MDU RESOURCES GROUP INC (Form: 10-Q, Received: 11/01/2019 10:45:20)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



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

For the quarterly period ended September 30, 2019



☐	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 25, 2019: 200,383,869 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 Months Ended September 30, 2019 and 2018	6
Consolidated Statements of Comprehensive Income -- Three and Nine Months Ended September 30, 2019 and 2018	7
Consolidated Balance Sheets -- September 30, 2019 and 2018, and December 31, 2018	8
Consolidated Statements of Equity -- Nine Months Ended September 30, 2019 and 2018	9
Consolidated Statements of Cash Flows -- Nine Months Ended September 30, 2019 and 2018	11
Notes to Consolidated Financial Statements	12
1. Basis of presentation	12
2. Seasonality of operations	12
3. Accounts receivable and allowance for doubtful accounts	12
4. Inventories and natural gas in storage	13
5. Earnings per share	13
6. New accounting standards	13
7. Accumulated other comprehensive income (loss)	15
8. Revenue from contracts with customers	17
9. Business combinations	20
10. Discontinued operations	21
11. Leases	22
12. Goodwill and other intangible assets	24
13. Regulatory assets and liabilities	26
14. Fair value measurements	27
15. Debt	29
16. Cash flow information	30
17. Business segment data	30
18. Employee benefit plans	33
19. Regulatory matters	33
20. Contingencies	35
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3. Quantitative and Qualitative Disclosures About Market Risk	55
Item 4. Controls and Procedures	55
Part II -- Other Information
Item 1. Legal Proceedings	56
Item 1A. Risk Factors	56
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 4. Mine Safety Disclosures	56
Item 5. Other Information	56
Item 6. Exhibits	56
Exhibits Index	57
Signatures	58

Index

Definitions

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



Abbreviation or Acronym
2018 Annual Report	Company's Annual Report on Form 10-K for the year ended December 31, 2018
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
BSSE	345-kilovolt transmission line from Ellendale, North Dakota, to Big Stone City, South Dakota
Calumet	Calumet Specialty Products Partners, L.P.
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 direct wholly owned subsidiary of Centennial
Company	MDU Resources Group, Inc. (formerly known as MDUR Newco), which, as the context requires, refers to the previous MDU Resources Group, Inc. prior to January 1, 2019, and the new holding company of the same name after January 1, 2019
Coyote Creek	Coyote Creek Mining Company, LLC, a subsidiary of The North American Coal Corporation
Coyote Station	427-MW coal-fired electric generating facility near Beulah, North Dakota (25 percent ownership)
Dakota Prairie Refinery	20,000-barrel-per-day diesel topping plant built by Dakota Prairie Refining in southwestern North Dakota
Dakota Prairie Refining	Dakota Prairie Refining, LLC, a limited liability company previously owned by WBI Energy and Calumet (previously included in the Company's refining segment)
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 the Company prior to the closing of the Holding Company Reorganization and a public utility division of Montana-Dakota as of January 1, 2019
Holding Company Reorganization	The internal holding company reorganization completed on January 1, 2019, pursuant to the agreement and plan of merger, dated as of December 31, 2018, by and among Montana-Dakota, the Company and MDUR Newco Sub, which resulted in the Company becoming a holding company and owning all of the outstanding capital stock of Montana-Dakota
Intermountain	Intermountain Gas Company, an indirect wholly owned subsidiary of MDU Energy Capital
Knife River	Knife River Corporation, a direct wholly owned subsidiary of Centennial
Knife River - Northwest	Knife River Corporation - Northwest, an indirect wholly owned subsidiary of Knife River
kWh	Kilowatt-hour
LIBOR	London Inter-bank Offered Rate
LWG	Lower Willamette Group
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

Index



MDU Energy Capital	MDU Energy Capital, LLC, a direct wholly owned subsidiary of the Company
MDUR Newco	MDUR Newco, Inc., a public holding company created by implementing the Holding Company Reorganization, now known as the Company
MDUR Newco Sub	MDUR Newco Sub, Inc., a direct, wholly owned subsidiary of MDUR Newco, which was merged with and into Montana-Dakota in the Holding Company Reorganization
MISO	Midcontinent Independent System Operator, Inc.
MMcf	Million cubic feet
MMdk	Million dk
MNPUC	Minnesota Public Utilities Commission
Montana-Dakota	Montana-Dakota Utilities Co., (formerly known as MDU Resources Group, Inc.), a public utility division of the Company prior to the closing of the Holding Company Reorganization and a direct wholly owned subsidiary of MDU Energy Capital as of January 1, 2019
MTPSC	Montana Public Service Commission
MW	Megawatt
NDPSC	North Dakota Public Service Commission
Non-GAAP	Not in accordance with GAAP
OPUC	Oregon Public Utility Commission
PRP	Potentially Responsible Party
SEC	United States Securities and Exchange Commission
Securities Act	Securities Act of 1933, as amended
TCJA	Tax Cuts and Jobs Act
Tesoro	Tesoro Refining & Marketing Company LLC
VIE	Variable interest entity
Washington DOE	Washington State Department of Ecology
WBI Energy	WBI Energy, Inc., a direct wholly owned subsidiary of WBI Holdings
WBI Energy Transmission	WBI Energy Transmission, Inc., an indirect wholly owned subsidiary of WBI Holdings
WBI Holdings	WBI Holdings, Inc., a direct wholly owned subsidiary of Centennial
WUTC	Washington Utilities and Transportation Commission
WYPSC	Wyoming Public Service 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, 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 not statements of historical facts. From time to time, the Company may publish or otherwise make available forward-looking statements of this nature, including statements contained within Part I, Item 2 - MD&A - Business Segment Financial and Operating Data.

Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed. The Company's expectations, beliefs and projections are expressed in good faith and are believed by the Company to have a reasonable basis, including without limitation, management's examination of historical operating trends, data contained in the Company's records and other data available from third parties. Nonetheless, the Company's expectations, beliefs or projections may not be achieved or accomplished.

Any forward-looking statement contained in this document speaks only as of the date on which the statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances that occur after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all the factors, nor can it assess the effect of each factor on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. All forward-looking statements, whether written or oral and whether made by or on behalf of the Company, are expressly qualified by the risk factors and cautionary statements reported in Part I, Item 1A - Risk Factors in the 2018 Annual Report and subsequent filings with the SEC.

Introduction

The Company is a regulated energy delivery and construction materials and services business. Montana-Dakota was incorporated under the laws of the state of Delaware in 1924. The Company was incorporated under the laws of the state of Delaware in 2018. Its principal executive offices are at 1200 West Century Avenue, P.O. Box 5650, Bismarck, North Dakota 58506-5650, telephone (701) 530-1000.

On January 2, 2019, the Company announced the completion of the Holding Company Reorganization, which resulted in Montana-Dakota becoming a subsidiary of the Company. The merger was conducted pursuant to Section 251(g) of the General Corporation Law of the State of Delaware, which provides for the formation of a holding company without a vote of the stockholders of the constituent corporation. Immediately after consummation of the Holding Company Reorganization, the Company had, on a consolidated basis, the same assets, businesses and operations as Montana-Dakota had immediately prior to the consummation of the Holding Company Reorganization. As a result of the Holding Company Reorganization, the Company became the successor issuer to Montana-Dakota pursuant to Rule 12g-3(a) of the Exchange Act, and as a result, the Company's common stock was deemed registered under Section 12(b) of the Exchange Act.

The Company, through its wholly owned subsidiary, MDU Energy Capital, owns Montana-Dakota, Cascade and Intermountain. Montana-Dakota, Cascade and Intermountain are the natural gas distribution segment. Montana-Dakota also comprises the electric segment.

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 and midstream segment, Knife River is the construction materials and contracting segment, MDU Construction Services is the construction services segment, and Centennial Resources and Centennial Capital are both reflected in the Other category.

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

Index

Part I -- Financial Information

Item 1. Financial Statements



MDU Resources Group, Inc.
Consolidated Statements of Income
(Unaudited)
	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2019		2018			2019		2018
	(In thousands, except per share amounts)
Operating revenues:
Electric, natural gas distribution and regulated pipeline and midstream	$	209,444	$	200,617		$	885,309	$	851,761
Nonregulated pipeline and midstream, construction materials and contracting, construction services and other	1,354,355		1,080,170			3,073,254		2,469,917
Total operating revenues	1,563,799		1,280,787			3,958,563		3,321,678
Operating expenses:
Operation and maintenance:
Electric, natural gas distribution and regulated pipeline and midstream	86,249		82,920			262,434		252,961
Nonregulated pipeline and midstream, construction materials and contracting, construction services and other	1,126,371		913,671			2,674,130		2,166,570
Total operation and maintenance	1,212,620		996,591			2,936,564		2,419,531
Purchased natural gas sold	31,843		32,123			270,539		270,319
Depreciation, depletion and amortization	65,021		55,016			187,937		161,298
Taxes, other than income	46,128		38,647			148,110		128,257
Electric fuel and purchased power	18,717		18,406			64,413		58,901
Total operating expenses	1,374,329		1,140,783			3,607,563		3,038,306
Operating income	189,470		140,004			351,000		283,372
Other income	3,014		2,683			12,222		4,864
Interest expense	25,258		20,955			74,094		62,202
Income before income taxes	167,226		121,732			289,128		226,034
Income taxes	31,098		14,363			48,766		32,629
Income from continuing operations	136,128		107,369			240,362		193,405
Income (loss) from discontinued operations, net of tax (Note 10)	1,509		(118		)	26		85
Net income	$	137,637	$	107,251		$	240,388	$	193,490
Earnings per share - basic:
Income from continuing operations	$	.68	$	.55		$	1.21	$	.99
Discontinued operations, net of tax	.01		—			—		—
Earnings per share - basic	$	.69	$	.55		$	1.21	$	.99
Earnings per share - diluted:
Income from continuing operations	$	.68	$	.55		$	1.21	$	.99
Discontinued operations, net of tax	.01		—			—		—
Earnings per share - diluted	$	.69	$	.55		$	1.21	$	.99
Weighted average common shares outstanding - basic	199,343		196,018			198,016		195,618
Weighted average common shares outstanding - diluted	199,383		196,265			198,033		196,104

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

Index



MDU Resources Group, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019		2018
	(In thousands)
Net income	$	137,637		$	107,251		$	240,388	$	193,490
Other comprehensive income:
Reclassification adjustment for loss on derivative instruments included in net income, net of tax of $36 and $55 for the three months ended and $(177) and $164 for the nine months ended in 2019 and 2018, respectively	112			92			620		279
Amortization of postretirement liability losses included in net periodic benefit cost, net of tax of $95 and $142 for the three months ended and $284 and $442 for the nine months ended in 2019 and 2018, respectively	292			442			878		1,309
Foreign currency translation adjustment:
Foreign currency translation adjustment recognized during the period, net of tax of $0 and $0 for the three months ended and $0 and $(14) for the nine months ended in 2019 and 2018, respectively	—			—			—		(61		)
Reclassification adjustment for foreign currency translation adjustment included in net income, net of tax of $0 and $0 for the three months ended and $0 and $75 for the nine months ended in 2019 and 2018, respectively	—			—			—		249
Foreign currency translation adjustment	—			—			—		188
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 $3 and $(13) for the three months ended and $35 and $(52) for the nine months ended in 2019 and 2018, respectively	12			(51		)	130		(199		)
Reclassification adjustment for (gain) loss on available-for-sale investments included in net income, net of tax of $(1) and $9 for the three months ended and $10 and $26 for the nine months ended in 2019 and 2018, respectively	(4		)	33			36		97
Net unrealized gain (loss) on available-for-sale investments	8			(18		)	166		(102		)
Other comprehensive income	412			516			1,664		1,674
Comprehensive income attributable to common stockholders	$	138,049		$	107,767		$	242,052	$	195,164

