Wdesk | Document
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
OR
o 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 1-03480
MDU RESOURCES GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
41-0423660
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)

1200 West Century Avenue
P.O. Box 5650
Bismarck, North Dakota 58506-5650
(Address of principal executive offices)
(Zip Code)
(701) 530-1000
(Registrant's telephone number, including area code)

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. Yes ý No o.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 (Check one):
Large accelerated filer ý
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
 
Emerging growth company o
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý.
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of April 27, 2018: 195,304,376 shares.





Index
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2
 
 
 
Item 3
 
 
 
Item 4
 
 
 
 
 
 
 
Item 1
 
 
 
Item 1A
 
 
 
Item 2
 
 
 
Item 4
 
 
 
Item 5
 
 
 
Item 6
 
 
 
 
 
 

2



Definitions
The following abbreviations and acronyms used in this Form 10-Q are defined below:
Abbreviation or Acronym
 
2017 Annual Report
Company's Annual Report on Form 10-K for the year ended December 31, 2017
AFUDC
Allowance for funds used during construction
ASC
FASB Accounting Standards Codification
ASU
FASB Accounting Standards Update
Brazilian Transmission Lines
Company's former investment in companies owning three electric transmission lines in Brazil
Calumet
Calumet Specialty Products Partners, L.P.
Cascade
Cascade Natural Gas Corporation, an indirect wholly owned subsidiary of MDU Energy Capital
Centennial
Centennial Energy Holdings, Inc., a direct wholly owned subsidiary of the Company
Centennial Capital
Centennial Holdings Capital LLC, a direct wholly owned subsidiary of Centennial
Centennial Resources
Centennial Energy Resources LLC, a direct wholly owned subsidiary of Centennial
Company
MDU Resources Group, Inc.
Coyote Creek
Coyote Creek Mining Company, LLC, a subsidiary of The North American Coal Corporation
Coyote Station
427-MW coal-fired electric generating facility near Beulah, North Dakota (25 percent ownership)
Dakota Prairie Refinery
20,000-barrel-per-day diesel topping plant built by Dakota Prairie Refining in southwestern North Dakota
Dakota Prairie Refining
Dakota Prairie Refining, LLC, a limited liability company previously owned by WBI Energy and Calumet (previously included in the Company's refining segment)
dk
Decatherm
Dodd-Frank Act
Dodd-Frank Wall Street Reform and Consumer Protection Act
EPA
United States Environmental Protection Agency
Exchange Act
Securities Exchange Act of 1934, as amended
FASB
Financial Accounting Standards Board
FERC
Federal Energy Regulatory Commission
Fidelity
Fidelity Exploration & Production Company, a direct wholly owned subsidiary of WBI Holdings (previously referred to as the Company's exploration and production segment)
GAAP
Accounting principles generally accepted in the United States of America
GHG
Greenhouse gas
Great Plains
Great Plains Natural Gas Co., a public utility division of the Company
IBEW
International Brotherhood of Electrical Workers
ICWU
International Chemical Workers Union
Intermountain
Intermountain Gas Company, an indirect wholly owned subsidiary of MDU Energy Capital
IPUC
Idaho Public Utilities Commission
Knife River
Knife River Corporation, a direct wholly owned subsidiary of Centennial
Knife River - Northwest
Knife River Corporation - Northwest, an indirect wholly owned subsidiary of Knife River
kWh
Kilowatt-hour
LWG
Lower Willamette Group
MD&A
Management's Discussion and Analysis of Financial Condition and Results of Operations
MDU Construction Services
MDU Construction Services Group, Inc., a direct wholly owned subsidiary of Centennial
MDU Energy Capital
MDU Energy Capital, LLC, a direct wholly owned subsidiary of the Company
MISO
Midcontinent Independent System Operator, Inc.
MMcf
Million cubic feet
MMdk
Million dk
MNPUC
Minnesota Public Utilities Commission
Montana-Dakota
Montana-Dakota Utilities Co., a public utility division of the Company
MTPSC
Montana Public Service Commission
MW
Megawatt

3



NDPSC
North Dakota Public Service Commission
OPUC
Oregon Public Utility Commission
Oregon DEQ
Oregon State Department of Environmental Quality
Pronghorn
Natural gas processing plant located near Belfield, North Dakota (WBI Energy Midstream's 50 percent ownership interests were sold effective January 1, 2017)
PRP
Potentially Responsible Party
ROD
Record of Decision
SDPUC
South Dakota Public Utilities Commission
SEC
United States Securities and Exchange Commission
SSIP
System Safety and Integrity Program
TCJA
Tax Cuts and Jobs Act
Tesoro
Tesoro Refining & Marketing Company LLC
VIE
Variable interest entity
Washington DOE
Washington State Department of Ecology
WBI Energy
WBI Energy, Inc., a direct wholly owned subsidiary of WBI Holdings
WBI Energy Midstream
WBI Energy Midstream, LLC, an indirect wholly owned subsidiary of WBI Holdings
WBI Energy Transmission
WBI Energy Transmission, Inc., an indirect wholly owned subsidiary of WBI Holdings
WBI Holdings
WBI Holdings, Inc., a direct wholly owned subsidiary of Centennial
WUTC
Washington Utilities and Transportation Commission
WYPSC
Wyoming Public Service Commission

