Company Quick10K Filing
Quick10K
Northwest Natural Gas
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$67.37 29 $1,950
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-17 Other Events, Exhibits
8-K 2019-06-07 Other Events, Exhibits
8-K 2019-05-31 Regulation FD, Other Events, Exhibits
8-K 2019-05-31 Regulation FD, Other Events, Exhibits
8-K 2019-05-30 Amend Bylaw, Shareholder Vote, Other Events, Exhibits
8-K 2019-05-24 Other Events
8-K 2019-05-07 Earnings, Exhibits
8-K 2019-02-04 Other Events
8-K 2018-12-31 Regulation FD, Other Events, Exhibits
8-K 2018-11-06 Earnings, Exhibits
8-K 2018-10-26 Regulation FD, Other Events, Exhibits
8-K 2018-10-02 Off-BS Arrangement, Exhibits
8-K 2018-10-01 M&A, Shareholder Rights, Officers, Amend Bylaw, Regulation FD, Other Events, Exhibits
8-K 2018-09-24 Other Events, Exhibits
8-K 2018-09-10 Off-BS Arrangement, Exhibits
8-K 2018-09-07 Other Events
8-K 2018-08-07 Earnings, Exhibits
8-K 2018-07-27 Officers
8-K 2018-06-22 Enter Agreement
8-K 2018-05-24 Shareholder Vote, Other Events
8-K 2018-03-21 Other Events
8-K 2018-03-13 Enter Agreement, Exhibits
PCTY Paylocity Holding 5,050
SP SP Plus 756
PES Pioneer Energy Services 106
PPIH Perma-Pipe 71
PYDS Payment Data Systems 44
CTEK CynergisTek 43
FRSX Foresight Autonomous 38
WTT Wireless Telecom Group 33
STLY HG Holdings 0
ETFM 2050 Motors 0
NWN 2019-03-31
Part I. Financial Information
Item 1. Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 ex311q12019.htm
EX-31.2 ex312q12019.htm
EX-31.3 ex313q12019.htm
EX-31.4 ex314q12019.htm
EX-32.1 ex321q12019.htm
EX-32.2 ex322q12019.htm

Northwest Natural Gas Earnings 2019-03-31

NWN 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 form10-qq12019.htm 10-Q Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

[X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
OR
[  ]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to____________
Commission file number 1-38681
 
Commission file number 1-15973
nwnholdingshza03.jpg
 
nwn4chza02.jpg
NORTHWEST NATURAL HOLDING COMPANY
 
NORTHWEST NATURAL GAS COMPANY
(Exact name of registrant as specified in its charter) 
 
(Exact name of registrant as specified in its charter) 
Oregon
82-4710680
 
Oregon
93-0256722
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
220 N.W. Second Avenue, Portland, Oregon 97209
(Address of principal executive offices)  (Zip Code)
Registrant’s telephone number:  (503) 226-4211
 
220 N.W. Second Avenue, Portland, Oregon 97209
(Address of principal executive offices)  (Zip Code)
Registrant’s telephone number:  (503) 226-4211
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  
NORTHWEST NATURAL HOLDING COMPANY Yes [ X ]  No [   ]
 
NORTHWEST NATURAL GAS COMPANY Yes [ X ]  No [   ]
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   
NORTHWEST NATURAL HOLDING COMPANY Yes [ X ]  No [   ]
 
NORTHWEST NATURAL GAS COMPANY Yes [ X ]  No [   ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
NORTHWEST NATURAL HOLDING COMPANY
 
NORTHWEST NATURAL GAS COMPANY
Large Accelerated Filer [ X ]
 
Large Accelerated Filer [  ]
Accelerated Filer [    ]
 
Accelerated Filer [    ]
Non-accelerated Filer [ ]
 
Non-accelerated Filer [ X ]   
Smaller Reporting Company [    ]
 
Smaller Reporting Company [    ]
Emerging Growth Company [    ]
 
Emerging Growth Company [    ]
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [   ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
NORTHWEST NATURAL HOLDING COMPANY Yes [   ]  No [ X ]
 
NORTHWEST NATURAL GAS COMPANY Yes [   ]  No [ X ]
 
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
 
 
 
Registrant
 
Title of each class
 
Trading Symbol
Name of each Exchange
on Which Registered
NORTHWEST NATURAL HOLDING COMPANY
Common Stock
 
NWN
New York Stock Exchange
NORTHWEST NATURAL GAS COMPANY
None
 
 
 
 
At April 26, 2019, 28,965,723 shares of Northwest Natural Holding Company's Common Stock (the only class of Common Stock) were outstanding. All shares of Northwest Natural Gas Company's Common Stock (the only class of Common Stock) outstanding were held by Northwest Natural Holding Company.
 



This combined Form 10-Q is separately filed by Northwest Natural Holding Company and Northwest Natural Gas Company. Information contained in this document relating to Northwest Natural Gas Company is filed by Northwest Natural Holding Company and separately by Northwest Natural Gas Company. Northwest Natural Gas Company makes no representation as to information relating to Northwest Natural Holding Company or its subsidiaries, except as it may relate to Northwest Natural Gas Company and its subsidiaries.
 



NORTHWEST NATURAL GAS COMPANY
NORTHWEST NATURAL HOLDING COMPANY
For the Quarterly Period Ended March 31, 2019

TABLE OF CONTENTS

PART 1.
FINANCIAL INFORMATION
Page
 
 
 
 
 
 
 
Unaudited Financial Statements:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II.
OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I. FINANCIAL INFORMATION
FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, which are subject to the safe harbors created by such Act. 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, projections and predictions;
objectives, goals or strategies;
assumptions, generalizations and estimates;
ongoing continuation of past practices or patterns;
future events or performance;
trends;
risks;
uncertainties;
timing and cyclicality;
earnings and dividends;
capital expenditures and allocation;
capital or organizational structure;
climate change and our role in a low-carbon, renewable-energy future;
growth;
customer rates;
labor relations and workforce succession;
commodity costs;
gas reserves;
operational performance and costs;
energy policy, infrastructure and preferences;
public policy approach and involvement;
efficacy of derivatives and hedges;
liquidity, financial positions, and planned securities issuances;
valuations;
project and program development, expansion, or investment;
business development efforts, including acquisitions and integration thereof;
implementation of our water strategy;
pipeline capacity, demand, location, and reliability;
adequacy of property rights and headquarter development;
technology implementation and cybersecurity practices;
competition;
procurement and development of gas supplies;
estimated expenditures;
costs of compliance;
customers bypassing our infrastructure;
credit exposures;
rate or regulatory outcomes, recovery or refunds;
impacts or changes of laws, rules and regulations;
tax liabilities or refunds, including effects of tax reform;
levels and pricing of gas storage contracts and gas storage markets;
outcomes, timing and effects of potential claims, litigation, regulatory actions, and other administrative matters;
projected obligations, expectations and treatment with respect to retirement plans;
availability, adequacy, and shift in mix, of gas supplies;
effects of new or anticipated changes in critical accounting policies or estimates;
approval and adequacy of regulatory deferrals;
effects and efficacy of regulatory mechanisms; and
environmental, regulatory, litigation and insurance costs and recoveries, and timing thereof.