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

Index



MDU Resources Group, Inc.
Consolidated Balance Sheets
(Unaudited)
	September 30, 2019			September 30, 2018			December 31, 2018
	(In thousands, except shares and per share amounts)
Assets
Current assets:
Cash and cash equivalents	$	67,000		$	67,077		$	53,948
Receivables, net	968,279			787,344			722,945
Inventories	286,057			270,293			287,309
Prepayments and other current assets	140,053			88,760			119,500
Current assets held for sale	426			571			430
Total current assets	1,461,815			1,214,045			1,184,132
Investments	144,417			143,303			138,620
Property, plant and equipment	7,746,754			7,102,960			7,397,321
Less accumulated depreciation, depletion and amortization	2,944,928			2,796,649			2,818,644
Net property, plant and equipment	4,801,826			4,306,311			4,578,677
Deferred charges and other assets:
Goodwill	681,349			640,203			664,922
Other intangible assets, net	15,511			4,318			10,815
Operating lease right-of-use assets (Note 11)	118,764			—			—
Other	504,842			408,178			408,857
Noncurrent assets held for sale	2,087			1,835			2,087
Total deferred charges and other assets	1,322,553			1,054,534			1,086,681
Total assets	$	7,730,611		$	6,718,193		$	6,988,110
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings	$	139,988		$	—		$	—
Long-term debt due within one year	65,810			3,915			251,854
Accounts payable	378,370			339,713			358,505
Taxes payable	53,505			50,461			41,929
Dividends payable	40,460			38,714			39,695
Accrued compensation	93,642			62,836			69,007
Current operating lease liabilities (Note 11)	32,584			—			—
Other accrued liabilities	225,925			221,620			221,059
Current liabilities held for sale	3,393			7,959			4,001
Total current liabilities	1,033,677			725,218			986,050
Long-term debt	2,180,946			1,911,555			1,856,841
Deferred credits and other liabilities:
Deferred income taxes	487,194			405,761			430,085
Noncurrent operating lease liabilities (Note 11)	86,166			—			—
Other	1,147,022			1,154,366			1,148,359
Total deferred credits and other liabilities	1,720,382			1,560,127			1,578,444
Commitments and contingencies
Stockholders' equity:
Common stock
Authorized - 500,000,000 shares, $1.00 par value Shares issued - 200,876,334 at September 30, 2019, 196,557,245 at September 30, 2018 and 196,564,907 at December 31, 2018	200,876			196,557			196,565
Other paid-in capital	1,351,990			1,247,151			1,248,576
Retained earnings	1,283,044			1,124,830			1,163,602
Accumulated other comprehensive loss	(36,678		)	(43,619		)	(38,342		)
Treasury stock at cost - 538,921 shares	(3,626		)	(3,626		)	(3,626		)
Total stockholders' equity	2,795,606			2,521,293			2,566,775
Total liabilities and stockholders' equity	$	7,730,611		$	6,718,193		$	6,988,110

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

Index



MDU Resources Group, Inc.
Consolidated Statements of Equity
(Unaudited)
Nine Months Ended September 30, 2019
				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

Index



MDU Resources Group, Inc.
Consolidated Statements of Equity
(Unaudited)
Nine Months Ended September 30, 2018
				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, 2017	195,843,297	$	195,843	$	1,233,412		$	1,040,748		$	(37,334	)	(538,921	)	$	(3,626	)	$	2,429,043
Cumulative effect of adoption of ASU 2014-09	—	—		—			(970		)	—			—		—			(970		)
Adjusted balance at January 1, 2018	195,843,297	195,843		1,233,412			1,039,778			(37,334		)	(538,921	)	(3,626		)	2,428,073
Net income	—	—		—			42,437			—			—		—			42,437
Other comprehensive income	—	—		—			—			433			—		—			433
Reclassification of certain prior period tax effects from accumulated other comprehensive loss	—	—		—			7,959			(7,959		)	—		—			—
Dividends declared on common stock	—	—		—			(38,705		)	—			—		—			(38,705		)
Stock-based compensation	—	—		1,223			—			—			—		—			1,223
Repurchase of common stock	—	—		—			—			—			(182,424	)	(5,020		)	(5,020		)
Issuance of common stock upon vesting of stock-based compensation, net of shares used for tax withholdings	—	—		(7,350		)	—			—			182,424		5,020			(2,330		)
At March 31, 2018	195,843,297	$	195,843	$	1,227,285		$	1,051,469		$	(44,860	)	(538,921	)	$	(3,626	)	$	2,426,111
Net income	—	—		—			43,802			—			—		—			43,802
Other comprehensive income	—	—		—			—			725			—		—			725
Dividends declared on common stock	—	—		—			(38,847		)	—			—		—			(38,847		)
Stock-based compensation	—	—		1,294			—			—			—		—			1,294
Issuance of common stock	713,948	714		17,279			—			—			—		—			17,993
At June 30, 2018	196,557,245	$	196,557	$	1,245,858		$	1,056,424		$	(44,135	)	(538,921	)	$	(3,626	)	$	2,451,078
Net income	—	—		—			107,251			—			—		—			107,251
Other comprehensive income	—	—		—			—			516			—		—			516
Dividends declared on common stock	—	—		—			(38,845		)	—			—		—			(38,845		)
Stock-based compensation	—	—		1,293			—			—			—		—			1,293
At September 30, 2018	196,557,245	$	196,557	$	1,247,151		$	1,124,830		$	(43,619	)	(538,921	)	$	(3,626	)	$	2,521,293

Index



MDU Resources Group, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
	Nine Months Ended
	September 30,
	2019			2018
	(In thousands)
Operating activities:
Net income	$	240,388		$	193,490
Income from discontinued operations, net of tax	26			85
Income from continuing operations	240,362			193,405
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	187,937			161,298
Deferred income taxes	49,222			42,428
Changes in current assets and liabilities, net of acquisitions:
Receivables	(238,373		)	(55,749		)
Inventories	2,480			(38,785		)
Other current assets	(69,105		)	(3,452		)
Accounts payable	13,062			16,155
Other current liabilities	53,458			31,971
Other noncurrent changes	(35,361		)	(27,170		)
Net cash provided by continuing operations	203,682			320,101
Net cash used in discontinued operations	(579		)	(2,720		)
Net cash provided by operating activities	203,103			317,381
Investing activities:
Capital expenditures	(423,036		)	(345,599		)
Acquisitions, net of cash acquired	(53,263		)	(27,858		)
Net proceeds from sale or disposition of property and other	28,391			12,451
Investments	(717		)	(1,560		)
Net cash used in continuing operations	(448,625		)	(362,566		)
Net cash provided by discontinued operations	—			1,236
Net cash used in investing activities	(448,625		)	(361,330		)
Financing activities:
Issuance of short-term borrowings	169,977			—
Repayment of short-term borrowings	(30,000		)	—
Issuance of long-term debt	302,724			356,952
Repayment of long-term debt	(166,956		)	(157,315		)
Proceeds from issuance of common stock	105,639			—
Dividends paid	(119,795		)	(115,859		)
Repurchase of common stock	—			(5,020		)
Tax withholding on stock-based compensation	(3,015		)	(2,330		)
Net cash provided by financing activities	258,574			76,428
Effect of exchange rate changes on cash and cash equivalents	—			(1		)
Increase in cash and cash equivalents	13,052			32,478
Cash and cash equivalents -- beginning of year	53,948			34,599
Cash and cash equivalents -- end of period	$	67,000		$	67,077

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

Index

MDU Resources Group, Inc.

Notes to Consolidated

Financial Statements

September 30, 2019 and 2018

(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 2018 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.

On January 2, 2019, the Company announced the completion of the Holding Company Reorganization, which resulted in Montana-Dakota becoming a subsidiary of the Company. The purpose of the reorganization was to make the public utility division into a subsidiary of the holding company, just as the other operating companies are wholly owned subsidiaries.

Effective January 1, 2019, the Company adopted the requirements of the ASU on leases, as further discussed in Notes 6 and 11. As such, results for reporting periods beginning January 1, 2019, are presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with the historic accounting for leases.

The assets and liabilities for the Company's discontinued operations have been classified as held for sale and the results of operations are shown in income (loss) from discontinued operations, other than certain general and administrative costs and interest expense which do not meet the criteria for income (loss) from discontinued operations. At the time the assets were classified as held for sale, depreciation, depletion and amortization expense was no longer recorded. Unless otherwise indicated, the amounts presented in the accompanying notes to the consolidated financial statements relate to the Company's continuing operations. For more information on the Company's discontinued operations, see Note 10.

Management has also evaluated the impact of events occurring after September 30, 2019, up to the date of issuance of these consolidated interim financial statements.

Note 2 - 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 3 - Accounts receivable and allowance for doubtful accounts

Accounts receivable consists primarily of trade receivables from the sale of goods and services which are recorded at the invoiced amount net of allowance for doubtful accounts, and costs and estimated earnings in excess of billings on uncompleted contracts. The total balance of receivables past due 90 days or more was $56.0 million, $29.2 million and $30.0 million at September 30, 2019 and 2018, and December 31, 2018, respectively.

The allowance for doubtful accounts is determined through a review of past due balances and other specific account data. Account balances are written off when management determines the amounts to be uncollectible. The Company's allowance for doubtful accounts at September 30, 2019 and 2018, and December 31, 2018, was $8.7 million, $7.3 million and $8.9 million, respectively.

Index

Note 4 - Inventories and natural gas in storage

Natural gas in storage for the Company's regulated operations is generally carried at lower of cost or net realizable value, or cost using the last-in, first-out method. All other inventories are stated at the lower of cost or net realizable value. The portion of the cost of natural gas in storage expected to be used within one year was included in inventories. Inventories on the Consolidated Balance Sheets were as follows:



	September 30, 2019		September 30, 2018		December 31, 2018
	(In thousands)
Aggregates held for resale	$	143,157	$	133,477	$	139,681
Asphalt oil	39,269		40,781		54,741
Materials and supplies	25,696		23,563		23,611
Merchandise for resale	23,902		15,954		22,552
Natural gas in storage (current)	32,164		29,084		22,117
Other	21,869		27,434		24,607
Total	$	286,057	$	270,293	$	287,309

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 deferred charges and other assets - other and was $48.2 million, $47.8 million and $48.5 million at September 30, 2019 and 2018, and December 31, 2018, respectively.

Note 5 - Earnings per share

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the applicable period. Diluted earnings per share is computed by dividing net income by the total of the weighted average number of shares of common stock outstanding during the applicable period, plus the effect of nonvested performance share awards and restricted stock units. Common stock outstanding includes issued shares less shares held in treasury. Net income was the same for both the basic and diluted earnings per share calculations. A reconciliation of the weighted average common shares outstanding used in the basic and diluted earnings per share calculations follows:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
	(In thousands, except per share amounts)
Weighted average common shares outstanding - basic	199,343		196,018		198,016		195,618
Effect of dilutive performance share awards and restricted stock units	40		247		17		486
Weighted average common shares outstanding - diluted	199,383		196,265		198,033		196,104
Shares excluded from the calculation of diluted earnings per share	155		114		243		—
Dividends declared per common share	$	.2025	$	.1975	$	.6075	$	.5925

Note 6 - New accounting standards

Recently adopted accounting standards

ASU 2016-02 - Leases In February 2016, the FASB issued guidance regarding leases. The guidance required lessees to recognize a lease liability and a right-of-use asset on the balance sheet for operating and financing leases. The guidance remained largely the same for lessors, although some changes were made to better align lessor accounting with the new lessee accounting and to align with the revenue recognition standard. The guidance also required additional disclosures, both quantitative and qualitative, related to operating and financing leases for the lessee and sales-type, direct financing and operating leases for the lessor. The Company adopted the standard on January 1, 2019.

In July 2018, the FASB issued ASU 2018-11 - Leases: Targeted Improvements, an accounting standard update to ASU 2016-02. This ASU provided an entity the option to adopt the guidance using one of two modified retrospective approaches. An entity could adopt the guidance using the modified retrospective transition approach beginning in the earliest year presented in the financial statements. This method of adoption would have required the restatement of prior periods reported and the presentation of lease disclosures under the new guidance for all periods reported. The additional transition method of adoption, introduced by ASU 2018-11, allowed entities the option to apply the guidance on the date of adoption by recognizing a cumulative effect adjustment to retained earnings during the period of adoption and did not require prior comparative periods to be restated.

The Company adopted the standard on January 1, 2019, utilizing the additional transition method of adoption applied on the date of adoption and the practical expedient that allowed the Company to not reassess whether an expired or existing contract contained a lease, the classification of leases or initial direct costs. The Company did not identify any cumulative effect

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adjustments. The Company also adopted a short-term leasing policy as the lessee where leases with a term of 12 months or less are not included on the Consolidated Balance Sheet.

As a practical expedient, a lessee may choose not to separate nonlease components from lease components and instead account for lease and nonlease components as a single lease component. The election shall be made by asset class. The Company has elected to adopt the lease/nonlease component practical expedient for all asset classes as the lessee. The Company did not elect the practical expedient to use hindsight when assessing the lease term or impairment of right-of-use assets for the existing leases on the date of adoption.

