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NW Natural Holdings Reports Second Quarter and Year-to-Date 2020 Results

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Northwest Natural Holding Company, (NYSE: NWN) (NW Natural Holdings), reported financial results and highlights including:

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20200807005043/en/

  • Reported a net loss of $0.17 per share from continuing operations for the second quarter of 2020, compared to net income of $0.07 per share for the same period in 2019 reflecting the financial effects of the coronavirus pandemic (COVID-19) and the reversal of an environmental reserve in 2019

  • Earned net income of $1.41 per share from continuing operations for the first six months of 2020, compared to earnings of $1.56 per share and adjusted earnings1 of $1.79 per share for the same period in 2019

  • Continued to provide customers with essential natural gas and water utility services and assist our most vulnerable community members during COVID-19

  • Provided a record $17.1 million credit to Oregon customers related to a revenue sharing mechanism

  • Added more than 13,000 natural gas meters over the last 12 months equating to a 1.7% growth rate

  • Completed rulemaking for Senate Bill 98 enabling our gas utility to procure renewable natural gas for customers

  • Filed a comprehensive all-party stipulation in Oregon general rate case

  • Reaffirmed 2020 GAAP earnings guidance from continuing operations in the range of $2.25 to $2.45 per share and guided toward the lower end of the range given potential effects from COVID-19

"We remain vigilant during this pandemic regarding the safety of our 1,200 employees and the 2.5 million people, businesses, and communities we serve. I want to extend my gratitude to our health care professionals and our employees for their dedication as they provide essential services during these unprecedented times," said David H. Anderson, president and CEO of NW Natural Holdings.

For the second quarter of 2020, net income from continuing operations decreased $7.2 million to a net loss of $5.1 million (or $0.17 per share), compared to net income from continuing operations of $2.1 million (or $0.07 per share) for the same period in 2019. Results reflected a prior period reversal of an environmental remediation expense reserve which benefited earnings in 2019, higher operations and maintenance expenses, and the financial effects resulting from COVID-19 including a reduction in late fee revenue, higher bad debt and interest expense, and lower industrial and large commercial business usage.

Year-to-date net income from continuing operations decreased $2.3 million to $43.1 million (or $1.41 per share), compared to $45.5 million (or $1.56 per share) for the same period in 2019. Results for 2019, included a regulatory pension disallowance of $10.5 million (or $6.6 million after-tax and $0.23 per share). Excluding this disallowance on a non-GAAP basis1, adjusted net income from continuing operations for 2019 was $52.1 million (or $1.79 per share) or a $8.9 million decline to net income of $43.1 million for the first six months of 2020. Results reflected an increase in operations and maintenance expense and the financial effects resulting from COVID-19 including a reduction in late fee revenue, higher bad debt and interest expense, and lower industrial and large commercial business usage.

______________

1

Adjusted 2019 metrics are non-GAAP financial measures and exclude the regulatory pension disallowance of $10.5 million pre-tax (or $6.6 million and $0.23 cents per share after-tax). See "Reconciliation to GAAP" for additional information.

KEY EVENTS AND INITIATIVES

Coronavirus (COVID-19) Implications

NW Natural Holdings continues to operate during the COVID-19 pandemic with a focus on the safety of our employees and customers, while providing essential services without interruption. We continue to follow information and standards from CDC, OSHA, and state-specific guidance for employees whose role requires them to work in the field. Nearly all of our office employees continue to work from home to limit the spread of the disease.

The onset of the pandemic coincided with the end of our heating season, and as expected we've seen gas utility volumes decline naturally in the second quarter as we enter the summer months. We continue to benefit from our resilient business model with about 87% of our natural gas utility margin coming from the residential and commercial sectors and a majority of our utility margin decoupled and weather normalized. Customer growth remained strong during the second quarter. In March 2020, we stopped charging late fees and disconnecting customers for nonpayment. Bad debt expense is higher than the prior period as we estimate the effects of COVID-19 on accounts receivable. Interest expense increased as a result of additional financings in March 2020 that were undertaken as a precaution to strengthen our liquidity position as the pandemic unfolded. For the first six months of 2020, we estimate the financial impacts related to COVID-19 to be approximately $5 million pre-tax or $4 million after-tax.