4



Forward-Looking Statements
This Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Exchange Act. Forward-looking statements are all statements other than statements of historical fact, including without limitation those statements that are identified by the words "anticipates," "estimates," "expects," "intends," "plans," "predicts" and similar expressions, and include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions (many of which are based, in turn, upon further assumptions) and other statements that are not statements of historical facts. From time to time, the Company may publish or otherwise make available forward-looking statements of this nature, including statements contained within Part I, Item 2 - MD&A - Business Segment Financial and Operating Data.
Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed. The Company's expectations, beliefs and projections are expressed in good faith and are believed by the Company to have a reasonable basis, including without limitation, management's examination of historical operating trends, data contained in the Company's records and other data available from third parties. Nonetheless, the Company's expectations, beliefs or projections may not be achieved or accomplished.
Any forward-looking statement contained in this document speaks only as of the date on which the statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances that occur after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of the factors, nor can it assess the effect of each factor on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. All forward-looking statements, whether written or oral and whether made by or on behalf of the Company, are expressly qualified by the risk factors and cautionary statements reported in Part I, Item 1A - Risk Factors in the 2017 Annual Report and subsequent filings with the SEC.
Introduction
The Company is a regulated energy delivery and construction materials and services business, which was incorporated under the laws of the state of Delaware in 1924. Its principal executive offices are at 1200 West Century Avenue, P.O. Box 5650, Bismarck, North Dakota 58506-5650, telephone (701) 530-1000.
Montana-Dakota, Great Plains, Cascade and Intermountain comprise the natural gas distribution segment. Montana-Dakota also comprises the electric segment.
The Company, through its wholly owned subsidiary, Centennial, owns WBI Holdings, Knife River, MDU Construction Services, Centennial Resources and Centennial Capital. WBI Holdings is the pipeline and midstream segment, Knife River is the construction materials and contracting segment, MDU Construction Services is the construction services segment, and Centennial Resources and Centennial Capital are both reflected in the Other category.
For more information on the Company's business segments, see Note 13.

5



Part I -- Financial Information
Item 1. Financial Statements
MDU Resources Group, Inc.
Consolidated Statements of Income
(Unaudited)
 
 
Three Months Ended
 
 
March 31,
 
 
2018

2017

 
 
(In thousands, except per share amounts)
Operating revenues:
 
 
 
Electric, natural gas distribution and regulated pipeline and midstream
 
$
424,459

$
433,614

Nonregulated pipeline and midstream, construction materials and contracting, construction services and other
 
551,834

504,311

Total operating revenues 
 
976,293

937,925

Operating expenses:
 
 

 

Operation and maintenance:
 
 

 

Electric, natural gas distribution and regulated pipeline and midstream
 
86,112

79,548

Nonregulated pipeline and midstream, construction materials and contracting, construction services and other
 
514,744

478,994

Total operation and maintenance
 
600,856

558,542

Purchased natural gas sold
 
181,967

192,948

Depreciation, depletion and amortization
 
52,729

51,325

Taxes, other than income
 
48,854

47,438

Electric fuel and purchased power
 
22,511

21,886

Total operating expenses
 
906,917

872,139

Operating income
 
69,376

65,786

Other income
 
582

2,343

Interest expense
 
20,447

20,303

Income before income taxes
 
49,511

47,826

Income taxes
 
7,551

12,188

Income from continuing operations
 
41,960

35,638

Income from discontinued operations, net of tax (Note 9)
 
477

1,687

Net income
 
42,437

37,325

Dividends declared on preferred stocks
 

171

Earnings on common stock
 
$
42,437

$
37,154

Earnings per common share - basic:
 
 

 

Earnings before discontinued operations
 
$
.22

$
.18

Discontinued operations, net of tax
 

.01

Earnings per common share - basic
 
$
.22

$
.19

Earnings per common share - diluted:
 
 

 

Earnings before discontinued operations
 
$
.22

$
.18

Discontinued operations, net of tax
 

.01

Earnings per common share - diluted
 
$
.22

$
.19

Dividends declared per common share
 
$
.1975

$
.1925

Weighted average common shares outstanding - basic
 
195,304

195,304

Weighted average common shares outstanding - diluted
 
195,982

196,023

The accompanying notes are an integral part of these consolidated financial statements.

6



MDU Resources Group, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
 
 
Three Months Ended
 
 
March 31,
 
 
2018

2017

 
 
(In thousands)
Net income
 
$
42,437

$
37,325

Other comprehensive income (loss):
 
 
 
Reclassification adjustment for loss on derivative instruments included in net income, net of tax of $56 and $56 for the three months ended in 2018 and 2017, respectively
 
92

91

Postretirement liability adjustment:
 
 
 
Amortization of postretirement liability losses included in net periodic benefit cost (credit), net of tax of $155 and $217 for the three months ended in 2018 and 2017, respectively
 
418

357

Reclassification of postretirement liability adjustment from regulatory asset, net of tax of $0 and $(725) for the three months ended in 2018 and 2017, respectively
 

(917
)
Postretirement liability adjustment
 
418

(560
)
Foreign currency translation adjustment recognized during the period, net of tax of $(1) and $5 for the three months ended in 2018 and 2017, respectively
 
(2
)
9

Net unrealized gain (loss) on available-for-sale investments:
 
 
 
Net unrealized loss on available-for-sale investments arising during the period, net of tax of $(28) and $(15) for the three months ended in 2018 and 2017, respectively
 
(105
)
(27
)
Reclassification adjustment for loss on available-for-sale investments included in net income, net of tax of $7 and $19 for the three months ended in 2018 and 2017, respectively
 
30

35

Net unrealized gain (loss) on available-for-sale investments
 
(75
)
8

Other comprehensive income (loss)
 
433

(452
)
Comprehensive income attributable to common stockholders
 
$
42,870

$
36,873

The accompanying notes are an integral part of these consolidated financial statements.



