NW Natural Reports Results for the Quarter Ended March 31, 2015
PORTLAND, OR -- (Marketwired) -- 05/05/15 --
- Consolidated net income was $28.5 million for the first quarter of 2015, or $1.04 per share, compared to $37.9 million, or $1.40 per share, in 2014.
- First quarter results include a regulatory disallowance for past environmental costs of $15 million pre-tax or $0.33 per share after-tax. Excluding the disallowance, net income was $37.6 million or $1.37 per share.
- Customer growth rate was 1.3% at March 31, 2015, with 9,100 customers added in the last twelve months.
- Company's Integrated Resource Plan (IRP) was acknowledged by Oregon and Washington regulators, outlining long-term capital investment requirements based on customer growth and infrastructure needs.
- Permitting and land acquisition work continues on the North Mist gas storage expansion project.
Northwest Natural Gas Company, dba NW Natural (NYSE: NWN), reported consolidated net income of $28.5 million for the first quarter of 2015, or $1.04 per share. Results for the quarter were impacted by a $9.1 million after-tax charge related to the environmental regulatory disallowance associated with a February 2015 OPUC Order in the Company's Site Remediation and Recovery Mechanism (SRRM) docket. Under the Order, the Company was required to forego collection of $15 million, pre-tax, out of the approximate $95 million of environmental expenditures and associated carrying costs deferred through 2012. As adjusted, consolidated net income for the quarter was $37.6 million, or $1.37 per share, excluding the regulatory disallowance, compared to net income of $37.9 million, or $1.40 per share, for the first quarter of 2014.
"While the first quarter write-down for environmental costs was disappointing, this major decision is behind us, and we now have approval to fully recover prudently incurred environmental costs in Oregon going forward," said Gregg Kantor, President and Chief Executive Officer. "During the quarter, another significant milestone was the acknowledgment of our IRP in both Oregon and Washington, which identifies a number of utility capital investments we will be pursuing over the next several years."
Consolidated Results Consolidated results highlights include:
Three Months Ended March 31,
----------------------------------------
2015 2014
--------------------------------------------------
In thousands, except per
share data Amount Per Share Amount Per Share $ Change
----------------------------------------------------------------------------
Net income and earnings
per share $ 28,486 $ 1.04 $ 37,884 $ 1.40 $ (9,398)
Adjustments:
Regulatory environmental
disallowance, net of
taxes $5,925(1) 9,075 0.33 - - 9,075
--------------------------------------------------
Adjusted net income(1)
(Non-GAAP) $ 37,561 $ 1.37 $ 37,884 $ 1.40 $ (323)
--------------------------------------------------
Utility margin $130,601 $130,294 $ 307
Gas storage operating
revenues 5,303 7,835 (2,532)
(1) Regulatory environmental disallowance of $15 million is recorded in
utility operations and maintenance expense. Adjusted EPS and net income
are non-GAAP measures based on the after-tax disallowance. EPS is
calculated using the combined federal and state statutory tax rate of
39.5% and divided by 27,369 thousand dilutive shares for the quarter.
Net income for the first quarter of 2015 was down $9.4 million compared to the same period last year largely due to the $9.1 million after-tax charge related to the regulatory disallowance. Excluding the charge, results were relatively flat year-over-year with an increase in utility margin and other income, offset by a decrease in gas storage operating revenues and an increase in utility operations and maintenance expense.
Utility Results For the three months ended March 31, 2015, net income from utility operations decreased $7.7 million to $28.3 million, as compared to the same period in 2014. The decrease was driven by the $9.1 million after-tax charge for the regulatory disallowance. Other factors included a $0.3 million increase in utility margin and a $4.0 million increase in other income, which was primarily due to the recognition of interest income from our deferred environmental account balances. These increases were offset by an additional $3.8 million of operations and maintenance expense due to increased compensation costs and other items.
Customer growth. NW Natural's customer growth rate for the trailing 12-month period ended March 31, 2015 was 1.3%. The Company added over 9,000 customers during the trailing 12-month period and now serves approximately 707,000 customers.
Utility Volumes and Margin.
