cash Equivalents - End of Period .............................. $ 24,74910,419 $ 8,921
======== ========
===============================================================================================20,693
========== ==========
============================================================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest ...................................................... $ 3,80616,607 $ 3,98415,762
Income taxes .................................................. $ 4,34217,391 $ 3,950
===============================================================================================17,300
============================================================================================
Supplemental Disclosure of Non-cash Financing Activities:
Conversion to common stock:
7-1/4% Series of Convertible Debentures ....................... $ 103299 $ 55
===============================================================================================131
============================================================================================
See Notes to Consolidated Financial Statements
6
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(5) Consolidated Statements of Capitalization
(Thousands, Except Per Share Amounts)
(Unaudited) (Unaudited)
March 31,June 30, 2000 March 31,June 30, 1999 Dec. 31, 1999
---------------- ----------------- ---------------------------- ------------- -------------
Common Stock Equity:
Common stock - par value $3-1/6 per share ... $ 79,68879,750 $ 78,89479,094 $ 79,458
Premium on common stock ..................... 235,872 230,941236,597 232,153 234,608
Earnings invested in the business ........... 141,969 122,336135,543 124,876 118,711
Accumulated other comprehensive
income (loss) 51 (2,893)37 (2,976) (3,181)
--------- --------- ------------------- ---------- ----------
Total common stock equity ............... 457,580451,927 51% 429,278433,147 52% 429,596 50%
--------- ---- --------- ---- --------- -------------- ----- ---------- ----- ---------- -----
Redeemable Preference Stock:
$6.95 Series, stated value $100 per share ... 25,000 3% 25,000 3% 25,000 3%
---------- ----- ---------- ----- --------- ---- --------- ---- --------- ---------
Redeemable Preferred Stock:
Stated value $100 per share:
$4.75 Series ................................43 64 249 64
$7.125 Series ...............................9,750 10,500 11,250 10,500
--------- --------- ------------------- ---------- ----------
Total redeemable preferred stock ........ 10,564 1% 11,4999,793 1% 10,564 1% --------- ---- --------- ---- --------- ----10,564 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 --
5.96% Series B due 2000 ................. 5,000 5,000 5,000
5.98% Series B due 2000 ................. 5,000 5,000 5,000
6.62% Series B due 2001 ................. 10,000 --- 10,000
8.05% Series A due 2002 ................. 10,000 10,000 10,000
6.75% Series B due 2002 ................. 10,000 --- 10,000
5.55% Series B due 2002 ................. 20,000 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
7.63% Series B due 2019 ................. 20,000 --- 20,000
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:
8.47% Series A due 2001 ................. 10,000 10,000 10,000
Convertible Debentures
----------------------
7-1/4% Series due 2012 .................. 9,276 9,6839,080 9,607 9,379
--------- --------- ---------
406,276 376,683---------- ---------- ----------
406,080 366,607 406,379
Less long-term debt due within one year .......... 10,000 - 10,000
10,000
--------- --------- ------------------- ---------- ----------
Total long-term debt ........................ 396,276396,080 45% 366,683366,607 44% 396,379 46%
--------- ---- --------- ---- --------- -------------- ----- ---------- ----- ---------- -----
Total Capitalization ........................ $ 889,420882,800 100% $ 832,460835,318 100% $ 861,539 100%
========= ==== ========= ==== ========= ============== ===== ========== ===== ========== =====
See Notes to Consolidated Financial Statements
7
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(6) 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 1999 Annual Report on Form 10-K (1999
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 2000 presentation.
2. Segment Reporting
The Company principally operates in a single line of business
consisting of the distribution of natural gas, which constitutes the "utility"
segment. The "other" segment consists primarily of investments in alternative
energy projects in California, and a discontinued natural gas and oil exploration
business in Canada.Canada, a Boeing 737-300 aircraft which is leased to Continental
Airlines and non-utility gas storage services.
The following table presents information about reportable segments for
the three and six months ended March 31,June 30, 2000 and 1999. Inter-segment
transactions are insignificant.
