SOURCE: Northwest Natural Gas Company

Northwest Natural Gas Company

March 01, 2013 06:00 ET

NW Natural Reports 2012 & Q4 Results

Issues 2013 EPS Guidance

PORTLAND, OR--(Marketwire - Mar 1, 2013) - Northwest Natural Gas Company, dba NW Natural (NYSE: NWN)

  • Consolidated earnings for fiscal year 2012 were $2.22 per share on net income of $59.9 million, compared to $2.39 per share on net income of $63.9 million in 2011.
  • Oregon general rate case decision in 2012 approved several key long-term recovery mechanisms, but also delayed some policy decisions to 2013.
  • Utility customer growth rate was 0.9% for the year 2012, compared to 0.8% for 2011.
  • Cost of gas rates to NW Natural's Oregon and Washington customers decreased for the fourth year in a row, resulting in aggregate customer rate decreases of around 30% and total savings of approximately $400 million.
  • Customer refunds in 2012 totaled approximately $39 million due to lower wholesale natural gas prices.
  • Customer satisfaction scores remain high, with NW Natural ranking second in the J.D. Power and Associates Study of natural gas utilities in the U.S. Western region.
  • Shareholder dividends increased 2.2% to 45.5 cents per share in the fourth quarter of 2012, marking the 57th consecutive year dividend payments have increased.
  • Earnings guidance for 2013 is estimated to be in the range of $2.15 to $2.35 per share.

Northwest Natural Gas Company, dba NW Natural (NYSE: NWN), posted earnings per share of $2.22 on net income of $59.9 million, compared to $2.39 per share on net income of $63.9 million in 2011. Results for 2012 were negatively affected by a previously disclosed, one-time after-tax charge of $2.7 million ($0.10 per share) related to a regulatory disallowance of certain income tax expense recovery and a decrease in operating revenues of $3.9 million resulting from timing differences caused by changes in the billing rate structure for Oregon customers. Both items were a result of the recently completed Oregon general rate case.

"Despite the challenging regulatory and economic environment, we were able to successfully move forward on many key initiatives in 2012," said Gregg Kantor, President and Chief Executive Officer. "We completed the first Oregon general rate case since 2002, strengthened our continuing focus on safety, and refunded $39 million of natural gas commodity savings to customers."

Full-year and fourth quarter financial and operating results

Consolidated income and earnings per share
For the year ended Dec. 31, 2012, NW Natural earnings were $2.22 per share on net income of $59.9 million. This compared to the Company's results in 2011 of $2.39 per share on net income of $63.9 million. Utility operations in 2012 produced a $1.6 million increase in utility margin (operating revenues less cost of gas), but that increase was offset by higher operating expenses, excluding cost of gas, and the $2.7 million one-time after-tax charge related to a regulatory disallowance of income tax expense recovery. Our gas storage and other business segments contributed an additional $1.3 million of net income in 2012 compared to 2011.

For the quarter ended Dec. 31, 2012, net income decreased to $1.05 per share on net income of $28.4 million, compared to $1.09 per share on net income of $29.2 million last year. The decrease in net income for the quarter was primarily due to the $3.9 million shift in utility operating revenues from the fourth quarter of this year to the first three quarters of 2013. These timing differences were caused by changes in our billing rate structure for Oregon customers resulting from the Oregon rate case. Partially offsetting these decreases were lower operations and maintenance expenses and higher gas cost savings.

Results of utility operations
Utility net income results
For the year ended Dec. 31, 2012, utility operations provided earnings of $2.05 per share on net income of $55.1 million. This compared to $2.26 per share on net income of $60.5 million for 2011. Major factors contributing to the decrease were an $8.4 million increase in operating expenses due to an increase in utility payroll and payroll related expenses and the $2.7 million after-tax income tax charge from the rate case. Partially offsetting these losses was a $1.6 million increase in utility margin comprised of increases due to a $7.4 million net charge in 2011 related to a utility tax law change in Oregon as well as 0.9% residential and commercial customer growth in 2012 compared to 2011. Partially offsetting these margin increases were $3.9 million of timing differences from new billing rate structures under the Oregon general rate case as well as the effects of warmer weather. Also increasing net income was a $1.5 million decrease in interest expense.

