NORTHWEST NATURAL GAS CO - FORM 8-K - EX-99.1 - PRESS RELEASE

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8-K - FORM 8-K - NORTHWEST NATURAL GAS CO	form8-kq22014.htm

Exhibit 99.1



FOR IMMEDIATE RELEASE:	August 5, 2014

NW Natural Reports Results for the

Three and Six Months Ended June 30, 2014

___________________________________________________


•	Consolidated net income was $1.1 million for the second quarter of 2014, or $0.04 per share, compared to $2.1 million, or $0.08 per share, for the second quarter of 2013.


•	Utility margin and net income increased $5.0 million and $1.5 million, respectively, during the second quarter of 2014 compared to last year, while gas storage operating revenues and net income decreased $2.7 million and $2.6 million, respectively, compared to last year.


•	Customer growth increased to 1.4% at June 30, 2014, compared to 1.0% at June 30, 2013.


•	Utility announces plans to invest between $8 and $16 million in new gas reserves during the second half of 2014.

___________________________________________________

PORTLAND, ORE.—Northwest Natural Gas Company, dba NW Natural (NYSE: NWN), reported consolidated net income of $1.1 million for the second quarter of 2014, or $0.04 per share, compared to net income of $2.1 million, or $0.08 per share, for the second quarter of 2013. Consolidated net income was $39.0 million, or $1.43 per share, for the first six months of 2014, compared to net income of $39.8 million, or $1.47 per share, for the first six months of 2013. The Company's earnings are typically lower during the second and third quarters due to the impact of decreased heating requirements affecting utility results.

“Our second quarter results continued to reflect positive customer growth trends and progress on several key growth initiatives, but were offset by headwinds in the gas storage market," said Gregg Kantor, President and Chief Executive Officer. "Also in the quarter, we began investing in gas reserves under the amended agreement, and we signed a new union labor contract, which we expect to benefit customers, employees, and the Company for years to come."

Consolidated Results

Results for the quarter and year-to-date periods included higher earnings from the utility segment, but losses from the gas storage segment. Gas storage results reflected lower revenues and higher operating expenses, while the utility benefited from customer growth and added rate-base returns on certain investments.

Utility Results

For the three months ended June 30, 2014 and 2013, the utility contributed net income of $2.2 million and $0.7 million, respectively. The $1.5 million increase was driven by higher margins from customer growth and added rate-base return on certain investments, including gas reserves, partially offset by a decrease in other income due to lower interest on regulatory deferred accounts.

For the six months ended June 30, 2014, utility net income was $38.2 million, compared to $36.7 million last year. Results reflected an increase in utility margin from customer growth and rate-base returns on certain investments.

Customer growth. NW Natural's customer growth rate for the trailing 12-month period ended June 30, 2014 was 1.4%, with the Company serving approximately 697,000 customers, compared to a growth rate of 1.0% for the same period in 2013. The Company added about 9,400 new customers during the last 12 months, compared to 7,100 customers added a year ago.

Utility Volumes and Margin.



	Three Months Ended				Six Months Ended
	June 30,				June 30,				Change					% Change
Dollars and therms in thousands	2014		2013		2014		2013		QTD			YTD		QTD		YTD
Gas sales & transportation deliveries	208,253		212,097		614,470		612,287		(3,844		)	2,183		(1.8	)%	0.4	%
Utility margin	$	69,795	$	64,801	$	200,089	$	192,101	$	4,994		$	7,988	7.7	%	4.2	%

For the quarter, total gas sales and transportation deliveries decreased 3.8 million therms, or 2%, compared to the same period last year due to warmer weather. Heating degree days were 10% lower than 2013 and 23% lower than average. However, utility margin for the quarter increased $5.0 million over last year, reflecting a combination of customer growth and added rate-base returns on gas reserve and other investments.

For the six month period, total gas sales and transportation deliveries increased 2.2 million therms, or 0.4%, mainly due to customer growth and higher volumes during the February cold weather event, partially offset by weather that was 3% warmer than last year and 5% warmer than average. Utility margin for the first six months increased 4%, or $8.0 million, compared to last year primarily due to a $9.5 million increase from customer growth and the added rate-base returns on our gas reserve and other investments, partially offset by $2.4 million of losses from the impact of higher gas costs on our incentive sharing mechanism.

Environmental Insurance Settlements. In February 2014, NW Natural settled with defendant insurance companies in the Company's environmental insurance litigation, which sought recovery for past and future environmental remediation expenses. The Company received settlement proceeds totaling $102 million in the first six months of 2014, and approximately $150 million cumulatively.