Three Months Ended March 31,
-------------------------------------
Thousands Utility Other Total
- --------------------------------------------------------------------------------
2000
Net operating revenues .................. $ 93,003 $ 85 $ 93,088
Income from operations .................. 53,857 122 53,979
Loss from financial investments ......... -- (78) (78)
Net income from continuing operations ... 28,944 248 29,192
Net income from discontinued segment .... -- 2,470 2,470
Total assets ............................ 1,192,887 21,202 1,214,089
1999
Net operating revenues .................. $ 85,802 $ 103 $ 85,905
Income from operations .................. 45,525 27 45,552
Loss from financial investments ......... -- (644) (644)
Net income (loss) from continuing
operations .......................... 24,409 (225) 24,184
Loss from discontinued segment .......... -- (141) (141)
Total Assets ............................ 1,105,131 77,391 1,182,522
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- ----------------------------------
Thousands Utility Other Total Utility Other Total
- --------------------------------- ----------- ---------- ----------- ------------ --------- -----------
2000
Net operating revenues $ 45,724 $ 90 $ 45,814 $ 138,727 $ 175 $ 138,902
Income from operations 9,792 - 9,792 63,649 122 63,771
Loss from financial investments - (33) (33) - (111) (111)
Net income (loss) from
continuing operations 2,867 (369) 2,498 31,811 (121) 31,690
Net income (loss) from
discontinued segment - (35) (35) - 2,435 2,435
Total Assets 1,151,221 20,956 1,172,177 1,151,221 20,956 1,172,177
1999
Net operating revenues $ 55,170 $ 71 $ 55,241 $ 140,972 $ 174 $ 141,146
Income (loss) from operations 22,201 (65) 22,136 67,726 (38) 67,688
Income (loss) from financial
investments - 370 370 - (274) (274)
Net income from continuing
operations 10,157 372 10,529 34,566 147 34,713
Net income from discontinued
segment - 255 255 - 114 114
Total Assets 1,103,831 79,069 1,182,900 1,103,831 79,069 1,182,900
8
3. Property Held for Sale
Property held for sale is a new headquarters building which was
constructed for the Port of Portland. This property has been classified as a
current asset. See Part I, Item 2., "Financial Condition - Cash Flows -
Investing Activities," below.
4. Discontinued Segment
On Jan. 26, 2000, the Company sold its interest in Canor Energy Ltd.
(Canor), an Alberta, Canada corporation engaged in natural gas and oil
exploration, development and production in Alberta and Saskatchewan, Canada. The
after-tax gain resulting from the sale of Canor was $2.5$2.4 million, net of Canadian tax on dividends
($0.6 million) and U.S. income tax ($2.8 million).
The consolidated financial statements of the Company have been
restated to reflect the reclassification of Canor as a discontinued segment. Accordingly,
Canor's operating revenues and expenses of Canor are included in net income from
discontinued segment for 1999, and cash flows of this segment have been reported
as "Cash Provided by Discontinued Segment - net" for all periods presented.
5. Other Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," establishes guidelines for the reporting and display of
comprehensive income and its components in financial statements. Comprehensive
income includes unrealized gains or losses on debt and equity securities held
and available-for-sale,available for sale, with any resulting gain or loss included as a component
of stockholders' equity.
At March 31,6. Stock Repurchase Program
In May 2000, the Company recorded an unrealized
gaincommenced a program to repurchase up to 2
million shares, or up to $35 million in value, of $51,000, netNW Natural's common stock
through a repurchase program to extend through May 2001. The purchases will be
made in the open market or through privately negotiated transactions. As of tax, from equityJune
30, 2000, the Company had repurchased 45,000 shares received in an insurance company
as the result of common stock at a demutualization during 1999.
6.total
cost of $1.0 million.
7. Contingencies
NW Natural owns property in Linnton, Oregon that is the site of a
former gas manufacturing plant that was closed in 1956. The site has been under
investigation by the Company in recent years under program oversight by the
Oregon Department of Environmental Quality (ODEQ). During 1998, the ODEQ and the
U.S. Environmental Protection Agency (EPA) completed a study of sediments in a
5.5 mile segment of the Willamette River (the Portland Harbor) that includes the
area adjacent to the site. OnIn March 31, 2000, Region 10 of the EPA reported that it
would recommend the Portland Harbor for listing as a Superfund site, and that it was seeking the concurrence ofin July
2000, the governor of Oregon concurred with the EPA's proposal to propose such a listing tomove forward
with the EPA.listing. Future remediation of NW Natural's Linnton site may be
affected by any EPA management plan for the Portland Harbor. (See Part II, Item
8, Note 12, "Environmental Matters," in the 1999 Form 10-K).10-K.)
9
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, reclassified
as a discontinued segment in 1999 and sold in the first quarter
of 2000
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 1999 Annual Report on Form
10-K (1999 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 March 31,June 30, 2000 and 1999.
