UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2020~~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 ~~October~~July 29, ~~2020: 200,522,277~~2021: 202,430,930 shares.


Index
			Page
Definitions			3
~~Forward-Looking Statements~~			5
Introduction			5
Part I -- Financial Information
Item 1. Financial Statements			6
Consolidated Statements of Income -- Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020			6
Consolidated Statements of Comprehensive Income -- Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020			7
Consolidated Balance Sheets -- ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, and December 31, ~~2019~~2020			8
Consolidated Statements of Equity -- ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020			9
Consolidated Statements of Cash Flows -- ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020			1110
Notes to Consolidated Financial Statements			1211
1. Basis of presentation			1211
2. New accounting standards			1211
3. Seasonality of operations			1312
4. Receivables and allowance for expected credit losses			1312
5. Inventories and natural gas in storage			1413
6. Earnings per share			1513
7. Equity			13
8. Accumulated other comprehensive ~~income (loss)~~loss			14
9. Revenue from contracts with customers			15
~~8. Revenue from contracts with customers~~10. Business combinations			1618
~~9. Business combinations~~11. Leases			19
~~10. Leases~~12. Goodwill and other intangible assets			19
13. Regulatory assets and liabilities			20
~~11. Goodwill and other intangible assets~~14. Fair value measurements			21
~~12. Regulatory assets and liabilities~~			22
~~13. Fair value measurements~~15. Debt			23
~~14. Debt~~			25
~~15.~~16. Cash flow information			2624
~~16.~~17. Business segment data			24
18. Employee benefit plans			27
~~17. Employee benefit plans~~			29
~~18.~~19. Regulatory matters			2927
~~19.~~20. Contingencies			3128

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			3331
Item 3. Quantitative and Qualitative Disclosures About Market Risk			5051
Item 4. Controls and Procedures			5051
Part II -- Other Information
Item 1. Legal Proceedings			5253
Item 1A. Risk Factors			5253
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			5355
Item 4. Mine Safety Disclosures			5355
Item 5. Other Information			5355
Item 6. Exhibits			5355
Exhibits Index			5456
Signatures			5557

Index

Definitions

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


Abbreviation or Acronym
~~2019~~2020 Annual Report			Company's Annual Report on Form 10-K for the year ended December 31, ~~2019~~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
~~CARES Act~~			~~United States Coronavirus Aid, Relief, and Economic Security Act~~
Cascade			Cascade Natural Gas Corporation, an indirect wholly owned subsidiary of MDU Energy Capital
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~~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
~~MTPSC~~			~~Montana Public Service Commission~~
MW			Megawatt
NDDEQ			North Dakota Department of Environmental Quality
~~NDPSC~~			~~North Dakota Public Service Commission~~
~~NGL~~			~~Natural gas liquids~~

Index


NDPSC			North Dakota Public Service Commission
NERC			North American Electricity Reliability Corporation
Non-GAAP			Not in accordance with GAAP
Oil			Includes crude oil and condensate
~~OPUC~~PHMSA			~~Oregon Public Utility Commission~~Pipeline and Hazardous Materials Safety Administration
~~PRP~~Regional Haze Rule			~~Potentially Responsible Party~~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.
TSA			Transportation Security Administration
VIE			Variable interest entity
~~Washington DOE~~			~~Washington State Department of Ecology~~
WBI Holdings			WBI Holdings, Inc., a direct wholly owned subsidiary of Centennial
~~WBI Energy Transmission~~			~~WBI Energy Transmission, Inc., an indirect wholly owned subsidiary of WBI Holdings~~
WUTC			Washington Utilities and Transportation Commission

Index

~~Forward-Looking Statements~~

This Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Exchange Act. Forward-looking statements are all statements other than statements of historical fact, including without limitation those statements that are identified by the words "anticipates," "estimates," "expects," "intends," "plans," "predicts" and similar expressions, and include statements concerning plans, trends, objectives, goals, strategies, future events or performance, and underlying assumptions (many of which are based, in turn, upon further assumptions) and other statements that are other than statements of historical facts. From time to time, the Company may publish or otherwise make available forward-looking statements of this nature, including statements contained within Part I, Item 2 - MD&A - Business Segment Financial and Operating Data.

Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed. The Company's expectations, beliefs and projections are expressed in good faith and are believed by the Company to have a reasonable basis, including without limitation, 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.

Any forward-looking statement contained in this document speaks only as of the date on which the statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances that occur after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all the factors, nor can it assess the effect of each factor on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. All forward-looking statements, whether written or oral and whether made by or on behalf of the Company, are expressly qualified by the risk factors and cautionary statements reported in Part II, Item 1A. Risk Factors in this Form 10-Q, Part I, Item 1A. Risk Factors in the 2019 Annual Report and subsequent filings with the SEC.

Introduction

The Company is a regulated energy delivery and construction materials and services business. The organizational entity was originally incorporated as Montana-Dakota under the state laws of Delaware in 1924. Pursuant to an internal holding company reorganization completed on January 1, 2019, the Company was incorporated under the state laws of ~~Delaware in 2018.~~Delaware. 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 and construction materials and services platforms, 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 ~~Centennial Resources~~ and Centennial Capital. WBI Holdings is the pipeline segment, Knife River is the construction materials and contracting segment, MDU Construction Services is the construction services segment and Centennial ~~Resources and Centennial~~ Capital ~~are both~~is reflected in the Other category.

For more information on the Company's business segments, see Note 1617 of the Notes to Consolidated Financial Statements.

Index

Part I -- Financial Information

Item 1. Financial Statements

																			MDU Resources Group, Inc.
Consolidated Statements of Income	Consolidated Statements of Income									Consolidated Statements of Income
(Unaudited)	(Unaudited)									(Unaudited)
		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,									June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(In thousands, except per share amounts)									(In thousands, except per share amounts)
Operating revenues:	Operating revenues:									Operating revenues:
Electric, natural gas distribution and regulated pipeline	Electric, natural gas distribution and regulated pipeline	$	210,115	$	209,444	$	870,151	$	885,309	Electric, natural gas distribution and regulated pipeline	$	260,568	$	241,353	$	702,951	$	660,035
Non-regulated pipeline, construction materials and contracting, construction services and other	Non-regulated pipeline, construction materials and contracting, construction services and other	1,377,174		1,354,355		3,277,440		3,073,254		Non-regulated pipeline, construction materials and contracting, construction services and other	1,163,089		1,121,575		1,948,644		1,900,267
Total operating revenues	Total operating revenues	1,587,289		1,563,799		4,147,591		3,958,563		Total operating revenues	1,423,657		1,362,928		2,651,595		2,560,302
Operating expenses:	Operating expenses:									Operating expenses:
Operation and maintenance:	Operation and maintenance:									Operation and maintenance:
Electric, natural gas distribution and regulated pipeline	Electric, natural gas distribution and regulated pipeline	89,080		86,249		259,791		262,434		Electric, natural gas distribution and regulated pipeline	89,404		83,103		183,737		170,712
Non-regulated pipeline, construction materials and contracting, construction services and other	Non-regulated pipeline, construction materials and contracting, construction services and other	1,124,939		1,126,371		2,804,398		2,674,130		Non-regulated pipeline, construction materials and contracting, construction services and other	988,392		946,068		1,705,717		1,679,459
Total operation and maintenance	Total operation and maintenance	1,214,019		1,212,620		3,064,189		2,936,564		Total operation and maintenance	1,077,796		1,029,171		1,889,454		1,850,171
Purchased natural gas sold	Purchased natural gas sold	31,524		31,843		253,780		270,539		Purchased natural gas sold	63,213		56,844		239,450		222,256
Depreciation, depletion and amortization	Depreciation, depletion and amortization	72,084		65,021		212,832		187,937		Depreciation, depletion and amortization	73,661		71,508		147,384		140,747
Taxes, other than income	Taxes, other than income	50,501		46,128		167,197		148,110		Taxes, other than income	53,189		52,584		115,724		116,696
Electric fuel and purchased power	Electric fuel and purchased power	15,450		18,717		50,557		64,413		Electric fuel and purchased power	18,109		14,567		36,730		35,107
Total operating expenses	Total operating expenses	1,383,578		1,374,329		3,748,555		3,607,563		Total operating expenses	1,285,968		1,224,674		2,428,742		2,364,977
Operating income	Operating income	203,711		189,470		399,036		351,000		Operating income	137,689		138,254		222,853		195,325
Other income	Other income	4,612		3,014		13,669		12,222		Other income	9,027		10,063		12,381		9,058
Interest expense	Interest expense	23,761		25,258		73,132		74,094		Interest expense	23,381		24,818		46,835		49,371
Income before income taxes	Income before income taxes	184,562		167,226		339,573		289,128		Income before income taxes	123,335		123,499		188,399		155,012
Income taxes	Income taxes	31,547		31,098		61,178		48,766		Income taxes	23,164		23,657		36,112		29,631
Income from continuing operations	Income from continuing operations	153,015		136,128		278,395		240,362		Income from continuing operations	100,171		99,842		152,287		125,381
Income (loss) from discontinued operations, net of tax	Income (loss) from discontinued operations, net of tax	63		1,509		(484)		26		Income (loss) from discontinued operations, net of tax	19		(139)		34		(548)
Net income	Net income	$	153,078	$	137,637	$	277,911	$	240,388	Net income	$	100,190	$	99,703	$	152,321	$	124,833
Earnings per share - basic:	Earnings per share - basic:									Earnings per share - basic:
Income from continuing operations	Income from continuing operations	$	.76	$	.68	$	1.39	$	1.21	Income from continuing operations	$	.50	$	.50	$	.76	$	.62
Discontinued operations, net of tax	Discontinued operations, net of tax	0		.01		0		0		Discontinued operations, net of tax	0		0		0		0
Earnings per share - basic	Earnings per share - basic	$	.76	$	.69	$	1.39	$	1.21	Earnings per share - basic	$	.50	$	.50	$	.76	$	.62
Earnings per share - diluted:	Earnings per share - diluted:									Earnings per share - diluted:
Income from continuing operations	Income from continuing operations	$	.76	$	.68	$	1.39	$	1.21	Income from continuing operations	$	.50	$	.50	$	.76	$	.62
Discontinued operations, net of tax	Discontinued operations, net of tax	0		.01		0		0		Discontinued operations, net of tax	0		0		0		0
Earnings per share - diluted	Earnings per share - diluted	$	.76	$	.69	$	1.39	$	1.21	Earnings per share - diluted	$	.50	$	.50	$	.76	$	.62
Weighted average common shares outstanding - basic	Weighted average common shares outstanding - basic	200,522		199,343		200,495		198,016		Weighted average common shares outstanding - basic	201,345		200,522		201,028		200,481
Weighted average common shares outstanding - diluted	Weighted average common shares outstanding - diluted	200,619		199,383		200,515		198,033		Weighted average common shares outstanding - diluted	201,693		200,539		201,328		200,497

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

Index


MDU Resources Group, Inc.	MDU Resources Group, Inc.									MDU Resources Group, Inc.
Consolidated Statements of Comprehensive Income	Consolidated Statements of Comprehensive Income									Consolidated Statements of Comprehensive Income
(Unaudited)	(Unaudited)									(Unaudited)
		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,									June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(In thousands)									(In thousands)
Net income	Net income	$	153,078	$	137,637	$	277,911	$	240,388	Net income	$	100,190	$	99,703	$	152,321	$	124,833
Other comprehensive income:	Other comprehensive income:									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 and $109 and $(177) for the nine months ended in 2020 and 2019, respectively		111		112		334		620
Amortization of postretirement liability losses included in net periodic benefit cost, net of tax of $152 and $95 for the three months ended and $456 and $284 for the nine months ended in 2020 and 2019, respectively		471		292		1,413		878
Reclassification adjustment for loss on derivative instruments included in net income, net of tax of $36 and $36 for the three months ended and $73 and $72 for the six months ended in 2021 and 2020, respectively										Reclassification adjustment for loss on derivative instruments included in net income, net of tax of $36 and $36 for the three months ended and $73 and $72 for the six months ended in 2021 and 2020, respectively	112		112		223		223
Amortization of postretirement liability losses included in net periodic benefit cost, net of tax of $160 and $155 for the three months ended and $311 and $304 for the six months ended in 2021 and 2020, respectively										Amortization of postretirement liability losses included in net periodic benefit cost, net of tax of $160 and $155 for the three months ended and $311 and $304 for the six months ended in 2021 and 2020, respectively	457		480		923		942
Net unrealized gain (loss) on available-for-sale investments:	Net unrealized gain (loss) on available-for-sale investments:									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 $(13) and $3 for the three months ended and $19 and $35 for the nine months ended in 2020 and 2019, respectively		(50)		12		72		130
Reclassification adjustment for (gain) loss on available-for-sale investments included in net income, net of tax of $7 and $(1) for the three months ended and $9 and $10 for the nine months ended in 2020 and 2019, respectively		28		(4)		34		36
Net unrealized gain (loss) on available-for-sale investments arising during the period, net of tax of $(13) and $(4) for the three months ended and $(25) and $32 for the six months ended in 2021 and 2020, respectively										Net unrealized gain (loss) on available-for-sale investments arising during the period, net of tax of $(13) and $(4) for the three months ended and $(25) and $32 for the six months ended in 2021 and 2020, respectively	(52)		(13)		(96)		122
Reclassification adjustment for loss on available-for-sale investments included in net income, net of tax of $6 and $2 for the three months ended and $15 and $2 for the six months ended in 2021 and 2020, respectively										Reclassification adjustment for loss on available-for-sale investments included in net income, net of tax of $6 and $2 for the three months ended and $15 and $2 for the six months ended in 2021 and 2020, respectively	25		7		60		6
Net unrealized gain (loss) on available-for-sale investments	Net unrealized gain (loss) on available-for-sale investments	(22)		8		106		166		Net unrealized gain (loss) on available-for-sale investments	(27)		(6)		(36)		128
Other comprehensive income	Other comprehensive income	560		412		1,853		1,664		Other comprehensive income	542		586		1,110		1,293
Comprehensive income attributable to common stockholders	Comprehensive income attributable to common stockholders	$	153,638	$	138,049	$	279,764	$	242,052	Comprehensive income attributable to common stockholders	$	100,732	$	100,289	$	153,431	$	126,126

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

Index


MDU Resources Group, Inc.	MDU Resources Group, Inc.							MDU Resources Group, Inc.
Consolidated Balance Sheets	Consolidated Balance Sheets							Consolidated Balance Sheets
(Unaudited)	(Unaudited)							(Unaudited)
		September 30, 2020		September 30, 2019		December 31, 2019			June 30, 2021		June 30, 2020		December 31, 2020
Assets	Assets	(In thousands, except shares and per share amounts)						Assets	(In thousands, except shares and per share amounts)
Current assets:	Current assets:							Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	66,070	$	67,000	$	66,459	Cash and cash equivalents	$	57,946	$	64,358	$	59,547
Receivables, net	Receivables, net	1,009,433		968,279		836,605		Receivables, net	903,831		920,824		873,986
Inventories	Inventories	286,223		286,057		278,407		Inventories	316,328		302,837		291,167
Current regulatory assets	Current regulatory assets	79,125		69,181		63,613		Current regulatory assets	109,581		60,557		68,527
Prepayments and other current assets	Prepayments and other current assets	61,706		71,298		52,617		Prepayments and other current assets	74,259		48,194		44,120
Total current assets	Total current assets	1,502,557		1,461,815		1,297,701		Total current assets	1,461,945		1,396,770		1,337,347
Noncurrent assets:	Noncurrent assets:							Noncurrent assets:
Property, plant and equipment	Property, plant and equipment	8,203,751		7,746,754		7,908,628		Property, plant and equipment	8,417,559		8,063,435		8,300,770
Less accumulated depreciation, depletion and amortization	Less accumulated depreciation, depletion and amortization	3,115,805		2,944,928		2,991,486		Less accumulated depreciation, depletion and amortization	3,129,717		3,064,833		3,133,831
Net property, plant and equipment	Net property, plant and equipment	5,087,946		4,801,826		4,917,142		Net property, plant and equipment	5,287,842		4,998,602		5,166,939
Goodwill	Goodwill	712,677		681,349		681,358		Goodwill	717,863		708,664		714,963
Other intangible assets, net	Other intangible assets, net	26,376		15,511		15,246		Other intangible assets, net	23,401		31,515		25,496
Regulatory assets	Regulatory assets	369,764		362,799		353,784		Regulatory assets	376,913		351,025		379,381
Investments	Investments	158,440		144,417		148,656		Investments	173,157		154,779		165,022
Operating lease right-of-use assets	Operating lease right-of-use assets	120,534		118,764		115,323		Operating lease right-of-use assets	112,437		115,751		120,113
Other	Other	147,205		144,130		153,849		Other	144,653		154,026		144,111
Total noncurrent assets	Total noncurrent assets	6,622,942		6,268,796		6,385,358		Total noncurrent assets	6,836,266		6,514,362		6,716,025
Total assets	Total assets	$	8,125,499	$	7,730,611	$	7,683,059	Total assets	$	8,298,211	$	7,911,132	$	8,053,372
Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity							Liabilities and Stockholders' Equity
Current liabilities:	Current liabilities:							Current liabilities:
Short-term borrowings	Short-term borrowings	$	75,000	$	139,988	$	0	Short-term borrowings	$	50,000	$	75,000	$	50,000
Long-term debt due within one year	Long-term debt due within one year	1,558		65,810		16,540		Long-term debt due within one year	1,549		16,560		1,555
Accounts payable	Accounts payable	436,718		378,370		403,391		Accounts payable	431,878		433,362		426,264
Taxes payable	Taxes payable	96,708		53,505		48,970		Taxes payable	78,805		80,882		88,844
Dividends payable	Dividends payable	41,608		40,460		41,580		Dividends payable	42,791		41,608		42,611
Accrued compensation	Accrued compensation	110,730		93,642		99,269		Accrued compensation	95,909		85,525		90,629
Regulatory liabilities due within one year	Regulatory liabilities due within one year	39,837		36,945		42,935		Regulatory liabilities due within one year	23,454		48,000		31,450
Operating lease liabilities due within one year	Operating lease liabilities due within one year	33,770		32,584		31,664		Operating lease liabilities due within one year	31,787		31,985		33,655
Asset retirement obligations due within one year		4,198		5,612		4,277
Other accrued liabilities	Other accrued liabilities	226,863		186,761		177,801		Other accrued liabilities	188,187		186,797		198,514
Total current liabilities	Total current liabilities	1,066,990		1,033,677		866,427		Total current liabilities	944,360		999,719		963,522
Noncurrent liabilities:	Noncurrent liabilities:							Noncurrent liabilities:
Long-term debt	Long-term debt	2,268,732		2,180,946		2,226,567		Long-term debt	2,335,500		2,265,316		2,211,575
Deferred income taxes	Deferred income taxes	533,524		487,194		506,583		Deferred income taxes	538,633		516,760		516,098
Asset retirement obligations								Asset retirement obligations	450,620		422,169		440,356
Regulatory liabilities	Regulatory liabilities	434,936		453,760		447,370		Regulatory liabilities	428,467		438,652		428,075
Asset retirement obligations		425,567		384,193		413,298
Operating lease liabilities	Operating lease liabilities	87,140		86,166		83,742		Operating lease liabilities	81,052		84,302		86,868
Other	Other	295,845		309,069		291,826		Other	320,777		286,527		327,773
Total noncurrent liabilities	Total noncurrent liabilities	4,045,744		3,901,328		3,969,386		Total noncurrent liabilities	4,155,049		4,013,726		4,010,745
Commitments and contingencies	Commitments and contingencies							Commitments and contingencies	0
Stockholders' equity:	Stockholders' equity:							Stockholders' equity:
Common stock Authorized - 500,000,000 shares, $1.00 par value Shares issued - 201,061,198 at September 30, 2020, 200,876,334 at September 30, 2019 and 200,922,790 at December 31, 2019		201,061		200,876		200,923
Common stock Authorized - 500,000,000 shares, $1.00 par value Shares issued - 202,822,301 at June 30, 2021, 201,061,198 at June 30, 2020 and 201,061,198 at December 31, 2020								Common stock Authorized - 500,000,000 shares, $1.00 par value Shares issued - 202,822,301 at June 30, 2021, 201,061,198 at June 30, 2020 and 201,061,198 at December 31, 2020	202,822		201,061		201,061
Other paid-in capital	Other paid-in capital	1,366,494		1,351,990		1,355,404		Other paid-in capital	1,422,169		1,363,182		1,371,385
Retained earnings	Retained earnings	1,489,085		1,283,044		1,336,647		Retained earnings	1,624,405		1,377,879		1,558,363
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(40,249)		(36,678)		(42,102)		Accumulated other comprehensive loss	(46,968)		(40,809)		(48,078)
Treasury stock at cost - 538,921 shares	Treasury stock at cost - 538,921 shares	(3,626)		(3,626)		(3,626)		Treasury stock at cost - 538,921 shares	(3,626)		(3,626)		(3,626)
Total stockholders' equity	Total stockholders' equity	3,012,765		2,795,606		2,847,246		Total stockholders' equity	3,198,802		2,897,687		3,079,105
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	8,125,499	$	7,730,611	$	7,683,059	Total liabilities and stockholders' equity	$	8,298,211	$	7,911,132	$	8,053,372

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

Index


MDU Resources Group, Inc.	MDU Resources Group, Inc.															MDU Resources Group, Inc.
Consolidated Statements of Equity	Consolidated Statements of Equity															Consolidated Statements of Equity
(Unaudited)	(Unaudited)															(Unaudited)
					Other Paid-in Capital		Retained Earnings		Accumu-lated Other Compre-hensive Loss											Other Paid-in Capital		Retained Earnings		Accumu-lated Other Compre-hensive Loss
		Common Stock									Treasury Stock						Common Stock									Treasury Stock
		Shares	Amount								Shares	Amount		Total			Shares	Amount								Shares	Amount		Total
		(In thousands, except shares)															(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
At December 31, 2020																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	Net income	—	—		—		25,130		—		—	—		25,130		Net income	—	—		—		52,131		—		—	—		52,131
Other comprehensive income	Other comprehensive income	—	—		—		—		707		—	—		707		Other comprehensive income	—	—		—		—		568		—	—		568
Dividends declared on common stock	Dividends declared on common stock	—	—		—		(41,789)		—		—	—		(41,789)		Dividends declared on common stock	—	—		—		(42,943)		—		—	—		(42,943)
Stock-based compensation	Stock-based compensation	—	—		2,250		—		—		—	—		2,250		Stock-based compensation	—	—		2,574		—		—		—	—		2,574
Repurchase of common stock																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	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 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	Issuance of common stock	112,002	112		3,298		—		—		—	—		3,410		Issuance of common stock	672,260	672		19,027		—		—		—	—		19,699
At March 31, 2020		201,061,198	$	201,061	$	1,360,564	$	1,319,988	$	(41,395)	(538,921)	$	(3,626)	$	2,836,592
At March 31, 2021																At March 31, 2021	201,733,458	$	201,733	$	1,382,158	$	1,567,551	$	(47,510)	(538,921)	$	(3,626)	$	3,100,306
Net income	Net income	—	—		—		99,703		—		—	—		99,703		Net income	—	—		—		100,190		—		—	—		100,190
Other comprehensive income	Other comprehensive income	—	—		—		—		586		—	—		586		Other comprehensive income	—	—		—		—		542		—	—		542
Dividends declared on common stock	Dividends declared on common stock	—	—		—		(41,812)		—		—	—		(41,812)		Dividends declared on common stock	—	—		—		(43,336)		—		—	—		(43,336)
Stock-based compensation	Stock-based compensation	—	—		2,618		—		—		—	—		2,618		Stock-based compensation	—	—		6,150		—		—		—	—		6,150
At June 30, 2020		201,061,198	$	201,061	$	1,363,182	$	1,377,879	$	(40,809)	(538,921)	$	(3,626)	$	2,897,687
Net income		—	—		—		153,078		—		—	—		153,078
Other comprehensive income		—	—		—		—		560		—	—		560
Dividends declared on common stock		—	—		—		(41,872)		—		—	—		(41,872)
Stock-based compensation		—	—		3,312		—		—		—	—		3,312

At September 30, 2020		201,061,198	$	201,061	$	1,366,494	$	1,489,085	$	(40,249)	(538,921)	$	(3,626)	$	3,012,765
Issuance of common stock																Issuance of common stock	1,088,843	1,089		33,861		—		—		—	—		34,950
At June 30, 2021																At June 30, 2021	202,822,301	$	202,822	$	1,422,169	$	1,624,405	$	(46,968)	(538,921)	$	(3,626)	$	3,198,802





		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
Net income		—	—		—		99,703		—		—	—		99,703
Other comprehensive income		—	—		—		—		586		—	—		586
Dividends declared on common stock		—	—		—		(41,812)		—		—	—		(41,812)
Stock-based compensation		—	—		2,618		—		—		—	—		2,618
At June 30, 2020		201,061,198	$	201,061	$	1,363,182	$	1,377,879	$	(40,809)	(538,921)	$	(3,626)	$	2,897,687

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, 2018 196,564,907 $ 196,565 $ 1,248,576 $ 1,163,602 $ (38,342) (538,921) $ (3,626) $ 2,566,775
Net income — — — 40,926 — — — 40,926
Other comprehensive income — — — — 774 — — 774
Dividends declared on common stock — — — (40,019) — — — (40,019)
Stock-based compensation — — 1,617 — — — — 1,617
Issuance of common stock upon vesting of stock-based compensation, net of shares used for tax withholdings 246,214 246 (3,261) — — — — (3,015)
Issuance of common stock 1,505,687 1,506 37,128 — — — — 38,634
At March 31, 2019 198,316,808 $ 198,317 $ 1,284,060 $ 1,164,509 $ (37,568) (538,921) $ (3,626) $ 2,605,692
Net income — — — 61,825 — — — 61,825
Other comprehensive income — — — — 478 — — 478
Dividends declared on common stock — — — (40,367) — — — (40,367)
Stock-based compensation — — 1,742 — — — — 1,742
Issuance of common stock 1,222,302 1,222 29,709 — — — — 30,931
At June 30, 2019 199,539,110 $ 199,539 $ 1,315,511 $ 1,185,967 $ (37,090) (538,921) $ (3,626) $ 2,660,301
Net income — — — 137,637 — — — 137,637
Other comprehensive income — — — — 412 — — 412
Dividends declared on common stock — — — (40,560) — — — (40,560)
Stock-based compensation — — 1,742 — — — — 1,742
Issuance of common stock 1,337,224 1,337 34,737 — — — — 36,074
At September 30, 2019 200,876,334 $ 200,876 $ 1,351,990 $ 1,283,044 $ (36,678) (538,921) $ (3,626) $ 2,795,606


MDU Resources Group, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
	Six Months Ended
	June 30,
	2021		2020
	(In thousands)
Operating activities:
Net income	$	152,321	$	124,833
Income (loss) from discontinued operations, net of tax	34		(548)
Income from continuing operations	152,287		125,381
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	147,384		140,747
Deferred income taxes	14,498		2,881
Changes in current assets and liabilities, net of acquisitions:
Receivables	(18,516)		(40,801)
Inventories	(25,330)		(26,276)
Other current assets	(52,768)		30,790
Accounts payable	(3,845)		13,387
Other current liabilities	(22,605)		26,612
Other noncurrent changes	(8,236)		(10,923)
Net cash provided by continuing operations	182,869		261,798
Net cash used in discontinued operations	(58)		(396)
Net cash provided by operating activities	182,811		261,402
Investing activities:
Capital expenditures	(261,937)		(248,800)
Acquisitions, net of cash acquired	(13,721)		(70,729)
Net proceeds from sale or disposition of property and other	12,402		22,968
Investments	(3,244)		23
Net cash used in investing activities	(266,500)		(296,538)
Financing activities:
Issuance of short-term borrowings	50,000		75,000
Repayment of short-term borrowings	(50,000)		0
Issuance of long-term debt	171,769		200,400
Repayment of long-term debt	(48,151)		(162,225)
Proceeds from issuance of common stock	54,649		3,410
Dividends paid	(85,351)		(83,188)
Repurchase of common stock	(6,701)		0
Tax withholding on stock-based compensation	(4,127)		(362)
Net cash provided by financing activities	82,088		33,035
Decrease in cash and cash equivalents	(1,601)		(2,101)
Cash and cash equivalents -- beginning of year	59,547		66,459
Cash and cash equivalents -- end of period	$	57,946	$	64,358

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

Index

MDU Resources Group, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
2020 2019
(In thousands)
Operating activities:
Net income $ 277,911 $ 240,388
Income (loss) from discontinued operations, net of tax (484) 26
Income from continuing operations 278,395 240,362
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization 212,832 187,937
Deferred income taxes 16,409 49,222
Changes in current assets and liabilities, net of acquisitions:
Receivables (100,141) (238,373)
Inventories (9,581) 2,480
Other current assets 1,269 (69,105)
Accounts payable 19,125 13,062
Other current liabilities 74,286 53,458
Other noncurrent changes (10,139) (35,361)
Net cash provided by continuing operations 482,455 203,682
Net cash used in discontinued operations (688) (579)
Net cash provided by operating activities 481,767 203,103
Investing activities:
Capital expenditures (413,842) (423,036)
Acquisitions, net of cash acquired (71,479) (53,263)
Net proceeds from sale or disposition of property and other 23,463 28,391
Investments 24 (717)
Net cash used in investing activities (461,834) (448,625)
Financing activities:
Issuance of short-term borrowings 75,000 169,977
Repayment of short-term borrowings 0 (30,000)
Issuance of long-term debt 100,125 302,724
Repayment of long-term debt (73,699) (166,956)
Proceeds from issuance of common stock 3,410 105,639
Dividends paid (124,796) (119,795)
Tax withholding on stock-based compensation (362) (3,015)
Net cash provided by (used in) financing activities (20,322) 258,574
Increase (decrease) in cash and cash equivalents (389) 13,052
Cash and cash equivalents -- beginning of year 66,459 53,948
Cash and cash equivalents -- end of period $ 66,070 $ 67,000

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

~~Index~~

MDU Resources Group, Inc.