7



MDU Resources Group, Inc.
Consolidated Balance Sheets
(Unaudited)
 
March 31, 2018

March 31, 2017

December 31, 2017

(In thousands, except shares and per share amounts)
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
58,764

$
50,735

$
34,599

Receivables, net
664,319

554,185

727,030

Inventories
257,792

250,609

226,583

Prepayments and other current assets
59,481

79,254

81,304

Current assets held for sale
458

7,290

479

Total current assets
1,040,814

942,073

1,069,995

Investments
138,451

129,009

137,613

Property, plant and equipment
6,842,967

6,544,077

6,770,829

Less accumulated depreciation, depletion and amortization
2,725,484

2,609,303

2,691,641

Net property, plant and equipment
4,117,483

3,934,774

4,079,188

Deferred charges and other assets:
 

 

 

Goodwill
631,791

631,791

631,791

Other intangible assets, net
3,465

5,347

3,837

Other
412,456

409,745

407,850

Noncurrent assets held for sale
4,392

95,719

4,392

Total deferred charges and other assets 
1,052,104

1,142,602

1,047,870

Total assets
$
6,348,852

$
6,148,458

$
6,334,666

Liabilities and Stockholders' Equity
 

 

 

Current liabilities:
 

 

 

Long-term debt due within one year
$
149,199

$
43,499

$
148,499

Accounts payable
267,994

239,013

312,327

Taxes payable
57,354

74,638

42,537

Dividends payable
38,573

37,767

38,573

Accrued compensation
35,087

32,350

72,919

Other accrued liabilities
204,328

188,373

186,010

Current liabilities held for sale
11,726

2,394

11,993

Total current liabilities 
764,261

618,034

812,858

Long-term debt
1,630,343

1,659,507

1,566,354

Deferred credits and other liabilities:
 

 

 

Deferred income taxes
346,218

666,905

347,271

Other
1,181,919

890,107

1,179,140

Total deferred credits and other liabilities 
1,528,137

1,557,012

1,526,411

Commitments and contingencies






Stockholders' equity:
 

 

 

Preferred stocks

15,000


Common stockholders' equity:
 

 

 

Common stock
 

 

 

Authorized - 500,000,000 shares, $1.00 par value
Shares issued - 195,843,297 at March 31, 2018 and 2017 and
December 31, 2017
195,843

195,843

195,843

Other paid-in capital
1,227,285

1,231,171

1,233,412

Retained earnings
1,051,469

911,702

1,040,748

Accumulated other comprehensive loss
(44,860
)
(36,185
)
(37,334
)
Treasury stock at cost - 538,921 shares
(3,626
)
(3,626
)
(3,626
)
Total common stockholders' equity
2,426,111

2,298,905

2,429,043

Total stockholders' equity
2,426,111

2,313,905

2,429,043

Total liabilities and stockholders' equity 
$
6,348,852

$
6,148,458

$
6,334,666

The accompanying notes are an integral part of these consolidated financial statements.

8



MDU Resources Group, Inc.
Consolidated Statements of Equity
(Unaudited)
Three Months Ended March 31, 2018
 
 
 
 
 
 
 
 
 
Other
Paid-in Capital

Retained Earnings

Accumu-lated
Other Compre-hensive Loss

 
 
 
 
Common Stock
Treasury Stock
 
 
Shares

Amount

Shares

Amount

Total

 
 
Balance at December 31, 2017
195,843,297

$
195,843

$
1,233,412

$
1,040,748

$
(37,334
)
(538,921
)
$
(3,626
)
$
2,429,043

Cumulative effect of adoption of ASU 2014-09



(970
)



(970
)
Adjusted balance at January 1, 2018
195,843,297

195,843

1,233,412

1,039,778

(37,334
)
(538,921
)
(3,626
)
2,428,073

Net income



42,437




42,437

Other comprehensive income




433



433

Reclassification of certain prior period tax effects from accumulated other comprehensive loss



7,959

(7,959
)



Dividends declared on common stock



(38,572
)



(38,572
)
Stock-based compensation


1,223

(133
)



1,090

Repurchase of common stock





(182,424
)
(5,020
)
(5,020
)
Issuance of common stock upon vesting of stock-based compensation, net of shares used
  for tax withholdings


(7,350
)


182,424

5,020

(2,330
)
Balance at March 31, 2018
195,843,297

$
195,843

$
1,227,285

$
1,051,469

$
(44,860
)
(538,921
)
$
(3,626
)
$
2,426,111


Three Months Ended March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Other
Paid-in Capital

Retained Earnings

Accumu-lated
Other Compre-hensive Loss

 
 
 
 
Preferred Stock
Common Stock
Treasury Stock
 
 
Shares

Amount

Shares

Amount

Shares

Amount

Total

 
 
 
 
Balance at December 31, 2016
150,000

$
15,000

195,843,297

$
195,843

$
1,232,478

$
912,282

$
(35,733
)
(538,921
)
$
(3,626
)
$
2,316,244

Net income





37,325




37,325

Other comprehensive loss






(452
)


(452
)
Dividends declared on preferred stocks





(171
)



(171
)
Dividends declared on common stock





(37,596
)



(37,596
)
Stock-based compensation




1,134

(138
)



