MDU RESOURCES GROUP INC [MDU] Filings

10-Q 1 mdu-20220630.htm MDU RESOURCES FORM 10-Q 06-30-2022 mdu-20220630

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 June 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 July 29, 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 Six Months Ended June 30, 2022 and 2021			6
Consolidated Statements of Comprehensive Income -- Three and Six Months Ended June 30, 2022 and 2021			7
Consolidated Balance Sheets -- June 30, 2022 and 2021, and December 31, 2021			8
Consolidated Statements of Equity -- Six Months Ended June 30, 2022 and 2021			9
Consolidated Statements of Cash Flows -- Six Months Ended June 30, 2022 and 2021			10
Notes to Consolidated Financial Statements			11
1. Basis of presentation			11
2. New accounting standards			11
3. Seasonality of operations			12
4. Receivables and allowance for expected credit losses			12
5. Inventories and natural gas in storage			13
6. Earnings per share			13
7. Equity			13
8. Accumulated other comprehensive loss			14
9. Revenue from contracts with customers			15
10. Business combinations			18
11. Leases			18
12. Goodwill and other intangible assets			19
13. Regulatory assets and liabilities			20
14. Fair value measurements			21
15. Debt			23
16. Cash flow information			24
17. Business segment data			25
18. Employee benefit plans			27
19. Regulatory matters			27
20. Contingencies			29

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			31
Item 3. Quantitative and Qualitative Disclosures About Market Risk			54
Item 4. Controls and Procedures			54
Part II -- Other Information
Item 1. Legal Proceedings			55
Item 1A. Risk Factors			55
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			55
Item 4. Mine Safety Disclosures			56
Item 5. Other Information			56
Item 6. Exhibits			56
Exhibits Index			57
Signatures			58

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
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
IPUC			Idaho Public Utilities Commission
IRS			Internal Revenue Service
Knife River			Knife River Corporation, a direct wholly owned subsidiary of Centennial
kWh			Kilowatt-hour
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
Montana-Dakota			Montana-Dakota Utilities Co., a direct wholly owned subsidiary of MDU Energy Capital
MW			Megawatt
NDDEQ			North Dakota Department of Environmental Quality

Index


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 and well-capitalized companies: (1) MDU Resources Group, Inc., the existing company and (2) Knife River, a construction materials and contracting company.

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				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
	(In thousands, except per share amounts)
Operating revenues:
Electric, natural gas distribution and regulated pipeline	$	323,457	$	260,568	$	876,913	$	702,951
Non-regulated pipeline, construction materials and contracting, construction services and other	1,397,464		1,163,089		2,260,567		1,948,644
Total operating revenues	1,720,921		1,423,657		3,137,480		2,651,595
Operating expenses:
Operation and maintenance:
Electric, natural gas distribution and regulated pipeline	94,261		89,404		191,928		183,737
Non-regulated pipeline, construction materials and contracting, construction services and other	1,222,540		988,392		2,032,770		1,705,717
Total operation and maintenance	1,316,801		1,077,796		2,224,698		1,889,454
Purchased natural gas sold	115,312		63,213		382,665		239,450
Depreciation, depletion and amortization	84,758		73,661		164,880		147,384
Taxes, other than income	61,551		53,189		129,035		115,724
Electric fuel and purchased power	21,929		18,109		48,290		36,730
Total operating expenses	1,600,351		1,285,968		2,949,568		2,428,742
Operating income	120,570		137,689		187,912		222,853
Other income (expense)	(4,246)		9,027		(6,646)		12,381
Interest expense	28,113		23,381		53,373		46,835
Income before income taxes	88,211		123,335		127,893		188,399
Income taxes	17,579		23,164		25,528		36,112
Income from continuing operations	70,632		100,171		102,365		152,287
Discontinued operations, net of tax	35		19		65		34
Net income	$	70,667	$	100,190	$	102,430	$	152,321
Earnings per share - basic:
Income from continuing operations	$	.35	$	.50	$	.50	$	.76
Discontinued operations, net of tax	—		—		—		—
Earnings per share - basic	$	.35	$	.50	$	.50	$	.76
Earnings per share - diluted:
Income from continuing operations	$	.35	$	.50	$	.50	$	.76
Discontinued operations, net of tax	—		—		—		—
Earnings per share - diluted	$	.35	$	.50	$	.50	$	.76
Weighted average common shares outstanding - basic	203,351		201,345		203,351		201,028
Weighted average common shares outstanding - diluted	203,401		201,693		203,396		201,328