Notes to Consolidated

Financial Statements

~~September~~June 30, ~~2020~~2021 and ~~2019~~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 ~~2019~~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.

InBeginning in March 2020, ~~the World Health Organization declared the outbreak of COVID-19 a pandemic, and the President of the United States declared the COVID-19 outbreak as a national emergency. Governmental~~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 to our country and ~~accordingly~~our communities and, as a result, operations have ~~been~~ generally ~~allowed to continue. The Company has experienced some inefficiency impacts, including operation suspensions~~continued throughout the COVID-19 pandemic and ~~interruptions at some locations to carry out preventive measures or in response to instances~~reopening of ~~positive tests or quarantines.~~the country's economy. The Company has assessed the impacts of the COVID-19 pandemic on its results of operations for the ~~three and nine~~six months ended ~~September~~June 30, 2021 and 2020, and determined there were no material adverse impacts.

In the first quarter of 2020, the Company recorded an out-of-period adjustment to correct the recognition of revenue on a construction contract, which was the result of an overstatement of operating revenue and receivables of $7.7 million and an understatement of operating expense and accounts payable of $1.2 million in the year ended December 31, 2019. This adjustment resulted in an after-tax reduction to net income of $6.7 million in the first quarter of 2020. The Company evaluated the impact of the out-of-period adjustment and concluded it was not material to any previously issued interim and annual consolidated financial statements and the adjustment was not material to the three months ended March 31, 2020 or the nine months ended September 30, 2020.

Effective January 1, 2020, the Company adopted the requirements of the ASU on the measurement of credit losses on certain financial instruments following a modified retrospective approach, as further discussed in Notes 2 and 4. As such, results for reporting periods beginning on January 1, 2020, are presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with historic accounting. The Company's adoption of this guidance did not have a material impact on its financial reporting.

The assets and liabilities of the Company's discontinued operations 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 ~~September~~June 30, ~~2020,~~2021, up to the date of the issuance of these consolidated interim financial statements on August 5, 2021, that would require recognition or disclosure in the financial statements.

Note 2 - New accounting standards

Recently adopted accounting standards

~~ASU 2016-13 - Measurement of Credit Losses on Financial Instruments~~ In June 2016, the FASB issued guidance on the measurement of credit losses on certain financial instruments. The guidance introduced a new impairment model known as the current expected credit loss model that replaced the incurred loss impairment methodology previously included under GAAP. This guidance required entities to present certain investments in debt securities, trade accounts receivable and other financial assets at their net carrying value of the amount expected to be collected on the financial statements. The Company adopted the guidance on January 1, 2020, using a modified retrospective approach.

The Company formed an implementation team to review and assess existing financial assets to identify and evaluate the financial assets subject to the new current expected credit loss model. The Company assessed the impact of the guidance on its processes and internal controls and identified and updated existing internal controls and processes to ensure compliance with the new guidance; such modifications were deemed insignificant. During the assessment phase, the Company identified the complete portfolio of assets subject to the current expected credit loss model. The Company determined the guidance did not have a material

~~Index~~

impact on its results of operations, financial position, cash flows or disclosures and did not record a material cumulative effect adjustment upon adoption. See Note 4 for additional information regarding the Company's expected credit losses.

~~ASU 2018-13 - Changes to the Disclosure Requirements for Fair Value Measurement~~ In August 2018, the FASB issued guidance on modifying the disclosure requirements on fair value measurements as part of the disclosure framework project. The guidance modified, among other things, the disclosures required for Level 3 fair value measurements, including the range and weighted average of significant unobservable inputs. The guidance removed, among other things, the disclosure requirement to disclose transfers between Levels 1 and 2. The Company adopted the guidance on January 1, 2020, and determined the guidance did not have a material impact on its disclosures.

~~Recently issued accounting standards not yet adopted~~

ASU 2018-14 - Changes to the Disclosure Requirements for Defined Benefit Plans In August 2018, the FASB issued guidance on modifying the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans as part of the disclosure framework project. The guidance ~~removes~~removed disclosures that are no longer considered cost beneficial, ~~clarifies~~clarified the specific requirements of disclosures and ~~adds~~added disclosure requirements identified as relevant. The guidance ~~adds,~~added, 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,~~removed, 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~~effect a one percentage point change in assumed health care cost trend rates ~~will~~would have on certain benefit components. The ~~guidance will be effective for~~Company adopted the ~~Company~~guidance on January 1, 2021, ~~and must be applied~~ on a retrospective ~~basis with early adoption permitted.~~basis. The Company ~~is evaluating the effects the adoption of~~determined the new guidance will ~~have on~~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~~removed exceptions on intraperiod tax allocations and reporting and ~~provides~~provided simplification on accounting for franchise taxes, tax basis goodwill and tax law changes. The ~~guidance will be effective for~~Company adopted the ~~Company~~guidance on January 1, 2021, ~~with early adoption permitted. Transition requirements vary among the exceptions~~ and ~~amendments which include retrospective, modified retrospective and prospective application. The Company has evaluated the effects of the new guidance and does~~determined it did not ~~expect the guidance to~~ 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~~applied to certain contract modifications, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. LIBOR is expected to be retired with a full phase-out by the end of 2021 and replaced by a new reference rate, which includes SOFR. The guidance can be applied beginning in the interim period that includes March 12, 2020, and cannot be applied to contract modifications or hedging relationships entered into or evaluated after December 31, 2022. The Company ~~is currently updating~~has updated its credit agreements to include language regarding the successor or alternate rate to ~~LIBOR.~~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 8.9. The Company's trade ~~accounts receivable~~receivables are all due in 12 months or less. The total balance of receivables past due 90 days or more was ~~$48.9~~$34.2 million, ~~$56.0~~$45.1 million and ~~$46.7~~$43.9 million at ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, and December 31, ~~2019,~~2020, respectively.

The Company's expected credit losses are determined through a review using historical credit loss ~~experience,~~experience; changes in asset specific ~~characteristics,~~characteristics; current ~~conditions~~conditions; and reasonable and supportable future forecasts, among other specific account data, and is performed at least quarterly. The Company develops and documents its methodology to determine its allowance for expected credit losses at each of its reportable business segments. Risk characteristics used by the business segments may include customer mix, knowledge of customers, ~~and~~ general economic conditions of the various local economies and impacts of COVID-19, among others. Specific account balances are written off when management determines the amounts to be uncollectible.

~~Index~~

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			Electric		Natural gas distribution		Pipeline		Construction materials and contracting		Construction services		Total
		(In thousands)													(In thousands)
At January 1, 2020		$	328	$	1,056	$	0	$	5,357	$	1,756	$	8,497
At December 31, 2020														At December 31, 2020	$	899	$	2,571	$	2	$	6,164	$	5,722	$	15,358
Current expected credit loss provision	Current expected credit loss provision	555		1,156		0		694		1,150		3,555		Current expected credit loss provision	538		1,273		0		(1,049)		(1,079)		(317)
Less write-offs charged against the allowance	Less write-offs charged against the allowance	500		624		0		68		73		1,265		Less write-offs charged against the allowance	888		1,107		0		273		401		2,669
Credit loss recoveries collected	Credit loss recoveries collected	109		229		0		0		0		338		Credit loss recoveries collected	129		213		0		0		0		342
At March 31, 2020		$	492	$	1,817	$	0	$	5,983	$	2,833	$	11,125
At March 31, 2021														At March 31, 2021	$	678	$	2,950	$	2	$	4,842	$	4,242	$	12,714
Current expected credit loss provision	Current expected credit loss provision	303		190		0		(314)		896		1,075		Current expected credit loss provision	(110)		(103)		0		11		(639)		(841)
Less write-offs charged against the allowance	Less write-offs charged against the allowance	224		677		0		44		454		1,399		Less write-offs charged against the allowance	341		787		0		232		64		1,424
Credit loss recoveries collected	Credit loss recoveries collected	88		201		0		0		0		289		Credit loss recoveries collected	100		199		0		0		0		299
At June 30, 2020		$	659	$	1,531	$	0	$	5,625	$	3,275	$	11,090
Current expected credit loss provision		435		811		2		728		1,635		3,611
Less write-offs charged against the allowance		269		692		0		229		117		1,307
Credit loss recoveries collected		75		203		0		0		0		278
At September 30, 2020		$	900	$	1,853	$	2	$	6,124	$	4,793	$	13,672
At June 30, 2021														At June 30, 2021	$	327	$	2,259	$	2	$	4,621	$	3,539	$	10,748

~~The Company's allowance for doubtful accounts at September 30, 2019 and December 31, 2019, was $8.7 million and $8.5 million, respectively.~~


	Electric		Natural gas distribution		Pipeline		Construction materials and contracting		Construction services		Total
	(In thousands)
At January 1, 2020	$	328	$	1,056	$	0	$	5,357	$	1,756	$	8,497
Current expected credit loss provision	555		1,156		0		694		1,150		3,555
Less write-offs charged against the allowance	500		624		0		68		73		1,265
Credit loss recoveries collected	109		229		0		0		0		338
At March 31, 2020	$	492	$	1,817	$	0	$	5,983	$	2,833	$	11,125
Current expected credit loss provision	303		190		0		(314)		896		1,075
Less write-offs charged against the allowance	224		677		0		44		454		1,399
Credit loss recoveries collected	88		201		0		0		0		289
At June 30, 2020	$	659	$	1,531	$	0	$	5,625	$	3,275	$	11,090

Index

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:


		September 30, 2020		September 30, 2019		December 31, 2019			June 30, 2021		June 30, 2020		December 31, 2020
		(In thousands)							(In thousands)
Aggregates held for resale	Aggregates held for resale	$	168,132	$	143,157	$	147,723	Aggregates held for resale	$	183,977	$	165,357	$	175,782
Asphalt oil	Asphalt oil	27,587		39,269		41,912		Asphalt oil	51,500		57,207		28,238
Materials and supplies	Materials and supplies	26,609		25,696		22,512		Materials and supplies	27,969		27,805		25,142
Merchandise for resale	Merchandise for resale	21,525		23,902		22,232		Merchandise for resale	26,871		22,974		21,087
Natural gas in storage (current)	Natural gas in storage (current)	27,135		32,164		22,058		Natural gas in storage (current)	10,824		11,776		21,919
Other	Other	15,235		21,869		21,970		Other	15,187		17,718		18,999
Total	Total	$	286,223	$	286,057	$	278,407	Total	$	316,328	$	302,837	$	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 ~~$48.3 million, $48.2 million and $48.4~~$47.5 million at ~~September~~June 30, ~~2020 and 2019,~~2021 and December 31, ~~2019, respectively.~~

2020, and $48.3 million at June 30, 2020.

~~Index~~

Note 6 - Earnings per share

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the applicable period. Diluted earnings per share is computed by dividing net income by the total of the weighted average number of shares of common stock outstanding during the applicable period, plus the effect of ~~nonvested~~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				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,									June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(In thousands, except per share amounts)									(In thousands, except per share amounts)
Weighted average common shares outstanding - basic	Weighted average common shares outstanding - basic	200,522		199,343		200,495		198,016		Weighted average common shares outstanding - basic	201,345		200,522		201,028		200,481
Effect of dilutive performance share awards and restricted stock units	Effect of dilutive performance share awards and restricted stock units	97		40		20		17		Effect of dilutive performance share awards and restricted stock units	348		17		300		16
Weighted average common shares outstanding - diluted	Weighted average common shares outstanding - diluted	200,619		199,383		200,515		198,033		Weighted average common shares outstanding - diluted	201,693		200,539		201,328		200,497
Shares excluded from the calculation of diluted earnings per share	Shares excluded from the calculation of diluted earnings per share	87		155		139		243		Shares excluded from the calculation of diluted earnings per share	0		187		0		191
Dividends declared per common share	Dividends declared per common share	$	.2075	$	.2025	$	.6225	$	.6075	Dividends declared per common share	$	.2125	$	.2075	$	.4250	$	.4150

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.

In August 2020, the Company amended the Distribution Agreement dated February 22, 2019, with J.P. Morgan Securities LLC and MUFG Securities Americas Inc., as sales agents. This agreement, as amended, 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. As of June 30, 2021, the Company had capacity to issue up to 4.6 million additional shares of common stock under the "at-the-market" offering program.

Index

Details of the Company's "at-the-market" offering activity was as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
	(In millions)
Shares issued	1.1		0		1.8		0
Net proceeds *	$	34.9	$	0	$	54.6	$	0
Issuance costs	$	.4	$	0	$	.7	$	0

* Net proceeds were used for capital expenditures.

Note 8 - Accumulated other comprehensive ~~income (loss)~~loss

The after-tax changes in the components of accumulated other comprehensive loss were as follows:

Net Unrealized
Gain (Loss) on
Derivative
Instruments
Qualifying as
Hedges Postretirement
Liability
Adjustment Net Unrealized
Gain (Loss) on
Available-for-sale
Investments Total
Accumulated
Other
Comprehensive
Loss
(In thousands)
At December 31, 2019 $ (1,430) $ (40,734) $ 62 $ (42,102)
Other comprehensive income before reclassifications 0 0 135 135
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)
Other comprehensive loss before reclassifications 0 0 (13) (13)
Amounts reclassified from accumulated other comprehensive loss 112 480 7 599
Net current-period other comprehensive income (loss) 112 480 (6) 586
At June 30, 2020 $ (1,207) $ (39,792) $ 190 $ (40,809)
Other comprehensive loss before reclassifications 0 0 (50) (50)
Amounts reclassified from accumulated other comprehensive loss 111 471 28 610
Net current-period other comprehensive income (loss) 111 471 (22) 560
At September 30, 2020 $ (1,096) $ (39,321) $ 168 $ (40,249)


	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	0		0		(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)




Other comprehensive loss before reclassifications	0		0		(52)		(52)
Amounts reclassified from accumulated other comprehensive loss	112		457		25		594
Net current-period other comprehensive income (loss)	112		457		(27)		542
At June 30, 2021	$	(761)	$	(46,284)	$	77	$	(46,968)


	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	0		0		135		135
Amounts reclassified from (to) accumulated other comprehensive loss	111		462		(1)		572
Net current-period other comprehensive income	111		462		134		707
At March 31, 2020	$	(1,319)	$	(40,272)	$	196	$	(41,395)




Other comprehensive loss before reclassifications	0		0		(13)		(13)
Amounts reclassified from accumulated other comprehensive loss	112		480		7		599
Net current-period other comprehensive income (loss)	112		480		(6)		586
At June 30, 2020	$	(1,207)	$	(39,792)	$	190	$	(40,809)

1514

Index

Net Unrealized
Gain (Loss) on
Derivative
Instruments
Qualifying as
Hedges Postretirement
Liability
Adjustment Net Unrealized
Gain (Loss) on
Available-for-sale
Investments Total
Accumulated
Other
Comprehensive
Loss
(In thousands)
At December 31, 2018 $ (2,161) $ (36,069) $ (112) $ (38,342)
Other comprehensive income before reclassifications 0 0 39 39
Amounts reclassified from accumulated other comprehensive loss 397 310 28 735
Net current-period other comprehensive income 397 310 67 774
At March 31, 2019 $ (1,764) $ (35,759) $ (45) $ (37,568)
Other comprehensive income before reclassifications 0 0 79 79
Amounts reclassified from accumulated other comprehensive loss 111 276 12 399
Net current-period other comprehensive income 111 276 91 478
At June 30, 2019 $ (1,653) $ (35,483) $ 46 $ (37,090)
Other comprehensive income before reclassifications 0 0 12 12
Amounts reclassified (to) from accumulated other comprehensive loss 112 292 (4) 400
Net current-period other comprehensive income 112 292 8 412
At September 30, 2019 $ (1,541) $ (35,191) $ 54 $ (36,678)

The following amounts were reclassified ~~between~~out of accumulated other comprehensive loss ~~and~~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				Nine Months Ended				Location on Consolidated Statements of Income		Three Months Ended				Six Months Ended				Location on Consolidated Statements of Income
		September 30,										June 30,
		2020		2019		2020		2019				2021		2020		2021		2020
		(In thousands)										(In thousands)
Reclassification adjustment for loss on derivative instruments included in net income	Reclassification adjustment for loss on derivative instruments included in net income	$	(148)	$	(148)	$	(443)	$	(443)	Interest expense	Reclassification adjustment for loss on derivative instruments included in net income	$	(148)	$	(148)	$	(296)	$	(295)	Interest expense
		37		36		109		(177)		Income taxes		36		36		73		72		Income taxes
		(111)		(112)		(334)		(620)				(112)		(112)		(223)		(223)
Amortization of postretirement liability losses included in net periodic benefit cost	Amortization of postretirement liability losses included in net periodic benefit cost	(623)		(387)		(1,869)		(1,162)		Other income	Amortization of postretirement liability losses included in net periodic benefit cost	(617)		(635)		(1,234)		(1,246)		Other income
		152		95		456		284		Income taxes		160		155		311		304		Income taxes
		(471)		(292)		(1,413)		(878)				(457)		(480)		(923)		(942)
Reclassification adjustment on available-for-sale investments included in net income	Reclassification adjustment on available-for-sale investments included in net income	(35)		5		(43)		(46)		Other income	Reclassification adjustment on available-for-sale investments included in net income	(31)		(9)		(75)		(8)		Other income
		7		(1)		9		10		Income taxes		6		2		15		2		Income taxes
		(28)		4		(34)		(36)				(25)		(7)		(60)		(6)
Total reclassifications	Total reclassifications	$	(610)	$	(400)	$	(1,781)	$	(1,534)		Total reclassifications	$	(594)	$	(599)	$	(1,206)	$	(1,171)

Note 89 - 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 ~~16.~~17.


Three Months Ended June 30, 2021	Electric		Natural gas distribution		Pipeline		Construction materials and contracting		Construction services		Other		Total
	(In thousands)
Residential utility sales	$	29,258	$	83,480	$	—	$	—	$	—	$	—	$	112,738
Commercial utility sales	33,834		47,612		—		—		—		—		81,446
Industrial utility sales	10,354		6,180		—		—		—		—		16,534
Other utility sales	1,825		0		—		—		—		—		1,825
Natural gas transportation	—		11,451		27,685		—		—		—		39,136
Natural gas storage	—		—		3,094		—		—		—		3,094
Contracting services	—		—		—		280,834		—		—		280,834
Construction materials	—		—		—		498,762		—		—		498,762
Intrasegment eliminations	—		—		—		(145,780)		—		—		(145,780)
Inside specialty contracting	—		—		—		—		347,702		—		347,702
Outside specialty contracting	—		—		—		—		165,123		—		165,123
Other	9,465		2,794		4,810		0		57		3,389		20,515
Intersegment eliminations	(136)		(142)		(7,862)		(142)		(797)		(3,361)		(12,440)
Revenues from contracts with customers	84,600		151,375		27,727		633,674		512,085		28		1,409,489
Revenues out of scope	(950)		2,413		46		0		12,659		0		14,168
Total external operating revenues	$	83,650	$	153,788	$	27,773	$	633,674	$	524,744	$	28	$	1,423,657

Index


Three Months Ended June 30, 2020	Electric		Natural gas distribution		Pipeline		Construction materials and contracting		Construction services		Other		Total
	(In thousands)
Residential utility sales	$	27,954	$	78,653	$	—	$	—	$	—	$	—	$	106,607
Commercial utility sales	29,877		41,027		—		—		—		—		70,904
Industrial utility sales	8,072		5,658		—		—		—		—		13,730
Other utility sales	1,591		0		—		—		—		—		1,591
Natural gas transportation	—		10,350		27,965		—		—		—		38,315
Natural gas gathering	—		—		1,181		—		—		—		1,181
Natural gas storage	—		—		3,104		—		—		—		3,104
Contracting services	—		—		—		303,356		—		—		303,356
Construction materials	—		—		—		482,498		—		—		482,498
Intrasegment eliminations	—		—		—		(164,719)		—		—		(164,719)
Inside specialty contracting	—		—		—		—		324,921		—		324,921
Outside specialty contracting	—		—		—		—		160,696		—		160,696
Other	7,717		2,711		3,363		0		412		2,861		17,064
Intersegment eliminations	(196)		(185)		(7,999)		(90)		(779)		(2,973)		(12,222)
Revenues from contracts with customers	75,015		138,214		27,614		621,045		485,250		(112)		1,347,026
Revenues out of scope	1,423		3,280		44		0		11,155		0		15,902
Total external operating revenues	$	76,438	$	141,494	$	27,658	$	621,045	$	496,405	$	(112)	$	1,362,928



Six Months Ended June 30, 2021	Electric		Natural gas distribution		Pipeline		Construction materials and contracting		Construction services		Other		Total
	(In thousands)
Residential utility sales	$	62,694	$	286,617	$	—	$	—	$	—	$	—	$	349,311
Commercial utility sales	66,762		167,664		—		—		—		—		234,426
Industrial utility sales	20,383		14,992		—		—		—		—		35,375
Other utility sales	3,391		0		—		—		—		—		3,391
Natural gas transportation	—		23,903		57,102		—		—		—		81,005
Natural gas storage	—		—		7,123		—		—		—		7,123
Contracting services	—		—		—		376,859		—		—		376,859
Construction materials	—		—		—		715,174		—		—		715,174
Intrasegment eliminations	—		—		—		(192,496)		—		—		(192,496)
Inside specialty contracting	—		—		—		—		702,892		—		702,892
Outside specialty contracting	—		—		—		—		316,486		—		316,486
Other	19,238		5,803		7,470		0		93		6,730		39,334
Intersegment eliminations	(271)		(284)		(34,092)		(204)		(1,839)		(6,685)		(43,375)
Revenues from contracts with customers	172,197		498,695		37,603		899,333		1,017,632		45		2,625,505
Revenues out of scope	(3,873)		5,299		82		0		24,582		0		26,090
Total external operating revenues	$	168,324	$	503,994	$	37,685	$	899,333	$	1,042,214	$	45	$	2,651,595

Index

Three Months Ended September 30, 2020 Electric Natural gas
distribution Pipeline Construction
materials and
contracting Construction
services Other Total
(In thousands)
Residential utility sales $ 33,086 $ 48,399 $ — $ — $ — $ — $ 81,485
Commercial utility sales 35,688 28,731 — — — — 64,419
Industrial utility sales 8,428 4,454 — — — — 12,882
Other utility sales 1,779 0 — — — — 1,779
Natural gas transportation — 11,159 27,583 — — — 38,742
Natural gas gathering — — 973 — — — 973
Natural gas storage — — 3,885 — — — 3,885
Contracting services — — — 448,569 — — 448,569
Construction materials — — — 608,673 — — 608,673
Intrasegment eliminations — — — (234,693) — — (234,693)
Inside specialty contracting — — — — 352,845 — 352,845
Outside specialty contracting — — — — 187,202 — 187,202
Other 7,663 2,590 3,203 0 486 3,030 16,972
Intersegment eliminations (195) (185) (3,622) (110) (425) (3,006) (7,543)
Revenues from contracts with customers 86,449 95,148 32,022 822,439 540,108 24 1,576,190
Revenues out of scope 998 (445) 46 0 10,500 0 11,099
Total external operating revenues $ 87,447 $ 94,703 $ 32,068 $ 822,439 $ 550,608 $ 24 $ 1,587,289

Three Months Ended September 30, 2019 Electric Natural gas
distribution Pipeline Construction
materials and
contracting Construction
services Other Total
(In thousands)
Residential utility sales $ 30,376 $ 44,902 $ — $ — $ — $ — $ 75,278
Commercial utility sales 36,670 29,148 — — — — 65,818
Industrial utility sales 9,348 4,307 — — — — 13,655
Other utility sales 1,862 0 — — — — 1,862
Natural gas transportation — 11,410 25,229 — — — 36,639
Natural gas gathering — — 2,510 — — — 2,510
Natural gas storage — — 3,044 — — — 3,044
Contracting services — — — 461,716 — — 461,716
Construction materials — — — 638,862 — — 638,862
Intrasegment eliminations — — — (231,078) — — (231,078)
Inside specialty contracting — — — — 317,202 — 317,202
Outside specialty contracting — — — — 151,285 — 151,285
Other 9,380 2,708 5,534 0 45 2,884 20,551
Intersegment eliminations 0 0 (3,831) (124) (1,226) (2,862) (8,043)
Revenues from contracts with customers 87,636 92,475 32,486 869,376 467,306 22 1,549,301
Revenues out of scope 2,209 1,167 47 0 11,075 0 14,498
Total external operating revenues $ 89,845 $ 93,642 $ 32,533 $ 869,376 $ 478,381 $ 22 $ 1,563,799