In January 2018, the FASB issued a practical expedient for land easements under the new lease guidance. The practical expedient permits an entity to elect the option to not evaluate land easements under the new guidance if they existed or expired before the adoption of the new lease guidance and were not previously accounted for as leases under the previous lease guidance. Once an entity adopts the new guidance, the entity should apply the new guidance on a prospective basis to all new or modified land easements. The Company has adopted this practical expedient.

The Company formed a lease implementation team to review and assess existing contracts to identify and evaluate those containing leases. Additionally, the team implemented new and revised existing software to meet the reporting and disclosure requirements of the standard. The Company also assessed the impact the standard had on its processes and internal controls and identified new and updated existing internal controls and processes to ensure compliance with the new lease standard; such modifications were not deemed to be significant. During the assessment phase, the Company used various surveys, reconciliations and analytic methodologies to ensure the completeness of the lease inventory. The Company determined that most of the current operating leases were subject to the guidance and were recognized as operating lease liabilities and right-of-use assets on the Consolidated Balance Sheet upon adoption. On January 1, 2019, the Company recorded approximately $112 million to right-of-use assets and lease liabilities as a result of the initial adoption of the guidance. In addition, the Company evaluated the impact the new guidance had on lease contracts where the Company is the lessor and determined it did not have a significant impact to the Company's financial statements.

ASU 2018-15 - Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract In August 2018, the FASB issued guidance on the accounting for implementation costs of a hosting arrangement that is a service contract. The guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract similar to the costs incurred to develop or obtain internal-use software and such capitalized costs to be expensed over the term of the hosting arrangement. Costs incurred during the preliminary and postimplementation stages should continue to be expensed as activities are performed. The capitalized costs are required to be presented on the balance sheet in the same line the prepayment for the fees associated with the hosting arrangement would be presented. In addition, the expense related to the capitalized implementation costs should be presented in the same line on the income statement as the fees associated with the hosting element of the arrangements. The Company adopted the guidance effective January 1, 2019, on a prospective basis. The adoption of the guidance did not have a material impact on its results of operations, financial position, cash flows or disclosures.

Recently issued accounting standards not yet adopted

ASU 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 introduces a new impairment model known as the current expected credit loss model that will replace the incurred loss impairment methodology currently included under GAAP. This guidance requires 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 guidance will be effective for the Company on January 1, 2020, and must be applied on a modified retrospective basis with early adoption permitted. The Company continues to evaluate the provisions of the guidance and currently does not expect the guidance to have a material impact on its results of operations, financial position, cash flows or disclosures.

ASU 2017-04 - Simplifying the Test for Goodwill Impairment In January 2017, the FASB issued guidance on simplifying the test for goodwill impairment by eliminating Step 2, which required an entity to measure the amount of impairment loss by comparing the implied fair value of reporting unit goodwill with the carrying amount of such goodwill. This guidance requires entities to perform a quantitative impairment test, previously Step 1, to identify both the existence of impairment and the amount of impairment loss by comparing the fair value of a reporting unit to its carrying amount. Entities will continue to have the option of performing a qualitative assessment to determine if the quantitative impairment test is necessary. The guidance also requires additional disclosures if an entity has one or more reporting units with zero or negative carrying amounts of net assets. The guidance will be effective for the Company on January 1, 2020, and must be applied on a prospective basis with early adoption permitted. The Company has evaluated the guidance and does not expect the guidance will have a material impact on its results of operations, financial position, cash flows or disclosures upon adoption. The Company is planning to early adopt the guidance with the preparation of its 2019 goodwill impairment test in the fourth quarter of 2019.

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 modifies, among other things, the disclosures required for Level 3 fair value measurements, including the range and weighted average of significant unobservable inputs. The guidance removes, among other things, the disclosure requirement to disclose

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transfers between Levels 1 and 2. The guidance will be effective for the Company on January 1, 2020, including interim periods, with early adoption permitted. Level 3 fair value measurement disclosures should be applied prospectively while all other amendments should be applied retrospectively. The Company is evaluating the effects the adoption of the new guidance will have on its disclosures.

ASU 2018-14 - Changes to the Disclosure Requirements for Defined Benefit Plans In August 2018, the FASB issued guidance on modifying the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans as part of the disclosure framework project. The guidance removes disclosures that are no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant. The guidance adds, among other things, the requirement to include an explanation for significant gains and losses related to changes in benefit obligations for the period. The guidance removes, among other things, the disclosure requirement to disclose the amount of net periodic benefit costs to be amortized over the next fiscal year from accumulated other comprehensive income (loss) and the effects a one percentage point change in assumed health care cost trend rates will have on certain benefit components. The guidance will be effective for the Company on January 1, 2021, and must be applied on a retrospective basis with early adoption permitted. The Company is evaluating the effects the adoption of the new guidance will have on its disclosures.

Note 7 - Accumulated other comprehensive income (loss)

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



Nine Months Ended September 30, 2019	Net Unrealized Gain (Loss) on Derivative Instruments Qualifying as Hedges			Postretirement Liability Adjustment			Net Unrealized Gain (Loss) on Available-for-sale Investments			Total Accumulated Other Comprehensive Loss
	(In thousands)
At December 31, 2018	$	(2,161	)	$	(36,069	)	$	(112	)	$	(38,342	)
Other comprehensive income before reclassifications	—			—			39			39
Amounts reclassified from accumulated other comprehensive loss	397			310			28			735
Net current-period other comprehensive income	397			310			67			774
At March 31, 2019	$	(1,764	)	$	(35,759	)	$	(45	)	$	(37,568	)
Other comprehensive income before reclassifications	—			—			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	—			—			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	)

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Nine Months Ended September 30, 2018	Net Unrealized Gain (Loss) on Derivative Instruments Qualifying as Hedges			Postretirement Liability Adjustment			Foreign Currency Translation Adjustment			Net Unrealized Gain (Loss) on Available-for-sale Investments			Total Accumulated Other Comprehensive Loss
	(In thousands)
At December 31, 2017	$	(1,934	)	$	(35,163	)	$	(155	)	$	(82	)	$	(37,334	)
Other comprehensive loss before reclassifications	—			—			(2		)	(105		)	(107		)
Amounts reclassified from accumulated other comprehensive loss	92			418			—			30			540
Net current-period other comprehensive income (loss)	92			418			(2		)	(75		)	433
Reclassification adjustment of prior period tax effects related to TCJA included in accumulated other comprehensive loss	(389		)	(7,520		)	(33		)	(17		)	(7,959		)
At March 31, 2018	$	(2,231	)	$	(42,265	)	$	(190	)	$	(174	)	$	(44,860	)
Other comprehensive loss before reclassifications	—			—			(59		)	(43		)	(102		)
Amounts reclassified from accumulated other comprehensive loss	95			449			249			34			827
Net current-period other comprehensive income (loss)	95			449			190			(9		)	725
At June 30, 2018	$	(2,136	)	$	(41,816	)	$	—		$	(183	)	$	(44,135	)
Other comprehensive loss before reclassifications	—			—			—			(51		)	(51		)
Amounts reclassified from accumulated other comprehensive loss	92			442			—			33			567
Net current-period other comprehensive income (loss)	92			442			—			(18		)	516
At September 30, 2018	$	(2,044	)	$	(41,374	)	$	—		$	(201	)	$	(43,619	)

The following amounts were reclassified out of accumulated other comprehensive loss into net income. The amounts presented in parenthesis indicate a decrease to net income on the Consolidated Statements of Income. The reclassifications were as follows:



	Three Months Ended						Nine Months Ended						Location on Consolidated Statements of Income
	September 30,						September 30,
	2019			2018			2019			2018
	(In thousands)
Reclassification adjustment for loss on derivative instruments included in net income	$	(148	)	$	(147	)	$	(443	)	$	(443	)	Interest expense
	36			55			(177		)	164			Income taxes
	(112		)	(92		)	(620		)	(279		)
Amortization of postretirement liability losses included in net periodic benefit cost	(387		)	(584		)	(1,162		)	(1,751		)	Other income
	95			142			284			442			Income taxes
	(292		)	(442		)	(878		)	(1,309		)
Reclassification adjustment for foreign currency translation adjustment included in net income	—			—			—			(324		)	Other income
	—			—			—			75			Income taxes
	—			—			—			(249		)
Reclassification adjustment on available-for-sale investments included in net income	5			(42		)	(46		)	(123		)	Other income
	(1		)	9			10			26			Income taxes
	4			(33		)	(36		)	(97		)
Total reclassifications	$	(400	)	$	(567	)	$	(1,534	)	$	(1,934	)

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Note 8 - Revenue from contracts with customers

Revenue is recognized when a performance obligation is satisfied by transferring control over a product or service to a customer. Revenue is measured based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. The Company is considered an agent for certain taxes collected from customers. As such, the Company presents revenues net of these taxes at the time of sale to be remitted to governmental authorities, including sales and use taxes.

As part of the adoption of ASC 606 - Revenue from Contracts with Customers, the Company elected the practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the Company otherwise would have recognized is 12 months or less.

Disaggregation

In the following table, revenue is disaggregated by the type of customer or service provided. The Company believes this level of disaggregation best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The table also includes a reconciliation of the disaggregated revenue by reportable segments. For more information on the Company's business segments, see Note 17.



Three Months Ended September 30, 2019	Electric		Natural gas distribution		Pipeline and midstream			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		—		—			—			—			—			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			—			45			2,884			20,551
Intersegment eliminations	—		—		(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			—			11,075			—			14,498
Total external operating revenues	$	89,845	$	93,642	$	32,533		$	869,376		$	478,381		$	22		$	1,563,799


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

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Three Months Ended September 30, 2018	Electric		Natural gas distribution		Pipeline and midstream			Construction materials and contracting			Construction services			Other			Total
	(In thousands)
Residential utility sales	$	31,424	$	43,825	$	—		$	—		$	—		$	—		$	75,249
Commercial utility sales	36,259		28,174		—			—			—			—			64,433
Industrial utility sales	8,738		4,421		—			—			—			—			13,159
Other utility sales	2,056		—		—			—			—			—			2,056
Natural gas transportation	—		10,841		21,400			—			—			—			32,241
Natural gas gathering	—		—		2,320			—			—			—			2,320
Natural gas storage	—		—		2,795			—			—			—			2,795
Contracting services	—		—		—			409,006			—			—			409,006
Construction materials	—		—		—			538,962			—			—			538,962
Intrasegment eliminations*	—		—		—			(204,040		)	—			—			(204,040		)
Inside specialty contracting	—		—		—			—			217,474			—			217,474
Outside specialty contracting	—		—		—			—			100,988			—			100,988
Other	6,158		3,208		5,701			—			15			3,084			18,166
Intersegment eliminations	—		—		(3,187		)	(165		)	(782		)	(3,037		)	(7,171		)
Revenues from contracts with customers	84,635		90,469		29,029			743,763			317,695			47			1,265,638
Revenues out of scope	1,445		1,779		42			—			11,883			—			15,149
Total external operating revenues	$	86,080	$	92,248	$	29,071		$	743,763		$	329,578		$	47		$	1,280,787


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



Nine Months Ended September 30, 2019	Electric		Natural gas distribution			Pipeline and midstream			Construction materials and contracting			Construction services			Other			Total
	(In thousands)
Residential utility sales	$	93,368	$	316,521		$	—		$	—		$	—		$	—		$	409,889
Commercial utility sales	105,572		192,191			—			—			—			—			297,763
Industrial utility sales	27,576		18,495			—			—			—			—			46,071
Other utility sales	5,540		—			—			—			—			—			5,540
Natural gas transportation	—		33,686			75,091			—			—			—			108,777
Natural gas gathering	—		—			7,027			—			—			—			7,027
Natural gas storage	—		—			8,313			—			—			—			8,313
Contracting services	—		—			—			841,881			—			—			841,881
Construction materials	—		—			—			1,262,938			—			—			1,262,938
Intrasegment eliminations*	—		—			—			(412,144		)	—			—			(412,144		)
Inside specialty contracting	—		—			—			—			936,008			—			936,008
Outside specialty contracting	—		—			—			—			391,971			—			391,971
Other	26,918		9,544			14,523			—			70			13,631			64,686
Intersegment eliminations	—		—			(35,298		)	(388		)	(2,076		)	(13,566		)	(51,328		)
Revenues from contracts with customers	258,974		570,437			69,656			1,692,287			1,325,973			65			3,917,392
Revenues out of scope	4,449		(781		)	171			—			37,332			—			41,171
Total external operating revenues	$	263,423	$	569,656		$	69,827		$	1,692,287		$	1,363,305		$	65		$	3,958,563


