PORTLAND, OR
-- (Marketwire)
-- 03/01/13
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 3 Months Ended 12 Months Ended
degree day data December 31, 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%
Investor Contact:
Chu Lee
Phone: 1-800-422-4012, Ext. 3412
Email: c4l@nwnatural.com
Media Contact:
Kim Heiting
Phone: 503-220-2366
Email: kah@nwnatural.com