~~Index~~

Nine Months Ended September 30, 2020 Electric Natural gas
distribution Pipeline Construction
materials and
contracting Construction
services Other Total
(In thousands)
Residential utility sales $ 93,389 $ 313,753 $ — $ — $ — $ — $ 407,142
Commercial utility sales 99,152 184,754 — — — — 283,906
Industrial utility sales 26,867 18,633 — — — — 45,500
Other utility sales 5,018 0 — — — — 5,018
Natural gas transportation — 33,307 82,980 — — — 116,287
Natural gas gathering — — 4,244 — — — 4,244
Natural gas storage — — 10,035 — — — 10,035
Contracting services — — — 850,326 — — 850,326
Construction materials — — — 1,299,081 — — 1,299,081
Intrasegment eliminations — — — (443,516) — — (443,516)
Inside specialty contracting — — — — 1,049,975 — 1,049,975
Outside specialty contracting — — — — 478,047 — 478,047
Other 23,830 7,800 9,807 0 1,249 8,882 51,568
Intersegment eliminations (586) (555) (36,820) (262) (3,674) (8,952) (50,849)
Revenues from contracts with customers 247,670 557,692 70,246 1,705,629 1,525,597 (70) 4,106,764
Revenues out of scope 2,123 4,949 135 0 33,620 0 40,827
Total external operating revenues $ 249,793 $ 562,641 $ 70,381 $ 1,705,629 $ 1,559,217 $ (70) $ 4,147,591


Nine Months Ended September 30, 2019		Electric		Natural gas distribution		Pipeline		Construction materials and contracting		Construction services		Other		Total
Six Months Ended June 30, 2020																Six Months Ended June 30, 2020	Electric		Natural gas distribution		Pipeline		Construction materials and contracting		Construction services		Other		Total
		(In thousands)															(In thousands)
Residential utility sales	Residential utility sales	$	93,368	$	316,521	$	—	$	—	$	—	$	—	$	409,889	Residential utility sales	$	60,303	$	265,354	$	—	$	—	$	—	$	—	$	325,657
Commercial utility sales	Commercial utility sales	105,572		192,191		—		—		—		—		297,763		Commercial utility sales	63,464		156,023		—		—		—		—		219,487
Industrial utility sales	Industrial utility sales	27,576		18,495		—		—		—		—		46,071		Industrial utility sales	18,439		14,179		—		—		—		—		32,618
Other utility sales	Other utility sales	5,540		0		—		—		—		—		5,540		Other utility sales	3,239		0		—		—		—		—		3,239
Natural gas transportation	Natural gas transportation	—		33,686		75,091		—		—		—		108,777		Natural gas transportation	—		22,148		55,397		—		—		—		77,545
Natural gas gathering	Natural gas gathering	—		—		7,027		—		—		—		7,027		Natural gas gathering	—		—		3,271		—		—		—		3,271
Natural gas storage	Natural gas storage	—		—		8,313		—		—		—		8,313		Natural gas storage	—		—		6,150		—		—		—		6,150
Contracting services	Contracting services	—		—		—		841,881		—		—		841,881		Contracting services	—		—		—		401,757		—		—		401,757
Construction materials	Construction materials	—		—		—		1,262,938		—		—		1,262,938		Construction materials	—		—		—		690,408		—		—		690,408
Intrasegment eliminations	Intrasegment eliminations	—		—		—		(412,144)		—		—		(412,144)		Intrasegment eliminations	—		—		—		(208,823)		—		—		(208,823)
Inside specialty contracting	Inside specialty contracting	—		—		—		—		936,008		—		936,008		Inside specialty contracting	—		—		—		—		697,130		—		697,130
Outside specialty contracting	Outside specialty contracting	—		—		—		—		391,971		—		391,971		Outside specialty contracting	—		—		—		—		290,846		—		290,846
Other	Other	26,918		9,544		14,523		0		70		13,631		64,686		Other	16,167		5,209		6,604		0		763		5,852		34,595
Intersegment eliminations	Intersegment eliminations	0		0		(35,298)		(388)		(2,076)		(13,566)		(51,328)		Intersegment eliminations	(391)		(370)		(33,198)		(152)		(3,249)		(5,946)		(43,306)
Revenues from contracts with customers	Revenues from contracts with customers	258,974		570,437		69,656		1,692,287		1,325,973		65		3,917,392		Revenues from contracts with customers	161,221		462,543		38,224		883,190		985,490		(94)		2,530,574
Revenues out of scope	Revenues out of scope	4,449		(781)		171		0		37,332		0		41,171		Revenues out of scope	1,125		5,394		89		0		23,120		0		29,728
Total external operating revenues	Total external operating revenues	$	263,423	$	569,656	$	69,827	$	1,692,287	$	1,363,305	$	65	$	3,958,563	Total external operating revenues	$	162,346	$	467,937	$	38,313	$	883,190	$	1,008,610	$	(94)	$	2,560,302

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.

~~Index~~

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:


		September 30, 2020		December 31, 2019		Change		Location on Consolidated Balance Sheets		June 30, 2021		December 31, 2020		Change		Location on Consolidated Balance Sheets
		(In thousands)								(In thousands)
Contract assets	Contract assets	$	135,958	$	109,078	$	26,880	Receivables, net	Contract assets	$	147,033	$	104,345	$	42,688	Receivables, net
Contract liabilities - current	Contract liabilities - current	(158,923)		(142,768)		(16,155)		Accounts payable	Contract liabilities - current	(146,116)		(158,603)		12,487		Accounts payable
Contract liabilities - noncurrent	Contract liabilities - noncurrent	(62)		(19)		(43)		Noncurrent liabilities - other	Contract liabilities - noncurrent	(160)		(52)		(108)		Noncurrent liabilities - other
Net contract liabilities		$	(23,027)	$	(33,709)	$	10,682
Net contract assets (liabilities)									Net contract assets (liabilities)	$	757	$	(54,310)	$	55,067

The Company recognized ~~$15.6~~$21.9 million and ~~$137.3~~$145.3 million in revenue for the three and ~~nine~~six months ended ~~September~~June 30, 2021, respectively, which was previously included in contract liabilities at December 31, 2020. The Company recognized $32.3 million and $121.7 million in revenue for the three and six months ended June 30, 2020, respectively, which was previously included in contract liabilities at December 31, 2019. The Company recognized $7.5 million and $86.5 million in revenue for the three and nine months ended September 30, 2019, respectively, which was previously included in contract liabilities at December 31, 2018.

The Company recognized a net increase in revenues of ~~$34.7~~$27.3 million and ~~$58.8~~$54.6 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, from performance obligations satisfied in prior periods. The Company recognized a net increase in revenues of ~~$21.8~~$31.9 million and ~~$40.3~~$42.9 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively, from performance obligations satisfied in prior periods.

Index

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 ~~two~~one years, respectively.

At ~~September~~June 30, ~~2020,~~2021, the Company's remaining performance obligations were ~~$2.0~~$2.4 billion. The Company expects to recognize the following revenue amounts in future periods related to these remaining performance obligations: ~~$1.5~~$1.8 billion within the next 12 months or less; ~~$265.6~~$339.5 million within the next 13 to 24 months; and ~~$260.6~~$225.9 million in 25 months or more.

Note 910 - 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.

For all business combinations, the Company preliminarily allocates the purchase price of the acquisitions to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition dates and are considered provisional until final fair values are determined or the measurement period has passed. The Company expects to record adjustments as it accumulates the information needed to estimate the fair value of assets acquired and liabilities assumed, including working capital balances; identifiable intangible assets; property, plant and equipment; total consideration and goodwill. The excess of the purchase price over the aggregate fair values is recorded as goodwill. The Company calculated the fair value of the assets acquired in 2020 and 2019 using a market or cost approach (or a combination of both). Fair values for some of the assets were determined based on Level 3 inputs including estimated future cash flows, discount rates, growth rates, sales projections, retention rates and terminal

~~Index~~

values, all of which require significant management judgment and are susceptible to change. The final fair value of the net assets acquired may result in adjustments to the assets and liabilities, including goodwill, and will be made as soon as practical, but no later than 12 months from the respective acquisition dates. Any subsequent measurement period adjustments are not expected to have a material impact on the Company's 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.

~~The following are the acquisitions made during~~In 2021 and 2020, ~~and 2019 at~~ the construction materials and contracting ~~segment:~~segment's acquisitions included:

•Mt. Hood Rock, a construction aggregates business in Oregon, was acquired in April 2021. At June 30, 2021, the purchase price allocation was preliminary and will be finalized within 12 months of the acquisition date.

•The assets of McMurry Ready-Mix Co., an aggregates and concrete supplier in Wyoming, were acquired in December 2020. At June 30, 2021, the purchase price allocation was preliminary and will be finalized within 12 months of the acquisition date. In ~~February 2020,~~the second quarter of 2021, the Company ~~acquired~~made a purchase price adjustment, which was not material, to the provisional accounting and is reflected in the 2021 allocated amounts below.

•The assets of Oldcastle Infrastructure Spokane, a prestressed-concrete business in ~~Washington.~~Washington, were acquired in February 2020. As of December 31, 2020, the purchase price adjustments had been settled with no material adjustments to the provisional accounting.

•~~In December 2019, the Company acquired the assets of Roadrunner Ready Mix, Inc., a provider of ready-mixed concrete in Idaho.~~

•~~In March 2019, the Company acquired Viesko Redi-Mix, Inc., a provider of ready-mixed concrete in Oregon.~~

~~The following are the acquisitions made during 2020 and 2019 at the construction services segment:~~

•In February 2020, the ~~Company~~construction services segment acquired PerLectric, Inc., an electrical construction company in Virginia. As of March 31, 2021, the purchase price adjustments had been settled with no material adjustments to the provisional accounting.

•In ~~September 2019,~~2021, the ~~Company purchased the assets of Pride Electric, Inc., an electrical construction company in Washington.~~

~~The~~ total purchase price for acquisitions ~~that occurred in~~was $13.8 million, subject to certain adjustments, with cash acquired totaling $100,000. The purchase price includes consideration paid of $13.7 million. The amounts allocated to the aggregated assets acquired and liabilities assumed during 2021 were as follows: $700,000 to current assets; $13.0 million to property, plant and equipment; $2.9 million to goodwill; $600,000 to other intangible assets; $200,000 to current liabilities; $100,000 to noncurrent liabilities and $3.2 million to deferred tax liabilities. The Company issued debt to finance the acquisitions.

In 2020, the total purchase price for acquisitions was ~~$78.2~~$110.2 million, subject to certain adjustments, with cash acquired totaling $1.7 million. The purchase price includes consideration paid of ~~$71.5~~$106.0 million and ~~$5.0~~$2.5 million of indemnity holdback liabilities. The amounts allocated to the aggregated assets acquired and liabilities assumed during 2020 were as follows: ~~$45.9~~$54.8 million to current assets; ~~$4.9~~$27.1 million to property, plant and equipment; ~~$31.3~~$33.6 million to goodwill; ~~$17.6~~$19.0 million to other intangible assets; ~~$21.2~~$22.6 million to current ~~liabilities and~~liabilities; $300,000 to noncurrent ~~liabilities. During 2020, measurement period adjustments were made~~liabilities - other and $1.4 million to previously reported provisional amounts, which increased goodwill by $400,000. At September 30, 2020, the purchase price allocations for these acquisitions were preliminary and will be finalized within 12 months of the respective acquisition dates.asset retirement obligations. The Company issued debt to finance ~~these acquisitions.~~

~~In 2019,~~ the gross aggregate consideration for acquisitions was $56.8 million, subject to certain adjustments, and included $1.2 million of debt assumed. The amounts allocated to the aggregated assets acquired and liabilities assumed during 2019 were as follows: $15.8 million to current assets; $16.7 million to property, plant and equipment; $23.1 million to goodwill; $6.7 million to other intangible assets; $500,000 to other noncurrent assets; $5.9 million to current liabilities and $100,000 to noncurrent liabilities. At December 31, 2019, the purchase price adjustments for Viesko Redi-Mix, Inc. had been settled and no material adjustments were made to the provisional accounting. At September 30, 2020, the measurement period for Pride Electric, Inc. ended with no material adjustments made to the provisional accounting. At September 30, 2020, the purchase price allocation for Roadrunner Ready Mix, Inc. was preliminary and will be finalized within 12 months of the acquisition date. The Company issued debt and equity securities 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 ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020.

Index

Note 1011 - 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 ~~$10.7~~$12.8 million and ~~$34.0~~$24.8 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively. The Company recognized revenue from operating leases of $11.2 million and ~~$37.7~~$23.3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively. At ~~September~~June 30, ~~2020,~~2021, the Company had ~~$8.4~~$9.8 million of lease receivables with a majority due within 12 months.

~~Index~~

Note 1112 - Goodwill and other intangible assets

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


		Balance at January 1, 2020		Goodwill Acquired During the Year		Measurement Period Adjustments		Balance at September 30, 2020			Balance at January 1, 2021		Goodwill Acquired During the Year		Measurement Period Adjustments		Balance at June 30, 2021
		(In thousands)									(In thousands)
Natural gas distribution	Natural gas distribution	$	345,736	$	0	$	0	$	345,736	Natural gas distribution	$	345,736	$	0	$	0	$	345,736
Construction materials and contracting	Construction materials and contracting	217,234		6,483		0		223,717		Construction materials and contracting	226,003		2,900		0		228,903
Construction services	Construction services	118,388		24,436		400		143,224		Construction services	143,224		0		0		143,224
Total	Total	$	681,358	$	30,919	$	400	$	712,677	Total	$	714,963	$	2,900	$	0	$	717,863


		Balance at January 1, 2019		Goodwill Acquired During the Year		Measurement Period Adjustments		Balance at September 30, 2019			Balance at January 1, 2020		Goodwill Acquired During the Year		Measurement Period Adjustments		Balance at June 30, 2020
		(In thousands)									(In thousands)
Natural gas distribution	Natural gas distribution	$	345,736	$	0	$	0	$	345,736	Natural gas distribution	$	345,736	$	0	$	0	$	345,736
Construction materials and contracting	Construction materials and contracting	209,421		14,473		(6,669)		217,225		Construction materials and contracting	217,234		6,483		0		223,717
Construction services	Construction services	109,765		8,623		0		118,388		Construction services	118,388		24,436		(3,613)		139,211
Total	Total	$	664,922	$	23,096	$	(6,669)	$	681,349	Total	$	681,358	$	30,919	$	(3,613)	$	708,664


		Balance at January 1, 2019		Goodwill Acquired During the Year		Measurement Period Adjustments		Balance at December 31, 2019			Balance at January 1, 2020		Goodwill Acquired During the Year		Measurement Period Adjustments		Balance at December 31, 2020
		(In thousands)									(In thousands)
Natural gas distribution	Natural gas distribution	$	345,736	$	0	$	0	$	345,736	Natural gas distribution	$	345,736	$	0	$	0	$	345,736
Construction materials and contracting	Construction materials and contracting	209,421		14,482		(6,669)		217,234		Construction materials and contracting	217,234		8,778		(9)		226,003
Construction services	Construction services	109,765		8,623		0		118,388		Construction services	118,388		24,436		400		143,224
Total	Total	$	664,922	$	23,105	$	(6,669)	$	681,358	Total	$	681,358	$	33,214	$	391	$	714,963

Other amortizable intangible assets were as follows:


		September 30, 2020		September 30, 2019		December 31, 2019			June 30, 2021		June 30, 2020		December 31, 2020
		(In thousands)							(In thousands)
Customer relationships	Customer relationships	$	27,551	$	18,011	$	17,958	Customer relationships	$	29,423	$	30,087	$	28,836
Less accumulated amortization	Less accumulated amortization	5,958		5,823		6,268		Less accumulated amortization	8,765		5,239		6,887
		21,593		12,188		11,690			20,658		24,848		21,949
Noncompete agreements	Noncompete agreements	3,941		3,419		3,439		Noncompete agreements	3,991		4,229		3,941
Less accumulated amortization	Less accumulated amortization	2,176		1,868		1,957		Less accumulated amortization	2,576		2,084		2,309
		1,765		1,551		1,482			1,415		2,145		1,632
Other	Other	12,853		7,488		8,094		Other	11,957		13,060		12,927
Less accumulated amortization	Less accumulated amortization	9,835		5,716		6,020		Less accumulated amortization	10,629		8,538		11,012
		3,018		1,772		2,074			1,328		4,522		1,915
Total	Total	$	26,376	$	15,511	$	15,246	Total	$	23,401	$	31,515	$	25,496

The previous tables include goodwill and intangible assets associated with the business combinations completed during ~~2020~~2021 and ~~2019.~~2020. For more information related to these business combinations, see Note 9.10.

2119

Index

Amortization expense for amortizable intangible assets for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, was ~~$2.1~~$1.2 million and ~~$6.8~~$2.7 million, respectively. Amortization expense for amortizable intangible assets for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, was ~~$500,000~~$2.7 million and ~~$1.6~~$4.7 million, respectively. Estimated amortization expense for identifiable intangible assets as of ~~September~~June 30, ~~2020,~~2021, was:

Remainder of
2020 2021 2022 2023 2024 Thereafter
(In thousands)
Amortization expense $ 2,462 $ 4,579 $ 4,108 $ 3,975 $ 3,653 $ 7,599


	Remainder of 2021		2022		2023		2024		2025		Thereafter
	(In thousands)
Amortization expense	$	2,381	$	4,678	$	4,329	$	3,957	$	2,060	$	5,996

Note 1213 - Regulatory assets and liabilities

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


		Estimated Recovery Period as of September 30, 2020	*	September 30, 2020		September 30, 2019		December 31, 2019			Estimated Recovery or Refund Period as of June 30, 2021	*	June 30, 2021		June 30, 2020		December 31, 2020
				(In thousands)							(In thousands)
Regulatory assets:	Regulatory assets:									Regulatory assets:
Current:	Current:									Current:
Natural gas costs recoverable through rate adjustments	Natural gas costs recoverable through rate adjustments	Up to 1 year		$	48,478	$	39,383	$	42,823	Natural gas costs recoverable through rate adjustments	Up to 1 year		$	85,045	$	42,582	$	42,481
Conservation programs										Conservation programs	Up to 1 year		7,580		7,256		7,117
Cost recovery mechanisms	Cost recovery mechanisms	Up to 1 year		8,177		8,706		6,288		Cost recovery mechanisms	Up to 1 year		5,692		7,781		10,645
Conservation programs		Up to 1 year		7,857		7,776		6,963
Other	Other	Up to 1 year		14,613		13,316		7,539		Other	Up to 1 year		11,264		2,938		8,284
				79,125		69,181		63,613					109,581		60,557		68,527
Noncurrent:	Noncurrent:									Noncurrent:
Pension and postretirement benefits	Pension and postretirement benefits	**		157,015		165,843		157,069		Pension and postretirement benefits	**		155,906		157,033		155,942
Asset retirement obligations		Over plant lives		68,815		64,771		66,000
Plant to be retired		-		57,499		26,152		32,931
Plant costs/asset retirement obligations										Plant costs/asset retirement obligations	Over plant lives		72,853		68,191		71,740
Plant retirement										Plant retirement	-		46,061		49,185		65,919
Cost recovery mechanisms										Cost recovery mechanisms	Up to 10 years		44,415		13,140		16,245
Manufactured gas plant site remediation	Manufactured gas plant site remediation	-		25,964		15,510		15,126		Manufactured gas plant site remediation	-		26,155		14,826		26,429
Taxes recoverable from customers										Taxes recoverable from customers	Over plant lives		10,929		10,890		10,785
Natural gas costs recoverable through rate adjustments	Natural gas costs recoverable through rate adjustments	Up to 3 years		24,677		53,618		46,381		Natural gas costs recoverable through rate adjustments	Up to 3 years		8,389		27,184		21,539
Cost recovery mechanisms		Up to 10 years		14,281		12,206		13,108
Taxes recoverable from customers		Over plant lives		10,847		11,600		11,486
Long-term debt refinancing costs	Long-term debt refinancing costs	Up to 17 years		3,826		4,439		4,286		Long-term debt refinancing costs	Up to 39 years		4,110		3,980		4,426
Other	Other	Up to 19 years		6,840		8,660		7,397		Other	Up to 18 years		8,095		6,596		6,356
				369,764		362,799		353,784					376,913		351,025		379,381
Total regulatory assets	Total regulatory assets			$	448,889	$	431,980	$	417,397	Total regulatory assets			$	486,494	$	411,582	$	447,908
Regulatory liabilities:	Regulatory liabilities:									Regulatory liabilities:
Current:	Current:									Current:
Natural gas costs refundable through rate adjustments	Natural gas costs refundable through rate adjustments			$	20,556	$	19,194	$	23,825	Natural gas costs refundable through rate adjustments	Up to 1 year		$	8,935	$	29,557	$	18,565
Electric fuel and purchased power deferral	Electric fuel and purchased power deferral			6,171		2,040		5,824		Electric fuel and purchased power deferral	Up to 1 year		5,431		7,799		3,667
Taxes refundable to customers	Taxes refundable to customers			4,223		4,309		3,472		Taxes refundable to customers	Up to 1 year		3,434		4,012		3,557
Other	Other			8,887		11,402		9,814		Other	Up to 1 year		5,654		6,632		5,661
				39,837		36,945		42,935					23,454		48,000		31,450
Noncurrent:	Noncurrent:									Noncurrent:
Taxes refundable to customers	Taxes refundable to customers			232,186		253,703		246,034		Taxes refundable to customers	Over plant lives		222,098		236,142		227,850
Plant removal and decommissioning costs	Plant removal and decommissioning costs			173,367		174,595		173,722		Plant removal and decommissioning costs	Over plant lives		171,381		173,399		167,171
Pension and postretirement benefits	Pension and postretirement benefits			17,991		15,190		18,065		Pension and postretirement benefits	**		16,940		18,015		16,989
Other	Other			11,392		10,272		9,549		Other	Up to 21 years		18,048		11,096		16,065
				434,936		453,760		447,370					428,467		438,652		428,075
Total regulatory liabilities	Total regulatory liabilities			$	474,773	$	490,705	$	490,305	Total regulatory liabilities			$	451,921	$	486,652	$	459,525
Net regulatory position	Net regulatory position			$	(25,884)	$	(58,725)	$	(72,908)	Net regulatory position			$	34,573	$	(75,070)	$	(11,617)

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

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

At ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, and December 31, ~~2019,~~2020, approximately ~~$318.2~~$317.0 million, ~~$278.6~~$296.6 million and ~~$276.5~~$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,

2220

Index

asset retirement obligations, accelerated depreciation on plant retirement 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. These extraordinary gas costs were recorded as regulatory assets as they are expected to be recovered from customers. The Company has filed out-of-cycle purchased gas adjustment requests in four out of five jurisdictions affected by this cold-weather event and has received approval in three jurisdictions. The Company will continue to engage with its regulators to determine the appropriate recovery periods over which to recover the associated natural gas costs. For a discussion of the Company's most recent cases by jurisdiction, see Note 19.

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 ~~that it intends to retire one~~the retirement of three aging coal-fired electric generating ~~unit in early 2021 and two units in early 2022.~~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 in the second quarter of 2021, the Company began amortizing plant retirement and closure costs related to this facility. 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. In the second quarter of 2021, the Company moved the costs being recovered for this facility from plant retirement to cost recovery mechanisms in the previous table. The remaining two units are expected to be retired in early 2022. The Company expects to recover the regulatory assets related to the ~~plants to be retired~~plant retirements in future rates. For a discussion of the Company's most recent cases by jurisdiction, see Note 19.

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 1314 - 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 an insurance ~~contract,~~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 ~~$95.7~~$105.7 million, ~~$84.2~~$92.4 million and ~~$87.0~~$100.1 million, at ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, and December 31, ~~2019,~~2020, respectively, are classified as investments on the Consolidated Balance Sheets. The net unrealized gains on these investments were ~~$3.3~~$3.8 million and ~~$8.7~~$3.9 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively. The net unrealized gains on these investments were ~~$1.1~~$9.1 million and ~~$10.4~~$5.4 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively. 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:


September 30, 2020		Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2021										June 30, 2021	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
		(In thousands)									(In thousands)
Mortgage-backed securities	Mortgage-backed securities	$	9,813	$	213	$	4	$	10,022	Mortgage-backed securities	$	8,278	$	127	$	9	$	8,396
U.S. Treasury securities	U.S. Treasury securities	1,166		3		0		1,169		U.S. Treasury securities	2,893		0		21		2,872
Total	Total	$	10,979	$	216	$	4	$	11,191	Total	$	11,171	$	127	$	30	$	11,268


September 30, 2019		Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2020										June 30, 2020	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
		(In thousands)									(In thousands)
Mortgage-backed securities	Mortgage-backed securities	$	9,577	$	86	$	16	$	9,647	Mortgage-backed securities	$	9,812	$	239	$	6	$	10,045
U.S. Treasury securities	U.S. Treasury securities	1,258		0		1		1,257		U.S. Treasury securities	1,170		7		0		1,177
Total	Total	$	10,835	$	86	$	17	$	10,904	Total	$	10,982	$	246	$	6	$	11,222

December 31, 2019 Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value
(In thousands)
Mortgage-backed securities $ 9,804 $ 87 $ 10 $ 9,881
U.S. Treasury securities 1,228 1 0 1,229
Total $ 11,032 $ 88 $ 10 $ 11,110

Index


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		0		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 ~~Level 2~~ 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 ~~Level 2~~ mortgage-backed securities and U.S. Treasury securities are based on comparable market transactions, other observable inputs or other sources, including pricing

~~Index~~

from outside sources. The estimated fair value of the Company's ~~Level 2~~ insurance ~~contract is~~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 September 30, 2020, Using									Fair Value Measurements at June 30, 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 September 30, 2020			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at June 30, 2021
		(In thousands)									(In thousands)
Assets:	Assets:									Assets:
Money market funds	Money market funds	$	—	$	8,478	$	—	$	8,478	Money market funds	$	—	$	12,234	$	—	$	12,234
Insurance contract*		—		95,687		—		95,687
Insurance contracts*										Insurance contracts*	—		105,684				105,684
Available-for-sale securities:	Available-for-sale securities:									Available-for-sale securities:
Mortgage-backed securities	Mortgage-backed securities	—		10,022		—		10,022		Mortgage-backed securities	—		8,396		—		8,396
U.S. Treasury securities	U.S. Treasury securities	—		1,169		—		1,169		U.S. Treasury securities	—		2,872		—		2,872

Total assets measured at fair value	Total assets measured at fair value	$	—	$	115,356	$	—	$	115,356	Total assets measured at fair value	$	—	$	129,186	$	—	$	129,186

* The insurance ~~contract invests~~contracts invest approximately 6853 percent in fixed-income investments, 1520 percent in common stock of large-cap companies, 610 percent in common stock of mid-cap companies, 69 percent in common stock of small-cap companies, ~~4 percent in target date investments and 1 percent in cash equivalents.~~

Fair Value Measurements at September 30, 2019, Using
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Balance at September 30, 2019
(In thousands)
Assets:
Money market funds $ — $ 7,472 $ — $ 7,472
Insurance contract* — 84,222 — 84,222
Available-for-sale securities:
Mortgage-backed securities — 9,647 — 9,647
U.S. Treasury securities — 1,257 — 1,257
Total assets measured at fair value $ — $ 102,598 $ — $ 102,598

* The insurance contract invests approximately 53 percent in fixed-income investments, 21 percent in common stock of large-cap companies, 11 percent in common stock of mid-cap companies, 10 percent in common stock of small-cap companies, 36 percent in target date investments and 2 percent in cash equivalents.