Renewable Natural Gas (RNG) Rulemaking Complete

In July 2020, the Public Utility Commission of Oregon (OPUC) issued final rules related to Senate Bill 98 (SB 98) enabling natural gas utilities to procure or develop renewable natural gas (RNG) on behalf of their Oregon customers. Renewable natural gas is produced from organic materials like food, agricultural and forestry waste, wastewater, and landfills. Methane is captured from these organic materials as they decompose and conditioned to pipeline quality, so it can be blended into the existing natural gas system thereby reducing the carbon content of the energy supply. SB 98 supports all forms of renewable natural gas including renewable hydrogen.

The RNG rules and legislation include the following key tenets: establishes targets for gas utilities to add as much as 30% of RNG into the state's pipeline system by 2050; enables gas utilities to invest in and own the cleaning and conditioning equipment required to bring raw biogas and landfill gas up to pipeline quality, as well as the facilities to connect to the local gas distribution system; and provides for an incremental 5% of a utility's revenue requirement to cover the cost of RNG.

"We're pleased to collaborate with regulators and policymakers on this groundbreaking program and are proud that Oregon is once again leading the nation to address climate change with pragmatic solutions that support renewable energy, close the loop on waste, and invest in our communities," said David H. Anderson.

All-Party Stipulation Filed in Oregon Rate Case

On July 31, 2020, NW Natural and all parties in the Oregon general rate case filed a comprehensive stipulation with the OPUC. The filing includes a $45.8 million increase in revenue requirement, compared to a requested $71.4 million. The stipulation is based on the previously settled capital components including a capital structure of 50% debt and 50% equity; a return on equity of 9.4%; and a cost of capital of 6.965%. In addition, the stipulation reflects average rate base of $1.45 billion or an increase of $248.9 million compared to the last rate case. NW Natural’s filing is subject to OPUC approval and if approved, new rates are expected to take effect Nov. 1, 2020.

Water Utilities and Acquisitions

To date in 2020, NW Natural Water Company, LLC (NW Natural Water) has closed the following acquisitions: the Suncadia water and wastewater utilities in Washington, the T&W water utility in Texas, a water utility with two systems in Northern Idaho near our existing Gem State footprint, and our first water utility acquisition in the municipal sector with water and wastewater utilities near our Falls Water, Idaho systems. In July 2020, NW Natural Water signed a purchase and sale agreement to acquire another utility near Idaho Falls, which is expected to close in 2020.

NW Natural Water currently serves about 62,000 people through about 25,000 connections in the Pacific Northwest and Texas. NW Natural Water has invested approximately $110 million in the water sector to date.

SECOND QUARTER RESULTS

The following financial comparisons are for the second quarter of 2020 and 2019 with individual year-over-year drivers below presented on an after-tax basis using a statutory tax rate of 26.5% unless otherwise noted.

NW Natural Holdings' second quarter results are summarized by business segment in the table below:

Three Months Ended June 30,

2020

2019

Change

In thousands, except per share data

Amount

Per Share

Amount

Per Share

Amount

Per Share

Net income (loss) from continuing operations:

Natural Gas Distribution segment

$

(6,347

)

$

(0.21

)

$

1,212

$

0.04

$

(7,559

)

$

(0.25

)

Other

1,215

0.04

839

0.03

376

0.01

Consolidated

$

(5,132

)

$

(0.17

)

$

2,051

$

0.07

$

(7,183

)

$

(0.24

)

Diluted Shares

30,537

29,394

1,143

Natural Gas Distribution Segment

Natural Gas Distribution segment net income decreased $7.6 million (or $0.25 per share) reflecting a prior period reversal of an environmental remediation expense reserve which benefited earnings in 2019, higher operations and maintenance expenses related to payroll and contractor costs, and the financial effects of COVID-19 including a reduction in late fee revenue, higher bad debt and interest expense, and lower industrial and large commercial usage, which are not covered by a decoupling mechanism.

