Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
--------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------ ------------
Commission file number 0-994
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NORTHWEST NATURAL GAS COMPANY
- -----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Oregon 93-0256722
--------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 N. W. Second Avenue, Portland, Oregon 97209
------------------------------------------ --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (503) 226-4211
--------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
At May 10, 1996, 14,876,681 shares of the registrant's Common
Stock, $3-1/6 par value (the only class of Common Stock) were
outstanding.
NORTHWEST NATURAL GAS COMPANY
March 31, 1996
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-month periods ended March 31, 1996 and
1995, and Consolidated Statements of Earnings
Invested in the Business for the three-month
periods ended March 31, 1996 and 1995. 3
(2) Consolidated Balance Sheets at March 31, 1996
and 1995 and December 31, 1995. 4
(3) Consolidated Statements of Cash Flows for the
three-month periods ended March 31, 1996 and 1995. 5
(4) Consolidated Statements of Capitalization at
March 31, 1996 and 1995 and December 31, 1995. 6
(5) Notes to Consolidated Financial Statements. 7
Independent Accountants' Report 9
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 10
PART II. OTHER INFORMATION
Item 2. Changes in Securities 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signature 21
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(1) Consolidated Statements of Income
(Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended
March 31,
---------------------
1996 1995
-------- --------
Net Operating Revenues:
Operating revenues $137,561 $125,389
Cost of sales 54,057 51,544
-------- --------
Net operating revenues 83,504 73,845
-------- --------
Operating Expenses:
Operations and maintenance 20,000 17,581
Taxes other than income taxes 7,867 7,454
Depreciation, depletion and amortization 12,704 9,909
-------- --------
Total operating expenses 40,571 34,944
-------- --------
Income from Operations 42,933 38,901
-------- --------
Other Income (Expense) 2,481 (1,087)
-------- --------
Interest Charges - net 6,496 6,562
-------- --------
Income Before Income Taxes 38,918 31,252
Income Taxes 15,562 12,200
-------- --------
Net Income 23,356 19,052
Preferred and preference stock dividend
requirements 691 735
-------- --------
Earnings Applicable to Common Stock $ 22,665 $ 18,317
======== ========
Average Common Shares Outstanding 14,850 13,916
Primary Earnings Per Share of Common Stock $1.53 $1.32
Fully-Diluted Earnings Per Share of Common Stock $1.49 $1.28
Dividends Per Share of Common Stock $0.45 $0.44
See accompanying Notes to Consolidated Financial Statements.
===========================================================================
Consolidated Statements of Earnings Invested in the Business
(Thousands, Three-Month Periods Ended March 31)
(Unaudited)
1996 1995
-------- --------
Balance at Beginning of Period $105,651 $ 97,275
Net Income 23,356 19,052
Cash dividends:
Preferred and preference stock (691) (737)
Common stock (6,675) (5,908)
Capital stock expense and other (426) (1,383)
-------- --------
Balance at End of Period $121,215 $108,299
======== ========
See accompanying Notes to Consolidated Financial Statements.
