NW Natural Holdings Reports First Quarter 2019 Results

5/7, 12:00 PM (Source: GlobeNewswire)

PORTLAND, Ore., May 07, 2019 (GLOBE NEWSWIRE) -- Northwest Natural Holding Company, (NYSE: NWN) (NW Natural Holdings), reported financial results for the first quarter of 2019 including:

  • Earned $1.50 per share from continuing operations for the first quarter of 2019, compared to $1.46 per share for 2018
  • Added more than 12,500 natural gas meters over the last 12 months equating to a 1.7% growth rate
  • Finished construction of the North Mist gas storage expansion with the commissioning phase nearly complete
  • Received the final Oregon general rate case order

"This year is off to a good start. Our financial results benefited from customer growth and new rates at the natural gas utility," said David H. Anderson, president and CEO of NW Natural Holdings. "Operationally our distribution system performed well when the Pacific Northwest experienced cold weather and pipeline constraints, particularly in February which was the third coldest on record since 1989."

"We continue making progress on our long-term growth strategy," added Anderson. "We expect the Sunriver transaction to close soon and to complete several more pending water acquisitions this summer. In 2019, we remain focused on high-quality customer service, working collaboratively with stakeholders, and continuing to grow our natural gas and water platforms."

For the first quarter of 2019, net income from continuing operations increased $1.4 million to $43.4 million (or $1.50 per share), compared to net income from continuing operations of $42.0 million (or $1.46 per share) for the same period in 2018. Results reflected higher margin due to new natural gas rates in Oregon and customer growth, partially offset by a regulatory pension disallowance from the final order in the Oregon general rate case and higher operations and maintenance expense.

Excluding the regulatory pension disallowance, on a non-GAAP basis1 adjusted net income from continuing operations for the first quarter of 2019 was $50.0 million (or $1.73 per share) or an increase of $8.0 million compared to the same period in 2018. Results reflected higher margin from new natural gas rates in Oregon and customer growth, partially offset by higher operations and maintenance expense.

1  Adjusted first quarter 2019 net income from continuing operations is non-GAAP and excludes the regulatory pension disallowance of $10.5 million pre-tax or $6.6 million and 23 cents per share after-tax. See "First Quarter Results" and "Reconciliation to GAAP" for additional information.


Oregon Rate Case
On March 25, 2019, the Public Utility Commission of Oregon (OPUC) issued an order approving the all-party settlement reached in February 2019 that resolved the remaining two items in the Oregon general rate case. The order determined how benefits related to the Tax Cuts and Jobs Act (TCJA) would be provided to customers and how NW Natural Gas Company (NW Natural) would recover costs associated with the pension balancing account.

Beginning April 1, 2019, NW Natural will return excess deferred income taxes pursuant to TCJA through an annual credit to customers' base rates of $3.4 million and a credit of $3.0 million per year for five years to customers.

The pension balancing account was a regulatory mechanism in effect from 2011 through October 2018 that held deferred annual pension expenses above the amount set in rates with the expectation that higher and lower pension expenses in future years would ultimately balance the account. At Oct. 31, 2018 when the pension balancing account was frozen, it totaled $79.9 million. Under the March order, $12.5 million of deferred TCJA benefits was applied to the pension balancing account, and NW Natural was required to forego the recovery of $10.5 million, for a total reduction of the pension balancing account of approximately $23.0 million. The recovery of the remaining balance in the account is expected to be collected at a rate of $7.3 million per year for the next ten years beginning April 1, 2019.

The combined effect of the March order with the previously issued order on Oct. 26, 2018 is expected to provide NW Natural with an estimated $11.4 million annual benefit to net income and cash flow benefits of $21.3 million per year.

Washington Rate Case
On Dec. 31, 2018, NW Natural filed a request for a general rate increase with the Washington Utilities and Transportation Commission (WUTC). Approximately 10% of NW Natural’s revenues are derived from its Washington customers. This is NW Natural’s first Washington rate case in a decade with a requested $8.3 million increase in annual revenue requirement. In addition, NW Natural requested the net TCJA related benefits be provided to customers, a decoupling tariff, which will adjust for any deviation from normal usage, including those related to weather, and an environmental remediation mechanism to recover costs associated with historical manufactured gas activities.

