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Section 1: 10-Q (MDU RESOURCES FORM 10-Q 3-31-2020)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to ______________
Commission file number 1-03480
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)
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 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  No .
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated Filer
Non-Accelerated Filer
Smaller Reporting Company
 
 
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No .
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of May 1, 2020: 200,522,277 shares.

1


Index
 
Page
 
 

2

Index

Definitions
The following abbreviations and acronyms used in this Form 10-Q are defined below:
Abbreviation or Acronym
 
2019 Annual Report
Company's Annual Report on Form 10-K for the year ended December 31, 2019
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
CARES Act
United States Coronavirus Aid, Relief, and Economic Security Act
Cascade
Cascade Natural Gas Corporation, an indirect wholly owned subsidiary of MDU Energy Capital
CDC
Centers for Disease Control and Prevention
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.
COVID-19
Coronavirus disease 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 Refining
Dakota Prairie Refining, LLC, a limited liability company previously owned by WBI Energy and Calumet Specialty Products Partners, L.P. (previously included in the Company's refining segment)
dk
Decatherm
Dodd-Frank Act
Dodd-Frank Wall Street Reform and Consumer Protection Act
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 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
kWh
Kilowatt-hour
LIBOR
London Inter-bank Offered Rate
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 direct wholly owned subsidiary of MDU Energy Capital
MTPSC
Montana Public Service Commission
MW
Megawatt

3

Index

NDPSC
North Dakota Public Service Commission
NGL
Natural gas liquids
Non-GAAP
Not in accordance with GAAP
Oil
Includes crude oil and condensate
OPUC
Oregon Public Utility Commission
SDPUC
South Dakota Public Utilities Commission
SEC
United States Securities and Exchange Commission
Securities Act
Securities Act of 1933, as amended
SOFR
Secured Overnight Financing Rate
VIE
Variable interest entity
WBI Energy
WBI Energy, Inc., a direct 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

Index

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, trends, 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 other than 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 II, Item 1A - Risk Factors in this Form 10-Q, Part I, Item 1A - Risk Factors in the 2019 Annual Report and subsequent filings with the SEC.
Introduction
The Company is a regulated energy delivery and construction materials and services business. The organizational entity was originally incorporated as Montana-Dakota under the state laws of Delaware in 1924. Pursuant to an internal holding company reorganization completed on January 1, 2019, the Company was incorporated under the state laws of Delaware in 2018. Its principal executive offices are located at 1200 West Century Avenue, P.O. Box 5650, Bismarck, North Dakota 58506-5650, telephone (701) 530-1000.
The Company, through its wholly owned subsidiary, MDU Energy Capital, owns Montana-Dakota, Cascade and Intermountain. The electric segment is comprised of Montana-Dakota while the natural gas distribution segment is comprised of Montana-Dakota, Cascade and Intermountain.
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 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 16 of the Notes to Consolidated Financial Statements.

5

Index

Part I -- Financial Information
Item 1. Financial Statements
MDU Resources Group, Inc.
Consolidated Statements of Income
(Unaudited)
 
Three Months Ended
 
March 31,
 
2020

2019

 
(In thousands, except per share amounts)
Operating revenues:
 
 
Electric, natural gas distribution and regulated pipeline
$
418,682

$
439,617

Nonregulated pipeline, construction materials and contracting, construction services and other
778,691

651,574

Total operating revenues 
1,197,373

1,091,191

Operating expenses:
 

 

Operation and maintenance:
 

 

Electric, natural gas distribution and regulated pipeline
87,608

87,770

Nonregulated pipeline, construction materials and contracting, construction services and other
733,392

615,144

Total operation and maintenance
821,000

702,914

Purchased natural gas sold
165,412

183,829

Depreciation, depletion and amortization
69,239

59,897

Taxes, other than income
64,112

54,029

Electric fuel and purchased power
20,540

26,304

Total operating expenses
1,140,303

1,026,973

Operating income
57,070

64,218

Other income (expense)
(1,005
)
7,595

Interest expense
24,553

23,407

Income before income taxes
31,512

48,406

Income taxes
5,973

7,317

Income from continuing operations
25,539

41,089

Loss from discontinued operations, net of tax
(409
)
(163
)
Net income
$
25,130

$
40,926

Earnings per share - basic:
 

 

Income from continuing operations
$
.13

$
.21

Discontinued operations, net of tax


Earnings per share - basic
$
.13

$
.21

Earnings per share - diluted:
 

 

