SOURCE: Northwest Natural Gas Company

Northwest Natural Gas Company

May 02, 2014 06:30 ET

NW Natural Reports First Quarter 2014 Results

PORTLAND, OR--(Marketwired - May 2, 2014) - Northwest Natural Gas Company (NYSE: NWN)

  • Consolidated net income was $37.9 million for the first quarter of 2014 or $1.40 per share, compared to net income of $37.6 million and $1.40 per share for the same period in 2013. 
  • Customer growth rate increased to 1.3% at March 31, 2014, compared to 1.1% at March 31, 2013.
  • Utility operations set a new daily sendout record of 9.0 million therms on Feb. 6, 2014.
  • Operating cash flows increased $114 million for the first quarter of 2014 compared to the same period in 2013 reflecting receipt of environmental insurance settlement proceeds of $91 million.

Northwest Natural Gas Company, dba NW Natural (NYSE: NWN), reported consolidated net income of $37.9 million for the first quarter of 2014 or $1.40 per share, compared to net income of $37.6 million, also $1.40 per share, for the same period in 2013.

"We are continuing to see customer growth increase on a year-over-year basis and our company is executing well on many fronts, from guiding the system through a record send-out event in February to achieving a solid insurance settlement on our environmental claims," said Gregg Kantor, President and Chief Executive Officer.

Utility Results
For both the three months ended March 31, 2014 and 2013, the utility segment provided net income of $36 million. Results reflected an increase in utility margin primarily due to continued customer growth and increased revenues from our gas reserve and other investments, offset by losses from gas cost incentive sharing in Oregon, an increase in operations and maintenance expense, and a slightly higher Oregon income tax rate.

Customer growth. NW Natural's customer growth rate for the trailing 12-month period ended March 31, 2014 was 1.3%, with the Company serving approximately 698,000 customers, compared to a growth rate of 1.1% for the same period in 2013. The Company added about 9,200 new customers during the last 12 months, compared to 7,400 customers added a year ago.

Utility Volume and Margin.

               
    Three Months Ended          
Dollars and therms in thousands   3/31/2014   3/31/2013   Change   % Change  
Gas sales and transportation deliveries     406,217     400,190     6,027   2 %
Utility margin   $ 130,294   $ 127,300   $ 2,994   2 %
                         
                         

The 2% increase in deliveries for the first quarter of 2014 compared to 2013 was mainly due to customer growth from residential and commercial volumes and added load during our February cold weather event. Weather overall for the quarter was 1% warmer than a year ago but 2% colder than average. The $3.0 million increase in utility margin was primarily due to an increase of $5.4 million from a combination of customer growth and rate-base return on our gas reserve and other tracked-in investments, partially offset by $2.4 million of comparative losses from gas cost incentive sharing mechanism as a result of higher spot gas prices and higher volumes.

Cold Weather Operations. The Company's utility gas distribution system performed well during the cold weather, including an early February 2014 event when NW Natural set a new daily sendout record of 9.0 million therms, with an average temperature of 21 degrees Fahrenheit, breaking the previous record set in 2004.

Environmental Insurance Settlements. In February 2014, NW Natural settled with defendant insurance companies in the Company's environmental insurance recovery litigation, which sought insurance recovery for past and future environmental remediation expenses. The Company received $91 million of settlement payments during the first quarter of 2014, with an additional $11 million expected in the second quarter of 2014. These payments will bring total insurance proceeds received to $150 million.

Gas Reserves. In March 2014, the Company amended the original gas reserve agreement with Encana in order to facilitate Encana's proposed sale of its interests in the Jonah field. Under the amendment, the Company ended the drilling program with Encana, but increased its assigned ownership interests in certain sections of the Jonah field. The Company's investment to-date of $178 million will continue to earn a rate of return and provide long-term gas price protection for utility customers. Although the Company retains the right to drill additional wells, we have not determined at this time whether we will seek to do so. Recovery of drilling costs through customer rates for these additional wells would require regulatory approval.