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(2) Consolidated Balance Sheets
(Thousands of Dollars)
(Unaudited) (Unaudited)
Mar. 31, Mar. 31, Dec. 31,
1996 1995 1995
-------- -------- --------
Assets:
Plant and Property in Service:
Utility plant in service $994,763 $920,863 $969,075
Less accumulated depreciation 317,156 286,918 308,702
-------- -------- --------
Utility plant - net 677,607 633,945 660,373
Non-utility property 45,113 50,067 53,807
Less accumulated depreciation
and depletion 17,784 25,249 16,997
-------- -------- --------
Non-utility property - net 27,329 24,818 36,810
-------- -------- --------
Total plant and property
in service 704,936 658,763 697,183
-------- -------- --------
Investments and Other:
Investments 32,624 31,885 34,126
Long-term notes receivable 3,373 2,937 3,756
-------- -------- --------
Total investments and other 35,997 34,822 37,882
-------- -------- --------
Current Assets:
Cash and cash equivalents 25,253 41,950 7,782
Accounts receivable - net 37,478 35,789 34,385
Accrued unbilled revenue 12,373 11,708 21,493
Inventories of gas, materials and
supplies 10,909 9,659 14,254
Prepayments and other current assets 9,360 7,330 12,396
-------- -------- --------
Total current assets 95,373 106,436 90,310
-------- -------- --------
Regulatory Tax Assets 60,430 60,430 60,430
-------- -------- --------
Deferred Debits and Other 45,881 44,249 43,472
-------- -------- --------
Total Assets $942,617 $904,700 $929,277
======== ======== ========
Capitalization and Liabilities:
Capitalization:
Common stock $219,227 $212,908 $217,901
Earnings invested in the business 121,215 108,299 105,651
-------- -------- --------
Total common stock equity 340,442 321,207 323,552
Preference stock 25,000 26,061 25,000
Redeemable preferred stock 14,840 15,950 14,840
Long-term debt 279,919 291,066 279,945
-------- -------- --------
Total capitalization 660,201 654,284 643,337
-------- -------- --------
Current Liabilities:
Notes payable 15,559 16,100 28,832
Accounts payable 43,276 41,728 41,784
Long-term debt due within one year 21,000 1,000 21,000
Taxes accrued 13,831 8,396 10,281
Interest accrued 7,760 7,473 4,617
Other current and accrued liabilities 13,493 11,710 13,204
-------- -------- --------
Total current liabilities 114,919 86,407 119,718
-------- -------- --------
Deferred Investment Tax Credits 12,022 12,979 12,493
-------- -------- --------
Deferred Income Taxes 122,927 118,241 118,692
-------- -------- --------
Regulatory Balancing Accounts and Other 32,548 32,789 35,037
-------- -------- --------
Commitments and Contingent Liabilities - - -
-------- -------- --------
Total Capitalization and
Liabilities $942,617 $904,700 $929,277
======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(3) Consolidated Statements of Cash Flows
(Thousands of Dollars)
(Unaudited)
Three Months Ended
March 31,
--------------------
1996 1995
-------- --------
Operating Activities:
Net income $ 23,356 $ 19,052
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation, depletion and amortization 12,704 9,909
Gain on sale of assets (2,897) -
Deferred income taxes and investment tax credits 3,764 5,257
Equity in losses of investments 1,202 1,518
Allowance for funds used during construction (276) (116)
Regulatory balancing accounts and other - net (4,898) 949
-------- --------
Cash from operations before working
capital changes 32,955 36,569
Changes in operating assets and liabilities:
Accounts receivable (3,093) 6,363
Accrued unbilled revenue 9,120 8,612
Inventories of gas, materials and supplies 3,345 5,299
Accounts payable 1,492 (6,789)
Accrued interest and taxes 6,693 4,715
Other current assets and liabilities 4,025 2,664
-------- --------
Cash Provided By Operating Activities 54,537 57,433
-------- --------
Investing Activities:
Acquisition and construction of utility plant assets (17,020) (13,617)
Investment in non-utility plant (964) (683)
Investments and other 683 757
-------- --------
Cash Used In Investing Activities (17,301) (13,543)
-------- --------
Financing Activities:
Common stock issued 1,300 35,584
Long-term debt retired - (10)
Change in short-term debt (13,273) (37,554)
Cash dividend payments:
Preferred and preference stock (691) (737)
Common stock (6,675) (5,908)
Capital stock expense and other (426) (1,383)
-------- --------
Cash Used For Financing Activities (19,765) (10,008)
-------- --------
Increase In Cash and Cash Equivalents 17,471 33,882
Cash and Cash Equivalents - Beginning of Period 7,782 8,068
-------- --------
Cash and Cash Equivalents - End of Period $ 25,253 $ 41,950
======== ========
==============================================================================
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest $ 3,290 $ 3,556
Income Taxes $ 7,000 $ 3,500
==============================================================================
Supplemental Disclosure of Noncash Financing Activities
Conversion to common stock:
$2.375 Series of Convertible Preference Stock $ - $ 191
7-1/4 percent Series of Convertible Debentures $ 26 $ -
==============================================================================
See accompanying Notes to Consolidated Financial Statements.
