MDU RESOURCES GROUP INC [MDU] Filings

10-Q 1 mdu-20220930.htm MDU RESOURCES FORM 10-Q 09-30-2022 mdu-20220930

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 September 30, 2022


☐			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 October 27, 2022: 203,350,740 shares.


Index
			Page
Definitions			3
Introduction			5
Part I -- Financial Information
Item 1. Financial Statements			6
Consolidated Statements of Income -- Three and Nine Months Ended September 30, 2022 and 2021			6
Consolidated Statements of Comprehensive Income -- Three and Nine Months Ended September 30, 2022 and 2021			7
Consolidated Balance Sheets -- September 30, 2022 and 2021, and December 31, 2021			8
Consolidated Statements of Equity -- N ine Months Ended September 30, 2022 and 2021			9
Consolidated Statements of Cash Flows -- Nine Months Ended September 30, 2022 and 2021			11
Notes to Consolidated Financial Statements			12
1. Basis of presentation			12
2. New accounting standards			13
3. Seasonality of operations			13
4. Receivables and allowance for expected credit losses			13
5. Inventories and natural gas in storage			14
6. Earnings per share			15
7. Equity			15
8. Accumulated other comprehensive loss			16
9. Revenue from contracts with customers			17
10. Business combinations			20
11. Leases			20
12. Goodwill and other intangible assets			21
13. Regulatory assets and liabilities			22
14. Fair value measurements			23
15. Debt			25
16. Cash flow information			26
17. Business segment data			27
18. Employee benefit plans			29
19. Regulatory matters			29
20. Contingencies			31

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			33
Item 3. Quantitative and Qualitative Disclosures About Market Risk			56
Item 4. Controls and Procedures			56
Part II -- Other Information
Item 1. Legal Proceedings			57
Item 1A. Risk Factors			57
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			58
Item 4. Mine Safety Disclosures			58
Item 5. Other Information			58
Item 6. Exhibits			58
Exhibits Index			59
Signatures			60

Index

Definitions

The following abbreviations and acronyms used in this Form 10-Q are defined below:


Abbreviation or Acronym
2021 Annual Report			Company's Annual Report on Form 10-K for the year ended December 31, 2021
AFUDC			Allowance for funds used during construction
ASC			FASB Accounting Standards Codification
ASU			FASB Accounting Standards Update
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
Coincident Load Factor			The discount from peak requirements when the Company's peak is at a time different from the MISO system peak for the winter season.
Company			MDU Resources Group, Inc.
COVID-19			Coronavirus disease 2019. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency.
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)
Diamond Willow			Diamond Willow Wind Farm located in Montana
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
Federal Reserve			Federal Reserve System, the central banking system of the United States.
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
IRA			Inflation Reduction Act of 2022
IRS			Internal Revenue Service
Knife River			Knife River Corporation, a direct wholly owned subsidiary of Centennial
kWh			Kilowatt-hour
kV			Kilovolt
LIBOR			London Inter-bank Offered Rate
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., the organization that provides open-access transmission services and monitors the high-voltage transmission system in the Midwest United States and Manitoba, Canada and a southern United States region which includes much of Arkansas, Mississippi, and Louisiana.
MMcf			Million cubic feet
MMdk			Million dk
MNPUC			Minnesota Public Utilities Commission

Index


Montana-Dakota			Montana-Dakota Utilities Co., a direct wholly owned subsidiary of MDU Energy Capital
MW			Megawatt
NDDEQ			North Dakota Department of Environmental Quality
NDPSC			North Dakota Public Service Commission
NERC			North American Electric Reliability Corporation
Oil			Includes crude oil and condensate
PHMSA			Pipeline and Hazardous Materials Safety Administration
Regional Haze Rule			The EPA developed the Regional Haze Rule requiring states to develop and implement comprehensive plans to reduce human-caused regional haze in designated areas such as national parks and wilderness areas.
SDPUC			South Dakota Public Utilities Commission
SEC			United States Securities and Exchange Commission
SOFR			Secured Overnight Financing Rate
VIE			Variable interest entity
Washington DOE			Washington State Department of Ecology
WBI Energy			WBI Energy, 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

Index

Introduction

The Company's mission is to deliver superior value to stakeholders by providing essential infrastructure and services to America. The Company generates, transmits and distributes electricity and provides natural gas distribution, transportation and storage services that are regulated by state public service commissions and/or the FERC. The Company also provides construction services to a variety of industries, including commercial, industrial and utility customers, and provides construction materials through aggregate mining and marketing of related products, such as ready-mix concrete, asphalt and asphalt oil.