Earnings and Dividends
- ----------------------
The Company's earnings applicable to common stock were $31.0$1.8 million,
in the quarter ended March 31, 2000, up 33 percent from $23.4 million
in the first quarter of 1999. Earnings from consolidated continuing operations
were $1.12 a diluted share, compared to 94or 7 cents a diluted share, in last year's
first quarter. In addition, the Company recorded a gain equivalent to 10quarter ended June 30, 2000, down from $10.2
million, or 40 cents a diluted share, from the sale of a discontinued segment (Canor) in the firstsecond quarter of 2000, compared to a loss of 1 cent a diluted share from Canor's
operations in last year's first quarter.1999.
NW Natural earned $1.119 cents a diluted share from utility operations in
the firstsecond quarter of 2000, compared to 9538 cents a diluted share in the same
period in 1999. Weather conditionsduring the three months ended June 30, 2000 was 8
percent warmer than average and 31 percent warmer than the second quarter of
1999. NW Natural estimates that the weather related decrease in net operating
revenues (margin) from sales to residential and commercial customers during the
second quarter of 2000 was equivalent to earnings of 9 cents a share compared to
a similar period with average weather, and 20 cents a share compared to the same
period in 1999. Results for the second quarter of 1999 included reductions to
the litigation and interest reserves for the Chase Gardens case equivalent to 9
cents a share (see Part I, Item 3., "Legal Proceedings," in the 1999 Form 10-K).
The Company earned $32.9 million, or $1.29 a diluted share, and $33.6
million, or $1.33 a diluted share, for the six months ended June 30, 2000 and
1999, respectively. Year-to-date, NW Natural's service
territoryNatural earned $1.20 a share from utility
operations compared to $1.32 a share in the same period in 1999. Weather in the
first quarterhalf of the year was 5 percent warmer in 2000 were 7 percent colder than the first
quarterin 1999, resulting in a
decrease in margin from residential and commercial customers equivalent to an
estimated 19 cents a share of 1999. Weather conditions in the first quarterearnings.
10
Financial Corporation incurred a loss of 1999 were close
to average.
NW Natural's subsidiaries, excluding the discontinued segment,
earned 1 cent2 cents a share during the
firstsecond quarter of 2000, compared to income of 2 cents a share during the second
quarter of 1999. For the six months ended June 30, 2000, Financial Corporation
incurred a loss of 1 cent a share during the first quarterfor 2000 compared to income of 1 cent a share
for 1999. See "Subsidiary Operations," below.
10
Dividends paid on common stock were 31 cents a share and 30.5 cents a
share for the three-month periods ended March 31,June 30, 2000 and 1999, respectively. In
AprilJuly 2000, the Company's Board of Directors declared a quarterly dividend of 31
cents a share on the common stock, payable MayAugust 15, 2000, to shareholders of
record on April 28,July 31, 2000. The current indicated annual dividend rate is $1.24 a
share.
Results of Operations
- ---------------------
Comparison of Gas Operations
----------------------------
The following table summarizes the composition of gas utility volumes
and revenues:
Three Months Ended
March 31,
-----------------------------
2000 1999
-----------------------------
Gas Sales and Transportation
Volumes - Therms (000's):
Residential and commercial sales 268,088 267,905
Unbilled volumes (19,359) (30,455)
------------ ------------
Weather-sensitive volumes 248,729 237,450
Industrial firm sales 24,066 27,312
Industrial interruptible sales 15,570 14,491
----------- -----------
Total gas sales 288,365 279,253
Transportation deliveries 127,831 107,010
----------- -----------
Total volumes sold and delivered 416,196 386,263
=========== ===========
Utility Operating Revenues - Dollars (000's):
Residential and commercial sales $ 178,352 $ 163,856
Unbilled revenues (12,649) (17,276)
----------- -----------
Weather-sensitive revenues 165,703 146,580
Industrial firm sales 10,959 11,464
Industrial interruptible sales 5,833 4,667
----------- -----------
Total gas sales 182,495 162,711
Transportation revenues 5,985 4,806
Other revenues (1,968) 213
----------- -----------
Total utility operating revenues $ 186,512 $ 167,730
=========== ===========
Cost of gas sold - Dollars (000's) $ 93,509 $ 81,928
=========== ===========
Total number of customers (end of period) 507,756 485,297
=========== ===========
Actual degree days 1,979 1,855
=========== ===========
20-year average degree days 1,835 1,848
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2000 1999 2000 1999
----------- ----------- ------------ -----------
Gas Sales and Transportation Volumes - Therms (000's):
Residential and commercial sales 114,246 134,629 382,334 402,533
Unbilled volumes (19,044) (16,545) (38,403) (46,999)
----------- ----------- ------------ -----------
Weather-sensitive volumes 95,202 118,084 343,931 355,534
Industrial firm sales 17,843 21,355 41,909 48,667