The filing will be reviewed by the WUTC and other stakeholders with the process expected to take up to 11 months. New rates are expected to take effect Dec. 1, 2019.

North Mist Expansion Project
The Company continues to expect NW Natural's North Mist facility will be placed into service this spring. Construction has been completed with final tests and commissioning expected to be finished in the coming weeks. The cost of the facility is estimated at $149 million and will be included in rate base under an established tariff when it is placed into service. NW Natural has an initial 30-year service contract with Portland General Electric and options to extend the contract totaling up to an additional 50 years upon mutual agreement.

The project will provide long-term, no-notice underground gas storage service to support gas-fired electric generating facilities that enable the integration of wind power into the region's electric generation mix. The North Mist service is designed to allow the local electric company to draw on the facility to meet its fueling needs and rapidly respond to natural variability in wind generation.

Water Utilities and Acquisitions
NW Natural Holdings' subsidiary, NW Natural Water Company (NW Natural Water), has several water acquisitions pending, the largest of which is 9,400 water and wastewater connections serving approximately 20,000 people in Sunriver, Oregon. In April 2019, the OPUC issued an order approving the acquisition. The transaction is expected to close this summer with all other pending acquisitions.

Upon closing the pending acquisitions, NW Natural Water is expected to serve about 45,000 people through approximately 18,000 connections in Idaho, Oregon, and Washington with total investments of nearly $70 million. These aggregate acquisitions are projected to be accretive to NW Natural Holdings’ earnings per share in the first full year of operations. While ongoing operations are not expected to have an immediately material impact on earnings, the acquisitions mark the Company's continued commitment to building a water platform and are intended to provide investors with a risk profile that is similar to NW Natural's regulated gas utility.

Gill Ranch Sale Agreement
NW Natural Holdings' subsidiary, Gill Ranch Storage, LLC (Gill Ranch), jointly owns and operates a 20 Bcf natural gas storage facility with Pacific Gas and Electric (PG&E) in California. In June 2018, the Company entered into an agreement to sell Gill Ranch for an initial cash purchase price of $25 million, with an earn-out provision and subject to a working capital adjustment. We continue to expect the transaction to close in mid-2019 and are currently awaiting the California Public Utilities Commission (CPUC) approval of the transaction. The closing is also subject to other customary closing conditions. As a result of the pending sale, Gill Ranch is presented in Discontinued Operations in the financial statements.


Financial Implications of March 2019 Regulatory Order
As a result of the final order in NW Natural's Oregon general rate case, NW Natural applied deferred TCJA benefits to the pension balancing account, which resulted in several offsetting benefits and expenses in the first quarter of 2019. Specifically this resulted in higher overall pre-tax expenses of $12.5 million with $4.6 million recognized in operations and maintenance and $7.9 million reflected in other income (expense), net. This was largely offset by higher pre-tax revenues of $7.1 million and tax benefits of $4.3 million with little impact to net income in the first quarter. An additional tax benefit of $1.2 million will be recognized during 2019. 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.

In addition, 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 of additional pre-tax operations and maintenance expense, $6.6 million of pre-tax other expense, and an offsetting tax benefit of $3.9 million. The tax effect of the pension disallowance was calculated using a combined federal and state statutory rate of 26.5% and an additional $1.1 million of deferred tax benefit associated with the pension balancing account disallowance.

First Quarter Results
The following financial comparisons are between results for the first quarter of 2019 and 2018 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.