Montana-Dakota was incorporated under the state laws of Delaware in 1924. The Company was incorporated under the state laws of Delaware in 2018 upon the completion of an internal holding company reorganization, which resulted in Montana-Dakota becoming a subsidiary of the Company. Its principal executive offices are located at 1200 West Century Avenue, P.O. Box 5650, Bismarck, North Dakota 58506-5650, telephone (701) 530-1000.

On August 4, 2022, the Company announced its Board of Directors unanimously approved a plan to pursue the separation of Knife River from the Company. The separation is planned as a tax-free spinoff transaction to the Company’s stockholders for U.S. federal income tax purposes. The separation is expected to result in two independent, publicly traded companies: (1) MDU Resources Group, Inc., the existing company and (2) Knife River, a construction materials and contracting company.

As the next step of the Company’s strategic planning, the Board of Directors has unanimously determined the best way to optimize value would be to create two pure-play companies: a leading construction materials company and a regulated energy delivery company. Accordingly, the board has authorized management to commence a strategic review process for MDU Construction Services with the objective of achieving the board’s goal of creating two pure-play public companies. For more information on the Company's risks associated with the anticipated separation or the proposed future structure of the companies, see Item 1A. Risk Factors.

The Company is organized into five reportable business segments. These business segments include: electric, natural gas distribution, pipeline, construction materials and contracting, and construction services. The Company's business segments are determined based on the Company's method of internal reporting, which generally segregates the strategic business units due to differences in products, services and regulation. The internal reporting of these segments is defined based on the reporting and review process used by the Company's chief executive officer.

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 Energy, Knife River, MDU Construction Services and Centennial Capital. WBI Energy is the pipeline segment, Knife River is the construction materials and contracting segment, MDU Construction Services is the construction services segment and Centennial Capital is reflected in the Other category.

For more information on the Company's business segments, see Note 17 of the Notes to Consolidated Financial Statements.

Index

Part I -- Financial Information

Item 1. Financial Statements


MDU Resources Group, Inc.
Consolidated Statements of Income
(Unaudited)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
	(In thousands, except per share amounts)
Operating revenues:
Electric, natural gas distribution and regulated pipeline	$	263,614	$	237,065	$	1,140,528	$	940,017
Non-regulated pipeline, construction materials and contracting, construction services and other	1,713,592		1,348,948		3,974,158		3,297,591
Total operating revenues	1,977,206		1,586,013		5,114,686		4,237,608
Operating expenses:
Operation and maintenance:
Electric, natural gas distribution and regulated pipeline	89,502		90,058		281,430		273,796
Non-regulated pipeline, construction materials and contracting, construction services and other	1,457,350		1,122,840		3,490,120		2,828,557
Total operation and maintenance	1,546,852		1,212,898		3,771,550		3,102,353
Purchased natural gas sold	61,863		41,135		444,527		280,584
Depreciation, depletion and amortization	82,293		75,229		247,173		222,613
Taxes, other than income	56,267		48,096		185,303		163,819
Electric fuel and purchased power	20,080		19,486		68,370		56,216
Total operating expenses	1,767,355		1,396,844		4,716,923		3,825,585
Operating income	209,851		189,169		397,763		412,023
Other income (expense)	4,769		5,930		(1,877)		18,310
Interest expense	31,369		23,389		84,741		70,224
Income before income taxes	183,251		171,710		311,145		360,109
Income taxes	35,318		32,748		60,847		68,860
Income from continuing operations	147,933		138,962		250,298		291,249
Discontinued operations, net of tax	38		314		103		348
Net income	$	147,971	$	139,276	$	250,401	$	291,597
Earnings per share - basic:
Income from continuing operations	$	.73	$	.68	$	1.23	$	1.44
Discontinued operations, net of tax	—		—		—		—
Earnings per share - basic	$	.73	$	.68	$	1.23	$	1.44
Earnings per share - diluted:
Income from continuing operations	$	.73	$	.68	$	1.23	$	1.44
Discontinued operations, net of tax	—		—		—		—
Earnings per share - diluted	$	.73	$	.68	$	1.23	$	1.44
Weighted average common shares outstanding - basic	203,351		202,863		203,351		201,647
Weighted average common shares outstanding - diluted	203,644		203,190		203,407		201,955