996

Repurchase of common stock







(64,384
)
(1,684
)
(1,684
)
Issuance of common stock upon vesting of stock-based compensation, net of shares used
for tax withholdings




(2,441
)


64,384

1,684

(757
)
Balance at March 31, 2017
150,000

$
15,000

195,843,297

$
195,843

$
1,231,171

$
911,702

$
(36,185
)
(538,921
)
$
(3,626
)
$
2,313,905



9



MDU Resources Group, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
 
Three Months Ended
 
 
March 31,
 
 
2018

2017

 
 
(In thousands)
Operating activities:
 
 
 
Net income
 
$
42,437

$
37,325

Income from discontinued operations, net of tax
 
477

1,687

Income from continuing operations
 
41,960

35,638

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 

Depreciation, depletion and amortization
 
52,729

51,325

Deferred income taxes
 
(2,068
)
(332
)
Changes in current assets and liabilities, net of acquisitions:
 
 

 
Receivables
 
62,711

63,684

Inventories
 
(29,997
)
(13,676
)
Other current assets
 
22,506

(31,006
)
Accounts payable
 
(31,864
)
(23,380
)
Other current liabilities
 
(5,115
)
(1,179
)
Other noncurrent changes
 
(5,302
)
2,161

Net cash provided by continuing operations
 
105,560

83,235

Net cash provided by discontinued operations
 
231

3,304

Net cash provided by operating activities
 
105,791

86,539

Investing activities:
 
 

 

Capital expenditures
 
(105,136
)
(72,316
)
Net proceeds from sale or disposition of property and other
 
5,966

117,967

Investments
 
(1,074
)
(116
)
Net cash provided by (used in) continuing operations
 
(100,244
)
45,535

Net cash provided by discontinued operations
 

54

Net cash provided by (used in) investing activities
 
(100,244
)
45,589

Financing activities:
 
 

 

Issuance of long-term debt
 
101,588

59,985

Repayment of long-term debt
 
(37,047
)
(147,277
)
Dividends paid
 
(38,573
)
(37,767
)
Repurchase of common stock
 
(5,020
)
(1,684
)
Tax withholding on stock-based compensation
 
(2,330
)
(757
)
Net cash provided by (used in) continuing operations
 
18,618

(127,500
)
Net cash provided by discontinued operations
 


Net cash provided by (used in) financing activities
 
18,618

(127,500
)
Increase in cash and cash equivalents
 
24,165

4,628

Cash and cash equivalents -- beginning of year
 
34,599

46,107

Cash and cash equivalents -- end of period
 
$
58,764

$
50,735

The accompanying notes are an integral part of these consolidated financial statements.

10



MDU Resources Group, Inc.
Notes to Consolidated
Financial Statements
March 31, 2018 and 2017
(Unaudited)
Note 1 - Basis of presentation
The accompanying consolidated interim financial statements were prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Interim financial statements do not include all disclosures provided in annual financial statements and, accordingly, these financial statements should be read in conjunction with those appearing in the 2017 Annual Report. The information is unaudited but includes all adjustments that are, in the opinion of management, necessary for a fair presentation of the accompanying consolidated interim financial statements and are of a normal recurring nature. Depreciation, depletion and amortization expense is reported separately on the Consolidated Statements of Income and therefore is excluded from the other line items within operating expenses. Management has also evaluated the impact of events occurring after March 31, 2018, up to the date of issuance of these consolidated interim financial statements.
On December 22, 2017, President Trump signed into law the TCJA which includes lower corporate tax rates, repealing the domestic production deduction, disallowance of immediate expensing for regulated utility property and modifying or repealing many other business deductions and credits. The reduction in the corporate tax rate was effective on January 1, 2018, which resulted in lower income tax expense for the three months ended March 31, 2018. The Company continues to review the components of the TCJA and the impact on the Company's consolidated financial statements and related disclosures for 2018 and thereafter.
While the Company was able to make reasonable estimates of the impact of the reduction in corporate tax rate on the Company's net deferred tax liabilities during the fourth quarter of 2017, it may be affected by other analyses related to the TCJA, including, but not limited to, the state tax effect of adjustments to federal temporary differences and the calculation of deemed repatriation of deferred foreign income. The final transition impacts of the TCJA may differ from amounts disclosed, possibly materially, due to, among other things, interpretations, legislative action to address questions, changes in accounting standards for income taxes or related interpretations, or updates or changes to estimates the Company has utilized to calculate the transition impacts. The SEC has issued rules that would allow for a measurement period of up to one year after the enactment date of the TCJA to finalize the recording of the related tax impacts, of which there were no such adjustments in the first quarter of 2018. The Company currently anticipates finalizing and recording any resulting adjustments by December 31, 2018, which will be included in income from continuing operations.
Due to the enactment of the TCJA, the regulated jurisdictions in which the Company's regulated businesses provides service have requested the Company furnish plans for the effect of the reduced corporate tax rate, which may impact the Company's tax rates. Therefore, the Company has reserved for such impacts as an offset to revenue in certain jurisdictions. The Company will continue to make changes to reserve balances as required. For more information on the details of each jurisdiction's request, see Note 15.
Effective January 1, 2018, the Company adopted the requirements of the revenue from contracts with customers guidance following the modified retrospective method, as discussed in Notes 6 and 8. As such, results for reporting periods beginning January 1, 2018, are presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with the historic accounting for revenue recognition. Based on the Company's analysis, the Company did not identify a significant change in the timing of revenue recognition under the new guidance as compared to the historic accounting for revenue recognition.
Certain prior year amounts have been reclassified to conform to the current year presentation in the consolidated financial statements related to the retrospective adoption of the FASB guidance to improve the presentation of net periodic pension and net periodic postretirement benefit costs, which was effective on January 1, 2018. The components of net periodic pension and postretirement costs, other than service costs, were reclassified from operating expenses to other income on the Consolidated Statements of Income, as discussed in Note 6.
The assets and liabilities for the Company's discontinued operations have been classified as held for sale and the results of operations are shown in loss from discontinued operations, other than certain general and administrative costs and interest expense which do not meet the criteria for income (loss) from discontinued operations. At the time the assets were classified as held for sale, depreciation, depletion and amortization expense was no longer recorded. Unless otherwise indicated, the amounts presented in the accompanying notes to the consolidated financial statements relate to the Company's continuing operations. For more information on the Company's discontinued operations, see Note 9.

