MDU RESOURCES GROUP INC - Quarter Report: 2021 March (Form 10-Q)

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, 2021


☐			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 April 29, 2021: 201,194,537 shares.


Index
			Page
Definitions			3
Introduction			5
Part I -- Financial Information
Item 1. Financial Statements			6
Consolidated Statements of Income -- Three Months Ended March 31, 2021 and 2020			6
Consolidated Statements of Comprehensive Income -- Three Months Ended March 31, 2021 and 2020			7
Consolidated Balance Sheets -- March 31, 2021 and 2020, and December 31, 2020			8
Consolidated Statements of Equity -- Three Months Ended March 31, 2021 and 2020			9
Consolidated Statements of Cash Flows -- Three Months Ended March 31, 2021 and 2020			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			12
6. Earnings per share			13
7. Equity			13
8. Accumulated other comprehensive income (loss)			13
9. Revenue from contracts with customers			15
10. Business combinations			16
11. Leases			17
12. Goodwill and other intangible assets			17
13. Regulatory assets and liabilities			19
14. Fair value measurements			20
15. Debt			22
16. Cash flow information			23
17. Business segment data			23
18. Employee benefit plans			26
19. Regulatory matters			26
20. Contingencies			28

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			30
Item 3. Quantitative and Qualitative Disclosures About Market Risk			48
Item 4. Controls and Procedures			48
Part II -- Other Information
Item 1. Legal Proceedings			50
Item 1A. Risk Factors			50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			50
Item 4. Mine Safety Disclosures			50
Item 5. Other Information			50
Item 6. Exhibits			50
Exhibits Index			51
Signatures			52

Index

Definitions

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


Abbreviation or Acronym
2020 Annual Report			Company's Annual Report on Form 10-K for the year ended December 31, 2020
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
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 former 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)
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 Montana-Dakota
IBEW			International Brotherhood of Electrical Workers
ICWU			International Chemical Workers Union
Intermountain			Intermountain Gas Company, an indirect wholly owned subsidiary of MDU Energy Capital
IPUC			Idaho Public Utilities Commission
Knife River			Knife River Corporation, a direct wholly owned subsidiary of Centennial
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
MW			Megawatt
NDDEQ			North Dakota Department of Environmental Quality

Index


NDPSC			North Dakota Public Service Commission
Non-GAAP			Not in accordance with GAAP
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
Securities Act			Securities Act of 1933, as amended
SOFR			Secured Overnight Financing Rate
SPP			Southwest Power Pool, the organization that manages the electric grid and wholesale power market for the central United States.
VIE			Variable interest entity
WBI Holdings			WBI Holdings, Inc., a direct wholly owned subsidiary of Centennial
WUTC			Washington Utilities and Transportation Commission
WYPSC			Wyoming Public Service Commission

Index

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's strategy is to deliver superior value with a two-platform model, regulated energy delivery and construction materials and services businesses, while also pursuing organic growth opportunities and using a disciplined approach to strategic acquisitions of well-managed companies and properties.

The Company focuses on infrastructure and is Building a Strong America® by providing essential products and services through its regulated energy delivery platform and its construction materials and services platform, which are both comprised of different operating segments. Most of these segments experience seasonality related to the industries in which they operate. The two-platform approach helps balance this seasonality and the risk associated with each type of industry. Through its regulated energy delivery platform, the Company generates, transmits and distributes electricity and provides natural gas distribution, transportation and storage services. These businesses are regulated by state public service commissions and/or the FERC. The construction materials and services platform provides construction services to a variety of industries, including commercial, industrial and governmental customers, and provides construction materials through aggregate mining and marketing of related products, such as ready-mixed concrete, asphalt and asphalt oil.

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 Holdings, Knife River, MDU Construction Services 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 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
	March 31,
	2021		2020
	(In thousands, except per share amounts)
Operating revenues:
Electric, natural gas distribution and regulated pipeline	$	442,381	$	418,682
Non-regulated pipeline, construction materials and contracting, construction services and other	785,557		778,691
Total operating revenues	1,227,938		1,197,373
Operating expenses:
Operation and maintenance:
Electric, natural gas distribution and regulated pipeline	94,333		87,608
Non-regulated pipeline, construction materials and contracting, construction services and other	717,326		733,392
Total operation and maintenance	811,659		821,000
Purchased natural gas sold	176,237		165,412
Depreciation, depletion and amortization	73,723		69,239
Taxes, other than income	62,534		64,112
Electric fuel and purchased power	18,621		20,540
Total operating expenses	1,142,774		1,140,303
Operating income	85,164		57,070
Other income (expense)	3,354		(1,005)
Interest expense	23,453		24,553
Income before income taxes	65,065		31,512
Income taxes	12,949		5,973
Income from continuing operations	52,116		25,539
Income (loss) from discontinued operations, net of tax	15		(409)
Net income	$	52,131	$	25,130
Earnings per share - basic:
Income from continuing operations	$	.26	$	.13
Discontinued operations, net of tax	—		—
Earnings per share - basic	$	.26	$	.13
Earnings per share - diluted:
Income from continuing operations	$	.26	$	.13
Discontinued operations, net of tax	—		—
Earnings per share - diluted	$	.26	$	.13
Weighted average common shares outstanding - basic	200,708		200,440
Weighted average common shares outstanding - diluted	200,952		200,456

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
	March 31,
		2021		2020
		(In thousands)
Net income		$	52,131	$	25,130
Other comprehensive income:
Reclassification adjustment for loss on derivative instruments included in net income, net of tax of $37 and $36 for the three months ended in 2021 and 2020, respectively		111		111
Amortization of postretirement liability losses included in net periodic benefit cost, net of tax of $151 and $149 for the three months ended in 2021 and 2020, respectively		466		462
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 $(12) and $36 for the three months ended in 2021 and 2020, respectively		(44)		135
Reclassification adjustment for (gain) loss on available-for-sale investments included in net income, net of tax of $9 and $0 for the three months ended in 2021 and 2020, respectively		35		(1)
Net unrealized gain (loss) on available-for-sale investments		(9)		134
Other comprehensive income		568		707
Comprehensive income attributable to common stockholders		$	52,699	$	25,837

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

Index


MDU Resources Group, Inc.
Consolidated Balance Sheets
(Unaudited)
	March 31, 2021		March 31, 2020		December 31, 2020
Assets	(In thousands, except shares and per share amounts)
Current assets:
Cash and cash equivalents	$	55,094	$	116,526	$	59,547
Receivables, net	784,582		835,468		873,986
Inventories	316,737		305,958		291,167
Current regulatory assets	98,452		55,206		68,527
Prepayments and other current assets	68,409		60,230		44,120
Total current assets	1,323,274		1,373,388		1,337,347
Noncurrent assets:
Property, plant and equipment	8,288,879		8,008,338		8,300,770
Less accumulated depreciation, depletion and amortization	3,096,371		3,039,812		3,133,831
Net property, plant and equipment	5,192,508		4,968,526		5,166,939
Goodwill	714,963		713,527		714,963
Other intangible assets, net	23,961		34,250		25,496
Regulatory assets	379,917		348,189		379,381
Investments	167,741		145,237		165,022
Operating lease right-of-use assets	116,663		114,382		120,113
Other	150,248		153,017		144,111
Total noncurrent assets	6,746,001		6,477,128		6,716,025
Total assets	$	8,069,275	$	7,850,516	$	8,053,372
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings	$	50,000	$	—	$	50,000
Long-term debt due within one year	1,552		16,560		1,555
Accounts payable	379,348		384,339		426,264
Taxes payable	88,711		58,743		88,844
Dividends payable	42,740		41,608		42,611
Accrued compensation	69,612		55,199		90,629
Regulatory liabilities due within one year	34,266		60,072		31,450
Operating lease liabilities due within one year	32,562		31,141		33,655
Other accrued liabilities	201,246		176,817		198,514
Total current liabilities	900,037		824,479		963,522
Noncurrent liabilities:
Long-term debt	2,251,722		2,438,675		2,211,575
Deferred income taxes	528,551		515,711		516,098
Regulatory liabilities	429,060		443,205		428,075
Asset retirement obligations	445,170		417,469		440,356
Operating lease liabilities	84,494		83,414		86,868
Other	329,935		290,971		327,773
Total noncurrent liabilities	4,068,932		4,189,445		4,010,745
Commitments and contingencies
Stockholders' equity:
Common stock Authorized - 500,000,000 shares, $1.00 par value Shares issued - 201,733,458 at March 31, 2021, 201,061,198 at March 31, 2020 and 201,061,198 at December 31, 2020	201,733		201,061		201,061
Other paid-in capital	1,382,158		1,360,564		1,371,385
Retained earnings	1,567,551		1,319,988		1,558,363
Accumulated other comprehensive loss	(47,510)		(41,395)		(48,078)
Treasury stock at cost - 538,921 shares	(3,626)		(3,626)		(3,626)
Total stockholders' equity	3,100,306		2,836,592		3,079,105
Total liabilities and stockholders' equity	$	8,069,275	$	7,850,516	$	8,053,372

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





		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

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

Index


MDU Resources Group, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
	Three Months Ended
	March 31,
	2021		2020
	(In thousands)
Operating activities:
Net income	$	52,131	$	25,130
Income (loss) from discontinued operations, net of tax	15		(409)
Income from continuing operations	52,116		25,539
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	73,723		69,239
Deferred income taxes	9,843		1,813
Changes in current assets and liabilities, net of acquisitions:
Receivables	89,407		44,549
Inventories	(25,613)		(29,337)
Other current assets	(46,837)		14,959
Accounts payable	(41,965)		(24,105)
Other current liabilities	(13,977)		(23,259)
Other noncurrent changes	(1,052)		326
Net cash provided by continuing operations	95,645		79,724
Net cash used in discontinued operations	(25)		(434)
Net cash provided by operating activities	95,620		79,290
Investing activities:
Capital expenditures	(111,091)		(139,485)
Acquisitions, net of cash acquired	(1,023)		(67,593)
Net proceeds from sale or disposition of property and other	9,035		4,540
Investments	(3,248)		68
Net cash used in investing activities	(106,327)		(202,470)
Financing activities:
Issuance of short-term borrowings	50,000		—
Repayment of short-term borrowings	(50,000)		—
Issuance of long-term debt	93,295		248,021
Repayment of long-term debt	(53,301)		(36,242)
Proceeds from issuance of common stock	19,699		3,410
Dividends paid	(42,611)		(41,580)
Repurchase of common stock	(6,701)		—
Tax withholding on stock-based compensation	(4,127)		(362)
Net cash provided by financing activities	6,254		173,247
Increase (decrease) in cash and cash equivalents	(4,453)		50,067
Cash and cash equivalents -- beginning of year	59,547		66,459
Cash and cash equivalents -- end of period	$	55,094	$	116,526

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

Index

MDU Resources Group, Inc.

Notes to Consolidated

Financial Statements

March 31, 2021 and 2020

(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 2020 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.

Beginning in March 2020, governmental restrictions and guidelines implemented to control the spread of COVID-19 reduced commercial and interpersonal activity throughout the Company's areas of operation. Most of the Company's products and services are considered essential and accordingly operations have generally been allowed to continue. The Company has experienced some inefficiency impacts as a result of the COVID-19 pandemic, including operation suspensions and interruptions at some locations to carry out preventive measures or in response to instances of positive tests or quarantines. The Company has assessed the impacts of the COVID-19 pandemic on its results of operations for the three months ended March 31, 2021 and 2020, and determined there were no material adverse impacts.

The assets and liabilities of the Company's discontinued operations 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 and supporting activities 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, 2021, up to the date of the issuance of these consolidated interim financial statements on May 6, 2021, that would require recognition or disclosure in the financial statements.

Note 2 - New accounting standards

Recently adopted accounting standards

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 Company adopted the guidance on January 1, 2021, on a retrospective basis. The Company determined the new guidance will not materially impact its consolidated financial statement 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 Company adopted the guidance on January 1, 2021, and determined it did not have a material impact on its results of operations, financial position, cash flows or disclosures.

Recently issued accounting standards not yet adopted

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 has updated its credit agreements to include language regarding the successor or alternate rate to LIBOR, and a review of other contracts and agreements is on-going. The Company does not expect the guidance to have a material impact on its results of operations, financial position, cash flows or disclosures.

Index

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 9. The Company's trade receivables are all due in 12 months or less. The total balance of receivables past due 90 days or more was $33.9 million, $51.8 million and $43.9 million at March 31, 2021 and 2020, and December 31, 2020, 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, general economic conditions of the various local economies and impacts of COVID-19, among others. Specific account balances are written off when management determines the amounts to be uncollectible. Management has reviewed the balance reserved through the allowance for expected credit losses and believes it is reasonable.

Details of the Company's expected credit losses were as follows:


	Electric		Natural gas distribution		Pipeline		Construction materials and contracting		Construction services		Total
	(In thousands)
At December 31, 2020	$	899	$	2,571	$	2	$	6,164	$	5,722	$	15,358
Current expected credit loss provision	538		1,273		—		(1,049)		(1,079)		(317)
Less write-offs charged against the allowance	888		1,107		—		273		401		2,669
Credit loss recoveries collected	129		213		—		—		—		342
At March 31, 2021	$	678	$	2,950	$	2	$	4,842	$	4,242	$	12,714


	Electric		Natural gas distribution		Pipeline		Construction materials and contracting		Construction services		Total
	(In thousands)
At January 1, 2020	$	328	$	1,056	$	—	$	5,357	$	1,756	$	8,497
Current expected credit loss provision	555		1,156		—		694		1,150		3,555
Less write-offs charged against the allowance	500		624		—		68		73		1,265
Credit loss recoveries collected	109		229		—		—		—		338
At March 31, 2020	$	492	$	1,817	$	—	$	5,983	$	2,833	$	11,125

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, 2021		March 31, 2020		December 31, 2020
	(In thousands)
Aggregates held for resale	$	180,450	$	155,976	$	175,782
Asphalt oil	59,853		73,842		28,238
Materials and supplies	26,481		26,293		25,142
Merchandise for resale	24,319		23,109		21,087
Natural gas in storage (current)	8,113		7,872		21,919
Other	17,521		18,866		18,999
Total	$	316,737	$	305,958	$	291,167

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 $47.5 million at March 31, 2021 and December 31, 2020, and $48.3 million at March 31, 2020.

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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 non-vested 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,
	2021		2020
	(In thousands, except per share amounts)
Weighted average common shares outstanding - basic	200,708		200,440
Effect of dilutive performance share awards and restricted stock units	244		16
Weighted average common shares outstanding - diluted	200,952		200,456
Shares excluded from the calculation of diluted earnings per share	—		68
Dividends declared per common share	$	.2125	$	.2075

Note 7 - Equity

The Company currently has a shelf registration statement on file with the SEC, under which the Company may issue and sell any combination of common stock and debt securities. The Company may sell such securities if warranted by market conditions and the Company's capital requirements.

The Company issued 672,260 shares of common stock during the first quarter of 2021 pursuant to the "at-the-market" offering, receiving net proceeds of $19.7 million, which were used for capital expenditures. The Company incurred issuance costs of approximately $300,000 in connection with the sales of common stock under the "at-the-market" offering during the first quarter of 2021. The Company did not issue shares of common stock under the "at-the-market" offering during the first quarter of 2020. As of March 31, 2021, the Company had capacity to issue up to 5.7 million additional shares of common stock under the "at-the-market" offering program.