		Fair Value Measurements at December 31, 2019, Using									Fair Value Measurements at June 30, 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, 2019			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at June 30, 2020
		(In thousands)									(In thousands)
Assets:	Assets:									Assets:
Money market funds	Money market funds	$	—	$	8,440	$	—	$	8,440	Money market funds	$	—	$	8,478	$	—	$	8,478
Insurance contract*	Insurance contract*	—		87,009		—		87,009		Insurance contract*	—		92,413		—		92,413
Available-for-sale securities:	Available-for-sale securities:									Available-for-sale securities:
Mortgage-backed securities	Mortgage-backed securities	—		9,881		—		9,881		Mortgage-backed securities	—		10,045		—		10,045
U.S. Treasury securities	U.S. Treasury securities	—		1,229		—		1,229		U.S. Treasury securities	—		1,177		—		1,177

Total assets measured at fair value	Total assets measured at fair value	$	—	$	106,559	$	—	$	106,559	Total assets measured at fair value	$	—	$	112,113	$	—	$	112,113

* The insurance contract invests approximately 5138 percent in fixed-income investments, 23 percent in common stock of large-cap companies, 129 percent in common stock of mid-cap companies, 109 percent in common stock of small-cap companies, 34 percent in target date investments and 117 percent in cash equivalents.

2422

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.

In the second quarter of 2019, the Company reviewed a non-utility investment at its electric and natural gas distribution segments for impairment. This was a cost-method investment and was written down to 0 using the income approach to determine its fair value, requiring the Company to record a write-down of $2.0 million, before tax. The fair value of this investment was categorized as Level 3 in the fair value hierarchy. This reduction is reflected in investments on the Company's Consolidated Balance Sheet, as well as within other income on the Consolidated Statements of Income.

The Company performed a fair value ~~assessment~~assessments of the assets acquired and liabilities assumed in the business combinations that ~~have~~ occurred during ~~2020~~2021 and ~~2019. For more information~~2020. The fair value of these assets and liabilities were determined based on ~~these~~ Level 2 and Level 3 ~~fair value measurements, see Note 9.~~inputs.

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:


		September 30, 2020		September 30, 2019		December 31, 2019			June 30, 2021		June 30, 2020		December 31, 2020
		(In thousands)							(In thousands)
Carrying amount	Carrying amount	$	2,270,290	$	2,246,756	$	2,243,107	Carrying amount	$	2,337,049	$	2,281,876	$	2,213,130
Fair value	Fair value	$	2,593,743	$	2,450,209	$	2,418,631	Fair value	$	2,616,232	$	2,563,734	$	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 1415 - 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 ~~September~~June 30, ~~2020.~~2021. In the event the ~~Company's~~ 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. Due to the early impacts of the COVID-19 pandemic on the short-term capital markets, the Company temporarily borrowed under its revolving credit agreements in addition to accessing the commercial paper markets in the first half of 2020. ~~At September 30, 2020, all borrowings under the revolving credit agreements for Montana-Dakota and Centennial had been repaid.~~

2523

Index

Long-term debt

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


		Weighted Average Interest Rate at September 30, 2020		September 30, 2020		September 30, 2019		December 31, 2019			Weighted Average Interest Rate at June 30, 2021		June 30, 2021		June 30, 2020		December 31, 2020
				(In thousands)									(In thousands)
Senior Notes due on dates ranging from October 22, 2022 to June 15, 2060		4.43	%	$	1,900,000	$	1,655,000	$	1,850,000
Senior Notes due on dates ranging from October 22, 2022 to October 30, 2060										Senior Notes due on dates ranging from October 22, 2022 to October 30, 2060	4.40	%	$	1,950,000	$	1,900,000	$	1,950,000
Commercial paper supported by revolving credit agreements	Commercial paper supported by revolving credit agreements	0.44	%	214,150		281,800		222,900		Commercial paper supported by revolving credit agreements	.32	%	297,400		290,100		125,600
Term Loan Agreement due on September 3, 2032		2.00	%	8,400		209,100		9,100
Credit agreements due on June 7, 2024	Credit agreements due on June 7, 2024	2.40	%	91,000		31,000		89,050		Credit agreements due on June 7, 2024	3.25	%	48,550		11,200		95,900
Medium-Term Notes due on dates ranging from September 15, 2027 to March 16, 2029	Medium-Term Notes due on dates ranging from September 15, 2027 to March 16, 2029	7.32	%	35,000		50,000		50,000		Medium-Term Notes due on dates ranging from September 15, 2027 to March 16, 2029	7.32	%	35,000		50,000		35,000
Other notes due on dates ranging from July 15, 2021 to November 30, 2038		4.60	%	28,284		26,083		29,117
Term Loan Agreement due on September 3, 2032										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 January 1, 2061										Other notes due on dates ranging from July 15, 2021 to January 1, 2061	.83	%	3,232		28,342		4,034
Less unamortized debt issuance costs	Less unamortized debt issuance costs			6,526		6,074		7,010		Less unamortized debt issuance costs			5,505		6,668		5,803
Less discount	Less discount			18		153		50		Less discount			28		198		1
Total long-term debt	Total long-term debt			2,270,290		2,246,756		2,243,107		Total long-term debt			2,337,049		2,281,876		2,213,130
Less current maturities	Less current maturities			1,558		65,810		16,540		Less current maturities			1,549		16,560		1,555
Net long-term debt	Net long-term debt			$	2,268,732	$	2,180,946	$	2,226,567	Net long-term debt			$	2,335,500	$	2,265,316	$	2,211,575

Schedule of Debt Maturities Long-term debt maturities, which excludes unamortized debt issuance costs and discount, at ~~September~~June 30, ~~2020,~~2021, were as follows:

Remainder of
2020 2021 2022 2023 2024 Thereafter
(In thousands)
Long-term debt maturities $ 28 $ 1,528 $ 148,038 $ 77,921 $ 366,571 $ 1,682,748


	Remainder of 2021		2022		2023		2024		2025		Thereafter
	(In thousands)
Long-term debt maturities	$	752	$	148,021	$	77,921	$	407,372	$	177,802	$	1,530,714

Note 1516 - Cash flow information

Cash expenditures for interest and income taxes were as follows:


		Nine Months Ended					Six Months Ended
		September 30,					June 30,
		2020		2019			2021		2020
		(In thousands)					(In thousands)
Interest, net*	Interest, net*	$	63,086	$	64,596	Interest, net*	$	45,870	$	47,769
Income taxes paid, net**		$	43,448	$	1,816
Income taxes paid, net						Income taxes paid, net	$	46,734	$	735

* AFUDC - borrowed was ~~$2.0~~$816,000 and $1.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~

** Income taxes paid, including discontinued operations, were $43.5 million and $2.0 million for the nine months ended September 30, 2020, ~~and 2019,~~ respectively.

Noncash investing and financing transactions were as follows:

September 30, 2020 September 30, 2019 December 31, 2019
(In thousands)
Right-of-use assets obtained in exchange for new operating lease liabilities $ 41,315 $ 46,770 $ 54,880
Property, plant and equipment additions in accounts payable $ 33,240 $ 34,368 $ 46,119
Accrual for holdback payment related to a business combination $ 5,000 $ 0 $ 0
Debt assumed in connection with a business combination $ 0 $ 1,163 $ 1,163


	June 30, 2021		June 30, 2020		December 31, 2020
	(In thousands)
Right-of-use assets obtained in exchange for new operating lease liabilities	$	17,224	$	24,181	$	54,356
Property, plant and equipment additions in accounts payable	$	31,886	$	36,493	$	26,082
Accrual for holdback payment related to a business combination	$	0	$	5,000	$	2,500

~~Index~~

Note 1617 - 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 ~~vast majority of 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 ~~and gathering~~ services through a regulated ~~and non-regulated~~ pipeline ~~systems~~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~~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, ~~including~~as well as Alaska and Hawaii.

The construction services segment provides inside and outside specialty contracting ~~services.~~services in 43 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 ~~government~~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 12 of the Notes to Consolidated Financial Statements in the ~~2019~~2020 Annual Report. Information on the Company's segments was as follows:


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,									June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(In thousands)									(In thousands)
External operating revenues:	External operating revenues:									External operating revenues:
Regulated operations:	Regulated operations:									Regulated operations:
Electric	Electric	$	87,447	$	89,845	$	249,793	$	263,423	Electric	$	83,650	$	76,438	$	168,324	$	162,346
Natural gas distribution	Natural gas distribution	94,703		93,642		562,641		569,656		Natural gas distribution	153,788		141,494		503,994		467,937
Pipeline	Pipeline	27,965		25,957		57,717		52,230		Pipeline	23,130		23,421		30,633		29,752
		210,115		209,444		870,151		885,309			260,568		241,353		702,951		660,035
Non-regulated operations:	Non-regulated operations:									Non-regulated operations:
Pipeline	Pipeline	4,103		6,576		12,664		17,597		Pipeline	4,643		4,237		7,052		8,561
Construction materials and contracting	Construction materials and contracting	822,439		869,376		1,705,629		1,692,287		Construction materials and contracting	633,674		621,045		899,333		883,190
Construction services	Construction services	550,608		478,381		1,559,217		1,363,305		Construction services	524,744		496,405		1,042,214		1,008,610
Other	Other	24		22		(70)		65		Other	28		(112)		45		(94)
		1,377,174		1,354,355		3,277,440		3,073,254			1,163,089		1,121,575		1,948,644		1,900,267
Total external operating revenues	Total external operating revenues	$	1,587,289	$	1,563,799	$	4,147,591	$	3,958,563	Total external operating revenues	$	1,423,657	$	1,362,928	$	2,651,595	$	2,560,302

2725

Index


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,									June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(In thousands)									(In thousands)
Intersegment operating revenues:	Intersegment operating revenues:									Intersegment operating revenues:
Regulated operations:	Regulated operations:									Regulated operations:
Electric	Electric	$	195	$	0	$	586	$	0	Electric	$	136	$	196	$	271	$	391
Natural gas distribution	Natural gas distribution	185		0		555		0		Natural gas distribution	142		185		284		370
Pipeline	Pipeline	3,543		3,750		36,583		35,098		Pipeline	7,695		7,857		33,685		33,040
		3,923		3,750		37,724		35,098			7,973		8,238		34,240		33,801
Non-regulated operations:	Non-regulated operations:									Non-regulated operations:
Pipeline	Pipeline	79		81		237		200		Pipeline	167		142		407		158
Construction materials and contracting	Construction materials and contracting	110		124		262		388		Construction materials and contracting	142		90		204		152
Construction services	Construction services	425		1,226		3,674		2,076		Construction services	797		779		1,839		3,249
Other	Other	3,006		2,862		8,952		13,566		Other	3,361		2,973		6,685		5,946
		3,620		4,293		13,125		16,230			4,467		3,984		9,135		9,505
Intersegment eliminations	Intersegment eliminations	(7,543)		(8,043)		(50,849)		(51,328)		Intersegment eliminations	(12,440)		(12,222)		(43,375)		(43,306)
Total intersegment operating revenues	Total intersegment operating revenues	$	0	$	0	$	0	$	0	Total intersegment operating revenues	$	0	$	0	$	0	$	0

Operating income (loss):	Operating income (loss):									Operating income (loss):
Electric	Electric	$	21,159	$	21,930	$	48,827	$	49,708	Electric	$	12,806	$	12,810	$	26,672	$	27,669
Natural gas distribution	Natural gas distribution	(18,393)		(15,565)		32,285		32,132		Natural gas distribution	3,601		678		57,173		50,677
Pipeline	Pipeline	11,762		11,416		35,406		32,017		Pipeline	11,076		12,225		23,612		23,644
Construction materials and contracting	Construction materials and contracting	148,522		143,024		179,994		147,622		Construction materials and contracting	72,452		74,741		37,563		31,472
Construction services	Construction services	40,507		29,950		102,185		89,381		Construction services	37,774		37,882		78,051		61,678
Other	Other	154		(1,285)		339		140		Other	(20)		(82)		(218)		185
Total operating income	Total operating income	$	203,711	$	189,470	$	399,036	$	351,000	Total operating income	$	137,689	$	138,254	$	222,853	$	195,325

Net income (loss):	Net income (loss):									Net income (loss):
Regulated operations:	Regulated operations:									Regulated operations:
Electric	Electric	$	16,787	$	16,291	$	40,314	$	39,267	Electric	$	10,304	$	12,153	$	21,054	$	23,527
Natural gas distribution	Natural gas distribution	(17,614)		(15,625)		13,795		14,623		Natural gas distribution	(707)		(959)		35,471		31,410
Pipeline	Pipeline	7,812		6,933		23,882		20,316		Pipeline	8,089		8,684		17,283		16,070
		6,985		7,599		77,991		74,206			17,686		19,878		73,808		71,007
Non-regulated operations:	Non-regulated operations:									Non-regulated operations:
Pipeline	Pipeline	189		801		444		1,380		Pipeline	1,106		268		810		255
Construction materials and contracting	Construction materials and contracting	107,307		102,611		122,113		97,328		Construction materials and contracting	51,396		53,020		20,584		14,806
Construction services	Construction services	29,789		21,113		74,544		63,982		Construction services	28,885		27,932		58,709		44,755
Other	Other	8,745		4,004		3,303		3,466		Other	1,098		(1,256)		(1,624)		(5,442)
		146,030		128,529		200,404		166,156			82,485		79,964		78,479		54,374
Income from continuing operations	Income from continuing operations	153,015		136,128		278,395		240,362		Income from continuing operations	100,171		99,842		152,287		125,381
Income (loss) from discontinued operations, net of tax	Income (loss) from discontinued operations, net of tax	63		1,509		(484)		26		Income (loss) from discontinued operations, net of tax	19		(139)		34		(548)
Net income	Net income	$	153,078	$	137,637	$	277,911	$	240,388	Net income	$	100,190	$	99,703	$	152,321	$	124,833

2826

Index

Note 1718 - 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)~~credit for the Company's pension and other postretirement benefit plans were as follows:


		Pension Benefits				Other Postretirement Benefits					Pension Benefits				Other Postretirement Benefits
Three Months Ended September 30,		2020		2019		2020		2019
Three Months Ended June 30,										Three Months Ended June 30,	2021		2020		2021		2020
		(In thousands)									(In thousands)
Components of net periodic benefit cost (credit):
Components of net periodic benefit credit:										Components of net periodic benefit credit:
Service cost	Service cost	$	0	$	0	$	383	$	286	Service cost	$	0	$	0	$	400	$	414
Interest cost	Interest cost	3,023		3,806		609		746		Interest cost	2,455		3,074		466		627
Expected return on assets	Expected return on assets	(4,987)		(4,559)		(1,115)		(1,201)		Expected return on assets	(4,894)		(5,214)		(1,275)		(1,401)
Amortization of prior service credit	Amortization of prior service credit	0		0		(349)		(289)		Amortization of prior service credit	0		0		(349)		(402)
Amortization of net actuarial loss	Amortization of net actuarial loss	1,793		1,387		71		27		Amortization of net actuarial loss	2,004		1,723		6		142
Net periodic benefit cost (credit), including amount capitalized		(171)		634		(401)		(431)
Net periodic benefit credit, including amount capitalized										Net periodic benefit credit, including amount capitalized	(435)		(417)		(752)		(620)
Less amount capitalized	Less amount capitalized	0		0		39		26		Less amount capitalized	0		0		44		35
Net periodic benefit cost (credit)		$	(171)	$	634	$	(440)	$	(457)
Net periodic benefit credit										Net periodic benefit credit	$	(435)	$	(417)	$	(796)	$	(655)


		Pension Benefits				Other Postretirement Benefits					Pension Benefits				Other Postretirement Benefits
Nine Months Ended September 30,		2020		2019		2020		2019
Six Months Ended June 30,										Six Months Ended June 30,	2021		2020		2021		2020
		(In thousands)									(In thousands)
Components of net periodic benefit cost (credit):
Components of net periodic benefit credit:										Components of net periodic benefit credit:
Service cost	Service cost	$	0	$	0	$	1,149	$	857	Service cost	$	0	$	0	$	800	$	766
Interest cost	Interest cost	9,070		11,419		1,827		2,239		Interest cost	4,910		6,047		932		1,218
Expected return on assets	Expected return on assets	(14,962)		(13,677)		(3,764)		(3,603)		Expected return on assets	(9,788)		(9,975)		(2,550)		(2,649)
Amortization of prior service credit	Amortization of prior service credit	0		0		(1,048)		(866)		Amortization of prior service credit	0		0		(698)		(699)
Amortization of net actuarial loss	Amortization of net actuarial loss	5,379		4,160		215		82		Amortization of net actuarial loss	4,008		3,586		12		144
Net periodic benefit cost (credit), including amount capitalized		(513)		1,902		(1,621)		(1,291)
Net periodic benefit credit, including amount capitalized										Net periodic benefit credit, including amount capitalized	(870)		(342)		(1,504)		(1,220)
Less amount capitalized	Less amount capitalized	0		0		106		84		Less amount capitalized	0		0		83		67
Net periodic benefit cost (credit)		$	(513)	$	1,902	$	(1,727)	$	(1,375)
Net periodic benefit credit										Net periodic benefit credit	$	(870)	$	(342)	$	(1,587)	$	(1,287)

The components of net periodic benefit ~~cost (credit),~~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 $1.5 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, was $1.0 million and $2.9 million,~~2021, respectively. The Company's net periodic benefit cost for these plans for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020 was ~~$1.1 million~~$900,000 and ~~$3.3~~$1.9 million, respectively. The components of net periodic benefit cost for these plans are included in other income on the Consolidated Statements of Income.

Note 1819 - 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 ~~the status of each open request, as well as~~ updates to those reported in the ~~2019~~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. On June 3, 2021, Intermountain filed a joint settlement agreement with the IPUC Staff reflecting a revised annual decrease of approximately $3.8 million or approximately 2.4 percent. Intermountain and the IPUC Staff have requested the rates be retroactive to January 1, 2021. This matter is pending before the IPUC.

Index

MNPUC

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, Great Plains prepares a true-up pursuant to the purchased gas adjustment tariff. On ~~September 27, 2019,~~March 30, 2021, Great Plains filed an ~~application~~out-of-cycle cost of gas adjustment with the MNPUC for ~~a natural gas rate increase~~the recovery of approximately ~~$2.9 million annually or approximately 12.0 percent above current rates.~~$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 ~~recover investments~~the lower gas usage in ~~facilities~~the summer to ~~enhance safety and reliability and~~mitigate the ~~depreciation and taxes associated with~~impact on customers. On June 8, 2021, 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,Company's request was denied; however, the MNPUC ~~issued a final order authorizing an annual increase~~initiated its own investigation into the impact of severe weather in ~~revenues of approximately $2.6 million or approximately 11.5 percent. Great Plains shall submit compliance filings within 30 days~~February 2021 on Minnesota's natural gas utility companies and consumers. The investigation will address the recovery of the ~~order.~~

~~MTPSC~~

~~On May 8, 2020, Montana-Dakota filed a request with~~extraordinary gas costs resulting from the ~~MTPSC to use deferred accounting~~February 2021 extreme cold weather event. MNPUC deliberations on this matter are scheduled for ~~costs related to the COVID-19 pandemic. This matter is pending before the MTPSC.~~

On June 22, 2020, Montana-Dakota filed an application with the MTPSC for a natural gas rate increase of approximately $8.6 million annually or approximately 13.4 percent above current rates. The requested increase was primarily to recover investments in facilities that were made to enhance system safety and reliability, as well as the depreciation, taxes and operation and maintenance costs associated with this increase in investment. The Company requested an interim rate increase of approximately $4.9 million or approximately 8.2 percent, subject to refund, to be effective February 1,August 5, 2021. This matter is pending before the ~~MTPSC.~~MNPUC.

NDPSC

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, Montana-Dakota prepares a true-up pursuant to the purchased gas adjustment tariff. On ~~April 24, 2020,~~March 31, 2021, Montana-Dakota filed ~~a request~~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 ~~use deferred accounting for~~expedite recovery of these costs ~~related to~~and maintain the ~~COVID-19 pandemic. This matter is pending before~~timing of annual purchased gas adjustment filings. On May 27, 2021, the ~~NDPSC.~~NDPSC approved the requested increase with a recovery period of 16 months effective June 1, 2021.

On July ~~17, 2020,~~15, 2021, Montana-Dakota filed an annual update to its transmission cost adjustment rider with the NDPSC requesting to recover revenues of approximately ~~$15.5~~$14.5 million, which includes a true-up of the prior period adjustment, resulting in ~~an increase~~a decrease of approximately ~~$6.3~~$1.1 million ~~over~~from current rates. This filing includes approximately ~~$3.3~~$5.1 million related to transmission capital projects. On October 28, 2020, the NDPSC approved the increase with rates effective November 1, 2020. Due to COVID-19, the NDPSC extended the recovery period of the under-recovered balance of approximately $1.6 million to two years, which was included in the total increase.

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. Montana-Dakota also requested an interim increase of approximately $6.9 million or approximately 6.0 percent, subject to refund, to be effective January 1, 2021. This matter is pending before the NDPSC.

~~OPUC~~SDPUC

On March ~~26, 2020, Cascade~~11, 2021, Montana-Dakota filed ~~a request~~an informational update to the infrastructure rider rate tariff with the ~~OPUC to use deferred accounting for costs~~SDPUC related to the ~~COVID-19 pandemic. On October 20, 2020,~~retirement of Unit 1 at Lewis & Clark Station. The filing includes the ~~OPUC approved this request.~~

~~On March 31, 2020, Cascade filed a natural gas general rate case with the OPUC requesting an increase in~~ annual revenue requirement offset by the related amortization of ~~approximately $4.9 million or approximately 7.2 percent, which included a request for an additional recovery~~the accelerated depreciation on the plant, net of ~~environmental remediation~~excess deferred income taxes, and the decommissioning costs ~~of approximately $364,000. On September 30, 2020, Cascade filed a settlement agreement with the OPUC reflecting an annual increase~~projected to be incurred in ~~revenues of approximately $3.2 million or approximately 4.8 percent. This filing includes a proposed effective date of February 1, 2021.~~2021 resulting in 0 impact to customers. This matter is pending before the ~~OPUC.~~

~~SDPUC~~

On May 1, 2020, Montana-Dakota filed a request with the SDPUC to use deferred accounting for costs related to the COVID-19 pandemic. On August 19, 2020, the SDPUC approved this request with an accounting order to track expenses and revenues related to the COVID-19 pandemic beginning on March 13, 2020.SDPUC.

WUTC

~~On May 27, 2020, Cascade filed a request with the WUTC to use deferred accounting for costs related to the COVID-19 pandemic. This matter is pending before the WUTC.~~

On May 29, 2020, Cascade filed its annual pipeline cost recovery mechanism requesting an increase in annual revenue of approximately $1.0 million or approximately 0.4 percent. On October 14, 2020, Cascade filed an update requesting an increase in annual revenue of approximately $1.1 million or approximately 0.5 percent, which reflects actual costs as of September 30, 2020. On October 29, 2020, the filing was approved with rates effective November 1, 2020.

~~Index~~

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 ~~WUTC has 11 months to render a final decision on the rate case. 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. On May 18, 2021, the WUTC issued a final order reflecting an overall revenue decrease of approximately $391,000 or approximately 0.2 percent. On May 25, 2021, Cascade filed a petition for reconsideration with the WUTC. On June 18, 2021, the WUTC denied Cascade's petition for reconsideration. Final rates were effective July 1, 2021.

On June 1, 2021, Cascade filed its annual pipeline cost recovery mechanism requesting an increase in annual revenue of approximately $2.1 million or approximately 0.8 percent. The filing includes a proposed effective date of November 1, 2021. This filing will be updated to more accurate data prior to the effective date. This matter is pending before the WUTC.

~~FERC~~

~~On September 1, 2020, Montana-Dakota filed an update to its transmission formula rate under the MISO tariff for its multi-value project for $12.9 million, which is effective January 1, 2021.~~

Note 1920 - 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 ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, and December 31, ~~2019,~~2020, the Company accrued liabilities which have not been discounted, including liabilities held for sale, of ~~$72.7~~$30.8 million, ~~$30.6~~$34.5 million and ~~$29.1~~$41.5 million, respectively. At ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, and December 31, ~~2019,~~2020, the Company also recorded corresponding insurance receivables of ~~$49.1~~$6.9 million, ~~$15.3~~$21.1 million and ~~$16.2~~

Index

$17.5 million, respectively, and regulatory assets of ~~$20.9~~$21.2 million, ~~$12.0~~$10.4 million and ~~$10.5~~$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 ~~2019~~2020 Annual ~~Report other than as set forth below.~~

~~Manufactured Gas Plant Sites~~A claim was made against Cascade for contamination at the Bremerton Gasworks Superfund Site in Bremerton, Washington, which was received in 1997. A preliminary investigation has found soil and groundwater at the site contain contaminants requiring further investigation and cleanup. The EPA conducted a Targeted Brownfields Assessment of the site and released a report summarizing the results of that assessment in August 2009. The assessment confirmed that contaminants have affected soil and groundwater at the site, as well as sediments in the adjacent Port Washington Narrows. In April 2010, the Washington DOE issued notice it considered Cascade a PRP for hazardous substances at the site. In May 2012, the EPA added the site to the National Priorities List of Superfund sites. Cascade entered into an administrative settlement agreement and consent order with the EPA regarding the scope and schedule for a remedial investigation and feasibility study for the site. Current estimates for the cost to complete the remedial investigation and feasibility study are approximately $7.6 million of which $5.4 million has been incurred. Based on the site investigation, preliminary remediation alternative costs were provided by consultants in August 2020; therefore, the accrual for these costs was increased in the third quarter of 2020 by $11.1 million. The preliminary information received through the completion of the data report allowed for the projection of possible costs for a variety of site configurations, remedial measures and potential natural resource damage claims of between $13.6 million and $71.0 million. Cascade has accrued $2.2 million for the remedial investigation and feasibility study, as well as $17.5 million for remediation of this site. The accrual for remediation cost will be reviewed and adjusted, if necessary, after the completion of the feasibility study. In April 2010, Cascade filed a petition with the WUTC for authority to defer the costs incurred in relation to the environmental remediation of this site. The WUTC approved the petition in September 2010, subject to conditions set forth in the order.

The Company has received notices from and entered into agreements with certain of its insurance carriers that they will participate in defense for certain contamination claims subject to full and complete reservations of rights and defenses to insurance coverage. To the extent these claims are not covered by insurance, the Company intends to seek recovery of remediation costs through its natural gas rates charged to customers.