11



Note 2 - Seasonality of operations
Some of the Company's operations are highly seasonal and revenues from, and certain expenses for, such operations may fluctuate significantly among quarterly periods. Accordingly, the interim results for particular businesses, and for the Company as a whole, may not be indicative of results for the full fiscal year.
Note 3 - Accounts receivable and allowance for doubtful accounts
Accounts receivable consist primarily of trade receivables from the sale of goods and services which are recorded at the invoiced amount net of allowance for doubtful accounts, and costs and estimated earnings in excess of billings on uncompleted contracts. The total balance of receivables past due 90 days or more was $36.3 million, $26.3 million and $34.7 million at March 31, 2018 and 2017, and December 31, 2017, respectively.
The allowance for doubtful accounts is determined through a review of past due balances and other specific account data. Account balances are written off when management determines the amounts to be uncollectible. The Company's allowance for doubtful accounts at March 31, 2018 and 2017, and December 31, 2017, was $8.2 million, $10.9 million and $8.1 million, respectively.
Note 4 - Inventories and natural gas in storage
Natural gas in storage for the Company's regulated operations is generally carried at lower of cost or net realizable value, or cost using the last-in, first-out method. All other inventories are stated at the lower of cost or net realizable value. The portion of the cost of natural gas in storage expected to be used within one year was included in inventories. Inventories on the Company's Consolidated Balance Sheets were as follows:
 
March 31, 2018

March 31, 2017

December 31, 2017

 
(In thousands)
Aggregates held for resale
$
123,053

$
120,392

$
115,268

Asphalt oil
61,647

50,538

30,360

Materials and supplies
19,493

22,074

18,650

Merchandise for resale
16,378

16,546

14,905

Natural gas in storage (current)
10,936

11,282

20,950

Other
26,285

29,777

26,450

Total
$
257,792

$
250,609

$
226,583


The remainder of natural gas in storage, which largely represents the cost of gas required to maintain pressure levels for normal operating purposes, was included in deferred charges and other assets - other and was $47.8 million, $49.5 million and $49.3 million at March 31, 2018 and 2017, and December 31, 2017, respectively.
Note 5 - Earnings per common share
Basic earnings per common share were computed by dividing earnings on common stock by the weighted average number of shares of common stock outstanding during the applicable period. Diluted earnings per common share were computed by dividing earnings on common stock by the total of the weighted average number of shares of common stock outstanding during the applicable period, plus the effect of nonvested performance share awards and restricted stock units. Common stock outstanding includes issued shares less shares held in treasury. Earnings on common stock was the same for both the basic and diluted earnings per share calculations. A reconciliation of the weighted average common shares outstanding used in the basic and diluted earnings per share calculations was as follows:
 
Three Months Ended
 
March 31,
 
2018

2017

 
(In thousands)
Weighted average common shares outstanding - basic
195,304

195,304

Effect of dilutive performance share awards
678

719

Weighted average common shares outstanding - diluted
195,982

196,023

Shares excluded from the calculation of diluted earnings per share


Note 6 - New accounting standards
Recently adopted accounting standards
ASU 2014-09 - Revenue from Contracts with Customers In May 2014, the FASB issued guidance on accounting for revenue from contracts with customers. The guidance provides for a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance. In August 2015, the FASB issued guidance deferring the effective date of the revenue guidance and allowing entities to

12



early adopt. With this decision, the guidance was effective for the Company on January 1, 2018. Entities had the option of using either a full retrospective or modified retrospective approach to adopting the guidance. Under the modified retrospective approach, an entity recognizes the cumulative effect of initially applying the guidance with an adjustment to the opening balance of retained earnings in the period of adoption.
The Company adopted the guidance on January 1, 2018, using the modified retrospective approach. The Company elected the practical expedient to not disclose the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period, along with an explanation of when such revenue would be expected to be recognized. This practical expedient was used since the performance obligations are part of contracts with an original duration of one year or less. The Company also elected the practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the Company otherwise would have recognized is one year or less. Upon completion of the Company's evaluation of contracts and methods of revenue recognition under the previous accounting guidance, the Company did not identify any material cumulative effect adjustments to be made to retained earnings. In addition, the Company has expanded revenue disclosures, both quantitatively and qualitatively, related to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, as discussed in Note 8. The Company has reviewed its revenue streams to evaluate the impact of this guidance and did not identify a significant change in the timing of revenue recognition, results of operations, financial position or cash flows. The Company reviewed its internal controls related to revenue recognition and disclosures and concluded that the guidance impacts certain business processes and controls. As such, the Company has developed modifications to its internal controls for certain topics under the guidance as they apply to the Company and such modifications were not deemed to be significant. Results for reporting periods beginning after December 31, 2017, are presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with historic accounting for revenue recognition.
Under the modified retrospective approach, the guidance was applied only to contracts that were not completed as of January 1, 2018. Therefore, the Company recognized the cumulative effect of initially applying the guidance with an adjustment to the opening balance of retained earnings at January 1, 2018. In the first quarter of 2018, there was not a material impact to the financial statements as a result of applying the guidance. The cumulative effect of the changes made to the Consolidated Balance Sheet was as follows:
 