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 therefore caution you against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements are discussed in NW Holdings' and NW Natural's 2018 Annual Report on Form 10-K, 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 Disclosures about Market Risk,” 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”, respectively of Part II of this report.

4




Any forward-looking statement made in this report speaks only as of the date on which it is made. Factors or events that could cause actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. 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.


5



ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

 

Three Months Ended March 31,
In thousands, except per share data
 
2019
 
2018
 
 
 
 
 
Operating revenues
 
$
285,348

 
$
263,635

 
 
 
 
 
Operating expenses:
 
 
 
 
Cost of gas
 
105,457

 
108,106

Operations and maintenance
 
51,482

 
39,523

Environmental remediation
 
8,947

 
4,624

General taxes
 
9,027

 
9,474

Revenue taxes
 
11,926

 
12,429

Depreciation and amortization
 
21,572

 
20,875

Other operating expenses
 
892

 
853

Total operating expenses
 
209,303

 
195,884

Income from operations
 
76,045

 
67,751

Other income (expense), net
 
(13,747
)
 
(834
)
Interest expense, net
 
10,205

 
9,274

Income before income taxes
 
52,093

 
57,643

Income tax expense
 
8,675

 
15,632

Net income from continuing operations
 
43,418

 
42,011

Loss from discontinued operations, net of tax
 
(217
)
 
(474
)
Net income
 
43,201

 
41,537

Other comprehensive income:
 
 
 
 
Amortization of non-qualified employee benefit plan liability, net of taxes of $41 and $55 for the three months ended March 31, 2019 and 2018, respectively
 
115

 
154

Comprehensive income
 
$
43,316

 
$
41,691

Average common shares outstanding:
 
 
 
 
Basic
 
28,906

 
28,753

Diluted
 
28,970

 
28,803

Earnings from continuing operations per share of common stock:
 
 
 
 
Basic
 
$
1.50

 
$
1.46

Diluted
 
1.50

 
1.46

Loss from discontinued operations per share of common stock:
 
 
 
 
Basic
 
$
(0.01
)
 
$
(0.02
)
Diluted
 
(0.01
)
 
(0.02
)
Earnings per share of common stock:
 
 
 
 
Basic
 
$
1.49

 
$
1.44

Diluted
 
1.49

 
1.44


See Notes to Unaudited Consolidated Financial Statements


6



NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 
 
March 31,
 
March 31,
 
December 31,
In thousands
 
2019
 
2018
 
2018
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
12,817

 
$
11,215

 
$
12,633

Accounts receivable
 
93,617

 
77,897

 
66,970

Accrued unbilled revenue
 
36,147

 
38,752

 
57,827

Allowance for uncollectible accounts
 
(1,301
)
 
(1,112
)
 
(977
)
Regulatory assets
 
46,317

 
45,900

 
41,930

Derivative instruments
 
7,890

 
1,130

 
9,001

Inventories
 
19,540

 
34,399

 
44,149

Gas reserves
 
16,157

 
15,124

 
16,647

Income taxes receivable
 
6,000

 

 
6,000

Other current assets
 
20,293

 
16,877

 
28,472

Discontinued operations current assets (Note 17)
 
14,632

 
1,512

 
13,269

Total current assets
 
272,109

 
241,694

 
295,921

Non-current assets:
 
 
 
 
 
 
Property, plant, and equipment
 
3,439,460

 
3,251,075

 
3,414,490

Less: Accumulated depreciation
 
1,005,117

 
972,773

 
993,118

Total property, plant, and equipment, net
 
2,434,343

 
2,278,302

 
2,421,372

Gas reserves
 
61,907


80,560

 
66,197

Regulatory assets
 
327,194

 
343,037

 
371,786

Derivative instruments
 
541

 
1,148

 
725

Other investments
 
63,829

 
66,709

 
63,558

Operating lease right of use asset
 
6,163

 

 

Goodwill
 
8,954

 

 
8,954

Other non-current assets
 
16,077

 
7,030

 
14,149

Discontinued operations non-current assets (Note 17)
 

 
10,859

 

Total non-current assets
 
2,919,008

 
2,787,645

 
2,946,741

Total assets
 
$
3,191,117

 
$
3,029,339

 
$
3,242,662


See Notes to Unaudited Consolidated Financial Statements


7



NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 
 
March 31,
 
March 31,
 
December 31,
In thousands
 
2019
 
2018
 
2018
 
 
 
 
 
 
 
Liabilities and equity:
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Short-term debt
 
$
176,391

 
$
50,000

 
$
217,620

Current maturities of long-term debt
 
104,158

 
74,785

 
29,989

Accounts payable
 
103,207

 
77,860

 
115,878

Taxes accrued
 
11,004

 
12,018

 
11,023

Interest accrued
 
9,233

 
9,262

 
7,306

Regulatory liabilities
 
46,770

 
34,946

 
47,436

Derivative instruments
 
2,845

 
17,607

 
12,381

Operating lease liabilities
 
4,656

 

 

Other current liabilities
 
54,543

 
39,166

 
54,492

Discontinued operations current liabilities (Note 17)
 
13,282

 
1,209

 
12,959

Total current liabilities
 
526,089

 
316,853

 
509,084

Long-term debt
 
632,484

 
683,497

 
706,247

Deferred credits and other non-current liabilities:
 
 
 
 
 