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
(4) Consolidated Statements of Capitalization
(Thousands)
(Unaudited) (Unaudited)
Mar. 31, 1996 Mar. 31, 1995 Dec. 31, 1995
- ------------------------------------------------------------------------------------
COMMON STOCK EQUITY:
Common stock - par value $3-1/6
per share $ 47,091 $ 46,345 $ 46,958
Premium on common stock 172,136 166,563 170,943
Earnings invested in the
business 121,215 108,299 105,651
-------- -------- --------
Total common stock equity 340,442 52% 321,207 49% 323,552 50%
-------- ---- -------- ---- -------- ----
PREFERENCE STOCK:
$2.375 Series, convertible,
stated value $25 per share - 1,061 -
$6.95 Series, stated value
$100 per share 25,000 25,000 25,000
-------- -------- --------
Total preference stock 25,000 4% 26,061 4% 25,000 4%
-------- ---- -------- ---- -------- ----
REDEEMABLE PREFERRED STOCK, stated
value $100 per share:
$4.68 Series 552 732 552
$4.75 Series 788 968 788
$7.125 Series 13,500 14,250 13,500
-------- -------- --------
Total redeemable
preferred stock 14,840 2% 15,950 2% 14,840 2%
-------- ---- -------- ---- -------- ----
LONG-TERM DEBT:
First Mortgage Bonds
--------------------
9-3/4% Series due 2015 50,000 50,000 50,000
9-1/8% Series due 2019 24,000 25,000 24,000
Medium-Term Notes
-----------------
First Mortgage Bonds:
4.80% Series A due 1996 5,000 5,000 5,000
7.38% Series A due 1997 20,000 20,000 20,000
7.69% Series A due 1999 10,000 10,000 10,000
5.96% Series B due 2000 5,000 5,000 5,000
5.98% Series B due 2000 5,000 5,000 5,000
8.05% Series A due 2002 10,000 10,000 10,000
6.40% Series B due 2003 20,000 20,000 20,000
6.34% Series B due 2005 5,000 5,000 5,000
6.38% Series B due 2005 5,000 5,000 5,000
6.45% Series B due 2005 5,000 5,000 5,000
6.50% Series B due 2008 5,000 5,000 5,000
8.26% Series B due 2014 10,000 10,000 10,000
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
Unsecured:
4.90% Series A due 1996 10,000 10,000 10,000
8.69% Series A due 1996 5,000 5,000 5,000
7.40% Series A due 1997 5,000 5,000 5,000
8.93% Series A due 1998 5,000 5,000 5,000
8.95% Series A due 1998 10,000 10,000 10,000
8.47% Series A due 2001 10,000 10,000 10,000
Convertible Debentures
----------------------
7-1/4% Series due 2012 11,919 12,066 11,945
-------- -------- --------
300,919 292,066 300,945
Less long-term debt due
within one-year 21,000 1,000 21,000
-------- -------- --------
Total long-term debt 279,919 42% 291,066 45% 279,945 44%
-------- ---- -------- ---- -------- ----
TOTAL CAPITALIZATION $660,201 100% $654,284 100% $643,337 100%
======== ==== ======== ==== ======== ====
- ----------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
NORTHWEST NATURAL GAS COMPANY
(5) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of financial statements
The information presented in the consolidated financial
statements is unaudited, but includes all adjustments, consisting
of only normal recurring accruals, which the management of the
Company considers necessary for a fair presentation of the
results of such periods. These consolidated financial statements
should be read in conjunction with the financial statements and
related notes included in the Company's 1995 Annual Report on
Form 10-K. A significant part of the business of the Company is
of a seasonal nature; therefore, results of operations for the
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 1996 presentation.
2. Accounting Pronouncements
In the first quarter of 1996, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of." SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable, and requires that assets
committed to be disposed of be recorded at the lower of the
carrying amount or fair value less cost to sell. As a result of
adopting SFAS No. 121, Oregon Natural Gas Development Corporation
(Oregon Natural), a wholly-owned subsidiary of the Company,
recorded an impairment loss with respect to producing wells of
$1.3 million, equivalent to a loss of $0.05 per share, during the
first quarter of 1996. No impairment was recorded for certain
other operating wells held for sale because, in the opinion of
management, the fair value of this group of wells is greater than
the carrying amount. In addition, in accordance with SFAS
No. 19, "Financial Accounting and Reporting by Oil and Gas
Producing Companies," Oregon Natural recorded write-downs of
unproven gas properties of $1.0 million, equivalent to a loss of
$0.04 per share.
