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-k2017q2.htm

For Immediate Release Exhibit 99.1

August 2, 2017

NW Natural Reports Second Quarter and Year-to-Date 2017 Results


•	Increased consolidated net income by $0.7 million to $2.7 million or $0.10 per share for the second quarter of 2017.


•	Increased consolidated net income by $4.4 million to $43.0 million or $1.50 per share for the first six months of 2017.


•	Connected over 12,700 utility customers during the past 12 months equating to a customer growth rate of 1.8%.


•	Continued construction on the $128 million North Mist Gas Storage Expansion Project.


•	Reaffirmed 2017 earnings guidance of $2.05 to $2.25 per share.

PORTLAND, ORE. — Northwest Natural Gas Company, dba NW Natural (NYSE: NWN), reported earnings per share (EPS) of $0.10 on net income of $2.7 million for the second quarter of 2017, compared to $0.07 per share on net income of $2.0 million for the same period in 2016.

Consolidated net income was $43.0 million, or $1.50 per share, for the first six months of 2017, compared to net income of $38.7 million, or $1.40 per share, for the same period of 2016. Results for the first six months of 2016 included a non-cash disallowancerelated to the Company's environmental regulatory proceeding and the implementation of the environmental recovery mechanism. Excluding this charge⁽¹⁾on a non-GAAP basis, EPS for the first six months of 2016 was $1.47 on net income of $40.7 million.

As a reminder, the utility's earnings are seasonal with the majority of its revenues generated during the winter heating season in the first and fourth quarters each year. Overall results for 2017 reflected higher utility segment earnings including additional margin from customer growth and cooler weather in 2017 compared to 2016. These favorable trends were offset by lower gas storage segment earnings primarily from decreased asset management revenues at Mist.

"Results for the quarter were solid. Customer growth continued to increase driven by a good economy, continued conversions, and increased success in the multifamily sector," said David H. Anderson, President and CEO of NW Natural. "We continued to make good progress on the construction of our North Mist Gas Storage Expansion Project — one of the largest projects in our Company's history and a very unique facility that will help facilitate the region's transition to a lower carbon future."

Construction Continues on North Mist Gas Storage Expansion Project

The North Mist Expansion Project is designed to provide long-term, no-notice underground gas storage service to support gas-fired electric generating facilities that are intended to facilitate the integration of more wind power into the region's electric generation mix. Natural gas storage enables electric generation to adjust quickly when renewable energy — like wind and solar — rises and falls. Our no-notice service is designed to allow the local electric company to draw on our North Mist facility to meet its fueling needs and rapidly respond to natural variability in wind generation.

The project remains on track to be in-service for the winter of 2018 with the heaviest construction phase occurring this year. In July we completed drilling all wells, and the compressor station is currently being assembled and tested in preparation for installation later this fall. Finally, construction continues on the 13-mile pipeline connecting the North Mist facility to Portland General Electric's Port Westward electric generating facility with construction expected to be completed later this fall. The estimated cost of the expansion remains at $128 million. The expansion will be rate-based under an established tariff when it is placed into service.

⁽¹⁾Non-GAAP measure, see reconciliation below.

Second Quarter Results

The following financial comparisons are between the second quarter of 2017 and second quarter of 2016, unless otherwise noted. Individual factors below are presented on an after-tax basis using a statutory tax rate of 39.5%.

Consolidated Results

Consolidated net income increased $0.7 million or $0.03 per share primarily due to higher utility segment results from customer growth and cooler weather in 2017. Offsetting these favorable variances were lower results from our gas storage segment, which reported lower asset management revenues from Mist.