Note 8 - 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, 2020	$	(984)	$	(47,207)	$	113	$	(48,078)








Other comprehensive loss before reclassifications	—		—		(44)		(44)
Amounts reclassified from accumulated other comprehensive loss	111		466		35		612
Net current-period other comprehensive income (loss)	111		466		(9)		568
At March 31, 2021	$	(873)	$	(46,741)	$	104	$	(47,510)

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	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 (to) from 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)

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,
	2021		2020
	(In thousands)
Reclassification adjustment for loss on derivative instruments included in net income	$	(148)	$	(147)		Interest expense
	37		36			Income taxes
	(111)		(111)
Amortization of postretirement liability losses included in net periodic benefit cost	(617)		(611)			Other income
	151		149			Income taxes
	(466)		(462)
Reclassification adjustment on available-for-sale investments included in net income	(44)		1			Other income
	9		—			Income taxes
	(35)		1
Total reclassifications	$	(612)	$	(572)

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Note 9 - 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.

Disaggregation

In the following tables, 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, 2021	Electric		Natural gas distribution		Pipeline		Construction materials and contracting		Construction services		Other		Total
	(In thousands)
Residential utility sales	$	33,436	$	203,137	$	—	$	—	$	—	$	—	$	236,573
Commercial utility sales	32,928		120,052		—		—		—		—		152,980
Industrial utility sales	10,029		8,812		—		—		—		—		18,841
Other utility sales	1,566		—		—		—		—		—		1,566
Natural gas transportation	—		12,452		29,417		—		—		—		41,869

Natural gas storage	—		—		4,029		—		—		—		4,029
Contracting services	—		—		—		96,025		—		—		96,025
Construction materials	—		—		—		216,412		—		—		216,412
Intrasegment eliminations	—		—		—		(46,716)		—		—		(46,716)
Inside specialty contracting	—		—		—		—		355,190		—		355,190
Outside specialty contracting	—		—		—		—		151,363		—		151,363
Other	9,773		3,009		2,660		—		36		3,341		18,819
Intersegment eliminations	(136)		(142)		(26,229)		(62)		(1,042)		(3,324)		(30,935)
Revenues from contracts with customers	87,596		347,320		9,877		265,659		505,547		17		1,216,016
Revenues out of scope	(2,923)		2,886		36		—		11,923		—		11,922
Total external operating revenues	$	84,673	$	350,206	$	9,913	$	265,659	$	517,470	$	17	$	1,227,938


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

Index

Presented in the previous tables are intrasegment revenues 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.

Contract balances

The timing of revenue recognition may differ from the timing of invoicing to customers. The timing of invoicing to customers does not necessarily correlate with the timing of revenues being recognized under the cost-to-cost method of accounting. Contracts from contracting services are billed as work progresses in accordance with agreed upon contractual terms. Generally, billing to the customer occurs contemporaneous to revenue recognition. A variance in timing of the billings may result in a contract asset or a contract liability. A contract asset occurs when revenues are recognized under the cost-to-cost measure of progress, which exceeds amounts billed on uncompleted contracts. Such amounts will be billed as standard contract terms allow, usually based on various measures of performance or achievement. A contract liability occurs when there are billings in excess of revenues recognized under the cost-to-cost measure of progress on uncompleted contracts. Contract liabilities decrease as revenue is recognized from the satisfaction of the related performance obligation.

The changes in contract assets and liabilities were as follows:


	March 31, 2021		December 31, 2020		Change		Location on Consolidated Balance Sheets
	(In thousands)
Contract assets	$	107,543	$	104,345	$	3,198	Receivables, net
Contract liabilities - current	(142,828)		(158,603)		15,775		Accounts payable
Contract liabilities - noncurrent	(171)		(52)		(119)		Noncurrent liabilities - other
Net contract liabilities	$	(35,456)	$	(54,310)	$	18,854

The Company recognized $123.4 million in revenue for the three months ended March 31, 2021, which was previously included in contract liabilities at December 31, 2020. The Company recognized $89.4 million in revenue for the three months ended March 31, 2020, which was previously included in contract liabilities at December 31, 2019.

The Company recognized a net increase in revenues of $34.3 million and $19.5 million for the three months ended March 31, 2021 and 2020, respectively, from performance obligations satisfied in prior periods.

Remaining performance obligations

The remaining performance obligations, also referred to as backlog, at the construction materials and contracting and construction services segments include unrecognized revenues that the Company reasonably expects to be realized. These unrecognized revenues can include: projects that have a written award, a letter of intent, a notice to proceed, an agreed upon work order to perform work on mutually accepted terms and conditions and change orders or claims to the extent management believes additional contract revenues will be earned and are deemed probable of collection. Excluded from remaining performance obligations are potential orders under master service agreements. The majority of the Company's construction contracts have an original duration of less than two years.

The remaining performance obligations at the pipeline segment include firm transportation and storage contracts with fixed pricing and fixed volumes. The Company has applied the practical expedient, which does not require additional disclosures for contracts with an original duration of less than 12 months, to certain firm transportation and non-regulated contracts. The Company's firm transportation and firm storage contracts included in the remaining performance obligations have weighted average remaining durations of approximately five and one years, respectively.

At March 31, 2021, the Company's remaining performance obligations were $2.2 billion. The Company expects to recognize the following revenue amounts in future periods related to these remaining performance obligations: $1.7 billion within the next 12 months or less; $283.8 million within the next 13 to 24 months; and $213.4 million in 25 months or more.

Note 10 - Business combinations

The following acquisitions were accounted for as business combinations in accordance with ASC 805 - Business Combinations. The results of the acquired businesses have been included in the Consolidated Financial Statements beginning on the acquisition date. Pro forma financial amounts reflecting the effects of the business combinations are not presented, as none of these business combinations, individually or in the aggregate, were material to the Company's financial position or results of operations.

The acquisitions are also subject to customary adjustments based on, among other things, the amount of cash, debt and working capital in the business as of the closing date. The amounts included in the Consolidated Balance Sheets for these adjustments are considered provisional until final settlement has occurred.

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In 2020, the construction materials and contracting segment made the following acquisitions:

•The assets of McMurry Ready-Mix Co., an aggregates and concrete supplier in Wyoming, were acquired in December 2020.

•The assets of Oldcastle Infrastructure Spokane, a prestressed-concrete business in Washington, were acquired in February 2020.

In February 2020, the construction services segment acquired PerLectric, Inc., an electrical construction company in Virginia.

The total purchase price for acquisitions that occurred in 2020 was $110.2 million, subject to certain adjustments, with cash acquired totaling $1.7 million. The purchase price includes consideration paid of $106.0 million and $2.5 million of indemnity holdback liabilities. The amounts allocated to the aggregated assets acquired and liabilities assumed during 2020 were as follows: $54.8 million to current assets; $27.1 million to property, plant and equipment; $33.6 million to goodwill; $19.0 million to other intangible assets; $22.6 million to current liabilities; $300,000 to noncurrent liabilities - other and $1.4 million to asset retirement obligations. As of December 31, 2020 and March 31, 2021, the purchase price adjustments had been settled and no material adjustments were made to the provisional accounting for Oldcastle Infrastructure Spokane and PerLectric, Inc., respectively. At March 31, 2021, the purchase price allocation for McMurry Ready-Mix Co. was preliminary and will be finalized within 12 months of the acquisition date. The Company issued debt to finance these acquisitions.

Costs incurred for acquisitions are included in operation and maintenance expense on the Consolidated Statements of Income and were not material for the three months ended March 31, 2021 and 2020.

Note 11 - Leases

The Company's leases primarily include operating leases for equipment, buildings, easements and vehicles. The Company leases certain equipment to third parties through its utility and construction services segments, which are considered short-term operating leases with terms of less than 12 months.

The Company recognized revenue from operating leases of $12.0 million and $12.1 million for the three months ended March 31, 2021 and 2020, respectively. At March 31, 2021, the Company had $10.4 million of lease receivables with a majority due within 12 months.

Note 12 - Goodwill and other intangible assets

The changes in the carrying amount of goodwill were as follows:


	Balance at January 1, 2021		Goodwill Acquired During the Year		Measurement Period Adjustments		Balance at March 31, 2021
	(In thousands)
Natural gas distribution	$	345,736	$	—	$	—	$	345,736
Construction materials and contracting	226,003		—		—		226,003
Construction services	143,224		—		—		143,224
Total	$	714,963	$	—	$	—	$	714,963


	Balance at January 1, 2020		Goodwill Acquired During the Year		Measurement Period Adjustments		Balance at March 31, 2020
	(In thousands)
Natural gas distribution	$	345,736	$	—	$	—	$	345,736
Construction materials and contracting	217,234		6,483		—		223,717
Construction services	118,388		25,686		—		144,074
Total	$	681,358	$	32,169	$	—	$	713,527


	Balance at January 1, 2020		Goodwill Acquired During the Year		Measurement Period Adjustments		Balance at December 31, 2020
	(In thousands)
Natural gas distribution	$	345,736	$	—	$	—	$	345,736
Construction materials and contracting	217,234		8,778		(9)		226,003
Construction services	118,388		24,436		400		143,224
Total	$	681,358	$	33,214	$	391	$	714,963

Index

Other amortizable intangible assets were as follows:


	March 31, 2021		March 31, 2020		December 31, 2020
	(In thousands)
Customer relationships	$	28,836	$	30,087	$	28,836
Less accumulated amortization	7,792		4,138		6,887
	21,044		25,949		21,949
Noncompete agreements	3,941		4,229		3,941
Less accumulated amortization	2,441		1,928		2,309
	1,500		2,301		1,632
Other	11,957		13,060		12,927
Less accumulated amortization	10,540		7,060		11,012
	1,417		6,000		1,915
Total	$	23,961	$	34,250	$	25,496

The previous tables include goodwill and intangible assets associated with the business combinations completed during 2020. For more information related to these business combinations, see Note 10.

Amortization expense for amortizable intangible assets for the three months ended March 31, 2021 and 2020, was $1.5 million and $2.0 million, respectively. Estimated amortization expense for identifiable intangible assets as of March 31, 2021, was:


	Remainder of 2021		2022		2023		2024		2025		Thereafter
	(In thousands)
Amortization expense	$	3,377	$	4,394	$	4,121	$	3,799	$	1,862	$	6,408

Index

Note 13 - Regulatory assets and liabilities

The following table summarizes the individual components of unamortized regulatory assets and liabilities:


	Estimated Recovery or Refund Period as of March 31, 2021	*	March 31, 2021		March 31, 2020		December 31, 2020
			(In thousands)
Regulatory assets:
Current:
Natural gas costs recoverable through rate adjustments	Up to 1 year		$	76,782	$	39,805	$	42,481
Cost recovery mechanisms	Up to 1 year		7,130		6,686		10,645
Conservation programs	Up to 1 year		6,679		6,303		7,117
Other	Up to 1 year		7,861		2,412		8,284
			98,452		55,206		68,527
Noncurrent:
Pension and postretirement benefits	**		155,924		157,051		155,942
Plant retirement	-		73,498		41,080		65,919
Plant costs/asset retirement obligations	Over plant lives		72,250		67,475		71,740
Manufactured gas plant site remediation	-		26,002		15,699		26,429
Cost recovery mechanisms	Up to 10 years		15,508		11,891		16,245
Natural gas costs recoverable through rate adjustments	Up to 3 years		15,158		33,027		21,539
Taxes recoverable from customers	Over plant lives		10,800		11,082		10,785
Long-term debt refinancing costs	Up to 39 years		4,268		4,133		4,426
Other	Up to 18 years		6,509		6,751		6,356
			379,917		348,189		379,381
Total regulatory assets			$	478,369	$	403,395	$	447,908
Regulatory liabilities:
Current:
Natural gas costs refundable through rate adjustments	Up to 1 year		$	16,344	$	32,181	$	18,565
Taxes refundable to customers	Up to 1 year		3,092		4,002		3,557
Electric fuel and purchased power deferral	Up to 1 year		2,001		7,188		3,667
Other	Up to 1 year		12,829		16,701		5,661
			34,266		60,072		31,450
Noncurrent:
Taxes refundable to customers	Over plant lives		224,795		240,148		227,850
Plant removal and decommissioning costs	Over plant lives		169,430		174,120		167,171
Pension and postretirement benefits	**		16,965		18,040		16,989
Other	Up to 21 years		17,870		10,897		16,065
			429,060		443,205		428,075
Total regulatory liabilities			$	463,326	$	503,277	$	459,525
Net regulatory position			$	15,043	$	(99,882)	$	(11,617)

*Estimated recovery or refund period for amounts currently being recovered or refunded in rates charged to customers.

** Recovered as expense is incurred or cash contributions are made.

At March 31, 2021 and 2020, and December 31, 2020, approximately $361.4 million, $285.8 million and $332.5 million, respectively, of regulatory assets were not earning a rate of return; however, these regulatory assets are expected to be recovered from customers in future rates. These assets are largely comprised of the unfunded portion of pension and postretirement benefits, asset retirement obligations, accelerated depreciation on plant to be retired and the estimated future cost of manufactured gas plant site remediation.

In February 2021, a prolonged period of unseasonably cold temperatures in the central United States significantly increased the demand for electric and natural gas services and contributed to increased market prices. Overall, Montana-Dakota and Great Plains incurred approximately $44.0 million in increased natural gas costs in February 2021 in order to maintain services for its customers. The Company has filed out-of-cycle purchased gas adjustment requests in four out of five jurisdictions affected by this cold-weather event, as discussed in Note 19, and will continue to engage with its regulators to determine the appropriate recovery periods over which to recover the associated natural gas costs.

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In 2019, the Company experienced increased natural gas costs in Washington from the rupture of the Enbridge pipeline in Canada in late 2018. As a result, the Company requested, and the WUTC approved, recovery of the balance of natural gas costs recoverable related to this period of time over three years rather than its normal one-year recovery period.

In February 2019, the Company announced the retirement of three aging coal-fired electric generating units. The Company has accelerated the depreciation related to these facilities in property, plant and equipment and has recorded the difference between the accelerated depreciation, in accordance with GAAP, and the depreciation approved for rate-making purposes as regulatory assets. The first unit ceased operations on March 31, 2021, and as discussed in Note 19, requests have been filed with the NDPSC and SDPUC to offset the savings associated with the cessation of operations of this unit with the amortization of the deferred regulatory assets. The remaining two units are expected to be retired in early 2022. The Company expects to recover the regulatory assets related to the plant retirements in future rates.

If, for any reason, the Company's regulated businesses cease to meet the criteria for application of regulatory accounting for all or part of their operations, the regulatory assets and liabilities relating to those portions ceasing to meet such criteria would be removed from the balance sheet and included in the statement of income or accumulated other comprehensive income (loss) in the period in which the discontinuance of regulatory accounting occurs.