Gas Reserves. During the second quarter of 2014, the Company was notified by its new partner, Jonah Energy LLC, of investment opportunities under the Company's amended gas reserve agreement. At this time, the Company has agreed to participate in selected wells to be drilled in 2014 and may have the opportunity to participate in additional wells in future years. The Company currently expects to invest an additional $8 million to $16 million in the second half of 2014 under the amended agreement, bringing the total investment, including amounts invested under the original agreement, to between $27 million and $35 million for 2014. The Company is seeking regulatory approval from the OPUC. Our investment balance under the original agreement earns a rate of return for our shareholders and provides long-term gas price protection for our utility customers.

New Labor Agreement. The Company ratified a new labor agreement with its union employees during the second quarter, which was effective June 1, 2014. Average compensation increases for the first year are roughly 4%, with an additional annual 3% increase effective December 1, 2015 and each year thereafter.

Gas Storage Results

The gas storage segment incurred a $1.2 million net loss for the second quarter of 2014, compared to a contribution of $1.5 million net income for the same period in 2013. The loss included a $2.7 million decrease in operating revenues from re-contracting some expiring storage capacity for the 2014-15 gas storage year, which began April 1, 2014, at substantially lower market prices than in previous years, and a $1.3 million increase in power and repair costs at our Gill Ranch facility. The power cost increase reflected higher injections into storage during the second quarter to replenish low storage levels following higher withdrawals this past winter. The repair cost increase reflected work at our Gill Ranch facility, which has now been in operation for three annual cycles. The Company intends to continue developing repair and maintenance plans for the future as well as evaluating potential capital improvements that may be needed to enhance the facility.

For the first six months of 2014, gas storage operating revenues and net income decreased $3.0 million and $2.6 million, respectively, compared to the same period in 2013 primarily due to the same factors described for the quarter.

Consolidated Operations and Maintenance Expense

Operations and maintenance expense for the second quarter of 2014 increased $1.5 million over 2013 primarily due to a $1.3 million increase in power and repair costs at our Gill Ranch facility. Utility expenses were consistent period over period, but reflected offsetting variances from higher utility safety program costs and lower incentive compensation accruals.

Operations and maintenance expense for the first six months of 2014 increased $3.1 million, or 5%, compared to the same period for 2013 due to a $1.8 million increase in power and repair costs at our Gill Ranch facility, and a $1.2 million increase in bad debt expense at the utility reflecting an adjustment to the uncollectible provision account balance taken in the first quarter of 2013. The utility bad debt expense as a percent of revenues was 0.18% for the trailing 12 months ended June 30, 2014. The six month period also reflected similar offsetting variances as described for the quarter with higher utility safety program costs and lower incentive compensation accruals.

Cash Flows

Cash provided by operations for the first six months of 2014 was $233 million, compared to $160 million for the same period in 2013. The variance reflects the receipt of environmental insurance proceeds, which was $102 million before tax, as well as other positive working capital changes.

Earnings Guidance for 2014

The Company reaffirmed earnings guidance for 2014 in the range of $2.15 to $2.35 per share. The Company’s 2014 earnings guidance assumes a continued economic recovery, customer growth from the 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 Aug. 15, 2014 to shareholders of record on July 31, 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 Aug. 5, 2014 to review the Company's financial and operating results for the three and six months ended June 30, 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 (10049150). 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, economic recovery, investments, hedge efficacy, gas reserve investments and their financial value and benefit, customer growth, weather, commodity and other costs, customer rates or rate recovery, effects of the new labor contract, financial positions, revenues and earnings, dividends, performance, operations and maintenance and capital expenses, facility enhancements, timing or effects of future regulatory proceedings or future regulatory approvals, effects of regulatory mechanisms, including, but not limited to, the environmental cost recovery mechanism and gas reserve investments, 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 697,000 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.

# # #



Investor Contact:			Media Contact:
Bob Hess			Kim Heiting
Phone: 503-220-2388			Phone: 503-220-2366
Email: rsh@nwnatural.com			Email: kah@nwnatural.com



NORTHWEST NATURAL GAS COMPANY
Comparative Income Statements
(Consolidated - Unaudited)


		Three Months Ended
In thousands, except per share amounts	06/30/14		06/30/13		Change			% Change
Income from operations	$	13,266	$	13,083	$	183		1	%
Net Income		1,071		2,126		(1,055	)	(50	)

Diluted average shares of common stock outstanding		27,182		26,999		183		1
Diluted earnings per share of common stock		0.04		0.08		(0.04	)	(50	)