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

Index


MDU Resources Group, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
	(In thousands)
Net income	$	147,971	$	139,276	$	250,401	$	291,597
Other comprehensive income (loss):
Reclassification adjustment for loss on derivative instruments included in net income, net of tax of $37 and $36 for the three months ended and $109 and $109 for the nine months ended in 2022 and 2021, respectively	111		111		334		334
Postretirement liability adjustment:
Amortization of postretirement liability losses included in net periodic benefit credit, net of tax of $148 and $151 for the three months ended and $460 and $462 for the nine months ended in 2022 and 2021, respectively	461		466		1,367		1,389
Reclassification of postretirement liability adjustment from regulatory asset, net of tax of $— and $— for the three months ended and $(1,086) and $— for the nine months ended in 2022 and 2021, respectively	—		—		(3,265)		—
Postretirement liability adjustment	461		466		(1,898)		1,389
Net unrealized loss on available-for-sale investments:
Net unrealized loss on available-for-sale investments arising during the period, net of tax of $(88) and $(15) for the three months ended and $(207) and $(40) for the nine months ended in 2022 and 2021, respectively	(329)		(54)		(777)		(150)
Reclassification adjustment for loss on available-for-sale investments included in net income, net of tax of $12 and $6 for the three months ended and $27 and $21 for the nine months ended in 2022 and 2021, respectively	42		20		99		80
Net unrealized loss on available-for-sale investments	(287)		(34)		(678)		(70)
Other comprehensive income (loss)	285		543		(2,242)		1,653
Comprehensive income attributable to common stockholders	$	148,256	$	139,819	$	248,159	$	293,250

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

Index


MDU Resources Group, Inc.
Consolidated Balance Sheets
(Unaudited)
	September 30, 2022		September 30, 2021		December 31, 2021
Assets	(In thousands, except shares and per share amounts)
Current assets:
Cash and cash equivalents	$	74,620	$	57,241	$	54,161
Receivables, net	1,298,019		979,862		946,741
Inventories	398,642		312,285		335,609
Current regulatory assets	148,160		133,135		118,691
Prepayments and other current assets	104,850		83,364		95,741
Total current assets	2,024,291		1,565,887		1,550,943
Noncurrent assets:
Property, plant and equipment	9,257,067		8,634,737		8,972,849
Less accumulated depreciation, depletion and amortization	3,263,217		3,175,756		3,216,461
Net property, plant and equipment	5,993,850		5,458,981		5,756,388
Goodwill	763,262		717,646		765,386
Other intangible assets, net	18,745		22,241		22,578
Regulatory assets	344,442		379,245		357,851
Investments	157,860		171,859		175,476
Operating lease right-of-use assets	119,586		109,439		124,138
Other	185,094		143,565		157,675
Total noncurrent assets	7,582,839		7,002,976		7,359,492
Total assets	$	9,607,130	$	8,568,863	$	8,910,435
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings	$	100,000	$	50,000	$	—
Long-term debt due within one year	214,453		1,548		148,053
Accounts payable	630,699		525,704		478,933
Taxes payable	93,565		87,455		80,372
Dividends payable	44,229		43,212		44,229
Accrued compensation	99,824		105,867		81,904
Operating lease liabilities due within one year	34,569		30,502		35,368
Regulatory liabilities due within one year	18,599		16,491		16,303
Other accrued liabilities	232,364		212,140		207,078
Total current liabilities	1,468,302		1,072,919		1,092,240
Noncurrent liabilities:
Long-term debt	2,773,999		2,326,718		2,593,847
Deferred income taxes	617,996		557,582		591,962
Asset retirement obligations	472,931		455,522		458,061
Regulatory liabilities	433,212		426,141		428,790
Operating lease liabilities	85,884		79,397		89,253
Other	262,948		318,306		273,408
Total noncurrent liabilities	4,646,970		4,163,666		4,435,321
Commitments and contingencies
Stockholders' equity:
Common stock Authorized - 500,000,000 shares, $1.00 par value Shares issued - 203,889,661 at September 30, 2022, 203,889,661 at September 30, 2021 and 203,889,661 at December 31, 2021	203,889		203,889		203,889
Other paid-in capital	1,455,241		1,458,208		1,461,205
Retained earnings	1,879,600		1,720,232		1,762,410
Accumulated other comprehensive loss	(43,246)		(46,425)		(41,004)
Treasury stock at cost - 538,921 shares	(3,626)		(3,626)		(3,626)
Total stockholders' equity	3,491,858		3,332,278		3,382,874
Total liabilities and stockholders' equity	$	9,607,130	$	8,568,863	$	8,910,435