In October 1995, the Financial Accounting Standards
Board issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 requires expanded disclosures of
stock-based compensation arrangements with employees and
encourages (but does not require) compensation cost to be
measured based on the fair value of the equity instrument
awarded. Companies are permitted, however, to continue to apply
Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," which recognizes compensation cost
based on the intrinsic value of the equity instrument awarded.
The Company will continue to apply APB Opinion No. 25 to its
stock-based compensation awards to employees and will disclose
the required pro forma effect on net income and earnings per
share in its 1996 annual report.
3. Contingencies
See Part II, Item 7., "Contingent Liabilities" and
"Environmental Matters" in the Company's 1995 Annual Report on
Form 10-K.
DELOITTE & TOUCHE LLP
- -----------------------------------------------------------------
3900 US Bancorp Tower Telephone: (503) 222-1341
111 SW Fifth Avenue Facsimile: (503) 224-2172
Portland, Oregon 97204-3698
INDEPENDENT ACCOUNTANTS' REPORT
- -------------------------------
Northwest Natural Gas Company
Portland, Oregon
We have made a review of the accompanying consolidated balance sheets
and statements of capitalization of Northwest Natural Gas Company and
subsidiaries as of March 31, 1996 and 1995, and the related consolidated
statements of income for the three-month periods ended March 31, 1996
and 1995, and the consolidated statements of earnings invested in the
business and cash flows for the three-month periods ended March 31, 1996
and 1995. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be
in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet and statement of
capitalization of Northwest Natural Gas Company and subsidiaries as of
December 31, 1995, and the related consolidated statements of income,
earnings invested in the business, and cash flows for the year then
ended (not presented herein); and in our report dated February 20, 1996,
we expressed an unqualified opinion on those consolidated financial
statements which includes an explanatory paragraph relating to the
change in the Company's method of accounting for income taxes and
postretirement benefits. In our opinion, the information set forth in
the accompanying consolidated balance sheet and consolidated statement
of capitalization as of December 31, 1995 is fairly stated, in all
material respects, in relation to the consolidated financial statements
from which it has been derived.
DELOITTE & TOUCHE LLP
May 3, 1996
NORTHWEST NATURAL GAS COMPANY
PART I. FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The consolidated financial statements include:
Regulated utility:
Northwest Natural Gas Company (Northwest Natural)
Non-regulated wholly-owned businesses:
Oregon Natural Gas Development Corporation (Oregon
Natural)
NNG Financial Corporation (Financial Corporation)
Two other subsidiaries, Pacific Square Corporation (Pacific
Square) and NNG Energy Systems, Inc. (Energy Systems), were dissolved
during 1995.
Together these businesses are referred to herein as the
"Company" (see "Subsidiary Operations" below and Part II, Item 8.,
Note 2, "Notes to Consolidated Financial Statements" in the Company's
1995 Annual Report on 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 months ended March 31, 1996
and 1995.
Earnings and Dividends
- ----------------------
The Company earned $1.53 per share for its first quarter
ended March 31, 1996, compared to $1.32 per share in last year's first
quarter. Consolidated earnings applicable to common stock were $22.7
million in the quarter ended March 31, 1996, up 24 percent from $18.3
million in the first quarter of 1995.
Northwest Natural earned $1.56 per share from utility
operations in the first quarter of 1996, compared to $1.40 per share
in the same period in 1995. The improved results reflect the effects
of a customer growth rate of 4.9 percent and weather conditions in
Northwest Natural's service territory which were five percent cooler
than average and 15 percent colder than the first quarter of 1995.
The Company estimates that the weather-related improvement in net
operating revenues (margin) during the first quarter of 1996 was
equivalent to about $0.11 per share compared to a similar period with
average weather, and about $0.39 per share compared to actual
conditions during the first quarter of 1995 when weather conditions
were 10 percent warmer than average. These estimates are derived from
the Company's internal planning model (see Part II, Item 7., "Earnings
and Dividends" in the Company's 1995 Annual Report on Form 10-K). The
model also indicates that customer growth since the first quarter of
1995 contributed the equivalent of about $0.16 per share of margin
revenues during the first quarter of 1996.