For the fourth quarter of 2012, utility operations contributed net income of $26.9 million or $1.00 per share, compared to $28.8 million or $1.08 per share for the same period in 2011. The fourth quarter decrease was primarily due to the impact on revenue of the $3.9 million of timing differences from new billing rate structures under the Oregon general rate case, which took effect on November 1, 2012.

Utility margin results
For the year ended Dec. 31, 2012, utility gas sales and transportation deliveries, excluding deliveries of gas stored for others, were 1.11 billion therms, compared to 1.15 billion therms in 2011. The 4% decrease in volumes from last year was mainly due to the effects of weather, which was 11% warmer during 2012 than a year ago.

For the fourth quarter of 2012, NW Natural's utility gas sales and transportation deliveries, excluding deliveries of gas stored for others, were 326 million therms, down 7% from 350 million therms delivered in the fourth quarter of 2011, mainly due to weather, which was 15% warmer during the fourth quarter of 2012 than last year. Utility margin for the fourth quarter of 2012 decreased by $5.1 million or 5%, primarily due to $3.9 million of timing differences in new billing rate structure referred to above, $0.6 million for other revenue requirement decreases in the rate case, and the effect of warmer weather. However, the margin impact from lower sales volumes due to warmer weather during the fourth quarter of 2012 was largely mitigated by the Company's weather normalization mechanism in Oregon.

Residential and Commercial Sales. Sales to residential and commercial customers for the year ended Dec. 31, 2012 were 638 million therms, compared to 682 million therms in 2011. The 6% decrease in consumption was primarily due to 11% warmer weather over last year. Utility margin totaled $306.4 million for 2012, compared $315.7 million last year, primarily reflecting positive margin impact realized in the second quarter of 2011 when colder weather was not fully offset by our Oregon weather normalization mechanism, and the negative margin impact realized in the fourth quarter of 2012 when $3.9 million of timing differences from our new billing rate structure were effective. In addition, margin decreased in 2012 due to warmer weather in Washington, which does not have normalization mechanisms in place, and Oregon customers that opt out of weather normalization.

NW Natural's weather normalization mechanism in Oregon adjusted margin up by $4.0 million for the fourth quarter of 2012 and by $0.1 million for the year ended Dec. 31, 2012, based on weather that was 11% and 3% warmer than average, respectively. This compared to margin decreases of $2.5 million and $13.1 million for the same periods in 2011, based on weather that was 4% and 9% colder than average. The decoupling mechanism in Oregon adjusted margin up by $10.7 million for the year ended Dec. 31, 2012, compared to a margin increase of $19.3 million for 2011.

Industrial Sales. Gas deliveries to industrial customers in 2012 were 474 million therms, compared to 471 million therms in 2011. Utility margin from industrial customers was $28.6 million in 2012 and 2011.

Gas Cost Sharing Mechanism. Under the Company's regulatory incentive sharing mechanism in Oregon, lower gas costs contributed $3.8 million to margin for the year ended Dec. 31, 2012, compared to $2.1 million for 2011.

Utility customer growth rate at 0.9%
NW Natural's customer growth rate for the trailing 12-month period ended Dec. 31, 2012 was 0.9%, with the Company serving approximately 686,000 customers at year end. The Company added about 6,400 new customers in 2012, compared to 5,500 customers in 2011.

Gas reserves investment
Our gas reserves investment provides long-term gas price stability for our utility customers, and we continued to invest in gas reserves with $54.1 million of additional capital expenditure in 2012. At December 31, 2012, our net investment in these reserves was $71.3 million. These reserves hedged approximately 4% of total utility gas supply requirements for the year ended Dec. 31, 2012. Currently, we expect these supplies to hedge roughly 8% of our utility gas supply requirements for the 2012-13 gas contract year.