Margin decreased $1.0 million reflecting higher environmental remediation expenses due to a reversal of a reserve in 2019, partially offset by contributions from new rates in Washington, customer growth of 1.7% over the last 12 months, and North Mist beginning storage services in May 2019. In addition, margin declined as a result of lower revenues from late fees as we suspended late fees during the COVID-19 pandemic and lower usage from industrial and large commercial customers.

Operations and maintenance expense increased $2.8 million as a result of higher compensation costs, contractor service expenses associated with safety activities including meter locates and pipeline integrity as well as moving to a new headquarter and operations center, and higher costs related to COVID-19 primarily related to bad debt expenses and personal protective equipment (PPE) supplies.

Depreciation expense and general taxes increased $2.3 million related to higher property, plant, and equipment, including our North Mist gas storage facility.

Interest expense increased $1.1 million related to several financings undertaken in March 2020 as a precautionary measure to strengthen our liquidity position as the pandemic unfolded.

YEAR-TO-DATE RESULTS

The following financial comparisons are for the first six months of 2020 and 2019 with individual year-over-year drivers below presented on an after-tax basis using a statutory tax rate of 26.5% unless otherwise noted. Non-GAAP financial measures exclude the effects of the regulatory pension disallowance in 2019 as these adjusted metrics provide a clearer view of operations, reflect how Management views financial results, and provide comparability to prior year results. See "Reconciliation to GAAP" for a detailed reconciliation of adjusted amounts.

Financial Implications of March 2019 Regulatory Order

In March 2019, NW Natural received a regulatory order from the OPUC that outlined the recovery of a pension balancing deferral, a disallowance of a portion of this deferral, and the application of tax reform benefits.

NW Natural recognized a $10.5 million pre-tax (or $6.6 million after-tax) regulatory disallowance for amounts in the pension balancing account. This resulted in $3.9 million pre-tax ($2.8 million after-tax) of additional operations and maintenance expense, $6.6 million of pre-tax ($4.9 million after-tax) other expense, and an offsetting tax benefit of $3.9 million. In addition, as a result of beginning collections of the pension balancing account, $3.8 million of regulatory interest income ($2.8 million after-tax) was recognized related to the equity interest component of financing costs on the pension balancing account.

The order required the application of tax reform benefits to the pension balancing deferral account in March 2019, which resulted in the following offsetting adjustments with no material effect on net income:

  • $7.1 million pre-tax ($5.2 million after-tax) increase in margin;

  • $4.6 million pre-tax ($3.4 million after-tax) increase in operations and maintenance expense;

  • $7.9 million pre-tax ($5.8 million after-tax) increase in other expense; and

  • $5.9 million decrease in income tax expense.

NW Natural Holdings' year-to-date results are summarized by business segment in the table below:

Six Months Ended June 30,

2020

2019

Change

In thousands, except per share data

Amount

Per Share

Amount

Per Share

Amount

Per Share

Net income from continuing operations:

Natural Gas Distribution segment

$

41,596

$

1.36

$

42,418

$

1.45

$

(822

)

$

(0.09

)

Regulatory pension disallowance, net

6,588

0.23

(6,588

)

(0.23

)

Adjusted Natural Gas Distribution segment1

$

41,596

$

1.36

$

49,006

$

1.68

$

(7,410

)

$

(0.32

)

Other

$

1,548

$

0.05

$

3,051

$

0.11

$

(1,503

)

$

(0.06

)

Consolidated

$

43,144

$

1.41

$

45,469

$

1.56

$

(2,325

)

$

(0.15

)

Adjusted Consolidated1

43,144

1.41

52,057

1.79

(8,913

)

(0.38

)

Diluted Shares

30,559

29,186

1,373

1

The 2019 adjusted natural gas distribution segment and adjusted consolidated net income from continuing operations are non-GAAP financial measures and exclude the effects of a regulatory disallowance of NW Natural's pension balancing account of $10.5 million pre-tax (or $6.6 million after-tax). See "Reconciliation to GAAP" for additional information.