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

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Nine Months Ended September 30, 2018	Electric		Natural gas distribution		Pipeline and midstream			Construction materials and contracting			Construction services			Other			Total
	(In thousands)
Residential utility sales	$	93,359	$	305,399	$	—		$	—		$	—		$	—		$	398,758
Commercial utility sales	103,636		185,885		—			—			—			—			289,521
Industrial utility sales	25,734		17,457		—			—			—			—			43,191
Other utility sales	5,766		—		—			—			—			—			5,766
Natural gas transportation	—		32,104		64,505			—			—			—			96,609
Natural gas gathering	—		—		6,900			—			—			—			6,900
Natural gas storage	—		—		8,563			—			—			—			8,563
Contracting services	—		—		—			730,628			—			—			730,628
Construction materials	—		—		—			1,100,185			—			—			1,100,185
Intrasegment eliminations*	—		—		—			(363,877		)	—			—			(363,877		)
Inside specialty contracting	—		—		—			—			667,664			—			667,664
Outside specialty contracting	—		—		—			—			283,432			—			283,432
Other	22,836		10,821		13,353			—			32			8,536			55,578
Intersegment eliminations	—		—		(31,485		)	(501		)	(1,332		)	(8,343		)	(41,661		)
Revenues from contracts with customers	251,331		551,666		61,836			1,466,435			949,796			193			3,281,257
Revenues out of scope	653		2,786		129			—			36,853			—			40,421
Total external operating revenues	$	251,984	$	554,452	$	61,965		$	1,466,435		$	986,649		$	193		$	3,321,678


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

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, 2019			December 31, 2018			Change			Location on Consolidated Balance Sheets
	(In thousands)
Contract assets	$	163,437		$	104,239		$	59,198		Receivables, net
Contract liabilities - current	(120,207		)	(93,901		)	(26,306		)	Accounts payable
Contract liabilities - noncurrent	(25		)	(135		)	110			Deferred credits and other liabilities - other
Net contract assets	$	43,205		$	10,203		$	33,002

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 $10.3 million and $79.2 million in revenue for the three and nine months ended September 30, 2018, respectively, which was previously included in contract liabilities at December 31, 2017.

The Company recognized a net increase in revenues of $21.8 million and $40.3 million for the three and nine months ended September 30, 2019, respectively, from performance obligations satisfied in prior periods. The Company recognized a net decrease in revenues of $8.7 million and $3.7 million for the three and nine months ended September 30, 2018, respectively, from performance obligations satisfied in prior periods.

Remaining performance obligations

The remaining performance obligations at the construction materials and contracting and construction services segments include unrecognized revenues the Company reasonably expects to be realized which includes 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

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collection. Excluded from remaining performance obligations are potential orders under master service agreements. The remaining performance obligations at the pipeline and midstream segment include firm transportation and storage contracts with fixed pricing and fixed volumes.

At September 30, 2019, the Company's remaining performance obligations were $2.1 billion. The Company expects to recognize the following revenue amounts in future periods related to these remaining performance obligations: $1.6 billion within the next 12 months; $255.0 million within the next 13 to 24 months; and $249.6 million thereafter.

The majority of the Company's construction contracts have an original duration of less than two years. The Company's firm transportation and firm storage contracts have weighted average remaining durations of approximately five and three years, respectively.

Note 9 - Business combinations

During 2019, the Company completed two acquisitions which were accounted for as business combinations. The following is a listing of the acquisitions made during 2019:


•	In March 2019, the Company acquired Viesko Redi-Mix, Inc., a provider of ready-mixed concrete in Oregon. The results of Viesko Redi-Mix, Inc. are included in the construction materials and contracting segment.


•	In September 2019, the Company purchased the assets of Pride Electric, Inc., an electrical construction company in Washington. The results of Pride Electric, Inc. are included in the construction services segment.

All business combinations were accounted for in accordance with ASC 805 - Business Combinations. The results of the acquired businesses have been included in the Company's Consolidated Financial Statements beginning on the acquisition date. Pro forma financial amounts reflecting the effects of the business combinations are not presented, as these business combinations were not 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, estimated fair value of 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 2019 and 2018 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 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 one year 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.

As of September 30, 2019, the gross aggregate consideration for acquisitions that occurred in 2019 was $54.5 million, subject to certain adjustments, and includes $1.2 million of debt assumed. The acquisitions are 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 Sheet for these adjustments are considered provisional until final settlement has occurred. The purchase price adjustments for Viesko Redi-Mix, Inc., have been settled and the purchase price allocation is considered final.

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During the third quarter of 2019, the Company finalized its valuation of the assets acquired and liabilities assumed in conjunction with the acquisition in 2018 of Sweetman Construction Company. As a result, measurement period adjustments were made to the previously disclosed provisional fair values. These adjustments did not have a material impact on the Company's consolidated results of operations. The purchase price adjustments for the three additional acquisitions in 2018 have been settled with no material adjustments made to the provisional accounting. The aggregate total consideration for the 2018 acquisitions and the final amounts allocated to the assets acquired and liabilities assumed were as follows:



	December 31, 2018		Measurement Period Adjustments			September 30, 2019
	(In thousands)
Assets
Current assets:
Receivables, net	$	18,984	$	—		$	18,984
Inventories	10,329		(228		)	10,101
Prepayments and other current assets	515		(14		)	501
Total current assets	29,828		(242		)	29,586
Property, plant and equipment	131,766		6,669			138,435
Deferred charges and other assets:
Goodwill	33,131		(6,669		)	26,462
Other Intangible assets, net	8,227		—			8,227
Other	927		—			927
Total deferred charges and other assets	42,285		(6,669		)	35,616
Total assets acquired	$	203,879	$	(242	)	$	203,637
Liabilities
Current liabilities	$	11,122	$	(242	)	$	10,880
Deferred credits and other liabilities:
Asset retirement obligation	914		—			914
Deferred income taxes	5,565		—			5,565
Total deferred credits and other liabilities	6,479		—			6,479
Total liabilities assumed	$	17,601	$	(242	)	$	17,359
Total consideration (fair value)	$	186,278	$	—		$	186,278

Note 10 - Discontinued operations

The assets and liabilities of the Company's discontinued operations have been classified as held for sale and the results of operations are shown in income (loss) from discontinued operations, other than certain general and administrative costs and interest expense which do not meet the criteria for income (loss) from discontinued operations. At the time the assets were classified as held for sale, depreciation, depletion and amortization expense was no longer recorded.

Dakota Prairie Refining On June 24, 2016, WBI Energy entered into a membership interest purchase agreement with Tesoro to sell all the outstanding membership interests in Dakota Prairie Refining to Tesoro. WBI Energy and Calumet each previously owned 50 percent of the Dakota Prairie Refining membership interests and were equal members in building and operating Dakota Prairie Refinery. To effectuate the sale, WBI Energy acquired Calumet’s 50 percent membership interest in Dakota Prairie Refining on June 27, 2016. The sale of the membership interests to Tesoro closed on June 27, 2016. The sale of Dakota Prairie Refining reduced the Company’s risk by decreasing exposure to commodity prices.

Fidelity In the second quarter of 2015, the Company began the marketing and sale process of Fidelity with an anticipated sale to occur within one year. Between September 2015 and March 2016, the Company entered into purchase and sale agreements to sell substantially all of Fidelity's oil and natural gas assets. The completion of these sales occurred between October 2015 and April 2016. In July 2018, the Company completed the sale of a majority of the remaining property, plant and equipment. The sale of Fidelity was part of the Company's strategic plan to grow its capital investments in the remaining business segments and to focus on creating a greater long-term value.

Index

Dakota Prairie Refining and Fidelity The carrying amounts of the major classes of assets and liabilities classified as held for sale on the Consolidated Balance Sheets were as follows:



	September 30, 2019		September 30, 2018		December 31, 2018
	(In thousands)
Assets
Current assets:
Receivables, net	$	426	$	571	$	430
Income taxes receivable (a)	—		1,640		—
Total current assets held for sale	426		2,211		430
Noncurrent assets:
Deferred income taxes	1,926		1,711		1,926
Other	161		161		161
Total noncurrent assets held for sale	2,087		1,872		2,087
Total assets held for sale	$	2,513	$	4,083	$	2,517
Liabilities
Current liabilities:
Accounts payable	$	—	$	188	$	80
Taxes payable	1,300		7,463		1,451
Other accrued liabilities	2,093		1,948		2,470
Total current liabilities held for sale	3,393		9,599		4,001
Noncurrent liabilities:
Deferred income taxes (b)	—		37		—
Total noncurrent liabilities held for sale	—		37		—
Total liabilities held for sale	$	3,393	$	9,636	$	4,001


(a)	On the Company's Consolidated Balance Sheets, these amounts were reclassified to taxes payable and are reflected in current liabilities held for sale.


(b)	On the Company's Consolidated Balance Sheets, these amounts were reclassified to deferred charges and other assets - deferred income taxes and are reflected in noncurrent assets held for sale.

The reconciliation of the major classes of income and expense constituting pretax income (loss) from discontinued operations to the after-tax income (loss) from discontinued operations on the Consolidated Statements of Income was as follows:



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019		2018
	(In thousands)
Operating revenues	$	230		$	61		$	298	$	201
Operating expenses	(1,760		)	216			264		825
Operating income (loss)	1,990			(155		)	34		(624		)
Other income	—			—			—		12
Interest expense	—			—			—		575
Income (loss) from discontinued operations before income taxes	1,990			(155		)	34		(1,187		)
Income taxes	481			(37		)	8		(1,272		)
Income (loss) from discontinued operations	$	1,509		$	(118	)	$	26	$	85

Note 11 - Leases

Most of the leases the Company enters into are for equipment, buildings, easements and vehicles as part of their ongoing operations. The Company also leases certain equipment to third parties through its utility and construction services segments. The Company determines if an arrangement contains a lease at inception of a contract and accounts for all leases in accordance with ASC 842 - Leases. For more information on the adoption of ASC 842, see Note 6.

The recognition of leases requires the Company to make estimates and assumptions that affect the lease classification and the assets and liabilities recorded. The accuracy of lease assets and liabilities reported on the Consolidated Financial Statements depends on, among other things, management's estimates of interest rates used to discount the lease assets and liabilities to their present value, as well as the lease terms based on the unique facts and circumstances of each lease.

Index

Lessee accounting

The leases the Company has entered into as part of its ongoing operations are considered operating leases and are recognized on the balance sheet as right-of-use assets, current lease liabilities and, if applicable, noncurrent lease liabilities. Lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The Company determines the lease term based on the non-cancelable and cancelable periods in each contract. The non-cancelable period consists of the term of the contract that is legally enforceable and cannot be canceled by either party without incurring a significant penalty. The cancelable period is determined by various factors that are based on who has the right to cancel a contract. If only the lessor has the right to cancel the contract, the Company will assume the contract will continue. If the lessee is the only party that has the right to cancel the contract, the Company looks to asset, entity and market-based factors. If both the lessor and the lessee have the right to cancel the contract, the Company assumes the contract will not continue.

Generally, the leases for vehicles and equipment have a term of five years or less and buildings and easements have a longer term of up to 35 years or more. To date, the Company does not have any residual value guarantee amounts probable of being owed to a lessor, financing leases or material agreements with related parties.

The Company has elected to recognize leases with an original lease term of 12 months or less in income on a straight-line basis over the term of the lease and not recognize a corresponding right-of-use asset or lease liability. Lease costs are included in operation and maintenance expense on the Company's Consolidated Statements of Income. The discount rate used to calculate the present value of the lease liabilities is based upon the implied rate within each contract. If the rate is unknown or cannot be determined, the Company uses an incremental borrowing rate which is determined by the length of the contract, asset class and the Company's borrowing rates as of the commencement date of the contract.