Results of gas storage operations
For the year ended Dec. 31, 2012, our gas storage segment contributed $0.17 per share on net income of $4.5 million, compared to $0.15 per share on net income of $4.1 million for 2011. For the fourth quarter of 2012, gas storage contributed net income of $1.3 million or $0.05 per share, compared to net income of $0.9 million or $0.03 per share for the same period in 2011. Gas storage results for 2012 reflected revenue increases from Gill Ranch due to additional contracted storage capacity and lower operating expenses. This increase was partially offset by higher interest expense from Gill Ranch's debt financing, which was outstanding for the entire year of 2012 compared to only one month in 2011.

Results of other operations
For the year ended Dec. 31, 2012, other non-utility investments and activities contributed less than a cent per share, compared to a net loss of $0.02 per share for 2011. For the fourth quarter of 2012, other non-utility investments and activities contributed income of less than $0.01 per share, compared to a net loss of $0.02 per share for the same period in 2011.

Operations and maintenance expense
Consolidated operations and maintenance expense for the year ended Dec. 31, 2012 was $129.5 million, compared to $125.4 million for 2011, for a 3% increase. This 3% increase was primarily due to increases in utility payroll and payroll related expenses reflecting an increase in field service employees, and higher costs for employee training, the Oregon general rate case, and information technology maintenance.

Operations and maintenance expense for the fourth quarter of 2012 decreased by $1.5 million, or 4% compared to 2011, primarily due to lower expense at Gill Ranch, partially offset by higher payroll and payroll related costs at the utility.

Cash flows
Cash provided by operations for the year ended Dec. 31, 2012 was $168.8 million, compared to $233.5 million in 2011. The decrease was primarily due to the gas cost refunds to customers in 2012, compared to the timing of monies received from environmental insurance recoveries and federal tax refunds in 2011. Cash requirements for investing activities in 2012 totaled $184.7 million, compared to $153.1 million in 2011 with the increase primarily due to capital expenditures for utility training and emergency back-up facilities as well as ongoing gas reserve investments.

Capital structure
NW Natural's consolidated capitalization at Dec. 31, 2012 reflected 45.4% common equity, 42.8% long-term debt, and 11.8% short-term debt. This compared to 46.5% common equity, 41.7% long-term debt, and 11.8% short-term debt and current maturities of long-term debt at Dec. 31, 2011.

2013 earnings guidance
The Company is providing earnings guidance to be in the range of $2.15 to $2.35 per share for 2013. The Company's 2013 earnings guidance assumes a continued slow economic recovery and customer growth, average weather conditions, no changes to the recoverability of our regulatory assets, and no significant changes in prevailing legislative and regulatory policies or outcomes.

Dividend declaration
The board of directors of NW Natural declared a quarterly dividend of 45.5 cents a share on the Company's common stock. The dividends were paid Feb. 15, 2013 to shareholders of record on Jan. 31, 2013. The Company's indicated annual dividend rate is $1.82 per share.

Presentation of results
In addition to presenting results of operations and earnings amounts in accordance with generally accepted accounting principles (GAAP), NW Natural has expressed certain measures in this press release on an equivalent cents per share basis, which are non-GAAP financial measures. These amounts reflect factors that directly impact the Company's earnings. In calculating these financial disclosures, we allocate income tax expense based on the effective tax rate, where applicable. These non-GAAP financial measures should not be used to the exclusion of GAAP financial measures. NW Natural believes that these non-GAAP financial measures provide useful information to the reader by removing the effects of variances in GAAP reported results of operations that we believe are not indicative of fundamental changes in our financial condition or results of operations.

Conference call arrangements
As previously reported, NW Natural will conduct a conference call and webcast starting at 8 a.m. Pacific Time (11 a.m. Eastern Time) on Mar. 1, 2013 to review the Company's financial and operating results for the year and three months ended Dec. 31, 2012.