Gas Storage Results
The gas storage segment net income results were flat with last year at $1.6 million for the first quarters of 2014 and 2013 reflecting slightly lower operating revenues offset by a decrease in other expenses.

Consolidated Operations and Maintenance Expense
Operations and maintenance expense increased $1.6 million or 5% for the first three months of 2014 compared to the same period for 2013. The increase was largely due to higher bad debt expense and higher system maintenance and safety program costs at the utility. The change in bad debt expense accounts for $1.0 million of the overall expense increase, which primarily reflects an adjustment to our provision balance in last year's first quarter. Utility bad debt expense as a percent of revenues was 0.2% for the trailing 12 months ended March 31, 2014. Excluding the increase in bad debt, operations and maintenance expense was $0.6 million or 2% higher for the first three months of 2014 compared to the same period last year.

Consolidated Income Tax Rate
The increase in income tax expense for the three months ended March 31, 2014 compared to the same period in 2013 was primarily due to an increase in pre-tax earnings and a tax charge of $0.6 million as a result of a slightly higher Oregon state effective tax rate.

Cash Flows
Cash provided by operations for the first three months of 2014 was $220.1 million, compared to $106.1 million for the same period in 2013. The variance largely reflects the receipt of $91 million of environmental settlement recoveries during the first quarter of 2014 as well as positive working capital changes due to accounts receivable and inventory changes.

Earnings Guidance for 2014
The Company reaffirmed earnings guidance to be in the range of $2.15 to $2.35 per share for 2014. The Company's 2014 earnings guidance assumes a continued economic recovery, customer growth from our utility segment, average weather conditions, no significant changes in prevailing legislative and regulatory policies or outcomes, and resolution of the environmental cost recovery mechanism during 2014.

Dividend Declaration
The board of directors of NW Natural declared a quarterly dividend of 46.0 cents a share on the Company's common stock. The dividends will be payable on May 15, 2014 to shareholders of record on April 30, 2014. Currently, the Company's indicated annual dividend rate is $1.84 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 May 2, 2014 to review the Company's financial and operating results for the three months ended March 31, 2014.

To hear the conference call live, please dial 1-888-317-6016 within the United States and 1-855-669-9657 from Canada. International callers can dial 1-412-317-6016. To access the conference replay, please call 1-877-344-7529 and enter the conference identification pass code (10044120). 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 and other costs, customer rates or rate recovery, timing or receipt of litigation settlement proceeds, financial positions, debt redemption, revenues and earnings, dividends, performance, timing or effects of future regulatory proceedings or future regulatory approvals, effects of regulatory mechanisms, including, but not limited to, SRRM, contracting levels or pricing, 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 698,000 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 Statements
(Consolidated - Unaudited)
                   
                   
    Three Months Ended  
In thousands, except per share amounts   03/31/14   03/31/13   Change   % Change  
Income from operations   $ 75,028   $ 74,206   $ 822   1 %
Net Income     37,884     37,639     245   1  
                         
Diluted average shares of common stock outstanding     27,126     26,973     153   1  
Diluted earnings per share of common stock     1.40     1.40     --   --  
                         
  Twelve Months Ended  
In thousands, except per share amounts     03/31/14     03/31/13     Change   % Change  
Income from operations   $ 143,568   $ 137,720   $ 5,848   4 %
Net income     60,783     56,134     4,649   8  
                         
Diluted average shares of common stock outstanding     27,051     26,916     135   1  
Diluted earnings per share of common stock     2.25     2.09     0.16   8  
                         
                         
             