December 31,
2017

Adjustments

January 1,
2018

 
(In thousands)
Liabilities and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Other accrued liabilities
$
186,010

$
903

$
186,913

Deferred credits and other liabilities:
 
 
 
Deferred income taxes
347,271

(332
)
346,939

Other
1,179,140

399

1,179,539

Commitments and contingencies
 
 
 
Stockholders' equity:
 
 
 
Common stockholders' equity:
 
 
 
Retained earnings
1,040,748

(970
)
1,039,778


The cumulative adjustment is related to prepaid natural gas transportation to storage contracts where a separate performance obligation existed and has not yet been satisfied. As such, these contracts were still open and met the criteria for a cumulative effect adjustment.
ASU 2016-15 - Classification of Certain Cash Receipts and Cash Payments In August 2016, the FASB issued guidance to clarify the classification of certain cash receipts and payments in the statement of cash flows. The guidance is intended to standardize the presentation and classification of certain transactions, including cash payments for debt prepayment or extinguishment, proceeds from insurance claim settlements and distributions from equity method investments. In addition, the guidance clarifies how to classify transactions that have characteristics of more than one class of cash flows. The Company adopted the guidance on January 1, 2018, on a prospective basis. The guidance did not have a material effect on the Company's statement of cash flows.
ASU 2017-01 - Clarifying the Definition of a Business In January 2017, the FASB issued guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The guidance provides a screen to determine when an integrated set of assets and activities is not a business. The guidance will also affect other aspects of accounting, such as determining reporting units for goodwill testing and whether an entity has acquired or sold a business. The Company adopted the guidance on January 1, 2018, on a prospective basis. The guidance did not have a material effect on the Company's results of operations, financial position, cash flows or disclosures.
ASU 2017-07 - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost In March 2017, the FASB issued guidance to improve the presentation of net periodic pension and net periodic postretirement benefit costs. The

13



guidance requires the service cost component to be presented in the income statement in the same line item or items as other compensation costs arising from services performed during the period. Other components of net periodic benefit cost shall be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The guidance also only allows the service cost component to be capitalized.
The Company adopted the guidance on January 1, 2018, on a retrospective basis. The guidance required the reclassification of all components of net periodic benefit costs, except for the service cost component, from operating expenses to other income on the Company's Consolidated Statements of Income with no impact to earnings. As a result of the retrospective application of this change in accounting guidance, the Company reclassified $1.8 million from operation and maintenance expense to other income on the Consolidated Statements of Income for the three months ended March 31, 2017. The Company also reclassified unrealized gains on investments used to satisfy obligations under the defined benefit plans of $3.1 million for the three months ended March 31, 2017, which were included in operation and maintenance expense, to other income on the Consolidated Statements of Income. The guidance did not have a material effect on the Company's results of operations, cash flows or disclosures.
ASU 2018-02 - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income In February 2018, the FASB issued guidance that allows an entity to reclassify the stranded tax effects resulting from the newly enacted federal corporate income tax rate from accumulated other comprehensive income (loss) to retained earnings. The guidance is effective for the Company on January 1, 2019, including interim periods, with early adoption permitted. The guidance can be applied using one of two methods. One method is to record the reclassification of the stranded income taxes at the beginning of the period of adoption. The other method is to apply the guidance retrospectively to each period in which the income tax effects of the TCJA are recognized in accumulated other comprehensive income (loss). The Company early adopted the guidance on January 1, 2018, and elected to reclassify the stranded income taxes at the beginning of the period. During the first quarter of 2018, the Company reclassified $7.9 million of stranded tax expense from accumulated other comprehensive loss to retained earnings. The guidance did not have a material effect on the Company's results of operations, cash flows or disclosures.
Recently issued accounting standards not yet adopted
ASU 2016-02 - Leases In February 2016, the FASB issued guidance regarding leases. The guidance requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet for operating and financing leases with terms of more than 12 months. The guidance remains largely the same for lessors, although some changes were made to better align lessor accounting with the new lessee accounting and to align with the revenue recognition standard. The guidance also requires additional disclosures, both quantitative and qualitative, related to operating and finance leases for the lessee and sales-type, direct financing and operating leases for the lessor. This guidance will be effective for the Company on January 1, 2019, and should be applied using a retrospective approach with early adoption permitted. The Company continues to evaluate the potential impact the adoption of the new guidance will have on its results of operations, financial position, cash flows and disclosures. The Company is planning to adopt the standard on January 1, 2019, utilizing the practical expedient that allows the Company to not reassess whether an expired or existing contract contains a lease, the classification of leases or initial direct costs.
In January 2018, the FASB issued a practical expedient for land easements under the new lease guidance. The practical expedient permits an entity to elect the option to not evaluate land easements under the new guidance if they existed or expired before the adoption of the new lease guidance and were not previously accounted for as leases under the previous lease guidance. Once an entity adopts the new guidance, the entity should apply the new guidance on a prospective basis to all new or modified land easements. The Company is currently evaluating the impact of the practical expedient.
In January 2018, the FASB issued a proposed accounting standard update to the guidance that would allow an entity the option to adopt the guidance on a modified retrospective basis. Under the modified retrospective approach, an entity would recognize a cumulative effect adjustment of initially applying the guidance to the opening balance of retained earnings in the period of adoption. The Company is monitoring the status of the proposal.
ASU 2017-04 - Simplifying the Test for Goodwill Impairment In January 2017, the FASB issued guidance on simplifying the test for goodwill impairment by eliminating Step 2, which required an entity to measure the amount of impairment loss by comparing the implied fair value of reporting unit goodwill with the carrying amount of such goodwill. This guidance requires entities to perform a quantitative impairment test, previously Step 1, to identify both the existence of impairment and the amount of impairment loss by comparing the fair value of a reporting unit to its carrying amount. Entities will continue to have the option of performing a qualitative assessment to determine if the quantitative impairment test is necessary. The guidance also requires additional disclosures if an entity has one or more reporting units with zero or negative carrying amounts of net assets. The guidance will be effective for the Company on January 1, 2020, and should be applied on a prospective basis with early adoption permitted. The Company is evaluating the effects the adoption of the new guidance will have on its results of operations, financial position, cash flows and disclosures.