~~Index~~

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 ~~September~~June 30, ~~2020,~~2021, the fixed maximum amounts guaranteed under these agreements aggregated ~~$255.5~~$171.2 million. Certain of the guarantees also have no fixed maximum amounts specified. At ~~September~~June 30, ~~2020,~~2021, the amounts of scheduled expiration of the maximum amounts guaranteed under these agreements aggregate to ~~$23.8 million in 2020; $199.7~~$37.2 million in 2021; ~~$16.1~~$67.7 million in 2022; ~~$5.3~~$55.6 million in 2023; $500,000 in 2024; ~~$1.1 million~~$500,000 in 2025; $700,000 thereafter; and $9.0 million, which has no scheduled maturity date. There were 0 amounts outstanding under the previously mentioned guarantees at ~~September~~June 30, ~~2020.~~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 ~~September~~June 30, ~~2020,~~2021, the fixed maximum amounts guaranteed under these letters of credit aggregated ~~$22.5~~$25.5 million. At ~~September~~June 30, ~~2020,~~2021, the amounts of scheduled expiration of the maximum amounts guaranteed under these letters of credit aggregate to ~~$20.2 million in 2020; $1.8~~$23.4 million in 2021 and ~~$500,000~~$2.1 million in 2022. There were 0 amounts outstanding under the previously mentioned letters of credit at ~~September~~June 30, ~~2020.~~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.

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 ~~September~~June 30, ~~2020.~~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 ~~September~~June 30, ~~2020,~~2021, approximately ~~$922.7 million~~$1.1 billion of surety bonds were outstanding, which were not reflected on the Consolidated Balance Sheet.

Index

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 ~~September~~June 30, ~~2020,~~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 ~~$34.2~~$32.6 million.

3230

Index

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

The ~~Company's strategy~~Company focuses on infrastructure and is ~~to enhance shareholder value~~Building a Strong America® by ~~increasing market share~~providing essential products and ~~profitability in~~services through its regulated energy delivery and construction materials and services ~~businesses, pursuing organic growth opportunities~~businesses. The Company and ~~using a disciplined approach~~its employees work hard to ~~strategic acquisitions~~keep the economy of ~~well-managed companies~~the United States moving with the products and ~~properties.~~services provided, which include powering, heating and connecting homes, factories, offices and stores; and building roads, highways, data infrastructure and airports.

The ~~Company operates a~~Company's two-platform business ~~model. Its~~model, regulated energy delivery ~~platform~~ and ~~its~~ construction materials and services, ~~platform~~ are each comprised of different operating segments. ~~Some~~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~~risks associated with each type of industry. ~~Through its regulated energy delivery platform,~~The Company is authorized to conduct business in 46 states and during peak times has employed over 15,600 employees. The Company's organic investments are strong drivers of high-quality earnings and continue to be an important part of the Company's growth. Management believes the Company ~~provides electric~~is well positioned in the industries and natural gas services to customers; generates, transmits and distributes electricity; and provides natural gas transportation, storage and gathering 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, and provides construction materials through aggregate mining and marketing of related products, such as ready-mixed concrete and asphalt.markets in which it operates.

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 oncontinues to effectively execute its strategy while managing the Company's method of internal reporting, which generally segregates the strategic business units based on 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 anticipates that all of the funds required for capital expenditures for 2020 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 if necessary.

~~For more information on the Company's capital expenditures, see Liquidity and Capital Commitments.~~

~~Impact~~ongoing effects of the COVID-19 ~~pandemic on~~pandemic. In early 2020, the Company

~~In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, and the President of the United States declared the COVID-19 outbreak~~ implemented its business continuity plans as well as a ~~national emergency.~~task force to monitor developments related to the pandemic allowing the Company to continue to provide safe and reliable services during the pandemic. Most of the Company's products and services are considered essential to our country and our ~~communities; therefore,~~communities and, as a result, operations have generally ~~been permitted to continue. While~~continued throughout the ~~Company has experienced some inefficiency impacts, including operation suspensions~~pandemic and ~~interruptions at some locations to carry out preventative measures or in response to instances of positive tests, the impacts have not been material. For more information on specific impacts to each~~reopening of the Company's business segments, see the respective Outlook sections. The Company has been able to maintain employment for its workforce and remains committed to the health and safety of its employees and the communities where it operates. In the first quarter of 2020, the MDU Resources Group Foundation accelerated and provided additional donations to charitable organizations impacted by COVID-19 in the communities in which the Company operates.economy.

In March 2020, the ~~President~~Company took measures to mitigate the risk of ~~the United States signed into law the CARES Act in response to the~~ COVID-19 ~~pandemic. The CARES Act provided economic relief and stimulus to support the national economy during the pandemic, including support for individuals and businesses affected~~transmission by the pandemic and economic downturn. The CARES Act allowed businesses to defer payment of the employer portion of social security taxes incurred through the end of 2020. At September 30, 2020, the Company had deferred approximately $38.8 million in payroll taxes related to this provision. The Company is required to pay 50 percent of the payroll taxes deferred by the Company under this provision by the end of 2021 and the remaining balance by the end of 2022.

The Company continues to adjust its business in response to the pandemic while positioning for an economic rebound and potential opportunities to enhance its competitive position. The Company's business strategy incorporates preparation for unexpected economic adversity, which includes maintaining a strong liquidity position to weather a variety of economic scenarios, a strong balance sheet with conservative debt leverage and financial flexibility to access diverse sources of capital. For more information on the Company's liquidity, see Liquidity and Capital Commitments. In addition, the Company evaluated its planned capital projects and delayed certain expenditures to provide additional financial flexibility and to ensure projects will provide acceptable returns on investment.

The Company established a task force to monitor developments related to the pandemic and implemented procedures to protect employees. Procedures are established to promptly notify employees, contractors and customers when individuals may have been exposed to COVID-19 and need to be tested or self-quarantined due to potential contact. Additionally, the Company has modified its work practices to include social distancing measures and hygiene practices. Manyrequiring employees that ~~have~~had the capacity to do so to work from ~~home continue to do so as the Company has delayed return to work processes for certain office employees due to the rise in local COVID-19 cases in some operating regions.~~home. The Company ~~has~~ also enacted additional physical and cybersecurity measures to safeguard systems for remote work locations. As of July 2021, many of these employees have returned to their office; however, some employees have transitioned to a permanent remote work environment.

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. The Company has implemented measures to proactively order supplies and work with additional suppliers to ensure work continues without delays; however, the Company has experienced some price increases, disruptions and delays on delivery of certain materials.

The situation surrounding COVID-19 remains fluid. There has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on individual, business and government activities. The easing of restrictions and the potential for a resurgence in COVID-19 cases due to variants of the virus entering the United States, could prompt a return to tighter restrictions in certain areas of the country. Due to the uncertainty of the economic outlook resulting from the COVID-19 pandemic, the Company continues to monitor the situation closely. 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 and nine~~six months ended ~~September~~June 30, 2021 or 2020. 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~~

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~~economic activity~~will continue to adjust its business in ~~the United States. Due~~response to the ~~uncertainty~~pandemic while positioning for potential opportunities to enhance its competitive position. For more information specific to each of the ~~economic outlook resulting from~~Company's business segments, see the ~~COVID-19 pandemic, the Company continues to monitor the situation closely.~~following discussions in each business segment's Outlook section. For more information on the possible impacts, see Part II, Item 1A. Risk ~~Factors.~~Factors in this Form 10-Q.

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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.

Any forward-looking statement contained in this document speaks only as of the date on which the statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances that occur after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all the factors, nor can it assess the effect of each factor on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. All forward-looking statements, whether written or oral and whether made by or on behalf of the Company, are expressly qualified by the risk factors and cautionary statements reported in Part II, Item 1A. Risk Factors in this Form 10-Q, Part I, Item 1A. Risk Factors in the 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				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,									June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(In millions, except per share amounts)									(In millions, except per share amounts)
Electric	Electric	$	16.8	$	16.3	$	40.3	$	39.3	Electric	$	10.3	$	12.2	$	21.0	$	23.5
Natural gas distribution	Natural gas distribution	(17.6)		(15.6)		13.8		14.6		Natural gas distribution	(.7)		(1.0)		35.5		31.4
Pipeline	Pipeline	8.0		7.7		24.3		21.7		Pipeline	9.2		9.0		18.1		16.3
Construction materials and contracting	Construction materials and contracting	107.3		102.6		122.1		97.3		Construction materials and contracting	51.4		53.0		20.6		14.8
Construction services	Construction services	29.8		21.1		74.5		64.0		Construction services	28.9		27.9		58.7		44.8
Other	Other	8.7		4.0		3.4		3.5		Other	1.1		(1.3)		(1.6)		(5.5)
Income from continuing operations	Income from continuing operations	153.0		136.1		278.4		240.4		Income from continuing operations	100.2		99.8		152.3		125.3
Income (loss) from discontinued operations, net of tax		.1		1.5		(.5)		—
Loss from discontinued operations, net of tax										Loss from discontinued operations, net of tax	—		(.1)		—		(.5)
Net income	Net income	$	153.1	$	137.6	$	277.9	$	240.4	Net income	$	100.2	$	99.7	$	152.3	$	124.8
Earnings per share - basic:	Earnings per share - basic:									Earnings per share - basic:
Income from continuing operations	Income from continuing operations	$	.76	$	.68	$	1.39	$	1.21	Income from continuing operations	$	.50	$	.50	$	.76	$	.62
Discontinued operations, net of tax	Discontinued operations, net of tax	—		.01		—		—		Discontinued operations, net of tax	—		—		—		—
Earnings per share - basic	Earnings per share - basic	$	.76	$	.69	$	1.39	$	1.21	Earnings per share - basic	$	.50	$	.50	$	.76	$	.62
Earnings per share - diluted:	Earnings per share - diluted:									Earnings per share - diluted:
Income from continuing operations	Income from continuing operations	$	.76	$	.68	$	1.39	$	1.21	Income from continuing operations	$	.50	$	.50	$	.76	$	.62
Discontinued operations, net of tax	Discontinued operations, net of tax	—		.01		—		—		Discontinued operations, net of tax	—		—		—		—
Earnings per share - diluted	Earnings per share - diluted	$	.76	$	.69	$	1.39	$	1.21	Earnings per share - diluted	$	.50	$	.50	$	.76	$	.62

Three Months Ended ~~September~~June 30, ~~2020,~~2021, Compared to Three Months Ended ~~September~~June 30, ~~2019~~2020 The ~~Company recognized~~Company's consolidated earnings increased $500,000.

Positively impacting the Company's earnings were favorable income tax adjustments related to the Company's consolidated annualized estimated tax rate included in Other. The construction services business experienced higher inside specialty contracting workloads as a result of ~~$153.1 million~~increased demand for manufacturing projects as well as increased equipment sales and leasing of power line equipment. The natural gas distribution business benefited from approved rate relief in certain jurisdictions, partially offset by higher operation and maintenance expenses, and the ~~quarter ended September~~pipeline business benefited from higher non-regulated project revenues. Partially offsetting these increases were higher payroll-related costs, largely stock-based compensation expense and health care costs, across all of the Company's businesses.

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Six Months Ended June 30, 2021, Compared to Six Months Ended June 30, 2020 ~~compared to $137.6~~The Company's consolidated earnings increased $27.5 million ~~for the same period in 2019.~~or 22 percent.

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 inside ~~and outside~~ specialty contracting workloads ~~partially due to the businesses acquired~~resulting from increased demand for manufacturing projects as well as ~~hospitality projects, high-tech projects~~increased equipment sales and ~~natural disaster recovery work.~~leasing of power line equipment. In addition, the absence of an out-of-period adjustment in 2021 of approximately $6.7 million, net of tax, to correct the revenue recognition on a construction contract during 2020 at the construction services business contributed to the increase in earnings. The construction materials and contracting business experienced an increase in gross margin as well, resulting from higher ~~contracting bid~~realized material revenues and margins and higher ~~realized materials~~contracting bid margins. The ~~increase~~natural gas distribution business benefited from approved rate relief in ~~Other was primarily~~certain jurisdictions, partially offset by higher operation and maintenance expenses. The pipeline business also experienced increased storage-related and non-regulated project revenues resulting in a positive impact to earnings. Favorable income tax adjustments related to ~~higher income~~the Company's consolidated annualized estimated tax ~~benefits.~~rate had a positive impact on Other. Partially offsetting these increases ~~was an increased seasonal loss~~were decreased earnings at the ~~natural gas distribution~~electric business, largely resulting from higher operation and maintenance ~~costs.~~

~~Nine Months Ended September 30, 2020, Compared to Nine Months Ended September 30, 2019~~ ~~The Company recognized consolidated earnings of $277.9 million for the nine months ended September 30, 2020, compared to $240.4 million for the same period in 2019.~~

~~The Company's earnings were positively impacted by~~expenses and depreciation, depletion and amortization costs, and increased ~~earnings~~payroll-related costs across ~~most~~all of the Company's ~~businesses. The main driver of the increased earnings was higher gross margins at the construction businesses. At the construction materials~~businesses, largely stock-based compensation expense and contracting business, favorable weather conditions in certain regions, higher margins and additional revenues from recent acquisitions had a positive impact on gross margin. The construction services business also experienced an increase in gross margin resulting from higher inside and outside specialty contracting workloads, partially due to the business acquired during the first quarter of 2020, offset in part by an out-of-period adjustment of approximately $6.7 million, net of tax, to correct the revenue recognition on a construction contract, as discussed in Note 1. The pipeline business's increased earnings reflect higher revenue from organic growth projects and approved rates.health care costs.

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

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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. Many of these highlighted points are "forward-looking statements." For more information, see Forward-Looking Statements. There is no assurance that the Company's projections, including estimates for growth and changes in earnings, will in fact be achieved. Please refer to assumptions contained in this section, as well as the various important factors listed in Part II, Item 1A. Risk Factors and Part I, Item 1A. Risk Factors in the 2019 Annual Report. Changes in such assumptions and factors could cause actual future results to differ materially from the Company's growth and earnings projections.

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 1617 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 ~~16.~~17. Both segments strive to be a top performing utility ~~company~~companies measured by integrity, employee safety and satisfaction, customer service and shareholder return, while providing safe, environmentally ~~friendly,~~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. ~~Legislative~~To date, many states have enacted, and ~~regulatory initiatives~~others are considering, mandatory clean energy standards requiring utilities to ~~increase~~meet certain thresholds of renewable energy ~~resources~~generation. Federal legislation for clean energy standards and ~~reduce~~ GHG emissions has been considered and may be implemented in the near future. The current presidential administration has also made climate change a focus during the first half 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 emission concerns and changing customer conservation patterns. These initiatives could ~~impact the price and demand for electricity and natural gas, as well as increase~~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, environmentally responsible, 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 ~~18.~~19 and the 2020 Annual Report.

In September 2019, the ~~Pipeline and Hazardous Materials Safety Administration~~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 ~~a plan to implement~~implemented procedure changes for ~~the initial requirements. While~~both the initial requirements ~~became~~and the additional requirements effective July 1, 2020, enforcement of the initial requirements will not begin until January 1, 2021, due to the COVID-19 pandemic. The natural gas segment is also evaluating procedure changes necessary for the additional requirements that will become effective July 1, 2021.

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State implementation of pollution control plans to improve visibility ~~and air quality~~ 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's state implementation plan is due to be submitted to the EPA by July 2021. The Company expects the~~ NDDEQ plans to draft a state implementation plan and share its controls selection with federal land managers of the ~~Bureau~~National Park Service, the United States Fish and Wildlife Service and the United States Forest Service prior to submitting the plan to the EPA. The emissions modeling being conducted for the combined western state agencies affected by the Regional Haze Rule was delayed and has subsequently delayed the NDDEQ drafting of ~~Land Management~~a state implementation plan. Therefore, the NDDEQ's state implementation plan, which was due to the EPA by July 2021, is anticipated to be 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.

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. During 2020, the Company experienced higher usage from residential customers and lower usage from commercial customers as a result of the COVID-19 pandemic. Customer usage has started to shift back to pre-pandemic levels in ~~December 2020.~~2021. 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 electric 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. These extraordinary natural gas costs were recorded as regulatory assets as they are expected to be recovered from 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 and have received approval in three jurisdictions. The Company will continue to engage with its regulators to determine the appropriate recovery periods over which to recover the associated natural gas costs. For a discussion of the Company's most recent cases by jurisdiction, see Note 19.

The electric and natural gas distribution segments are facing increased lead times on delivery of certain raw materials and equipment 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 ~~respond to the United States Department of Transportation Pipeline System Safety~~continue pipeline system safety and ~~Integrity Plan,~~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.

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. Very cold winters increase demand for natural gas and to a lesser extent, electricity, while warmer than normal summers increase demand for electricity, especially

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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 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.

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


		Three Months Ended				Nine Months Ended					Three Months Ended						Six Months Ended
		September 30,									June 30,						June 30,
		2020		2019		2020		2019			2021		2020		Variance		2021		2020		Variance
		(Dollars in millions, where applicable)									(In millions)
Operating revenues	Operating revenues	$	87.6	$	89.8	$	250.4	$	263.4	Operating revenues	$	83.8	$	76.6	9	%	$	168.6	$	162.7	4	%
Electric fuel and purchased power	Electric fuel and purchased power	15.5		18.7		50.6		64.4		Electric fuel and purchased power	18.1		14.6		24	%	36.7		35.1		5	%
Taxes, other than income	Taxes, other than income	.1		.1		.5		.4		Taxes, other than income	.2		.1		100	%	.4		.3		33	%
Adjusted gross margin	Adjusted gross margin	72.0		71.0		199.3		198.6		Adjusted gross margin	65.5		61.9		6	%	131.5		127.3		3	%
Operating expenses:	Operating expenses:									Operating expenses:
Operation and maintenance	Operation and maintenance	30.7		30.8		90.5		94.6		Operation and maintenance	31.3		29.0		8	%	62.6		59.7		5	%
Depreciation, depletion and amortization	Depreciation, depletion and amortization	15.8		14.2		47.0		41.8		Depreciation, depletion and amortization	16.9		15.7		8	%	33.0		31.3		5	%
Taxes, other than income	Taxes, other than income	4.4		4.1		13.0		12.5		Taxes, other than income	4.5		4.4		2	%	9.2		8.7		6	%
Total operating expenses	Total operating expenses	50.9		49.1		150.5		148.9		Total operating expenses	52.7		49.1		7	%	104.8		99.7		5	%
Operating income	Operating income	21.1		21.9		48.8		49.7		Operating income	12.8		12.8		—	%	26.7		27.6		(3)	%
Other income	Other income	1.2		.6		3.3		2.7		Other income	1.6		2.5		(36)	%	2.2		2.1		5	%
Interest expense	Interest expense	6.4		6.2		20.1		18.9		Interest expense	6.6		6.8		(3)	%	13.2		13.6		(3)	%
Income before income taxes	Income before income taxes	15.9		16.3		32.0		33.5		Income before income taxes	7.8		8.5		(8)	%	15.7		16.1		(2)	%
Income taxes		(.9)		—		(8.3)		(5.8)
Income tax benefit										Income tax benefit	(2.5)		(3.7)		32	%	(5.3)		(7.4)		28	%
Net income	Net income	$	16.8	$	16.3	$	40.3	$	39.3	Net income	$	10.3	$	12.2	(15)	%	$	21.0	$	23.5	(11)	%
Retail sales (million kWh):
Residential		296.1		259.4		884.4		865.6
Commercial		356.7		359.5		1,056.2		1,102.4
Industrial		117.1		127.8		386.0		403.5
Other		21.3		20.9		62.1		64.9
		791.2		767.6		2,388.7		2,436.4
Average cost of electric fuel and purchased power per kWh		$	.018	$	.021	$	.019	$	.024


Operating statistics	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Retail sales (million kWh):
Residential	254.1		257.7		589.0		588.3
Commercial	347.1		323.7		708.9		699.5
Industrial	144.1		115.9		288.6		268.9
Other	22.1		20.4		41.3		40.8
	767.4		717.7		1,627.8		1,597.5
Average cost of electric fuel and purchased power per kWh	$	.022	$	.019	$	.021	$	.020

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 ~~September~~June 30, ~~2020,~~2021, Compared to Three Months Ended ~~September~~June 30, ~~2019~~2020 Electric earnings ~~increased $500,000 (3 percent)~~decreased $1.9 million as a result of:

Adjusted gross margin: Increase of ~~$1.0~~$3.6 million, ~~largely the result of~~partially due to higher retail sales ~~volumes. Retail sales experienced 14.1~~volumes of 6.9 percent ~~higher residential sales volumes due to the continued trend~~as a result of ~~individuals being at home more, which was partially offset by lower~~increased industrial and commercial sales volumes, ~~driven~~offset in part by ~~slow-downs, both~~lower residential sales volumes as ~~a result~~the impacts of the COVID-19 pandemic begin to reverse and individuals return to the office and businesses reopen, and higher demand revenues of $1.2 million. Also positively impacting adjusted gross margin were higher revenues associated with transmission interconnect upgrades of $1.0 million and higher renewable tracker revenues resulting from lower production tax credits, as discussed ~~later, and the associated economic recession.~~later.

Operation and maintenance: ~~Comparable~~Increase of $2.3 million, largely resulting from increased payroll-related costs of $800,000, largely stock-based compensation expense and health care costs; contract services of $600,000; expenses for new software of $400,000 and other miscellaneous expenses. Partially offsetting these increases were decreased bad debt expense of $400,000 as a result of the collection process and arrears balances being largely back to pre-pandemic levels and decreased operating costs associated with the ~~same period~~electric generating unit retired on March 31, 2021, as discussed in ~~the prior year.~~Note 13.

Depreciation, depletion and amortization: Increase of ~~$1.6~~$1.2 million ~~primarily~~ due in part to the ~~reserve for certain~~amortization of plant retirement and closure costs, ~~related to the retirement of three aging coal-fired electric generating units,~~ as discussed ~~later and~~ in Note ~~12, which is offset in income taxes; increased property, plant and equipment balances; and higher depreciation rates implemented from a Montana rate case.~~13.

Taxes, other than income:Comparable to the same period in the prior year.

Other income: ~~Increase~~Decrease of ~~$600,000 as a result of higher~~$900,000 directly resulting from lower returns on certain of the Company's benefit plan investments.

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

Income ~~taxes:~~tax benefit: Decrease of ~~$900,000,~~$1.2 million, primarily ~~higher excess deferred~~lower production tax ~~amortization.~~credits related to less wind generation and the expiration of a 10-year credit-qualifying period on certain facilities.

3635

Index

~~Nine~~Six Months Ended ~~September~~June 30, ~~2020,~~2021, Compared to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 Electric earnings ~~increased $1.0~~decreased $2.5 million ~~(3 percent)~~ as a result of:

Adjusted gross margin: Increase of ~~$700,000, largely~~$4.2 million, primarily due to an increase in revenues. The revenue increase was driven by transmission interconnect upgrades of $1.5 million; $1.2 million higher transmission revenues, due equally to increased revenues from SPP as the result of ~~approved rate relief~~a FERC settlement and higher tracker revenues as a result of more transmission assets; higher demand revenue of $800,000; and higher renewable tracker revenues of $400,000 as a result of lower production tax credits, as discussed later. Adjusted gross margin was also positively impacted by an increase in ~~Montana, increased tracker revenue and 2.2 percent higher residential~~ retail sales ~~volumes. Partially offsetting these increases were lower~~volumes of 1.9 percent due to increased industrial and commercial retail sales volumes as the impacts of the COVID-19 pandemic begin to ~~commercial~~reverse and ~~industrial customer classes and decreased transmission revenue.~~businesses reopen.

Operation and maintenance: ~~Decrease~~Increase of ~~$4.1~~$2.9 million, resulting from increased payroll-related costs of $1.9 million, largely ~~due~~stock-based compensation expense and health care costs, higher expenses for new software of $300,000 and other miscellaneous expenses. Partially offsetting these increases were decreased bad debt expense of $400,000 as a result of the collection process and arrears balances being largely back to pre-pandemic levels and decreased operating costs associated with the ~~absence of maintenance outage costs at Coyote Station incurred during 2019 and lower payroll-related costs.~~electric generating unit retired on March 31, 2021, as discussed in Note 13.

Depreciation, depletion and amortization: Increase of ~~$5.2~~$1.7 million primarily as a result of the reserve for certain costs related to the retirement of three aging coal-fired electric generating units, as discussed later and in Note 12, which is offset in income taxes;largely resulting from increased property, plant and equipment ~~balances;~~balances primarily related to transmission projects placed in service and ~~higher depreciation rates implemented from a Montana rate case.~~the amortization of plant retirement and closure costs, as discussed in Note 13.

Taxes, other than income: Increase of $500,000, ~~from~~driven by higher property ~~taxes.~~taxes in certain jurisdictions of $400,000 and higher payroll taxes resulting from increased payroll-related costs.

Other income: ~~Increase of $600,000 attributable~~Comparable to the ~~absence of the write-down of a non-utility investment~~same period in the ~~second quarter of 2019, as discussed in Note 13, and decreased pension expense, partially offset by lower returns on certain of the Company's benefit plan investments.~~prior year.

Interest expense: ~~Increase~~Decrease of ~~$1.2 million driven by higher debt balances.~~$400,000, due to lower interest rates.

Income ~~taxes:~~tax benefit: ~~Increase in income tax benefits~~Decrease of ~~$2.5~~$2.1 million, primarily ~~higher excess deferred tax amortization and increased~~lower production tax ~~credits.~~credits related to the expiration of a 10-year credit-qualifying period on certain facilities and less wind generation.

