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Section 1: 10-Q (MDU RESOURCES FORM 10-Q 3-31-2019)

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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, 2019
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
 
30-1133956
(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 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). Yes ý No o.
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.
Large accelerated filer ý
Accelerated filer o
Non-accelerated filer o
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.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common Stock, par value $1.00 per share
MDU
New York Stock Exchange
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of April 26, 2019: 198,083,324 shares.




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

2



Definitions
The following abbreviations and acronyms used in this Form 10-Q are defined below:
Abbreviation or Acronym
 
2018 Annual Report
Company's Annual Report on Form 10-K for the year ended December 31, 2018
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
BSSE
345-kilovolt transmission line from Ellendale, North Dakota, to Big Stone City, South Dakota
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. (formerly known as MDUR Newco), which, as the context requires, refers to the previous MDU Resources Group, Inc. prior to January 1, 2019, and the new holding company of the same name after January 1, 2019
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 prior to the closing of the Holding Company Reorganization and a public utility division of Montana-Dakota as of January 1, 2019
Holding Company Reorganization
The internal holding company reorganization completed on January 1, 2019, pursuant to the agreement and plan of merger, dated as of December 31, 2018, by and among Montana-Dakota, the Company and MDUR Newco Sub, which resulted in the Company becoming a holding company and owning all of the outstanding capital stock of Montana-Dakota
Intermountain
Intermountain Gas Company, an indirect wholly owned subsidiary of MDU Energy Capital
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

3



MDUR Newco
MDUR Newco, Inc., a public holding company created by implementing the Holding Company Reorganization, now known as the Company
MDUR Newco Sub
MDUR Newco Sub, Inc., a direct, wholly owned subsidiary of MDUR Newco, which was merged with and into Montana-Dakota in the Holding Company Reorganization
MMcf
Million cubic feet
MMdk
Million dk
MNPUC
Minnesota Public Utilities Commission
Montana-Dakota
Montana-Dakota Utilities Co., (formerly known as MDU Resources Group, Inc.), a public utility division of the Company prior to the closing of the Holding Company Reorganization and a direct wholly owned subsidiary of MDU Energy Capital as of January 1, 2019
MTPSC
Montana Public Service Commission
MW
Megawatt
NDPSC
North Dakota Public Service Commission
Non-GAAP
Not in accordance with GAAP
OPUC
Oregon Public Utility Commission
Oregon DEQ
Oregon State Department of Environmental Quality
PRP
Potentially Responsible Party
ROD
Record of Decision
SDPUC
South Dakota Public Utilities Commission
SEC
United States Securities and Exchange Commission
Securities Act
Securities Act of 1933, as amended
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 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 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 2018 Annual Report and subsequent filings with the SEC.
Introduction
The Company is a regulated energy delivery and construction materials and services business. Montana-Dakota was incorporated under the laws of the state of Delaware in 1924. The Company was incorporated under the laws of the state of Delaware in 2018. Its principal executive offices are at 1200 West Century Avenue, P.O. Box 5650, Bismarck, North Dakota 58506-5650, telephone (701) 530-1000.
On January 2, 2019, the Company announced the completion of the Holding Company Reorganization, which resulted in Montana-Dakota becoming a subsidiary of the Company. The merger was conducted pursuant to Section 251(g) of the General Corporation Law of the State of Delaware, which provides for the formation of a holding company without a vote of the stockholders of the constituent corporation. Immediately after consummation of the Holding Company Reorganization, the Company had, on a consolidated basis, the same assets, businesses and operations as Montana-Dakota had immediately prior to the consummation of the Holding Company Reorganization. As a result of the Holding Company Reorganization, the Company became the successor issuer to Montana-Dakota pursuant to Rule 12g-3(a) of the Exchange Act, and as a result, the Company's common stock was deemed registered under Section 12(b) of the Exchange Act.
The Company, through its wholly owned subsidiary, MDU Energy Capital, owns Montana-Dakota, Cascade and Intermountain. Montana-Dakota, Cascade and Intermountain are 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 17 of the Notes to Consolidated Financial Statements.