Income from continuing operations
$
.13

$
.21

Discontinued operations, net of tax


Earnings per share - diluted
$
.13

$
.21

Weighted average common shares outstanding - basic
200,440

196,401

Weighted average common shares outstanding - diluted
200,456

196,414

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

6

Index

MDU Resources Group, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
 
 
Three Months Ended
 
 
March 31,
 
 
2020

2019

 
 
(In thousands)
Net income
 
$
25,130

$
40,926

Other comprehensive income:
 
 
 
Reclassification adjustment for loss on derivative instruments included in net income, net of tax of $36 and $(249) for the three months ended in 2020 and 2019, respectively
 
111

397

Amortization of postretirement liability losses included in net periodic benefit cost, net of tax of $149 and $100 for the three months ended in 2020 and 2019, respectively
 
462

310

Net unrealized gain on available-for-sale investments:
 
 
 
Net unrealized gain on available-for-sale investments arising during the period, net of tax of $36 and $10 for the three months ended in 2020 and 2019, respectively
 
135

39

Reclassification adjustment for (gain) loss on available-for-sale investments included in net income, net of tax of $0 and $7 for the three months ended in 2020 and 2019, respectively
 
(1
)
28

Net unrealized gain on available-for-sale investments
 
134

67

Other comprehensive income
 
707

774

Comprehensive income attributable to common stockholders
 
$
25,837

$
41,700

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



7

Index

MDU Resources Group, Inc.
Consolidated Balance Sheets
(Unaudited)
 
March 31, 2020

March 31, 2019

December 31, 2019

Assets
(In thousands, except shares and per share amounts)
Current assets:
 
 
 
Cash and cash equivalents
$
116,526

$
49,721

$
66,459

Receivables, net
835,468

722,152

836,605

Inventories
305,958

311,535

278,407

Current regulatory assets
55,206

74,494

63,613

Prepayments and other current assets
60,230

77,327

52,617

Total current assets
1,373,388

1,235,229

1,297,701

Noncurrent assets:
 

 

 

Property, plant and equipment
8,008,338

7,502,368

7,908,628

Less accumulated depreciation, depletion and amortization
3,039,812

2,858,986

2,991,486

Net property, plant and equipment
4,968,526

4,643,382

4,917,142

Goodwill
713,527

679,395

681,358

Other intangible assets, net
34,250

11,680

15,246

Regulatory assets
348,189

319,119

353,784

Investments
145,237

144,616

148,656

Operating lease right-of-use assets
114,382

107,486

115,323

Other
153,017

138,016

153,849

Total noncurrent assets 
6,477,128

6,043,694

6,385,358

Total assets
$
7,850,516

$
7,278,923

$
7,683,059

Liabilities and Stockholders' Equity
 

 

 

Current liabilities:
 

 

 

Short-term borrowings
$

$
70,000

$

Long-term debt due within one year
16,560

251,846

16,540

Accounts payable
384,339

352,180

403,391

Taxes payable
58,743

55,319

48,970

Dividends payable
41,608

39,875

41,580

Accrued compensation
55,199

45,383

99,269

Regulatory liabilities due within one year
60,072

61,390

42,935

Operating lease liabilities due within one year
31,141

30,978

31,664

Asset retirement obligations due within one year
4,256

4,994

4,277

Other accrued liabilities
172,561

150,814

177,801

Total current liabilities 
824,479

1,062,779

866,427

Noncurrent liabilities:
 

 

 

Long-term debt
2,438,675

1,946,181

2,226,567

Deferred income taxes
515,711

444,965

506,583

Regulatory liabilities
443,205

457,084

447,370

Asset retirement obligations
417,469

375,827

413,298

Operating lease liabilities
83,414

76,444

83,742

Other
290,971

309,951

291,826

Total noncurrent liabilities 
4,189,445

3,610,452

3,969,386

Commitments and contingencies






Stockholders' equity:
 

 

 

Common stock
Authorized - 500,000,000 shares, $1.00 par value
Shares issued - 201,061,198 at March 31, 2020, 198,316,808 at
March 31, 2019 and 200,922,790 at December 31, 2019
201,061

198,317

200,923

Other paid-in capital
1,360,564

1,284,060

1,355,404

Retained earnings
1,319,988

1,164,509

1,336,647

Accumulated other comprehensive loss
(41,395
)
(37,568
)
(42,102
)
Treasury stock at cost - 538,921 shares
(3,626
)
(3,626
)
(3,626
)
Total stockholders' equity
2,836,592

2,605,692

2,847,246

Total liabilities and stockholders' equity 
$
7,850,516

$
7,278,923

$
7,683,059

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

8

Index

MDU Resources Group, Inc.
Consolidated Statements of Equity
(Unaudited)
 