The first quarter results are summarized by business segment in the table below:

 Three Months Ended March 31,
 2019 2018 Change
In thousands, except per share dataAmountPer Share AmountPer Share AmountPer Share
Net income from continuing operations:        
Natural Gas Distribution segment$41,206 $1.42  $39,883 $1.39  $1,323 $0.03 
Regulatory pension disallowance, net16,588 0.23     6,588 0.23 
Adjusted Natural Gas Distribution segment147,794 1.65  39,883 1.39  7,911 0.26 
Other2,212 0.08  2,128 0.07  84 0.01 
Consolidated$43,418 $1.50  $42,011 $1.46  $1,407 $0.04 
Adjusted consolidated150,006 1.73  42,011 1.46  7,995 0.27 
Diluted Shares 28,970   28,803   167 

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

Natural Gas Distribution Segment

Natural Gas Distribution net income was $41.2 million (or $1.42 per share) for 2019, compared to net income of $39.9 million (or $1.39 per share) for 2018. Results were affected by a $6.6 million after-tax disallowance of costs in the pension balancing account as ordered in the Oregon general rate case. Excluding the effects of this disallowance, net income increased $7.9 million reflecting the first full quarter of higher rates under the Oregon general rate case and customer growth, partially offset by higher operations and maintenance expense.

Margin increased $14.7 million largely due to higher rates in Oregon as well as growth of 1.7% over the last 12 months, which collectively contributed $9.3 million to margin. Colder than average weather coupled with higher fee revenue from interruptible customers as a result of system restrictions were offset by an estimated reserve for environmental cost sharing related to the SRRM mechanism's earnings test. Combined these items provided a net $1.0 million of additional margin. Weather was 9% colder than average for 2019, compared to 7% warmer than average for 2018. Finally, as a result of the March order, margin increased $5.2 million with no significant effect to net income as offsetting adjustments were recognized through expenses and income taxes.

Operations and maintenance expense increased $8.5 million reflecting $2.3 million of higher compensation and benefits expense and $2.8 million of expense related to the disallowance of costs in the pension balancing account. In addition, as a result of the March order, $3.4 million of costs were recognized with no significant effect to net income due to offsetting adjustments in margin and income taxes.

Other income (expense), net decreased $9.8 million primarily due to $4.9 million of expense related to the disallowance of costs in the pension balancing account and $1.5 million of higher pension expense as we began collecting Oregon pension expenses through rates beginning Nov. 1, 2018. As a result of beginning collections of the pension balancing account, $2.8 million of regulatory interest income ($3.8 million pre-tax) was recognized related to the equity interest component of financing costs on the pension balancing account. In addition, also as a result of the March order, $5.8 million of costs were recognized with no significant effect to net income due to offsetting adjustments in margin and income taxes.

Tax expense reflected a $4.3 million benefit related to the amortization and application of deferrals from the March order; however, as this offset higher expense, there was no significant resulting effect on net income.

During 2019, the Company generated $104.8 million in operating cash flow and invested $48.8 million of capital expenditures in our natural gas distribution segment to support growth, safety, and technology and facility upgrades. Net cash provided by operations was relatively flat mainly due to timing of higher collections from colder than average weather offset by higher gas prices. Cash used in financing activities increased $14.3 million primarily due to higher short-term debt balances in 2019.

The Company continues to expect capital expenditures for 2019 to be in the range of $230 to $270 million to support gas utility customer growth and safety and reliability, as well as several projects. The total capital investment for the five-year period from 2019 to 2023 is expected to range from $850 to $950 million, with a majority of the investment supporting continued customer growth, natural gas distribution system maintenance and improvements, investments in a new headquarters building and technology, and utility gas storage facility maintenance.

On March 1, 2019, NW Natural Holdings initiated 2019 earnings guidance from continuing operations in the range of $2.25 to $2.45 per share. As previously disclosed, this range did not incorporate a potential regulatory disallowance from an Oregon all-party settlement. On March 25, 2019, the OPUC issued an order requiring NW Natural to forego $10.5 million ($6.6 million after-tax or $0.23 per share) of costs associated with the pension balancing account. As a result of the disallowance, NW Natural Holdings' 2019 GAAP earnings guidance from continuing operations is expected to range from $2.02 to $2.22 per share. Excluding the pension disallowance on a non-GAAP basis, 2019 earnings guidance from continuing operations is expected to range from $2.25 to $2.45 per share.