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


		Three Months Ended				Nine Months Ended					Three Months Ended						Six Months Ended
		September 30,									June 30,						June 30,
		2020		2019		2020		2019			2021		2020		Variance		2021		2020		Variance
		(Dollars in millions, where applicable)									(In millions)
Operating revenues	Operating revenues	$	94.9	$	93.6	$	563.2	$	569.7	Operating revenues	$	153.9	$	141.7	9	%	$	504.3	$	468.3	8	%
Purchased natural gas sold	Purchased natural gas sold	35.0		35.6		290.3		305.6		Purchased natural gas sold	70.9		64.6		10	%	273.1		255.2		7	%
Taxes, other than income	Taxes, other than income	3.8		3.2		23.1		20.7		Taxes, other than income	6.4		6.3		2	%	20.3		19.4		5	%
Adjusted gross margin	Adjusted gross margin	56.1		54.8		249.8		243.4		Adjusted gross margin	76.6		70.8		8	%	210.9		193.7		9	%
Operating expenses:	Operating expenses:									Operating expenses:
Operation and maintenance	Operation and maintenance	46.9		44.4		135.9		134.3		Operation and maintenance	46.0		43.1		7	%	97.2		89.1		9	%
Depreciation, depletion and amortization	Depreciation, depletion and amortization	21.3		19.9		63.1		59.1		Depreciation, depletion and amortization	20.3		21.0		(3)	%	42.7		41.8		2	%
Taxes, other than income	Taxes, other than income	6.3		6.1		18.5		17.9		Taxes, other than income	6.7		6.0		12	%	13.8		12.1		14	%
Total operating expenses	Total operating expenses	74.5		70.4		217.5		211.3		Total operating expenses	73.0		70.1		4	%	153.7		143.0		7	%
Operating income (loss)		(18.4)		(15.6)		32.3		32.1
Operating income										Operating income	3.6		.7		NM		57.2		50.7		13	%
Other income	Other income	2.2		1.7		6.6		5.3		Other income	2.4		4.1		(41)	%	4.0		4.4		(9)	%
Interest expense	Interest expense	9.3		8.9		27.5		26.1		Interest expense	9.1		9.0		1	%	18.2		18.1		1	%
Income (loss) before income taxes	Income (loss) before income taxes	(25.5)		(22.8)		11.4		11.3		Income (loss) before income taxes	(3.1)		(4.2)		26	%	43.0		37.0		16	%
Income taxes		(7.9)		(7.2)		(2.4)		(3.3)
Income tax (benefit) expense										Income tax (benefit) expense	(2.4)		(3.2)		25	%	7.5		5.6		34	%
Net income (loss)	Net income (loss)	$	(17.6)	$	(15.6)	$	13.8	$	14.6	Net income (loss)	$	(.7)	$	(1.0)	26	%	$	35.5	$	31.4	13	%
Volumes (MMdk)
Retail sales:
Residential		4.4		4.1		41.8		44.3
Commercial		4.0		4.2		29.1		31.5
Industrial		.9		.9		3.4		3.6
		9.3		9.2		74.3		79.4
Transportation sales:
Commercial		.3		.3		1.4		1.5
Industrial		39.6		45.7		115.4		117.9
		39.9		46.0		116.8		119.4
Total throughput		49.2		55.2		191.1		198.8
Average cost of natural gas per dk		$	3.75	$	3.88	$	3.90	$	3.85

*NM - not meaningful

3736

Index


Operating statistics	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Volumes (MMdk)
Retail sales:
Residential	9.0		9.7		37.8		37.4
Commercial	6.5		6.3		25.1		25.1
Industrial	1.1		1.0		2.6		2.5
	16.6		17.0		65.5		65.0
Transportation sales:
Commercial	.4		.4		1.1		1.1
Industrial	38.9		30.2		82.8		75.8
	39.3		30.6		83.9		76.9
Total throughput	55.9		47.6		149.4		141.9
Average cost of natural gas per dk	$	4.26	$	3.81	$	4.17	$	3.93

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 ~~September~~June 30, ~~2020,~~2021, Compared to Three Months Ended ~~September~~June 30, ~~2019~~2020 Natural gas distribution's seasonal loss ~~increased $2.0 million (13 percent)~~decreased $300,000 as a result of:

Adjusted gross margin: Increase of ~~$1.3~~$5.8 million, ~~largely the~~as a result of approved rate relief in certain jurisdictions of $3.3 million, increased transportation revenues of $1.0 million due to higher volumes to electric generation customers and higher ~~conservation revenue, which offsets the conservation expense in operation~~basic service charge of $500,000 due to customer growth. Lower retail sales volumes of approximately 2.1 percent, primarily to residential customers, were offset by weather normalization and ~~maintenance expense.~~decoupling mechanisms.

Operation and maintenance: Increase of ~~$2.5~~$2.9 million, primarily due to higher payroll-related costs of $2.6 million, largely stock-based compensation expense and health care costs, and higher ~~conservation~~ expenses ~~being recovered in revenue and the write-off of an abandoned project in the third quarter of 2020.~~for new software.

Depreciation, depletion and amortization: ~~Increase~~Decrease of ~~$1.4~~$700,000, resulting from decreased depreciation rates in certain jurisdictions of $2.0 million, ~~resulting from~~partially offset by increased property, plant and equipment ~~balances.~~balances from growth and replacement projects placed in service.

Taxes, other than income: Increase of $700,000, driven by higher property taxes in certain jurisdictions.

Other income: Decrease of $1.7 million, as a result of lower returns on certain of the Company's benefit plan investments of $1.4 million and decreased interest income related to the recovery of purchased gas adjustment balances.

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

~~Other~~Income tax benefit: Decrease of $800,000, due to lower permanent tax adjustments and a decrease in the seasonal loss before income taxes.

Six Months Ended June 30, 2021, Compared to Six Months Ended June 30, 2020 Natural gas distribution earnings increased $4.1 million as a result of:

Adjusted gross margin: Increase of $17.2 million, as a result of approved rate relief in certain jurisdictions of $9.0 million; $4.6 million due to increased retail sales volumes of approximately 0.8 percent across all customer classes, including the benefit of weather normalization and decoupling mechanisms in certain jurisdictions; increased transportation revenues of $1.6 million due to higher volumes to electric generation customers; and higher non-regulated revenues.

Operation and maintenance: Increase of $8.1 million, primarily due to higher payroll-related costs of $5.4 million, largely stock-based compensation expense and health care costs; 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 of $1.4 million; and higher expenses for new software.

Depreciation, depletion and amortization: Increase of $900,000, resulting from increased property, plant and equipment balances from growth and replacement projects placed in service, partially offset by decreased depreciation rates in certain jurisdictions of $2.0 million.

Taxes, other than income: Increase of ~~$500,000~~$1.7 million, due in part to higher property taxes in certain jurisdictions of $1.2 million, as ~~a result~~well as higher payroll taxes driven by increased payroll-related costs.

Other income: Decrease of ~~higher returns on certain of the Company's benefit plan investments and decreased pension and postretirement expense, partially offset~~$400,000 driven by decreased interest income related to the recovery of purchased gas ~~cost~~ adjustment ~~balances.~~

~~Interest expense:~~ ~~Increase~~balances of ~~$400,000 driven by higher debt balances.~~

~~Income taxes:~~ ~~Increase in income tax benefits of $700,000 due to an increase in the seasonal loss.~~

~~Nine Months Ended September 30, 2020, Compared to Nine Months Ended September 30, 2019~~ ~~Natural gas distribution earnings decreased $800,000 (6 percent) as a result of:~~

~~Adjusted gross margin:~~ ~~Increase of $6.4~~$1.0 million, largely the result of approved rate recovery in certain jurisdictions and higher conservation revenue, which offsets the conservation expense in operation and maintenance expense. Weather normalization and conservation adjustments in certain jurisdictions were mostly offset by decreased retail sales volumes of approximately 6.3 percent across all customer classes due to warmer winter weather.

~~Operation and maintenance:~~ ~~Increase of $1.6 million, primarily higher payroll-related costs, the write-off of an abandoned project in the third quarter of 2020 and higher conservation expenses being recovered in revenue.~~

~~Depreciation, depletion and amortization:~~ ~~Increase of $4.0 million as a result of increased property, plant and equipment balances.~~

~~Taxes, other than income:~~ ~~Increase of $600,000 due to higher property taxes.~~

~~Other income:~~ ~~Increase of $1.3 million, primarily decreased pension and postretirement expense and the absence of the write-down of a non-utility investment in the second quarter of 2019, as discussed in Note 13,~~ partially offset by ~~lower~~higher returns on certain of the Company's benefit plan ~~investments and decreased interest income related to the recovery of purchased gas cost adjustment balances.~~investments.

Index

Interest expense: ~~Increase of $1.4 million from higher long-term debt balances, partially offset by lower short-term debt balances.~~Comparable to the same period in the prior year.

Income ~~taxes:~~tax expense: Increase of ~~$900,000~~$1.9 million, primarily due to ~~permanent tax adjustments.~~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 providing safe and reliable service while ensuring the health and safety of its employees, customers and the communities in which it operates. In ~~response to the pandemic,~~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. The~~bills, and continues to adjust and reduce these measures in 2021. In April 2020, the Company ~~also~~ waived late payment fees ~~effective April 1, 2020,~~ to help customers experiencing financial hardships. As of January 1, 2021, the Company reinstated disconnects and late payment fees to certain customer classes in seven of its eight states of operation. The disconnect process for the remaining customers is expected to resume in the second half of 2021. As a consequence of the suspended disconnects and waived late fees, the Company's cash flows and collection of receivables have been ~~affected.~~affected but impacts have not been material. The Company ~~reinstated disconnects and late payment fees in five of its eight states effective September 1, 2020. The Company has~~ 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, ~~partially offset by increased residential demand. The~~which has begun to transition back to historic levels. In 2021, the Company ~~expects this trend on demand~~started to ~~continue throughout the pandemic. The Company temporarily implemented cost containment measures~~scale back certain restrictions put in place in response to the COVID-19 pandemic, including ~~reduced~~ employee travel and temporary delays in non-essential training for ~~employees, as well as delays in filling open positions and contract work.~~employees. The Company ~~has~~ 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; however, the~~operates and has since withdrawn its applications in two of those jurisdictions. The Company has ~~not~~ deferred ~~any~~an immaterial amount of costs related to the pandemic to date. ~~The Company's outstanding filings by jurisdiction related to the COVID-19 pandemic are discussed in Note 18.~~

~~Index~~

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. ~~Customer~~In 2020, these segments experienced retail customer growth ~~is expected~~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. On July 1, 2021, the Company filed in North Dakota, and provided a courtesy copy to South Dakota, an integrated resource plan for the electric segment, which included the Company's plans for future resources to meet customer demand.

These segments are exposed to energy price ~~volatility.~~volatility and may be impacted by changes in oil and natural gas exploration and production activity. 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. ~~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 ~~the~~ oil and natural gas production levels.

In February 2019, the Company announced ~~that it intends to retire~~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 ~~retirements are expected to be in early~~Company ceased operations on March 31, 2021, ~~for~~of Unit 1 at Lewis & Clark Station in Sidney, ~~Montana,~~Montana. The Company has completed pre-decommissioning activities and commenced decommissioning of Unit 1 at Lewis & Clark in ~~early 2022 for~~July 2021. The retirement of Units 1 and 2 at Heskett Station near Mandan, North ~~Dakota.~~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. ~~Heskett Unit 4 was included~~

The Company continues to monitor legislation related to clean energy standards that may impact its segments. In Oregon, an executive order issued in March 2020 requires the ~~Company's integrated resource plan submitted~~state to reduce GHG emissions 45 percent below 1990 levels by 2035 and 80 percent below 1990 levels by 2050. State agencies impacted by the order will continue to work through the end of 2021 on the rule-making necessary for compliance. Until the rule-making is completed, compliance impacts to the ~~NDPSC~~Company remain uncertain. In Washington, the Climate Commitment Act signed into law in ~~July 2019. On August 28, 2019, the Company filed for an advanced determination~~May 2021 requires natural gas distribution companies to reduce overall GHG emissions 45 percent below 1990 levels by 2030, 70 percent below 1990 levels by 2040 and 95 percent below 1990 levels by 2050, which may be achieved through increased energy efficiency and conservation measures, purchased emission allowances and offsets, and purchase of ~~prudence with the NDPSC for Heskett Unit 4. This request was approved by the NDPSC on August 5, 2020. Heskett Unit 4 is expected to be placed into service in 2023.~~renewable natural gas. The Company ~~filed,~~has begun reviewing compliance options and expects the ~~commissions approved, requests with the NDPSC, MTPSC and SDPUC~~compliance costs for ~~the usage of deferred accounting for the costs related to the retirement of Unit 1 at Lewis & Clark Station and Units 1 and 2 at Heskett Station.~~these legislated actions will be recovered through customer rates.

The Company continues to be focused on the regulatory recovery of its ~~investments. The Company files~~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 ~~18.~~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 August 31, 2021, and is currently in negotiations.

Index

Pipeline

Strategy and challenges The pipeline segment provides natural gas transportation, ~~gathering~~underground storage and ~~underground storage~~energy-related services, as discussed in Note ~~16.~~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 ~~and placed into service~~ the following organic growth projects in ~~2020 and 2019:~~2020:

•In September 2020, ~~and November 2019,~~ Phase II ~~and Phase I, respectively,~~ of the Line Section 22 Expansion project in the Billings, Montana, ~~area.~~area was placed in service. The ~~total project~~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, ~~increased capacity by 175 MMcf per day.~~

•~~In September 2019, the Demicks Lake project~~was placed in ~~McKenzie County, North Dakota,~~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 ~~to increase~~on increased pipeline safety regulations and ~~reduce~~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 by including a quantitative analysis of the GHG emissions associated with a pipeline replacement project. At this time, no accepted methodology for a GHG significance calculation has been established. The Company is monitoring the progress of these initiatives and is assessing the potential impacts they may have on its business processes, current and future projects, results of operations and disclosures.

The pipeline segment is also subject to extensive regulation including certain operational compliance, permit terms and system integrity. The Company continues to actively evaluate cybersecurity processes and procedures, including recent changes in the industry's cybersecurity regulations, for opportunities to further strengthen its cybersecurity protections. Implementation of enhancements and additional requirements is ongoing. 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 and physical modifications to existing facilities necessary for new requirements including those that became 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 projects potentially causing lost revenues and/or increased costs. The Company ~~continues to~~ proactively ~~monitor~~monitors and ~~plan~~plans for ~~the~~ material lead times ~~as well as work~~and works with manufacturers and suppliers to help mitigate the risk of delays due to extended lead times.

The pipeline segment is subject to extensive regulation including certain operational, environmental and system integrity regulations, as well as various permit terms and operational compliance conditions. In September 2019, the Pipeline and Hazardous Materials Safety Administration 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 that became effective July 1, 2020; however, due to the COVID-19 pandemic, enforcement of the initial requirements will not begin until January 1, 2021. The segment is evaluating procedure changes and implementation of physical modifications of existing facilities necessary for additional requirements that will become effective July 1, 2021. The segment is faced with the ongoing process of reviewing existing permits and easements, as well as securing new permits and easements as

~~Index~~

necessary to meet current demand and future growth opportunities. Exposure to pipeline opposition groups could also cause negative impacts on the segment with increased costs and potential delays to project completion.

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.

Index

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


		Three Months Ended				Nine Months Ended					Three Months Ended						Six Months Ended
		September 30,									June 30,						June 30,
		2020		2019		2020		2019			2021		2020		Variance		2021		2020		Variance
		(Dollars in millions)									(In millions)
Operating revenues	Operating revenues	$	35.7	$	36.4	$	107.2	$	105.1	Operating revenues	$	35.6	$	35.7	—	%	$	71.8	$	71.5	—	%
Operating expenses:	Operating expenses:									Operating expenses:
Operation and maintenance	Operation and maintenance	15.4		16.1		45.4		47.5		Operation and maintenance	16.1		15.1		7	%	31.3		30.1		4	%
Depreciation, depletion and amortization	Depreciation, depletion and amortization	5.2		5.6		16.5		15.6		Depreciation, depletion and amortization	5.2		5.3		(2)	%	10.3		11.2		(8)	%
Taxes, other than income	Taxes, other than income	3.3		3.3		9.9		10.0		Taxes, other than income	3.2		3.1		3	%	6.6		6.6		—	%
Total operating expenses	Total operating expenses	23.9		25.0		71.8		73.1		Total operating expenses	24.5		23.5		4	%	48.2		47.9		1	%
Operating income	Operating income	11.8		11.4		35.4		32.0		Operating income	11.1		12.2		(9)	%	23.6		23.6		—	%
Other income	Other income	.2		.1		1.2		.9		Other income	1.9		1.0		90	%	2.8		1.0		180	%
Interest expense	Interest expense	1.9		1.8		5.7		5.3		Interest expense	1.9		1.9		—	%	3.9		3.9		—	%
Income before income taxes	Income before income taxes	10.1		9.7		30.9		27.6		Income before income taxes	11.1		11.3		(2)	%	22.5		20.7		9	%
Income taxes		2.1		2.0		6.6		5.9
Income tax expense										Income tax expense	1.9		2.3		(17)	%	4.4		4.4		—	%
Net income	Net income	$	8.0	$	7.7	$	24.3	$	21.7	Net income	$	9.2	$	9.0	3	%	$	18.1	$	16.3	11	%
Transportation volumes (MMdk)		108.9		111.1		316.2		319.9
Natural gas gathering volumes (MMdk)		2.0		3.6		7.4		10.5
Customer natural gas storage balance (MMdk):
Beginning of period		19.1		11.4		16.2		13.9
Net injection		14.0		12.8		16.9		10.3
End of period		33.1		24.2		33.1		24.2


Operating statistics	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2021	2020	2021	2020
Transportation volumes (MMdk)	118.7	95.6	229.5	207.3
Natural gas gathering volumes (MMdk)	—	2.1	—	5.4
Customer natural gas storage balance (MMdk):
Beginning of period	5.2	3.8	25.5	16.2
Net injection (withdrawal)	10.8	15.3	(9.5)	2.9
End of period	16.0	19.1	16.0	19.1

Three Months Ended ~~September~~June 30, ~~2020,~~2021, Compared to Three Months Ended ~~September~~June 30, ~~2019~~2020 Pipeline earnings increased ~~$300,000 (3 percent)~~$200,000 as a result of:

Revenues: ~~Decrease of $700,000, largely attributable~~Comparable to ~~lower~~the same period in the prior year. Revenues were positively impacted by higher non-regulated project revenues. Offsetting the increase were decreased gathering revenues ~~and the absence~~ of ~~gathering revenue~~$1.2 million due to the ~~sale~~sales of the Company's ~~regulated~~natural gas gathering assets ~~as discussed later. These decreases were partially offset by revenue from organic growth projects, as previously discussed,~~in 2020 and ~~increased natural gas storage volumes.~~decreased storage-related revenues.

Operation and maintenance: ~~Decrease~~Increase of ~~$700,000,~~$1.0 million, primarily due to ~~lower~~higher non-regulated project costs of $600,000 associated with ~~lower~~higher non-regulated project ~~revenue, partially offset by~~revenues, as previously discussed, and higher payroll-related costs, largely stock-based compensation expense and health care costs.

Depreciation, depletion and amortization: ~~Decrease of $400,000 as a result of~~Comparable to the ~~absence of~~same period in the ~~assets associated with sale of the Company's regulated gathering assets, as discussed later.~~prior year.

Taxes, other than income: Comparable to the same period in the prior year.

Other income: Increase of $900,000, primarily the result of higher AFUDC.

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

Income tax expense: Decrease of $400,000, primarily resulting from an energy efficiency tax benefit.

Six Months Ended June 30, 2021, Compared to Six Months Ended June 30, 2020 Pipeline earnings increased $1.8 million as a result of:

Revenues: Comparable to the same period in the prior year. Revenues were positively impacted by an increase to storage-related revenues of $1.8 million and higher non-regulated project revenues. These increases were largely offset by lower gathering revenues of $3.3 million due to the sales of the Company's natural gas gathering assets in 2020.

Operation and maintenance: Increase of $1.2 million, primarily due to higher payroll-related costs of $1.1 million, largely stock-based compensation expense and health care costs, and higher non-regulated project costs associated with higher non-regulated project revenue, as previously discussed.

Depreciation, depletion and amortization: Decrease of $900,000, largely resulting from the absence of natural gas gathering assets, as previously discussed, offset in part by higher property, plant and equipment balances related to organic growth projects.

Taxes, other than income: Comparable to the same period in the prior year.

Index

Other income: Increase of $1.8 million, primarily the result of higher AFUDC.

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

Income taxes: Comparable to the same period in the prior year.

~~Nine Months Ended September 30, 2020, Compared to Nine Months Ended September 30, 2019~~ ~~Pipeline earnings increased $2.6 million (12 percent) as a result of:~~

~~Revenues:~~ ~~Increase of $2.1 million, largely attributable to increased revenue from organic growth projects, as previously discussed; increased rates effective May 1, 2019,~~ Income tax expense was higher due to ~~the FERC rate case finalized in September 2019; and~~ increased natural gas storage volumes. These increases were partially offset by lower non-regulated project revenues and lower revenues due to the sale of the Company's regulated gathering assets, as discussed later.

~~Index~~

~~Operation and maintenance:~~ Decrease of $2.1 million, primarily lower non-regulated project costs associated with lower non-regulated project revenue, as previously discussed, and lower expenses due to the sale of the Company's regulated gathering assets, as discussed later, partially offset by higher payroll-related costs.

~~Depreciation, depletion and amortization:~~ Increase of $900,000, primarily due to higher depreciation rates effective May 1, 2019, due to the FERC rate case finalized in September 2019, and increased property, plant and equipment balances, largely the result of organic growth projects that have been placed into service, partially offset by the absence of the assets associated with the sale of the Company's regulated gathering assets, as discussed later.

~~Taxes, other than income:~~ ~~Comparable to the same period in the prior year.~~

~~Other income:~~ ~~Increase of $300,000 resulting from increased AFUDC.~~

~~Interest expense:~~ ~~Increase of $400,000 driven by increased long-term debt balances.~~

~~Income taxes:~~ ~~Increase of $700,000, largely due to the increase in~~ income before income ~~taxes.~~taxes which was largely offset by an energy efficiency tax benefit.

Outlook The Company continues to ~~successfully~~ 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. ~~The Company experienced minor delays on capital~~Overall, the pipeline business has had minimal impacts due to COVID-19 and maintenance projects during the first quarter of 2020 but resumed project activities in the second quarter of 2020. Work has progressed on these projects as scheduled through the third quarter of 2020. 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. ~~Reduced global oil demand due to the COVID-19 pandemic and disagreements in oil supply levels between the Organization of the Petroleum Exporting Countries and other countries led to record~~Although low oil prices ~~during the first quarter of 2020; however, oil prices started to recover during the second and third quarters of~~slowed 2020 ~~as states and other countries started to reopen. Although the recent decrease in oil prices has slowed~~ drilling activities and ~~also~~ led to the shut-in of certain wells, the recovery of oil prices has allowed producers ~~have begun~~ to bring wells back online and associated natural gas production in the Bakken has returned to near pre-pandemic levels.

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~~has moderated the ~~need for storage services and put downward~~ pressure on natural gas prices and ~~minimized~~continues to minimize 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. ~~Construction is expected~~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 ~~begin in early 2021 with an estimated in-service date late in 2021, which is dependent on regulatory~~meet forecasted natural gas growth levels and ~~environmental permitting. On~~customer needs. In February ~~14,~~ 2020, the Company filed with the FERC its application for this project. ~~On July 28, 2020,~~In June 2021, the Company ~~filed an amendment to its application with~~received a FERC order issuing a certificate of public convenience and necessity for the project and in July 2021, the FERC ~~reflecting~~granted the Company a ~~decrease~~notice to proceed with construction. Construction began in July 2021 and is expected to be completed by the ~~design capacity from 350 MMcf per day to 250 MMcf per day by reducing compression due to delays in forecasted growth levels~~end of 2021 assuming favorable weather conditions.

In July 2021, the Company announced plans for a natural gas ~~production~~pipeline expansion project in ~~the Bakken region. Further, as a result~~eastern North Dakota. The Wahpeton Expansion project consists of ~~the forecasted Bakken oil~~60 miles of pipe and ~~associated natural gas production delays driven~~ancillary facilities and is designed to increase capacity by COVID-19 pandemic-related demand decreases and commodity price impacts, the Company negotiated adjustments to certain long-term customer commitments. A portion of the first-year committed volumes have been delayed one year and, through a combination of rate, volume and term adjustments, the overall project return profile remains unchanged. These long-term commitments support the project at a design capacity of 25020 MMcf per day which ~~can be readily expanded in the future when forecasted growth levels rebound. FERC approval of the project~~ is ~~anticipated~~supported by long term customer agreements with Montana-Dakota and its utility customers. Construction is expected to begin in early ~~2021.~~

~~In December 2019, the Company entered into~~2024, depending on regulatory approvals, with a ~~purchase and sale agreement with Scout Energy Group II, LP to divest of its regulated gathering assets located~~completion date later in Montana and North Dakota, which includes approximately 400 miles of natural gas gathering pipelines and associated compression and ancillary facilities. On January 8, 2020, the Company filed an application with the FERC to authorize abandonment by sale of the gathering assets and received FERC approval on April 2, 2020. The sale closed in April 2020 with an effective date of January 1, 2020. Pursuant to the FERC's approval of the abandonment by sale, proposed accounting treatment was filed with the FERC in October 2020 and is subject to final approval.2024.

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 ~~16.~~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.

~~Index~~

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. During 2020, the Company made strategic asset purchases that contributed approximately 115 million tons of aggregate reserves. In the first quarter of ~~2019,~~2021, the Company ~~purchased additional aggregate deposits in Texas that are~~received the necessary permitting to expand its operation capabilities at its Honey Creek quarry near Austin, Texas. Honey Creek contains an estimated ~~to contain a~~ 40-year supply of ~~high-quality aggregates for projected local market needs. Also, during 2019, the Company increased aggregate reserves by approximately 40 million tons largely due to strategic asset purchases.~~aggregates.

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.~~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

Index

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 ~~find~~recruit and train a skilled workforce to meet the needs of increasing demand and seasonal work.

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


		Three Months Ended				Nine Months Ended					Three Months Ended						Six Months Ended
		September 30,									June 30,						June 30,
		2020		2019		2020		2019			2021		2020		Variance		2021		2020		Variance
		(Dollars in millions)									(In millions)
Operating revenues	Operating revenues	$	822.5	$	869.5	$	1,705.9	$	1,692.7	Operating revenues	$	633.8	$	621.1	2	%	$	899.5	$	883.3	2	%
Cost of sales:	Cost of sales:									Cost of sales:
Operation and maintenance	Operation and maintenance	612.4		668.9		1,351.2		1,384.4		Operation and maintenance	497.0		487.9		2	%	740.2		738.7		—	%
Depreciation, depletion and amortization	Depreciation, depletion and amortization	22.2		19.7		63.0		55.2		Depreciation, depletion and amortization	24.3		21.2		15	%	46.7		40.8		14	%
Taxes, other than income	Taxes, other than income	13.6		13.4		36.6		34.8		Taxes, other than income	13.9		13.6		2	%	23.6		23.0		3	%
Total cost of sales	Total cost of sales	648.2		702.0		1,450.8		1,474.4		Total cost of sales	535.2		522.7		2	%	810.5		802.5		1	%
Gross margin	Gross margin	174.3		167.5		255.1		218.3		Gross margin	98.6		98.4		—	%	89.0		80.8		10	%
Selling, general and administrative expense:	Selling, general and administrative expense:									Selling, general and administrative expense:
Operation and maintenance	Operation and maintenance	23.7		22.7		67.5		64.6		Operation and maintenance	24.2		21.6		12	%	46.0		43.8		5	%
Depreciation, depletion and amortization	Depreciation, depletion and amortization	1.3		.9		3.6		2.4		Depreciation, depletion and amortization	1.0		1.3		(23)	%	2.1		2.3		(9)	%
Taxes, other than income	Taxes, other than income	.8		.9		4.0		3.7		Taxes, other than income	1.0		.8		25	%	3.4		3.2		6	%
Total selling, general and administrative expense	Total selling, general and administrative expense	25.8		24.5		75.1		70.7		Total selling, general and administrative expense	26.2		23.7		11	%	51.5		49.3		4	%
Operating income	Operating income	148.5		143.0		180.0		147.6		Operating income	72.4		74.7		(3)	%	37.5		31.5		19	%
Other income	Other income	.3		.2		1.0		1.5		Other income	1.2		1.9		(37)	%	1.1		.7		57	%
Interest expense	Interest expense	5.0		6.4		15.9		18.6		Interest expense	4.8		5.7		(16)	%	9.5		10.9		(13)	%
Income before income taxes	Income before income taxes	143.8		136.8		165.1		130.5		Income before income taxes	68.8		70.9		(3)	%	29.1		21.3		37	%
Income taxes		36.5		34.2		43.0		33.2
Income tax expense										Income tax expense	17.4		17.9		(3)	%	8.5		6.5		31	%
Net income	Net income	$	107.3	$	102.6	$	122.1	$	97.3	Net income	$	51.4	$	53.0	(3)	%	$	20.6	$	14.8	39	%
Sales (000's):
Aggregates (tons)		10,722		11,860		23,678		24,815
Asphalt (tons)		3,542		3,317		5,935		5,396
Ready-mixed concrete (cubic yards)		1,266		1,372		3,089		3,124


Operating statistics	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2021	2020	2021	2020
Sales (000's):
Aggregates (tons)	9,533	8,739	14,341	12,956
Asphalt (tons)	2,091	2,166	2,385	2,393
Ready-mixed concrete (cubic yards)	1,201	1,119	1,933	1,823

Three Months Ended ~~September~~June 30, ~~2020,~~2021, Compared to Three Months Ended ~~September~~June 30, ~~2019~~2020 Construction materials and contracting's earnings ~~increased $4.7~~decreased $1.6 million ~~(5 percent)~~ as a result of:

Revenues: ~~Decrease~~Increase of ~~$47.0~~$12.7 million, primarily the result of ~~lower~~higher material revenues for aggregates and ready-mixed concrete due to strong demand and large projects in certain regions. The increase was partially offset by decreased contracting services ~~and material sales, which were negatively impacted by wildfires and tropical storms, partially offset by~~of $22.5 million due to less favorable weather conditions in certain regions in 2021 and delays in the start of some ~~states.~~project work.