Natural Gas Distribution Segment

Natural Gas Distribution segment net income decreased $0.8 million (or $0.09 per share). First quarter 2019 results include a $6.6 million non-cash after-tax regulatory disallowance of costs in NW Natural's pension balancing account. Excluding the effects of this disallowance, net income decreased $7.4 million (or $0.32 per share) reflecting higher operations and maintenance expense, depreciation expense, and the financial effects of COVID-19 including lower revenues from late fees, higher bad debt and interest expense, and slightly lower industrial customer usage. Earnings per share was affected by share issuances in June 2019.

Margin increased $0.1 million as higher rates in Washington, customer growth of 1.7% over the last 12 months, and beginning North Mist storage services collectively contributed $10.1 million to margin, offset by $4.9 million related to lower entitlement and curtailment fees as the first quarter of 2019 included fees related to pipeline constraints and the effect of warmer than average weather in the first six months of 2020 compared to the same period in 2019. Finally, as a result of the Oregon order related to pension as described above, margin decreased $5.2 million with no significant effect on net income as offsetting adjustments were recognized through expenses and income taxes.

Operations and maintenance expense increased $0.5 million as a result of 2019 incorporating several nonrecurring items related to the Oregon pension order described above, specifically a $2.8 million expense related to the disallowance of costs in the pension balancing account and $3.4 million of costs that were recognized with no significant effect on net income due to offsetting adjustments in margin and income taxes. Excluding these pension expenses, operations and maintenance expense increased $5.8 million related to higher compensation costs, contractor service expenses associated with safety activities including meter locates and pipeline integrity as well as moving to a new headquarter and operations center, and costs resulting from COVID primarily related to bad debt and PPE supplies.

Depreciation expense and general taxes increased $4.9 million related to higher property, plant, and equipment, including our North Mist gas storage facility.

Other expense, net decreased $7.4 million primarily due to several items related to the pension order in 2019 as described above including a $4.9 million expense related to the disallowance of costs in the pension balancing account, $5.8 million of costs that were offset with higher revenues and tax benefits in 2019, and $2.8 million of equity interest income recognized in 2019 when we began collecting deferred pension costs from customers.

Tax expense reflected a $5.9 million detriment related to implementing the March 2019 order described above; however, as this offset higher expense, there was no significant resulting effect on net income.

Other

Other net income decreased $1.5 million (or $0.06 per share) primarily reflecting lower asset management revenues as the prior year had additional optimization opportunities due to pipeline constraints during the first quarter of 2019.

BALANCE SHEET AND CASH FLOWS

During the first six months of 2020, the Company generated $159.5 million in operating cash flows and invested $122.3 million in utility capital expenditures and $37.9 million to acquire water and wastewater utilities. Net cash provided by financing activities was $128.3 million for the first six months of 2020 or an increase of $81.7 million compared to the same period in 2019 primarily due to several financings undertaken in March 2020 that strengthened our liquidity position as a precaution as the COVID-19 pandemic unfolded. At June 30, 2020, NW Natural Holdings held cash of $137.1 million.

2020 GUIDANCE

NW Natural Holdings reaffirmed 2020 earnings guidance from continuing operations in the range of $2.25 to $2.45 per share and guided toward the lower end of the range due to potential implications from COVID-19. This guidance assumes continued customer growth, average weather conditions, and no significant changes in prevailing regulatory policies, mechanisms, or outcomes, or significant local, state or federal laws, legislation or regulations. The expected sale of Gill Ranch and the related gain, and any operating loss associated with it, are not included in this guidance range, as they are, and are expected to continue to be, reported as Discontinued Operations.