 
Deferred tax liabilities
 
293,662

 
283,129

 
280,463

Regulatory liabilities
 
600,698

 
600,442

 
611,560

Pension and other postretirement benefit liabilities
 
220,732

 
221,732

 
221,886

Derivative instruments
 
1,161

 
2,355

 
3,025

Operating lease liabilities
 
1,495

 

 

Other non-current liabilities
 
120,569

 
137,147

 
147,763

Discontinued operations non-current liabilities (Note 17)
 

 
11,979

 

Total deferred credits and other non-current liabilities
 
1,238,317

 
1,256,784

 
1,264,697

Commitments and contingencies (Note 16)
 


 


 


Equity:
 
 
 
 
 
 
Common stock - no par value; authorized 100,000 shares; issued and outstanding 28,962, 28,781, and 28,880 at March 31, 2019 and 2018, and December 31, 2018, respectively
 
459,932

 
450,408

 
457,640

Retained earnings
 
342,734

 
330,081

 
312,182

Accumulated other comprehensive loss
 
(8,439
)
 
(8,284
)
 
(7,188
)
Total equity
 
794,227

 
772,205

 
762,634

Total liabilities and equity
 
$
3,191,117

 
$
3,029,339

 
$
3,242,662


See Notes to Unaudited Consolidated Financial Statements



8



NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
In thousands, except per share amounts
 
Three Months Ended March 31,
 
 
2019
 
2018
Total shareholders' equity, beginning balances
 
$
762,634

 
$
742,776

 
 
 
 
 
Common stock:
 
 
 
 
Beginning balances
 
457,640

 
448,865

Stock-based compensation
 
1,245

 
1,172

Shares issued pursuant to equity based plans
 
1,047

 
371

Ending balances
 
459,932

 
450,408

 
 
 
 
 
Retained earnings:
 
 
 
 
Beginning balances
 
312,182

 
302,349

Net income
 
43,201

 
41,537

Dividends on common stock
 
(14,015
)
 
(13,805
)
Reclassification of tax effects from the TCJA
 
1,366

 

Ending balances
 
342,734

 
330,081

 
 
 
 
 
Accumulated other comprehensive income (loss):
 
 
 
 
Beginning balances
 
(7,188
)
 
(8,438
)
Other comprehensive income
 
115

 
154

Reclassification of tax effects from the TCJA
 
(1,366
)
 

Ending balances
 
(8,439
)
 
(8,284
)
 
 
 
 
 
Total shareholders' equity, ending balances
 
$
794,227

 
$
772,205

 
 
 
 
 
Dividends per share of common stock
 
$
0.4750

 
$
0.4725



See Notes to Unaudited Consolidated Financial Statements


9



NORTHWEST NATURAL HOLDING COMPANY
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 the 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

See Notes to Unaudited Consolidated Financial Statements

10



NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

 
 
Three Months Ended March 31,
In thousands, except per share data
 
2019
 
2018
 
 
 
 
 
Operating revenues
 
$
284,846

 
$
263,635

 
 
 
 
 
Operating expenses:
 
 
 
 
Cost of gas
 
105,513

 
108,164

Operations and maintenance
 
50,434

 
39,500

Environmental remediation
 
8,947

 
4,624

General taxes
 
8,988

 
9,459

Revenue taxes
 
11,926

 
12,429

Depreciation and amortization
 
21,504

 
20,868

Other operating expenses
 
890

 
853

Total operating expenses
 
208,202

 
195,897

Income from operations
 
76,644

 
67,738

Other income (expense), net
 
(13,768
)
 
(815
)
Interest expense, net
 
10,133

 
9,274

Income before income taxes
 
52,743

 
57,649

Income tax expense
 
8,848

 
15,635

Net income from continuing operations
 
43,895

 
42,014

Loss from discontinued operations, net of tax
 

 
(477
)
Net income
 
43,895

 
41,537

Other comprehensive income:
 
 
 
 
Amortization of non-qualified employee benefit plan liability, net of taxes of $41 and $55 for the three months ended March 31, 2019 and 2018, respectively
 
115

 
154

Comprehensive income
 
$
44,010

 
$
41,691


See Notes to Unaudited Consolidated Financial Statements


11



NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 
 
March 31,
 
March 31,
 
December 31,
In thousands
 
2019
 
2018
 
2018
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
6,833

 
$
10,904

 
$
7,947

Accounts receivable
 
93,502

 
77,898

 
66,824

Accrued unbilled revenue
 
36,085

 
38,752

 
57,773

Receivables from affiliates
 
4,247

 
422

 
4,166

Allowance for uncollectible accounts
 
(1,300
)
 
(1,113
)
 
(975
)
Regulatory assets
 
46,317

 
45,900

 
41,930

Derivative instruments
 
7,890

 
1,130

 
9,001

Inventories
 
19,528

 
34,399

 
44,126

Gas reserves
 
16,157

 
15,124

 
16,647

Other current assets
 
19,474

 
16,821

 
25,347

Discontinued operations current assets (Note 17)
 

 
5,731

 

Total current assets
 
248,733

 
245,968

 
272,786

Non-current assets:
 
 
 
 
 
 
Property, plant, and equipment
 
3,435,304

 
3,250,700

 
3,410,439

Less: Accumulated depreciation
 
1,004,812

 
972,573

 
992,855

Total property, plant, and equipment, net
 
2,430,492

 
2,278,127

 
2,417,584

Gas reserves
 
61,907

 
80,560

 
66,197

Regulatory assets
 
327,194

 
343,037

 
371,786

Derivative instruments
 
541

 
1,148

 
725

Other investments
 
50,212

 
53,018

 
49,922

Operating lease right of use asset
 
5,903

 

 

Other non-current assets
 
15,646

 
7,017

 
13,736

Discontinued operations non-current assets (Note 17)
 

 
24,738

 

Total non-current assets
 
2,891,895

 
2,787,645

 
2,919,950

Total assets
 
$
3,140,628

 
$
3,033,613

 
$
3,192,736


See Notes to Unaudited Consolidated Financial Statements

12



NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 
 
March 31,
 
March 31,
 
December 31,
In thousands
 
2019
 
2018
 
2018
 
 
 
 
 
 
 
Liabilities and equity:
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Short-term debt
 