		Six Months Ended
In thousands, except per share amounts	06/30/14		06/30/13		Change			% Change
Income from operations	$	88,294	$	87,289	$	1,005		1	%
Net income		38,955		39,765		(810	)	(2	)

Diluted average shares of common stock outstanding		27,158		26,991		167		1
Diluted earnings per share of common stock		1.43		1.47		(0.04	)	(3	)

		Twelve Months Ended
In thousands, except per share amounts	06/30/14		06/30/13		Change			% Change
Income from operations	$	143,751	$	138,964	$	4,787		3	%
Net income		59,728		57,033		2,695		5

Diluted average shares of common stock outstanding		27,096		26,948		148		1
Diluted earnings per share of common stock		2.20		2.12		0.08		4



NORTHWEST NATURAL GAS COMPANY
Consolidated Balance Sheets (Unaudited)				June 30,			June 30,
In thousands				2014			2013
Assets:
Current assets:
	Cash and cash equivalents		$	17,240		$	12,214
	Accounts receivable			38,621			39,061
	Accrued unbilled revenue			14,592			14,692
	Allowance for uncollectible accounts			(1,404	)		(1,189	)
	Regulatory assets			38,265			25,952
	Derivative instruments			11,191			623
	Inventories			60,808			62,412
	Gas reserves			20,373			15,324
	Income taxes receivable			—			1,297
	Deferred tax assets			4,915			—
	Other current taxes			14,518			8,781
		Total current assets		219,119			179,167
Non-current assets:
	Property, plant, and equipment			2,965,226			2,833,083
	Less: Accumulated depreciation			879,296			833,851
		Total property, plant, and equipment, net		2,085,930			1,999,232
	Gas reserves			130,280			113,762
	Regulatory assets			267,248			393,652
	Derivative instruments			1,202			1,054
	Other investments			67,689			67,410
	Restricted cash			3,000			4,000
	Other non-current assets			12,646			14,312
		Total non-current assets		2,567,995			2,593,422
		Total assets	$	2,787,114		$	2,772,589
Liabilities and equity:
Current liabilities:
	Short-term debt		$	74,200		$	136,000
	Current maturities of long-term debt			100,000			—
	Accounts payable			68,973			63,466
	Taxes accrued			15,769			6,798
	Interest accrued			7,053			6,404
	Regulatory liabilities			26,742			16,644
	Derivative instruments			1,490			9,392
	Other current liabilities			34,507			34,446
		Total current liabilities		328,734			273,150
Long-term debt				621,700			691,700
Deferred credits and other non-current liabilities:
	Deferred tax liabilities			489,892			469,964
	Regulatory liabilities			309,327			294,202
	Pension and other postretirement benefit liabilities			145,861			214,125
	Derivative instruments			191			1,754
	Other non-current liabilities			120,423			79,145
		Total deferred credits and other non-current liabilities		1,065,694			1,059,190
Equity:
	Common stock			369,315			359,772
	Retained earnings			407,698			397,603
	Accumulated other comprehensive loss			(6,027	)		(8,826	)
		Total equity		770,986			748,549
		Total liabilities and equity	$	2,787,114		$	2,772,589



NORTHWEST NATURAL GAS COMPANY					Six Months Ended
Consolidated Statements of Cash Flows (Unaudited)					June 30,
In thousands					2014			2013
Operating activities:
	Net income			$	38,955		$	39,765
	Adjustments to reconcile net income to cash provided by operations:
		Depreciation and amortization			39,298			37,737
		Regulatory amortization of gas reserves			8,680			4,970
		Deferred tax liabilities, net			989			28,401
		Non-cash expenses related to qualified defined benefit pension plans			2,540			2,773
		Contributions to qualified defined benefit pension plans			(6,000	)		(4,200	)
		Deferred environmental recoveries, net of (expenditures)			92,104			(2,989	)
		Other			1,010			(1,567	)
		Changes in assets and liabilities:
			Receivables		89,951			63,102
			Inventories		(139	)		5,190
			Taxes accrued		8,447			(1,535	)
			Accounts payable		(24,472	)		(22,155	)
			Interest accrued		(50	)		451
			Deferred gas costs		(18,812	)		(648	)
			Other, net		744			10,847
		Cash provided by operating activities			233,245			160,142
Investing activities:
	Capital expenditures				(52,489	)		(55,055	)
	Utility gas reserves				(18,632	)		(34,397	)
	Proceeds from sale of assets				—			6,580
	Restricted cash				1,000			—
	Other				(1,043	)		1,743
		Cash used in investing activities			(71,164	)		(81,129	)
Financing activities:
	Common stock issued, net				3,733			2,355
	Long-term debt retired				(20,000	)		—
	Change in short-term debt				(114,000	)		(54,250	)
	Cash dividend payments on common stock				(24,938	)		(24,509	)
	Other				893			682
		Cash used in financing activities			(154,312	)		(75,722	)
Increase (decrease) in cash and cash equivalents					7,769			3,291
Cash and cash equivalents, beginning of period					9,471			8,923
Cash and cash equivalents, end of period				$	17,240		$	12,214