The second quarter results are summarized in the table below:



	Three Months Ended June 30,
	2017					2016				Change
In thousands, except per share data	Amount			Per Share		Amount		Per Share		Amount			Per Share
Net income:
Utility segment	$	2,137		$	0.07	$	507	$	0.02	$	1,630		$	0.05
Gas storage segment	756			0.03		1,439		0.05		(683		)	(0.02		)
Other	(164		)	—		73		—		(237		)	—
Consolidated net income	$	2,729		$	0.10	$	2,019	$	0.07	$	710		$	0.03
Diluted Shares	28,717					27,632				1,085

Utility Segment Results

Utility segment net income increased $1.6 million or $0.05 per share due to the following offsetting items:


•	a $3.1 million increase in utility margin reflecting strong customer growth and cooler weather in 2017. Weather for the second quarter of 2017 was 1% warmer than average, compared to 42% warmer than average weather for the same period in 2016; offset by


•	a $1.2 million increase in operations and maintenance expense reflecting higher payroll and benefits due to increased headcount, general salary increases, and higher health care costs.

Gas Storage Segment Results

Gas storage segment net income decreased $0.7 million or $0.02 per share primarily due to the following factors:


•	a $0.5 million decrease in gas storage primarily from lower asset management revenues from our Mist facility and transportation capacity; and


•	a $0.2 million increase in operating expenses from pipeline and compressor maintenance at our Gill Ranch facility.

Year-to-Date Results

The following financial comparisons are between the first six months of 2017 and the same period of 2016, unless otherwise noted. Individual factors below are presented on an after-tax basis using a statutory tax rate of 39.5%.

Consolidated Results

Consolidated net income increased $4.4 million or $0.10 per share primarily due to higher utility segment results from customer growth and the effects of a colder winter in 2017. In addition, 2016 results were negatively impacted by a non-cash disallowance recorded during the first quarter of 2016 related to the Company's environmental regulatory proceeding and the implementation of the environmental recovery mechanism. Offsetting these favorable variances were lower results from our gas storage segment reflecting decreased asset management revenues from Mist.

The year-to-date results are summarized in the table below:



	Six Months Ended June 30,
	2017					2016				Change
In thousands, except per share data	Amount			Per Share		Amount		Per Share		Amount			Per Share
Net income:
Utility segment	$	42,329		$	1.47	$	36,359	$	1.32	$	5,970		$	0.15
Gas storage segment	817			0.03		2,175		0.08		(1,358		)	(0.05		)
Other	(107		)	—		126		—		(233		)	—
Consolidated net income (GAAP)	$	43,039		$	1.50	$	38,660	$	1.40	$	4,379		$	0.10
Adjustment for regulatory environmental disallowance⁽¹⁾	—			—		1,996		0.07		(1,996		)	(0.07		)
Adjusted net income (non-GAAP)⁽¹⁾	$	43,039		$	1.50	$	40,656	$	1.47	$	2,383		$	0.03
Diluted Shares	28,722					27,591				1,131

(1)

The 2016 disallowance related to the Company's compliance filing under the environmental recovery mechanism with the total pre-tax charge of $3.3 million recorded in utility other income ($2.8 million) and utility operation and maintenance expense ($0.5 million). The income tax effect of the adjustment was $1.3 million and is calculated using the combined federal and state statutory tax rate of 39.5%.

Utility Segment Results

Utility segment net income increased $6.0 million or $0.15 per share primarily due to the following offsetting items:


•	a $6.4 million increase in utility margin reflecting strong customer growth and the effects of a colder winter in 2017. Weather for the first six months of 2017 was 44% colder than 2016 and 12% colder than average. Offsetting these factors were lower gains from our gas cost incentive sharing mechanism in Oregon;


•	a $2.1 million increase in other income mainly due to the environmental interest disallowance in the first quarter of 2016 as a result of closing out the environmental docket and implementing the environmental recovery mechanism; offset by


•	a $1.7 million increase in operations and maintenance expense reflecting higher payroll and benefits due to increased headcount, general salary increases, and higher health care costs; and


•	a $1.1 million increase in depreciation expense due to planned capital expenditures for system reinforcement, facilities, and technology.

Gas Storage Segment Results

Gas storage segment net income decreased $1.4 million or $0.05 per share primarily due to the following factors:


•	a $1.0 million decrease in gas storage revenues reflecting lower asset management revenues from our Mist facility and transportation capacity; and


•	a $0.4 million increase in operating expenses from pipeline and compressor maintenance at our Gill Ranch facility.