5



Part I -- Financial Information
Item 1. Financial Statements
MDU Resources Group, Inc.
Consolidated Statements of Income
(Unaudited)
 
 
Three Months Ended
 
 
March 31,
 
 
2019

2018

 
 
(In thousands, except per share amounts)
Operating revenues:
 
 
 
Electric, natural gas distribution and regulated pipeline and midstream
 
$
439,617

$
424,459

Nonregulated pipeline and midstream, construction materials and contracting, construction services and other
 
651,574

551,834

Total operating revenues 
 
1,091,191

976,293

Operating expenses:
 
 

 

Operation and maintenance:
 
 

 

Electric, natural gas distribution and regulated pipeline and midstream
 
87,770

86,112

Nonregulated pipeline and midstream, construction materials and contracting, construction services and other
 
615,144

514,744

Total operation and maintenance
 
702,914

600,856

Purchased natural gas sold
 
183,829

181,967

Depreciation, depletion and amortization
 
59,897

52,729

Taxes, other than income
 
54,029

48,854

Electric fuel and purchased power
 
26,304

22,511

Total operating expenses
 
1,026,973

906,917

Operating income
 
64,218

69,376

Other income
 
7,595

582

Interest expense
 
23,407

20,447

Income before income taxes
 
48,406

49,511

Income taxes
 
7,317

7,551

Income from continuing operations
 
41,089

41,960

Income (loss) from discontinued operations, net of tax (Note 10)
 
(163
)
477

Net income
 
$
40,926

$
42,437

Earnings per share - basic:
 
 

 

Income from continuing operations
 
$
.21

$
.22

Discontinued operations, net of tax
 


Earnings per share - basic
 
$
.21

$
.22

Earnings per share - diluted:
 
 

 

Income from continuing operations
 
$
.21

$
.22

Discontinued operations, net of tax
 


Earnings per share - diluted
 
$
.21

$
.22

Weighted average common shares outstanding - basic
 
196,401

195,304

Weighted average common shares outstanding - diluted
 
196,414

195,982

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,
 
 
2019

2018

 
 
(In thousands)
Net income
 
$
40,926

$
42,437

Other comprehensive income:
 
 
 
Reclassification adjustment for loss on derivative instruments included in net income, net of tax of $(249) and $56 for the three months ended in 2019 and 2018, respectively
 
397

92

Amortization of postretirement liability losses included in net periodic benefit cost (credit), net of tax of $100 and $155 for the three months ended in 2019 and 2018, respectively
 
310

418

Foreign currency translation adjustment recognized during the period, net of tax of $0 and $(1) for the three months ended in 2019 and 2018, respectively
 

(2
)
Net unrealized gain (loss) on available-for-sale investments:
 
 
 
Net unrealized gain (loss) on available-for-sale investments arising during the period, net of tax of $10 and $(28) for the three months ended in 2019 and 2018, respectively
 
39

(105
)
Reclassification adjustment for loss on available-for-sale investments included in net income, net of tax of $7 and $7 for the three months ended in 2019 and 2018, respectively
 
28

30

Net unrealized gain (loss) on available-for-sale investments
 
67

(75
)
Other comprehensive income
 
774

433

Comprehensive income attributable to common stockholders
 
$
41,700

$
42,870

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



7



MDU Resources Group, Inc.
Consolidated Balance Sheets
(Unaudited)
 
March 31, 2019

March 31, 2018

December 31, 2018

(In thousands, except shares and per share amounts)
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
49,721

$
58,764

$
53,948

Receivables, net
722,152

664,319

722,945

Inventories
311,535

257,792

287,309

Prepayments and other current assets
151,391

59,481

119,500

Current assets held for sale
430

458

430

Total current assets
1,235,229

1,040,814

1,184,132

Investments
144,616

138,451

138,620

Property, plant and equipment
7,502,368

6,842,967

7,397,321

Less accumulated depreciation, depletion and amortization
2,858,986

2,725,484

2,818,644

Net property, plant and equipment
4,643,382

4,117,483

4,578,677

Deferred charges and other assets:
 

 

 