Industrial interruptible sales 12,950 13,210 28,520 27,701
----------- ----------- ------------ -----------
Total gas sales 125,995 152,649 414,360 431,902
Transportation deliveries 109,829 110,399 237,660 217,409
----------- ----------- ------------ -----------
Total volumes sold and delivered 235,824 263,048 652,020 649,311
=========== =========== =========== ===========
Utility Operating Revenues - Dollars (000's):
Residential and commercial sales $ 79,995 $ 85,032 $ 258,347 $ 248,888
Unbilled revenues (11,687) (9,167) (24,336) (26,443)
----------- ----------- ------------ -----------
Weather-sensitive revenues 68,308 75,865 234,011 222,445
Industrial firm sales 8,099 8,954 19,058 20,418
Industrial interruptible sales 4,861 3,989 10,694 8,656
----------- ----------- ------------ -----------
Total gas sales 81,268 88,808 263,763 251,519
Transportation revenues 5,208 4,877 11,193 9,683
Other revenues (548) 456 (2,516) 669
----------- ----------- ------------ -----------
Total utility operating revenues $ 85,928 $ 94,141 $ 272,440 $ 261,871
=========== =========== =========== ===========
Cost of gas sold - Dollars (000's) $ 40,204 $ 38,971 $ 133,713 $ 120,899
=========== =========== =========== ===========
Total number of customers (end of period) 508,795 487,516 508,795 487,516
=========== =========== =========== ===========
Degree days:
Actual 616 887 2,595 2,742
20-year average 673 658 2,508 2,506
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
11
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 8 percent colderwarmer than average in
the firstsecond quarter of 2000 and 731 percent warmer than in the second quarter of
1999. For the first six months of 2000, weather was 3 percent colder than
inaverage but 5 percent warmer than the first quartersix months of 1999.
11
NW Natural continues to experience rapid customer growth, with 22,45921,279
customers added since March 31,June 30, 1999 for a growth rate of 4.64.4 percent. In the
three years ended Dec. 31, 1999, approximately 68,000 customers were added to
the system, representing an average annual growth rate of 5 percent.
Volumes of gas sold to residential and commercial customers increased 11.3were 22.9
million therms, or 519 percent, lower in the firstsecond quarter of 2000 compared tothan in the
firstsecond quarter of 1999. Related revenues increased $19.1decreased $7.6 million, or 1310 percent,
due to increasedthe lower volumes, andpartially offset by rate increases effective during
1999. (See Part II, Item 7, "Results of Operations - Regulatory Matters," in the
1999 Form 10-K.) Customer growth in the residential and commercial segments
since March 31,June 30, 1999, contributed an estimated $3.4$1.6 million of additional margin
during the firstsecond quarter of 2000.
Residential and commercial volumes were 11.6 million therms, or 3
percent, lower, while related revenues increased $11.6 million, or 5 percent, in
the first six months of 2000 as compared to 1999. The effects on revenues of
rate increases during 1999 more than offset the effects of decreased volumes due
to warmer weather.
In order to match revenues with related purchased gas costs, NW
Natural records estimated unbilled revenues for gas delivered but not yet billed
to customers through the end of the period.
Industrial, Transportation and Other Revenues
---------------------------------------------
Total volumes delivered to industrial firm, industrial interruptible,
and transportation customers were 18.74.3 million therms, or 133 percent, higherlower in the
firstsecond quarter of 2000 than in the same period of 1999. Margin from these
customers increaseddecreased from $12.6$11.4 million in the firstsecond quarter of 1999 to $13.3$10.8
million in the firstsecond quarter of 2000. The primary factor
contributingTransportation volumes decreased 0.6
million therms while gas sales to industrial firm and interrruptible customers
decreased 3.7 million therms.
For the increasecurrent six-month period, total industrial sales and
transportation volumes increased 14.3 million therms, or 5 percent, in industrial margin2000.
Margin from these customers was a $1.0$0.2 million, or 561 percent, increasehigher than in margin from customers on an industrial schedule in which
rates vary with oil prices.the
first six months of 1999.
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 1999 Form 10-K), decreased $2.2$1.0
million during the firstsecond quarter of 2000 compared to the second quarter of
1999. Year-to-date other revenue decreased $3.2 million compared to the first
quartersix months of 1999. In 2000, other revenues consisted of regulatory adjustments
totaling $2.0$3.7 million, including amortizations relating to Y2K costs ($0.50.7
million) and conservation program costs ($1.33.0 million) offset by customer fees
($0.8 million) and miscellaneous revenues ($0.4 million). Other revenue in the
first threesix months of 1999 included customer fees ($0.6 million) and miscellaneous
revenues ($0.4 million), offset in part by regulatory adjustments ($0.2 million).