14



Note 7 - Comprehensive income (loss)
The after-tax changes in the components of accumulated other comprehensive loss were as follows:
Three Months Ended March 31, 2018
Net Unrealized Gain (Loss) on Derivative
Instruments
Qualifying as Hedges

Postretirement
Liability Adjustment

Foreign
Currency Translation Adjustment

Net Unrealized
Gain (Loss) on
Available-for-sale
Investments

Total
Accumulated
Other
Comprehensive
Loss

 
(In thousands)
Balance at beginning of period
$
(1,934
)
$
(35,163
)
$
(155
)
$
(82
)
$
(37,334
)
Other comprehensive loss before reclassifications


(2
)
(105
)
(107
)
Amounts reclassified from accumulated other comprehensive loss
92

418


30

540

Net current-period other comprehensive income (loss)
92

418

(2
)
(75
)
433

Reclassification adjustment of prior period tax effects related to TCJA included in accumulated other comprehensive loss
(389
)
(7,520
)
(33
)
(17
)
(7,959
)
Balance at end of period
$
(2,231
)
$
(42,265
)
$
(190
)
$
(174
)
$
(44,860
)
Three Months Ended March 31, 2017
Net Unrealized Gain (Loss) on Derivative
Instruments
Qualifying as Hedges

Postretirement
Liability Adjustment

Foreign
Currency Translation Adjustment

Net Unrealized
Gain (Loss) on
Available-for-sale
Investments

Total
Accumulated
Other
Comprehensive
Loss

 
(In thousands)
Balance at beginning of period
$
(2,300
)
$
(33,221
)
$
(149
)
$
(63
)
$
(35,733
)
Other comprehensive income (loss) before reclassifications


9

(27
)
(18
)
Amounts reclassified from accumulated other comprehensive loss
91

357


35

483

Amounts reclassified to accumulated other comprehensive loss from regulatory asset

(917
)


(917
)
Net current-period other comprehensive income (loss)
91

(560
)
9

8

(452
)
Balance at end of period
$
(2,209
)
$
(33,781
)
$
(140
)
$
(55
)
$
(36,185
)
 
 
 
 
 
 

 
 
 
 
 
 

Reclassifications out of accumulated other comprehensive loss were as follows:
 
Three Months Ended
Location on Consolidated Statements of
Income
 
March 31,
 
2018
2017
 
(In thousands)
 
Reclassification adjustment for loss on derivative instruments included in net income
$
(148
)
$
(147
)
Interest expense
 
56

56

Income taxes
 
(92
)
(91
)
 
Amortization of postretirement liability losses included in net periodic benefit cost (credit)
(573
)
(574
)
Other income
 
155

217

Income taxes
 
(418
)
(357
)
 
Reclassification adjustment for loss on available-for-sale investments included in net income
(37
)
(54
)
Other income
 
7

19

Income taxes
 
(30
)
(35
)
 
Total reclassifications
$
(540
)
$
(483
)
 