Goodwill
679,395

631,791

664,922

Other intangible assets, net
11,680

3,465

10,815

Operating lease right-of-use assets (Note 11)
107,486



Other
455,048

412,456

408,857

Noncurrent assets held for sale
2,087

4,392

2,087

Total deferred charges and other assets 
1,255,696

1,052,104

1,086,681

Total assets
$
7,278,923

$
6,348,852

$
6,988,110

Liabilities and Stockholders' Equity
 

 

 

Current liabilities:
 

 

 

Short-term borrowings
$
70,000

$

$

Long-term debt due within one year
251,846

149,199

251,854

Accounts payable
352,180

267,994

358,505

Taxes payable
55,319

57,354

41,929

Dividends payable
39,875

38,573

39,695

Accrued compensation
45,383

35,087

69,007

Current operating lease liabilities (Note 11)
30,978



Other accrued liabilities
213,541

204,328

221,059

Current liabilities held for sale
3,657

11,726

4,001

Total current liabilities 
1,062,779

764,261

986,050

Long-term debt
1,946,181

1,630,343

1,856,841

Deferred credits and other liabilities:
 

 

 

Deferred income taxes
444,965

346,218

430,085

Noncurrent operating lease liabilities (Note 11)
76,444



Other
1,142,862

1,181,919

1,148,359

Total deferred credits and other liabilities 
1,664,271

1,528,137

1,578,444

Commitments and contingencies






Stockholders' equity:
 

 

 

Common stock
 

 

 

Authorized - 500,000,000 shares, $1.00 par value
Shares issued - 198,316,808 at March 31, 2019, 195,843,297 at
March 31, 2018 and 196,564,907 at December 31, 2018
198,317

195,843

196,565

Other paid-in capital
1,284,060

1,227,285

1,248,576

Retained earnings
1,164,509

1,051,469

1,163,602

Accumulated other comprehensive loss
(37,568
)
(44,860
)
(38,342
)
Treasury stock at cost - 538,921 shares
(3,626
)
(3,626
)
(3,626
)
Total stockholders' equity
2,605,692

2,426,111

2,566,775

Total liabilities and stockholders' equity 
$
7,278,923

$
6,348,852

$
6,988,110

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, 2019
 
 
 
 
 
 
 
 
 
Other
Paid-in Capital

Retained Earnings

Accumu-lated
Other Compre-hensive Loss

 
 
 
 
Common Stock
Treasury Stock
 
 
Shares

Amount

Shares

Amount

Total

 
(In thousands, except shares)
At December 31, 2018
196,564,907

$
196,565

$
1,248,576

$
1,163,602

$
(38,342
)
(538,921
)
$
(3,626
)
$
2,566,775

Net income



40,926




40,926

Other comprehensive income




774



774

Dividends declared on common stock



(40,019
)



(40,019
)
Stock-based compensation


1,617





1,617

Issuance of common stock upon vesting of stock-based compensation, net of shares used for tax withholdings
246,214

246

(3,261
)




(3,015
)
Issuance of common stock
1,505,687

1,506

37,128





38,634

At March 31, 2019
198,316,808

$
198,317

$
1,284,060

$
1,164,509

$
(37,568
)
(538,921
)
$
(3,626
)
$
2,605,692


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

 
(In thousands, except shares)
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



(38,705
)



(38,705
)
Stock-based compensation


1,223





1,223

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
)
At March 31, 2018
195,843,297

$
195,843

$
1,227,285

$
1,051,469

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



9



MDU Resources Group, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
 
Three Months Ended
 
 
March 31,
 
 
2019

2018

 
 
(In thousands)
Operating activities:
 
 
 
Net income
 
$
40,926

$
42,437

Income (loss) from discontinued operations, net of tax
 
(163
)
477

Income from continuing operations
 
41,089

41,960

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

 

Depreciation, depletion and amortization
 
59,897

52,729

Deferred income taxes
 
12,658

(2,068
)
Changes in current assets and liabilities, net of acquisitions:
 
 

 
Receivables
 
(2,641
)
62,711

Inventories
 
(21,407
)
(29,997
)
Other current assets
 
(31,586
)
22,506

Accounts payable
 
356

(31,864
)
Other current liabilities
 
(6,310
)
(5,115
)
Other noncurrent changes
 
(49,965
)
(5,302
)
Net cash provided by continuing operations
 
2,091

105,560

Net cash provided by (used in) discontinued operations
 
(507
)
231

Net cash provided by operating activities
 
1,584

105,791

Investing activities:
 