To hear the conference call live, please dial 1-877-317-6789 within the United States and 1-866-605-3852 from Canada. International callers can dial 1-412-317-6789. To access the conference replay, please call 1-877-344-7529 and enter the conference identification pass code (10023662). To hear the replay from international locations, please dial 1-412-317-0088.

To hear the conference by webcast, log on to NW Natural's corporate website at www.nwnatural.com.

Forward-Looking Statements
This report, and other presentations made by NW Natural from time to time, may contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as "anticipates," "intends," "plans," "seeks," "believes," "estimates," "expects" and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements regarding the following: plans, objectives, goals, strategies, future events, investments, hedge efficacy, gas reserves and their financial value and benefit, customer growth, weather, commodity costs, customer rates, financial positions, revenues and earnings, dividends, performance, legislative actions and impact, effects of future regulatory proceedings, rate recovery, and other statements that are other than statements of historical facts.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements are discussed by reference to the factors described in Part I, Item 1A "Risk Factors", and Part II, Item 7 and Item 7A "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosure about Market Risk" in the Company's most recent Annual Report on Form 10-K and in Part I, Items 2 and 3 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosures About Market Risk", and Part II, Item 1A, "Risk Factors", in the Company's quarterly reports filed thereafter.

All forward-looking statements made in this report and all subsequent forward-looking statements, whether written or oral and whether made by or on behalf of the Company, are expressly qualified by these cautionary statements. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. 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 statements.

About NW Natural
NW Natural (NYSE: NWN) is headquartered in Portland, Ore., and provides natural gas service to about 686,000 residential, commercial, and industrial customers through 14,000 miles of mains and service lines in western Oregon and southwestern Washington. It is the largest independent natural gas utility in the Pacific Northwest with $2.8 billion in total assets. NW Natural and its subsidiaries currently own and operate underground gas storage facilities with storage capacity of approximately 31 Bcf in Oregon and California. Additional information is available at www.nwnatural.com.

   
   
   
NORTHWEST NATURAL GAS COMPANY  
Comparative Income Statement  
(Consolidated - unaudited)  
   
   
    Three Months Ended  
In thousands, except per share amounts   12/31/12   12/31/11   Change     % Change  
Income from operations   $ 56,471   $ 59,882   $ (3,411 )   (6 )%
Net income     28,397     29,244     (847 )   3  
                           
Diluted average shares of common stock outstanding     26,960     26,784     176     1 %
Basic earnings per share of common stock   $ 1.06   $ 1.09   $ (0.03 )   3  
Diluted earnings per share of common stock     1.05     1.09     (0.04 )   4  
                           
      Twelve Months Ended  
In thousands, except per share amounts     12/31/12     12/31/11     Change     % Change  
Income from operations   $ 142,180   $ 144,845   $ (2,665 )   (2 )%
Net income     59,855     63,898     (4,043 )   (6 )
                           
Diluted average shares of common stock outstanding     26,907     26,744     163     1 %
Basic earnings per share of common stock   $ 2.23   $ 2.39   $ (0.16 )   (7 )
Diluted earnings per share of common stock     2.22     2.39     (0.17 )   (7 )
             
             
             