Three Months Ended
March 31,
----------------------
Dollars and therms in thousands 2015 2014 Change % Change
----------------------------------------------------------------------------
Gas sales & transportation
deliveries 329,977 406,217 (76,240) (19)%
Utility margin $ 130,601 $ 130,294 $ 307 -%
For the quarter, total gas sales and transportation deliveries decreased 76.2 million therms, or 19%, compared to the same period last year due to warmer weather. Average temperatures in the period were 22% warmer than a year ago and 20% warmer than normal. Despite warmer weather, utility margin for the quarter increased $0.3 million over last year due to customer growth and added rate-base returns on certain investments as well as gains from our gas cost incentive sharing resulting from lower gas prices.
Environmental Site Remediation and Recovery Mechanism (SRRM). As a result of the OPUC Order in the SRRM docket, $15 million of the $95 million in total environmental remediation expenses deferred through 2012 were disallowed. The OPUC found the $95 million to be prudent but disallowed this amount from rate recovery based on its determination of how an earnings test should apply to years between 2003 and 2012, with adjustments for factors the OPUC deemed relevant. The Company recognized the $15 million pre-tax disallowance, or $9.1 million after-tax charge, during the first quarter of 2015. The Company filed the required compliance report on March 31, 2015 with the OPUC demonstrating proposed implementation of the Order. The compliance filing is subject to review and approval by the OPUC and, as a consequence thereof, additional or different implementation procedures could be required, which may, among other things, result in additional impacts to earnings.
Integrated Resource Plan. We received acknowledgment of our recently filed IRP in Oregon and Washington, which outlines long-term capital investments based on projected customer and infrastructure needs. Among other things, the IRP included projected infrastructure projects such as continued refurbishments of the Newport LNG facility in Oregon over the next three years with an expected investment of approximately $20 million and upgrading distribution infrastructure in Clark County, Washington which could total approximately $25 million over the next five years. These and other investments are included in our capital budget plans for 2015 and the next several years. The IRP also discusses various changes to the gas supply resource portfolio and specifically preserves the optionality of participating in both the cross-Cascades and Pacific Connector interstate pipeline projects.
Gas Storage Results For the first quarter of 2015, gas storage net income decreased $1.5 million compared to the same period last year. The decrease was mainly driven by a $2.5 million drop in operating revenues. We contracted capacity for the 2014-15 gas storage year ending March 31, 2015 with shorter-term contracts at lower market prices than in previous years. Gas storage contract prices for the 2015-16 gas storage year are slightly higher, but prices are still significantly lower than the long-term contracts that expired at the of the 2013-14 gas storage year.
Consolidated Operations and Maintenance (O&M) Expense Operations and maintenance highlights include:
Three Months Ended
March 31,
---------------------
In thousands 2015 2014 Change
----------------------------------------------------------------------------
Operations and maintenance $ 54,116 $ 35,386 $18,730
Environmental disallowance 15,000 - 15,000
-----------------------------
Adjusted operations and maintenance (non-GAAP) $ 39,116 $ 35,386 $ 3,730
Operations and maintenance expense for the first quarter of 2015 increased $18.7 million compared to last year due to the effect of the $15 million pre-tax charge for the regulatory disallowance and an additional $1.0 million of other expenses related to the Order. Other contributing factors included a $1.9 million increase in compensation and benefit expense including higher wage rates under the new union labor contract, which became effective June 1, 2014, as well as increased health care, pension, and employee incentive costs. The remaining increase was related to non-payroll costs mostly associated with higher system maintenance and safety program costs and costs related to our ongoing growth initiatives.
Other Income and Expense, Net Other income and expense, net highlights include:
Three Months Ended
March 31, Change
----------------------
In thousands 2015 2014
----------------------------------------------------------------------------
Other income and expense, net $ 5,049 $ 1,383 $ 3,666
Other income for the first quarter of 2015 increased $3.7 million. The increase primarily reflects the recognition of $5.3 million related to the equity component in interest income from our deferred environmental expenses as a result of the regulatory Order. In addition, we incurred interest expense of $0.6 million on other deferred regulatory balances during the first quarter of 2015, compared to interest income of $0.6 million for the same period of 2014. The environmental regulatory balance changed from an asset position during the first quarter of 2014 to a liability position at March 31, 2015 as the result of additional insurance proceeds received in 2014.