Note 14 - Fair value measurements

The Company measures its investments in certain fixed-income and equity securities at fair value with changes in fair value recognized in income. The Company anticipates using these investments, which consist of insurance contracts, to satisfy its obligations under its unfunded, nonqualified defined benefit and defined contribution plans for executive officers and certain key management employees, and invests in these fixed-income and equity securities for the purpose of earning investment returns and capital appreciation. These investments, which totaled $101.6 million, $83.3 million and $100.1 million, at March 31, 2021 and 2020, and December 31, 2020, respectively, are classified as investments on the Consolidated Balance Sheets. The net unrealized gains on these investments was $127,000 for the three months ended March 31, 2021. The net unrealized loss on these investments was $3.7 million for the three months ended March 31, 2020. The change in fair value, which is considered part of the cost of the plan, is classified in other income on the Consolidated Statements of Income.

The Company did not elect the fair value option, which records gains and losses in income, for its available-for-sale securities, which include mortgage-backed securities and U.S. Treasury securities. These available-for-sale securities are recorded at fair value and are classified as investments on the Consolidated Balance Sheets. Unrealized gains or losses are recorded in accumulated other comprehensive income (loss). Details of available-for-sale securities were as follows:


March 31, 2021	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
Mortgage-backed securities	$	8,709	$	155	$	10	$	8,854
U.S. Treasury securities	2,636		—		14		2,622
Total	$	11,345	$	155	$	24	$	11,476


March 31, 2020	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
Mortgage-backed securities	$	9,691	$	236	$	—	$	9,927
U.S. Treasury securities	1,173		12		—		1,185
Total	$	10,864	$	248	$	—	$	11,112


December 31, 2020	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
Mortgage-backed securities	$	9,799	$	156	$	9	$	9,946
U.S. Treasury securities	1,386		—		5		1,381
Total	$	11,185	$	156	$	14	$	11,327

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The fair value ASC establishes a hierarchy for grouping assets and liabilities, based on the significance of inputs. The estimated fair values of the Company's assets and liabilities measured on a recurring basis are determined using the market approach. The Company's money market funds are valued at the net asset value of shares held at the end of the quarter, based on published market quotations on active markets, or using other known sources including pricing from outside sources. The estimated fair value of the Company's mortgage-backed securities and U.S. Treasury securities are based on comparable market transactions, other observable inputs or other sources, including pricing from outside

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sources. The estimated fair value of the Company's insurance contracts are based on contractual cash surrender values that are determined primarily by investments in managed separate accounts of the insurer. These amounts approximate fair value. The managed separate accounts are valued based on other observable inputs or corroborated market data.

Though the Company believes the methods used to estimate fair value are consistent with those used by other market participants, the use of other methods or assumptions could result in a different estimate of fair value.

The Company's assets measured at fair value on a recurring basis were as follows:


	Fair Value Measurements at March 31, 2021, Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at March 31, 2021
	(In thousands)
Assets:
Money market funds			$	9,388	$	—	$	9,388
Insurance contracts*	—		101,632				101,632
Available-for-sale securities:
Mortgage-backed securities	—		8,854		—		8,854
U.S. Treasury securities	—		2,622		—		2,622

Total assets measured at fair value	$	—	$	122,496	$	—	$	122,496

* The insurance contracts invest approximately 54 percent in fixed-income investments, 19 percent in common stock of large-cap companies, 10 percent in common stock of mid-cap companies, 9 percent in common stock of small-cap companies, 6 percent in target date investments and 2 percent in cash equivalents.


	Fair Value Measurements at March 31, 2020, Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at March 31, 2020
	(In thousands)
Assets:
Money market funds	$	—	$	8,470	$	—	$	8,470
Insurance contract*	—		83,254		—		83,254
Available-for-sale securities:
Mortgage-backed securities	—		9,927		—		9,927
U.S. Treasury securities	—		1,185		—		1,185

Total assets measured at fair value	$	—	$	102,836	$	—	$	102,836

* The insurance contract invests approximately 58 percent in fixed-income investments, 20 percent in common stock of large-cap companies, 8 percent in common stock of mid-cap companies, 8 percent in common stock of small-cap companies, 4 percent in target date investments and 2 percent in cash equivalents.

Index


	Fair Value Measurements at December 31, 2020, Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2020
	(In thousands)
Assets:
Money market funds	$	—	$	8,917	$	—	$	8,917
Insurance contract*	—		100,104		—		100,104
Available-for-sale securities:
Mortgage-backed securities	—		9,946		—		9,946
U.S. Treasury securities	—		1,381		—		1,381

Total assets measured at fair value	$	—	$	120,348	$	—	$	120,348

* The insurance contract invests approximately 57 percent in fixed-income investments, 18 percent in common stock of large-cap companies, 9 percent in common stock of mid-cap companies, 9 percent in common stock of small-cap companies, 5 percent in target date investments and 2 percent in cash equivalents.

The Company applies the provisions of the fair value measurement standard to its nonrecurring, non-financial measurements, including long-lived asset impairments. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. The Company reviews the carrying value of its long-lived assets, excluding goodwill, whenever events or changes in circumstances indicate that such carrying amounts may not be recoverable.

The Company performed fair value assessments of the assets acquired and liabilities assumed in the business combinations that occurred during 2020. The fair value of these assets and liabilities were determined based on Level 2 and Level 3 inputs.

The estimated fair value of the Company's Level 2 commodity derivative instruments is based on futures prices, volatility and time to maturity, among other things. Counterparty statements are utilized to determine the value of the commodity derivative instruments and are reviewed and corroborated using various methodologies and significant observable inputs. The Company's and the counterparties' nonperformance risk is also evaluated.

The Company's long-term debt is not measured at fair value on the Consolidated Balance Sheets and the fair value is being provided for disclosure purposes only. The fair value was categorized as Level 2 in the fair value hierarchy and was based on discounted future cash flows using current market interest rates. The estimated fair value of the Company's Level 2 long-term debt was as follows:


	March 31, 2021		March 31, 2020		December 31, 2020
	(In thousands)
Carrying amount	$	2,253,274	$	2,455,235	$	2,213,130
Fair value	$	2,473,806	$	2,618,297	$	2,537,289

The carrying amounts of the Company's remaining financial instruments included in current assets and current liabilities approximate their fair values.

Note 15 - Debt

Certain debt instruments of the Company's subsidiaries contain restrictive and financial covenants and cross-default provisions. In order to borrow under the debt agreements, the subsidiary companies must be in compliance with the applicable covenants and certain other conditions, all of which the subsidiaries, as applicable, were in compliance with at March 31, 2021. In the event the subsidiaries do not comply with the applicable covenants and other conditions, alternative sources of funding may need to be pursued.

Montana-Dakota's and Centennial's respective commercial paper programs are supported by revolving credit agreements. While the amount of commercial paper outstanding does not reduce available capacity under the respective revolving credit agreements, Montana-Dakota and Centennial do not issue commercial paper in an aggregate amount exceeding the available capacity under the credit agreements. The commercial paper borrowings may vary during the period, largely the result of fluctuations in working capital requirements due to the seasonality of certain operations of the Company's subsidiaries.

Index

Long-term debt

Long-term Debt Outstanding Long-term debt outstanding was as follows:


	Weighted Average Interest Rate at March 31, 2021		March 31, 2021		March 31, 2020		December 31, 2020
			(In thousands)
Senior Notes due on dates ranging from October 22, 2022 to October 30, 2060	4.40	%	$	1,950,000	$	1,850,000	$	1,950,000
Commercial paper supported by revolving credit agreements	.33	%	218,900		265,000		125,600
Credit agreements due on June 7, 2024	2.20	%	43,350		259,550		95,900
Medium-Term Notes due on dates ranging from September 15, 2027 to March 16, 2029	7.32	%	35,000		50,000		35,000
Term Loan Agreement due on September 3, 2032	2.00	%	8,400		9,100		8,400
Other notes due on dates ranging from July 15, 2021 to July 1, 2061	.82	%	3,282		28,374		4,034
Less unamortized debt issuance costs			5,655		6,640		5,803
Less discount			3		149		1
Total long-term debt			2,253,274		2,455,235		2,213,130
Less current maturities			1,552		16,560		1,555
Net long-term debt			$	2,251,722	$	2,438,675	$	2,211,575

Schedule of Debt Maturities Long-term debt maturities, which excludes unamortized debt issuance costs and discount, at March 31, 2021, were as follows:


	Remainder of 2021		2022		2023		2024		2025		Thereafter
	(In thousands)
Long-term debt maturities	$	780	$	148,021	$	77,921	$	323,672	$	177,802	$	1,530,736

Note 16 - Cash flow information

Cash expenditures for interest and income taxes were as follows:


	Three Months Ended
	March 31,
	2021		2020
	(In thousands)
Interest, net*	$	14,303	$	15,978
Income taxes paid (refunded), net	$	13,880	$	(1)

* AFUDC - borrowed was $348,000 and $627,000 for the three months ended March 31, 2021 and 2020, respectively.

Noncash investing and financing transactions were as follows:


	March 31, 2021		March 31, 2020		December 31, 2020
	(In thousands)
Right-of-use assets obtained in exchange for new operating lease liabilities	$	9,236	$	10,655	$	54,356
Property, plant and equipment additions in accounts payable	$	20,594	$	27,425	$	26,082
Accrual for holdback payment related to a business combination	$	—	$	5,000	$	2,500

Note 17 - Business segment data

The Company's reportable segments are those that are 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 operating segments is defined based on the reporting and review process used by the Company's chief executive officer. The Company's operations are located within the United States.

The electric segment generates, transmits and distributes electricity in Montana, North Dakota, South Dakota and Wyoming. The natural gas distribution segment distributes natural gas in those states, as well as in Idaho, Minnesota, Oregon and Washington. These operations also supply related value-added services.

Index

The pipeline segment provides natural gas transportation and underground storage services through a regulated pipeline system primarily in the Rocky Mountain and northern Great Plains regions of the United States. This segment also provides non-regulated cathodic protection and other energy-related services. In 2020, the pipeline segment divested its regulated and non-regulated natural gas gathering assets. With the completion of these sales, the segment exited the natural gas gathering business.

The construction materials and contracting segment mines, processes and sells construction aggregates (crushed stone, sand and gravel); produces and sells asphalt mix; and supplies ready-mixed concrete. This segment focuses on vertical integration of its contracting services with its construction materials to support the aggregate-based product lines including aggregate placement, asphalt and concrete paving, and site development and grading. Although not common to all locations, other products include the sale of cement, liquid asphalt for various commercial and roadway applications, various finished concrete products and other building materials and related contracting services. This segment operates in the central, southern and western United States, as well as Alaska and Hawaii.

The construction services segment provides inside and outside specialty contracting services in 44 states plus Washington D.C. Its inside services include design, construction and maintenance of electrical and communication wiring and infrastructure, fire suppression systems, and mechanical piping and services. Its outside services include design, construction and maintenance of overhead and underground electrical distribution and transmission lines, substations, external lighting, traffic signalization, and gas pipelines, as well as utility excavation and the manufacture and distribution of transmission line construction equipment. This segment also constructs and maintains renewable energy projects. These specialty contracting services are provided to utilities and large manufacturing, commercial, industrial, institutional and governmental customers.

The Other category includes the activities of Centennial Capital, which, through its subsidiary InterSource Insurance Company, insures various types of risks as a captive insurer for certain of the Company's subsidiaries. The function of the captive insurer is to fund the self-insured layers of the insured Company's general liability, automobile liability, pollution liability and other coverages. Centennial Capital also owns certain real and personal property. In addition, the Other category includes certain assets, liabilities and tax adjustments of the holding company primarily associated with corporate functions and certain general and administrative costs (reflected in operation and maintenance expense) and interest expense, which were previously allocated to the refining business and Fidelity and do not meet the criteria for income (loss) from discontinued operations. The Other category also includes Centennial Resources' former investment in Brazil.

Discontinued operations include the results and supporting activities of Fidelity other than certain general and administrative costs and interest expense as described above.

The information below follows the same accounting policies as described in Note 2 of the Notes to Consolidated Financial Statements in the 2020 Annual Report. Information on the Company's segments was as follows:


	Three Months Ended
	March 31,
	2021		2020
	(In thousands)
External operating revenues:
Regulated operations:
Electric	$	84,673	$	85,908
Natural gas distribution	350,206		326,443
Pipeline	7,502		6,331
	442,381		418,682
Non-regulated operations:
Pipeline	2,411		4,324
Construction materials and contracting	265,659		262,144
Construction services	517,470		512,205
Other	17		18
	785,557		778,691
Total external operating revenues	$	1,227,938	$	1,197,373

Index


	Three Months Ended
	March 31,
	2021		2020
	(In thousands)
Intersegment operating revenues:
Regulated operations:
Electric	$	136	$	195
Natural gas distribution	142		185
Pipeline	25,990		25,183
	26,268		25,563
Non-regulated operations:
Pipeline	239		16
Construction materials and contracting	62		63
Construction services	1,042		2,470
Other	3,324		2,973
	4,667		5,522
Intersegment eliminations	(30,935)		(31,085)
Total intersegment operating revenues	$	—	$	—

Operating income (loss):
Electric	$	13,865	$	14,859
Natural gas distribution	53,573		49,998
Pipeline	12,536		11,419
Construction materials and contracting	(34,889)		(43,269)
Construction services	40,277		23,796
Other	(198)		267
Total operating income	$	85,164	$	57,070

Net income (loss):
Regulated operations:
Electric	$	10,749	$	11,374
Natural gas distribution	36,178		32,369
Pipeline	9,194		7,386
	56,121		51,129
Non-regulated operations:
Pipeline	(296)		(13)
Construction materials and contracting	(30,813)		(38,215)
Construction services	29,825		16,823
Other	(2,721)		(4,185)
	(4,005)		(25,590)
Income from continuing operations	52,116		25,539
Income (loss) from discontinued operations, net of tax	15		(409)
Net income	$	52,131	$	25,130

Index

Note 18 - Employee benefit plans

Pension and other postretirement plans

The Company has noncontributory qualified defined benefit pension plans and other postretirement benefit plans for certain eligible employees. Components of net periodic benefit cost (credit) for the Company's pension and other postretirement benefit plans were as follows:


	Pension Benefits				Other Postretirement Benefits
Three Months Ended March 31,	2021		2020		2021		2020
	(In thousands)
Components of net periodic benefit cost (credit):
Service cost	$	—	$	—	$	400	$	352
Interest cost	2,455		2,973		466		591
Expected return on assets	(4,894)		(4,761)		(1,275)		(1,248)
Amortization of prior service credit	—		—		(349)		(297)
Amortization of net actuarial loss	2,004		1,863		6		2
Net periodic benefit cost (credit), including amount capitalized	(435)		75		(752)		(600)
Less amount capitalized	—		—		39		32
Net periodic benefit cost (credit)	$	(435)	$	75	$	(791)	$	(632)

The components of net periodic benefit cost (credit), other than the service cost component, are included in other income on the Consolidated Statements of Income. The service cost component is included in operation and maintenance expense on the Consolidated Statements of Income.

Nonqualified defined benefit plans

In addition to the qualified defined benefit pension plans reflected in the table at the beginning of this note, the Company also has unfunded, nonqualified defined benefit plans for executive officers and certain key management employees. The Company's net periodic benefit cost for these plans was $769,000 and $1.0 million for the three months ended March 31, 2021 and 2020, respectively. The components of net periodic benefit cost for these plans are included in other income on the Consolidated Statements of Income.