NORTHWEST NATURAL GAS COMPANY            
Consolidated Balance Sheets (Unaudited)   March 31,     March 31,  
In thousands   2014     2013  
Assets:                
Current assets:                
  Cash and cash equivalents   $ 17,929     $ 8,337  
  Accounts receivable     87,264       84,346  
  Accrued unbilled revenue     33,515       29,633  
  Allowance for uncollectible accounts     (2,235 )     (2,116 )
  Regulatory assets     27,834       39,001  
  Derivative instruments     15,846       8,200  
  Inventories     33,469       52,004  
  Gas reserves     21,990       14,286  
  Income taxes receivable     --       2,033  
  Deferred tax assets     4,915       --  
  Other current taxes     13,595       12,441  
  Total current assets     254,122       248,165  
Non-current assets:                
  Property, plant, and equipment     2,939,760       2,808,673  
  Less: Accumulated depreciation     868,257       824,561  
  Total property, plant, and equipment, net     2,071,503       1,984,112  
  Gas reserves     134,894       100,169  
  Regulatory assets     285,046       384,453  
  Derivative instruments     1,078       2,836  
  Other investments     67,288       68,029  
  Restricted cash     4,000       4,000  
  Other non-current assets     12,453       14,735  
    Total non-current assets     2,576,262       2,558,334  
    Total assets   $ 2,830,384     $ 2,806,499  
Liabilities and equity:                
Current liabilities:                
  Short-term debt   $ 32,600     $ 130,750  
  Current maturities of long-term debt     80,000       --  
  Accounts payable     89,201       77,007  
  Taxes accrued     34,146       10,262  
  Interest accrued     11,144       10,952  
  Regulatory liabilities     37,686       28,239  
  Derivative instruments     1,191       3,450  
  Other current liabilities     38,069       41,445  
    Total current liabilities     324,037       302,105  
Long-term debt     661,700       691,700  
Deferred credits and other non-current liabilities:                
  Deferred tax liabilities     489,108       467,360  
  Regulatory liabilities     308,858       293,135  
  Pension and other postretirement benefit liabilities     147,733       215,808  
  Derivative instruments     96       642  
  Other non-current liabilities     119,376       79,112  
    Total deferred credits and other non-current liabilities     1,065,171       1,056,057  
Equity:                
  Common stock     366,560       357,957  
  Retained earnings     419,109       407,738  
  Accumulated other comprehensive loss     (6,193 )     (9,058 )
    Total equity     779,476       756,637  
    Total liabilities and equity   $ 2,830,384     $ 2,806,499  
                     
                     
NORTHWEST NATURAL GAS COMPANY   Three Months Ended  
Consolidated Statements of Cash Flows (Unaudited)   March 31,  
In thousands   2014     2013  
Operating activities:                
  Net income   $ 37,884     $ 37,639  
  Adjustments to reconcile net income to cash provided by operations:                
    Depreciation and amortization     19,589       18,807  
    Regulatory amortization of gas reserves     2,981       2,381  
    Deferred tax liabilities, net     205       25,797  
    Non-cash expenses related to qualified defined benefit pension plans     1,278       1,476  
    Contributions to qualified defined benefit pension plans     (2,800 )     (1,400 )
    Deferred environmental recoveries, net of (expenditures)     83,252       (4,482 )
    Other     603       (545 )
    Changes in assets and liabilities:                
      Receivables     23,216       5,281  
      Inventories     27,200       15,598  
      Taxes accrued     26,824       1,193  
      Accounts payable     (1,671 )     (13,781 )
      Interest accrued     4,041       4,999  
      Deferred gas costs     (14,049 )     1,966  
      Other, net     11,579       11,189  
    Cash provided by operating activities     220,132       106,118  
Investing activities:                
  Capital expenditures     (25,588 )     (22,674 )
  Utility gas reserves     (19,681 )     (12,257 )
  Other     (191 )     (1,335 )
    Cash used in investing activities     (45,460 )     (36,266 )
Financing activities:                
  Common stock issued, net     1,400       1,115  
  Change in short-term debt     (155,600 )     (59,500 )
  Cash dividend payments on common stock     (12,456 )     (12,248 )
  Other     442       195  
    Cash used in financing activities     (166,214 )     (70,438 )
Increase (decrease) in cash and cash equivalents     8,458       (586 )
Cash and cash equivalents, beginning of period     9,471       8,923  
Cash and cash equivalents, end of period   $ 17,929     $ 8,337  
                 