Northwest Natural's subsidiaries lost $0.03 per share during
the first quarter of 1996, compared to a loss of $0.08 in the first
quarter of 1995. See "Subsidiary Operations".
Dividends paid on common stock were $0.45 per share for the
three-month period ended March 31, 1996 and $0.44 per share for the
three-month period ended March 31, 1995. In April 1996, the Board of
Directors of the Company declared a quarterly dividend of $0.45 per
share on its common stock, payable May 15, 1996, to shareholders of
record on April 30, 1996. The current indicated annual dividend rate
is $1.80 per share.
Results of Operations
- ---------------------
Comparison of Gas Operations
----------------------------
The following table summarizes the composition of gas
utility volumes and revenues for the three months ended March 31:
1996 1995
---- ----
Gas Sales and Transportation
Volumes - Therms (000's):
Residential and commercial sales 226,544 191,887
Unbilled volumes (17,812) (15,566)
------- -------
Weather-sensitive volumes 208,732 176,321
Industrial firm sales 27,101 23,732
Industrial interruptible sales 22,208 24,019
------- -------
Total gas sales 258,041 224,072
Transportation deliveries 104,777 97,830
------- -------
Total volumes sold and delivered 362,818 321,902
======= =======
Utility Operating Revenues - Dollars (000's):
Residential and commercial revenues $120,383 $109,477
Unbilled revenues (9,120) (8,611)
-------- --------
Weather-sensitive revenues 111,263 100,866
Industrial firm sales revenues 9,276 9,122
Industrial interruptible sales revenues 6,033 6,864
-------- --------
Total gas sales revenues 126,572 116,852
Transportation revenues 5,435 3,813
Other revenues 3,217 2,607
-------- --------
Total utility operating revenues 135,224 123,272
Non-utility operating revenues 2,337 2,117
-------- --------
Total operating revenues $137,561 $125,389
======== ========
Cost of gas - Dollars (000's) $ 54,057 $ 51,544
======== ========
Total number of customers (end of period) 416,000 396,600
======== ========
Actual degree days 1,948 1,690
======== ========
20-year average degree days 1,864 1,874
======== ========
Residential and Commercial
--------------------------
Typically, 75 percent or more of Northwest Natural's annual
operating revenues are derived from gas sales to weather-sensitive
residential and commercial customers. Accordingly, 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 five percent cooler than average in
the first quarter of 1996, and 15 percent colder than the first
quarter of 1995. Customer growth also continued at a rapid rate
relative to others in the industry. The 19,400 customers added since
March 31, 1995 represent a growth rate of 4.9 percent. In the three
years ended December 31, 1995, almost 57,000 customers were added to
the system, representing an average growth rate of 5.1 percent.
As a result of the combined effect of colder weather and
customer growth, volumes of gas sold attributable to weather-sensitive
customers increased 32.4 million therms, or 18 percent, for the first
quarter of 1996 compared to the first quarter of 1995. Related
revenues, which reflected net rate decreases, increased $10.4 million,
or 10 percent. Effective December 1, 1995, the Oregon Public Utility
Commission (OPUC) and the Washington Utilities and Transportation
Commission (WUTC) approved rate decreases, reflecting lower gas costs,
which averaged 6.7 percent in Oregon and 8.0 percent in Washington.
Effective February 1, 1996, the WUTC approved a rate increase, which
averaged 0.7 percent, to reallocate demand charges among firm and
interruptible sales customers and to pass through to ratepayers
increased pipeline rates.
Unbilled revenues are a recognition of revenues for all gas
consumption by customers through the end of the period, regardless of
the meter reading date, in order to better match revenues with
related gas costs.
Industrial, Transportation and Other
------------------------------------
Net operating revenues (margin) from industrial firm,
industrial interruptible, and transportation customers increased by 14
percent to $15.0 million in the first quarter of 1996 from $13.2
million in the first quarter of 1995. Total volumes delivered to
these customers were 8.5 million therms, or six percent, higher in the
first quarter of 1996 than in the same period of 1995. In addition to
higher volumes, related industrial margins improved due to higher oil
prices which resulted in increased revenues from customers whose gas
rates are benchmarked against such prices.