Note 19 - Regulatory matters

The Company regularly reviews the need for electric and natural gas rate changes in each of the jurisdictions in which service is provided. The Company files for rate adjustments to seek recovery of operating costs and capital investments, as well as reasonable returns as allowed by regulators. Certain regulatory proceedings and cases may also contain recurring mechanisms that can have an annual true-up. Examples of these recurring mechanisms include: infrastructure riders, transmission trackers, renewable resource cost adjustment riders, as well as weather normalization and decoupling mechanisms. The following paragraphs summarize the Company's significant open regulatory proceedings and cases by jurisdiction including updates to those reported in the 2020 Annual Report. The Company is unable to predict the ultimate outcome of these matters, the timing of final decisions of the various regulators and courts, or the effect on the Company's results of operations, financial position or cash flows.

IPUC

On January 12, 2021, Intermountain filed an application with the IPUC for a decrease in its depreciation and amortization rates of approximately $2.9 million annually or a decrease from a combined rate of 3.0 percent to 2.6 percent. Intermountain has requested the rates be retroactive to January 1, 2021. This matter is pending before the IPUC.

MNPUC

On September 27, 2019, Great Plains filed an application with the MNPUC for a natural gas rate increase of approximately $2.9 million annually or approximately 12.0 percent above current rates. The requested increase was primarily to recover investments in facilities to enhance safety and reliability and the depreciation and taxes associated with the increase in investment. On November 22, 2019, Great Plains received approval to implement an interim rate increase of approximately $2.6 million or approximately 11.0 percent, subject to refund, effective January 1, 2020. On October 26, 2020, the MNPUC issued an order authorizing an annual increase in revenues of approximately $2.6 million or approximately 11.5 percent. On February 25, 2021, the MNPUC approved implementing the rates effective April 1, 2021.

Great Plains defers the difference between the actual cost of gas spent to serve customers and that recovered from customers on a monthly basis. Annually the Company prepares a true-up pursuant to the purchased gas adjustment tariff. On March 30, 2021, Great Plains filed an out-of-cycle cost of gas adjustment with the MNPUC for the recovery of approximately $11.1 million. The requested increase was for the February 2021 extreme cold weather, primarily in the central United States, and market conditions surrounding the natural gas commodity market. The length of recovery was requested at 28 months with a rate structure that is higher in the summer and lower in the winter due to the lower gas usage in the summer to mitigate the impact on customers. This matter is pending before the MNPUC.

Index

NDPSC

On August 26, 2020, Montana-Dakota filed an application with the NDPSC for a natural gas rate increase of approximately $9.0 million annually or approximately 7.8 percent above current rates. The requested increase was primarily to recover investments in facilities to enhance system safety and reliability and the depreciation and taxes associated with the increase in investment. On December 16, 2020, Montana-Dakota received approval to implement an interim rate increase of approximately $6.9 million or approximately 6.0 percent, subject to refund, effective January 1, 2021. A hearing was held March 17 and 18, 2021. On April 9, 2021, Montana-Dakota, NDPSC Advocacy Staff and the intervener in the case filed a settlement agreement reflecting an updated increase of approximately $6.9 million annually or approximately 6.0 percent above current rates. On May 5, 2021, the NDPSC approved the settlement agreement with rates effective June 1, 2021.

On March 2, 2021, Montana-Dakota filed an informational update to the generation resource recovery rider with the NDPSC related to the retirement of Unit 1 at Lewis & Clark Station. The filing includes the annual revenue requirement offset by the related amortization of the accelerated depreciation on the plant, net of excess deferred income taxes, and the decommissioning costs projected to be incurred in 2021 resulting in no impact to customers.

Montana-Dakota defers the difference between the actual cost of gas spent to serve customers and that recovered from customers on a monthly basis. Annually the Company prepares a true-up pursuant to the purchased gas adjustment tariff. On March 31, 2021, Montana-Dakota filed an out-of-cycle cost of gas adjustment with the NDPSC for approximately $13.5 million. The requested increase was for the February 2021 extreme cold weather, primarily in the central United States, and market conditions surrounding the natural gas commodity market. The filing was made to expedite recovery of these costs and maintain the timing of annual purchased gas adjustment filings. This matter is pending before the NDPSC.

SDPUC

Montana-Dakota has a transmission cost recovery rider that allows annual updates to rates for actual costs for transmission-related projects and services. On March 1, 2021, Montana-Dakota filed an annual update to its transmission cost recovery rider to recover a revenue requirement of approximately $1.0 million annually, which reflects a true-up of the prior period adjustment, resulting in an increase in current rates of approximately $274,000. On April 30, 2021, the SDPUC approved the rates as requested with an effective date of May 1, 2021.

Montana-Dakota has an infrastructure rider rate tariff that allows for annual adjustments for recent projected capital costs and related expenses for projects determined to be recoverable under the electric tariff. On February 26, 2021, Montana-Dakota filed an annual update to its infrastructure rider requesting to recover a revenue requirement of approximately $1.0 million annually, which reflects a true-up of the prior period adjustment, resulting in a decrease in current rates of approximately $236,000. On April 30, 2021, the SDPUC approved the rates as requested with an effective date of May 1, 2021.

On March 11, 2021, Montana-Dakota filed an informational update to the infrastructure rider rate tariff with the SDPUC related to the retirement of Unit 1 at Lewis & Clark Station. The filing includes the annual revenue requirement offset by the related amortization of the accelerated depreciation on the plant, net of excess deferred income taxes, and the decommissioning costs projected to be incurred in 2021 resulting in no impact to customers. This matter is pending before the SDPUC.

Montana-Dakota defers the difference between the actual cost of gas spent to serve customers and that recovered from customers on a monthly basis. Annually the Company prepares a true-up pursuant to the purchased gas cost adjustment tariff. On March 31, 2021, Montana-Dakota filed an out-of-cycle cost of gas adjustment with the SDPUC for approximately $5.5 million. The requested increase was for the February 2021 extreme cold weather, primarily in the central United States, and market conditions surrounding the natural gas commodity market. The filing was made to expedite recovery of these costs and maintain the timing of annual purchased gas adjustment filings. On April 30, 2021, the SDPUC approved the rates as requested with an effective date of May 1, 2021.

WUTC

On June 19, 2020, Cascade filed an application with the WUTC for a natural gas rate increase of approximately $13.8 million annually or approximately 5.3 percent above current rates. The requested increase was primarily to recover investments made in infrastructure upgrades, as well as increased operation and maintenance costs. Cascade updated its filing on July 24, 2020, to approximately $14.3 million annually or approximately 5.5 percent. Cascade filed a rebuttal case on January 8, 2021, supporting an increase of approximately $7.4 million annually or approximately 2.8 percent. The revised revenue within the rebuttal case reflects several adjustments including depreciation, reduction to return on equity, delays on certain projects, adjustments to income taxes and updates to wages. A hearing was held February 24, 2021, and briefs were filed with the WUTC on March 22, 2021. The WUTC has 11 months to render a final decision on the rate case. This matter is pending before the WUTC.

WYPSC

On May 14, 2020, Montana-Dakota filed separate requests for its electric and natural gas services with the WYPSC to use deferred accounting for costs related to the COVID-19 pandemic. Montana-Dakota determined the deferred accounting orders were no longer needed and the filings were withdrawn by Montana-Dakota on March 2, 2021.

Index

Montana-Dakota defers the difference between the actual cost of gas spent to serve customers and that recovered from customers on a monthly basis. Annually the Company prepares a true-up pursuant to the purchased gas cost adjustment tariff. On March 31, 2021, Montana-Dakota filed an out-of-cycle cost of gas adjustment with the WYPSC for approximately $1.6 million. The requested increase was for the February 2021 extreme cold weather, primarily in the central United States, and market conditions surrounding the natural gas commodity market. The filing was made to expedite recovery of these costs and maintain the timing of annual purchased gas adjustment filings. On April 30, 2021, the WYPSC approved the rates as requested with an effective date of May 1, 2021.

Note 20 - Contingencies

The Company is party to claims and lawsuits arising out of its business and that of its consolidated subsidiaries, which may include, but are not limited to, matters involving property damage, personal injury, and environmental, contractual, statutory and regulatory obligations. The Company accrues a liability for those contingencies when the incurrence of a loss is probable and the amount can be reasonably estimated. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. The Company does not accrue liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated or when the liability is believed to be only reasonably possible or remote. For contingencies where an unfavorable outcome is probable or reasonably possible and which are material, the Company discloses the nature of the contingency and, in some circumstances, an estimate of the possible loss. Accruals are based on the best information available, but in certain situations management is unable to estimate an amount or range of a reasonably possible loss including, but not limited to when: (1) the damages are unsubstantiated or indeterminate, (2) the proceedings are in the early stages, (3) numerous parties are involved, or (4) the matter involves novel or unsettled legal theories.

At March 31, 2021 and 2020, and December 31, 2020, the Company accrued liabilities which have not been discounted, including liabilities held for sale, of $55.0 million, $33.1 million and $41.5 million, respectively. At March 31, 2021 and 2020, and December 31, 2020, the Company also recorded corresponding insurance receivables of $31.6 million, $19.0 million and $17.5 million, respectively, and regulatory assets of $20.9 million, $10.8 million and $21.3 million, respectively, related to the accrued liabilities. The accruals are for contingencies, including litigation, production taxes, royalty claims and environmental matters. This includes amounts that have been accrued for matters discussed in Environmental matters within this note. The Company will continue to monitor each matter and adjust accruals as might be warranted based on new information and further developments. Management believes that the outcomes with respect to probable and reasonably possible losses in excess of the amounts accrued, net of insurance recoveries, while uncertain, either cannot be estimated or will not have a material effect upon the Company's financial position, results of operations or cash flows. Unless otherwise required by GAAP, legal costs are expensed as they are incurred.

Environmental matters

The Company is a party to claims for the cleanup of environmental contamination at certain manufactured gas plant sites, as well as a superfund site. There were no material changes to the Company's environmental matters that were previously reported in the 2020 Annual Report.

Guarantees

In 2009, multiple sale agreements were signed to sell the Company's ownership interests in the Brazilian Transmission Lines. In connection with the sale, Centennial agreed to guarantee payment of any indemnity obligations of certain of the Company's indirect wholly owned subsidiaries. The remaining guarantee is expected to expire in 2021. The guarantees were required by the buyers as a condition to the sale of the Brazilian Transmission Lines.

Certain subsidiaries of the Company have outstanding guarantees to third parties that guarantee the performance of other subsidiaries of the Company. These guarantees are related to construction contracts, insurance deductibles and loss limits, and certain other guarantees. At March 31, 2021, the fixed maximum amounts guaranteed under these agreements aggregated $235.8 million. Certain of the guarantees also have no fixed maximum amounts specified. At March 31, 2021, the amounts of scheduled expiration of the maximum amounts guaranteed under these agreements aggregate to $120.8 million in 2021; $42.4 million in 2022; $61.9 million in 2023; $500,000 in 2024; $500,000 in 2025; $700,000 thereafter; and $9.0 million, which has no scheduled maturity date. There were no amounts outstanding under the previously mentioned guarantees at March 31, 2021. In the event of default under these guarantee obligations, the subsidiary issuing the guarantee for that particular obligation would be required to make payments under its guarantee.

Certain subsidiaries have outstanding letters of credit to third parties related to insurance policies and other agreements, some of which are guaranteed by other subsidiaries of the Company. At March 31, 2021, the fixed maximum amounts guaranteed under these letters of credit aggregated $25.5 million. At March 31, 2021, the amounts of scheduled expiration of the maximum amounts guaranteed under these letters of credit aggregate to $23.6 million in 2021 and $1.9 million in 2022. There were no amounts outstanding under the previously mentioned letters of credit at March 31, 2021. In the event of default under these letter of credit obligations, the subsidiary guaranteeing the letter of credit would be obligated for reimbursement of payments made under the letter of credit.

Index

In addition, Centennial, Knife River and MDU Construction Services have issued guarantees to third parties related to the routine purchase of maintenance items, materials and lease obligations for which no fixed maximum amounts have been specified. These guarantees have no scheduled maturity date. In the event a subsidiary of the Company defaults under these obligations, Centennial, Knife River or MDU Construction Services would be required to make payments under these guarantees. Any amounts outstanding by subsidiaries of the Company were reflected on the Consolidated Balance Sheet at March 31, 2021.

In the normal course of business, Centennial has surety bonds related to construction contracts and reclamation obligations of its subsidiaries. In the event a subsidiary of Centennial does not fulfill a bonded obligation, Centennial would be responsible to the surety bond company for completion of the bonded contract or obligation. A large portion of the surety bonds is expected to expire within the next 12 months; however, Centennial will likely continue to enter into surety bonds for its subsidiaries in the future. At March 31, 2021, approximately $1.1 billion of surety bonds were outstanding, which were not reflected on the Consolidated Balance Sheet.

Variable interest entities

The Company evaluates its arrangements and contracts with other entities to determine if they are VIEs and if so, if the Company is the primary beneficiary.

Fuel Contract Coyote Station entered into a coal supply agreement with Coyote Creek that provides for the purchase of coal necessary to supply the coal requirements of the Coyote Station for the period May 2016 through December 2040. Coal purchased under the coal supply agreement is reflected in inventories on the Consolidated Balance Sheets and is recovered from customers as a component of electric fuel and purchased power.

The coal supply agreement creates a variable interest in Coyote Creek due to the transfer of all operating and economic risk to the Coyote Station owners, as the agreement is structured so that the price of the coal will cover all costs of operations, as well as future reclamation costs. The Coyote Station owners are also providing a guarantee of the value of the assets of Coyote Creek as they would be required to buy the assets at book value should they terminate the contract prior to the end of the contract term and are providing a guarantee of the value of the equity of Coyote Creek in that they are required to buy the entity at the end of the contract term at equity value. Although the Company has determined that Coyote Creek is a VIE, the Company has concluded that it is not the primary beneficiary of Coyote Creek because the authority to direct the activities of the entity is shared by the four unrelated owners of the Coyote Station, with no primary beneficiary existing. As a result, Coyote Creek is not required to be consolidated in the Company's financial statements.

At March 31, 2021, the Company's exposure to loss as a result of the Company's involvement with the VIE, based on the Company's ownership percentage, was $33.1 million.

Index

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The Company focuses on infrastructure and is Building a Strong America® by providing essential products and services through its regulated energy delivery and construction materials and services businesses. The Company and its employees work hard to keep the economy of the United States moving with the products and services provided, which include powering, heating and connecting homes, factories, offices and stores; and building roads, highways, data infrastructure and airports.

The Company's two-platform business model, regulated energy delivery and construction materials and services, are each comprised of different operating segments. Most of these segments experience seasonality related to the industries in which they operate. The two-platform approach helps balance this seasonality and the risks associated with each type of industry. The Company is authorized to conduct business in 46 states and during peak times may employ over 15,600 employees. The Company's organic investments are strong drivers of high-quality earnings growth and continue to be an important part of the Company's growth story. Management believes the Company is well positioned in the industries and markets in which it operates.