 

 

Capital expenditures
 
(133,839
)
(105,136
)
Acquisitions, net of cash acquired
 
(30,868
)

Net proceeds from sale or disposition of property and other
 
4,938

5,966

Investments
 
(340
)
(1,074
)
Net cash used in investing activities
 
(160,109
)
(100,244
)
Financing activities:
 
 

 

Issuance of short-term borrowings
 
70,000


Issuance of long-term debt
 
141,338

101,588

Repayment of long-term debt
 
(52,964
)
(37,047
)
Proceeds from issuance of common stock
 
38,634


Dividends paid
 
(39,695
)
(38,573
)
Repurchase of common stock
 

(5,020
)
Tax withholding on stock-based compensation
 
(3,015
)
(2,330
)
Net cash provided by financing activities
 
154,298

18,618

Increase (decrease) in cash and cash equivalents
 
(4,227
)
24,165

Cash and cash equivalents -- beginning of year
 
53,948

34,599

Cash and cash equivalents -- end of period
 
$
49,721

$
58,764

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

10



MDU Resources Group, Inc.
Notes to Consolidated
Financial Statements
March 31, 2019 and 2018
(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 2018 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.
On January 2, 2019, the Company announced the completion of the Holding Company Reorganization, which resulted in Montana-Dakota becoming a subsidiary of the Company. The purpose of the reorganization was to make the public utility divisions into a subsidiary of the holding company, just as the other operating companies are wholly owned subsidiaries.
Effective January 1, 2019, the Company adopted the requirements of the ASU on leases, as further discussed in Notes 6 and 11. As such, results for reporting periods beginning January 1, 2019, 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 leases.
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 income (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 10.
Management has also evaluated the impact of events occurring after March 31, 2019, up to the date of issuance of these consolidated interim financial statements.
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 consists 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 $38.3 million, $36.3 million and $30.0 million at March 31, 2019 and 2018, and December 31, 2018, 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, 2019 and 2018, and December 31, 2018, was $9.6 million, $8.2 million and $8.9 million, respectively.

11



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 Consolidated Balance Sheets were as follows:
 
March 31, 2019

March 31, 2018

December 31, 2018

 
(In thousands)
Aggregates held for resale
$
142,747

$
123,053

$
139,681

Asphalt oil
83,459

61,647

54,741

Materials and supplies
26,441

19,493

23,611

Merchandise for resale
25,104

16,378

22,552

Natural gas in storage (current)
11,464

10,936

22,117

Other
22,320

26,285

24,607

Total
$
311,535

$
257,792

$
287,309


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 $48.2 million, $47.8 million and $48.5 million at March 31, 2019 and 2018, and December 31, 2018, respectively.
Note 5 - Earnings per share
Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the applicable period. Diluted earnings per share is computed by dividing net income 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. Net income 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 follows:
 
Three Months Ended
 
March 31,
 
2019

2018

 
(In thousands, except per share amounts)
Weighted average common shares outstanding - basic
196,401