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				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
	(In thousands)
Net income	$	70,667	$	100,190	$	102,430	$	152,321
Other comprehensive income (loss):
Reclassification adjustment for loss on derivative instruments included in net income, net of tax of $36 and $36 for the three months ended and $72 and $73 for the six months ended in 2022 and 2021, respectively	111		112		223		223
Postretirement liability adjustment:
Amortization of postretirement liability losses included in net periodic benefit credit, net of tax of $148 and $160 for the three months ended and $312 and $311 for the six months ended in 2022 and 2021, respectively	461		457		906		923
Reclassification of postretirement liability adjustment from regulatory asset, net of tax of $(1,086) and $— for the three months ended and $(1,086) and $— for the six months ended in 2022 and 2021, respectively	(3,265)		—		(3,265)		—
Postretirement liability adjustment	(2,804)		457		(2,359)		923
Net unrealized loss on available-for-sale investments:
Net unrealized loss on available-for-sale investments arising during the period, net of tax of $(34) and $(13) for the three months ended and $(119) and $(25) for the six months ended in 2022 and 2021, respectively	(128)		(52)		(448)		(96)
Reclassification adjustment for loss on available-for-sale investments included in net income, net of tax of $7 and $6 for the three months ended and $15 and $15 for the six months ended in 2022 and 2021, respectively	25		25		57		60
Net unrealized loss on available-for-sale investments	(103)		(27)		(391)		(36)
Other comprehensive income (loss)	(2,796)		542		(2,527)		1,110
Comprehensive income attributable to common stockholders	$	67,871	$	100,732	$	99,903	$	153,431

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

Index


MDU Resources Group, Inc.
Consolidated Balance Sheets
(Unaudited)
	June 30, 2022		June 30, 2021		December 31, 2021
Assets	(In thousands, except shares and per share amounts)
Current assets:
Cash and cash equivalents	$	65,394	$	57,946	$	54,161
Receivables, net	1,184,116		903,831		946,741
Inventories	401,433		316,328		335,609
Current regulatory assets	102,535		109,581		118,691
Prepayments and other current assets	105,753		74,259		95,741
Total current assets	1,859,231		1,461,945		1,550,943
Noncurrent assets:
Property, plant and equipment	9,099,752		8,417,559		8,972,849
Less accumulated depreciation, depletion and amortization	3,210,940		3,129,717		3,216,461
Net property, plant and equipment	5,888,812		5,287,842		5,756,388
Goodwill	763,262		717,863		765,386
Other intangible assets, net	20,040		23,401		22,578
Regulatory assets	347,061		376,913		357,851
Investments	161,247		173,157		175,476
Operating lease right-of-use assets	115,802		112,437		124,138
Other	173,670		144,653		157,675
Total noncurrent assets	7,469,894		6,836,266		7,359,492
Total assets	$	9,329,125	$	8,298,211	$	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		1,549		148,053
Accounts payable	579,064		431,878		478,933
Taxes payable	84,970		78,805		80,372
Dividends payable	44,229		42,791		44,229
Accrued compensation	98,159		95,909		81,904
Operating lease liabilities due within one year	33,626		31,787		35,368
Regulatory liabilities due within one year	17,884		23,454		16,303
Other accrued liabilities	208,290		188,187		207,078
Total current liabilities	1,380,675		944,360		1,092,240
Noncurrent liabilities:
Long-term debt	2,713,514		2,335,500		2,593,847
Deferred income taxes	597,733		538,633		591,962
Asset retirement obligations	467,995		450,620		458,061
Regulatory liabilities	433,019		428,467		428,790
Operating lease liabilities	82,891		81,052		89,253
Other	266,488		320,777		273,408
Total noncurrent liabilities	4,561,640		4,155,049		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 June 30, 2022, 202,822,301 at June 30, 2021 and 203,889,661 at December 31, 2021	203,889		202,822		203,889
Other paid-in capital	1,454,131		1,422,169		1,461,205
Retained earnings	1,775,947		1,624,405		1,762,410
Accumulated other comprehensive loss	(43,531)		(46,968)		(41,004)
Treasury stock at cost - 538,921 shares	(3,626)		(3,626)		(3,626)
Total stockholders' equity	3,386,810		3,198,802		3,382,874
Total liabilities and stockholders' equity	$	9,329,125	$	8,298,211	$	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





				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		—		—	—		100,190
Other comprehensive income	—	—		—		—		542		—	—		542
Dividends declared on common stock	—	—		—		(43,336)		—		—	—		(43,336)
Stock-based compensation	—	—		6,150		—		—		—	—		6,150
Issuance of common stock	1,088,843	1,089		33,861		—		—		—	—		34,950
At June 30, 2021	202,822,301	$	202,822	$	1,422,169	$	1,624,405	$	(46,968)	(538,921)	$	(3,626)	$	3,198,802

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

Index


MDU Resources Group, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
	Six Months Ended
	June 30,
	2022		2021
	(In thousands)
Operating activities:
Net income	$	102,430	$	152,321
Discontinued operations, net of tax	65		34
Income from continuing operations	102,365		152,287
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	164,880		147,384
Deferred income taxes	1,464		14,498
Provision for credit losses	2,244		(1,158)
Amortization of debt issuance costs	709		633
Employee stock-based compensation costs	5,378		8,724
Pension and postretirement benefit plan net periodic benefit credit	(3,004)		(2,457)
Unrealized (gains) losses on investments	13,210		(3,795)
Gains on sales of assets	(5,434)		(8,021)
Changes in current assets and liabilities, net of acquisitions:
Receivables	(242,252)		(