This guidance assumes continued customer growth, average weather conditions, and no significant changes in prevailing regulatory policies, mechanisms, or outcomes, or significant laws or regulations. The expected sale of Gill Ranch and the related gain, and any operating results associated with it, are not included in this guidance range, as they are, and are expected to continue to be, reported as Discontinued Operations.

In April 2019, NW Natural Holdings' Board of Directors declared a quarterly dividend of 47.5 cents per share on NW Natural Holdings' common stock. The dividend will be payable on May 15, 2019 to shareholders of record on April 30, 2019, reflecting an annual indicated dividend rate of $1.90 per share.

As previously announced, NW Natural Holdings will host a conference call and webcast today to discuss its first quarter 2019 financial and operating results.

Date and Time:Tuesday, May 7
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 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 10130221.

Northwest Natural Holding Company, (NYSE: NWN) (NW Natural Holdings), is headquartered in Portland, Oregon, and through its subsidiaries has been doing business for 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 two million people in more than 140 communities through more than 750,000 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 is currently constructing a 3 Bcf regulated gas storage expansion of its 16 Bcf facility in Oregon to support renewables. NW Natural Holdings’ subsidiaries own and operate 31 Bcf of underground gas storage capacity.

NW Natural Water currently provides water distribution service to approximately 23,000 people through 7,900 connections. To date, NW Natural Water has acquired six water distribution utilities with several additional acquisitions pending. Upon closing current outstanding transactions, cumulatively, NW Natural Water expects to have invested $70 million and serve nearly 45,000 people through approximately 18,000 connections in the Pacific Northwest.

Additional information is available at nwnaturalholdings.com.

Forward-Looking Statements
This report, and other presentations made by NW Natural 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, timing, goals, strategies, future events, investments, capital expenditures, targeted capital structure, risks, risk profile, stability, acquisitions and integration thereof, dispositions and timing and outcomes thereof, asset management sharing, customer and business growth, weather, commodity and other costs, customer rates or rate recovery, adoption of renewable energy and our ability to provide effective supporting resources, infrastructure availability and development, environmental remediation cost recoveries, levels and pricing of gas storage contracts, gas storage development or costs or timing related thereto, the water utility strategy and the related pending water acquisitions, operating plans of third parties, financial results, including estimated income, liquidity, expenses, positions, revenues, returns, and earnings and earnings guidance, capital expenditures, dividends, performance, timing or effects of future regulatory proceedings or future regulatory approvals, regulatory prudence reviews, effects of regulatory decisions or mechanisms, anticipated regulatory actions or filings, expectations, timing and treatment with respect to rate cases, recovery of pension expense or our pension balancing account, accounting treatment of future events, effects of changes in laws or regulations, including tax reform, and other statements that are other than statements of historical facts.

Forward-looking statements are based on the Company's 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. The Company's actual results may differ materially from those contemplated by the forward-looking statements. The Company cautions 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, 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 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 the Company undertakes 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 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.