The Company continues to effectively execute its strategy while managing the ongoing effects of the COVID-19 pandemic. Most of the Company's products and services are considered essential to our country and our communities and, as a result, operations have generally been permitted to proceed. In early 2020, the Company implemented its business continuity plans to continue to provide safe and reliable services during the pandemic.

The Company has a task force to monitor developments related to the pandemic and implement procedures to protect employees and customers. In March 2020, the Company took measures to mitigate the risk of COVID-19 transmission by requiring employees that had the capacity to do so to work from home. The Company also enacted additional physical and cybersecurity measures to safeguard systems for remote work locations. To date, certain office employees continue to work remotely due to the number of COVID-19 cases in some operating regions. The Company will be using a phased approach as it brings the remaining office employees not participating in the Company's telecommute program back to their work locations following the first quarter of 2021.

Certain of the Company's supply vendors are facing production and staffing challenges as they work to achieve production capacity and lead times consistent with pre-pandemic levels. Coupled with other challenges of the pandemic, these vendors are also experiencing strong demand from the residential construction market, some industrial segments and some utility infrastructure investments. In addition, freight markets continue to have challenges with driver shortages; strong demand for consumer goods; extended lead times; and costs for vehicles, driver retention and recruitment. As a result, the Company has experienced some price increases and disruptions and delays on delivery of certain materials.

Although there have been logistical and other challenges as a result of COVID-19, there were no material adverse impacts on the Company's results of operations for the three months ended March 31, 2021 and 2020. The Company will continue to adjust its business in response to the pandemic while positioning for potential opportunities to enhance its competitive position. The situation surrounding COVID-19 remains fluid and the potential for a material adverse impact on the Company increases the longer the virus impacts the level of economic activity in the United States. Due to the uncertainty of the economic outlook resulting from the COVID-19 pandemic, the Company continues to monitor the situation closely. For more information specific to each of the Company's business segments, see the following discussions in each business segment's Outlook section. For more information on the possible impacts, see Part I, Item 1A. Risk Factors in the 2020 Annual Report.

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Forward-Looking Statements

The following sections contain 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 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, the impact of COVID-19 on the Company's business, 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 and changes in such assumptions and factors could cause actual future results to differ materially.

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 2020 Annual Report and subsequent filings with the SEC.

Consolidated Earnings Overview

The following table summarizes the contribution to the consolidated income by each of the Company's business segments.


	Three Months Ended
	March 31,
	2021		2020
	(In millions, except per share amounts)
Electric	$	10.7	$	11.4
Natural gas distribution	36.2		32.3
Pipeline	8.9		7.4
Construction materials and contracting	(30.8)		(38.2)
Construction services	29.8		16.8
Other	(2.7)		(4.2)
Income from continuing operations	52.1		25.5
Loss from discontinued operations, net of tax	—		(.4)
Net income	$	52.1	$	25.1
Earnings per share - basic:
Income from continuing operations	$	.26	$	.13
Discontinued operations, net of tax	—		—
Earnings per share - basic	$	.26	$	.13
Earnings per share - diluted:
Income from continuing operations	$	.26	$	.13
Discontinued operations, net of tax	—		—
Earnings per share - diluted	$	.26	$	.13

Three Months Ended March 31, 2021, Compared to Three Months Ended March 31, 2020 The Company's consolidated earnings increased $27.0 million or 107 percent for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

The Company's earnings were positively impacted by increased earnings across most of the Company's businesses. The construction services business experienced an increase in gross margin as a result of higher outside specialty contracting workloads resulting from strong demand for utility projects, partially offset by decreased inside specialty contracting workloads resulting from decreased demand for refinery and commercial projects. In addition, 2020 earnings for the construction services business were negatively impacted by an out-of-period adjustment of approximately $6.7 million, net of tax, to correct revenue previously recognized on a construction contract. The construction materials and contracting business experienced an increase in gross margin as well, resulting from higher realized materials revenues and margins and higher contracting bid margins. The natural gas

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distribution business benefited from approved rate relief in certain jurisdictions, partially offset by higher operation and maintenance expenses. The pipeline business also experienced increased storage-related revenues resulting in a positive impact to earnings. Favorable income tax adjustments related to the Company's consolidated annualized estimated tax rate had a positive impact on Other. Partially offsetting these increases were decreased earnings at the electric business, largely resulting from higher operation and maintenance expenses and depreciation, depletion and amortization costs.

A discussion of key financial data from the Company's business segments follows.

Business Segment Financial and Operating Data

The following sections include key financial and operating data for each of the Company's business segments. Also included are highlights on key growth strategies, projections and certain assumptions for the Company and its subsidiaries and other matters of the Company's business segments.

For information pertinent to various commitments and contingencies, see the Notes to Consolidated Financial Statements. For a summary of the Company's business segments, see Note 17 of the Notes to Consolidated Financial Statements.

Electric and Natural Gas Distribution

Strategy and challenges The electric and natural gas distribution segments provide electric and natural gas distribution services to customers, as discussed in Note 17. Both segments strive to be top performing utility companies measured by integrity, employee safety and satisfaction, customer service and shareholder return, while providing safe, environmentally responsible, reliable and competitively priced energy and related services to customers. The Company is focused on cultivating organic growth while managing operating costs and monitoring opportunities for these segments to retain, grow and expand their customer base through extensions of existing operations, including building and upgrading electric generation, transmission and distribution, and natural gas systems, and through selected acquisitions of companies and properties with similar operating and growth objectives at prices that will provide stable cash flows and an opportunity to earn a competitive return on investment. The continued efforts to create operational improvements and efficiencies across both segments promotes the Company's business integration strategy. The primary factors that impact the results of these segments are the ability to earn authorized rates of return, the cost of natural gas, cost of electric fuel and purchased power, weather, competitive factors in the energy industry, population growth and economic conditions in the segments' service areas.

The electric and natural gas distribution segments are subject to extensive regulation in the jurisdictions where they conduct operations with respect to costs, timely recovery of investments and permitted returns on investment, as well as certain operational, environmental and system integrity regulations. To date, many states have enacted, and others are considering, mandatory clean energy standards requiring utilities to meet certain thresholds of renewable energy generation. Federal legislation for clean energy standards and GHG emissions has been considered and may be implemented in the near future. The current administration has also made climate change a focus during the first quarter of 2021. Over the long-term, the Company expects overall electric demand to be positively impacted by higher demand resulting from increased electrification trends, including electric vehicle adoption, as a means to address economy-wide carbon emissions concerns and changing customer conservation patterns. These initiatives could result in increased costs to produce electricity and procure natural gas. To date, the impact of these initiatives on the Company is unknown. The Company will continue to monitor the progress of these initiatives and assess the potential impacts they may have on its stakeholders, business processes, results of operations, cash flows and disclosures.

The Company is focused on modernizing utility infrastructure to meet the varied energy needs of both its customers and communities while ensuring the delivery of safe, reliable and affordable energy. The segments continue to invest in facility upgrades to be in compliance with existing and known future regulations. To assist in the reduction of regulatory lag in obtaining revenue increases to align with increased investments, tracking mechanisms have been implemented in certain jurisdictions, as further discussed in Note 19.

In September 2019, the PHMSA issued a rule for additional regulations to strengthen the safety of natural gas transmission and storage facilities and hazardous liquid pipelines. The natural gas segment has implemented procedure changes for the initial requirements and continues to evaluate and prepare procedure changes necessary for the additional requirements effective July 1, 2021.

State implementation of pollution control plans to improve visibility at Class I areas, such as national parks, under the EPA's Regional Haze Rule could require the owners of Coyote Station to incur significant new costs. If the owners decide to incur such costs, the costs could, dependent on determination by state regulatory commissions on approval to recover such costs from customers, negatively impact the Company's results of operations, financial position and cash flows. The NDDEQ plans to draft a state implementation plan and share its controls selection with federal land managers of the National Park Service, the United States Fish and Wildlife Service and the United States Forest Service in the first half of 2021. The emissions modeling being conducted for the combined western state agencies affected by the Regional Haze Rule is delayed and not yet available for the NDDEQ to draft a state implementation plan. Therefore, the NDDEQ's state implementation plan, which is due to the EPA by July 2021, is anticipated to be delayed and submitted during the second half of 2021. Additionally, the Company is one of four owners of Coyote Station and cannot make a unilateral decision on the plant's future. The Company could be negatively impacted by the decisions of the other owners.

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Revenues are impacted by both customer growth and usage, the latter of which is primarily impacted by weather, as well as impacts associated with commercial and industrial slow-downs, including economic recessions, and energy efficiencies. Very cold winters increase demand for natural gas and to a lesser extent, electricity, while warmer than normal summers increase demand for electricity, especially among residential and commercial customers. Average consumption among both electric and natural gas customers has tended to decline as more efficient appliances and furnaces are installed, and as the Company has implemented conservation programs. Natural gas weather normalization and decoupling mechanisms in certain jurisdictions have been implemented to largely mitigate the effect that would otherwise be caused by variations in volumes sold to these customers due to weather and changing consumption patterns on the Company's distribution margins.

In February 2021, a prolonged period of unseasonably cold temperatures in the central United States significantly increased the demand for electric and natural gas services and contributed to increased market prices. The Company's transmission settlement process with SPP helped offset the increased energy costs to customers during the cold weather event. Further, in some jurisdictions the Company utilized natural gas in storage to lessen the impact of high natural gas costs. Overall, Montana-Dakota and Great Plains incurred approximately $44.0 million in increased natural gas costs in February 2021 in order to maintain services for its customers. Montana-Dakota and Great Plains have filed out-of-cycle purchased gas adjustment requests in four out of five jurisdictions affected by this cold-weather event, as discussed in Note 19, and will continue to engage with its regulators to determine the appropriate recovery periods over which to recover the associated natural gas costs.

The electric and natural gas distribution segments are facing increased lead times on delivery of certain raw materials used in electric transmission and natural gas pipeline projects. Long lead times are attributable to increased demand for steel products from pipeline companies as they continue pipeline system safety and integrity replacement projects driven by PHMSA regulations, as well as delays in the manufacturing of electrical equipment as a result of the COVID-19 pandemic, including delays in trucking times and issuance of permits for large and heavy loads. The Company continues to monitor the material lead times and is working with manufacturers to proactively order such materials to help mitigate the risk of any delays due to extended lead times.

The ability to grow through acquisitions is subject to significant competition and acquisition premiums. In addition, the ability of the segments to grow their service territory and customer base is affected by regulatory constraints, the economic environment of the markets served and competition from other energy providers and fuels. The construction of any new electric generating facilities, transmission lines and other service facilities is subject to increasing costs and lead times, extensive permitting procedures, and federal and state legislative and regulatory initiatives, which will likely necessitate increases in electric energy prices.

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Earnings overview - The following information summarizes the performance of the electric segment.


	Three Months Ended
	March 31,
	2021		2020		Variance
	(In millions)
Operating revenues	$	84.8	$	86.1	(2)	%
Electric fuel and purchased power	18.6		20.6		(10)	%
Taxes, other than income	.2		.1		100	%
Adjusted gross margin	66.0		65.4		1	%
Operating expenses:
Operation and maintenance	31.3		30.7		2	%
Depreciation, depletion and amortization	16.1		15.5		4	%
Taxes, other than income	4.7		4.3		9	%
Total operating expenses	52.1		50.5		3	%
Operating income	13.9		14.9		(7)	%
Other income (expense)	.5		(.4)		225	%
Interest expense	6.5		6.8		(4)	%
Income before income taxes	7.9		7.7		3	%
Income tax benefit	(2.8)		(3.7)		24	%
Net income	$	10.7	$	11.4	(6)	%


Operating statistics	Three Months Ended
	March 31,
	2021		2020
Retail sales (million kWh):
Residential	334.9		330.6
Commercial	361.8		375.8
Industrial	144.5		153.0
Other	19.2		20.4
	860.4		879.8
Average cost of electric fuel and purchased power per kWh	$	.019	$	.021

Adjusted gross margin is a non-GAAP financial measure. For additional information and reconciliation of the non-GAAP adjusted gross margin attributable to the electric segment, see the Non-GAAP Financial Measures section later in this Item.

Three Months Ended March 31, 2021, Compared to Three Months Ended March 31, 2020 Electric earnings decreased $700,000 as a result of:

Adjusted gross margin: Increase of $600,000, largely the result of $1.1 million higher transmission revenues, due equally to increased revenues from SPP as the result of a FERC settlement and higher tracker revenues as a result of more transmission assets, and $500,000 of higher revenues associated with transmission interconnect upgrades. Adjusted gross margin was negatively impacted by a decrease in retail sales volumes of 2.2 percent. Decreased commercial and industrial retail sales volumes were partially offset by higher residential sales volumes due to the continued trend of individuals being at home more as a result of the COVID-19 pandemic, as discussed later.

Operation and maintenance: Increase of $600,000, largely due to increased payroll-related costs of $800,000, partially offset by decreased contract services.

Depreciation, depletion and amortization: Increase of $600,000 as a direct result of increased property, plant and equipment balances primarily from transmission projects placed in service.

Taxes, other than income: Increase of $400,000, due in equal part to higher property taxes in certain jurisdictions and higher payroll taxes driven by increased payroll-related costs.

Other income (expense): Increased income of $900,000 as a result of higher returns on certain of the Company's benefit plan investments.

Interest expense: Comparable to the same period in the prior year.

Income tax benefit: Decrease of $900,000, primarily lower production tax credits related to the expiration of a 10-year credit-qualifying period on certain facilities and less wind generation.

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Earnings overview - The following information summarizes the performance of the natural gas distribution segment.


	Three Months Ended
	March 31,
	2021		2020		Variance
	(In millions)
Operating revenues	$	350.4	$	326.6	7	%
Purchased natural gas sold	202.2		190.5		6	%
Taxes, other than income	13.9		13.2		5	%
Adjusted gross margin	134.3		122.9		9	%
Operating expenses:
Operation and maintenance	51.2		46.0		11	%
Depreciation, depletion and amortization	22.5		20.8		8	%
Taxes, other than income	7.0		6.1		15	%
Total operating expenses	80.7		72.9		11	%
Operating income	53.6		50.0		7	%
Other income	1.7		.3		NM
Interest expense	9.2		9.2		—	%
Income before income taxes	46.1		41.1		12	%
Income tax expense	9.9		8.8		13	%
Net income	$	36.2	$	32.3	12	%

*NM - not meaningful


Operating statistics	Three Months Ended
	March 31,
	2021		2020
Volumes (MMdk)
Retail sales:
Residential	28.8		27.7
Commercial	18.6		18.8
Industrial	1.5		1.5
	48.9		48.0
Transportation sales:
Commercial	.7		.7
Industrial	43.9		45.6
	44.6		46.3
Total throughput	93.5		94.3
Average cost of natural gas per dk	$	4.13	$	3.97

Adjusted gross margin is a non-GAAP financial measure. For additional information and reconciliation of the non-GAAP adjusted gross margin attributable to the natural gas distribution segment, see the Non-GAAP Financial Measures section later in this Item.

Three Months Ended March 31, 2021, Compared to Three Months Ended March 31, 2020 Natural gas distribution earnings increased $3.9 million as a result of:

Adjusted gross margin: Increase of $11.4 million, largely the result of $5.7 million in approved rate relief in certain jurisdictions; $2.2 million in higher weather normalization and decoupling mechanisms; and increased retail sales volumes of approximately 1.8 percent, primarily to residential customers.