DIVIDEND DECLARED

NW Natural Holdings' Board of Directors previously declared a quarterly dividend of 47.75 cents per share on NW Natural Holdings' common stock. The dividend is payable on August 14, 2020 to shareholders of record on July 31, 2020, reflecting an annual indicated dividend rate of $1.91 per share.

CONFERENCE CALL AND WEBCAST

As previously announced, NW Natural Holdings will host a conference call and webcast today to discuss its second quarter and year-to-date 2020 financial and operating results.

Date and Time:

Friday, August 7

8 a.m. PT (11 a.m. ET)

Phone Numbers:

United States:

Canada:

International:

1-866-267-6789

1-855-669-9657

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 ir.nwnaturalholdings.com. 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 10145818.

ABOUT NW NATURAL HOLDINGS

Northwest Natural Holding Company, (NYSE: NWN) (NW Natural Holdings), is headquartered in Portland, Oregon, and through its subsidiaries has been doing business for over 160 years in the Pacific Northwest. It owns NW Natural Gas Company (NW Natural), NW Natural Water Company (NW Natural Water), and other business interests and activities.

NW Natural is a local distribution company that currently provides natural gas service to approximately 2.5 million people in more than 140 communities through nearly 770,000 meters in Oregon and Southwest Washington with one of the most modern pipeline systems in the nation. NW Natural consistently leads the industry with high J.D. Power & Associates customer satisfaction scores.

NW Natural Holdings’ subsidiaries own and operate 35 Bcf of underground gas storage capacity with NW Natural operating 20 Bcf in Oregon.

NW Natural Water provides water distribution and wastewater services to communities throughout the Pacific Northwest and Texas. NW Natural Water currently serves approximately 62,000 people through about 25,000 connections. Learn more about our water business at nwnaturalwater.com.

Additional information is available at nwnaturalholdings.com.

Forward-Looking Statements

This report, and other presentations made by NW Holdings 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, assumptions, estimates, expectations, timing, goals, strategies, future events, investments, capital expenditures, targeted capital structure, risks, risk profile, stability, acquisitions and timing, completion and integration thereof, dispositions and timing, completion and outcomes thereof, global, national and local economies, customer and business growth, customer satisfaction ratings, weather, customer rates or rate recovery and the timing and magnitude of potential rate changes, environmental remediation cost recoveries, the water utility strategy and financial effects of the related pending water acquisitions, operating plans of third parties, financial results, including estimated income, availability and sources of liquidity, expenses, positions, revenues, returns, cost of capital, timing, and earnings and earnings guidance, dividends, performance, timing, outcome, or effects of regulatory proceedings or mechanisms or approvals including OPUC approval of the Oregon general rate case comprehensive stipulation, regulatory prudence reviews, anticipated regulatory actions or filings, accounting treatment of future events, effects of changes in laws or regulations, effects, extent, severity and duration of COVID-19 and resulting economic disruption, the impact of mitigating factors and other efforts to mitigate risks posed by its spread, ability of our workforce, customers or suppliers to operate or conduct business, COVID-19 expenses and cost recovery including through regulatory deferrals, impact on capital projects, governmental actions and timing thereof, including actions to reopen the economy, and other statements that are other than statements of historical facts.

Forward-looking statements are based on current expectations and assumptions regarding its 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. Actual results may differ materially from those contemplated by the forward-looking statements. You are therefore cautioned against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future operational, economic 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 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 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 NW Holdings or NW Natural, are expressly qualified by these cautionary statements. Any forward-looking statement speaks only as of the date on which such statement is made, and NW Holdings and NW Natural 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 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 regulatory pension disallowance in 2019, which is a non-GAAP financial measure. The Company presents net income and EPS excluding this item along with the GAAP measures to illustrate the magnitude of this item on ongoing business and operational results. Although the excluded amount is properly included in the determination of this item under GAAP, the Company believes the amount and nature of such an item makes 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. The Company uses such non-GAAP financial measures to analyze financial performance because the Company believes they provide useful information to investors and creditors in evaluating the Company's financial condition and results of operations.