Consolidated Income Statement and Financial Highlights (Unaudited)
First Quarter 2019
  Three Months Ended Twelve Months Ended 
In thousands, except per share amounts, customer, and degree day dataMarch 31, March 31, 
2019 2018Change2019 2018Change
Operating revenues$285,348  $263,635 8%$727,856  $722,949 1%
Operating expenses:       
 Cost of gas105,457  108,106 (2)252,870  289,290 (13)
 Operations and maintenance51,482  39,523 30 168,657  153,131 10 
 Environmental remediation8,947  4,624 93 15,450  12,961 19 
 General taxes9,027  9,474 (5)31,725  31,435 1 
 Revenue taxes11,926  12,429 (4)29,579  12,429 138 
 Depreciation and amortization21,572  20,875 3 85,853  81,975 5 
 Other operating expenses892  853 5 3,266  853 283 
 Total operating expenses209,303  195,884 7 587,400  582,074 1 
Income from operations76,045  67,751 12 140,456  140,875  
Other income (expense), net(13,747) (834)1,548 (16,514) (2,010)722 
Interest expense, net10,205  9,274 10 37,990  37,169 2 
Income before income taxes52,093  57,643 (10)85,952  101,696 (15)
Income tax expense8,675  15,632 (45)17,234  29,009 (41)
Net income from continuing operations43,418  42,011 3 68,718  72,687 (5)
Loss from discontinued operations, net of tax(217) (474)(54)(2,485) (127,083)(98)
Net income (loss)$43,201  $41,537 4 $66,233  $(54,396)(222)
Common shares outstanding:        
 Average diluted for period28,970  28,803  28,904  28,769  
 End of period28,962  28,781  28,962  28,781  
Per share of common stock information:        
Diluted earnings from continuing operations$1.50  $1.46  $2.38  $2.53  
Diluted loss from discontinued operations, net of tax(0.01) (0.02) (0.09) (4.42) 
Diluted earnings (loss)1.49  1.44  2.29  (1.89) 
Dividends declared0.4750  0.4725  1.8950  1.8850  
Book value, end of period27.42  26.83  27.42  26.83  
Market closing price, end of period65.63  57.65  65.63  57.65  
Capital structure, end of period:        
 Common stock equity46.5% 48.9% 46.5% 48.9% 
 Long-term debt37.0  43.2  37.0  43.2  
 Short-term debt (including current maturities of long-term debt)16.5  7.9  16.5  7.9  
 Total100.0% 100.0% 100.0% 100.0% 
Natural Gas Distribution segment operating statistics:        
Meters - end of period754,447  741,920 1.7%754,447  741,920 1.7%
Volumes in therms:        
 Residential and commercial sales318,103  278,019  701,247  690,865  
 Industrial sales and transportation129,635  128,934  467,741  488,742  
Total volumes sold and delivered447,738  406,953  1,168,988  1,179,607  
Operating revenues:        
 Residential and commercial sales$251,118  $245,584  $627,316  $649,521  
 Industrial sales and transportation16,021  17,389  57,345  62,411  
 Other revenues11,902  (5,040) 17,095  (2,543) 
 Less: Revenue taxes      11,240  
Total operating revenues279,041  257,933  701,756  698,149  
 Less: Cost of gas105,513  108,164  253,092  289,572  
 Less: Environmental remediation expense8,947  4,624  15,450  12,961  
 Less: Revenue taxes11,926  12,429  29,579  12,429  
Margin, net$152,655  $132,716  $403,635  $383,187  
Degree days:        
 Average (25-year average)1,329  1,316  2,727  2,705  
 Actual1,450  1,223 19%2,540  2,703 (6)%
Percent colder (warmer) than average weather9% (7) % (7) % % 

Consolidated Balance Sheets (Unaudited) March 31,
In thousands 2019 2018
Current assets:    
Cash and cash equivalents $12,817  $11,215 
Accounts receivable 93,617  77,897 
Accrued unbilled revenue 36,147  38,752 
Allowance for uncollectible accounts (1,301) (1,112)
Regulatory assets 46,317  45,900 
Derivative instruments 7,890  1,130 
Inventories 19,540  34,399 
Gas reserves 16,157  15,124 
Income taxes receivable 6,000   
Other current assets 20,293  16,877 
Discontinued operations current assets 14,632  1,512 
Total current assets 272,109  241,694 
Non-current assets:    
Property, plant, and equipment 3,439,460  3,251,075 
Less: Accumulated depreciation 1,005,117  972,773 
Total property, plant, and equipment, net 2,434,343  2,278,302 
Gas reserves 61,907  80,560 
Regulatory assets 327,194  343,037 
Derivative instruments 541  1,148 
Other investments 63,829  66,709 
Operating lease right of use asset 6,163   
Goodwill 8,954   
Other non-current assets 16,077  7,030 
Discontinued operations non-current assets   10,859 
Total non-current assets 2,919,008  2,787,645 
Total assets $3,191,117  $3,029,339 
Liabilities and equity:    
Current liabilities:    
Short-term debt $176,391  $50,000 
Current maturities of long-term debt 104,158  74,785 
Accounts payable 103,207  77,860 
Taxes accrued 11,004  12,018 
Interest accrued 9,233  9,262 
Regulatory liabilities 46,770  34,946 
Derivative instruments 2,845  17,607 
Operating lease liabilities 4,656   
Other current liabilities 54,543  39,166 
Discontinued operations current liabilities 13,282  1,209 
Total current liabilities 526,089  316,853 
Long-term debt 632,484  683,497 
Deferred credits and other non-current liabilities:    
Deferred tax liabilities 293,662  283,129 
Regulatory liabilities 600,698  600,442 
Pension and other postretirement benefit liabilities 220,732  221,732 
Derivative instruments 1,161  2,355 
Operating lease liabilities 1,495   
Other non-current liabilities 120,569  137,147 
Discontinued operations non-current liabilities   11,979 
Total deferred credits and other non-current liabilities 1,238,317  1,256,784 
Common stock 459,932  450,408 
Retained earnings 342,734  330,081 
Accumulated other comprehensive loss (8,439) (8,284)
Total equity 794,227  772,205 
Total liabilities and equity $3,191,117  $3,029,339 

Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31,
In thousands 2019 2018
Operating activities:    
Net income $43,201  $41,537 
Adjustments to reconcile net income to cash provided by operations:    
Depreciation and amortization 21,572  20,875 
Regulatory amortization of gas reserves 4,780  4,073 
Deferred income taxes 6,306  13,327 
Qualified defined benefit pension plan expense 3,499  1,435 
Contributions to qualified defined benefit pension plans (1,490) (1,720)
Deferred environmental expenditures, net (3,685) (1,280)
Amortization of environmental remediation 8,947  4,624 
Regulatory revenue recovery deferral from TCJA 450  6,424 
Regulatory disallowance of pension costs 10,500   
Other 3,171  879 
Changes in assets and liabilities:    
Receivables, net (4,891) 10,552 
Inventories 21,108  13,144 
Income and other taxes 7,406  (6,865)
Accounts payable (14,883) (19,042)
Interest accrued 1,927  2,489 
Deferred gas costs (19,182) 3,519 
Decoupling mechanism 7,903  5,431 
Other, net 8,894  3,963 
Discontinued operations (739) 1,156 
Cash provided by operating activities 104,794  104,521 
Investing activities:    
Capital expenditures (48,764) (57,329)
Other (1,991) (58)
Discontinued operations (301) (101)
Cash used in investing activities (51,056) (57,488)
Financing activities:    
Proceeds from stock options exercised 1,546   
Long-term debt retired   (22,000)
Change in short-term debt (41,229) (4,200)
Cash dividend payments on common stock (12,935) (12,781)
Other (936) (309)
Cash used in financing activities (53,554) (39,290)
Increase in cash and cash equivalents 184  7,743 
Cash and cash equivalents, beginning of period 12,633  3,472 
Cash and cash equivalents, end of period $12,817  $11,215 
Supplemental disclosure of cash flow information:    
Interest paid, net of capitalization $7,976  $6,261 
Income taxes paid (refunded), net (90) 9,800 

Reconciliation to GAAP (Unaudited)
First Quarter Results 2019
  Three Months Ended March 31,
  2019 2018
In thousands, except per share data AmountPer Share AmountPer Share
GAAP net income from continuing operations $43,418 $1.50  $42,011 $1.46 
Regulatory pension disallowance 10,500 0.36    
Income tax effect of regulatory disallowance1 (3,912)(0.13)   
Adjusted net income from continuing operations $50,006 $1.73  $42,011 $1.46 
Diluted shares  28,970   28,803 
GAAP net income $41,206 $1.42  $39,883 $1.39 
Regulatory pension disallowance 10,500 0.36    
Income tax effect of regulatory disallowance1 (3,912)(0.13)   
Adjusted net income $47,794 $1.65  $39,883 $1.39 

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.


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