NORTHWEST NATURAL GAS COMPANY            
Consolidated Balance Sheets (Unaudited)   December 31,     December 31,  
In thousands   2012     2011  
Assets:                
Current assets:                
  Cash and cash equivalents   $ 8,923     $ 5,833  
  Accounts receivable     61,229       77,449  
  Accrued unbilled revenue     56,955       61,925  
  Allowance for uncollectible accounts     (2,518 )     (2,895 )
  Regulatory assets     52,448       94,673  
  Derivative instruments     1,950       2,853  
  Inventories     67,602       74,363  
  Gas reserves     14,966       4,463  
  Income taxes receivable     2,552       7,045  
  Other current taxes     19,592       22,980  
    Total current assets     283,699       348,689  
Non-current assets:                
  Property, plant, and equipment     2,786,008       2,661,102  
  Less: Accumulated depreciation     812,396       767,226  
    Total property, plant, and equipment - net     1,973,612       1,893,876  
  Gas reserves     84,693       47,451  
  Regulatory assets     387,888       371,392  
  Derivative instruments     3,639       --  
  Other investments     67,667       68,263  
  Restricted cash     4,000       4,000  
  Other non-current assets     13,555       12,903  
    Total non-current assets     2,535,054       2,397,885  
    Total assets   $ 2,818,753     $ 2,746,574  
Liabilities and equity:                
Current liabilities:                
  Short-term debt   $ 190,250     $ 141,600  
  Current maturities of long-term debt     --       40,000  
  Accounts payable     85,613       86,300  
  Taxes accrued     9,588       10,747  
  Interest accrued     5,953       5,857  
  Regulatory liabilities     20,792       31,046  
  Derivative instruments     10,796       57,317  
  Other current liabilities     45,444       41,597  
    Total current liabilities     368,436       414,464  
Long-term debt     691,700       641,700  
Deferred credits and other non-current liabilities:                
  Deferred tax liabilities     446,604       413,209  
  Regulatory liabilities     288,113       278,382  
  Pension and other postretirement benefit liabilities     215,792       201,530  
  Derivative instruments     578       6,536  
  Other non-current liabilities     74,497       76,265  
    Total deferred credits and other non-current liabilities     1,025,584       975,922  
Equity:                
  Common stock     356,571       348,383  
  Retained earnings     385,753       373,905  
  Accumulated other comprehensive loss     (9,291 )     (7,800 )
    Total equity     733,033       714,488  
    Total liabilities and equity   $ 2,818,753     $ 2,746,574  
             
             
             
NORTHWEST NATURAL GAS COMPANY            
Consolidated Statements of Cash Flows (Unaudited)            
In thousands (year ended December 31)   2012     2011  
Operating activities:                
  Net income   $ 59,855     $ 63,898  
  Adjustments to reconcile net income to cash provided by operations:                
    Depreciation and amortization     73,017       70,004  
    Deferred tax liabilities     42,780       46,877  
    Non-cash expenses related to qualified defined benefit pension plans     5,448       7,191  
    Contributions to qualified defined benefit pension plans     (23,500 )     (22,045 )
    Deferred environmental expenditures - net of recoveries     (12,503 )     25,586  
    Other     3,990       280  
    Changes in assets and liabilities:                
      Receivables     22,170       (6,246 )
      Inventories     6,761       6,022  
      Taxes accrued     3,334       34,189  
      Accounts payable     (602 )     148  
      Interest accrued     96       675  
      Deferred gas costs     (17,644 )     8,565  
      Other - net     5,636       (1,682 )
    Cash provided by operating activities     168,838       233,462  
Investing activities:                
  Capital expenditures     (132,029 )     (100,534 )
  Utility gas reserves     (54,085 )     (50,597 )
  Restricted cash     --       (3,076 )
  Other     1,437       1,142  
    Cash used in investing activities     (184,677 )     (153,065 )
Financing activities:                
  Common stock issued - net     6,758       3,040  
  Long-term debt issued     50,000       90,000  
  Long-term debt retired     (40,000 )     (10,000 )
  Change in short-term debt     48,650       (115,835 )
  Cash dividend payments on common stock     (48,007 )     (46,690 )
  Other     1,528       1,464  
    Cash provided by (used in) financing activities     18,929       (78,021 )
Increase (decrease) in cash and cash equivalents     3,090       2,376  
Cash and cash equivalents - beginning of period     5,833       3,457  
Cash and cash equivalents - end of period   $ 8,923     $ 5,833  
                 