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Cost of Gas
-----------
The cost per therm of gas sold was 1125 percent higher during the firstsecond
quarter of 2000 than in the firstsecond quarter of 1999.1999, and was 15 percent higher
year-to-date. The cost of gas sold includes current gas purchases, gas
withdrawals from storage, system demand costs adjusted for seasonal volumes and
regulatory deferrals. The cost of gas sold was reduced by non-regulated sales of
$1.2$1.4 million and $0.4$0.7 million for the first quarterssix months of 2000 and 1999,
respectively. Under an agreement with the OPUC,Oregon Public Utility Commission
(OPUC), net proceeds from these sales are treated as a reduction to cost of gas
sold.
The cost per therm of gas purchased was 45 percent higher in the
firstsecond quarter of 2000 was 15 percent higher than in the first three monthssecond quarter of 1999, and was 27 percent
higher year-to-date, due to higher prevailing prices in the natural gas
commodity market. 12
NW Natural was able to offset some of the negative earnings
impact from higher gas prices through an active natural gas commodity hedge
program. In the second quarter of 2000, NW Natural recorded a gain of $4.1
million from commodity swaps compared to a loss of $0.5 million in the same
period of 1999. Gains (losses) from commodity hedges are recorded as reductions
(increases) to the cost of gas.
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.periods. NW Natural deferred $1.0 million of
higher gas costs in the second quarter of 2000 and $1.5 million year-to-date,
and expects to begin recovering these amounts from customers later this year.
Accordingly, the Company absorbed $0.5 million of the higher gas costs in the
second quarter and $0.8 million year-to-date, reducing earnings by 1 cent a
share and 2 cents a share, respectively.
Subsidiary Operations
---------------------
The following table summarizes financial information for Financial
Corporation:
Three Months Ended
March 31,
--------------------------
2000 1999
--------------------------
Consolidated Subsidiary (Thousands):
Net Operating Revenues $ 85
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Consolidated Subsidiary (Thousands):
Net Operating Revenues $ 90 $ 71 $ 175 $ 174
Operations and Maintenance Expense 17 80 (42) 134
Depreciation, Depletion and Amortization 73 56 95 78
--------- --------- --------- ---------
Income from Operations - (65) 122 (38)
Income (Loss) from Financial Investments (33) 370 (111) (274)
Other Income - net 76 128 199 196
--------- --------- --------- ---------
Income (Loss) Before Income Taxes 43 433 210 (116)
Income Tax Expense (Benefit) 443 62 376 (219)
--------- --------- --------- ---------
Net Income (Loss) $ (400) $ 371 $ (166) $ 103
Operations and Maintenance Expense (59) 54
Depreciation, Depletion and Amortization 22 22
---------- ----------
Income from Operations 122 27
Loss from Financial Investments (78) (644)
Other Income - net 123 68
---------- ----------
Income (Loss) Before Income Taxes 167 (549)
Income Tax Expense (Benefit) (67) (281)
---------- ----------
Net Income (Loss) $ 234 $ (268)
==========
========== ========= ========== =========
Results from Financial Corporation's operations in the firstsecond quarter
of 2000 were earningsa loss equivalent to 2 cents a share, compared to income of 2 cents
a share for the second quarter of 1999. Results were weaker in the current year
13
primarily due to adjustments totaling $0.6 million to Financial Corporation's
deferred income tax accounts recorded in the second quarter of 2000.
For the six months ended June 30, 2000, Financial Corporation recorded
a loss equivalent to 1 cent a share compared to a lossincome of 1 cent a share forin the
first quartersix months of 1999.
Financial Corporation's net assets at March 31,June 30, 2000, were $7.4$7.0
million, compared to $6.4$6.7 million at March 31,June 30, 1999.
Discontinued Segment
--------------------
In the fourth quarter of 1999, the Company decided to sell its
interest in Canor with the effect that Canor was reclassified as a discontinued
segment. The Company sold Canor in the first quarter of 2000 and recordedreported a gain
of $2.5 million,
equivalent to 10 cents a share (see Part I, Note 4, above). Net income from the
discontinued segment infor the first quarter ofsix months ended June 30, 1999, was a loss of $0.1 million,
net of tax, equivalent to 1 cent a share.