Balance Sheet and Cash Flows

During the first six months of 2017, the Company generated $194.2 million in operating cash flow, invested $94.3 million in capital expenditures, reduced short-term debt by $53.3 million, and paid dividends of $26.9 million.

Cash provided by operations was enhanced by higher customer receipts due to the comparatively colder weather especially in the first quarter of 2017 offset by higher gas purchases. Cash outflows from investing activities increased $35.0 million in the first six months of 2017 compared to the same period in 2016 primarily due to higher capital expenditures from the North Mist Gas Storage Expansion Project. Cash outflows from financing activities decreased $56.4 million primarily due to lower short-term debt and commercial paper balances and repayments.

2017 Earnings Guidance

The Company reaffirmed 2017 earnings guidance today in the range of $2.05 to $2.25 per share. This guidance assumes customer growth from our utility segment, average weather conditions, slow recovery of the gas storage market, and no significant changes in prevailing regulatory policies, mechanisms, or outcomes, or significant laws or regulations.

Dividend Declared

The board of directors of NW Natural declared a quarterly dividend of 47 cents per share on the Company’s common stock. The dividend will be paid on August 15, 2017 to shareholders of record on July 31, 2017. The Company’s indicated annual dividend rate is $1.88 per share.

Conference Call and Webcast

As previously reported, NW Natural will host a conference call and webcast today to discuss its second quarter and year-to-date 2017 financial and operating results.



Date and Time:	Wednesday, August 2 8 a.m. PT (11 a.m. ET)

Phone Numbers:	United States: 1-866-267-6789 Canada: 1-855-669-9657 International: 1-412-902-4110

The call will also be webcast in a listen-only format for the media and general public and can be accessed at nwnatural.com under the Investor Relations tab. A replay of the conference call will be available on our website and by dialing 1-877-344-7529 (U.S.), 1-855-669-9658 (Canada), and 1-412-317-0088 (international). The replay access code is (10110143).

About NW Natural

NW Natural (NYSE:NWN) is headquartered in Portland, Ore., and provides natural gas service to more than 730,000 residential, commercial, and industrial customers in western Oregon and southwestern Washington. NW Natural and its subsidiaries currently own and operate 31 Bcf of underground gas storage capacity in Oregon and California. Additional information is available at nwnatural.com.

Investor Contact:

Nikki Sparley

Phone: 503-721-2530

Email: n1s@nwnatural.com

Media Contact:

Melissa Moore

Phone: 503-220-2436

Email: msm@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," "assumes," "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, customer preference, growth, adoption of renewable energy and our ability to provide effective supporting resources, environmental remediation cost recoveries, levels and pricing of gas storage contracts, gas storage development or costs or timing related thereto, financial positions, revenues, returns, and earnings and the timing thereof, dividends, 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, effects of changes in laws or regulations, 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 operational or financial 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.

Presentation of Non-GAAP Results

In addition to presenting the results of operations and earnings amounts in total, certain financial measures exclude the after-tax regulatory charge related to the regulatory order implementing the SRRM in 2016, which are non-GAAP financial measures. We present net income and EPS 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 to EPS are on the basis of diluted shares. We use such non-GAAP financial 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.



NORTHWEST NATURAL
Consolidated Income Statement and Financial Highlights (Unaudited)
Second Quarter 2017
			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,
		2017			2016			Change	2017			2016			Change	2017			2016			Change
Operating revenues		$	136,238		$	99,183		37%	$	433,561		$	354,712		22%	$	754,816		$	678,558		11%