Cash Flows Cash provided by operations for the first three months of 2015 was $118 million, compared to $220 million for the same period in 2014. The decrease is primarily due to receiving $91 million of environmental insurance recoveries in 2014, which did not recur in 2015 and other working capital changes.
Earnings Guidance for 2015 The Company reaffirmed earnings guidance for 2015 in the range of $1.77 to $1.97 per share. As adjusted, our earnings guidance is $2.10 to $2.30 per share for 2015 excluding the effects of the $15.0 million pre-tax charge, which is equivalent to $0.33 per share after-tax(1), for the regulatory disallowance associated with the OPUC order on the recovery of past environmental cost deferrals. The Company's 2015 earnings guidance assumes continued customer growth from our utility segment, average weather conditions, slow recovery of the gas storage market, and no other significant changes in prevailing legislative and regulatory policies or outcomes.
(1)Impact on earnings per share assumes average shares outstanding of 27.3 million and an income tax rate of 39.5%.
Dividend Declaration The board of directors of NW Natural declared a quarterly dividend of 46.5 cents a share on the Company's common stock. The dividends will be payable on May 15, 2015 to shareholders of record on Apr. 30, 2015. Currently, the Company's indicated annual dividend rate is $1.86 per share.
Presentation of Results In addition to presenting the results of operations and earnings amounts in total, certain financial measures are expressed in cents per share or exclude the after-tax regulatory disallowance related to the OPUC's 2015 environmental order, which are non-GAAP financial measures. We present net income, EPS, and operations and maintenance expense excluding the regulatory disallowance along with the GAAP measures to illustrate the magnitude of this disallowance on ongoing business and operational results. Although the excluded amounts are properly included in the determination of these items under GAAP, we believe the amount and nature of such disallowance make period to period comparisons of operations difficult or potentially confusing. Financial measures are expressed in cents per share as these amounts reflect factors that directly impact earnings, including income taxes. All references in this section to EPS are on the basis of diluted shares. We use such non-GAAP measures to analyze our financial performance because we believe they provide useful information to our investors and creditors in evaluating our financial condition and 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 5, 2015 to review the Company's financial and operating results for the three months ended March 31, 2015.
To hear the conference call live, please dial 1-866-267-6789 within the United States and 1-855-669-9657 from Canada. To access the conference replay, please call 1-877-344-7529 and enter the conference identification pass code (10062239). 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 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, customer growth, weather, commodity and other costs, customer rates or rate recovery, environmental cost recoveries, allocation of environmental insurance settlement proceeds, levels and pricing of gas storage contracts, gas storage development or costs or timing related thereto, financial positions, capital expenditures, gas reserves and investments and regulatory recoveries related thereto, free cash flow levels, revenues and earnings and timing thereof, dividends, effects of regulatory disallowance, performance, timing or effects of future regulatory proceedings or future regulatory approvals, regulatory prudence reviews, effects of regulatory mechanisms, including, but not limited to, SRRM, 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 707,000 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 $3.0 billion in total assets. NW Natural and its subsidiaries currently own and operate underground gas storage facilities with designed 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 03/31/15 03/31/14 Change % Change
----------------------------------------------------------------------------