NORTHWEST NATURAL HOLDINGS

Consolidated Income Statement and Financial Highlights (Unaudited)

Second Quarter 2020

In thousands, except per share amounts, customer, and degree day data

Three Months Ended
June 30,

Six Months Ended
June 30,

Twelve Months Ended
June 30,

2020

2019

Change

2020

2019

Change

2020

2019

Change

Operating revenues

$

134,971

$

123,443

9%

$

420,122

$

408,791

3%

$

757,703

$

726,732

4%

Operating expenses:

Cost of gas

41,210

35,107

17

149,748

140,564

7

264,095

245,924

7

Operations and maintenance

43,983

39,486

11

92,904

90,968

2

180,127

170,115

6

Environmental remediation

1,622

(2,656

)

(161)

5,627

6,291

(11)

11,673

10,912

7

General taxes

8,373

7,879

6

18,268

16,906

8

33,750

31,875

6

Revenue taxes

4,454

4,496

(1)

16,197

16,422

(1)

30,100

29,295

3

Depreciation and amortization

25,836

22,387

15

50,511

43,959

15

98,048

87,093

13

Other operating expenses

551

646

(15)

1,479

1,538

(4)

3,191

3,233

(1)

Total operating expenses

126,029

107,345

17

334,734

316,648

6

620,984

578,447

7

Income from operations

8,942

16,098

(44)

85,388

92,143

(7)

136,719

148,285

(8)

Other income (expense), net

(3,040

)

(2,768

)

10

(6,615

)

(16,515

)

NM

(12,936

)

(19,289

)

(33)

Interest expense, net

12,706

10,654

19

23,174

20,859

11

45,000

39,873

13

Income (loss) before income taxes

(6,804

)

2,676

(354)

55,599

54,769

2

78,783

89,123

(12)

Income tax expense (benefit)

(1,672

)

625

(368)

12,455

9,300

34

15,797

18,015

(12)

Net income (loss) from continuing operations

(5,132

)

2,051

(350)

43,144

45,469

(5)

62,986

71,108

(11)

Income (loss) from discontinued operations, net of tax

280

(956

)

(129)

(498

)

(1,173

)

(58)

(2,901

)

(2,782

)

4

Net income (loss)

$

(4,852

)

$

1,095

(543)

$

42,646

$

44,296

(4)

$

60,085

$

68,326

(12)

Common shares outstanding:

Average diluted for period

30,537

29,394

30,559

29,186

30,517

29,040

End of period

30,546

30,422

30,546

30,422

30,546

30,422

Per share of common stock information:

Diluted earnings (loss) from continuing operations

$

(0.17

)

$

0.07

$

1.41

$

1.56

$

2.06

$

2.45

Diluted income (loss) from discontinued operations, net of tax

0.01

(0.03

)

(0.01

)

(0.04

)

(0.10

)

(0.10

)

Diluted earnings (loss)

(0.16

)

0.04

1.40

1.52

1.96

2.35

Dividends paid per share

0.4775

0.4750

0.9550

0.9500

1.9075

1.8975

Book value, end of period

28.94

28.82

28.94

28.82

28.94

28.82

Market closing price, end of period

55.79

69.50

55.79

69.50

55.79

69.50

Capital structure, end of period:

Common stock equity

42.7

%

48.5

%

42.7

%

48.5

%

42.7

%

48.5

%

Long-term debt

44.3

44.6

44.3

%

44.6

%

44.3

%

44.6

%

Short-term debt (including current maturities of long-term debt)

13.0

6.9

13.0

%

6.9

%

13.0

%

6.9

%

Total

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

Natural Gas Distribution segment operating statistics:

Meters - end of period

768,304

755,106

1.7%

768,304

755,106

1.7%

768,304

755,106

1.7%

Volumes in therms:

Residential and commercial sales

99,815

102,457

386,687

420,560

700,474

700,067

Industrial sales and transportation

107,398

111,590

241,443

241,225

481,025

465,575

Total volumes sold and delivered

207,213

214,047

628,130

661,785

1,181,499

1,165,642

Operating revenues:

Residential and commercial sales

$

109,399

$

103,178

$

364,803

$

354,296

$

649,391

$

623,968

Industrial sales and transportation

12,667

12,210

29,861

28,231

58,183

56,152

Other distribution revenues

5

404

968

12,248

1,755

18,703

Other regulated services

4,921

2,192

9,847

2,250

19,653

2,402

Total operating revenues

126,992

117,984

405,479

397,025

728,982

701,225

Less: Cost of gas

41,265

35,163

149,860

140,676

264,319

246,148

Less: Environmental remediation expense

1,622

(2,656

)

5,627

6,291

11,673

10,912

Less: Revenue taxes

4,454

4,496

16,197

16,422

30,100

29,295

Margin, net

$

79,651

$

80,981

$

233,795

$

233,636

$

422,890

$

414,870

Degree days:

Average (25-year average)

308

308

1,650

1,637

2,723

2,705

Actual

189

160

18%

1,404

1,610

(13)%

2,503

2,474

1%

Percent colder (warmer) than average weather

(39

)%

(48

)%

(15

)%

(2

)%

(8

)%

(9

)%

NM = Not Meaningful calculation

NORTHWEST NATURAL HOLDINGS

Consolidated Balance Sheets (Unaudited)

June 30,

In thousands

2020

2019

Assets:

Current assets:

Cash and cash equivalents

$

137,057

$

60,885

Accounts receivable

35,196

42,670

Accrued unbilled revenue

15,393

14,840

Allowance for uncollectible accounts

(1,592

)

(814

)

Regulatory assets

30,021

46,688

Derivative instruments

5,996

2,186

Inventories

44,009

23,100

Gas reserves

13,646

17,206

Income taxes receivable

Other current assets

20,318

18,296

Discontinued operations current assets

16,392

14,001

Total current assets

316,436

239,058

Non-current assets:

Property, plant, and equipment

3,608,902

3,355,811

Less: Accumulated depreciation

1,062,299

1,016,185

Total property, plant, and equipment, net

2,546,603

2,339,626

Gas reserves

41,459

56,171

Regulatory assets

324,358

318,340

Derivative instruments

3,958

670

Other investments

62,130

62,815

Operating lease right of use asset

78,566

5,013

Assets under sales-type leases

146,208

148,886

Goodwill

70,183

49,393

Other non-current assets

51,446

18,159

Total non-current assets

3,324,911

2,999,073

Total assets

$

3,641,347

$

3,238,131

Liabilities and equity:

Current liabilities:

Short-term debt

$

233,000

$

20,080

Current maturities of long-term debt

35,209

104,396

Accounts payable

79,903

76,429

Taxes accrued

18,535

7,003

Interest accrued

7,234

7,826

Regulatory liabilities

41,126

32,484

Derivative instruments

3,067

4,650

Operating lease liabilities

931

4,271

Other current liabilities

54,323

36,612

Discontinued operations current liabilities

13,574

13,279

Total current liabilities

486,902

307,030

Long-term debt

918,887

806,001

Deferred credits and other non-current liabilities:

Deferred tax liabilities

297,995

292,791

Regulatory liabilities

632,400

605,036

Pension and other postretirement benefit liabilities

218,493

217,909

Derivative instruments

1,658

2,062

Operating lease liabilities

80,159

721

Other non-current liabilities

120,852

129,835

Total deferred credits and other non-current liabilities

1,351,557

1,248,354

Equity:

Common stock

562,766

555,052

Retained earnings

331,648

330,018

Accumulated other comprehensive loss

(10,413

)

(8,324

)