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

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, 2021	203,889,661	$	203,889	$	1,461,205	$	1,762,410	$	(41,004)	(538,921)	$	(3,626)	$	3,382,874
Net income	—	—		—		31,763		—		—	—		31,763
Other comprehensive income	—	—		—		—		269		—	—		269
Dividends declared on common stock	—	—		—		(44,447)		—		—	—		(44,447)
Stock-based compensation	—	—		2,689		—		—		—	—		2,689
Repurchase of common stock	—	—		—		—		—		(266,821)	(7,399)		(7,399)
Issuance of common stock upon vesting of stock-based compensation, net of shares used for tax withholdings	—	—		(12,303)		—		—		266,821	7,399		(4,904)
Issuance of common stock	—	—		(127)		—		—		—	—		(127)
At March 31, 2022	203,889,661	$	203,889	$	1,451,464	$	1,749,726	$	(40,735)	(538,921)	$	(3,626)	$	3,360,718
Net income	—	—		—		70,667		—		—	—		70,667
Other comprehensive loss	—	—		—		—		(2,796)		—	—		(2,796)
Dividends declared on common stock	—	—		—		(44,446)		—		—	—		(44,446)
Stock-based compensation	—	—		2,689		—		—		—	—		2,689
Issuance of common stock	—	—		(22)		—		—		—	—		(22)
At June 30, 2022	203,889,661	$	203,889	$	1,454,131	$	1,775,947	$	(43,531)	(538,921)	$	(3,626)	$	3,386,810
Net income	—	—		—		147,971		—		—	—		147,971
Other comprehensive income	—	—		—		—		285		—	—		285
Dividends declared on common stock	—	—		—		(44,318)		—		—	—		(44,318)
Stock-based compensation	—	—		1,110		—		—		—	—		1,110
At September 30, 2022	203,889,661	$	203,889	$	1,455,241	$	1,879,600	$	(43,246)	(538,921)	$	(3,626)	$	3,491,858

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

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, 2020	201,061,198	$	201,061	$	1,371,385	$	1,558,363	$	(48,078)	(538,921)	$	(3,626)	$	3,079,105
Net income	—	—		—		52,131		—		—	—		52,131
Other comprehensive income	—	—		—		—		568		—	—		568
Dividends declared on common stock	—	—		—		(42,943)		—		—	—		(42,943)
Stock-based compensation	—	—		2,574		—		—		—	—		2,574
Repurchase of common stock	—	—		—		—		—		(392,294)	(6,701)		(6,701)
Issuance of common stock upon vesting of stock-based compensation, net of shares used for tax withholdings	—	—		(10,828)		—		—		392,294	6,701		(4,127)
Issuance of common stock	672,260	672		19,027		—		—		—	—		19,699
At March 31, 2021	201,733,458	$	201,733	$	1,382,158	$	1,567,551	$	(47,510)	(538,921)	$	(3,626)	$	3,100,306
Net income	—	—		—		100,190		—