Operating Expenses
------------------
Operations and Maintenance
--------------------------
Operations and maintenance expenses were $1.7$0.6 million, or 82 percent,
lowerhigher in the first quartersix months of 2000 compared to the same period in 1999. NW
Natural's expenses decreased $1.5increased $0.8 million, or 72 percent, primarily due to
higher costsreductions to the litigation reserve in the firstsecond quarter of 1999 from a special voluntary early
retirement programdue to an
appellate court decision in the Company's favor in the Chase Gardens case ($0.83.0
million) and, offset by lower bad debt accruals ($0.7 million), reduced bonus
accruals ($0.3 million) and lower marketing costs ($1.2 million) in the first
quartersix months of 2000 ($0.6 million).
13
2000.
Taxes Other than Income Taxes
-----------------------------
Taxes other than income taxes increased $0.3$0.4 million, or 3 percent, in
the first quartersix months of 2000 compared to the first quarterhalf of 1999. Franchise tax expense increased $0.1 million, propertyProperty taxes
increased $0.2$0.3 million and regulatory fees increased $0.1 million, while payroll taxes
decreased $0.1 million.
Depreciation, Depletion and Amortization
----------------------------------------
The Company's depreciation, depletion and amortization expense
increased $0.2$0.7 million, or 13 percent, compared to the first quartersix months of 1999.
NW Natural's depreciation expense increased by $0.2$0.7 million primarily due to the
placement into service in December 1999 of an expansion of itsadditional Mist underground gas
storage facilities.
Other Income
------------
The Company's other income for the year-to-date was $0.2 million
higher than in 1999. The increase was primarily due to a development fee
relating to construction of the Port of Portland Building ($0.3 million); a gain
on the sale of shares in an insurance company received as the result of a
demutualization ($0.2 million); and a smaller subsidiary investment loss ($0.2
million); partially offset by a decrease in interest income from regulatory
account balances ($0.6 million).
14
Interest Charges - net
----------------------
The Company's net interest expense increased $0.1$1.8 million, or 12
percent, in the first quartersix months of 2000 compared to the same period in 1999.
The increase was primarily
due to an increase in subsidiary investment income ($0.6 million), offset by a
decrease in interest income from regulatory account balances ($0.5 million).
Interest Charges - net
----------------------
The Company's net interest expense increased $0.5 million, or
6 percent, in the first quarter of 2000 compared to the same period in 1999 due to a $29.6$39.5 million increase in long-term debt outstanding.outstanding,
and an adjustment relating to the Chase Gardens case that reduced interest
expense by $0.9 million in the first half of 1999.
Income Taxes
------------
The effective corporate income tax rates from continuing operations
during the threesix months ended March 31,June 30, 2000 and 1999, were 36.735.9 percent and 36.436.8
percent, respectively.
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 1999 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 14
preferred stock
redemption requirements (see Part II, Item 8., Notes 3 and 5, "Notes to
Consolidated Financial Statements," in the 1999 Form 10-K).
Cash Flows
----------
Operating Activities
--------------------
Continuing operations provided net cash of $78.1$103.4 million in the threesix
months ended March 31,June 30, 2000, compared to $70.6a 15 percent decrease from $122.2 million in the
first threesix months of 1999. The 11 percentAn increase was due to increasedin cash from operations ($10.48.6 million) was
offset by higher working capital requirements ($2.927.3 million). The increase in
cash from continuing operations compared to the first quartersix months of 1999 was
primarily due to a decrease in regulatory account net debit balances in 2000
compared to($10.0 million), an increase in 1999 ($6.5 million), higher income
from continuing operations ($5.0 million) and a smaller decrease in deferred income taxes ($5.4 million) and investment tax creditshigher
depreciation, depletion and amortization ($1.50.6 million), offset by a smaller
decrease in deferred gas costs receivable ($2.14.6 million) and lower net income
from continuing operations ($3.0 million). The increase in working capital
requirements was due to a larger decrease in accounts payable ($16.3 million), a
smaller increase in accounts receivableother current net liabilities ($7.312.2 million), a smaller
decrease in accrued unbilled revenuesrevenue ($5.6 million),
a smaller decrease in other current assets and liabilities ($2.03.0 million) and a larger decreasesmaller increase in accounts payableaccrued
15
interest and taxes ($0.81.3 million); offset by a larger increasedecrease in accrued interest and taxesinventories
($8.02.8 million) and a larger reduction of inventories of gas, materials and suppliesaccounts receivable ($4.82.7 million).