Income from operations $ 53,001 $ 75,028 $ (22,027) (29)%
Net Income 28,486 37,884 (9,398) (25)
Diluted average shares of common
stock outstanding 27,369 27,126 243 1
Diluted earnings per share of
common stock 1.04 1.40 (0.36) (26)
Twelve Months Ended
-----------------------------------------
In thousands, except per share
amounts 03/31/15 03/31/14 Change % Change
----------------------------------------------------------------------------
Income from operations $ 120,938 $ 143,568 $ (22,630) (16)%
Net income 49,294 60,783 (11,489) (19)
Diluted average shares of common
stock outstanding 27,270 27,051 219 1
Diluted earnings per share of
common stock 1.81 2.25 (0.44) (20)
NORTHWEST NATURAL GAS COMPANY
Consolidated Balance Sheets (Unaudited) March 31,
In thousands 2015 2014
----------------------------------------------------------------------------
Assets:
Current assets:
Cash and cash equivalents $ 5,218 $ 17,929
Accounts receivable 68,531 87,264
Accrued unbilled revenue 30,076 33,515
Allowance for uncollectible accounts (1,363) (2,235)
Regulatory assets 67,702 27,834
Derivative instruments 658 15,846
Inventories 69,289 33,469
Gas reserves 19,112 21,990
Income taxes receivable 2,000 -
Deferred tax assets 13,491 4,915
Other current taxes 17,271 13,595
----------- -----------
Total current assets 291,985 254,122
----------- -----------
Non-current assets:
Property, plant, and equipment 3,017,754 2,939,760
Less: Accumulated depreciation 883,254 868,257
----------- -----------
Total property, plant, and equipment, net 2,134,500 2,071,503
Gas reserves 125,187 134,894
Regulatory assets 348,421 285,046
Derivative instruments 117 1,078
Other investments 68,614 67,288
Restricted cash 3,000 4,000
Other non-current assets 10,577 12,453
----------- -----------
Total non-current assets 2,690,416 2,576,262
----------- -----------
Total assets $2,982,401 $2,830,384
=========== ===========
Liabilities and equity:
Current liabilities:
Short-term debt $ 156,200 $ 32,600
Current maturities of long-term debt 40,000 80,000
Accounts payable 62,904 89,201
Taxes accrued 17,755 34,146
Interest accrued 10,427 11,144
Regulatory liabilities 24,263 37,686
Derivative instruments 23,242 1,191
Other current liabilities 35,950 38,069
----------- -----------
Total current liabilities 370,741 324,037
----------- -----------
Long-term debt 621,700 661,700
----------- -----------
Deferred credits and other non-current liabilities:
Deferred tax liabilities 523,929 489,108
Regulatory liabilities 326,424 308,858
Pension and other postretirement benefit
liabilities 235,516 147,733
Derivative instruments 1,117 96
Other non-current liabilities 118,059 119,376
----------- -----------
Total deferred credits and other non-current
liabilities 1,205,045 1,065,171
----------- -----------
Equity:
Common stock 376,656 366,560
Retained earnings 418,003 419,109
Accumulated other comprehensive loss (9,744) (6,193)
----------- -----------
Total equity 784,915 779,476
----------- -----------
Total liabilities and equity $2,982,401 $2,830,384
=========== ===========
NORTHWEST NATURAL GAS COMPANY Three Months Ended
Consolidated Statements of Cash Flows (Unaudited) March 31,
In thousands 2015 2014
----------------------------------------------------------------------------
Operating activities:
Net income $ 28,486 $ 37,884
Adjustments to reconcile net income to cash provided
by operations:
Depreciation and amortization 20,111 19,589
Regulatory amortization of gas reserves 5,255 2,981
Deferred tax liabilities, net 5,918 205
Non-cash expenses related to qualified defined
benefit pension plans 1,509 1,278
Contributions to qualified defined benefit pension
plans (2,630) (2,800)
Deferred environmental (expenditures), net of
recoveries (3,315) 83,252
Non-cash regulatory disallowance of prior
environmental cost deferrals 15,000 -
Non-cash interest income on deferred environmental
expenses (5,322) -
Other 900 603
Changes in assets and liabilities:
Receivables 29,193 23,216
Inventories 8,543 27,200
Taxes accrued 6,724 26,824
Accounts payable (26,550) (1,671)
Interest accrued 4,348 4,041
Deferred gas costs 13,074 (14,049)
Other, net 17,005 11,579
---------- ----------
Cash provided by operating activities 118,249 220,132