Supplemental disclosure of cash flow information:                
  Interest paid   $ 43,061     $ 41,413  
  Income taxes paid   $ 2,979     $ 1,756  
   
   
   
NORTHWEST NATURAL GAS COMPANY  
Financial Highlights (Unaudited)  
Fourth Quarter and Year - 2012  
   

In thousands, except per share amounts, customer, and degree day data
  3 Months Ended
December 31,
        12 Months Ended
December 31,
     
2012   2011   Change     2012   2011   Change  
Operating revenues   $ 229,476   $ 264,652   (13 )%   $ 730,607   $ 828,055   (12 )%
                                     
Operating expenses:                                    
  Cost of gas     113,466     144,628   (22 )     355,335     458,508   (23 )
  Operations and maintenance     33,980     35,499   (4 )     129,477     125,417   3  
  General taxes     6,872     6,943   (1 )     30,598     29,281   4  
  Depreciation and amortization     18,687     17,700   6       73,017     70,004   4  
  Total operating expenses     173,005     204,770   (15 )     588,427     683,210   (14 )
Income from operations     56,471     59,882   (6 )     142,180     144,845   (2 )
Other income and expense - net     1,300     406   220       4,936     4,523   9  
Interest expense - net     10,994     11,132   (1 )     43,157     42,088   3  
Income before income taxes     46,777     49,156           103,959     107,280      
Income tax expense     18,380     19,912   (8 )     44,104     43,382   2  
Net income   $ 28,397   $ 29,244   (3 )   $ 59,855   $ 63,898   (6 )
Common shares outstanding:                                    
  Average for period - basic     26,884     26,719           26,831     26,687      
  Average for period - diluted     26,960     26,784           26,907     26,744      
  End of Period     26,917     26,756           26,917     26,756      
Earnings per share:                                    
  Basic   $ 1.06   $ 1.09   3 %   $ 2.23   $ 2.39   (7 )%
  Diluted     1.05     1.09           2.22     2.39      
Dividends declared per share of common stock     0.455     0.435           1.79     1.75      
Book value per share - end of period     27.23     26.70           27.23     26.70      
Market closing price - end of period     44.20     47.93           44.20     47.93      
Balance sheet data - end of period:                                    
  Total assets   $ 2,818,753   $ 2,746,574         $ 2,818,753   $ 2,746,574      
  Total equity     733,033     714,488           733,033     714,488      
  Long-term debt (including amounts due in one year)     691,700     681,700           691,700     681,700      
Operating statistics:                                    
Customers - end of period     685,941     679,543   0.9 %     685,941     679,543   0.9 %
Utility volumes - therms:                                    
  Residential and commercial sales     200,469     224,349           637,885     681,621      
  Industrial firm     9,214     10,389           34,932     37,572      
  Industrial interruptible     15,559     15,761           59,560     59,108      
  Transportation     100,987     99,823           379,392     374,053      
Total utility volumes sold and delivered     326,229     350,322           1,111,769     1,152,354      
Utility operating revenues:                                    
  Residential and commercial sales   $ 207,497   $ 242,954         $ 642,337   $ 744,355      
  Industrial firm     6,788     8,323           25,504     30,587      
  Industrial interruptible     7,677     9,065           28,938     34,818      
  Transportation     4,024     4,039           15,578     15,908      
  Regulatory adjustment for income taxes paid     --     --           --     (7,162 )    
  Other revenues     874     (382 )         5,935     3,713      
  Less: Revenue taxes     5,742     6,546           18,430     20,741      
Total utility operating revenues     221,118     257,453           699,862     801,478      
  Less: Cost of gas     113,512     144,727           355,335     458,508      
Utility margin   $ 107,606   $ 112,726         $ 344,527   $ 342,970      
Degree days:                                    
  Average (25-year average)     1,608     1,614           4,279     4,265      
  Actual     1,435     1,684           4,152     4,652      
Percent colder (warmer) than average weather     (11 )%   4 %         (3 )%   9 %    
                                     

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