Total equity

884,001

876,746

Total liabilities and equity

$

3,641,347

$

3,238,131

NORTHWEST NATURAL HOLDINGS

Consolidated Statements of Cash Flows (Unaudited)

Six Months Ended June 30,

In thousands

2020

2019

Operating activities:

Net income

$

42,646

$

44,296

Adjustments to reconcile net income to cash provided by operations:

Depreciation and amortization

50,511

43,959

Regulatory amortization of gas reserves

8,567

9,467

Deferred income taxes

(2,004

)

5,917

Qualified defined benefit pension plan expense

8,892

6,988

Contributions to qualified defined benefit pension plans

(8,470

)

(4,650

)

Deferred environmental expenditures, net

(9,897

)

(7,148

)

Amortization of environmental remediation

5,627

6,291

Regulatory revenue recovery deferral from TCJA

639

Regulatory disallowance of pension costs

10,500

Other

(5,931

)

6,282

Changes in assets and liabilities:

Receivables, net

73,954

69,036

Inventories

(52

)

14,929

Income and other taxes

20,966

16,300

Accounts payable

(18,919

)

(27,843

)

Interest accrued

(217

)

520

Deferred gas costs

115

(44,850

)

Decoupling mechanism

4,281

8,635

Other, net

(9,976

)

(4,797

)

Discontinued operations

(547

)

638

Cash provided by operating activities

159,546

155,109

Investing activities:

Capital expenditures

(122,282

)

(91,147

)

Acquisitions, net of cash acquired

(37,940

)

(55,811

)

Leasehold improvement expenditures

(7,519

)

(3,797

)

Proceeds from the sale of assets

7,905

250

Other

263

(1,842

)

Discontinued operations

(846

)

(1,050

)

Cash used in investing activities

(160,419

)

(153,397

)

Financing activities:

Proceeds from stock options exercised

1,723

Proceeds from common stock issued

68

93,182

Long-term debt issued

150,000

175,000

Long-term debt retired

(75,000

)

Proceeds from term loan due within one year

150,000

Change in short-term debt

(66,100

)

(197,540

)

Cash dividend payments on common stock

(27,679

)

(25,916

)

Other

(3,007

)

91

Cash provided by (used in) financing activities

128,282

46,540

Increase in cash and cash equivalents

127,409

48,252

Cash and cash equivalents, beginning of period

9,648

12,633

Cash and cash equivalents, end of period

$

137,057

$

60,885

Supplemental disclosure of cash flow information:

Interest paid, net of capitalization

$

23,156

$

19,725

Income taxes paid (refunded), net

544

(6,095

)

NORTHWEST NATURAL HOLDINGS

Reconciliation to GAAP (Unaudited)

Year-to-Date Results

Six Months Ended June 30,

2020

2019

In thousands, except per share data

Amount

Per Share

Amount

Per Share

CONSOLIDATED

GAAP net income from continuing operations

$

43,144

$

1.41

$

45,469

$

1.56

Regulatory pension disallowance

10,500

0.36

Income tax effect of regulatory disallowance1

(3,912

)

(0.13

)

Adjusted net income from continuing operations

$

43,144

$

1.41

$

52,057

$

1.79

Diluted shares

30,559

29,186

NATURAL GAS DISTRIBUTION SEGMENT

GAAP net income

$

41,596

$

1.36

$

42,418

$

1.45

Regulatory pension disallowance

10,500

0.36

Income tax effect of regulatory disallowance1

(3,912

)

(0.13

)

Adjusted net income

$

41,596

$

1.36

$

49,006

$

1.68

1

Regulatory disallowance related to the pension balancing account was recognized in the first quarter of 2019. Tax effect of adjustment was calculated using a combined federal and state statutory rate of 26.5% and reducing the disallowance by a $1.1 million deferred taxes specifically associated with the pension balancing account.

View source version on businesswire.com: https://www.businesswire.com/news/home/20200807005043/en/

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