195,304

Effect of dilutive performance share awards and restricted stock units
13

678

Weighted average common shares outstanding - diluted
196,414

195,982

Shares excluded from the calculation of diluted earnings per share
64


Dividends declared per common share
$
.2025

$
.1975


Note 6 - New accounting standards
Recently adopted accounting standards
ASU 2016-02 - Leases In February 2016, the FASB issued guidance regarding leases. The guidance required lessees to recognize a lease liability and a right-of-use asset on the balance sheet for operating and financing leases. The guidance remained 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 required additional disclosures, both quantitative and qualitative, related to operating and financing leases for the lessee and sales-type, direct financing and operating leases for the lessor. The Company adopted the standard on January 1, 2019.
In July 2018, the FASB issued ASU 2018-11 - Leases: Targeted Improvements, an accounting standard update to ASU 2016-02. This ASU provided an entity the option to adopt the guidance using one of two modified retrospective approaches. An entity could adopt the guidance using the modified retrospective transition approach beginning in the earliest year presented in the financial statements. This method of adoption would have required the restatement of prior periods reported and the presentation of lease disclosures under the new guidance for all periods reported. The additional transition method of adoption, introduced by ASU 2018-11, allowed entities the option to apply the guidance on the date of adoption by recognizing a cumulative effect adjustment to retained earnings during the period of adoption and did not require prior comparative periods to be restated.
The Company adopted the standard on January 1, 2019, utilizing the additional transition method of adoption applied on the date of adoption and the practical expedient that allowed the Company to not reassess whether an expired or existing contract contained a lease, the classification of leases or initial direct costs. The Company did not identify any cumulative effect

12



adjustments. The Company also adopted a short-term leasing policy as the lessee where leases with a term of 12 months or less are not included on the Consolidated Balance Sheet.
As a practical expedient, a lessee may choose not to separate nonlease components from lease components and instead account for lease and nonlease components as a single lease component. The election shall be made by asset class. The Company has elected to adopt the lease/nonlease component practical expedient for all asset classes as the lessee. The Company did not elect the practical expedient to use hindsight when assessing the lease term or impairment of right-of-use assets for the existing leases on the date of adoption.
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 has adopted this practical expedient.
The Company formed a lease implementation team to review and assess existing contracts to identify and evaluate those containing leases. Additionally, the team implemented new and revised existing software to meet the reporting and disclosure requirements of the standard. The Company also assessed the impact the standard had on its processes and internal controls and identified new and updated existing internal controls and processes to ensure compliance with the new lease standard; such modifications were not deemed to be significant. During the assessment phase, the Company used various surveys, reconciliations and analytic methodologies to ensure the completeness of the lease inventory. The Company determined that most of the current operating leases were subject to the guidance and were recognized as operating lease liabilities and right-of-use assets on the Consolidated Balance Sheet upon adoption. On January 1, 2019, the Company recorded approximately $112 million to right-of-use assets and lease liabilities as a result of the initial adoption of the guidance. In addition, the Company evaluated the impact the new guidance had on lease contracts where the Company is the lessor and determined it did not have a significant impact.
ASU 2018-15 - Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract In August 2018, the FASB issued guidance on the accounting for implementation costs of a hosting arrangement that is a service contract. The guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract similar to the costs incurred to develop or obtain internal-use software and such capitalized costs to be expensed over the term of the hosting arrangement. Costs incurred during the preliminary and postimplementation stages should continue to be expensed as activities are performed. The capitalized costs are required to be presented on the balance sheet in the same line the prepayment for the fees associated with the hosting arrangement would be presented. In addition, the expense related to the capitalized implementation costs should be presented in the same line on the income statement as the fees associated with the hosting element of the arrangements. The Company adopted the guidance effective January 1, 2019, on a prospective basis. The adoption of the guidance did not have a material impact on its results of operations, financial position, cash flows, and disclosures.
Recently issued accounting standards not yet adopted
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 must be applied on a prospective basis with early adoption permitted. The Company is evaluating the guidance and does not expect it to have a material impact on its results of operations, financial position, cash flows and disclosures.
ASU 2018-13 - Changes to the Disclosure Requirements for Fair Value Measurement In August 2018, the FASB issued guidance on modifying the disclosure requirements on fair value measurements as part of the disclosure framework project. The guidance modifies, among other things, the disclosures required for Level 3 fair value measurements, including the range and weighted average of significant unobservable inputs. The guidance removes, among other things, the disclosure requirement to disclose transfers between Levels 1 and 2. The guidance will be effective for the Company on January 1, 2020, including interim periods, with early adoption permitted. Level 3 fair value measurement disclosures should be applied prospectively while all other amendments should be applied retrospectively. The Company is evaluating the effects the adoption of the new guidance will have on its disclosures.
ASU 2018-14 - Changes to the Disclosure Requirements for Defined Benefit Plans In August 2018, the FASB issued guidance on modifying the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans as part of the disclosure framework project. The guidance removes disclosures that are no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant. The guidance adds, among other things, the requirement to include an explanation for significant gains and losses related to changes in benefit obligations for the