The following tables provide information on the Company's operating leases:



	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2019		2019
	(In thousands)
Lease costs:
Operating lease cost	$	10,536	$	32,444
Variable lease cost	381		1,180
Short-term lease cost	28,270		85,982
Total lease costs	$	39,187	$	119,606



	September 30, 2019
	(Dollars in thousands)
Weighted average remaining lease term	2.98 years
Weighted average discount rate	4.63		%
Cash paid for amounts included in the measurement of lease liabilities	$	32,261

The reconciliation of the future undiscounted cash flows to the operating lease liabilities presented on the Company's Consolidated Balance Sheet at September 30, 2019, was as follows:



	(In thousands)
Remainder of 2019	$	10,619
2020	32,605
2021	23,488
2022	15,838
2023	9,913
Thereafter	54,765
Total	147,228
Less discount	28,478
Total operating lease liabilities	$	118,750

Index

As previously disclosed in the 2018 Annual Report, the undiscounted annual minimum lease payments due under the Company's leases following the previous lease accounting standard as of December 31, 2018, were as follows:



	2019		2020		2021		2022		2023		Thereafter
	(In thousands)
Operating leases	$	37,740	$	26,255	$	17,868	$	11,647	$	7,278	$	49,098

Lessor accounting

The Company leases certain equipment to third parties which are considered operating leases. The Company recognized revenue from operating leases of $11.2 million and $37.7 million for the three and nine months ended September 30, 2019, respectively.

The majority of the Company's operating leases are short-term leases of less than 12 months. At September 30, 2019, the Company had $10.0 million of lease receivables with a majority due within 12 months.

Note 12 - Goodwill and other intangible assets

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



Nine Months Ended September 30, 2019	Balance at January 1, 2019		Goodwill Acquired During the Year		Measurement Period Adjustments			Balance at September 30, 2019
	(In thousands)
Natural gas distribution	$	345,736	$	—	$	—		$	345,736
Construction materials and contracting	209,421		14,473		(6,669		)	217,225
Construction services	109,765		8,623		—			118,388
Total	$	664,922	$	23,096	$	(6,669	)	$	681,349



Nine Months Ended September 30, 2018	Balance at January 1, 2018		Goodwill Acquired During the Year		Measurement Period Adjustments		Balance at September 30, 2018
	(In thousands)
Natural gas distribution	$	345,736	$	—	$	—	$	345,736
Construction materials and contracting	176,290		8,412		—		184,702
Construction services	109,765		—		—		109,765
Total	$	631,791	$	8,412	$	—	$	640,203



Year Ended December 31, 2018	Balance at January 1, 2018		Goodwill Acquired During the Year		Measurement Period Adjustments		Balance at December 31, 2018
	(In thousands)
Natural gas distribution	$	345,736	$	—	$	—	$	345,736
Construction materials and contracting	176,290		33,131		—		209,421
Construction services	109,765		—		—		109,765
Total	$	631,791	$	33,131	$	—	$	664,922

During 2019 and 2018, the Company completed two and four business combinations, respectively, and the results of these acquisitions have been included in the Company's construction materials and contracting and construction services segments. These business combinations increased the construction materials and contracting segment's goodwill balance at September 30, 2019 and 2018, and December 31, 2018, and increased the construction services segment's goodwill balance at September 30, 2019, as noted in the previous tables. As a result of the business combinations, other intangible assets increased $6.3 million at September 30, 2019, compared to December 31, 2018. For more information related to these business combinations, see Note 9.

Index

Other amortizable intangible assets were as follows:



	September 30, 2019		September 30, 2018		December 31, 2018
	(In thousands)
Customer relationships	$	18,011	$	15,920	$	22,720
Less accumulated amortization	5,823		13,342		13,535
	12,188		2,578		9,185
Noncompete agreements	3,419		2,606		2,605
Less accumulated amortization	1,868		1,911		1,956
	1,551		695		649
Other	7,488		6,458		6,458
Less accumulated amortization	5,716		5,413		5,477
	1,772		1,045		981
Total	$	15,511	$	4,318	$	10,815

Amortization expense for amortizable intangible assets for the three and nine months ended September 30, 2019, was $500,000 and $1.6 million, respectively. Amortization expense for amortizable intangible assets for the three and nine months ended September 30, 2018, was $300,000 and $900,000, respectively. Estimated amortization expense for identifiable intangible assets as of September 30, 2019, was:



	Remainder of 2019		2020		2021		2022		2023		Thereafter
	(In thousands)
Amortization expense	$	931	$	3,077	$	2,042	$	1,996	$	1,957	$	5,508

Index

Note 13 - Regulatory assets and liabilities

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



	Estimated Recovery Period	*	September 30, 2019			December 31, 2018
			(In thousands)
Regulatory assets:
Pension and postretirement benefits (a)	(e)		$	165,843		$	165,898
Natural gas costs recoverable through rate adjustments (a) (b)	Up to 3 years		93,001			42,652
Asset retirement obligations (a)	Over plant lives		64,771			60,097
Cost recovery mechanisms (a) (b)	Up to 4 years		20,912			17,948
Manufactured gas plant site remediation (a)	-		15,739			17,068
Taxes recoverable from customers (a)	Over plant lives		11,600			11,946
Plants to be retired (a)	-		26,152			—
Conservation programs (b)	Up to 1 year		9,467			7,494
Long-term debt refinancing costs (a)	Up to 19 years		4,439			4,898
Costs related to identifying generation development (a)	Up to 8 years		2,166			2,508
Other (a) (b)	Up to 20 years		17,501			9,608
Total regulatory assets			$	431,591		$	340,117
Regulatory liabilities:
Taxes refundable to customers (c) (d)			$	258,012		$	277,833
Plant removal and decommissioning costs (c) (d)			176,016			173,143
Natural gas costs refundable through rate adjustments (d)			19,194			29,995
Pension and postretirement benefits (c)			12,942			15,264
Other (c) (d)			24,153			25,197
Total regulatory liabilities			$	490,317		$	521,432
Net regulatory position			$	(58,726	)	$	(181,315	)


*	Estimated recovery period for regulatory assets currently being recovered in rates charged to customers.


(a)	Included in deferred charges and other assets - other on the Consolidated Balance Sheets.


(b)	Included in prepayments and other current assets on the Consolidated Balance Sheets.


(c)	Included in deferred credits and other liabilities - other on the Consolidated Balance Sheets.


(d)	Included in other accrued liabilities on the Consolidated Balance Sheets.


(e)	Recovered as expense is incurred or cash contributions are made.

The regulatory assets are expected to be recovered in rates charged to customers. A portion of the Company's regulatory assets are not earning a return; however, these regulatory assets are expected to be recovered from customers in future rates. As of September 30, 2019 and December 31, 2018, approximately $278.2 million and $313.5 million, respectively, of regulatory assets were not earning a rate of return.

During the first quarter of 2019 and the fourth quarter of 2018, the Company experienced increased natural gas costs in certain jurisdictions where it supplies natural gas. The Company has recorded these natural gas costs as regulatory assets as they are expected to be recovered from customers, as discussed in Note 19.

In February 2019, the Company announced that it intends to retire three aging coal-fired electric generation units within the next three years. 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 Company expects to recover the regulatory assets related to the plants to be retired in future rates.

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

Index

Note 14 - Fair value measurements

The Company measures its investments in certain fixed-income and equity securities at fair value with changes in fair value recognized in income. The Company anticipates using these investments, which consist of an insurance contract, to satisfy its obligations under its unfunded, nonqualified benefit 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 $84.2 million, $80.4 million and $73.8 million, at September 30, 2019 and 2018, and December 31, 2018, respectively, are classified as investments on the Consolidated Balance Sheets. The net unrealized gains on these investments were $1.1 million and $10.4 million for the three and nine months ended September 30, 2019, respectively. The net unrealized gains on these investments were $2.1 million and $3.0 million for the three and nine months ended September 30, 2018, 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. The available-for-sale securities 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 loss. Details of available-for-sale securities were as follows:



September 30, 2019	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
Mortgage-backed securities	$	9,577	$	86	$	16	$	9,647
U.S. Treasury securities	1,258		—		1		1,257
Total	$	10,835	$	86	$	17	$	10,904



September 30, 2018	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
Mortgage-backed securities	$	10,550	$	3	$	251	$	10,302
U.S. Treasury securities	179		—		—		179
Total	$	10,729	$	3	$	251	$	10,481



December 31, 2018	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
Mortgage-backed securities	$	10,473	$	21	$	162	$	10,332
U.S. Treasury securities	179		—		—		179
Total	$	10,652	$	21	$	162	$	10,511

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 from outside sources. The estimated fair value of the Company's Level 2 insurance contract is 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. For the nine months ended September 30, 2019 and 2018, there were no transfers between Levels 1 and 2.

Index

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



	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, 3 percent in target date investments and 2 percent in cash equivalents.



	Fair Value Measurements at September 30, 2018, 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, 2018
	(In thousands)
Assets:
Money market funds	$	—	$	9,948	$	—	$	9,948
Insurance contract*	—		80,358		—		80,358
Available-for-sale securities:
Mortgage-backed securities	—		10,302		—		10,302
U.S. Treasury securities	—		179		—		179
Total assets measured at fair value	$	—	$	100,787	$	—	$	100,787


*	The insurance contract invests approximately 47 percent in fixed-income investments, 24 percent in common stock of large-cap companies, 13 percent in common stock of mid-cap companies, 12 percent in common stock of small-cap companies, 3 percent in target date investments and 1 percent in cash equivalents.



	Fair Value Measurements at December 31, 2018, 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, 2018
	(In thousands)
Assets:
Money market funds	$	—	$	10,799	$	—	$	10,799
Insurance contract*	—		73,838		—		73,838
Available-for-sale securities:
Mortgage-backed securities	—		10,332		—		10,332
U.S. Treasury securities	—		179		—		179
Total assets measured at fair value	$	—	$	95,148	$	—	$	95,148


*	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, 3 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.

Index

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 zero 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. The 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'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 long-term debt was as follows:



	Carrying Amount		Fair Value
	(In thousands)
Long-term debt at September 30, 2019	$	2,246,756	$	2,450,209
Long-term debt at September 30, 2018	$	1,915,470	$	1,987,360
Long-term debt at December 31, 2018	$	2,108,695	$	2,183,819

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

Note 15 - Debt

Certain debt instruments of the Company's subsidiaries contain restrictive 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 30, 2019. 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 their respective 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 the construction businesses.

Short-term debt

The following describes certain transactions during the three and nine months ended September 30, 2019, included in outstanding short-term debt:


•	On March 22, 2019, Cascade entered into a $40.0 million term loan agreement with a variable interest rate and a maturity date of December 31, 2019.


•	On April 12, 2019, Centennial entered into a $50.0 million term loan agreement with a variable interest rate and a maturity date of April 11, 2020.


•	On August 7, 2019, Centennial entered into a $50.0 million term loan agreement with a variable interest rate and a maturity date of January 31, 2020.

Long-term debt

The following describes certain transactions during the three and nine months ended September 30, 2019, included in outstanding long-term debt:


•	On April 4, 2019, Centennial issued $150.0 million of senior notes with maturity dates ranging from April 4, 2029 to April 4, 2034, at a weighted average interest rate of 4.60 percent.


•	On June 7, 2019, Cascade amended its revolving credit agreement to increase the borrowing limit from $75.0 million to $100.0 million and extend the termination date from April 24, 2020 to June 7, 2024.


•	On June 7, 2019, Intermountain amended its revolving credit agreement to extend the termination date from April 24, 2020 to June 7, 2024.


•	On June 13, 2019, Cascade issued $75.0 million of senior notes with maturity dates ranging from June 13, 2029 to June 13, 2049, at a weighted average interest rate of 3.93 percent.


•	On June 13, 2019, Intermountain issued $50.0 million of senior notes with maturity dates ranging from June 13, 2029 to June 13, 2049, at a weighted average interest rate of 3.92 percent.

Index

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



	Weighted Average Interest Rate at September 30, 2019		September 30, 2019		December 31, 2018
			(In thousands)
Senior notes due on dates ranging from December 15, 2019 to January 15, 2055	4.52	%	$	1,655,000	$	1,381,000
Commercial paper supported by revolving credit agreements	2.46	%	281,800		338,100
Term loan agreements due on dates ranging from September 3, 2032 to November 18, 2059	2.75	%	209,100		209,800
Credit agreements due on June 7, 2024	4.66	%	31,000		110,100
Medium-term notes due on dates ranging from September 1, 2020 to March 16, 2029	6.68	%	50,000		50,000
Other notes due on dates ranging from July 15, 2021 to November 30, 2038	5.01	%	26,083		25,229
Less unamortized debt issuance costs			6,074		5,207
Less discount			153		327
Total long-term debt			2,246,756		2,108,695
Less current maturities			65,810		251,854
Net long-term debt			$	2,180,946	$	1,856,841

Schedule of Debt Maturities Long-term debt maturities, which excludes unamortized debt issuance costs and discount, as of September 30, 2019, were as follows:



	Remainder of 2019		2020		2021		2022		2023		Thereafter
	(In thousands)
Long-term debt maturities	$	50,110	$	15,902	$	204,522	$	147,402	$	155,502	$	1,679,545

Note 16 - Cash flow information

Cash expenditures for interest and income taxes were as follows:



	Nine Months Ended
	September 30,
	2019		2018
	(In thousands)
Interest, net*	$	64,596	$	58,359
Income taxes paid, net**	$	1,816	$	8,887


*	AFUDC - borrowed was $2.0 million and $1.8 million for the nine months ended September 30, 2019 and 2018, respectively.