Operation and maintenance: Increase of $5.2 million, primarily due to higher payroll-related costs of $2.2 million and decreased credits for costs associated with the installation of meters partially from delaying meter replacements for safety measures implemented as a result of the COVID-19 pandemic.

Depreciation, depletion and amortization: Increase of $1.7 million, resulting from increased property, plant and equipment balances from growth and replacement projects placed in service.

Taxes, other than income: Increase of $900,000, due in part to higher property taxes in certain jurisdictions of $600,000, as well as higher payroll taxes driven by increased payroll-related costs.

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Other income: Increase of $1.4 million as a result of higher returns on certain of the Company's benefit plan investments of $1.8 million, partially offset by decreased interest income related to the recovery of purchased gas adjustment balances.

Interest expense: Comparable to the same period in the prior year.

Income tax expense: Increase of $1.1 million due to an increase in income before taxes.

Outlook The Company continues to assess the impacts of the COVID-19 pandemic on its operations and is committed to providing safe and reliable service while ensuring the health and safety of its employees, customers and the communities in which it operates. In 2020, the Company instituted certain measures to help protect its employees from exposure to COVID-19 and to curb potential spread of the virus in customer homes and facilities, including suspension of disconnects due to nonpayment of bills, and continues to adjust these measures in 2021. In April 2020, the Company waived late payment fees to help customers experiencing financial hardships. As of January 1, 2021, the Company has reinstated disconnects and late payment fees to certain customer classes in seven of its eight states of operation. As a consequence of the suspended disconnects and waived late fees, the Company's cash flows and collection of receivables have been affected. To date, the Company experienced some impacts to its commercial and industrial electric and natural gas loads associated with reduced economic activity due to the COVID-19 pandemic and oil price impacts, as further discussed below. The Company expects this downward trend on demand to continue throughout the pandemic. In the first quarter of 2021, the Company continued certain cost containment measures in response to the COVID-19 pandemic, including reduced employee travel and temporary delays in non-essential training for employees. The Company filed requests for the use of deferred accounting for costs related to the COVID-19 pandemic in all of the jurisdictions in which it operates and has since withdrawn its applications in two of those jurisdictions. The Company has deferred an immaterial amount related to the pandemic to date.

The Company expects these segments will grow rate base by approximately 5 percent annually over the next five years on a compound basis. Operations are spread across eight states where the Company expects customer growth to be higher than the national average. In 2020, these segments experienced retail customer growth of approximately 1.8 percent, and the Company expects customer growth to continue to average 1 percent to 2 percent per year. This customer growth, along with system upgrades and replacements needed to supply safe and reliable service, will require investments in new and replacement electric and natural gas systems.

These segments are exposed to energy price volatility. Rate schedules in the jurisdictions in which the Company's natural gas distribution segment operates contain clauses that permit the Company to file for rate adjustments for changes in the cost of purchased gas. Although changes in the price of natural gas are passed through to customers and have minimal impact on the Company's earnings, the natural gas distribution segment's customers benefit from lower natural gas prices through the Company's utilization of storage and fixed price contracts.

Additionally, the Company has implemented risk mitigation measures to minimize the price volatility associated with natural gas costs through derivative contracts at Cascade. Demand for the Company's regulated energy delivery services could be impacted by reduced oil and natural gas exploration and production activity. The Company continues to monitor natural gas prices, as well as oil and natural gas production levels.

In February 2019, the Company announced the retirement of three aging coal-fired electric generating units, resulting from the Company's analysis showing that the plants are no longer expected to be cost competitive for customers. The Company ceased operations on March 31, 2021, of Unit 1 at Lewis & Clark Station in Sidney, Montana. The Company began pre-decommissioning activities on April 1, 2021, and will commence decommissioning of Unit 1 later in 2021. The retirement of Units 1 and 2 at Heskett Station near Mandan, North Dakota, is expected in early 2022. In addition, the Company announced that it intends to construct Heskett Unit 4, an 88-MW simple-cycle natural gas-fired combustion turbine peaking unit at the existing Heskett Station near Mandan, North Dakota. Heskett Unit 4 production costs coupled with the MISO market purchases are expected to be about half the total cost of continuing to run the coal-fired electric generating units at Heskett and Lewis & Clark stations.

The Company continues to be focused on the regulatory recovery of its investments by filing for rate adjustments to seek recovery of operating costs and capital investments, as well as reasonable returns as allowed by regulators. The Company's most recent cases by jurisdiction are discussed in Note 19.

The labor contract at Cascade with the ICWU has been ratified and is effective through March 31, 2024. The labor contract at Montana-Dakota with the IBEW was extended through June 15, 2021, and is currently in negotiations.

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Pipeline

Strategy and challenges The pipeline segment provides natural gas transportation, underground storage and energy-related services, as discussed in Note 17. The segment focuses on utilizing its extensive expertise in the design, construction and operation of energy infrastructure and related services to increase market share and profitability through optimization of existing operations, organic growth and investments in energy-related assets within or in close proximity to its current operating areas. The segment focuses on the continual safety and reliability of its systems, which entails building, operating and maintaining safe natural gas pipelines and facilities. The segment continues to evaluate growth opportunities including the expansion of natural gas facilities; incremental pipeline projects; and expansion of energy-related services leveraging on its core competencies. In support of this strategy, the Company completed the following organic growth projects in 2020:

•In September 2020, Phase II of the Line Section 22 Expansion project in the Billings, Montana, area was placed in service. The completion of Phase I and II increased capacity by 22.5 MMcf per day.

•In February 2020, the Demicks Lake Expansion project in McKenzie County, North Dakota, was placed in service and increased capacity by 175 MMcf per day.

The segment is exposed to energy price volatility which is impacted by the fluctuations in pricing, production and basis differentials of the energy market's commodities. Legislative and regulatory initiatives on increased pipeline safety regulations and environmental matters such as the reduction of methane emissions could also impact the price and demand for natural gas. In February 2021, the FERC issued a revised notice of inquiry seeking new information and stakeholder perspectives regarding the certification of new interstate natural gas facilities. The FERC issued the original notice of inquiry seeking stakeholder perspectives on this topic in April 2018. The FERC also took a step toward reforming the way in which it analyzes GHG emissions for purposes of natural gas pipeline certificates. The Company is monitoring the progress of these initiatives and is assessing the potential impacts they may have on its business processes, results of operations and disclosures, including its current North Bakken Expansion project application, as discussed in the Outlook section.

The pipeline segment is also subject to extensive regulation including certain operational compliance, permit terms and system integrity. In September 2019, the PHMSA issued a rule for additional regulations to strengthen the safety of natural gas transmission and storage facilities and hazardous liquid pipelines. The segment has implemented procedure changes for the initial requirements and continues to evaluate procedure changes and implementation of physical modifications to existing facilities necessary for additional requirements that will become effective July 1, 2021. The segment reviews and secures existing permits and easements, as well as new permits and easements as necessary to meet current demand and future growth opportunities on an ongoing basis. Groups opposing natural gas pipelines could also cause negative impacts on the segment with increased costs, potential delays to project completion, or cancellation of prospective projects.

In April 2020 and November 2020, the Company completed the sales of its regulated and non-regulated natural gas gathering assets, respectively. With the completion of these sales, the Company has exited the natural gas gathering business.

The segment regularly experiences extended lead times on raw materials that are critical to the segment's construction and maintenance work. Long lead times on materials could delay maintenance work and project construction potentially causing lost revenues and/or increased costs. The Company proactively monitors and plans for material lead times, as well as works with manufacturers and suppliers to help mitigate the risk of delays due to extended lead times.

The segment focuses on the recruitment and retention of a skilled workforce to remain competitive and provide services to its customers. The industry in which it operates relies on a skilled workforce to construct energy infrastructure and operate existing infrastructure in a safe manner. A shortage of skilled personnel can create a competitive labor market which could increase costs incurred by the segment. Competition from other pipeline companies can also have a negative impact on the segment.

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Earnings overview - The following information summarizes the performance of the pipeline segment.


	Three Months Ended
	March 31,
	2021		2020		Variance
	(In millions)
Operating revenues	$	36.1	$	35.8	1	%
Operating expenses:
Operation and maintenance	15.1		15.0		1	%
Depreciation, depletion and amortization	5.2		5.8		(10)	%
Taxes, other than income	3.3		3.6		(8)	%
Total operating expenses	23.6		24.4		(3)	%
Operating income	12.5		11.4		10	%
Other income	.9		—		NM
Interest expense	2.0		1.9		5	%
Income before income taxes	11.4		9.5		20	%
Income tax expense	2.5		2.1		19	%
Net income	$	8.9	$	7.4	21	%

*NM - not meaningful


Operating statistics	Three Months Ended
	March 31,
	2021	2020
Transportation volumes (MMdk)	110.8	111.7
Natural gas gathering volumes (MMdk)	—	3.3
Customer natural gas storage balance (MMdk):
Beginning of period	25.5	16.2
Net withdrawal	(20.3)	(12.4)
End of period	5.2	3.8

Three Months Ended March 31, 2021, Compared to Three Months Ended March 31, 2020 Pipeline earnings increased $1.5 million as a result of:

Revenues: Increase of $300,000, largely attributable to increased storage-related revenues of $2.1 million, partially offset by lower non-regulated project revenues of $500,000 and lower gas gathering volumes associated with the sales of the Company's natural gas gathering assets in 2020.

Operation and maintenance: Comparable to the same period in the prior year.

Depreciation, depletion and amortization: Decrease of $600,000 as a result of the absence of natural gas gathering assets discussed above, offset in part by higher property, plant and equipment balances related to organic growth projects.

Taxes, other than income: Decrease of $300,000, primarily due to the absence of natural gas gathering assets discussed above.

Other income: Increase of $900,000 as a result of higher AFUDC of $700,000 and higher returns on certain of the Company's benefit plan investments.

Interest expense: Comparable to the same period in the prior year.

Income tax expense: Increase of $400,000, largely resulting from an increase in income before taxes.

Outlook The Company continues to manage the impacts of the COVID-19 pandemic on its operations and is committed to providing safe, reliable and compliant service while ensuring the health and safety of its employees, customers and the communities in which it operates. Overall, COVID-19 has had minimal impacts to the pipeline business. The Company does not expect delays to its regulatory filings or projects due to the pandemic.

The Company has continued to experience the effect of associated natural gas production in the Bakken, which has provided opportunities for organic growth projects and increased demand. The completion of organic growth projects has contributed to the volumes of natural gas the Company transports through its system. Although low oil prices slowed 2020 drilling activities and led to the shut-in of certain wells, the recovery of oil prices has allowed producers to bring wells back online and associated natural gas production in the Bakken has returned to near pre-pandemic levels.

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The Company continues to focus on growth and improving existing operations through organic projects in all areas in which it operates. The national record levels of natural gas supply over the last few years have moderated the need for storage services and put downward pressure on natural gas prices and minimized price volatility. While the Company believes there will continue to be varying pressures on natural gas production levels and prices due to these circumstances, low natural gas prices provide growth opportunity for industrial supply related projects and seasonal pricing differentials provide opportunities for storage services.

In January 2019, the Company announced the North Bakken Expansion project, which includes construction of a new pipeline, compression and ancillary facilities to transport natural gas from core Bakken production areas near Tioga, North Dakota, to a new connection with Northern Border Pipeline in McKenzie County, North Dakota. In February 2020, the Company filed with the FERC its application for this project. Long-term take or pay customer contracts support the project at an amended design capacity of 250 MMcf per day, which can be readily expanded to meet forecasted natural gas growth levels and customer needs. In December 2020, the FERC issued its environment assessment for the project. Construction of the project is dependent on regulatory and environmental permitting, which the Company anticipated to receive in the first quarter 2021, with construction expected to begin in the second quarter and a project in-service date of November 1, 2021. The Company continues to await FERC approval and is adjusting its construction schedule to reflect the delay, which will result in a later in-service date.

Construction Materials and Contracting

Strategy and challenges The construction materials and contracting segment provides an integrated set of aggregate-based construction services, as discussed in Note 17. The segment focuses on high-growth strategic markets located near major transportation corridors and desirable mid-sized metropolitan areas; strengthening the long-term, strategic aggregate reserve position through available purchase and/or lease opportunities; enhancing profitability through cost containment, margin discipline and vertical integration of the segment's operations; development and recruitment of talented employees; and continued growth through organic and acquisition opportunities.

A key element of the Company's long-term strategy for this business is to further expand its market presence in the higher-margin materials business (rock, sand, gravel, liquid asphalt, asphalt concrete, ready-mixed concrete and related products), complementing and expanding on the segment's expertise. The Company's continued acquisition activity supports this strategy.

As one of the country's largest sand and gravel producers, the segment continues to strategically manage its approximately 1.1 billion tons of aggregate reserves in all its markets, as well as take further advantage of being vertically integrated. The segment's vertical integration allows the segment to manage operations from aggregate mining to final lay-down of concrete and asphalt, with control of and access to permitted aggregate reserves being significant. The Company's aggregate reserves are naturally declining and as a result, the Company seeks acquisition opportunities to replace the reserves. In the first quarter of 2021, the Company received the necessary permitting to expand its operation capabilities at its Honey Creek quarry near Austin, Texas. Honey Creek contains an estimated 40-year supply of aggregates. During 2020, the Company made strategic asset purchases that contributed approximately 115 million tons of aggregate reserves.

The construction materials and contracting segment faces challenges that are not under the direct control of the business. The segment operates in geographically diverse and highly competitive markets. Competition can put negative pressure on the segment's operating margins. The segment is also subject to volatility in the cost of raw materials such as diesel fuel, gasoline, liquid asphalt, cement and steel. Such volatility can have an impact on the segment's margins, including fixed-price construction contracts that are particularly vulnerable to the volatility of energy and material prices. Other variables that can impact the segment's margins include adverse weather conditions, the timing of project starts or completion and declines or delays in new and existing projects due to the cyclical nature of the construction industry and governmental infrastructure spending. Accordingly, operating results in any particular period may not be indicative of the results that can be expected for any other period.

The segment also faces challenges in the recruitment and retention of employees. Trends in the labor market include an aging workforce and availability issues. The segment continues to face increasing pressure to control costs, as well as recruit and train a skilled workforce to meet the needs of increasing demand and seasonal work.

Index

Earnings overview - The following information summarizes the performance of the construction materials and contracting segment.