 
 
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, 2019
200,922,790

$
200,923

$
1,355,404

$
1,336,647

$
(42,102
)
(538,921
)
$
(3,626
)
$
2,847,246

Net income



25,130




25,130

Other comprehensive income




707



707

Dividends declared on common stock



(41,789
)



(41,789
)
Stock-based compensation


2,250





2,250

Issuance of common stock upon vesting of stock-based compensation, net of shares used for tax withholdings
26,406

26

(388
)




(362
)
Issuance of common stock
112,002

112

3,298





3,410

At March 31, 2020
201,061,198

$
201,061

$
1,360,564

$
1,319,988

$
(41,395
)
(538,921
)
$
(3,626
)
$
2,836,592

 
 
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

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

9

Index

MDU Resources Group, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended
 
March 31,
 
2020

2019

 
(In thousands)
Operating activities:
 
 
Net income
$
25,130

$
40,926

Loss from discontinued operations, net of tax
(409
)
(163
)
Income from continuing operations
25,539

41,089

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

 

Depreciation, depletion and amortization
69,239

59,897

Deferred income taxes
1,813

12,658

Changes in current assets and liabilities, net of acquisitions:
 

 
Receivables
44,549

(2,641
)
Inventories
(29,337
)
(21,407
)
Other current assets
14,959

(31,586
)
Accounts payable
(24,105
)
356

Other current liabilities
(23,259
)
(6,310
)
Other noncurrent changes
326

(49,965
)
Net cash provided by continuing operations
79,724

2,091

Net cash used in discontinued operations
(434
)
(507
)
Net cash provided by operating activities
79,290

1,584

Investing activities:
 

 

Capital expenditures
(139,485
)
(133,839
)
Acquisitions, net of cash acquired
(67,593
)
(30,868
)
Net proceeds from sale or disposition of property and other
4,540

4,938

Investments
68

(340
)
Net cash used in investing activities
(202,470
)
(160,109
)
Financing activities:
 

 

Issuance of short-term borrowings

70,000

Issuance of long-term debt
248,021

141,338

Repayment of long-term debt
(36,242
)
(52,964
)
Proceeds from issuance of common stock
3,410

38,634

Dividends paid
(41,580
)
(39,695
)
Tax withholding on stock-based compensation
(362
)
(3,015
)
Net cash provided by financing activities
173,247

154,298

Increase (decrease) in cash and cash equivalents
50,067

(4,227
)
Cash and cash equivalents -- beginning of year
66,459

53,948

Cash and cash equivalents -- end of period
$
116,526

$
49,721

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

10

Index

MDU Resources Group, Inc.
Notes to Consolidated
Financial Statements
March 31, 2020 and 2019
(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 2019 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.
In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, and the President of the United States declared the COVID-19 outbreak as a national emergency. The nature of COVID-19 led to worldwide shutdowns and halting of commercial and interpersonal activity as governments imposed regulations in efforts to control the spread of COVID-19, such as shelter-in-place orders and quarantines. Most of the Company's products and services are considered essential to our country and our communities; therefore, operations have generally been permitted to continue. The Company has assessed the impacts of the COVID-19 pandemic on its results of operations for the three months ended March 31, 2020, and determined there were no significant impacts.
In the first quarter of 2020, the Company recorded an out-of-period adjustment to correct the recognition of revenue on a construction contract, which was the result of an overstatement of operating revenue and receivables of $7.7 million and an understatement of operating expense and accounts payable of $1.2 million in the year ended December 31, 2019. This adjustment resulted in an after-tax reduction to net income of $6.7 million in the first quarter of 2020. The Company evaluated the impact of the out-of-period adjustment and concluded it was not material to any previously issued interim and annual consolidated financial statements and the adjustment was not material to the three months ended March 31, 2020.
Effective January 1, 2020, the Company adopted the requirements of the ASU on the measurement of credit losses on certain financial instruments following a modified retrospective approach, as further discussed in Notes 2 and 4. As such, results for reporting periods beginning on January 1, 2020, are presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with historic accounting. The Company's adoption of this guidance did not have a material impact on its financial reporting.
The assets and liabilities of the Company's discontinued operations, related to the sale of Dakota Prairie Refining and the assets of Fidelity, have been classified as held for sale and are included in prepayments and other current assets, noncurrent assets - other and other accrued liabilities on the Consolidated Balance Sheets. The results of operations are shown in income (loss) from discontinued operations on the Consolidated Statements of Income. Unless otherwise indicated, the amounts presented in the accompanying notes to the consolidated financial statements relate to the Company's continuing operations.
Management has also evaluated the impact of events occurring after March 31, 2020, up to the date of issuance of these consolidated interim financial statements. For more information on the Company's subsequent event, see Note 20.
Note 2 - New accounting standards
Recently adopted accounting standards
ASU 2016-13 - Measurement of Credit Losses on Financial Instruments In June 2016, the FASB issued guidance on the measurement of credit losses on certain financial instruments. The guidance introduced a new impairment model known as the current expected credit loss model that replaced the incurred loss impairment methodology previously included under GAAP. This guidance required entities to present certain investments in debt securities, trade accounts receivable and other financial assets at their net carrying value of the amount expected to be collected on the financial statements. The Company adopted the guidance on January 1, 2020, using a modified retrospective approach.
The Company formed an implementation team to review and assess existing financial assets to identify and evaluate the financial assets subject to the new current expected credit loss model. The Company assessed the impact of the guidance on its processes and internal controls and identified and updated existing internal controls and processes to ensure compliance with the new guidance; such modifications were deemed insignificant. During the assessment phase, the Company identified the complete portfolio of assets subject to the current expected credit loss model. The Company determined the guidance did not have a material impact on its results of operations, financial position, cash flows or disclosures and did not record a material cumulative effect adjustment upon adoption. See Note 4 for additional information regarding the Company's expected credit losses.