Other revenues, which are primarily related to accumulations
or amortizations of regulatory balancing accounts (see Part II, Item
8., Note 1, "Notes to Consolidated Financial Statements" in the
Company's 1995 Annual Report on Form 10-K), increased $0.6 million, or
23 percent, during the first quarter of 1996 compared to the first
quarter of 1995. The principal factor was a $0.4 million increase
representing the recovery of costs and lost revenues from demand side
management programs.
Cost of Gas
-----------
The cost of gas sold was five percent higher during the
first quarter of 1996 than in the first quarter of 1995, the result of
a 15 percent increase in total gas sales volumes during the first
quarter of 1996 which was offset, in part, by a nine percent decrease
in the average cost of gas per therm.
Subsidiary Operations
---------------------
The following table summarizes financial information for the
Company's consolidated wholly-owned subsidiaries:
Three Months Ended
March 31,
------------------
1996 1995
---- ----
Consolidated Subsidiaries (Thousands):
- -------------------------------------
Net Operating Revenues $ 2,337 $ 2,117
Operating Expenses 4,595 2,336
------- -------
Income (Loss) from Operations (2,258) (219)
Income (Loss) from Financial Investments (1,221) (1,538)
Other Income (Expense) and
Interest Charges 3,138 58
------- -------
Income (Loss) Before Income Taxes (341) (1,699)
Income Tax Expense (Benefit) 77 (575)
------- -------
Net Income (Loss) $ (418) $(1,124)
======= =======
Results of operations for the individual subsidiaries for
the first quarter of 1996 were net income of $0.2 million for Oregon
Natural and a net loss of $0.6 million for Financial Corporation. Due
to the seasonal nature of earnings from Financial Corporation's
investments, which are primarily electric generating projects in
California, results tend to be relatively weaker in the first and
fourth calendar quarters and relatively stronger in the second and
third quarters.
Subsidiary results for the first quarter of 1996 improved
over the results for the same period in 1995, primarily due to three
events. First, Oregon Natural recorded a gain of $2.9 million,
equivalent to $0.12 per share, on the sale of its one-third interest
in underground gas storage assets in the Mist Field in northwest
Oregon to Northwest Natural. Second, as a result of adopting
Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," Oregon Natural recorded a $1.3 million
impairment loss on its producing wells, equivalent to a loss of $0.05
per share. Third, during the first quarter of 1996, in accordance
with SFAS No. 19, "Financial Accounting and Reporting by Oil and Gas
Producing Companies," Oregon Natural recorded a write-down of unproven
properties of $1.0 million, equivalent to a loss of $0.04 per share.
The following discussion summarizes operating expenses,
other income (expense), interest charges - net, and income taxes.
Operating Expenses
------------------
Operations and Maintenance
--------------------------
Operations and maintenance expenses were $2.4 million, or
14 percent, higher in the first quarter of 1996 compared to the same
period in 1995. Northwest Natural's expenses increased primarily due
to a higher accrual for annual employee bonuses, reflecting the
improvement in earnings ($1.0 million); costs associated with
preventive measures due to flood conditions ($0.3 million); and higher
costs for employee benefits ($0.3 million) and services due to
customer growth ($0.3 million).
Taxes Other than Income
-----------------------
Taxes other than income increased $0.4 million, or six
percent, primarily due to a $0.3 million increase in franchise taxes
incurred by Northwest Natural as a result of higher gas revenues.
Depreciation, Depletion and Amortization
----------------------------------------
The Company's depreciation expense increased $2.8 million,
or 28 percent, primarily as the result of impairment ($1.3 million)
and abandonment ($1.0 million) expenses recorded by Oregon Natural
pursuant, respectively, to the adoption of SFAS No. 121 and the
write-down of unproven properties. (See "Subsidiary Operations",
above.) Northwest Natural's depreciation expense increased $0.5
million as a result of additional utility plant in service.