Supplemental disclosure of cash flow information:                
  Interest paid   $ 7,502     $ 6,128  
  Income taxes paid     --       --  
 
NORTHWEST NATURAL GAS COMPANY   
Financial Highlights (Unaudited)   
First Quarter - 2014   
   
   
In thousands, except per share amounts, customer, and degree day data   
 
 
 
Three Months Ended
March 31,
 
 
 
 
 
 
 
 
 
 
Twelve Months Ended
March 31,
 
 
 
 
 
 
 
 
    2014     2013     Change     2014     2013     Change  
Operating revenues   $ 293,386     $ 277,861     6 %   $ 774,043     $ 698,829     11 %
                                             
Operating expenses:                                            
  Cost of gas     155,201       142,359     9       386,140       327,939     18  
  Operations and maintenance     35,386       33,757     5       138,242       128,802     7  
  General taxes     8,182       8,732     (6 )     29,406       30,494     (4 )
  Depreciation and amortization     19,589       18,807     4       76,687       73,874     4  
  Total operating expenses     218,358       203,655     7       630,475       561,109     12  
Income from operations     75,028       74,206     1       143,568       137,720     4  
Other income and expense, net     1,383       520     166       5,532       3,207     72  
Interest expense, net     11,542       11,127     4       45,587       43,093     6  
Income before income taxes     64,869       63,599     2       103,513       97,834     6  
Income tax expense     26,985       25,960     4       42,730       41,700     2  
Net income   $ 37,884     $ 37,639     1     $ 60,783     $ 56,134     8  
                                             
Common shares outstanding:                                            
  Average diluted for period     27,126       26,973             27,051       26,916        
  End of period     27,132       26,948             27,132       26,948        
                                             
Per share information:                                            
  Diluted earnings per share   $ 1.40     $ 1.40           $ 2.25     $ 2.09        
  Dividends declared per share of common stock     0.460       0.455             1.84       1.80        
  Book value per share, end of period     28.73       28.08             28.73       28.08        
  Market closing price, end of period     44.01       43.82             44.01       43.82        
                                             
Capital Structure, end of period:                                            
  Common stock equity     50.2 %     47.9 %           50.2 %     47.9 %      
  Long-term debt     42.6       43.8             42.6       43.8        
  Short-term debt (including amounts due in one year)     7.2       8.3             7.2       8.3        
  Total     100.0 %     100.0 %           100.0 %     100.0 %      
                                             
Utility operating statistics:                                            
Customers, end of period     698,372       689,199     1.3 %     698,372       689,199     1.3 %
Utility volumes (therms):                                            
  Residential and commercial sales     274,156       268,664             677,398       630,390        
  Industrial sales and transportation     132,061       131,526             475,060       473,410        
Total utility volumes sold and delivered     406,217       400,190             1,152,458       1,103,800        
Utility operating revenues:                                            
  Residential and commercial sales   $ 270,002     $ 256,366           $ 686,886     $ 611,689        
  Industrial sales and transportation     21,512       19,025             71,367       66,734        
  Other revenues     1,477       1,529             4,002       6,029        
  Less: Revenue taxes     7,496       7,261             19,237       17,836        
Total utility operating revenues     285,495       269,659             743,018       666,616        
  Less: Cost of gas     155,201       142,359             386,140       327,939        
Utility margin   $ 130,294     $ 127,300           $ 356,878     $ 338,677        
                                             
Degree days:                                            
  Average (25-year average)     1,855       1,855             4,240       4,248        
  Actual     1,890       1,904     (1 )%     4,365       4,102     6 %
Percent colder (warmer) than average weather     2 %     3 %           3 %     (3 )%      
                                             
                                             

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