The discontinued segment provided net cash of $34.7$34.8 million in the
first quartersix months of 2000, due to the sale of the Company's interest in Canor,
compared to net cash provided by Canor of $0.1 million in the first quartersix months
of 1999.
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
1999 Form 10-K).
Investing Activities
--------------------
Cash requirements for year-to-date utility construction in the first
quarter of 2000
totaled $17.3$38.0 million, down $8.0$8.9 million from the first quartersix months of 1999. The
decrease was primarily due to the completion of additional underground storage
facilities in 1999.
NW Natural's construction expenditures are estimated to total $82
million for 2000. Over the five-year period 2000 through 2004, these
expenditures are estimated at between $450 million and $500 million. The level
of capital expenditures over the next five years reflects projected high
customer growth plus a major system reinforcement project and the development of
additional underground gas storage facilities. An estimated 60 percent of the
required funds is expected to be internally generated over the five-year period,
with the remainder funded through a combination of long-term debt and equity
securities with short-term debt providing liquidity and bridge financing.
There were no expenditures forInvestments in non-utility assets during the
first quarter of 2000, compared to expenditures totaling $2.5 millionproperty in the first quartersix months of 1999, primarily relating to a contract2000
consisted of final payments for the construction of athe new headquarters
building for the Port of Portland.Portland of $0.6 million, compared to $6.2 million
invested in the Port of Portland Building during the first six months of 1999.
The purchase and sale agreement between NW Natural and the Port of Portland
provides for the Port to pay at closing an established purchase price for
construction of the core and
15
shell of the building plus NW Natural's costs for
construction and tenant improvements. NW Natural anticipates that closing will
occur during the current fiscal year. In June and August 1999, the Port made
construction progress payments in advance of closing totaling $18.8 million,
which were used to pay off the balance outstanding under a line of credit used
for construction of the building.
There were no new capital investments by Financial Corporation during
the first quarterssix months of 2000 andor 1999.
Financing Activities
--------------------
Internally generated cash, including cash from the sale of Canor, was
used to reduce short-term debt by $77.7$83.8 million in the first quartersix months of 2000,
compared to a reduction of $35.2$32.5 million in the first quartersix months of 1999.
In May 2000, the Company commenced a program to repurchase up to 2
million shares, or up to $35 million in value, of NW Natural's common stock
through a repurchase program to extend through May 2001. The purchases will be
made in the open market or through privately negotiated transactions. As of June
30, 2000, the Company had repurchased 45,000 shares of common stock at a total
cost of $1.0 million.
16
Commercial Paper
----------------
The Company's primary source of short-term funds is commercial paper.
Both NW Natural and Financial Corporation issue commercial paper under agency
agreements with a commercial bank. The commercial paper is supported by bank
lines of credit (see "Lines of Credit," below). 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 1999 Form
10-K). NW Natural had $16.5$10.3 million of commercial paper notes outstanding at
March 31, 2000.June 30, 2000, compared to $48.9 million outstanding at June 30, 1999. Financial
Corporation had no commercial paper notes outstanding at that date.those dates.
Lines of Credit
---------------
NW Natural has available through Sept. 30, 2000, committed lines of
credit with five commercial banks totaling $120 million which are used as backup
lines for the commercial paper program. These credit lines consist of a primary
fixed amount of $60 million plus an additional amount of up to $60 million
available as needed, at NW Natural's option, on a monthly basis. In addition,
Financial Corporation has available through Sept. 30, 2000, committed lines of
credit with two commercial banks totaling $20 million. Financial Corporation's
lines are supported by the guaranty of NW Natural.
Under the terms of these lines of credit, NW Natural and Financial
Corporation pay commitment fees but are not required to maintain compensating
bank balances. The interest rates on borrowings 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 March 31,June 30, 2000 or 1999.
Ratios of Earnings to Fixed Charges
-----------------------------------
For the 6 months and 12 months ended March 31,June 30, 2000, and the 12 months
ended Dec. 31, 1999, the Company's ratios of earnings to fixed charges, computed
using the Securities and Exchange Commission method, were 3.423.95, 2.92 and 3.12,
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.
16
Contingent Liabilities
- ----------------------
Environmental Matters
---------------------
NW Natural owns property in Linnton, Oregon that is the site of a
former gas manufacturing plant that was closed in 1956. The site has been under
investigation by the Company in recent years under program oversight by the
Oregon Department of Environmental Quality (ODEQ). During 1998, the ODEQ and the
U.S. Environmental Protection Agency (EPA) completed a study of sediments in a
5.5 mile segment of the Willamette River (the Portland Harbor) that includes the
area adjacent to the site. OnIn March 31, 2000, Region 10 of the EPA reported that it
would recommend the Portland Harbor for listing as a Superfund site, and that it was seeking the concurrence
ofin July
2000 the governor of Oregon concurred with the EPA's proposal to propose such a listing tomove forward
with the EPA.listing. Future remediation of NW Natural's Linnton site may be
affected by any EPA management plan for the Portland Harbor. (See Part II, Item
8, Note 12, "Environmental Matters," in the 1999 Form 10-K).10-K.)