**	Income taxes paid, including discontinued operations, were $2.0 million and $5.1 million for the nine months ended September 30, 2019 and 2018, respectively.

Noncash investing and financing transactions were as follows:



	September 30, 2019		September 30, 2018		December 31, 2018
	(In thousands)
Right-of-use assets obtained in exchange for new operating lease liabilities	$	46,770	$	—	$	—
Property, plant and equipment additions in accounts payable	$	34,368	$	34,594	$	42,355
Debt assumed in connection with a business combination	$	1,163	$	—	$	—
Issuance of common stock in connection with a business combination	$	—	$	17,993	$	18,186

Note 17 - Business segment data

The Company's reportable segments are those that are based on the Company's method of internal reporting, which generally segregates the strategic business units due to differences in products, services and regulation. The internal reporting of these operating segments is defined based on the reporting and review process used by the Company's chief executive officer. The vast majority of the Company's operations are located within the United States.

Index

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.

The pipeline and midstream segment provides natural gas transportation, underground storage and gathering services through regulated and nonregulated pipeline systems primarily in the Rocky Mountain and northern Great Plains regions of the United States. This segment also provides cathodic protection and other energy-related services.

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

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

The Other category includes the activities of Centennial Capital, which, through its subsidiary InterSource Insurance Company, insures various types of risks as a captive insurer for certain of the Company's subsidiaries. The function of the captive insurer is to fund the self-insured layers of the insured Company's general liability, automobile liability, pollution liability and other coverages. Centennial Capital also owns certain real and personal property. In addition, the Other category includes certain assets, liabilities and tax adjustments of the holding company primarily associated with corporate functions and certain general and administrative costs (reflected in operation and maintenance expense) and interest expense which were previously allocated to the refining business and Fidelity that 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 Dakota Prairie Refining and Fidelity other than certain general and administrative costs and interest expense as described above. For more information on discontinued operations, see Note 10.

The information below follows the same accounting policies as described in Note 1 of the Company's Notes to Consolidated Financial Statements in the 2018 Annual Report. Information on the Company's segments was as follows:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
	(In thousands)
External operating revenues:
Regulated operations:
Electric	$	89,845	$	86,080	$	263,423	$	251,984
Natural gas distribution	93,642		92,248		569,656		554,452
Pipeline and midstream	25,957		22,289		52,230		45,325
	209,444		200,617		885,309		851,761
Nonregulated operations:
Pipeline and midstream	6,576		6,782		17,597		16,640
Construction materials and contracting	869,376		743,763		1,692,287		1,466,435
Construction services	478,381		329,578		1,363,305		986,649
Other	22		47		65		193
	1,354,355		1,080,170		3,073,254		2,469,917
Total external operating revenues	$	1,563,799	$	1,280,787	$	3,958,563	$	3,321,678

Index



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
	(In thousands)
Intersegment operating revenues:
Regulated operations:
Electric	$	—		$	—		$	—		$	—
Natural gas distribution	—			—			—			—
Pipeline and midstream	3,750			3,070			35,098			31,252
	3,750			3,070			35,098			31,252
Nonregulated operations:
Pipeline and midstream	81			117			200			233
Construction materials and contracting	124			165			388			501
Construction services	1,226			782			2,076			1,332
Other	2,862			3,037			13,566			8,343
	4,293			4,101			16,230			10,409
Intersegment eliminations	(8,043		)	(7,171		)	(51,328		)	(41,661		)
Total intersegment operating revenues	$	—		$	—		$	—		$	—

Operating income (loss):
Electric	$	21,930		$	21,140		$	49,708		$	52,321
Natural gas distribution	(15,565		)	(11,665		)	32,132			32,503
Pipeline and midstream	11,416			9,036			32,017			25,687
Construction materials and contracting	143,024			109,598			147,622			120,591
Construction services	29,950			11,863			89,381			51,853
Other	(1,285		)	32			140			417
Total operating income	$	189,470		$	140,004		$	351,000		$	283,372

Net income (loss):
Regulated operations:
Electric	$	16,291		$	15,284		$	39,267		$	37,500
Natural gas distribution	(15,625		)	(11,887		)	14,623			13,884
Pipeline and midstream	6,933			10,109			20,316			20,809
	7,599			13,506			74,206			72,193
Nonregulated operations:
Pipeline and midstream	801			848			1,380			1,136
Construction materials and contracting	102,611			78,876			97,328			79,691
Construction services	21,113			9,278			63,982			38,457
Other	4,004			4,861			3,466			1,928
	128,529			93,863			166,156			121,212
Income from continuing operations	136,128			107,369			240,362			193,405
Income (loss) from discontinued operations, net of tax	1,509			(118		)	26			85
Net income	$	137,637		$	107,251		$	240,388		$	193,490

Index

Note 18 - Employee benefit plans

Pension and other postretirement plans

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



	Pension Benefits						Other Postretirement Benefits
Three Months Ended September 30,	2019			2018			2019			2018
	(In thousands)
Components of net periodic benefit cost (credit):
Service cost	$	—		$	—		$	286		$	374
Interest cost	3,806			3,648			746			725
Expected return on assets	(4,559		)	(5,188		)	(1,201		)	(1,217		)
Amortization of prior service credit	—			—			(289		)	(349		)
Amortization of net actuarial loss	1,387			1,751			27			160
Net periodic benefit cost (credit), including amount capitalized	634			211			(431		)	(307		)
Less amount capitalized	—			—			26			46
Net periodic benefit cost (credit)	$	634		$	211		$	(457	)	$	(353	)



	Pension Benefits						Other Postretirement Benefits
Nine Months Ended September 30,	2019			2018			2019			2018
	(In thousands)
Components of net periodic benefit cost (credit):
Service cost	$	—		$	—		$	857		$	1,121
Interest cost	11,419			10,943			2,239			2,175
Expected return on assets	(13,677		)	(15,565		)	(3,603		)	(3,650		)
Amortization of prior service credit	—			—			(866		)	(1,046		)
Amortization of net actuarial loss	4,160			5,254			82			480
Net periodic benefit cost (credit), including amount capitalized	1,902			632			(1,291		)	(920		)
Less amount capitalized	—			—			84			128
Net periodic benefit cost (credit)	$	1,902		$	632		$	(1,375	)	$	(1,048	)

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

Nonqualified defined benefit plans

In addition to the qualified defined benefit pension plans reflected in the table at the beginning of this note, the Company also has unfunded, nonqualified defined benefit plans for executive officers and certain key management employees. The Company's net periodic benefit cost for these plans for the three and nine months ended September 30, 2019, was $1.1 million and $3.3 million, respectively. The Company's net periodic benefit cost for these plans for the three and nine months ended September 30, 2018, was $1.1 million and $3.3 million, respectively. The components of net periodic benefit cost for these plans, which does not contain any service costs, are included in other income on the Consolidated Statements of Income.

Note 19 - Regulatory matters

The Company regularly reviews the need for electric and natural gas rate changes in each of the jurisdictions in which service is provided. The Company files for rate adjustments to seek recovery of operating costs and capital investments, as well as reasonable returns as allowed by regulators. The Company's most recent cases by jurisdiction are discussed in the following paragraphs.

MNPUC

On April 18, 2019, the MNPUC approved a decrease in rates for Great Plains of $400,000 on an annual basis to reflect TCJA impacts effective May 1, 2019, as well as a one-time TCJA refund of approximately $600,000 for the period from January 1, 2018 through April 30, 2019. The refunds were credited to customers' bills between August 14, 2019 and September 16, 2019.

Index

On September 27, 2019, Great Plains filed an application with the MNPUC for a natural gas rate increase of approximately $2.9 million annually or approximately 12.0 percent above current rates. The requested increase was primarily to recover investments in facilities to enhance safety and reliability and the depreciation and taxes associated with the increase in investment. Great Plains also requested an interim increase of approximately $2.6 million or approximately 11.0 percent, subject to refund. This matter is pending before the MNPUC.

MTPSC

On July 31, 2019, the MTPSC approved an electric rate increase that was primarily to recover Montana-Dakota's investments in facilities to enhance safety and reliability and the depreciation and taxes associated with such investments, partially offset by the impacts of TCJA. The approved rates included a $9.0 million annual increase implemented on September 1, 2019, and an additional $300,000 annual increase to be implemented beginning 12 months after the date of approval.

NDPSC

On October 22, 2019, the NDPSC approved an increase in rates to recover approximately $1.5 million annually for the revenue requirements on certain of Montana-Dakota's electric transmission projects through its transmission cost adjustment rate. The rates were effective October 28, 2019.

On August 28, 2019, Montana-Dakota filed an application with the NDPSC for an advanced determination of prudence and a certificate of public convenience and necessity to construct, own and operate Heskett Unit 4, an 88-MW simple-cycle natural gas-fired combustion turbine peaking unit at Heskett Station near Mandan, North Dakota. This matter is pending before the NDPSC.

On September 16, 2019, Montana-Dakota submitted an application with the NDPSC requesting the use of deferred accounting for the treatment of costs related to the retirement of Lewis & Clark Station in Sidney, Montana, and units 1 and 2 at Heskett Station near Mandan, North Dakota. This matter is pending before the NDPSC.

OPUC

On December 29, 2017, Cascade filed a request with the OPUC to use deferred accounting for the 2018 net benefits associated with the implementation of the TCJA. On September 12, 2019, the OPUC approved the request, including a settlement to refund to customers $1.4 million related to TJCA impacts for the period from January 2018 through March 2019. These refunds will be reflected in customers' rates over a 12-month period beginning November 1, 2019.

On June 14, 2019, Cascade filed a request with the OPUC to implement a new pipeline safety cost recovery mechanism to recover investments to replace Cascade's highest risk infrastructure. If approved, Cascade would file a report annually with the OPUC detailing actual projects undertaken and costs incurred for the year on November 1, seeking recovery for investments from January 1 through December 31 of that same year. This matter is pending before the OPUC.

WUTC

On March 29, 2019, Cascade filed a general rate case with the WUTC requesting an increase in annual revenue of $12.7 million or approximately 5.5 percent. On September 20, 2019, Cascade filed a joint settlement agreement with the WUTC reflecting a revised annual increase of $6.5 million or approximately 2.8 percent. A hearing on the settlement is scheduled for November 5, 2019. This matter is pending before the WUTC.

On May 31, 2019, Cascade filed its annual pipeline cost recovery mechanism requesting an increase in revenue of approximately $1.6 million or approximately 0.7 percent. On October 10, 2019, Cascade filed its final update to the cost recovery mechanism with a revised increase in revenue of approximately $440,000 or approximately 0.2 percent. On October 24, 2019, the WUTC approved the increase with rates effective for services provided on or after November 1, 2019.

On September 13, 2019, Cascade filed its annual purchased gas adjustment with the WUTC requesting an annual increase of approximately $12.8 million or approximately 5.7 percent for a period of three years. The requested increase is primarily due to unrecovered purchased gas costs as a result of the rupture of the Enbridge pipeline in Canada on October 9, 2018, causing increased natural gas costs. On October 24, 2019, the WUTC approved the increase with rates effective for services provided on or after November 1, 2019.

WYPSC

On April 4, 2019, Montana-Dakota submitted compliance rates to the WYPSC reflecting a decrease in annual revenues of approximately $1.1 million or approximately 4.2 percent to reflect TCJA impacts. On April 8, 2019, the WYPSC approved the Company's requested decrease in electric rates and required a refund to customers for the period from January 1, 2018 through the date prior to the implementation of the rates within 90 days of the effective date of the new rates. The new rates were implemented for service rendered on and after May 1, 2019, and the refunds of approximately $1.6 million were credited to customers' bills on July 25, 2019.