11

Index

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 modified, among other things, the disclosures required for Level 3 fair value measurements, including the range and weighted average of significant unobservable inputs. The guidance removed, among other things, the disclosure requirement to disclose transfers between Levels 1 and 2. The Company adopted the guidance on January 1, 2020. The Company determined the guidance did not have a material impact on its disclosures.
Recently issued accounting standards not yet adopted
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 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 2019-12 - Simplifying the Accounting for Income Taxes In December 2019, the FASB issued guidance on simplifying the accounting for income taxes by removing certain exceptions in ASC 740 and providing simplification amendments. The guidance removes exceptions on intraperiod tax allocations and reporting and provides simplification on accounting for franchise taxes, tax basis goodwill and tax law changes. The guidance will be effective for the Company on January 1, 2021, with early adoption permitted. Transition requirements vary among the exceptions and amendments which include retrospective, modified retrospective and prospective application. The Company does not expect the guidance to have a material impact on its results of operations, financial position, cash flows or disclosures.
ASU 2020-04 - Reference Rate Reform In March 2020, the FASB issued optional guidance to ease the facilitation of the effects of reference rate reform on financial reporting. The guidance applies to certain contract modifications, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. LIBOR is expected to be retired with a full phase-out by the end of 2021 and replaced by a new reference rate, which includes SOFR. The guidance can be applied beginning in the interim period that includes March 12, 2020, and cannot be applied to contract modifications or hedging relationships entered into or evaluated after December 31, 2022. The Company is currently evaluating the use of the optional guidance. The Company does not expect the guidance to have a material impact on its results of operations, financial position, cash flows or disclosures.
Note 3 - 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 4 - Receivables and allowance for expected credit losses
Receivables consists primarily of trade receivables from the sale of goods and services, which are recorded at the invoiced amount, and contract assets, net of expected credit losses. For more information on contract assets, see Note 8. The Company's trade accounts receivable are all due in 12 months or less. The total balance of receivables past due 90 days or more was $51.8 million, $38.3 million and $46.7 million at March 31, 2020 and 2019, and December 31, 2019, respectively.
The Company's expected credit losses are determined through a review using historical credit loss experience, changes in asset specific characteristics, current conditions and reasonable and supportable future forecasts, among other specific account data, and is performed at least quarterly. The Company develops and documents its methodology to determine its allowance for expected credit losses at each of its reportable business segments. Risk characteristics used by the business segments may include customer mix, knowledge of customers and general economic conditions of the various local economies, among others. Specific account balances are written off when management determines the amounts to be uncollectible.