$
176,300

 
$
50,000

 
$
217,500

Current maturities of long-term debt
 
104,084

 
74,785

 
29,989

Accounts payable
 
102,232

 
77,590

 
114,937

Payables to affiliates
 
1,385

 
3,613

 
523

Taxes accrued
 
10,869

 
11,984

 
10,990

Interest accrued
 
9,225

 
9,262

 
7,273

Regulatory liabilities
 
46,770

 
34,946

 
47,436

Derivative instruments
 
2,845

 
17,607

 
12,381

Operating lease liabilities
 
4,477

 

 

Other current liabilities
 
53,155

 
39,180

 
53,027

Discontinued operations current liabilities (Note 17)
 

 
2,160

 

Total current liabilities
 
511,342

 
321,127

 
494,056

Long-term debt
 
630,370

 
683,497

 
704,134

Deferred credits and other non-current liabilities:
 
 
 
 
 
 
Deferred tax liabilities
 
307,704

 
299,526

 
294,739

Regulatory liabilities
 
600,698

 
600,442

 
611,560

Pension and other postretirement benefit liabilities
 
220,732

 
221,732

 
221,886

Derivative instruments
 
1,161

 
2,355

 
3,025

Operating lease liabilities
 
1,413

 

 

Other non-current liabilities
 
120,465

 
137,059

 
147,668

Discontinued operations - non-current liabilities (Note 17)
 

 
(4,330
)
 

Total deferred credits and other non-current liabilities
 
1,252,173

 
1,256,784

 
1,278,878

Commitments and contingencies (Note 16)
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
Common stock
 
226,452

 
450,408

 
226,452

Retained earnings
 
528,730

 
330,081

 
496,404

Accumulated other comprehensive loss
 
(8,439
)
 
(8,284
)
 
(7,188
)
Total equity
 
746,743

 
772,205

 
715,668

Total liabilities and equity
 
$
3,140,628

 
$
3,033,613

 
$
3,192,736


See Notes to Unaudited Consolidated Financial Statements


13



NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (UNAUDITED)
In thousands
 
Three Months Ended March 31,
 
 
2019
 
2018
Total shareholder's equity, beginning balances
 
$
715,668

 
$
742,776

 
 
 
 
 
Common stock:
 
 
 
 
Beginning balances
 
226,452

 
448,865

Stock-based compensation(1)
 

 
1,172

Additional paid-in capital pursuant to employee stock purchase plan
 

 
371

Ending balances
 
226,452

 
450,408

 
 
 
 


Retained earnings:
 
 
 
 
Beginning balances
 
496,404

 
302,349

Net income
 
43,895

 
41,537

Dividends on common stock
 
(12,935
)
 
(13,805
)
Reclassification of tax effects from the TCJA
 
1,366

 

Ending balances
 
528,730

 
330,081

 
 
 
 
 
Accumulated other comprehensive income (loss):
 
 
 
 
Beginning balances
 
(7,188
)
 
(8,438
)
Other comprehensive income
 
115

 
154

Reclassification of tax effects from the TCJA
 
(1,366
)
 

Ending balances
 
(8,439
)
 
(8,284
)
 
 
 
 
 
Total shareholder's equity, ending balances
 
$
746,743

 
$
772,205


(1) Stock-based compensation is based on stock awards of NW Natural to be issued in shares of NW Holdings.

See Notes to Unaudited Consolidated Financial Statements


14



NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 
Three Months Ended March 31,
In thousands
 
2019
 
2018
 
 
 
 
 
Operating activities:
 
 
 
 
Net income
 
$
43,895

 
$
41,537

Adjustments to reconcile net income to cash provided by operations:
 
 
 
 
Depreciation and amortization
 
21,504

 
20,868

Regulatory amortization of gas reserves
 
4,780

 
4,073

Deferred income taxes
 
6,072

 
12,862

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 deferral from the TCJA
 
450

 
6,424

Regulatory disallowance of pension costs
 
10,500

 

Other
 
3,117

 
854

Changes in assets and liabilities:
 
 
 
 
Receivables, net
 
(4,995
)
 
10,552

Inventories
 
21,097

 
13,144

Income and other taxes
 
5,037

 
(6,860
)
Accounts payable
 
(15,337
)
 
(18,645
)
Interest accrued
 
1,952

 
2,489

Deferred gas costs
 
(19,182
)
 
3,519

Decoupling mechanism
 
7,903

 
5,431

Other, net
 
10,639

 
3,963

Discontinued operations
 

 
1,301

Cash provided by operating activities
 
104,703

 
104,571

Investing activities:
 
 
 
 
Capital expenditures
 
(48,658
)
 
(57,329
)
Other
 
(1,991
)
 
(57
)
Discontinued operations
 

 
(101
)
Cash used in investing activities
 
(50,649
)
 
(57,487
)
Financing activities:
 
 
 
 
Long-term debt retired
 

 
(22,000
)
Change in short-term debt
 
(41,200
)
 
(4,200
)
Cash dividend payments on common stock
 
(12,935
)
 
(12,781
)
Other
 
(1,033
)
 
(309
)
Cash used in financing activities
 
(55,168
)
 
(39,290
)
Increase in cash and cash equivalents
 
(1,114
)
 
7,794

Cash and cash equivalents, beginning of period
 
7,947

 
3,110

Cash and cash equivalents, end of period
 
$
6,833

 
$
10,904

 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
Interest paid, net of capitalization
 
$
7,889

 
$
6,261

Income taxes paid (refunded), net
 
(90
)
 
9,800

See Notes to Unaudited Consolidated Financial Statements


15




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND PRINCIPLES OF CONSOLIDATION

On October 1, 2018, we completed a reorganization into a holding company structure. In this reorganization, shareholders of NW Natural (the predecessor publicly held parent company) became shareholders of NW Holdings on a one-for-one basis; maintaining the same number of shares and ownership percentage as held in NW Natural immediately prior to the reorganization. NW Natural became a wholly-owned subsidiary of NW Holdings. Additionally, certain subsidiaries of NW Natural were transferred to NW Holdings. This reorganization was accounted for as a transaction among entities under common control. As required under accounting guidance, these subsidiaries are presented in this report as discontinued operations in the consolidated results of NW Natural. See Note 17 for additional information.