15



Note 8 - Revenue from contracts with customers
Revenue is recognized when a performance obligation is satisfied by transferring control over a product or service to a customer. Revenue is measured based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. The Company is considered an agent for certain taxes collected from customers. As such, the Company presents revenues net of these taxes at the time of sale to be remitted to governmental authorities, including sales and use taxes.
The electric and natural gas distribution segments generate revenue from the sales of electric and natural gas products and services, which includes retail and transportation services. These segments establish a customer's retail or transportation service account based on the customer's application/contract for service, which indicates approval of a contract for service. The contract identifies an obligation to provide service in exchange for delivering or standing ready to deliver the identified commodity; and the customer is obligated to pay for the service as provided in the applicable tariff. The product sales are based on a fixed rate that includes a base and per-unit rate, which are included in approved tariffs as determined by state or federal regulatory agencies. The quantity of the commodity consumed or transported determines the total per-unit revenue. The service provided, along with the product consumed or transported, are a single performance obligation because both are required in combination to successfully transfer the contracted product or service to the customer. Revenues are recognized over time as customers receive and consume the products and services. The method of measuring progress toward the completion of the single performance obligation is on a per-unit output method basis, with revenue recognized based on the direct measurement of the value to the customer of the goods or services transferred to date. For contracts governed by the Company’s utility revenue tariffs, amounts are billed monthly with the amount due between 15 and 22 days of receipt of the invoice depending on the applicable state’s tariff. For other contracts not governed by tariff, payment terms are net thirty days. At this time, the segment has no material obligations for returns, refunds or other similar obligations.
The pipeline and midstream segment generates revenue from providing natural gas transportation, gathering and underground storage services as well as other energy-related services to both third parties and internal customers, largely the natural gas distribution segment. The pipeline and midstream segment establishes a contract with a customer based upon the customer’s request for firm or interruptible natural gas transportation, storage or gathering service(s). The contract identifies an obligation for the segment to provide the requested service(s) in exchange for consideration from the customer over a specified term. Depending on the type of service(s) requested and contracted, the service provided may include transporting, gathering or storing an identified quantity of natural gas and/or standing ready to deliver or store an identified quantity of natural gas. Natural gas transportation, gathering and storage revenues are based on fixed rates, which may include reservation fees and/or per-unit commodity rates. The services provided by the segment are generally treated as single performance obligations satisfied over time simultaneous to when the service is provided and revenue is recognized. Rates for the segment’s regulated services are based on its FERC approved tariff or customer negotiated rates on special projects, and rates for its non-regulated services are negotiated with its customers and set forth in the contract. For contracts governed by the company’s tariff, amounts are billed on or before the ninth business day of the following month and the amount is due within twelve days of receipt of the invoice. For gathering contracts not governed by the tariff, amounts are due within twenty days of invoice receipt. For other contracts not governed by the tariff, payment terms are net thirty days. At this time, the segment has no material obligations for returns, refunds or other similar obligations.
The construction materials and contracting segment generates revenue from contracting services and construction materials sales. This segment focuses on the vertical integration of its contracting services with its construction materials to support the aggregate based product lines. This segment provides contracting services to a customer when a contract has been signed by both the customer and a representative of the segment obligating a service to be provided in exchange for the consideration identified in the contract. The nature of the services this segment provides generally includes integrating a set of services and related construction materials into a single project to create a distinct bundle of goods and services, which the Company evaluated and determined to be single performance obligations. The transaction price is the original contract price plus any subsequent change orders and variable consideration. Examples of variable consideration that exist in this segment's contracts include liquidated damages; performance bonuses or incentives and penalties; and index pricing. The variable amounts usually arise upon achievement of certain performance metrics. The Company estimates variable consideration at the most likely amount expected. Revenue is recognized over time using the input method based on the measurement of progress on a project. The input method is the preferred method of measuring revenue because the costs incurred have been determined to represent the best indication of the overall progress toward the transfer of such goods or services promised to a customer. This segment also sells construction materials to third parties and internal customers. The contract for material sales is the use of a sales order or an invoice, which includes the pricing and payment terms. All material contracts contain a single performance obligation for the delivery of a single distinct product or a distinct separately identifiable bundle of products and services. Revenue is recognized at a point in time when the performance obligation has been satisfied with the delivery of the products or services. The warranties associated with the sales are those consistent with a standard warranty that the product meets certain specifications for quality or those required by law. For most contracts, amounts billed to customers are due within thirty days of receipt. There are no material obligations for returns, refunds or other similar obligations.
The construction services segment generates revenue from specialty contracting services which also includes the sale of construction equipment and other supplies. This segment provides specialty contracting services to a customer when a contract has been signed by both the customer and a representative of the segment obligating a service to be provided in exchange for the

16



consideration identified in the contract. The nature of the services this segment provides generally includes multiple promised goods and services in a single project to create a distinct bundle of goods and services, which the Company evaluates to determine whether a separate performance obligation exists. The transaction price is the original contract price plus any subsequent change orders and variable consideration. Examples of variable consideration that exist in this segment's contracts include bonuses, incentives, penalties and liquidated damages. The variable amounts usually arise upon achievement of certain performance metrics. The Company estimates variable consideration at the most likely amount expected. Revenue is recognized over time using the input method based on the measurement of progress on a project. The input method is the preferred method of measuring revenue because the costs incurred have been determined to represent the best indication of the overall progress toward the transfer of such goods or services promised to a customer. This segment also sells construction equipment and other supplies to third parties and internal customers. The contract for these sales is the use of a sales order or invoice, which includes the pricing and payment terms. All such contracts include a single performance obligation for the delivery of a single distinct product or a distinct separately identifiable bundle of products and services. Revenue is recognized at a point in time when the performance obligation has been satisfied with the delivery of the products or services. The warranties associated with the sales are those consistent with a standard warranty that the product meets certain specifications for quality or those required by law. For most contracts, amounts billed to customers are due within thirty days of receipt. There are no material obligations for returns, refunds or other similar obligations.
The Company recognizes all other revenues when services are rendered or goods are delivered.
Disaggregation
In the following table, revenue is disaggregated by the type of customer or service provided. The Company believes this level of disaggregation best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The table also includes a reconciliation of the disaggregated revenue by reportable segments. For more information on the Company's business segments, see Note 13.
Three Months Ended March 31, 2018
Electric

Natural gas distribution

Pipeline and midstream

Construction materials and contracting

Construction services

Other

Total

 
(in thousands)
Residential utility sales
$
35,183

$
192,886

$

$

$

$

$