Operating expenses:
	Cost of gas		53,005			20,871		154		196,616			129,282		52		327,922			268,706		22
	Operations and maintenance		38,546			35,962		7		78,966			74,901		5		154,039			142,995		8
	Environmental remediation		2,611			1,893		38		9,565			6,922		38		15,941			10,435		53
	General taxes		7,564			7,438		2		16,589			16,122		3		31,005			30,022		3
	Depreciation and amortization		21,355			20,413		5		42,440			40,807		4		83,922			81,389		3
	Total operating expenses		123,081			86,577		42		344,176			268,034		28		612,829			533,547		15
Income from operations			13,157			12,606		4		89,385			86,678		3		141,987			145,011		(2)
Other income (expense), net			958			513		87		1,839			(1,796	)	(202)		3,092			(233	)	(1,427)
Interest expense, net			9,717			9,718		—		19,593			19,454		1		39,267			41,074		(4)
Income before income taxes			4,398			3,401		29		71,631			65,428		9		105,812			103,704		2
Income tax expense			1,669			1,382		21		28,592			26,768		7		42,538			42,024		1
Net income		$	2,729		$	2,019		35	$	43,039		$	38,660		11	$	63,274		$	61,680		3

Common shares outstanding:
	Average diluted for period		28,717			27,632				28,722			27,591				28,322			27,519
	End of period		28,662			27,550				28,662			27,550				28,662			27,550

Per share information:
Diluted earnings per share		$	0.10		$	0.07			$	1.50		$	1.40			$	2.23		$	2.24
Dividends declared per share of common stock			0.47			0.4675				0.94			0.9350				1.8775			1.8675
Book value per share, end of period			30.19			29.04				30.19			29.04				30.19			29.04
Market closing price, end of period			59.85			64.82				59.85			64.82				59.85			64.82

Capital structure, end of period:
	Common stock equity		54.6	%		51.7	%			54.6	%		51.7	%			54.6	%		51.7	%
	Long-term debt		41.5			36.8				41.5			36.8	%			41.5			36.8	%
	Short-term debt (including amounts due in one year)		3.9			11.5				3.9			11.5	%			3.9			11.5	%
	Total		100.0	%		100.0	%			100.0	%		100.0	%			100.0	%		100.0	%

Utility segment operating statistics:
Customers - end of period			730,968			718,191		1.8%		730,968			718,191		1.8%		730,968			718,191		1.8%
Utility volumes - therms:
	Residential and commercial sales		113,869			82,625				441,392			325,499				725,115			592,344
	Industrial sales and transportation		120,774			110,308				260,890			239,983				496,681			463,887
Total utility volumes sold and delivered			234,643			192,933				702,282			565,482				1,221,796			1,056,231
Utility operating revenues:
	Residential and commercial sales	$	117,296		$	82,509			$	397,573		$	320,181			$	681,782		$	606,185
	Industrial sales and transportation		14,791			10,972				33,694			28,636				64,444			62,467
	Other revenues		1,168			1,102				2,543			2,513				3,842			3,890
	Less: Revenue taxes		3,160			2,448				10,989			9,091				19,009			17,290
Total utility operating revenues			130,095			92,135				422,821			342,239				731,059			655,252
	Less: Cost of gas		53,005			20,871				196,616			129,282				327,922			268,706
	Environmental remediation expense		2,611			1,893				9,565			6,922				15,941			10,435
Utility margin, net		$	74,479		$	69,371			$	216,640		$	206,035			$	387,196		$	376,111
Degree days:
	Average (25-year average)		691			691				2,546			2,562				4,240			4,256
	Actual		684			403		70%		2,853			1,988		44%		4,416			3,453		28%
Percent (warmer) colder than average weather			(1	)%		(42	)%			12	%		(22	)%			4	%		(19	)%

Gas storage segment operating statistics:
Operating revenues		$	6,088		$	6,992			$	10,629		$	12,361			$	23,534		$	23,081
Operating expenses			4,489			4,112				8,424			7,756				16,798			15,238