13



period. The guidance removes, among other things, the disclosure requirement to disclose the amount of net periodic benefit costs to be amortized over the next fiscal year from accumulated other comprehensive income (loss) and the effects a one percentage point change in assumed health care cost trend rates will have on certain benefit components. The guidance will be effective for the Company on January 1, 2021, and must be applied on a retrospective basis with early adoption permitted. The Company is evaluating the effects the adoption of the new guidance will have on its disclosures.
ASU 2018-18 - Clarifying the Interaction between Topic 808 and Topic 606 In November 2018, the FASB issued guidance on whether certain transactions between collaborative arrangement participants should be accounted for within revenue under Topic 606 to provide for better comparability among entities. The guidance clarifies which transactions should be accounted for as revenue under Topic 606 and provides unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 regarding distinct goods or services. The guidance also specifies that transactions with a collaborative arrangement not directly related to sales to third parties may not be presented together with revenue recognized under Topic 606. The guidance will be effective for the Company on January 1, 2020, including interim periods, and must be applied retrospectively to January 1, 2018, the date in which the Company adopted Topic 606. An entity may apply the guidance to either all contracts or to only contracts that are not completed as of the date of the initial application of Topic 606. 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.
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, 2019
Net Unrealized Gain (Loss) on Derivative
Instruments
Qualifying as Hedges

Postretirement
Liability Adjustment

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

Total
Accumulated
Other
Comprehensive
Loss

 
(In thousands)
Balance at beginning of period
$
(2,161
)
$
(36,069
)
$
(112
)
$
(38,342
)
Other comprehensive income before reclassifications


39

39

Amounts reclassified from accumulated other comprehensive loss
397

310

28

735

Net current-period other comprehensive income
397

310

67

774

Balance at end of period
$
(1,764
)
$
(35,759
)
$
(45
)
$
(37,568
)
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
)
 
 
 
 
 
 
 
 
 
 
 
 


14



The following amounts were reclassified out of accumulated other comprehensive loss into net income. The amounts presented in parenthesis indicate a decrease to net income on the Consolidated Statements of Income. The reclassifications were as follows:
 
Three Months Ended
Location on Consolidated Statements of
Income
 
March 31,
 
2019
2018
 
(In thousands)
 
Reclassification adjustment for loss on derivative instruments included in net income
$
(148
)
$
(148
)
Interest expense
 
(249
)
56

Income taxes
 
(397
)
(92
)
 
Amortization of postretirement liability losses included in net periodic benefit cost (credit)
(410
)
(573
)
Other income
 
100

155

Income taxes
 
(310
)
(418
)
 
Reclassification adjustment on available-for-sale investments included in net income
(35
)
(37
)
Other income
 
7

7

Income taxes
 
(28
)
(30
)
 
Total reclassifications
$
(735
)
$
(540
)
 

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.
As part of the adoption of ASC 606 - Revenue from Contracts with Customers, 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.

15



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 17.
Three Months Ended March 31, 2019
Electric

Natural gas distribution

Pipeline and midstream

Construction materials and contracting

Construction services

Other

Total

 
(In thousands)
Residential utility sales
$
36,555

$
200,609

$

$

$

$

$
237,164

Commercial utility sales
35,671

121,793





157,464

Industrial utility sales
8,884

8,611





17,495

Other utility sales
1,799






1,799

Natural gas transportation

11,570

25,058




36,628

Natural gas gathering


2,121




2,121

Natural gas storage


2,646




2,646

Contracting services



83,039



83,039

Construction materials



179,309



179,309

Intrasegment eliminations*



(35,140
)


(35,140
)
Inside specialty contracting




299,530


299,530

Outside specialty contracting




107,398


107,398

Other
9,121

3,913

2,696


17

7,843

23,590

Intersegment eliminations


(23,955
)
(95
)
(129
)
(7,824
)
(32,003
)
Revenues from contracts with customers
92,030

346,496

8,566

227,113

406,816

19

1,081,040

Revenues out of scope
536

(4,349
)
47


13,917


10,151

Total external operating revenues
$
92,566

$
342,147

$
8,613

$
227,113

$