~~Index~~

Gross margin: ~~Increase of $6.8 million due~~Comparable to higher contracting bid margins and higher realized material margins, largely from asphalt and asphalt-related products as a result of lower energy-related costs and strong pricing for ready-mixed concretethe same period in ~~most markets, partially~~the prior year. Gross margin was positively impacted by increased revenues, which was mostly offset by ~~lower gains on asset sales in certain regions.~~higher depreciation expense.

Selling, general and administrative expense: Increase of ~~$1.3~~$2.5 million ~~primarily due to~~driven by higher payroll-related costs, largely stock-based compensation expense and ~~depreciation expense.~~health care costs.

Other income: Decrease of $700,000, largely due to lower returns on the Company's benefit plan investments.

Interest expense: Decrease of $900,000 due to lower average interest rates.

Income tax expense: Comparable to the same period in the prior year.

~~Interest expense:~~Index ~~Decrease of $1.4 million resulting from lower average interest rates and lower average debt balances.~~

~~Income taxes:~~ ~~Increase of $2.3 million, largely due to the increase in income before income taxes.~~

~~Nine~~Six Months Ended ~~September~~June 30, ~~2020,~~2021, Compared to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 Construction materials and contracting's earnings increased ~~$24.8~~$5.8 million ~~(25 percent)~~ as a result of:

Revenues:Increase of ~~$13.2~~$16.2 million, primarily the result of higher material ~~sales~~revenues for aggregates and ready-mixed concrete due to ~~an early start~~strong demand, large projects and higher realized prices in certain regions. The increase was partially offset by decreased contracting services of $24.9 million due to ~~the season,~~less favorable weather conditions in certain regions in 2021 and ~~additional revenues associated with~~delays in the ~~businesses acquired, partially offset by the negative impact~~start of ~~wildfires and tropical storms during the third quarter of 2020.~~some project work.

Gross margin: Increase of ~~$36.8~~$8.2 million, largely due to higher revenues, as previously discussed, and higher realized materials margins, primarily aggregates and ready-mixed concrete, and higher contracting bid ~~margins and~~margins. Partially offsetting these increases was higher ~~realized material margins, largely from asphalt and asphalt-related products as a result of lower energy-related costs and strong pricing for ready-mixed concrete in most markets.~~depreciation expense.

Selling, general and administrative expense: Increase of ~~$4.4~~$2.2 million, ~~largely related~~primarily due to higher payroll-related costs of $4.2 million, largely stock-based compensation expense and ~~higher depreciation expense.~~health care costs. Partially offsetting the increase was the recovery of prior bad debt expense of $1.3 million and lower professional services.

Other income: ~~Decrease~~Increase of ~~$500,000~~$400,000 as a result of ~~lower~~higher returns on ~~certain of~~ the Company's benefit plan investments.

Interest expense: Decrease of ~~$2.7~~$1.4 million, ~~resulting from lower average debt balances and~~mainly due to lower average interest rates.

Income ~~taxes:~~tax expense: Increase of ~~$9.8~~$2.0 million, largely due to ~~the~~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. ~~The~~In 2021, the Company ~~has implemented~~continues to implement safety ~~and social distancing~~ measures developed in 2020 for its employees that ~~are~~were not able to work from home and has experienced some inefficiencies and additional costs in relation to these measures, ~~but,~~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 Company will continue to monitor the demand for construction materials and contracting services as such services may be reduced by recessionary impacts of the pandemic as the traditional customers for these services reduce capital expenditures. State and local mandates have been issued in response to the COVID-19 pandemic requiring individuals to stay in place, leading to a reduction in fuel consumption in the United States, which directly reduces fuel tax collections. In addition, states, cities and counties across the country are experiencing low sales tax and other revenues as a result of the COVID-19 pandemic. The reduction in tax collections may impact funds available for public infrastructure projects, which in turn could have a material adverse impact on the Company's results of operations, financial position and cash flows. Meanwhile, a comprehensive infrastructure funding program, if adopted,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 presidential administration and the United States Congress continue working toward an agreement on 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 ~~2020~~2021 and ~~2019,~~2020, the Company made strategic ~~asset~~ purchases ~~and acquired businesses~~ that support the Company's long-term strategy to expand its market presence. In ~~the first quarter of 2020,~~April 2021, the Company acquired ~~the assets of Oldcastle Infrastructure Spokane,~~Mt. Hood Rock, a ~~prestressed-concrete~~construction aggregates business located in ~~Spokane, Washington.~~Portland, Oregon. The Company continues to evaluate additional acquisition ~~opportunities.~~opportunities that would be accretive to earnings of the Company. For more information on the Company's business combinations, see Note 9.10.

The construction materials and contracting segment's backlog at ~~September~~June 30, ~~2020,~~2021, was ~~$571.3~~$912.1 million, ~~down~~which is up slightly from ~~$746.9~~backlog of $875.1 million at ~~September~~June 30, ~~2019.~~2020. The ~~decrease in backlog was largely attributable to a decrease in public infrastructure backlog. The economic uncertainty due to COVID-19~~Company continues to ~~have an impact on certain industries~~monitor bidding activity as it moves into the ~~segment serves, including the unpredictability~~third quarter of ~~the level of tax collections, which the Company believes has led to a reduction in public work bid-letting.~~2021. The Company expects to complete a significant amount of ~~the~~ backlog at ~~September~~June 30, ~~2020,~~2021, during the next 12 months.

~~Index~~

~~All~~One of the labor contracts that the construction materials and contracting segment was negotiating at December 31, 2020, as reported in Items 1 and 2 - Business Properties - General in the ~~2019~~2020 Annual Report, ~~have~~has been ratified.

Construction Services

Strategy and challenges The construction services segment provides inside and outside specialty contracting, as discussed in Note ~~16.~~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

Index

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.

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


		Three Months Ended				Nine Months Ended					Three Months Ended						Six Months Ended
		September 30,									June 30,						June 30,
		2020		2019		2020		2019			2021		2020		Variance		2021		2020		Variance
		(In millions)									(In millions)
Operating revenues	Operating revenues	$	551.0	$	479.6	$	1,562.9	$	1,365.4	Operating revenues	$	525.6	$	497.2	6	%	$	1,044.1	$	1,011.9	3	%
Cost of sales:	Cost of sales:									Cost of sales:
Operation and maintenance	Operation and maintenance	461.7		409.0		1,309.0		1,151.7		Operation and maintenance	442.0		411.1		8	%	869.2		847.3		3	%
Depreciation, depletion and amortization	Depreciation, depletion and amortization	3.9		3.7		11.8		11.1		Depreciation, depletion and amortization	3.9		4.0		(3)	%	7.9		7.9		—	%
Taxes, other than income	Taxes, other than income	17.2		14.1		57.8		44.6		Taxes, other than income	16.3		17.2		(5)	%	35.7		40.6		(12)	%
Total cost of sales	Total cost of sales	482.8		426.8		1,378.6		1,207.4		Total cost of sales	462.2		432.3		7	%	912.8		895.8		2	%
Gross margin	Gross margin	68.2		52.8		184.3		158.0		Gross margin	63.4		64.9		(2)	%	131.3		116.1		13	%
Selling, general and administrative expense:	Selling, general and administrative expense:									Selling, general and administrative expense:
Operation and maintenance	Operation and maintenance	24.9		21.4		72.4		63.9		Operation and maintenance	23.6		23.5		—	%	48.2		47.4		2	%
Depreciation, depletion and amortization	Depreciation, depletion and amortization	1.8		.5		5.9		1.3		Depreciation, depletion and amortization	1.0		2.4		(58)	%	2.3		4.2		(45)	%
Taxes, other than income	Taxes, other than income	1.0		.9		3.8		3.4		Taxes, other than income	1.0		1.1		(9)	%	2.7		2.8		(4)	%
Total selling, general and administrative expense	Total selling, general and administrative expense	27.7		22.8		82.1		68.6		Total selling, general and administrative expense	25.6		27.0		(5)	%	53.2		54.4		(2)	%
Operating income	Operating income	40.5		30.0		102.2		89.4		Operating income	37.8		37.9		—	%	78.1		61.7		27	%
Other income	Other income	.6		.3		1.3		1.4		Other income	1.6		.5		NM		1.8		.7		NM
Interest expense	Interest expense	1.0		1.6		3.3		4.0		Interest expense	.9		1.1		(18)	%	1.8		2.3		(22)	%
Income before income taxes	Income before income taxes	40.1		28.7		100.2		86.8		Income before income taxes	38.5		37.3		3	%	78.1		60.1		30	%
Income taxes		10.3		7.6		25.7		22.8
Income tax expense										Income tax expense	9.6		9.4		2	%	19.4		15.3		27	%
Net income	Net income	$	29.8	$	21.1	$	74.5	$	64.0	Net income	$	28.9	$	27.9	3	%	$	58.7	$	44.8	31	%

*NM - not meaningful

Three Months Ended ~~September~~June 30, ~~2020,~~2021, Compared to Three Months Ended ~~September~~June 30, ~~2019~~2020 Construction services earnings increased ~~$8.7~~$1.0 million ~~(41 percent)~~ as a result of:

Revenues: Increase of ~~$71.4~~$28.4 million, ~~largely the result of~~primarily resulting from higher inside specialty contracting workloads ~~from~~of $24.4 million, or 7.5% more compared to the same period in the prior year, as a result of increased customer demand for manufacturing projects and continued hospitality ~~high-tech and commercial projects, partially due to the businesses acquired. Higher outside~~demand. Outside specialty contracting workloads ~~also increased~~contributed 2.8% more compared to the same period in the prior year as a result of strong demand for utility ~~projects including storm-related~~projects. An increase in equipment sales and leasing of the power line ~~repair~~equipment the Company manufactures also had a positive impact of $2.1 million in the second quarter of 2021.

Gross margin: Decrease of $1.5 million, mainly resulting from contracting margins as a result of higher employee costs in certain regions associated with a shortage of available labor and ~~wildfire restoration work. The increases were~~the absence of higher margin work compared to the second quarter of 2020.

Selling, general and administrative expense: Decrease of $1.4 million, resulting from the recovery of prior bad debt expense of $1.6 million and lower amortization expense of $1.2 million, offset in part by ~~decreased equipment sales~~higher office expense and ~~rentals~~higher payroll-related costs of $300,000, largely stock-based compensation expense and ~~decreased inside specialty contracting customer demand for refinery projects.~~health care costs.

Other income: Increase of $1.1 million, largely due to increased earnings on investments.

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

Income tax expense: Comparable to the same period in the prior year.

Index

~~Gross margin:~~ Increase of $15.4 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, partially offset by an increase in operation and maintenance expense as a direct result of the expenses related to the increased workloads.

~~Selling, general and administrative expense:~~ ~~Increase of $4.9 million due in part to the increased allowance for uncollectible accounts, higher payroll-related costs and higher depreciation expense, partially offset by lower office expenses.~~

~~Other income:~~ ~~Increase of $300,000 as a result of higher gains from asset sales.~~

~~Interest expense:~~ ~~Decrease of $600,000 driven by lower debt balances.~~

~~Income taxes:~~ ~~Increase of $2.7 million, largely due to the increase in income before income taxes.~~

~~Nine~~Six Months Ended ~~September~~June 30, ~~2020,~~2021, Compared to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 Construction services earnings increased ~~$10.5~~$13.9 million ~~(17 percent)~~ as a result of:

Revenues: Increase of ~~$197.5~~$32.2 million, ~~largely the result of higher inside specialty contracting workloads~~primarily resulting from ~~greater customer demand for hospitality, high-tech and commercial projects and~~ higher outside specialty contracting workloads ~~which includes increased~~of $24.3 million, or 8.8% more compared to the same period in the prior year, as a result of strong demand for utility projects. ~~The businesses acquired also~~Inside specialty contracting workloads contributed 1.1% more compared to the ~~increase~~same period in ~~revenues. Partially offsetting~~ the ~~increase was~~prior year as a ~~decrease~~result of increased customer demand for manufacturing projects, continued hospitality demand and the absence in 2021 of an out-of-period adjustment in the first quarter of 2020 to correct an overstatement of operating revenues of $7.7 million. An increase in equipment sales and ~~rentals.~~leasing of the power line equipment the Company manufactures also had a positive impact of $2.4 million in 2021.

Gross margin: Increase of ~~$26.3~~$15.2 million, primarily ~~from~~due to the higher volume of work resulting in an increase in revenues, as previously discussed, partially offset by an increase in operation and maintenance expense as a direct result of the expenses related to the increased workloads. Also ~~negatively impacting gross margin~~contributing to the increase was the absence in 2021 of an out-of-period adjustment in the first quarter of 2020 to correct an overstatement of operating ~~revenue~~revenues of $7.7 million and an understatement of operation and maintenance expense of $1.2 million previously recognized on a construction ~~contract, as discussed in Note 1.~~contract.

Selling, general and administrative expense: ~~Increase~~Decrease of ~~$13.5~~$1.2 million due in part to the ~~increased allowance for uncollectible accounts, as well as~~recovery of bad debt expense of $3.7 million and lower amortization expense of $1.8 million, offset in part by higher payroll-related costs, ~~depreciation~~largely stock-based compensation expense and ~~office expenses.~~health care costs.

Other income: ~~Comparable~~Increase of $1.1 million, largely related to ~~the same period in the prior year.~~increased earnings on investments.

Interest expense: Decrease of ~~$700,000~~$500,000, driven by lower debt ~~balances.~~balances as a result of collections on customer accounts during the construction season.

Income taxes: Increase of ~~$2.9~~$4.1 million, ~~largely due to the~~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. ~~The~~In 2021, the Company ~~has implemented~~continues to implement safety ~~and social distancing~~ measures developed in 2020 for its employees that ~~are~~were not able to work from home and has 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 bid and be awarded work despite the challenging environment, as evidenced by the strong backlog for the segment, as further discussed below. The Company also~~ continues to monitor job progress and service work ~~and has experienced some~~for delays, cancellations and disruptions due to the ~~pandemic.~~pandemic but expects minimal disruptions the remainder of 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 presidential administration and the United States Congress continue working toward an agreement on a comprehensive infrastructure proposal that, if adopted, could positively impact the segment. The Company will continue to monitor the ~~demand for construction services as such services may be reduced by recessionary impacts~~progress of ~~the pandemic as the traditional customers for~~ these ~~services reduce capital expenditures.~~legislative items.

The Company continues to have bidding opportunities for both inside and outside specialty contracting work in ~~2020.~~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 had~~segment's backlog at ~~September~~June 30, ~~2020, of $1.3 billion, up from $1.2 billion at September 30, 2019.~~ was as follows:


	Three Months Ended
	June 30,
	2021		2020
	(In millions)
Inside specialty contracting	$	1,059	$	1,106
Outside specialty contracting	261		200
	$	1,320	$	1,306

The increase in backlog was largely attributable to the new project opportunities that the Company continues to be awarded across its diverse operations, particularly outside specialty contracting from increased utility demand. The Company continues to have strong inside specialty ~~electrical and mechanical~~ contracting ~~in the hospitality, high-tech~~backlog related to commercial industries and public ~~industries. The Company's outside power, communications and natural gas specialty contracting also have a high volume of available work.~~projects. The Company expects to complete a significant amount of the backlog at ~~September~~June 30, ~~2020,~~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 ~~Company's~~segment's backlog.

In support of the Company's strategic plan to grow through acquisitions, the Company acquired PerLectric, Inc., an electrical construction company in Fairfax, Virginia, in the first quarter of 2020. For more information on the Company's business combinations, see Note 9.

~~All of the labor contracts that the construction services segment was negotiating, as reported in Items 1 and 2 - Business Properties - General in the 2019 Annual Report, have been ratified.~~

Index

Other


		Three Months Ended				Nine Months Ended					Three Months Ended						Six Months Ended
		September 30,									June 30,						June 30,
		2020		2019		2020		2019			2021		2020		Variance		2021		2020		Variance
		(In millions)									(In millions)
Operating revenues	Operating revenues	$	3.1	$	2.9	$	8.9	$	13.6	Operating revenues	$	3.4	$	2.9	17	%	$	6.7	$	5.9	14	%
Operating expenses:	Operating expenses:									Operating expenses:
Operation and maintenance	Operation and maintenance	2.3		3.6		6.7		11.8		Operation and maintenance	2.3		2.3		—	%	4.5		4.4		2	%
Depreciation, depletion and amortization	Depreciation, depletion and amortization	.6		.5		1.9		1.5		Depreciation, depletion and amortization	1.1		.6		83	%	2.4		1.3		85	%
Taxes, other than income		—		—		—		.1

Total operating expenses	Total operating expenses	2.9		4.1		8.6		13.4		Total operating expenses	3.4		2.9		17	%	6.9		5.7		21	%
Operating income (loss)	Operating income (loss)	.2		(1.2)		.3		.2		Operating income (loss)	—		—		NM		(.2)		.2		NM
Other income	Other income	.1		.2		.4		.7		Other income	.3		—		NM		.4		.2		100	%
Interest expense	Interest expense	.1		.4		.7		1.5		Interest expense	.1		.3		(67)	%	.2		.6		(67)	%
Income (loss) before income taxes	Income (loss) before income taxes	.2		(1.4)		—		(.6)		Income (loss) before income taxes	.2		(.3)		NM		—		(.2)		NM
Income taxes		(8.5)		(5.4)		(3.4)		(4.1)
Net income		$	8.7	$	4.0	$	3.4	$	3.5
Income tax (benefit) expense										Income tax (benefit) expense	(.9)		1.0		NM		1.6		5.3		(70)	%
Net income (loss)										Net income (loss)	$	1.1	$	(1.3)	NM		$	(1.6)	$	(5.5)	70	%

*NM - not meaningful

Three Months Ended ~~September~~June 30, ~~2020,~~2021, Compared to Three Months Ended ~~September~~June 30, ~~2019~~2020 Other was positively impacted in the second 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.

Six Months Ended June 30, 2021, Compared to Six Months Ended June 30, 2020 During the first six months of 2021, Other ~~as well as~~was positively impacted by lower income tax adjustments related to the Company's consolidated annualized estimated tax ~~rate.~~

~~Nine Months Ended September 30, 2020, Compared to Nine Months Ended September 30, 2019~~rate, partially offset by higher depreciation, depletion and amortization expense for software placed in service. ~~In the first quarter of 2020, insurance activity at the Company's captive insurer decreased, which impacted both operating revenues and operation and maintenance expense.~~ 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, as well as income tax adjustments related to the Company's consolidated annualized estimated tax rate.~~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				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,									June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(In millions)									(In millions)
Intersegment transactions:	Intersegment transactions:									Intersegment transactions:
Operating revenues	Operating revenues	$	7.5	$	8.0	$	50.9	$	51.3	Operating revenues	$	12.4	$	12.3	$	43.4	$	43.3
Operation and maintenance	Operation and maintenance	4.0		4.3		14.4		16.2		Operation and maintenance	4.7		4.5		9.8		10.3
Purchased natural gas sold	Purchased natural gas sold	3.5		3.7		36.5		35.1		Purchased natural gas sold	7.7		7.8		33.6		33.0

For more information on intersegment eliminations, see Note ~~16.~~17.

Liquidity and Capital Commitments

At ~~September~~June 30, ~~2020,~~2021, the Company had cash and cash equivalents of ~~$66.1~~$58.0 million and available borrowing capacity of ~~$652.6~~$611.8 million under the outstanding credit facilities of the Company's subsidiaries. During the first quarter of 2020, short-term capital markets were disrupted as a result of the COVID-19 pandemic. Consequently, the Company temporarily borrowed under its revolving credit agreements in addition to accessing the commercial paper markets and maintained higher than normal cash balances to ensure liquidity during this volatile period. At September 30, 2020, all borrowings under the revolving credit agreements for Montana-Dakota and Centennial had been repaid. 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 if necessary.~~securities.

Index

Cash flows


	Six Months Ended
	June 30,
	2021		2020
	(In millions)
Net cash provided by (used in):
Operating activities	$	182.8	$	261.4
Investing activities	(266.5)		(296.5)
Financing activities	82.1		33.0
Decrease in cash and cash equivalents	(1.6)		(2.1)
Cash and cash equivalents -- beginning of year	59.6		66.5
Cash and cash equivalents -- end of period	$	58.0	$	64.4

Operating activities


	Six Months Ended
	June 30,
	2021		2020		Variance
Components of net cash provided by operating activities:	(In millions)
Income from continuing operations	$	152.3	$	125.3	$	27.0
Depreciation, depletion and amortization	147.4		140.8		6.6
Deferred income taxes	14.5		2.9		11.6
Receivables	(18.5)		(40.8)		22.3
Inventories	(25.3)		(26.3)		1.0
Other current assets	(52.8)		30.8		(83.6)
Accounts payable	(3.9)		13.4		(17.3)
Other current liabilities	(22.6)		26.6		(49.2)
Other noncurrent changes	(8.2)		(10.9)		2.7
Net cash used in discontinued operations	(.1)		(.4)		.3
Net cash provided by operating activities	$	182.8	$	261.4	$	(78.6)

The changes in cash flows from operating activities generally follow the results of operations, as discussed in Business Segment Financial and Operating Data, and ~~also~~ are affected by changes in working capital. ~~Cash~~The decrease in cash flows provided by operating activities in the ~~first nine months of 2020~~previous table was ~~$481.8 million compared to $203.1 millionin the first nine months of 2019~~. ~~The~~largely driven by an increase in ~~cash flows provided~~natural gas purchases, as discussed in Note 13, partially offset by ~~operating activities~~the associated deferred taxes. Also contributing to the decrease was ~~largely driven~~higher working capital requirements at the construction services and construction materials and contracting businesses. Both businesses experienced increased estimated tax payments due to the timing of the payment of quarterly income tax estimates and the deferral of payroll taxes as a result of the COVID-19 pandemic during 2020, and the construction services business experienced an increase in accounts payable from the fluctuation in job activity, which were slightly offset by the stronger collection of accounts receivable at the construction materials and contracting business. Partially offsetting the net decrease in cash flows provided by operating activities was higher earnings at all businesses during the first half of 2021.

Investing activities


	Six Months Ended
	June 30,
	2021		2020		Variance
Components of net cash used in investing activities:	(In millions)
Capital expenditures	$	(261.9)	$	(248.8)	$	(13.1)
Acquisitions, net of cash acquired	(13.7)		(70.7)		57.0
Net proceeds from sale or disposition of property and other	12.4		23.0		(10.6)
Investments	(3.3)		—		(3.3)
Net cash used in investing activities	$	(266.5)	$	(296.5)	$	30.0

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. Partially offsetting the decrease in cash used in investing activities were increased capital expenditures in 2021 at the pipeline business, largely related to the North Bakken Expansion project as discussed previously, and ~~decreased receivables~~ at the construction materials and contracting business ~~as compared~~related to increased operating projects, partially offset by lower capital expenditures at the ~~prior period. Also contributing~~electric business related to ~~the increase of cash flows provided by operating activities was the decrease in natural gas purchases in 2020~~reduced electric transmission projects. The pipeline business also experienced lower proceeds from asset sales as a result of ~~milder temperatures and recovery~~the sale of ~~purchased gas cost adjustment balances at the~~its natural gas distribution business, as well as the Company's deferral of payroll taxes related to the CARES Act, as previously discussed. Partially offsetting these increases was higher cash needs due to increased inventory balances at the construction materials and contracting business resulting from increased aggregate production and a higher average cost per ton.gathering assets during 2020.

Index

~~Investing~~Financing activities ~~Cash flows used in investing activities in the first nine months of 2020 was $461.8 million compared to $448.6 millionin the first nine months of 2019~~.


	Six Months Ended
	June 30,
	2021		2020		Variance
Components of net cash provided by financing activities:	(In millions)
Issuance of short-term borrowings	$	50.0	$	75.0	$	(25.0)
Repayment of short-term borrowings	(50.0)		—		(50.0)
Issuance of long-term debt	171.8		200.4		(28.6)
Repayment of long-term debt	(48.1)		(162.2)		114.1
Proceeds from issuance of common stock	54.6		3.4		51.2
Dividends paid	(85.3)		(83.2)		(2.1)
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	$	82.1	$	33.0	$	49.1

The increase in cash used in investing activities was primarily due to higher cash used in acquisition activity in 2020 compared to 2019 at the construction services business, increased capital expenditures in 2020 at the electric business and lower proceeds on asset sales in 2020 at the construction materials and contracting business. Partially offsetting these increases were decreased capital expenditures in 2020 at the construction materials and contracting business.

~~Financing activities~~ ~~Cash flows used in~~provided by financing activities in the ~~first nine months of 2020 was $20.3 million compared to cash flows provided by financing activities of $258.6 million in the first nine months of 2019. The change~~previous table was largely the result of ~~a decrease in net long-term~~lower repayments on commercial paper and ~~short-term debt borrowings in 2020 as compared to 2019 due to lower working capital needs. In addition,~~revolving credit agreements at Montana-Dakota during ~~the first nine months of 2020,~~2021. During 2021, the Company ~~had decreased~~received increased net proceeds of ~~$102.2~~$51.2 million from the issuance of common stock under ~~its~~the Company's "at-the-market" ~~offering~~offering. Partially offsetting the increase in cash provided by financing activities were decreased long-term borrowings during 2021 at the natural gas distribution business, partially offset by an increase in long-term borrowings at the construction materials and ~~401(k) plan.~~contracting business for acquisitions. In addition, Montana-Dakota 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 ~~2019~~2020 Annual Report. For more information, see Note 1718 and Part II, Item 7 in the ~~2019~~2020 Annual Report.