	Three Months Ended
	March 31,
	2021		2020		Variance
	(In millions)
Operating revenues	$	265.7	$	262.2	1	%
Cost of sales:
Operation and maintenance	243.2		250.7		(3)	%
Depreciation, depletion and amortization	22.3		19.6		14	%
Taxes, other than income	9.8		9.5		3	%
Total cost of sales	275.3		279.8		(2)	%
Gross margin	(9.6)		(17.6)		45	%
Selling, general and administrative expense:
Operation and maintenance	21.7		22.4		(3)	%
Depreciation, depletion and amortization	1.1		1.0		10	%
Taxes, other than income	2.5		2.3		9	%
Total selling, general and administrative expense	25.3		25.7		(2)	%
Operating loss	(34.9)		(43.3)		19	%
Other expense	(.1)		(1.1)		91	%
Interest expense	4.7		5.2		(10)	%
Loss before income taxes	(39.7)		(49.6)		20	%
Income tax benefit	(8.9)		(11.4)		22	%
Net loss	$	(30.8)	$	(38.2)	19	%


Operating statistics	Three Months Ended
	March 31,
	2021	2020
Sales (000's):
Aggregates (tons)	4,808	4,217
Asphalt (tons)	294	227
Ready-mixed concrete (cubic yards)	732	704

Three Months Ended March 31, 2021, Compared to Three Months Ended March 31, 2020 Construction materials and contracting's seasonal loss decreased $7.4 million as a result of:

Revenues: Increase of $3.5 million, primarily the result of higher materials revenues of $13.3 million for aggregates and ready-mixed concrete due to an early start to the season in certain regions. The increase was partially offset by decreased contracting services due to less favorable weather conditions in certain regions in 2021 delaying the start of some project work.

Gross margin: Increase of $8.0 million, largely resulting from higher overall realized materials revenues and margins and higher contracting margins. Aggregates product margins increased $3.0 million and ready-mixed concrete margins increased $2.7 million due to the early start to the season discussed above. Contracting bid margins positively impacted gross margin as a result of higher realized bid margins. Partially offsetting these increases were decreased asphalt and asphalt-related product margins of $1.8 million, largely resulting from higher repair and maintenance costs in the first quarter of 2021.

Selling, general and administrative expense: Decrease of $400,000, primarily due to the recovery of prior bad debt expense of $1.1 million, partially offset by higher payroll-related costs.

Other expense: Decrease of $1.0 million, driven by higher returns on the Company's benefit plan investments.

Interest expense: Decrease of $500,000 resulting from lower average interest rates and lower average debt balances.

Income tax benefit: Decrease of $2.5 million, due to a decrease in the seasonal loss before income taxes.

Index

Outlook The Company continues to assess the impacts of the COVID-19 pandemic on its operations and is committed to the health and safety of its employees, customers and the communities in which it operates. In 2020, the Company implemented safety and social distancing measures for its employees that were not able to work from home and experienced some inefficiencies and additional costs in relation to these measures, including delays in the ability to obtain permits from government agencies and, for the most part, has been able to continue business processes with minimal interruptions. The Company also continues to monitor job progress and service work and at this time has not experienced significant delays, cancellations or disruptions due to the pandemic. The American Rescue Plan Act approved by the United States Congress in the first quarter of 2021 provides $1.9 trillion in COVID-19 relief funding for states, schools and local governments. Because of limited guidance currently available to states on how the funds can be spent, there is uncertainty regarding whether the funds will be made available for infrastructure projects that could positively impact the segment. Additionally, the current administration and the United States Congress are expected to release a comprehensive infrastructure proposal that, if adopted, could positively impact the segment. The Company continues to monitor the progress of these legislative items.

The segment's vertically integrated aggregate-based business model provides the Company with the ability to capture margin throughout the sales delivery process. The aggregate products are sold internally and externally for use in other products such as ready-mixed concrete, asphaltic concrete and public and private construction markets. The contracting services and construction materials are sold in connection with street, highway and other public infrastructure projects, as well as private commercial, industrial and residential development projects. The public infrastructure projects have traditionally been more stable markets as public funding is more secure during periods of economic decline. The public projects are, however, dependent on federal and state funding such as appropriations to the Federal Highway Administration. Spending on private development is highly dependent on both local and national economic cycles, providing additional sales during times of strong economic cycles.

During 2021 and 2020, the Company made strategic purchases that support the Company's long-term strategy to expand its market presence. In April 2021, the Company acquired Mt. Hood Rock, a construction aggregates business located in Portland, Oregon. The Company continues to evaluate additional acquisition opportunities that would be accretive to earnings of the Company. For more information on the Company's business combinations, see Note 10.

The construction materials and contracting segment's backlog at March 31, 2021, was $818.8 million, which is down slightly from backlog of $905.1 million at March 31, 2020. The decrease in backlog was largely attributable to the timing of bidding activity, primarily related to street and highway construction projects in certain regions. The Company continues to monitor bidding activity as it moves into the second quarter of 2021. The Company expects to complete a significant amount of backlog at March 31, 2021, during the next 12 months.

One of the labor contracts that the construction materials and contracting segment was negotiating as of December 31, 2020, as reported in Items 1 and 2 - Business Properties - General in the 2020 Annual Report, has been ratified.

Construction Services

Strategy and challenges The construction services segment provides inside and outside specialty contracting, as discussed in Note 17. The construction services segment focuses on safely executing projects; providing a superior return on investment by building new and strengthening existing customer relationships; ensuring quality service; effectively controlling costs; retaining, developing and recruiting talented employees; growing through organic and strategic acquisition opportunities; and focusing efforts on projects that will permit higher margins while properly managing risk. The growth experienced by the segment in recent years is due in part to its ability to support national customers in most of the regions in which it operates.

The construction services segment faces challenges, which are not under direct control of the business, in the highly competitive markets in which it operates. Competitive pricing environments, project delays, changes in management's estimates of variable consideration and the effects from restrictive regulatory requirements have negatively impacted revenues and margins in the past and could affect revenues and margins in the future. Additionally, margins may be negatively impacted on a quarterly basis due to adverse weather conditions, as well as timing of project starts or completions; disruptions to the supply chain due to transportation delays, travel restrictions, raw material cost increases and shortages, and closures of businesses or facilities; declines or delays in new projects due to the cyclical nature of the construction industry; and other factors. These challenges may also impact the risk of loss on certain projects. Accordingly, operating results in any particular period may not be indicative of the results that can be expected for any other period.

The need to ensure available specialized labor resources for projects also drives strategic relationships with customers and project margins. These trends include an aging workforce and labor availability issues, increasing pressure to reduce costs and improve reliability, and increasing duration and complexity of customer capital programs. Due to these and other factors, the Company believes overall customer and competitor demand for labor resources will continue to increase, possibly surpassing the supply of industry resources.

Index

Earnings overview - The following information summarizes the performance of the construction services segment.


	Three Months Ended
	March 31,
	2021		2020		Variance
	(In millions)
Operating revenues	$	518.5	$	514.7	1	%
Cost of sales:
Operation and maintenance	427.2		436.2		(2)	%
Depreciation, depletion and amortization	4.0		3.9		3	%
Taxes, other than income	19.4		23.4		(17)	%
Total cost of sales	450.6		463.5		(3)	%
Gross margin	67.9		51.2		33	%
Selling, general and administrative expense:
Operation and maintenance	24.6		23.9		3	%
Depreciation, depletion and amortization	1.3		1.9		(32)	%
Taxes, other than income	1.7		1.6		6	%
Total selling, general and administrative expense	27.6		27.4		1	%
Operating income	40.3		23.8		69	%
Other income	.2		.1		100	%
Interest expense	.9		1.2		(25)	%
Income before income taxes	39.6		22.7		74	%
Income tax expense	9.8		5.9		66	%
Net income	$	29.8	$	16.8	77	%

Three Months Ended March 31, 2021, Compared to Three Months Ended March 31, 2020 Construction services earnings increased $13.0 million as a result of:

Revenues: Increase of $3.8 million, primarily resulting from higher outside specialty contracting workloads partially offset by lower inside specialty contracting workloads. Outside workloads contributed $20.2 million, or 13.9% more compared to the same period in the prior year, as a result of strong demand for utility projects including storm-related power line repair and line hardening restoration work. Inside workloads decreased $17.0 million, or 4.6% less compared to the same period in the prior year, as a result of decreased customer demand for refinery and commercial projects, which were partially offset by increased high-tech projects and the absence of a negative out-of-period adjustment in first quarter 2020 of $7.7 million to correct revenue previously recognized on a construction contract.

Gross margin: Increase of $16.7 million, primarily from the higher volume of work resulting in an increase in revenues, as previously discussed, as well as higher margins on certain projects which is also reflected in lower cost of sales. Also contributing to the increase was the absence of a negative out-of-period adjustment in first quarter 2020 of $8.9 million to correct revenue previously recognized on a construction contract.

Selling, general and administrative expense: Comparable to the same period in the prior year.

Other income: Comparable to the same period in the prior year.

Interest expense: Decrease of $300,000 driven by lower debt balances.

Income tax expense: Increase of $3.9 million, directly resulting from an increase in income before income taxes.

Outlook The Company continues to assess the impacts of the COVID-19 pandemic on its operations and is committed to the health and safety of its employees, customers and the communities in which it operates. In 2020, the Company implemented safety and social distancing measures for its employees that were not able to work from home and experienced some inefficiencies in relation to these measures but, for the most part, has been able to continue pre-pandemic business processes. The Company continues to monitor job progress and service work for delays, cancellations and disruptions due to the pandemic but expects minimal disruptions in 2021. Despite the challenges presented by the COVID-19 pandemic, the Company believes there are long-term growth opportunities and demand for construction services. The American Rescue Plan Act approved by the United States Congress in the first quarter of 2021 provides $1.9 trillion in COVID-19 relief funding for states, schools and local government including broadband infrastructure. Because of limited guidance currently available to states on how the funds can be spent, there is uncertainty regarding whether the funds will be made available for infrastructure projects that could impact the segment. Additionally, the current administration and the United States Congress are expected to release a comprehensive infrastructure proposal that, if adopted, could positively impact the segment. The Company will continue to monitor the progress of these legislative items.

Index

The Company continues to have bidding opportunities for both inside and outside specialty contracting work in 2021 as evidenced by the segment's backlog. Although bidding remains highly competitive in all areas, the Company expects the segment's relationship with existing customers, skilled workforce, quality of service and effective cost management will continue to provide a benefit in securing and executing profitable projects.

The construction services segment's backlog at March 31, was as follows:


	Three Months Ended
	March 31,
	2021		2020
	(In millions)
Inside specialty contracting	$	1,009	$	1,041
Outside specialty contracting	264		226
	$	1,273	$	1,267

The slight increase in backlog was largely attributable to the new project opportunities that the Company continues to be awarded across its diverse operations, particularly inside specialty contracting in the hospitality, high-tech and public industries. The Company's outside power, communications and natural gas specialty contracting also have a high volume of available work. The Company expects to complete a significant amount of the backlog at March 31, 2021, during the next 12 months. Additionally, the Company continues to further evaluate potential acquisition opportunities that would be accretive to earnings of the Company and continue to grow the segment's backlog.

Other


	Three Months Ended
	March 31,
	2021		2020		Variance
	(In millions)
Operating revenues	$	3.3	$	3.0	10	%
Operating expenses:
Operation and maintenance	2.3		2.0		15	%
Depreciation, depletion and amortization	1.2		.7		71	%

Total operating expenses	3.5		2.7		30	%
Operating income (loss)	(.2)		.3		NM
Other income	.1		.1		—	%
Interest expense	.1		.3		(67)	%
Income (loss) before income taxes	(.2)		.1		NM
Income tax expense	2.5		4.3		(42)	%
Net loss	$	(2.7)	$	(4.2)	36	%

*NM - not meaningful

Three Months Ended March 31, 2021, Compared to Three Months Ended March 31, 2020 Other was positively impacted in the first quarter of 2021 by lower income tax adjustments related to the Company's consolidated annualized estimated tax rate, partially offset by higher depreciation, depletion and amortization expense for software placed in service. General and administrative costs and interest expense previously allocated to the exploration and production and refining businesses that do not meet the criteria for income (loss) from discontinued operations are also included in Other.

Intersegment Transactions

Amounts presented in the preceding tables will not agree with the Consolidated Statements of Income due to the Company's elimination of intersegment transactions. The amounts related to these items were as follows:


	Three Months Ended
	March 31,
	2021		2020
	(In millions)
Intersegment transactions:
Operating revenues	$	30.9	$	31.0
Operation and maintenance	4.9		5.9
Purchased natural gas sold	26.0		25.1

For more information on intersegment eliminations, see Note 17.

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Liquidity and Capital Commitments

At March 31, 2021, the Company had cash and cash equivalents of $55.1 million and available borrowing capacity of $695.5 million under the outstanding credit facilities of the Company's subsidiaries. The Company expects to meet its obligations for debt maturing within one year and its other operating and capital requirements from various sources, including internally generated funds; credit facilities and commercial paper of the Company's subsidiaries, as described in Capital resources; and issuance of debt and equity securities.

Cash flows


	Three Months Ended
	March 31,
	2021		2020
	(In millions)
Net cash provided by (used in):
Operating activities	$	95.6	$	79.3
Investing activities	(106.3)		(202.5)
Financing activities	6.2		173.2
Increase (decrease) in cash and cash equivalents	(4.5)		50.0
Cash and cash equivalents -- beginning of year	59.6		66.5
Cash and cash equivalents -- end of period	$	55.1	$	116.5

Operating activities


	Three Months Ended
	March 31,
	2021		2020		Variance
Components of net cash provided by operating activities:	(In millions)
Income from continuing operations	$	52.1	$	25.5	$	26.6
Depreciation, depletion and amortization	73.7		69.2		4.5
Deferred income taxes	9.8		1.8		8.0
Receivables	89.4		44.5		44.9
Inventories	(25.6)		(29.3)		3.7
Other current assets	(46.8)		15.0		(61.8)
Accounts payable	(42.0)		(24.1)		(17.9)
Other current liabilities	(14.0)		(23.2)		9.2
Other noncurrent changes	(1.0)		.3		(1.3)
Net cash used in discontinued operations	—		(.4)		.4
Net cash provided by operating activities	$	95.6	$	79.3	$	16.3

The changes in cash flows from operating activities generally follow the results of operations, as discussed in Business Segment Financial and Operating Data, and are affected by changes in working capital. The increase in cash flows provided by operating activities in the previous table was largely driven by higher earnings at most businesses in the first quarter of 2021. Also contributing to the increase was lower working capital requirements at the construction services business largely driven by the stronger collection of accounts receivable offset in part by an increase in accounts payable from the fluctuation in job activity. Partially offsetting the net increase in cash flows provided by operating activities was an increase in natural gas purchases, as discussed in Note 13, partially offset by the associated deferred taxes.

Index

Investing activities


	Three Months Ended
	March 31,
	2021		2020		Variance
Components of net cash used in investing activities:	(In millions)
Capital expenditures	$	(111.1)	$	(139.5)	$	28.4
Acquisitions, net of cash acquired	(1.0)		(67.6)		66.6
Net proceeds from sale or disposition of property and other	9.0		4.5		4.5
Investments	(3.2)		.1		(3.3)
Net cash used in investing activities	$	(106.3)	$	(202.5)	$	96.2

The decrease in cash used in investing activities in the previous table was primarily due to lower cash used in acquisition activity in 2021 compared to 2020 at the construction services and construction materials and contracting businesses. Also contributing to the decrease was lower capital expenditures in 2021 at the natural gas distribution business related to reduced natural gas growth projects and higher proceeds on asset sales in 2021 at the construction services business.