---------- ----------
Investing activities:
Capital expenditures (27,135) (25,588)
Utility gas reserves (1,860) (19,681)
Other 49 (191)
---------- ----------
Cash used in investing activities (28,946) (45,460)
---------- ----------
Financing activities:
Common stock issued, net 700 1,400
Change in short-term debt (78,500) (155,600)
Cash dividend payments on common stock (12,688) (12,456)
Other (3,131) 442
---------- ----------
Cash used in financing activities (93,619) (166,214)
---------- ----------
Increase (decrease) in cash and cash equivalents (4,316) 8,458
Cash and cash equivalents, beginning of period 9,534 9,471
---------- ----------
Cash and cash equivalents, end of period $ 5,218 $ 17,929
========== ==========
============================================================================
Supplemental disclosure of cash flow information:
Interest paid $ 5,399 $ 7,502
Income taxes paid - -
============================================================================
NORTHWEST NATURAL GAS COMPANY
Financial Highlights (Unaudited)
First Quarter - 2015
In thousands,
except per
share amounts,
customer, and
degree day data Three Months Ended Twelve Months Ended
March 31, March 31,
2015 2014 Change 2015 2014 Change
---------------- ---------- --------- ------------ -----------
Operating
revenues $261,665 $293,386 (11)% $ 722,316 $ 774,043 (7)%
Operating
expenses:
Cost of gas 125,705 155,201 (19) 335,994 386,140 (13)
Operations and
maintenance 54,116 35,386 53 155,712 138,242 13
General taxes 8,732 8,182 7 29,957 29,406 2
Depreciation
and
amortization 20,111 19,589 3 79,715 76,687 4
---------- --------- ------------ -----------
Total
operating
expenses 208,664 218,358 (4) 601,378 630,475 (5)
---------- --------- ------------ -----------
Income from
operations 53,001 75,028 (29) 120,938 143,568 (16)
Other income and
expense, net 5,049 1,383 265 5,599 5,532 1
Interest
expense, net 10,481 11,542 (9) 43,502 45,587 (5)
---------- --------- ------------ -----------
Income before
income taxes 47,569 64,869 (27) 83,035 103,513 (20)
Income tax
expense 19,083 26,985 (29) 33,741 42,730 (21)
---------- --------- ------------ -----------
Net income $ 28,486 $ 37,884 (25) $ 49,294 $ 60,783 (19)
========== ========= ============ ===========
Common shares
outstanding:
Average
diluted for
period 27,369 27,126 27,270 27,051
End of period 27,332 27,132 27,332 27,132
Per share
information:
Diluted
earnings per
share $ 1.04 $ 1.40 $ 1.81 $ 2.25
Dividends
declared per
share of
common stock 0.465 0.460 1.85 1.84
Book value per
share, end of
period 28.72 28.73 28.72 28.73
Market closing
price, end of
period 47.95 44.01 47.95 44.01
Capital
Structure, end
of period:
Common stock
equity 49.0% 50.2% 49.0% 50.2%
Long-term debt 38.8 42.6 38.8 42.6
Short-term
debt
(including
amounts due
in one year) 12.2 7.2 12.2 7.2
---------- --------- ------------ -----------
Total 100.0% 100.0% 100.0% 100.0%
Utility
operating
statistics:
Customers, end
of period 707,472 698,372 1.3% 707,472 698,372 1.3%
Utility volumes
(therms):
Residential
and
commercial
sales 206,817 274,156 553,564 677,398
Industrial
sales and
transportatio
n 123,160 132,061 463,186 475,060
---------- --------- ------------ -----------
Total utility
volumes sold
and delivered 329,977 406,217 1,016,750 1,152,458
Utility
operating
revenues:
Residential
and
commercial
sales $240,912 $270,002 $ 643,350 $ 686,886
Industrial
sales and
transportation 20,526 21,512 73,006 71,367
Other revenues 1,406 1,477 3,912 4,002
Less: Revenue
taxes 6,538 7,496 17,879 19,237
---------- --------- ------------ -----------
Total utility
operating
revenues 256,306 285,495 702,389 743,018
Less: Cost of
gas 125,705 155,201 335,994 386,140
---------- --------- ------------ -----------
Utility margin $130,601 $130,294 $ 366,395 $ 356,878
========== ========= ============ ===========
Degree days:
Average (25-
year average) 1,855 1,855 4,240 4,240
Actual 1,481 1,890 (22)% 3,383 4,365 (22)%
Percent colder
(warmer) than
average weather (20)% 2% (20)% 3%
Investor Contact: Nikki Sparley Phone: 503-220-4211 ext. 5857 Email: [email protected] Media Contact: Melissa Moore Phone: 503-220-2436 Email: [email protected]
Source: Northwest Natural Gas Company