12

Index

Details of the Company's expected credit losses were as follows:
 
Balance at January 1, 2020

Current Expected Credit Loss Provision

Write-offs Charged Against the Allowance

Credit Loss Recoveries Collected

Balance at March 31, 2020

 
(In thousands)
Electric
$
328

$
555

$
500

$
109

$
492

Natural gas distribution
1,056

1,156

624

229

1,817

Construction materials and contracting
5,357

694

68


5,983

Construction services
1,756

1,150

73


2,833

Total
$
8,497

$
3,555

$
1,265

$
338

$
11,125

The Company's allowance for doubtful accounts at March 31, 2019 and December 31, 2019, was $9.6 million and $8.5 million, respectively.
Note 5 - Inventories and natural gas in storage
Natural gas in storage for the Company's regulated operations is generally valued at lower of cost or market using the last-in, first-out method or lower of cost or net realizable value using the average cost or first-in, first-out method. The majority of all other inventories are valued at the lower of cost or net realizable value using the average cost method. The portion of the cost of natural gas in storage expected to be used within 12 months was included in inventories. Inventories on the Consolidated Balance Sheets were as follows:
 
March 31, 2020

March 31, 2019

December 31, 2019

 
(In thousands)
Aggregates held for resale
$
155,976

$
142,747

$
147,723

Asphalt oil
73,842

83,459

41,912

Materials and supplies
26,293

26,441

22,512

Merchandise for resale
23,109

25,104

22,232

Natural gas in storage (current)
7,872

11,464

22,058

Other
18,866

22,320

21,970

Total
$
305,958

$
311,535

$
278,407


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 noncurrent assets - other and was $48.3 million, $48.2 million and $48.4 million at March 31, 2020 and 2019, and December 31, 2019, respectively.
Note 6 - 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,
 
2020

2019

 
(In thousands, except per share amounts)
Weighted average common shares outstanding - basic
200,440

196,401

Effect of dilutive performance share awards and restricted stock units
16

13

Weighted average common shares outstanding - diluted
200,456

196,414

Shares excluded from the calculation of diluted earnings per share
68

64

Dividends declared per common share
$
.2075

$
.2025



13

Index

Note 7 - Accumulated other comprehensive income (loss)
The after-tax changes in the components of accumulated other comprehensive loss were as follows:
 
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)
At December 31, 2019
$
(1,430
)
$
(40,734
)
$
62

$
(42,102
)
Other comprehensive income before reclassifications


135

135

Amounts reclassified from (to) accumulated other comprehensive loss
111

462

(1
)
572

Net current-period other comprehensive income
111

462

134

707

At March 31, 2020
$
(1,319
)
$
(40,272
)
$
196

$
(41,395
)
 
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)
At December 31, 2018
$
(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

At March 31, 2019
$
(1,764
)
$
(35,759
)
$
(45
)
$
(37,568
)
The following amounts were reclassified between accumulated other comprehensive loss and 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,
 
2020
2019
 
(In thousands)
 
Reclassification adjustment for loss on derivative instruments included in net income
$
(147
)
$
(148
)
Interest expense
 
36

(249
)
Income taxes
 
(111
)
(397
)
 
Amortization of postretirement liability losses included in net periodic benefit cost
(611
)
(410
)
Other income
 
149

100

Income taxes
 
(462
)
(310
)
 
Reclassification adjustment on available-for-sale investments included in net income
1

(35
)
Other income
 

7

Income taxes
 
1

(28
)
 
Total reclassifications
$
(572
)
$
(735
)
 

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.

14

Index

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 16.
Three Months Ended March 31, 2020
Electric

Natural gas distribution

Pipeline

Construction materials and contracting

Construction services

Other

Total

 
(In thousands)
Residential utility sales
$
32,349

$
186,701

$

$

$

$

$
219,050

Commercial utility sales
33,587

114,996





148,583

Industrial utility sales
10,367

8,521





18,888

Other utility sales
1,648






1,648

Natural gas transportation

11,798

27,432




39,230

Natural gas gathering


2,090




2,090

Natural gas storage


3,046




3,046

Contracting services



98,401



98,401

Construction materials



207,910



207,910

Intrasegment eliminations*



(44,104
)


(44,104
)
Inside specialty contracting




372,209


372,209

Outside specialty contracting




130,150


130,150

Other
8,450

2,498

3,241


351

2,991

17,531

Intersegment eliminations
(195
)
(185
)
(25,199
)
(63
)
(2,470
)
(2,973
)
(31,085
)
Revenues from contracts with customers
86,206

324,329

10,610

262,144

500,240

18

1,183,547

Revenues out of scope
(298
)
2,114

45


11,965


13,826

Total external operating revenues
$
85,908

$
326,443

$
10,655

$
262,144

$
512,205

$
18

$
1,197,373

*
Intrasegment revenues are presented within the construction materials and contracting segment to highlight the focus on vertical integration as this segment sells materials to both third parties and internal customers. Due to consolidation requirements, these revenues must be eliminated against construction materials to arrive at the external operating revenue total for the segment.
 
Three Months Ended March 31, 2019
Electric

Natural gas distribution

Pipeline

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