The accompanying consolidated financial statements represent the respective, consolidated financial results of NW Holdings and NW Natural and all respective companies that each registrant directly or indirectly controls, either through majority ownership or otherwise. This is a combined report of NW Holdings and NW Natural, which includes separate consolidated financial statements for each registrant.

NW Natural's regulated natural gas distribution activities are reported in the natural gas distribution (NGD) segment. The NGD segment is NW Natural's core operating business and serves residential, commercial, and industrial customers in Oregon and southwest Washington. The NGD segment is the only reportable segment for NW Holdings and NW Natural. All other activities, water businesses, and other investments are aggregated and reported as other at their respective registrant.

In addition, NW Holdings has reported discontinued operations results related to the pending sale of Gill Ranch Storage, LLC (Gill Ranch). All prior period amounts have been retrospectively adjusted to reflect the change in reportable segments, the designation of Gill Ranch as a discontinued operation for NW Holdings, and the designation of subsidiaries previously owned by NW Natural that are now owned by NW Holdings as discontinued operations for NW Natural. These reclassifications and the reorganization activities described above had no effect on the prior year’s consolidated results of operations, financial condition, or cash flows. See Note 17 for additional information.

NW Holdings' direct and indirect wholly-owned subsidiaries as of the filing date of this report include:

Northwest Natural Gas Company (NW Natural);
Northwest Energy Corporation (Energy Corp);
NWN Gas Reserves LLC (NWN Gas Reserves);
NW Natural Energy, LLC (NWN Energy);
NW Natural Gas Storage, LLC (NWN Gas Storage);
Gill Ranch Storage, LLC (Gill Ranch), which is presented as a discontinued operation;
NNG Financial Corporation (NNG Financial);
KB Pipeline Company (KB);
NW Natural Water Company, LLC (NWN Water);
Falls Water Co., Inc. (Falls Water);
Salmon Valley Water Company;
NW Natural Water of Oregon, LLC (NWN Water of Oregon);
Sunstone Water, LLC;
NW Natural Water of Washington, LLC (NWN Water of Washington);
Cascadia Water, LLC (Cascadia);
NW Natural Water of Idaho, LLC (NWN Water of Idaho); and
Gem State Water Company, LLC (Gem State)

Investments in corporate joint ventures and partnerships that NW Holdings does not directly or indirectly control, and for which it is not the primary beneficiary, include NNG Financial's investment in Kelso-Beaver Pipeline and NWN Energy's investment in Trail West Holdings, LLC (TWH), which are accounted for under the equity method. NW Holdings and its direct and indirect subsidiaries are collectively referred to herein as NW Holdings, and NW Natural and its direct and indirect subsidiaries are collectively referred to herein as NW Natural. The consolidated financial statements of NW Holdings and NW Natural are presented after elimination of all intercompany balances and transactions.

Information presented in these interim consolidated financial statements is unaudited, but includes all material adjustments management considers necessary for a fair statement of the results for each period reported including normal recurring accruals. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in NW Holdings' and NW Natural's combined 2018 Annual Report on Form 10-K (2018 Form 10-K). A significant part of NW Natural's business is of a seasonal nature; therefore, NW Holdings and NW Natural results of operations for interim periods are not necessarily indicative of full year results.

16




During the second quarter of 2018, we moved forward with our long-term strategic plans, which include a shift away from the California gas storage business. In June 2018, NWN Gas Storage, a wholly-owned subsidiary of NW Natural at the time and now a wholly-owned subsidiary of NW Holdings, entered into a Purchase and Sale Agreement that provides for the sale of all of the membership interests in its wholly-owned subsidiary, Gill Ranch, subject to various regulatory approvals and closing conditions. We have concluded that the pending sale of Gill Ranch qualifies as assets and liabilities held for sale and discontinued operations. As such, the results of Gill Ranch have been presented as a discontinued operation for NW Holdings for all periods presented and for NW Natural up until the holding company reorganization was effective on October 1, 2018 on the consolidated statements of comprehensive income and cash flows, and the assets and liabilities associated with Gill Ranch have been classified as discontinued operations assets and liabilities on the NW Holdings consolidated balance sheet. See Note 17 for additional information. Additionally, we reevaluated reportable segments and concluded that the remaining gas storage activities no longer meet the requirements to be separately reported as a segment. Interstate Storage Services is now reported in Other under NW Natural and NW Holdings as applicable, and all prior periods reflect this change. See Note 4, which provides segment information.

Notes to the consolidated financial statements reflect the activity of continuing operations for both NW Holdings and NW Natural for all periods presented, unless otherwise noted.
2. SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies are described in Note 2 of the 2018 Form 10-K. There were no material changes to those accounting policies during the three months ended March 31, 2019 other than those set forth in this Note 2. The following are current updates to certain critical accounting policy estimates and new accounting standards.
  
Industry Regulation  
In applying regulatory accounting principles, NW Holdings and NW Natural capitalize or defer certain costs and revenues as regulatory assets and liabilities pursuant to orders of the Oregon Public Utilities Commission (OPUC), Washington Utilities and Transportation Commission (WUTC) or Idaho Public Utilities Commission (IPUC), which provide for the recovery of revenues or expenses from, or refunds to, utility customers in future periods, including a return or a carrying charge in certain cases.
Amounts deferred as regulatory assets and liabilities were as follows:


Regulatory Assets
 
 
March 31,
 
December 31,
In thousands
 
2019
 
2018
 
2018
Current:
 
 
 
 
 
 
Unrealized loss on derivatives(1)
 
$
2,845

 
$
17,569

 
$
12,381

Gas costs
 
17,927

 
591

 
2,873

Environmental costs(2)
 
5,090

 
5,818

 
5,601

Decoupling(3)
 
3,937

 
9,578

 
9,140

Pension balancing(4)
 
4,955

 

 

Income taxes
 
2,209

 
2,218

 
2,218

Other(5)
 
9,354

 
10,126

 
9,717

Total current
 
$
46,317

 
$
45,900

 
$
41,930

Non-current:
 
 
 
 
 
 
Unrealized loss on derivatives(1)
 
$
1,161

 
$
2,355

 
$
3,025

Pension balancing(4)
 
50,408

 
63,940

 
74,173

Income taxes
 
17,758

 
19,267

 
19,185

Pension and other postretirement benefit liabilities
 
171,565

 
175,505

 
174,993

Environmental costs(2)
 