Other Income (Expense)
----------------------
The Company's other income increased $3.6 million in the
first quarter of 1996 compared with the same period in 1995, primarily
as the result of the $2.9 million gain recorded in the first quarter
of 1996 from the sale of Oregon Natural's underground gas storage
assets to Northwest Natural. (See "Subsidiary Operations", above.)
In accordance with SFAS No. 71, "Accounting for the Effects of Certain
Types of Regulation," the profit from this sale, although intercompany
in nature, was not eliminated during consolidation since the sales
price was approved by the OPUC, and the approximate sales price which
resulted in the intercompany gain is expected to be recovered through
rates as an allowable cost.
In addition, Financial Corporation's investment income
improved $0.6 million during the first quarter of 1996 compared with
the first quarter of 1995. These fluctuations are not uncommon due to
the nature of Financial Corporation's investments in wind-powered and
solar electric generating projects, which are sensitive to changes in
weather conditions from year to year.
Interest Charges - net
----------------------
The Company's interest expense decreased $0.1 million, or
one percent, in the first quarter of 1996 compared to the same period
in 1995. Although Northwest Natural sold $10 million of its Medium-
Term Notes during the fourth quarter of 1995, other interest expense
declined due to lower average commercial paper balances during the
first quarter of 1996 than during the same period in 1995.
Income Taxes
------------
The effective corporate income tax rates for the three
months ended March 31, 1996 and 1995 were 40 percent and 39 percent,
respectively, which approximate the Company's statutory tax rates for
these periods.
Financial Condition
- -------------------
Capital Structure
-----------------
Northwest Natural's capital expenditures for utility
construction result from customer growth and system improvements.
Northwest Natural finances these expenditures from cash provided by
operations, and from short-term borrowings which are periodically
refinanced through the sale of long-term debt or equity securities.
In addition to its capital expenditures, the weather-sensitive nature
of gas usage by residential and commercial customers affects 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 Company's 1995 Annual Report on 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 Company's 1995 Annual Report
on Form 10-K).
Cash Flows
----------
Operating Activities
--------------------
Cash provided by operating activities was $2.9 million, or
five percent, lower in the first quarter of 1996 compared to the same
period in 1995. The reduction was primarily due to rate changes
effective in December 1995 to amortize credit balances in regulatory
balancing accounts, and to the effects of weather, in combination with
customer growth, on accounts receivable, unbilled revenue, inventories
of gas, and accounts payable balances.
The Company has lease and purchase commitments related to
its operating activities which are financed with cash flows from
operations (see Part II, Item 8., Note 12, "Notes to Consolidated
Financial Statements" in the Company's 1995 Annual Report on
Form 10-K).
Investing Activities
--------------------
Cash requirements for utility construction in the first
quarter of 1996 totaled $17.0 million, up $3.4 million, or 25 percent,
from the first quarter of 1995. The increase resulted largely from
special projects required to serve new customers and to reinforce the
gas distribution system in areas experiencing significant growth ($1.0
million); general system reinforcement ($0.6 million); development of
a new customer information system ($1.1 million); and related support
services ($0.6 million).
Northwest Natural's construction expenditures are estimated
at $80 million for 1996. Over the five year period 1996 through 2000,
these expenditures are estimated to be $450 million. The increased
level of capital expenditures during the next five years reflects
projected customer growth plus the development of additional
underground storage facilities with related system reinforcement. 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 short-term borrowings which will be
refinanced periodically through the sale of long-term debt and equity
securities.
In the first quarter of 1996, non-utility expenditures
totaling $1.0 million were incurred by Oregon Natural to develop
underground storage ($0.6 million) and to invest in Canadian
exploration and production properties ($0.4 million). Oregon Natural
expects to invest an additional $6 million, in addition to internally
generated funds, in its wholly-owned Canadian gas exploration and
production subsidiary, Canor Energy, Ltd., during the next two years.
During the first quarter of 1995, Northwest Natural invested $4
million in Oregon Natural for such activities. (See Part II, Item 7.
Financial Condition, "Investing Activities," in the Company's 1995
Annual Report on Form 10-K.)