NORTHWEST NATURAL
Consolidated Balance Sheets (Unaudited)				June 30,
In thousands				2017			2016
Assets:
Current assets:
	Cash and cash equivalents		$	20,854		$	5,463
	Accounts receivable			31,908			23,353
	Accrued unbilled revenue			13,896			14,175
	Allowance for uncollectible accounts			(845	)		(570	)
	Regulatory assets			37,504			49,004
	Derivative instruments			1,530			7,445
	Inventories			57,666			66,171
	Gas reserves			16,072			15,707
	Other current assets			13,419			21,312
		Total current assets		192,004			202,060
Non-current assets:
	Property, plant, and equipment			3,333,668			3,146,631
	Less: Accumulated depreciation			973,084			932,179
		Total property, plant, and equipment, net		2,360,584			2,214,452
	Gas reserves			92,020			108,286
	Regulatory assets			348,284			344,969
	Derivative instruments			162			3,541
	Other investments			68,885			67,868
	Other non-current assets			3,215			1,968
		Total non-current assets		2,873,150			2,741,084
		Total assets	$	3,065,154		$	2,943,144
Liabilities and equity:
Current liabilities:
	Short-term debt		$	—		$	152,800
	Current maturities of long-term debt			61,991			24,987
	Accounts payable			95,761			57,756
	Taxes accrued			6,906			6,237
	Interest accrued			5,966			5,793
	Regulatory liabilities			28,041			27,300
	Derivative instruments			4,734			3,471
	Other current liabilities			31,683			35,289
		Total current liabilities		235,082			313,633
Long-term debt				658,118			570,045
Deferred credits and other non-current liabilities:
	Deferred tax liabilities			577,176			554,400
	Regulatory liabilities			359,205			341,259
	Pension and other postretirement benefit liabilities			219,718			219,049
	Derivative instruments			3,466			474
	Other non-current liabilities			146,960			144,285
		Total deferred credits and other non-current liabilities		1,306,525			1,259,467
Equity:
	Common stock			444,058			388,967
	Retained earnings			428,049			417,857
	Accumulated other comprehensive loss			(6,678	)		(6,825	)
		Total equity		865,429			799,999
		Total liabilities and equity	$	3,065,154		$	2,943,144



NORTHWEST NATURAL
Consolidated Statements of Cash Flows (Unaudited)					Six Months Ended June 30,
In thousands					2017			2016
Operating activities:
	Net income			$	43,039		$	38,660
	Adjustments to reconcile net income to cash provided by operations:
		Depreciation and amortization			42,440			40,807
		Regulatory amortization of gas reserves			8,031			7,647
		Deferred income taxes			22,170			27,022
		Qualified defined benefit pension plan expense			2,615			2,737
		Contributions to qualified defined benefit pension plans			(7,250	)		(6,120	)
		Deferred environmental (expenditures) recoveries, net			(6,817	)		(5,521	)
		Regulatory disallowance of prior environmental cost deferrals			—			3,273
		Amortization of environmental remediation			9,565			6,922
		Other			1,268			2,121
		Changes in assets and liabilities:
			Receivables, net		86,065			87,271
			Inventories		(3,537	)		4,525
			Income taxes		(5,243	)		3,710
			Accounts payable		(22,063	)		(17,141	)
			Interest accrued		—			(80	)
			Deferred gas costs		15,325			(9,295	)
			Other, net		8,623			13,022
		Cash provided by operating activities			194,231			199,560
Investing activities:
	Capital expenditures				(94,318	)		(62,153	)
	Other				(404	)		2,453
		Cash used in investing activities			(94,722	)		(59,700	)
Financing activities:
	Repurchases related to stock-based compensation				(2,034	)		(1,042	)
	Proceeds from stock options exercised				1,309			5,374
	Change in short-term debt				(53,300	)		(117,235	)
	Cash dividend payments on common stock				(26,919	)		(25,677	)
	Other				(1,232	)		(28	)
		Cash used in financing activities			(82,176	)		(138,608	)
Increase in cash and cash equivalents					17,333			1,252
Cash and cash equivalents, beginning of period					3,521			4,211
Cash and cash equivalents, end of period				$	20,854		$	5,463

Supplemental disclosure of cash flow information:
	Interest paid, net of capitalization			$	18,011		$	18,124
	Income taxes paid (refunded)				9,081			(7,900	)

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