Capital expenditures

Capital expenditures for the first ~~nine~~six months of ~~2020~~2021 were ~~$473.7~~$283.2 million, which includes the completed business ~~combinations~~combination of a construction aggregates business at the construction materials and contracting ~~and construction services businesses.~~business. Capital expenditures for the first ~~nine~~six months of ~~2019~~2020 were ~~$469.2~~$310.6 million, which includes ~~the completed aggregate deposit purchase at the construction materials and contracting business and~~ 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 ~~$626~~$805.9 million for ~~2020.~~2021. Capital expenditures have been updated from what was previously reported in the ~~2019~~2020 Annual Report to accommodate project timeline and scope changes made throughout ~~2020.~~the first half 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 ~~2020~~2021 the completed business ~~combinations~~combination of ~~an electrical~~a construction ~~company~~aggregates business and ~~a prestressed-concrete business, as well as~~ the North Bakken Expansion project, as previously discussed in Business Segment Financial and Operating ~~Data.~~

~~Estimated capital expenditures for 2020 also include~~Data, as well as 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.

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 ~~2020~~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 if necessary.~~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 ~~September~~June 30, ~~2020.~~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 ~~2019~~2020 Annual Report.

4748

Index

The following table summarizes the outstanding revolving credit facilities of the Company's subsidiaries at ~~September~~June 30, ~~2020:~~2021:


Company	Company	Facility		Facility Limit			Amount Outstanding		Letters of Credit			Expiration Date	Company	Facility		Facility Limit			Amount Outstanding		Letters of Credit			Expiration Date
				(In millions)												(In millions)
Montana-Dakota Utilities Co.	Montana-Dakota Utilities Co.	Commercial paper/Revolving credit agreement	(a)	$	175.0		$	73.6	$	—		12/19/24	Montana-Dakota Utilities Co.	Commercial paper/Revolving credit agreement	(a)	$	175.0		$	97.6	$	—		12/19/24
Cascade Natural Gas Corporation	Cascade Natural Gas Corporation	Revolving credit agreement		$	100.0	(b)	$	52.5	$	2.2	(c)	6/7/24	Cascade Natural Gas Corporation	Revolving credit agreement		$	100.0	(b)	$	25.5	$	2.2	(c)	6/7/24
Intermountain Gas Company	Intermountain Gas Company	Revolving credit agreement		$	85.0	(d)	$	38.5	$	—		6/7/24	Intermountain Gas Company	Revolving credit agreement		$	85.0	(d)	$	23.1	$	—		6/7/24
Centennial Energy Holdings, Inc.	Centennial Energy Holdings, Inc.	Commercial paper/Revolving credit agreement	(e)	$	600.0		$	140.6	$	—		12/19/24	Centennial Energy Holdings, Inc.	Commercial paper/Revolving credit agreement	(e)	$	600.0		$	199.8	$	—		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 ~~September~~June 30, ~~2020,~~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 ~~September~~June 30, ~~2020,~~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. Due to the early impacts of the COVID-19 pandemic on the short-term capital markets, the Company temporarily borrowed under its revolving credit agreements in addition to accessing the commercial paper markets in the first half of 2020. At September 30, 2020, all borrowings under the revolving credit agreements for Montana-Dakota and Centennial had been repaid. As the short-term capital markets have generally rebounded since the early impacts of COVID-19, the Company has not experienced difficulty accessing capital markets, servicing debt or meeting applicable debt covenants.

Total equity as a percent of total capitalization was 5657 percent, 5455 percent and 5658 percent at ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, and December 31, ~~2019,~~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 ~~requirements of~~Company amended the Securities Act and the rules and regulations thereunder. The Company's board of directors currently has authorized the issuance and sale of up to an aggregate of $1.0 billion worth of such securities. The Company's board of directors reviews this authorization on a periodic basis and the aggregate amount of securities authorized for sale may be increased in the future.

~~The Company has a distribution agreement~~Distribution Agreement dated February 22, 2019, with J.P. Morgan Securities LLC and MUFG Securities Americas Inc., as sales ~~agents, with respect to~~agents. This agreement, as amended, allows the offering, issuance and sale of up to ~~10.0~~6.4 million shares of the Company's common stock in connection with an ~~“at-the-market”~~"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. As of June 30, 2021, the ~~agreement.~~Company had capacity to issue up to 4.6 million additional shares of common stock under the "at-the-market" offering program. Proceeds from the sale of shares of common stock under ~~the~~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.

The Company did not issue shares of common stock for the three and nine months ended September 30, 2020, under its "at-the-market" offering. The Company issued 1.3 million and 3.6 million shares of common stock for the three and nine months ended September 30, 2019, respectively, pursuant to the “at-the-market” offering. The Company received net proceeds of $34.6 million and $94.0 million for the three and nine months ended September 30, 2019, respectively. The Company paid commissions to the sales agents of approximately $350,000 and $950,000 for the three and nine months ended September 30, 2019, respectively, in connection with the sales of common stock under the "at-the-market" offering. As of September 30, 2020, the Company had remaining capacity to issue up to 6.4 million additional shares of common stock under the "at-the-market" offering program.

~~Certain~~Details of the Company's ~~debt instruments use LIBOR~~"at-the-market" offering activity was as ~~a benchmark~~follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
	(In millions)
Shares issued	1.1		—		1.8		—
Net proceeds *	$	34.9	$	—	$	54.6	$	—
Issuance costs	$	.4	$	—	$	.7	$	—

* Net proceeds were used 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 thecapital expenditures.

~~Index~~

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 ~~April~~March 8, ~~2020,~~2021, Montana-Dakota entered into a ~~$75.0~~$50.0 million term loan agreement with a LIBOR-based variable interest rate and a maturity date of ~~April~~March 7, ~~2021.~~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.

~~Cascade~~ On June 15, 2020, Cascade issued $50.0 million of senior notes under a note purchase agreement with maturity dates of June 15, 2050 and June 15, 2060, at a weighted average interest rate of 3.66 percent. The agreement contains customary covenants and provisions, including a covenant of Cascade not to permit, at any time, the ratio of total debt to total capitalization to be greater than 65 percent.Index

On October 30, 2020, Cascade issued $25.0 million of senior notes under a note purchase agreement with a maturity date of October 30, 2060, at an interest rate of 3.34 percent. The agreement contains customary covenants and provisions, including a covenant of Cascade not to permit, at any time, the ratio of total debt to total capitalization to be greater than 65 percent.

~~WBI Energy Transmission~~ On October 27, 2020, WBI Energy Transmission contracted to issue an additional $25.0 million of senior notes under its uncommitted private shelf agreement on December 16, 2020, with a maturity date of December 16, 2035, at an interest rate of 3.26 percent. The remaining capacity under this uncommitted private shelf agreement is $105.0 million.

Off balance sheet arrangements

At ~~September~~June 30, ~~2020,~~2021, the Company had no material off balance sheet ~~arrangements as defined by the rules of the SEC.~~arrangements.

Contractual obligations and commercial commitments

There were no material changes in the Company's contractual obligations ~~from continuing operations~~ relating to estimated interest payments, ~~purchase commitments,~~ asset retirement obligations, uncertain tax positions and minimum funding requirements for its defined benefit plans for ~~2020~~2021 from those reported in the ~~2019~~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 June 30, 2021, were:


	Less than 1 year		1-3 years		3-5 years		More than 5 years		Total
	(In millions)
Purchase commitments	$	615.0	$	392.2	$	208.7	$	799.4	$	2,015.3

For more information on contractual obligations and commercial commitments, see Part II, Item 7 in the ~~2019~~2020 Annual Report.

New Accounting Standards

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

Critical Accounting ~~Policies Involving Significant~~ Estimates

The Company's critical accounting ~~policies involving significant~~ estimates include impairment testing of ~~long-lived assets and~~ 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 ~~policies involving significant~~ estimates from those reported in the ~~2019~~2020 Annual Report. For more information on critical accounting ~~policies involving significant~~ estimates, see Part II, Item 7 in the ~~2019~~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

~~Index~~

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 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.

Index

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


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,									June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(In millions)									(In millions)
Operating income	Operating income	$	21.1	$	21.9	$	48.8	$	49.7	Operating income	$	12.8	$	12.8	$	26.7	$	27.6
Adjustments:	Adjustments:									Adjustments:
Operating expenses:	Operating expenses:									Operating expenses:
Operation and maintenance	Operation and maintenance	30.7		30.8		90.5		94.6		Operation and maintenance	31.3		29.0		62.6		59.7
Depreciation, depletion and amortization	Depreciation, depletion and amortization	15.8		14.2		47.0		41.8		Depreciation, depletion and amortization	16.9		15.7		33.0		31.3
Taxes, other than income	Taxes, other than income	4.4		4.1		13.0		12.5		Taxes, other than income	4.5		4.4		9.2		8.7
Total adjustments	Total adjustments	50.9		49.1		150.5		148.9		Total adjustments	52.7		49.1		104.8		99.7
Adjusted gross margin	Adjusted gross margin	$	72.0	$	71.0	$	199.3	$	198.6	Adjusted gross margin	$	65.5	$	61.9	$	131.5	$	127.3

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


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,									June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(In millions)									(In millions)
Operating income (loss)		$	(18.4)	$	(15.6)	$	32.3	$	32.1
Operating income										Operating income	$	3.6	$	.7	$	57.2	$	50.7
Adjustments:	Adjustments:									Adjustments:
Operating expenses:	Operating expenses:									Operating expenses:
Operation and maintenance	Operation and maintenance	46.9		44.4		135.9		134.3		Operation and maintenance	46.0		43.1		97.2		89.1
Depreciation, depletion and amortization	Depreciation, depletion and amortization	21.3		19.9		63.1		59.1		Depreciation, depletion and amortization	20.3		21.0		42.7		41.8
Taxes, other than income	Taxes, other than income	6.3		6.1		18.5		17.9		Taxes, other than income	6.7		6.0		13.8		12.1
Total adjustments	Total adjustments	74.5		70.4		217.5		211.3		Total adjustments	73.0		70.1		153.7		143.0
Adjusted gross margin	Adjusted gross margin	$	56.1	$	54.8	$	249.8	$	243.4	Adjusted gross margin	$	76.6	$	70.8	$	210.9	$	193.7

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to the impact of market fluctuations associated with interest ~~rates.~~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 ~~2019~~2020 Annual Report.

At ~~September~~June 30, ~~2020,~~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 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.

5051

Index

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 ~~September~~June 30, ~~2020,~~2021, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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Index

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 ~~2019~~2020 Annual ~~Report other than as disclosed in Note 19, which is incorporated herein by reference.~~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 ~~2019~~2020 Annual Report that could be materially harmful to the Company's business, prospects, financial condition or financial results if they occur. ~~There~~At June 30, 2021, there were no material changes to the Company's risk factors provided in Part I, Item 1A. Risk Factors in the ~~2019~~2020 Annual Report other than as set forth below.

Technology disruptions or cyberattacks could adversely impact the Company's operations.

The Company uses technology in substantially all aspects of its business operations and requires uninterrupted operation of information technology and operation technology systems, including disaster recovery and backup systems and network infrastructure. While the Company has policies, procedures and processes in place designed to strengthen and protect these systems, they may be vulnerable to physical and cybersecurity failures or unauthorized access, due to:

•hacking,

•human error,

•theft,

•sabotage,

•malicious software,

•ransomware,

•third-party compromise,

•acts of terrorism,

•acts of war,

•acts of nature or

•other causes.

Although there are manual processes in place, should a compromise or system failure occur, interdependencies to technology may disrupt the Company's ability to fulfill critical business functions. This may include interruption of electric generation, transmission and distribution facilities, natural gas storage and pipeline facilities and facilities for delivery of construction materials or other products and services, any of which could adversely affect the Company's reputation, business, cash flows and results of operations or subject the Company to legal or regulatory liabilities and increased costs. Additionally, the Company's electric generation and transmission systems and natural gas pipelines are part of interconnected systems with other operators’ facilities; therefore, a cyber-related disruption in another operator’s system could negatively impact the Company's business.

The Company’s accounting systems and its ability to collect information and invoice customers for products and services could be disrupted. If the Company’s operations are disrupted, it could result in decreased revenues and remediation costs that could adversely affect the Company's results of operations and cash flows.

The Company is subject to cybersecurity and privacy laws and regulations of many government agencies, including TSA, FERC and NERC. NERC issues comprehensive regulations and standards surrounding the security of bulk power systems and continually updates these requirements, as well as establishing new requirements with which the utility industry must comply. As these regulations evolve, the Company may experience increased compliance costs and may be at higher risk for violating these standards. Experiencing a cybersecurity incident could cause the Company to be non-compliant with applicable laws and regulations, causing the Company to incur costs related to legal claims, proceedings and regulatory fines or penalties.

The Company, through the ordinary course of business, requires access to sensitive customer, employee and Company data. While the Company has implemented extensive security measures, including limiting the amount of sensitive information retained, a breach of its systems could compromise sensitive data and could go unnoticed for some time. Such an event could result in negative publicity and reputational harm, remediation costs, legal claims and fines that could have an adverse effect on the Company's financial results. Third-party service providers that perform critical business functions for the Company or have access to sensitive information within the Company also may be vulnerable to security breaches and information technology risks that could adversely affect the Company.

The Company’s information systems experience ongoing and often sophisticated cyberattacks by a variety of sources with the apparent aim to breach the Company's cyber-defenses. Although the incidents the Company has experienced to date have not had a material effect on its business, financial condition or results of operations, such incidents could have a material adverse effect in the future as cyberattacks continue to increase in frequency and sophistication. The Company is continuously reevaluating the need to upgrade and/or replace systems and network infrastructure. These upgrades and/or replacements could adversely impact

Index

operations by imposing substantial capital expenditures, creating delays or outages, or experiencing difficulties transitioning to new systems. System disruptions, if not anticipated and appropriately mitigated, could adversely affect the Company.

The Company's participation in joint venture contracts may have a negative impact on its reputation, business operations, revenues, results of operations, liquidity and cash flows.

The Company enters into certain joint venture arrangements typically to bid and execute particular projects. Generally, these agreements are directly with a third-party client; however, services may be performed by the venture, the joint venture partners or a combination thereof. Engaging in joint venture contracts exposes the Company to risks and uncertainties, some of which are outside the Company's control.

The Company is reliant on joint venture partners to satisfy their contractual obligations, including obligations to commit working capital and equity, and to perform the work as outlined in the agreement. Failure to do so could result in the Company providing additional investments or services to address such performance issues. If the Company is unable to satisfactorily resolve any partner performance issues, the customer could terminate the contract opening the Company to legal liability which could negatively impact the Company's reputation, revenues, results of operations, liquidity and cash flows.

COVID-19 may have a negative impact on the Company's business operations, revenues, results of operations, liquidity and cash flows.

~~In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency.~~ The ongoing COVID-19 pandemic has ~~negatively impacted the global economy, lowered equity market valuations, created significant volatility~~disrupted national, state and disruption in the financial markets, decreased oil and natural gas prices, increased unemployment levels and disrupted certain global supply chains and may continue to negatively impact the economy and the financial markets.local economies. To the extent the COVID-19 pandemic adversely ~~affects~~impacts the Company's ~~business,~~businesses, operations, revenues, liquidity or cash flows, it ~~may~~could also have ~~the~~a heightening effect ~~of heightening many of the~~on other risks described in ~~Part I, Item IA. Risk Factors in~~ the ~~2019~~2020 Annual Report. The degree to which COVID-19 will impact the Company ~~will depend~~depends on future developments, including ~~severity and duration~~the resurgence and/or variants of the ~~outbreak,~~virus, actions taken by governmental authorities, effectiveness of vaccines being administered, and ~~timing of when~~the pace and extent to which the economy recovers and returns to relatively normal ~~economic and~~ operating ~~conditions resume.~~conditions.

The regulated businesses have been deemed essential service providers and have seen some impacts on their businesses; however, the Company could be materially affected if its businesses were no longer deemed critical. Future actions of its regulatory commissions on accounting for COVID-19 pandemic impacts may also affect the Company's future operating results and cash flows. The Company has experienced some impacts to its commercial and industrial electric and natural gas loads associated with reduced economic demand from its customers due to the COVID-19 pandemic, partially offset by increased residential demand. Other factors that could have an impact on the Company's regulated businesses and future operating results, revenues and liquidity include impacts related to the health, safety, and availability of its employees and contractors; continued suspended shut-offs of natural gas in certain regions for nonpayment; continued flexible payment plans for utility customers; counterparty credit; costs and availability of supplies; capital construction and infrastructure operation and maintenance programs; financing plans; pension valuations; travel restrictions; and legal and regulatory matters, including the potential for delayed regulatory filings and recovery of invested capital.

~~The construction~~Company’s businesses have generally been deemed essential service providers and have ~~seen~~experienced some inefficiencies and interruptions on its ~~businesses; however,~~businesses from the pandemic. The Company could be materially ~~impacted~~affected if its ~~businesses~~services were deemed no longer ~~deemed critical. The Company has experienced some impacts to its public infrastructure work bid-letting, which is believed to be associated with reduced fuel, sales~~essential or if conditions worsen and ~~other tax collections due to reduced economic activity and fuel consumption. These businesses could be further impacted in the future~~new restrictions are imposed by site closures, government shut-down measures, additional inefficiencies due to compliance with safety and social distancing measures, public and private sector budget changes and constraints, and the impact of overall macro andnational or local economic conditions on future construction projects. Other factors that could have an impact on the Company's construction businesses and future operating results, revenues and liquidity include impacts related to the health, safety, and availability of its employees and contractors; counterparty credit; costs and availability of supplies; financing plans; pension valuations; and travel restrictions.governmental authorities.

The Company's operations have experienced ~~some~~minor disruptions due to ~~its~~shortages of employees or third-party ~~employees being diagnosed with COVID-19 or other illnesses~~contractors and ~~required quarantine periods for those in close contact to COVID-19. Self-quarantine or actual viral health issues may have a negative impact on the Company's employees and the ability to continue its~~altered work activities under a normal course of business. Moreover, the diagnosis of COVID-19 or other illnesses could require the Company or its business partners to suspend projects, quarantine employees or institute more aggressive preventive measures including closure of job sites. Mandated healthcare protocols could lead to a shortage of employees or altered operations. If a significant percentage of the Company's workforce are unable to work because of illness, quarantine or government restrictions in connection with the COVID-19 pandemic, the Company's operations may be negatively impacted, potentially ~~materially~~ adversely affecting its business, operations, revenues, liquidity and cash flows.

AIn response to the COVID-19 pandemic, the Company implemented a remote work environment for a portion of the Company's ~~workforce has been working remotely~~workforce. As of July 2021, many of these employees have returned to their office; however, some employees have transitioned to a permanent remote work environment. The increase in remote work and longevity of the ~~Company has delayed return~~pandemic may create increased vulnerability to ~~work processes for certain office employees due~~cybersecurity incidents affecting the Company’s ability to ~~the rise in local COVID-19 cases in some operating regions.~~maintain secure operations, communications and productivity. To date, the Company has not experienced any significant delays or information technology ~~disruptions. However, the continued shift of~~disruptions as a ~~portion~~result of the ~~Company's workforce from an on-premise model to a remote model, along~~COVID-19 pandemic.

Other factors associated with the ~~increased amount~~COVID-19 pandemic that could impact the Company's businesses and future operating results, revenues and liquidity include impacts related to the health, safety, and availability of ~~social engineering~~employees and ~~attacks by bad actors taking~~contractors; extended rise in unemployment; public and private sector budget changes and constraints; continued flexible payment plans; counterparty credit; costs and availability of supplies; capital construction and infrastructure operation and maintenance programs; financing plans; pension valuations; travel restrictions; and legal and regulatory matters, including the potential for delayed regulatory filings, accounting for the impacts of the COVID-19 pandemic and recovery of invested capital. The economic and market disruptions resulting from COVID-19 could also lead to greater than normal uncertainty with respect to the realization of estimated amounts, including estimates for backlog, revenue recognition, intangible assets, other investments and provisions for credit losses.

5254

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~~advantage of the virus, could affect the Company's ability to maintain secure operations, communications and productivity in the future.~~

~~Significant changes in energy prices could negatively affect the Company's businesses.~~

Fluctuations in oil, NGL and natural gas production and prices; fluctuations in commodity price basis differentials; supplies of domestic and foreign oil, NGL and natural gas; political and economic conditions in oil-producing countries; actions of the Organization of Petroleum Exporting Countries; demand for oil due to economic slowdowns associated with the COVID-19 pandemic; and other external factors impact the development of oil and natural gas supplies and the expansion and operation of natural gas pipeline systems. 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 at the pipeline business. However, depressed oil and natural gas prices is putting pressure on customer's ability to meet credit requirements and will continue to be a challenge the longer prices remain depressed. Demand from certain industrial customers of the electric business have also been impacted by the depressed prices. Additionally, these impacts could extend to commercial and residential customers of the electric and natural gas distribution businesses located in service areas impacted by decreased oil and natural gas exploration and production activity. Prolonged depressed prices for oil, NGL and natural gas could negatively affect the growth, results of operations, cash flows and asset values of the Company's electric, natural gas distribution and pipeline businesses.

If oil and natural gas prices increase significantly, customer demand for utility, pipeline and construction materials could decline, which could have a material impact on the Company's results of operations and cash flows. While the Company has fuel clause recovery mechanisms for its utility operations in all of the states in which it operates, higher utility fuel costs could significantly impact results of operations if such costs are not recovered. Delays in the collection of utility fuel cost recoveries, as compared to expenditures for fuel purchases, could have a negative impact on the Company's cash flows. High oil prices also affect the cost and demand for asphalt products and related contracting services.

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)

(d)
Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs (2)

~~July~~April 1 through ~~July 31, 2020~~April 30, 2021

—

~~August~~May 1 through ~~August~~May 31, ~~2020~~2021

—

~~September~~June 1 through ~~September~~June 30, ~~2020~~2021

—

Total

—

(1) Represents shares of common stock ~~withheld by~~purchased on the ~~Company to pay taxes~~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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Index

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(b)

MDU Resources Group, Inc. Director Compensation Policy, as amended May 12, 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

+ Management contract, compensatory plan or arrangement.

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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:	~~November~~August 5, ~~2020~~2021	BY:	/s/ Jason L. Vollmer
			Jason L. Vollmer
			Vice President and Chief Financial Officer ~~and Treasurer~~


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

5557


Three Months Ended September 30, 2020	Electric		Natural gas distribution		Pipeline		Construction materials and contracting		Construction services		Other		Total
	(In thousands)
Residential utility sales	$	33,086	$	48,399	$	—	$	—	$	—	$	—	$	81,485
Commercial utility sales	35,688		28,731		—		—		—		—		64,419
Industrial utility sales	8,428		4,454		—		—		—		—		12,882
Other utility sales	1,779		0		—		—		—		—		1,779
Natural gas transportation	—		11,159		27,583		—		—		—		38,742
Natural gas gathering	—		—		973		—		—		—		973
Natural gas storage	—		—		3,885		—		—		—		3,885
Contracting services	—		—		—		448,569		—		—		448,569
Construction materials	—		—		—		608,673		—		—		608,673
Intrasegment eliminations	—		—		—		(234,693)		—		—		(234,693)
Inside specialty contracting	—		—		—		—		352,845		—		352,845
Outside specialty contracting	—		—		—		—		187,202		—		187,202
Other	7,663		2,590		3,203		0		486		3,030		16,972
Intersegment eliminations	(195)		(185)		(3,622)		(110)		(425)		(3,006)		(7,543)
Revenues from contracts with customers	86,449		95,148		32,022		822,439		540,108		24		1,576,190
Revenues out of scope	998		(445)		46		0		10,500		0		11,099
Total external operating revenues	$	87,447	$	94,703	$	32,068	$	822,439	$	550,608	$	24	$	1,587,289


Three Months Ended September 30, 2019	Electric		Natural gas distribution		Pipeline		Construction materials and contracting		Construction services		Other		Total
	(In thousands)
Residential utility sales	$	30,376	$	44,902	$	—	$	—	$	—	$	—	$	75,278
Commercial utility sales	36,670		29,148		—		—		—		—		65,818
Industrial utility sales	9,348		4,307		—		—		—		—		13,655
Other utility sales	1,862		0		—		—		—		—		1,862
Natural gas transportation	—		11,410		25,229		—		—		—		36,639
Natural gas gathering	—		—		2,510		—		—		—		2,510
Natural gas storage	—		—		3,044		—		—		—		3,044
Contracting services	—		—		—		461,716		—		—		461,716
Construction materials	—		—		—		638,862		—		—		638,862
Intrasegment eliminations	—		—		—		(231,078)		—		—		(231,078)
Inside specialty contracting	—		—		—		—		317,202		—		317,202
Outside specialty contracting	—		—		—		—		151,285		—		151,285
Other	9,380		2,708		5,534		0		45		2,884		20,551
Intersegment eliminations	0		0		(3,831)		(124)		(1,226)		(2,862)		(8,043)
Revenues from contracts with customers	87,636		92,475		32,486		869,376		467,306		22		1,549,301
Revenues out of scope	2,209		1,167		47		0		11,075		0		14,498
Total external operating revenues	$	89,845	$	93,642	$	32,533	$	869,376	$	478,381	$	22	$	1,563,799


Nine Months Ended September 30, 2020	Electric		Natural gas distribution		Pipeline		Construction materials and contracting		Construction services		Other		Total
	(In thousands)
Residential utility sales	$	93,389	$	313,753	$	—	$	—	$	—	$	—	$	407,142
Commercial utility sales	99,152		184,754		—		—		—		—		283,906
Industrial utility sales	26,867		18,633		—		—		—		—		45,500
Other utility sales	5,018		0		—		—		—		—		5,018
Natural gas transportation	—		33,307		82,980		—		—		—		116,287
Natural gas gathering	—		—		4,244		—		—		—		4,244
Natural gas storage	—		—		10,035		—		—		—		10,035
Contracting services	—		—		—		850,326		—		—		850,326
Construction materials	—		—		—		1,299,081		—		—		1,299,081
Intrasegment eliminations	—		—		—		(443,516)		—		—		(443,516)
Inside specialty contracting	—		—		—		—		1,049,975		—		1,049,975
Outside specialty contracting	—		—		—		—		478,047		—		478,047
Other	23,830		7,800		9,807		0		1,249		8,882		51,568
Intersegment eliminations	(586)		(555)		(36,820)		(262)		(3,674)		(8,952)		(50,849)
Revenues from contracts with customers	247,670		557,692		70,246		1,705,629		1,525,597		(70)		4,106,764
Revenues out of scope	2,123		4,949		135		0		33,620		0		40,827
Total external operating revenues	$	249,793	$	562,641	$	70,381	$	1,705,629	$	1,559,217	$	(70)	$	4,147,591


	Remainder of 2020		2021		2022		2023		2024		Thereafter
	(In thousands)
Amortization expense	$	2,462	$	4,579	$	4,108	$	3,975	$	3,653	$	7,599