17
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
17
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.
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 1999 Form 10-K.
18
PART II. OTHER INFORMATION
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 25, 2000. At the meeting, four Class I director-nominees were
elected to three-year terms, as follows:
Term Share Votes Share Votes
Director-nominee Expiring For Withheld
------------------- ----------- --------------- ------------
Richard B. Keller 2003 22,671,947 294,988
Randall C. Pape 2003 22,688,833 278,102
Robert L. Ridgley 2003 22,665,250 301,685
Dwight A. Sangrey 2003 22,689,100 277,835
The other eight directors whose terms of office as directors continued
after the annual meeting are: Mary Arnstad, Thomas E. Dewey, Jr., Tod R.
Hamachek, Wayne D. Kuni, Richard G. Reiten, Melody C. Teppola, Russell F.
Tromley and Benjamin R. Whiteley.
The shareholders reapproved the 1985 Stock Option Plan by the
following vote: 21,654,192 shares voted for; 881,645 shares voted against; and
431,098 shares abstained from voting.
The shareholders also approved amendments to the Employee Stock
Purchase Plan to increase the number of shares authorized to be issued under
that Plan from 600,000 to 800,000 shares, and to reduce the offering price from
92 to 85 percent of the fair market value on the offering date. The vote on
these amendments was as follows: 21,489,564 shares voted for; 989,072 shares
voted against; and 488,299 shares abstained from voting on this matter.
The shareholders also elected PricewaterhouseCoopers LLP, certified
public accountants, as NW Natural's auditors for the year 2000 by the following
vote: 22,673,074 shares voted for; 91,817 shares voted against; and 202,044
shares abstained.
There were no broker non-votes on any of the items voted on at the
2000 annual meeting.
Item 5. OTHER INFORMATION
Regulatory Developments
-----------------------
On July 31, 2000, the Washington Utilities and Transportation
Commission approved, effective Aug. 1, 2000, a filing by NW Natural to increase
rates by an average of 23 percent for the Company's Washington sales customers.
The rate increases reflect increases in the cost of natural gas commodity
19
purchased under contracts with gas producers (see Part I, Item 2., Results of
Operations, "Comparison of Gas Operations--Cost of Gas," above).
NW Natural intends to file with the OPUC for approval of rate
increases in Oregon reflecting similar increases in gas commodity costs. This
filing will be pursuant to NW Natural's Oregon PGA tariff which permits filings
for out-of-cycle rate adjustments if the Company's cost of gas changes by 10
percent or more. The rate increases for the Company's Oregon customers will be
proposed to be effective on Oct. 1, 2000, rather than on the normal rate change
date of Dec. 1, 2000.
Even assuming the rates approved in Washington and to be filed for
approval in Oregon, NW Natural expects to continue to enjoy a price advantage
over competing fuels, including heating oil as well as electricity provided by
the investor-owned electric utilities in its service territory.
Stock Listing
-------------
On July 27, 2000, the Company's Common Stock, $3-1/6 par value, and
the Common Share Purchase Rights appurtenant thereto, began trading on the New
York Stock Exchange, Inc. under the symbol "NWN." The stock previously traded on
the Nasdaq National Market with the symbol NWNG.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 - Statement re: Computation of Per Share Earnings
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
NoOn May 25, 2000, the Company filed its Current ReportsReport on Form 8-K
were filed duringrelating to the quarter
ended March 31, 2000.listing of the Company's Common Stock on the New York Stock
Exchange and announcing a share repurchase program.
20
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: May 12,August 11, 2000 /s/ Stephen P. Feltz
----------------------------------------------------------------------------
Stephen P. Feltz
Principal Accounting Officer
Treasurer and Controller
1821
NORTHWEST NATURAL GAS COMPANY
EXHIBIT INDEX
To
Quarterly Report on Form 10-Q
For Quarter Ended
March 31,June 30, 2000
Exhibit
Document Number
- -------- -------------
Statement re: Computation of Per Share Earnings 11
Computation of Ratios of Earnings to Fixed Charges 12
Financial Data Schedule 27