Supplemental disclosure of cash flow information:
	Interest paid			$	23,270		$	21,746
	Income taxes paid				14,945			—



NORTHWEST NATURAL GAS COMPANY
Financial Highlights (Unaudited)
Second Quarter - 2014


			Three Months Ended							Six Months Ended							Twelve Months Ended
In thousands, except per share amounts, customer, and degree day data			June 30,							June 30,							June 30,
		2014			2013			Change	2014			2013			Change	2014			2013			Change
Operating revenues		$	133,169		$	131,714		1%	$	426,555		$	409,575		4%	$	775,498		$	726,552		7%

Operating expenses:
	Cost of gas		58,280			59,142		(1)		213,481			201,501		6		385,278			352,583		9
	Operations and maintenance		34,731			33,217		5		70,117			66,974		5		139,756			129,881		8
	General taxes		7,183			7,342		(2)		15,365			16,074		(4)		29,247			30,419		(4)
	Depreciation and amortization		19,709			18,930		4		39,298			37,737		4		77,466			74,705		4
	Total operating expenses		119,903			118,631		1		338,261			322,286		5		631,747			587,588		8
Income from operations			13,266			13,083		1		88,294			87,289		1		143,751			138,964		3
Other income and expense, net			262			1,450		(82)		1,645			1,970		(16)		4,344			4,037		8
Interest expense, net			11,677			11,069		5		23,219			22,196		5		46,195			43,698		6
Income before income taxes			1,851			3,464		(47)		66,720			67,063		(1)		101,900			99,303		3
Income tax expense			780			1,338		(42)		27,765			27,298		2		42,172			42,270		—
Net income		$	1,071		$	2,126		(50)	$	38,955		$	39,765		(2)	$	59,728		$	57,033		5

Common shares outstanding:
	Average diluted for period		27,182			26,999				27,158			26,991				27,096			26,948
	End of period		27,147			26,972				27,147			26,972				27,147			26,972

Per share information:
	Diluted earnings per share	$	0.04		$	0.08				1.43			1.47			$	2.20		$	2.12
	Dividends declared per share of common stock		0.460			0.455				0.920			0.910				1.84			1.79
	Book value per share, end of period		28.40			27.75				28.40			27.75				28.40			27.75
	Market closing price, end of period		47.15			42.48				47.15			42.48				47.15			42.48

Capital Structure, end of period:
	Common stock equity		49.2	%		47.5	%			49.2	%		47.5	%			49.2	%		47.5	%
	Long-term debt		39.7			43.9				39.7			43.9				39.7			43.9
	Short-term debt (including amounts due in one year)		11.1			8.6				11.1			8.6				11.1			8.6
	Total		100.0	%		100.0	%			100.0	%		100.0	%			100.0	%		100.0	%

Utility operating statistics:
Customers, end of period			697,422			688,067		1.4%		697,422			688,067		1.4%		697,422			688,067		1.4%
Utility volumes (therms):
	Residential and commercial sales		96,533			103,313				370,689			371,977				670,618			625,932
	Industrial sales and transportation		111,720			108,784				243,781			240,310				477,996			470,948
Total utility volumes sold and delivered			208,253			212,097				614,470			612,287				1,148,614			1,096,880
Utility operating revenues:
	Residential and commercial sales	$	113,186		$	110,155			$	383,188		$	366,521			$	689,917		$	638,138
	Industrial sales and transportation		16,855			15,723				38,367			34,748				72,499			69,225
	Other revenues		1,166			1,242				2,643			2,771				3,926			5,693
	Less: Revenue taxes		3,132			3,177				10,628			10,438				19,192			18,435
Total utility operating revenues			128,075			123,943				413,570			393,602				747,150			694,621
	Less: Cost of gas		58,280			59,142				213,481			201,501				385,278			352,583
Utility margin		$	69,795		$	64,801			$	200,089		$	192,101			$	361,872		$	342,038

Degree days:
	Average (25-year average)		691			691				2,546			2,546				4,240			4,256
	Actual		530			591		(10)%		2,420			2,495		(3)%		4,304			3,988		8%
Percent colder (warmer) than average weather			(23	)%		(14	)%			(5	)%		(2	)%			2	%		(6	)%

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