Financing Activities
--------------------
In the first quarter of 1996 internally generated cash was
used to reduce short-term debt by $13.3 million. During the first
quarter of 1995, the principal financing activity consisted of the
sale of $33.0 million of Northwest Natural's Common Stock, the
proceeds from which were used primarily to fund Northwest Natural's
construction program and to repay short-term debt incurred for that
purpose.
Lines of Credit
---------------
Northwest Natural has available through September 30, 1996,
committed lines of credit with five commercial banks totaling $80
million, consisting of a primary fixed amount of $40 million plus an
excess amount of up to $40 million available as needed, at Northwest
Natural's option, on a monthly basis. Financial Corporation has
available through September 30, 1996, 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
Northwest Natural.
Under the terms of these lines of credit, which are used as
backup lines for commercial paper programs, Northwest Natural and
Financial Corporation pay commitment fees but are not required to
maintain compensating bank balances. The interest rates on borrowings
under these lines of credit are based on current market rates as
negotiated. There were no outstanding balances on either the
Northwest Natural or Financial Corporation lines of credit as of March
31, 1996 or March 31, 1995.
Commercial Paper
----------------
The Company's primary source of short-term funds is
commercial paper. Both Northwest 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
Northwest Natural (see Part II, Item 8., Note 6, "Notes to
Consolidated Financial Statements" in the Company's 1995 Annual Report
on Form 10-K).
Ratios of Earnings to Fixed Charges
----------------------------------
For the 12 months ended March 31, 1996 and December 31,
1995, the Company's ratios of earnings to fixed charges, computed by
the Securities and Exchange Commission method, were 3.42 and 3.15,
respectively. Earnings consist of net income to which has been added
taxes on income and fixed charges. Fixed charges consist of interest
on all indebtedness, amortization of debt expense and discount or
premium, and the estimated interest portion of rentals charged to
income.
PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
On February 22, 1996, the Board of Directors adopted a
Shareholder Rights Plan and, in connection therewith, declared a
dividend of one Right for each outstanding share of Common Stock.
Each Right will entitle shareholders to purchase one tenth of a share
of Common Stock for $10.00. In the event that any person acquires
more than 15% of the outstanding Common Stock, subject to the terms of
the Rights Plan, the Right becomes exercisable entitling each holder
(other than the acquiring person or group), for a purchase price equal
to ten times the current purchase price of the Right, to purchase that
number of shares of Common Stock having a market value equal to twenty
times the purchase price of the Right.
If the Company were acquired in a merger or other business
combination transaction after a person has acquired 15% or more of the
Company's outstanding Common Stock, each Right would entitle its
holder to purchase, for a price equal to ten times the current
purchase price of the Right, a number of the acquiring company's
common shares having a market value of twenty times the current
exercise price of the Right.
Rights were distributed to shareholders of record on
March 15, 1996. No separate certificates were issued. The Rights are
evidenced by the existing stock certificates and will expire on
March 15, 2006. The distribution is not taxable to shareholders.
For further information, see the Company's Current Report on
Form 8-K filed on February 27, 1996.
Item 5. OTHER INFORMATION
The Company's Board of Directors has authorized a three-for-
two split of the Company's Common Stock. One additional share of the
Common Stock will be issued for every two shares outstanding as of the
record date. The Company expects that the split, which is subject to
state regulatory approvals, will be effective on September 6, 1996,
for shareholders of record on August 23, 1996.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 - Statement re: Computation of Per Share Earnings.
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges.
Exhibit 15 - Letter re: unaudited interim financial information.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K
On February 27, 1996, the Company filed a Current Report on
Form 8-K regarding the adoption by the Company's Board of Directors of
the Shareholder Rights Plan.
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 14, 1996 /s/ D. James Wilson
--------------------------------
D. James Wilson
Principal Accounting Officer,
Corporate Controller and Treasurer
NORTHWEST NATURAL GAS COMPANY
EXHIBIT INDEX
To
Quarterly Report on Form 10-Q
For Quarter Ended
March 31, 1996
Exhibit
Document Number
- ---------------------------------------------- --------
Statement re: Computation of Per Share Earnings 11
Computation of Ratios of Earnings to Fixed Charges 12
Letter re: unaudited interim financial information 15
Financial Data Schedule 27