On March 30, 2018, Montana-Dakota reported its natural gas earnings do not support a decrease in rates and requested the WYPSC allow the impacts of the TCJA be addressed in a natural gas rate case to be submitted by June 1, 2019. On

Index

September 12, 2019, the WYPSC approved a one-time refund of approximately $200,000 to be credited to customers' bills by November 1, 2019, for the TCJA impacts from January 1, 2018 through June 30, 2019.

On May 23, 2019, Montana-Dakota filed an application with the WYPSC for a natural gas rate increase of approximately $1.1 million annually or approximately 7.0 percent above current rates. The requested increase was to recover increased operating expenses and investments in distribution facilities to improve system safety and reliability. This matter is pending before the WYPSC.

FERC

In accordance with WBI Energy Transmission’s offer of settlement and stipulation and agreement with the FERC dated June 4, 2014, the Company was to make a filing with new proposed rates to be effective no later than May 1, 2019. On October 31, 2018, the Company filed a rate case with the FERC. Following negotiations between FERC staff, customers and the Company, on May 30, 2019, the FERC granted the Company's request to place interim settlement rates into effect May 1, 2019, subject to refund or surcharge, and pending the FERC's consideration of the filing of a settlement agreement. Based on as filed volumes and settlement rates, the revenue increase is approximately $4.5 million annually. Included in the revenue increase are the impacts from higher depreciation rates agreed to in the settlement, as well as the impacts of the TCJA. On June 28, 2019, the Company filed a final settlement agreement and related documents with the FERC. On September 30, 2019, the FERC approved the final settlement agreement and related documents.

On August 29, 2019, Montana-Dakota filed an update to its transmission formula rate under the MISO tariff for the multivalue project for $13.4 million, which is effective January 1, 2020.

Note 20 - Contingencies

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

At September 30, 2019 and 2018, and December 31, 2018, the Company accrued liabilities which have not been discounted, including liabilities held for sale, of $30.6 million, $30.4 million and $30.4 million, respectively. 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

Portland Harbor Site In December 2000, Knife River - Northwest was named by the EPA as a PRP in connection with the cleanup of the Willamette River site adjacent to a commercial property site acquired by Knife River - Northwest from Georgia-Pacific West, Inc. The riverbed site is part of the Portland, Oregon, Harbor Superfund Site where the EPA wants responsible parties to share in the costs of cleanup. To date, costs of the overall remedial investigation and feasibility study of the harbor site are being recorded, and initially paid, through an administrative consent order by the LWG. Investigative costs are indicated to be in excess of $100 million. Remediation is expected to take up to 13 years with a present value cost estimate of approximately $1 billion. Corrective action will not be taken until remedial design/remedial action plans are approved by the EPA. Knife River - Northwest was also notified that the Portland Harbor Natural Resource Trustee Council intends to perform an injury assessment to natural resources resulting from the release of hazardous substances at the Harbor Superfund Site. It is not possible to estimate the costs of natural resource damages until an assessment is completed and allocations are undertaken.

At this time, Knife River - Northwest does not believe it is a responsible party and has notified Georgia-Pacific West, Inc., that it intends to seek indemnity for liabilities incurred in relation to the above matters pursuant to the terms of their sale agreement. Knife River - Northwest has entered into an agreement tolling the statute of limitations in connection with the LWG's potential claim for contribution to the costs of the remedial investigation and feasibility study. LWG has stated its intent to file suit against Knife River - Northwest and others to recover LWG's investigation costs to the extent Knife River - Northwest cannot demonstrate its non-liability for the contamination or is unwilling to participate in an alternative dispute resolution process that has been

Index

established to address the matter. At this time, Knife River - Northwest has agreed to participate in the alternative dispute resolution process.

The Company believes it is not probable that it will incur any material environmental remediation costs or damages in relation to the above referenced matter.

Manufactured Gas Plant Sites Claims have been made against Cascade for cleanup of environmental contamination at manufactured gas plant sites operated by Cascade's predecessors and a similar claim has been made against Montana-Dakota for a site operated by Montana-Dakota and its predecessors. Any accruals related to these claims are reflected in regulatory assets. For more information, see Note 13.

Demand has been made of Montana-Dakota to participate in investigation and remediation of environmental contamination at a site in Missoula, Montana. The site operated as a former manufactured gas plant from approximately 1907 to 1938 when it was converted to a butane-air plant that operated until 1956. Montana-Dakota or its predecessors owned or controlled the site for a period of the time it operated as a manufactured gas plant and Montana-Dakota operated the butane-air plant from 1940 to 1951, at which time it sold the plant. There are no documented wastes or by-products resulting from the mixing or distribution of butane-air gas. Preliminary assessment of a portion of the site provided a recommended remedial alternative for that portion of approximately $560,000. However, the recommended remediation would not address any potential contamination to adjacent parcels that may be impacted by contamination from the manufactured gas plant. Montana-Dakota and another party agreed to voluntarily investigate and remediate the site and that Montana-Dakota will pay two-thirds of the costs for further investigation and remediation of the site. Montana-Dakota received notice from a prior insurance carrier that it will participate in payment of defense costs incurred in relation to the claim. Montana-Dakota has accrued $375,000 for the remediation of this site.

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 confirms that contaminants have affected soil and groundwater at the site, as well as sediments in the adjacent Port Washington Narrows. Alternative remediation options have been identified with preliminary cost estimates ranging from $340,000 to $6.4 million. Data developed through the assessment and previous investigations indicates the contamination likely derived from multiple, different sources and multiple current and former owners of properties and businesses in the vicinity of the site may be responsible for the contamination. 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 has 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 $3.8 million has been incurred. Cascade has accrued $3.8 million for the remedial investigation and feasibility study, as well as $6.4 million for remediation of this site; however, the accrual for remediation costs will be reviewed and adjusted, if necessary, after completion of the remedial investigation and 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.

A claim was made against Cascade for contamination at a site in Bellingham, Washington. Cascade received notice from a party in May 2008 that Cascade may be a PRP, along with other parties, for contamination from a manufactured gas plant owned by Cascade and its predecessor from about 1946 to 1962. Other PRPs reached an agreed order and work plan with the Washington DOE for completion of a remedial investigation and feasibility study for the site. A feasibility study prepared for one of the PRPs in March 2018 identifies five cleanup action alternatives for the site with estimated costs ranging from $8.0 million to $20.4 million with a selected preferred alternative having an estimated total cost of $9.3 million. The other PRPs will develop a cleanup action plan and, after public review of the cleanup action plan, develop design documents. Cascade believes its proportional share of any liability will be relatively small in comparison to other PRPs. The plant manufactured gas from coal between approximately 1890 and 1946. In 1946, shortly after Cascade's predecessor acquired the plant, it converted the plant to a propane-air gas facility. There are no documented wastes or by-products resulting from the mixing or distribution of propane-air gas. Cascade has recorded an accrual for this site for an amount that is not material.

Cascade has received notices from and entered into agreement with certain of its insurance carriers that they will participate in defense of Cascade for certain of the 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, Cascade intends to seek recovery through the OPUC and WUTC of remediation costs in its natural gas rates charged to customers.

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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 who were the sellers in three purchase and sale agreements for periods ranging up to 10 years from the date of sale. 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 30, 2019, the fixed maximum amounts guaranteed under these agreements aggregated $206.5 million. At September 30, 2019, the amounts of scheduled expiration of the maximum amounts guaranteed under these agreements aggregate to $2.0 million in 2019; $192.2 million in 2020; $700,000 in 2021; $500,000 in 2022; $500,000 in 2023; $1.6 million thereafter; $9.0 million, which has no scheduled maturity date; and no amounts were outstanding. 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 30, 2019, the fixed maximum amounts guaranteed under these letters of credit aggregated $30.0 million. At September 30, 2019, the amounts of scheduled expiration of the maximum amounts guaranteed under these letters of credit aggregate to $24.4 million in 2019 and $5.6 million in 2020 with no amounts outstanding. 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 30, 2019.

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 30, 2019, approximately $930.1 million of surety bonds were outstanding, which were not reflected on the Consolidated Balance Sheet.

Variable interest entities

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

Fuel Contract Coyote Station entered into a coal supply agreement with Coyote Creek that provides for the purchase of coal necessary to supply the coal requirements of the Coyote Station for the period May 2016 through December 2040. Coal purchased under the coal supply agreement is reflected in inventories on the Company's 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 30, 2019, 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 $36.6 million.

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

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became the successor issuer to Montana-Dakota pursuant to Rule 12g-3(a) of the Exchange Act, and as a result, the Company's common stock was deemed registered under Section 12(b) of the Exchange Act.

The Company operates with a two-platform business model. Its regulated energy delivery platform and its construction materials and services platform are each comprised of different operating segments. Some 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 provides electric 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 customers, including commercial, industrial and governmental industries, and provides construction materials through aggregate mining and marketing of related products, such as ready-mixed concrete and asphalt.

The Company is organized into five reportable business segments. These business segments include: electric, natural gas distribution, pipeline and midstream, 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's strategy is to apply its expertise in the regulated energy delivery and construction materials and services businesses to increase market share, increase profitability and enhance shareholder value through organic growth opportunities and strategic acquisitions. The Company is focused on a disciplined approach to the acquisition of well-managed companies and properties.

The Company has capabilities to fund its growth and operations through various sources, including internally generated funds, commercial paper facilities, revolving credit facilities, term loans and the issuance from time to time of debt and equity securities. For more information on the Company's capital expenditures and funding sources, see Liquidity and Capital Commitments.

Consolidated Earnings Overview

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



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019		2018
	(In millions, except per share amounts)
Electric	$	16.3		$	15.3		$	39.3	$	37.5
Natural gas distribution	(15.6		)	(11.9		)	14.6		13.9
Pipeline and midstream	7.7			11.0			21.7		21.9
Construction materials and contracting	102.6			78.9			97.3		79.7
Construction services	21.1			9.3			64.0		38.5
Other	4.0			4.8			3.5		1.9
Income from continuing operations	136.1			107.4			240.4		193.4
Income (loss) from discontinued operations, net of tax	1.5			(.1		)	—		.1
Net income	$	137.6		$	107.3		$	240.4	$	193.5
Earnings per share - basic:
Income from continuing operations	$	.68		$	.55		$	1.21	$	.99
Discontinued operations, net of tax	.01			—			—		—
Earnings per share - basic	$	.69		$	.55		$	1.21	$	.99
Earnings per share - diluted:
Income from continuing operations	$	.68		$	.55		$	1.21	$	.99
Discontinued operations, net of tax	.01			—			—		—
Earnings per share - diluted	$	.69		$	.55		$	1.21	$	.99

Three Months Ended September 30, 2019, Compared to Three Months Ended September 30, 2018 The Company recognized consolidated earnings of $137.6 million for the quarter ended September 30, 2019, compared to $107.3 million for the same period in 2018.

Positively impacting the Company's earnings was an increase in gross margin at the construction materials and contracting business, largely resulting from strong economic environments in certain states, contributions from the businesses acquired since the third quarter of 2018 and an increase in gains recognized on asset sales. In addition, the construction services business experienced an increase in gross margin, primarily the result of higher inside and outside specialty contracting workloads and the

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absence of changes to estimates recorded in the third quarter of 2018 for variable consideration previously recognized on certain construction contracts. Partially offsetting these increases were higher operating expenses at the natural gas business and the absence in 2019 of an income tax benefit for the reversal of a previously recorded regulatory liability at the pipeline and midstream business.

Nine Months Ended September 30, 2019, Compared to Nine Months Ended September 30, 2018 The Company recognized consolidated earnings of $240.4 million for the nine months ended September 30, 2019, compared to $193.5 million for the same period in 2018.

Positively impacting the Company's earnings was an increase in gross margin at the construction services business, largely the result of higher inside and outside specialty contracting workloads and the absence of changes to estimates recorded in the third quarter of 2018 for variable consideration previously recognized on certain construction contracts. In addition, the construction materials and contracting business experienced an increase in gross margin, largely resulting from strong economic environments in certain states, contributions from the businesses acquired since the third quarter of 2018 and an increase in gains recognized on asset sales. Also contributing to the increased earnings was approved rate recovery at both the natural gas distribution and electric businesses, as well as higher retail sales volumes at the natural gas distribution business. The pipeline and midstream business had increased rates and volumes of natural gas being transported that was partially offset by the absence in 2019 of an income tax benefit for the reversal of a previously recorded regulatory liability.

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

Business Segment Financial and Operating Data

Following are 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 I, Item 1A - Risk Factors in the 2018 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 17 of the Notes to Consolidated Financial Statements.