Financing activities


	Three Months Ended
	March 31,
	2021		2020		Variance
Components of net cash provided by financing activities:	(In millions)
Issuance of short-term borrowings	$	50.0	$	—	$	50.0
Repayment of short-term borrowings	(50.0)		—		(50.0)
Issuance of long-term debt	93.3		248.0		(154.7)
Repayment of long-term debt	(53.3)		(36.2)		(17.1)
Proceeds from issuance of common stock	19.7		3.4		16.3
Dividends paid	(42.6)		(41.6)		(1.0)
Repurchase of common stock	(6.7)		—		(6.7)
Tax withholding on stock-based compensation	(4.2)		(.4)		(3.8)
Net cash provided by financing activities	$	6.2	$	173.2	$	(167.0)

The decrease in cash provided by financing activities in the previous table was largely the result of a decrease in long-term debt issuances in 2021 as compared to 2020 due to reduced acquisition activity at the construction services and construction materials and contracting businesses and lower working capital needs as a result of higher cash collections at the construction services business. In addition, an increase in the repayment of long-term debt at the natural gas distribution business also contributed to the decrease. In 2021, the Company received increased net proceeds of $16.3 million from the issuance of common stock under the Company's "at-the-market" offering. Slightly offsetting these items was the purchase of common stock on the open market in 2021 for the vesting of awards under the Company's long-term performance-based incentive plan. At the natural gas distribution business, the Company issued and repaid $50 million in short term borrowings during the first quarter of 2021. The issuance was related to financing the higher natural gas purchases, as previously discussed, and the repayment was related to short-term borrowings completed during 2020.

Defined benefit pension plans

There were no material changes to the Company's qualified noncontributory defined benefit pension plans from those reported in the 2020 Annual Report. For more information, see Note 18 and Part II, Item 7 in the 2020 Annual Report.

Capital expenditures

Capital expenditures for the first three months of 2021 were $107.2 million. Capital expenditures for the first three months of 2020 were $188.9 million, which includes the completed business combinations at the construction materials and contracting and construction services businesses. Capital expenditures allocated to the Company's business segments are estimated to be approximately $810.5 million for 2021. Capital expenditures have been updated from what was previously reported in the 2020 Annual Report to accommodate project timeline and scope changes made throughout the first quarter of 2021. The Company will continue to monitor capital expenditures for project delays and changes in economic viability related to COVID-19. The Company has included in the estimated capital expenditures for 2021 the completed business combination of a construction aggregates business and the North Bakken Expansion project, as previously discussed in Business Segment Financial and Operating Data.

Estimated capital expenditures for 2021 also include system upgrades; service extensions; routine equipment maintenance and replacements; buildings, land and building improvements; pipeline and natural gas storage projects; power generation and transmission opportunities, including certain costs for additional electric generating capacity; environmental upgrades; and other growth opportunities.

Index

The Company continues to evaluate potential future acquisitions and other growth opportunities that would be incremental to the outlined capital program; however, such growth is dependent upon the availability of economic opportunities and, as a result, capital expenditures may vary significantly from the estimate previously discussed. It is anticipated that all of the funds required for capital expenditures for 2021 will be met from various sources, including internally generated funds; credit facilities and commercial paper of the Company's subsidiaries, as described later; and issuance of debt and equity securities.

Capital resources

Certain debt instruments of the Company's subsidiaries contain restrictive and financial covenants and cross-default provisions. In order to borrow under the respective debt instruments, the subsidiary companies must be in compliance with the applicable covenants and certain other conditions, all of which the subsidiaries, as applicable, were in compliance with at March 31, 2021. In the event the subsidiaries do not comply with the applicable covenants and other conditions, alternative sources of funding may need to be pursued. For more information on the covenants, certain other conditions and cross-default provisions, see Part II, Item 8 in the 2020 Annual Report.

The following table summarizes the outstanding revolving credit facilities of the Company's subsidiaries at March 31, 2021:


Company	Facility		Facility Limit			Amount Outstanding		Letters of Credit			Expiration Date
			(In millions)
Montana-Dakota Utilities Co.	Commercial paper/Revolving credit agreement	(a)	$	175.0		$	99.5	$	—		12/19/24
Cascade Natural Gas Corporation	Revolving credit agreement		$	100.0	(b)	$	30.4	$	2.2	(c)	6/7/24
Intermountain Gas Company	Revolving credit agreement		$	85.0	(d)	$	13.0	$	—		6/7/24
Centennial Energy Holdings, Inc.	Commercial paper/Revolving credit agreement	(e)	$	600.0		$	119.4	$	—		12/19/24

(a)The commercial paper program is supported by a revolving credit agreement with various banks (provisions allow for increased borrowings, at the option of Montana-Dakota on stated conditions, up to a maximum of $225.0 million). At March 31, 2021, there were no amounts outstanding under the revolving credit agreement.

(b)Certain provisions allow for increased borrowings, up to a maximum of $125.0 million.

(c)Outstanding letter(s) of credit reduce the amount available under the credit agreement.

(d)Certain provisions allow for increased borrowings, up to a maximum of $110.0 million.

(e)The commercial paper program is supported by a revolving credit agreement with various banks (provisions allow for increased borrowings, at the option of Centennial on stated conditions, up to a maximum of $700.0 million). At March 31, 2021, there were no amounts outstanding under the revolving credit agreement.

The respective commercial paper programs are supported by revolving credit agreements. While the amount of commercial paper outstanding does not reduce available capacity under the respective revolving credit agreements, Montana-Dakota and Centennial do not issue commercial paper in an aggregate amount exceeding the available capacity under the credit agreements. The commercial paper borrowings may vary during the period, largely the result of fluctuations in working capital requirements due to the seasonality of certain operations of the Company's subsidiaries.

Total equity as a percent of total capitalization was 57 percent, 54 percent and 58 percent at March 31, 2021 and 2020, and December 31, 2020, respectively. This ratio is calculated as the Company's total equity, divided by the Company's total capital. Total capital is the Company's total debt, including short-term borrowings and long-term debt due within one year, plus total equity. This ratio is an indicator of how a company is financing its operations, as well as its financial strength.

In August 2020, the Company amended the Distribution Agreement dated February 22, 2019, with JP Morgan Securities LLC and MUFG Securities Americas Inc., as sales agents. This agreement allows the offering, issuance and sale of up to 6.4 million shares of the Company's common stock in connection with an "at-the-market" offering. The common stock may be offered for sale, from time to time, in accordance with the terms and conditions of this agreement. Proceeds from the sale of shares of common stock under this agreement have been and are expected to be used for general corporate purposes, which may include, among other things, working capital, capital expenditures, debt repayment and the financing of acquisitions.

Index

Certain of the Company's debt instruments use LIBOR as a benchmark for establishing the applicable interest rate. LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. These reforms and other pressures may cause LIBOR to disappear entirely or to perform differently than in the past. The Company has been proactive to anticipate the reform of LIBOR by replacing it with the SOFR, or equivalent rate agreed upon by the lenders, in certain of its new debt instruments, as well as those that are being renewed. The Company is currently updating its credit agreements to include language regarding the successor or alternate rate to LIBOR. The Company continues to evaluate the impact the reform will have on its debt instruments and, at this time, does not anticipate a significant impact.

Montana-Dakota On March 8, 2021, Montana-Dakota entered into a $50.0 million term loan agreement with a LIBOR-based variable interest rate and a maturity date of March 7, 2022. The agreement contains customary covenants and provisions, including a covenant of Montana-Dakota not to permit, at any time, the ratio of total debt to total capitalization to be greater than 65 percent. The covenants also include certain restrictions on the sale of certain assets, loans and investments.

Off balance sheet arrangements

At March 31, 2021, the Company had no material off balance sheet arrangements as defined by the rules of the SEC.

Contractual obligations and commercial commitments

There were no material changes in the Company's contractual obligations from continuing operations relating to estimated interest payments, asset retirement obligations, uncertain tax positions and minimum funding requirements for its defined benefit plans for 2021 from those reported in the 2020 Annual Report.

The Company has entered into various commitments largely consisting of contracts for natural gas and coal supply; purchased power; natural gas transportation and storage; royalties; information technology; and construction materials. Certain of these contracts are subject to variability in volume and price. The commitments under these contracts as of March 31, 2021, were:


	Less than 1 year		1-3 years		3-5 years		More than 5 years		Total
	(In millions)
Purchase commitments	$	539.2	$	437.7	$	227.4	$	802.8	$	2,007.1

For more information on contractual obligations and commercial commitments, see Part II, Item 7 in the 2020 Annual Report.

New Accounting Standards

For information regarding new accounting standards, see Note 2, which is incorporated by reference.

Critical Accounting Estimates

The Company's critical accounting estimates include impairment testing of goodwill; fair values of acquired assets and liabilities under the acquisition method of accounting; regulatory assets expected to be recovered in rates charged to customers; revenue recognized using the cost-to-cost measure of progress for contracts; actuarially determined benefit costs; and tax provisions. There were no material changes in the Company's critical accounting estimates from those reported in the 2020 Annual Report. For more information on critical accounting estimates, see Part II, Item 7 in the 2020 Annual Report.

Non-GAAP Financial Measures

The Business Segment Financial and Operating Data includes financial information prepared in accordance with GAAP, as well as another financial measure, adjusted gross margin, that is considered a non-GAAP financial measure as it relates to the Company's electric and natural gas distribution segments. The presentation of adjusted gross margin is intended to be a useful supplemental financial measure for investors’ understanding of the segments' operating performance. This non-GAAP financial measure should not be considered as an alternative to, or more meaningful than, GAAP financial measures such as operating income (loss) or net income (loss). The Company's non-GAAP financial measure, adjusted gross margin, is not standardized; therefore, it may not be possible to compare this financial measure with other companies’ gross margin measures having the same or similar names.

In addition to operating revenues and operating expenses, management also uses the non-GAAP financial measure of adjusted gross margin when evaluating the results of operations for the electric and natural gas distribution segments. Adjusted gross margin for the electric and natural gas distribution segments is calculated by adding back adjustments to operating income (loss). These add-back adjustments include: operation and maintenance expense; depreciation, depletion and amortization expense; and certain taxes, other than income.

Adjusted gross margin includes operating revenues less the cost of electric fuel and purchased power, purchased natural gas sold and certain taxes, other than income. These taxes, other than income, included as a reduction to adjusted gross margin relate to revenue taxes. These segments pass on to their customers the increases and decreases in the wholesale cost of power purchases, natural gas and other fuel supply costs in accordance with regulatory requirements. As such, the segments' revenues are directly impacted by the fluctuations in such commodities. Revenue taxes, which are passed back to customers, fluctuate with revenues as they are calculated as a percentage of revenues. For these reasons, period over period, the segments' operating income (loss) is

Index

generally not impacted. The Company's management believes the adjusted gross margin is a useful supplemental financial measure as these items are included in both operating revenues and operating expenses. The Company's management also believes that adjusted gross margin and the remaining operating expenses that calculate operating income (loss) are useful in assessing the Company's utility performance as management has the ability to influence control over the remaining operating expenses.

The following information reconciles operating income to adjusted gross margin for the electric segment.


	Three Months Ended
	March 31,
	2021		2020
	(In millions)
Operating income	$	13.9	$	14.9
Adjustments:
Operating expenses:
Operation and maintenance	31.3		30.7
Depreciation, depletion and amortization	16.1		15.5
Taxes, other than income	4.7		4.3
Total adjustments	52.1		50.5
Adjusted gross margin	$	66.0	$	65.4

The following information reconciles operating income to adjusted gross margin for the natural gas distribution segment.


	Three Months Ended
	March 31,
	2021		2020
	(In millions)
Operating income	$	53.6	$	50.0
Adjustments:
Operating expenses:
Operation and maintenance	51.2		46.0
Depreciation, depletion and amortization	22.5		20.8
Taxes, other than income	7.0		6.1
Total adjustments	80.7		72.9
Adjusted gross margin	$	134.3	$	122.9

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to the impact of market fluctuations associated with interest rates and commodity prices. The Company has policies and procedures to assist in controlling these market risks and from time to time has utilized derivatives to manage a portion of its risk.

Interest rate risk

There were no material changes to interest rate risk faced by the Company from those reported in the 2020 Annual Report.

At March 31, 2021, the Company had no outstanding interest rate hedges.

Commodity price risk

There were no material changes to commodity price risk faced by the Company from those reported in the 2020 Annual Report.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. The Company's disclosure controls and other procedures are designed to provide reasonable assurance that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. The Company's disclosure controls and other procedures are designed to provide reasonable assurance that information required to be disclosed is accumulated and communicated to management, including the Company's chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure. The Company's management, with the participation of the Company's chief executive officer and chief financial officer, has evaluated the effectiveness of the Company's disclosure controls and other procedures as of the end of the period

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covered by this report. Based upon that evaluation, the chief executive officer and the chief financial officer have concluded that, as of the end of the period covered by this report, such controls and procedures were effective at a reasonable assurance level.

Changes in internal controls

No change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended March 31, 2021, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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Part II -- Other Information

Item 1. Legal Proceedings

There were no material changes to the Company's legal proceedings in Part 1, Item 3 - Legal Proceedings in the 2020 Annual Report.

Item 1A. Risk Factors

Please refer to the Company's risk factors that are disclosed in Part I, Item 1A. Risk Factors in the 2020 Annual Report that could be materially harmful to the Company's business, prospects, financial condition or financial results if they occur. At March 31, 2021, there were no material changes to the Company's risk factors provided in Part I, Item 1A. Risk Factors in the 2020 Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table includes information with respect to the Company's purchase of equity securities:


ISSUER PURCHASES OF EQUITY SECURITIES
Period	(a) Total Number of Shares (or Units) Purchased (1)	(b) Average Price Paid per Share (or Unit)	(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2)	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (2)
January 1 through January 31, 2021	—	—	—	—
February 1 through February 28, 2021	241,392	$27.76	—	—
March 1 through March 31, 2021	—	—	—	—
Total	241,392		—	—

(1) Represents shares of common stock purchased on the open market in connection with the vesting of shares granted pursuant to the Long-Term Performance-Based Incentive Plan.

(2) Not applicable. The Company does not currently have in place any publicly announced plans or programs to purchase equity securities.

Item 4. Mine Safety Disclosures

For information regarding mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K, see Exhibit 95 to this Form 10-Q, which is incorporated herein by reference.

Item 5. Other Information

None.

Item 6. Exhibits

See the index to exhibits immediately preceding the signature page to this report.

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Exhibits Index

Incorporated by Reference

Exhibit Number

Exhibit Description

Filed
Herewith

Form

Period
Ended

Exhibit

Filing
Date

File Number

3(a)

Amended and Restated Certificate of Incorporation of MDU Resources Group, Inc.

8-K

3.2

5/8/19

1-03480

3(b)

Amended and Restated Bylaws of MDU Resources Group, Inc.

8-K

3.1

2/15/19

1-03480

+10(a)

MDU Resources Group, Inc. 401(k) Retirement Plan, as amended January 1, 2021

31(a)

Certification of Chief Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31(b)

Certification of Chief Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Chief Executive Officer and Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Mine Safety Disclosures

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

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Signatures

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		MDU RESOURCES GROUP, INC.

DATE:	May 6, 2021	BY:	/s/ Jason L. Vollmer
			Jason L. Vollmer
			Vice President and Chief Financial Officer


		BY:	/s/ Stephanie A. Barth
			Stephanie A. Barth
			Vice President, Chief Accounting Officer and Controller