66,612

 
66,730

 
76,149

Gas costs
 
8,919

 
49

 
9,978

Decoupling(3)
 
250

 
2,663

 
2,545

Other(5)
 
10,521

 
12,528

 
11,738

Total non-current
 
$
327,194

 
$
343,037

 
$
371,786


17



 
 
Regulatory Liabilities
 
 
March 31,
 
December 31,
In thousands
 
2019
 
2018
 
2018
Current:
 
 
 
 
 
 
Gas costs
 
$
11,126

 
$
17,798

 
$
17,182

Unrealized gain on derivatives(1)
 
7,284

 
1,120

 
8,740

Decoupling(3)
 
2,055

 
2,501

 
2,264

Income taxes
 
7,763

 

 

Other(5)
 
18,542

 
13,527

 
19,250

Total current
 
$
46,770

 
$
34,946

 
$
47,436

Non-current:
 
 
 
 
 
 
Gas costs
 
$
1,421

 
$
5,639

 
$
552

Unrealized gain on derivatives(1)
 
541

 
1,148

 
725

Decoupling(3)
 
614

 
1,253

 

Income taxes(6)
 
202,692

 
219,795

 
225,408

Accrued asset removal costs(7)
 
384,702

 
365,363

 
380,464

Other(5)
 
10,728

 
7,244

 
4,411

Total non-current
 
$
600,698

 
$
600,442

 
$
611,560

(1) 
Unrealized gains or losses on derivatives are non-cash items and therefore do not earn a rate of return or a carrying charge. These amounts are recoverable through NGD rates as part of the annual Purchased Gas Adjustment (PGA) mechanism when realized at settlement.
(2) 
Refer to footnote (3) of the Deferred Regulatory Asset table in Note 16 for a description of environmental costs.
(3) 
This deferral represents the margin adjustment resulting from differences between actual and expected volumes. 
(4) 
Refer to Note 9 for information regarding the deferral of pension expenses.
(5) 
Balances consist of deferrals and amortizations under approved regulatory mechanisms and typically earn a rate of return or carrying charge.
(6) 
This balance represents estimated amounts associated with the Tax Cuts and Jobs Act. See Note 10.
(7) 
Estimated costs of removal on certain regulated properties are collected through rates.

We believe all costs incurred and deferred at March 31, 2019 are prudent. All regulatory assets and liabilities are reviewed annually for recoverability, or more often if circumstances warrant. If we should determine that all or a portion of these regulatory assets or liabilities no longer meet the criteria for continued application of regulatory accounting, then NW Natural would be required to write-off the net unrecoverable balances in the period such determination is made.

New Accounting Standards
We consider the applicability and impact of all accounting standards updates (ASUs) issued by the Financial Accounting Standards Board (FASB). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on NW Natural's consolidated financial position or results of operations.

Recently Adopted Accounting Pronouncements
ACCUMULATED OTHER COMPREHENSIVE INCOME. On February 14, 2018, the FASB issued ASU 2018-02, "Income Statement—Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." This update was issued in response to concerns from certain stakeholders regarding the current requirements under U.S. GAAP that deferred tax assets and liabilities are adjusted for a change in tax laws or rates, and the effect is to be included in income from continuing operations in the period of the enactment date. This requirement is also applicable to items in accumulated other comprehensive income where the related tax effects were originally recognized in other comprehensive income. The adjustment of deferred taxes due to the new corporate income tax rate enacted through the Tax Cuts and Jobs Act (TCJA) on December 22, 2017 recognized in income from continuing operations causes the tax effects of items within accumulated other comprehensive income (referred to as stranded tax effects) to not reflect the appropriate tax rate. The amendments in this update allow but do not require a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA and require certain disclosures about stranded tax effects. NW Natural adopted and applied the standard in the first quarter of 2019. NW Natural elected to reclassify the stranded tax effects of the TJCA of $1.4 million from accumulated other comprehensive loss to retained earnings in the period of adoption. Going forward, our policy is that, in the event that regulation changes result in stranded tax effects, such amounts will be reclassified from accumulated other comprehensive income (loss) to retained earnings in the final period that the related deferred tax balance remeasurement is expected to impact income from continuing operations.

DERIVATIVES AND HEDGING. On August 28, 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities." The purpose of the amendment is to more closely align hedge accounting with companies’ risk management strategies. The ASU amends the accounting for risk component hedging, the hedged item in fair value hedges of interest rate risk, and amounts excluded from the assessment of hedge effectiveness. The guidance also amends the recognition and presentation of the effect of hedging instruments and includes other simplifications of hedge

18



accounting. The amendments in this update were effective beginning January 1, 2019 and were applied prospectively to hedging instruments. The adoption did not have an impact on the financial statements or disclosures of NW Holdings or NW Natural.

GOODWILL. On January 26, 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment." The ASU removes Step 2 from the goodwill impairment test and under the amended guidance an entity should perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount in which the carrying amounts exceed the fair value of the reporting unit. The amendments in this standard are effective for us beginning January 1, 2020 and early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. NW Natural early adopted ASU 2017-04 in the quarter ended September 30, 2018. The adoption of this ASU did not materially affect the financial statements and disclosures of NW Holdings or NW Natural.

LEASES. On February 25, 2016, the FASB issued ASU 2016-02, "Leases," which revises the existing lease accounting guidance. Pursuant to the new standard (“ASC 842”), lessees are required to recognize all leases, including operating leases that are greater than 12 months at lease commencement, on the balance sheet and record corresponding right of use assets and lease liabilities. Lessor accounting will remain substantially the same under the new standard. Quantitative and qualitative disclosures are also required for users of the financial statements to have a clear understanding of the nature of our leasing activities.

We elected the alternative prospective transition approach for adoption beginning January 1, 2019. All comparative periods prior to January 1, 2019 will retain the financial reporting and disclosure requirements of ASC 840 “Leases” (“ASC 840”). There was no cumulative effect adjustment to the opening balance of retained earnings recorded as of January 1, 2019 for adoption as there were no initial direct costs or other capitalized costs related to the legacy leases that needed to be derecognized upon adoption of ASC 842. 

We elected the land easement optional practical expedient to not evaluate existing or expired land easements that were not previously accounted for as leases under the ASC 840 lease guidance. For the existing lease portfolio, we did not elect the optional practical expedient package to retain the legacy lease accounting conclusions upon adoption; we re-assessed our existing contracts under the new leasing standard including whether the contract meets the definition of a lease and lease classification. As a result, we determined that most of our underground gas storage contracts no longer meet the definition of a lease under the new lease standard. Our lease portfolio under the new standard consists primarily of our current leased headquarters, which expires in 2020. 

In October 2017, NW Natural entered into a 20-year operating lease agreement commencing in 2020 for a new headquarters location in Portland, Oregon. The lease was analyzed under ASC 840 in consideration of build-to-suit lease accounting guidance with the conclusion that NW Natural was the accounting owner of the asset during construction. Under the new lease standard, ASC 842, NW Natural is no longer considered the accounting owner of the asset during construction. As such, in January 2019 we derecognized the build-to-suit asset and liability balances of $26.0 million as of December 31, 2018 that were previously recorded within property, plant and equipment and other non-current liabilities in the consolidated balance sheet.

Upon adoption on January 1, 2019, NW Holdings recorded an operating lease right of use asset and an associated operating lease liability of approximately $7.3 million, of which $7.0 million was recorded at NW Natural. Lease liabilities are measured using NW Natural's incremental borrowing rate based on information available at the lease commencement date in determining the present value of lease payments. See Note 6.

CLOUD COMPUTING. On August 29, 2018, the FASB issued ASU 2018-15, "Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." The purpose of the amendment is to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments in this update are effective for us beginning January 1, 2020. Early adoption is permitted, and NW Holdings and NW Natural early adopted ASU 2018-15 in the quarter ended March 31, 2019 utilizing the prospective application methodology. The adoption of this ASU did not materially affect the financial statements and disclosures of NW Holdings or NW Natural.

Recently Issued Accounting Pronouncements
RETIREMENT BENEFITS. On August 28, 2018, the FASB issued ASU 2018-14, "Changes to the Disclosure Requirements for Defined Benefit Plans." The purpose of the amendment is to modify the disclosure requirements for defined benefit pension and other postretirement plans. The amendments in this update are effective for us beginning January 1, 2020. Early adoption is permitted. The amended presentation and disclosure guidance should be applied retrospectively. We are currently assessing the effect of this standard on disclosures.

FAIR VALUE MEASUREMENT. On August 28, 2018, the FASB issued ASU 2018-13, "Changes to the Disclosure Requirements for Fair Value Measurement." The purpose of the amendment is to modify the disclosure requirements for fair value measurements. The amendments in this update are effective for us beginning January 1, 2020. Early adoption is permitted. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied

19



prospectively. All other amendments should be applied retrospectively. We are currently assessing the effect of this standard on disclosures.

CREDIT LOSSES. On June 16, 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments," which applies to financial assets subject to credit losses and measured at amortized cost. The new standard will require financial assets measured at amortized cost to be presented at the net amount expected to be collected and the allowance for credit losses is to be recorded as a valuation account that is deducted from the amortized cost basis. The amendments in this update are effective beginning January 1, 2020. Early adoption is permitted for fiscal years beginning after December 15, 2018. We are currently assessing the effect of this standard on our financial statements and disclosures.
3. EARNINGS PER SHARE

Basic earnings per share are computed using NW Holdings' net income and the weighted average number of common shares outstanding for each period presented. Diluted earnings per share are computed in the same manner, except using the weighted average number of common shares outstanding plus the effects of the assumed exercise of stock options and the payment of estimated stock awards from other stock-based compensation plans that are outstanding at the end of each period presented. Antidilutive stock awards are excluded from the calculation of diluted earnings per common share.

NW Holdings' diluted earnings or loss per share are calculated as follows:
 
 
Three Months Ended March 31,
In thousands, except per share data
 
2019
 
2018
Net Income from continuing operations
 
$
43,418

 
$
42,011

Loss from discontinued operations, net of tax
 
(217
)
 
(474
)
Net income
 
$
43,201

 
$
41,537

Average common shares outstanding - basic
 
28,906

 
28,753

Additional shares for stock-based compensation plans (See Note 7)
 
64

 
50

Average common shares outstanding - diluted
 
28,970

 
28,803

Earnings from continuing operations per share of common stock:
 
 
 
 
Basic
 
$
1.50

 
$
1.46

Diluted
 
$
1.50

 
$
1.46

Loss from discontinued operations per share of common stock:
 
 
 
 
Basic
 
$
(0.01
)
 
$
(0.02
)
Diluted
 
$
(0.01
)
 
$
(0.02
)
Earnings per share of common stock:
 
 
 
 
Basic
 
$
1.49

 
$
1.44

Diluted
 
$
1.49

 
$
1.44

Additional information:
 
 
 
 
Antidilutive shares
 
5

 
16

4. SEGMENT INFORMATION

We primarily operate in one reportable business segment, which is NW Natural's local gas distribution business and is referred to as the NGD segment. During the second quarter of 2018, we moved forward with long-term strategic plans, which include a shift away from the California gas storage business, by entering into a Purchase and Sale Agreement that provides for the sale of all of the membership interests in Gill Ranch, subject to various regulatory approvals and closing conditions. As such, we reevaluated reportable segments and concluded that the remaining gas storage activities no longer meet the requirements of a reportable segment. Interstate Storage Services and asset management activities at the Mist gas storage facility, are now reported as other under NW Natural. NW Natural and NW Holdings also have investments and business activities not specifically related to the NGD, which are aggregated and reported as other and described below for each entity.

Natural Gas Distribution
NW Natural's local gas distribution segment is a regulated utility principally engaged in the purchase, sale, and delivery of natural gas and related services to customers in Oregon and southwest Washington. In addition to NW Natural's local gas distribution business, the NGD segment also includes the portion of the Mist underground storage facility used to serve NGD customers, the North Mist gas storage expansion in Oregon, and NWN Gas Reserves, which is a wholly-owned subsidiary of Energy Corp.


20



NW Natural
NW Natural's activities in Other include Interstate Storage Services and third-party asset management services for the Mist facility in Oregon, appliance retail center operations, and corporate operating and non-operating revenues and expenses that cannot be allocated to NGD operations.

Earnings from Interstate Storage Services assets are primarily related to firm storage capacity revenues. Earnings from the Mist facility also include revenue, net of amounts shared with NGD customers, from management of NGD assets at Mist and upstream pipeline capacity when not needed to serve NGD customers. Under the Oregon sharing mechanism, NW Natural retains 80% of the pre-tax income from these services when the costs of the capacity were not included in NGD rates, or 10% of the pre-tax income when the costs have been included in these rates. The remaining 20% and 90%, respectively, are recorded in a deferred regulatory account for crediting back to NGD customers.

NW Holdings
NW Holdings' activities in Other include all remaining activities not associated with NW Natural, specifically NWN Water, which consolidates the water operations and is pursuing other investments in the water sector itself and through its wholly-owned subsidiaries, NWN Gas Storage, a wholly-owned subsidiary of NWN Energy, NWN Energy's equity investment in TWH, which is pursuing development of a cross-Cascades transmission pipeline project (TWP), and other pipeline assets in NNG Financial. For more information on TWP, see Note 13. Other also includes corporate revenues and expenses that cannot be allocated to other operations.

All prior period amounts have been retrospectively adjusted to reflect the change in reportable segments and the designation of Gill Ranch as a discontinued operation for NW Holdings, and the designation of subsidiaries previously owned by NW Natural that are now owned by NW Holdings as discontinued operations for NW Natural.

Segment Information Summary
Inter-segment transactions were immaterial for the periods presented. The following table presents summary financial information concerning the reportable segments of continuing operations. See Note 17 for information regarding discontinued operations for NW Holdings and NW Natural.
 
 
Three Months Ended March 31,
In thousands
 
NGD
 
Other
(NW Natural)
 
NW Natural
 
Other
(NW Holdings)
 
NW Holdings
2019
 
 
 
 
 
 
 
 
 
 
Operating revenues
 
$
279,041

 
$
5,805

 
$
284,846

 
$
502

 
$
285,348

Depreciation and amortization
 
21,249

 
255

 
21,504

 
68

 
21,572

Income (loss) from operations
 
72,898

 
3,746

 
76,644

 
(599
)
 
76,045

Net income (loss) from continuing operations
 
41,206

 
2,689

 
43,895

 
(477
)
 
43,418

Capital expenditures

48,606

 
52

 
48,658

 
106

 
48,764

Total assets at March 31, 2019(1)
 
3,091,062

 
49,566

 
3,140,628

 
35,857

 
3,176,485

2018
 
 
 
 
 
 
 
 
 
 
Operating revenues
 
$
257,933

 
$
5,702

 
$
263,635

 
$

 
$
263,635

Depreciation and amortization
 
20,543

 
325

 
20,868

 
7

 
20,875

Income from operations
 
64,756

 
2,982

 
67,738

 
13

 
67,751

Net income (loss) from continuing operations
 
39,883

 
2,131

 
42,014

 
(3
)
 
42,011

Capital expenditures
 
56,894

 
435

 
57,329

 

 
57,329

Total assets at March 31, 2018(1)
 
2,952,294

 
50,850

 
3,003,144

 
13,824

 
3,016,968

Total assets at December 31, 2018(1)
 
3,141,969

 
50,767

 
3,192,736

 
36,657

 
3,229,393

(1)
Total assets for NW Holdings exclude assets related to discontinued operations of $14.6 million, $12.4 million, and $13.3 million as of March 31, 2019, March 31, 2018, and December 31, 2018, respectively. Total assets for NW Natural exclude assets related to discontinued operations of $30.5 million as of March 31, 2018.

Natural Gas Distribution Margin
NGD margin is a financial measure used by the Chief Operating Decision Maker (CODM), consisting of NGD operating revenues, reduced by the associated cost of gas, environmental remediation expense, and revenue taxes. The cost of gas purchased for NGD customers is generally a pass-through cost in the amount of revenues billed to regulated NGD customers. Environmental remediation expense represents collections received from customers through the environmental recovery mechanism in Oregon as well as adjustments for the environmental earnings test. This is offset by environmental remediation expense presented in in operating expenses. Revenue taxes are collected from NGD customers and remitted to taxing authorities. The collections from customers are offset by the expense recognition of the obligation to the taxing authority. By subtracting cost of gas, environmental remediation expense, and revenue taxes from NGD operating revenues, NGD margin provides a key metric used by the CODM in assessing the performance of the NGD segment.

21




The following table presents additional segment information concerning NGD margin:
 
 
Three Months Ended March 31,
In thousands
 
2019
 
2018
NGD margin calculation:
 
 
 
 
NGD operating revenues
 
$
279,041

 
$
257,933

Less: NGD cost of gas
 
105,513

 
108,164

          Environmental remediation expense
 
8,947

 
4,624

Revenue taxes
 
11,926

 
12,429

NGD margin
 
$
152,655

 
$
132,716

5. REVENUE

The following table presents disaggregated revenue from continuing operations:
 
 
Three Months Ended March 31,
In thousands
 
NGD
 
Other
(NW Natural)
 
NW Natural
 
Other
(NW Holdings)
 
NW Holdings
2019
 
 
 
 
 
 
 
 
 
 
Natural gas sales
 
$
296,186

 
$

 
$
296,186

 
$

 
$
296,186

Gas storage revenue, net
 

 
2,783

 
2,783

 

 
2,783

Asset management revenue, net
 

 
1,506

 
1,506

 

 
1,506

Appliance retail center revenue
 

 
1,516

 
1,516

 

 
1,516

Other revenue
 

 

 

 
502

 
502

    Revenue from contracts with customers
 
296,186

 
5,805

 
301,991

 
502

 
302,493

 
 
 
 
 
 
 
 
 
 
 
Alternative revenue
 
(17,253
)
 

 
(17,253
)
 

 
(17,253
)
Leasing revenue
 
108

 

 
108

 

 
108

    Total operating revenues
 
$
279,041

 
$
5,805

 
$
284,846

 
$
502

 
$
285,348

 
 
 
 
 
 
 
 
 
 
 
2018
 
 
 
 
 
 
 
 
 
 
Natural gas sales
 
$
258,229

 
$

 
$
258,229

 
$

 
$
258,229

Gas storage revenue, net
 

 
2,577

 
2,577

 

 
2,577

Asset management revenue, net
 

 
1,579