Electric and Natural Gas Distribution

Strategy and challenges The electric and natural gas distribution segments provide electric and natural gas distribution services to customers, as discussed in Note 17. Both segments strive to be a top performing utility company measured by integrity, safety, employee satisfaction, customer service and shareholder return, while continuing to focus on providing safe, environmentally friendly, reliable and competitively priced energy and related services to customers. The Company continues to monitor 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 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, cost of natural gas, cost of electric fuel and purchased power, weather, competitive factors in the energy industry, population growth and economic conditions in the segments' service areas.

The electric and natural gas distribution segments are subject to extensive regulation in the jurisdictions where they conduct operations with respect to costs, timely recovery of investments and permitted returns on investment, as well as certain operational, environmental and system integrity regulations. To assist in the reduction of regulatory lag with the increase in investments, tracking mechanisms have been implemented in certain jurisdictions. The Pipeline and Hazardous Materials Safety Administration recently issued additional rules to strengthen the safety of natural gas transmission and hazardous liquid pipelines. The Company is currently evaluating the first phase of the rules. Legislative and regulatory initiatives to increase renewable energy resources and reduce GHG emissions could impact the price and demand for electricity and natural gas, as well as increase costs to produce electricity and natural gas. The segments continue to invest in facility upgrades to be in compliance with the existing and future regulations.

Tariff increases on steel and aluminum materials could negatively affect the segments' construction projects and maintenance work. The Company continues to monitor the impact of tariffs on raw material costs. The natural gas distribution segment is also facing increased lead times on delivery of certain raw materials used in pipeline projects. In addition to the effect of tariffs, 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 and Integrity Plan. 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 delays due to extended lead times.

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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 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. 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 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
	September 30,				September 30,
	2019		2018		2019			2018
	(Dollars in millions, where applicable)
Operating revenues	$	89.8	$	86.1	$	263.4		$	252.0
Electric fuel and purchased power	18.7		18.4		64.4			58.9
Taxes, other than income	.1		.2		.4			.6
Adjusted gross margin	71.0		67.5		198.6			192.5
Operating expenses:
Operation and maintenance	30.8		30.1		94.6			91.3
Depreciation, depletion and amortization	14.2		12.6		41.8			37.7
Taxes, other than income	4.1		3.7		12.5			11.2
Total operating expenses	49.1		46.4		148.9			140.2
Operating income	21.9		21.1		49.7			52.3
Other income	.6		.8		2.7			2.1
Interest expense	6.2		6.3		18.9			19.4
Income before income taxes	16.3		15.6		33.5			35.0
Income taxes	—		.3		(5.8		)	(2.5		)
Net income	$	16.3	$	15.3	$	39.3		$	37.5
Retail sales (million kWh):
Residential	259.4		282.9		865.6			903.0
Commercial	359.5		374.3		1,102.4			1,131.7
Industrial	127.8		132.9		403.5			406.8
Other	20.9		24.5		64.9			70.5
	767.6		814.6		2,436.4			2,512.0
Average cost of electric fuel and purchased power per kWh	$	.021	$	.021	$	.024		$	.022

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 30, 2019, Compared to Three Months Ended September 30, 2018 Electric earnings increased $1.0 million (7 percent) as a result of:

Adjusted gross margin: Increase of $3.5 million as a result of higher revenues. The revenue increase was primarily due to implemented regulatory mechanisms, which include approved Montana interim and final rates, as discussed in Note 19, and recovery of the investment in the Thunder Spirit Wind farm expansion placed into service in the fourth quarter of 2018. Also contributing to the increase was the absence in 2019 of a transmission formula rate adjustment recognized in the third quarter of 2018 for decreased costs on the BSSE project. These increases were partially offset by lower retail sales volumes of approximately 6 percent across all customer classes primarily from cooler summer temperatures.

Operation and maintenance: Increase of $700,000, largely due to higher payroll-related costs, partially offset by decreased contracted services resulting from lower subcontractor costs.

Depreciation, depletion and amortization: Increase of $1.6 million as a result of increased property, plant and equipment

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balances including the Thunder Spirit Wind farm expansion, as previously discussed, and other capital projects.

Taxes, other than income: Increase of $400,000, primarily from higher property taxes in certain jurisdictions.

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

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

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

Nine Months Ended September 30, 2019, Compared to Nine Months Ended September 30, 2018 Electric earnings increased $1.8 million (5 percent) as a result of:

Adjusted gross margin: Increase of $6.1 million as a result of higher revenues. The revenue increase was primarily due to implemented regulatory mechanisms, which include approved Montana interim and final rates, as discussed in Note 19; recovery of the investment in the Thunder Spirit Wind farm expansion placed into service in the fourth quarter of 2018; and recovery of the investment in the BSSE project placed into service in the first quarter of 2019. Also contributing to the increase was the absence in 2019 of a transmission formula rate adjustment recognized in the third quarter of 2018 for decreased costs on the BSSE project. These increases were partially offset by lower retail sales volumes of approximately 3 percent across all customer classes.

Operation and maintenance: Increase of $3.3 million, largely due to higher contract services, primarily driven by a maintenance outage at Coyote Station, and higher payroll-related costs.

Depreciation, depletion and amortization: Increase of $4.1 million as a result of increased property, plant and equipment balances including the Thunder Spirit Wind farm expansion, as previously discussed, and other capital projects.

Taxes, other than income: Increase of $1.3 million, primarily from higher property taxes in certain jurisdictions.

Other income: Increase of $600,000, primarily the result of higher returns on the Company's benefit plan investments, partially offset by the write-down of a non-utility investment, as discussed in Note 14.

Interest expense: Decrease of $500,000 driven by higher AFUDC, which resulted from more interest being capitalized on regulated construction projects.

Income taxes: Increase in income tax benefits of $3.3 million, largely resulting from increased production tax credits.

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



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
	(Dollars in millions, where applicable)
Operating revenues	$	93.6		$	92.2		$	569.7		$	554.5
Purchased natural gas sold	35.6			35.2			305.6			301.6
Taxes, other than income	3.2			3.1			20.7			21.0
Adjusted gross margin	54.8			53.9			243.4			231.9
Operating expenses:
Operation and maintenance	44.4			42.1			134.3			129.4
Depreciation, depletion and amortization	19.9			18.1			59.1			53.5
Taxes, other than income	6.1			5.4			17.9			16.5
Total operating expenses	70.4			65.6			211.3			199.4
Operating income (loss)	(15.6		)	(11.7		)	32.1			32.5
Other income	1.7			.7			5.3			2.0
Interest expense	8.9			7.7			26.1			22.6
Income (loss) before income taxes	(22.8		)	(18.7		)	11.3			11.9
Income taxes	(7.2		)	(6.8		)	(3.3		)	(2.0		)
Net income (loss)	$	(15.6	)	$	(11.9	)	$	14.6		$	13.9
Volumes (MMdk)
Retail sales:
Residential	4.1			4.0			44.3			40.4
Commercial	4.2			4.0			31.5			29.0
Industrial	.9			.8			3.6			3.2
	9.2			8.8			79.4			72.6
Transportation sales:
Commercial	.3			.3			1.5			1.5
Industrial	45.7			42.0			117.9			108.1
	46.0			42.3			119.4			109.6
Total throughput	55.2			51.1			198.8			182.2
Average cost of natural gas per dk	$	3.88		$	4.00		$	3.85		$	4.16

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 30, 2019, Compared to Three Months Ended September 30, 2018 Natural gas distribution's seasonal loss increased $3.7 million (31 percent) as a result of:

Adjusted gross margin: Increase of $900,000, primarily driven by approved rate recovery in certain jurisdictions. Increased retail sales volumes of 4 percent related to all customer classes were offset by weather normalization and conservation adjustments in certain jurisdictions.

Operation and maintenance: Increase of $2.3 million, largely due to higher payroll-related costs.

Depreciation, depletion and amortization: Increase of $1.8 million, primarily as a result of increased property, plant and equipment balances.

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

Other income: Increase of $1.0 million driven by increased interest income related to higher gas costs to be collected from customers, as discussed in Notes 13 and 19.

Interest expense: Increase of $1.2 million, largely resulting from increased debt balances to finance higher gas costs to be collected from customers.

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

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Nine Months Ended September 30, 2019, Compared to Nine Months Ended September 30, 2018 Natural gas distribution earnings increased $700,000 (5 percent) as a result of:

Adjusted gross margin: Increase of $11.5 million, primarily driven by an increase in retail sales volumes of 9 percent related to all customer classes due to colder weather, offset in part by weather normalization and conservation adjustments in certain jurisdictions, and approved rate recovery in certain jurisdictions. The adjusted gross margins were also positively impacted by higher rate realization due to higher conservation revenue, which offsets the conservation expense in operation and maintenance expense.

Operation and maintenance: Increase of $4.9 million, largely resulting from higher payroll-related costs and conservation expenses being recovered in revenue, partially offset by lower contract services due to the absence of the prior year's recognition of a non-recurring expense related to the approved WUTC general rate case settlement in the second quarter of 2018.

Depreciation, depletion and amortization: Increase of $5.6 million, primarily as a result of increased property, plant and equipment balances.

Taxes, other than income: Increase of $1.4 million, primarily from higher property taxes in certain jurisdictions.

Other income: Increase of $3.3 million, largely resulting from increased interest income related to higher gas costs to be collected from customers, as discussed in Notes 13 and 19, and higher returns on the Company's benefit plan investments. Partially offsetting these increases was the write-down of a non-utility investment, as discussed in Note 14.

Interest expense: Increase of $3.5 million, largely resulting from increased debt balances to finance higher gas costs to be collected from customers.

Income taxes: Increase in income tax benefits of $1.3 million resulting from increased permanent tax benefits.

Outlook 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 growth is expected to grow by 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 generation and transmission and natural gas systems.

In February 2019, the Company announced that it intends to retire three aging coal-fired electric generation units within the next three years, 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 2021 for Lewis & Clark Station in Sidney, Montana, and in early 2022 for units 1 and 2 at Heskett Station near Mandan, North Dakota. In addition, the Company announced that it intends to construct a new 88-MW simple-cycle natural gas-fired combustion turbine peaking unit at the existing plant site near Mandan, North Dakota. The new simple-cycle turbine coupled with the MISO market purchases are expected to be about half the total cost of continuing to run the coal-fired electric generation units at Heskett and Lewis & Clark stations. The simple-cycle turbine was included in the Company's recently submitted integrated resource plan. On August 28, 2019, the Company filed for an advanced determination of prudence with the NDPSC for the new simple-cycle turbine. If approved, the simple-cycle turbine is expected to be placed into service in 2023. On September 16, 2019, the Company filed with the NDPSC a request for the usage of deferred accounting for the costs related to the retirement of Lewis & Clark Station and units 1 and 2 at Heskett Station. Requests for the usage of deferred accounting will also be filed in Montana and South Dakota.

The Company continues to be focused on the regulatory recovery of its investments. The Company files for rate adjustments to seek recovery of operating costs and capital investments, as well as reasonable returns as allowed by regulators. The Company also continues to propose pipeline safety cost recovery mechanisms in certain jurisdictions focusing on the safety of its infrastructure. The Company's most recent cases by jurisdiction are discussed in Note 19.

Pipeline and Midstream

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

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 pipeline safety regulations and reduce methane emissions could also impact the price and demand for natural gas.

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Tariff increases on steel and aluminum materials could negatively affect the segment's construction projects and maintenance work. The Company continues to monitor the impact of tariffs on raw material costs. The segment experiences extended lead times on raw materials that are critical to the segment's construction and maintenance work. Long lead times on materials could delay maintenance work and project construction potentially causing lost revenues and/or increased costs. The Company continues to proactively monitor and plan for the material lead times, as well as work with manufacturers and suppliers to help mitigate the risk of delays due to extended lead times.

The pipeline and midstream segment is subject to extensive regulation including certain operational, environmental and system integrity regulations, as well as various permit terms and operational compliance conditions. The Pipeline and Hazardous Materials Safety Administration recently issued additional rules to strengthen the safety of natural gas transmission and hazardous liquid pipelines. The Company is currently evaluating the first phase of the rules. The segment is charged with the ongoing process of reviewing existing permits and easements, as well as securing new permits and easements as 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 and midstream companies can also have a negative impact on the segment.

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



	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2019		2018			2019		2018
	(Dollars in millions)
Operating revenues	$	36.4	$	32.3		$	105.1	$	93.5
Operating expenses:
Operation and maintenance	16.1		15.9			47.5		45.5
Depreciation, depletion and amortization	5.6		4.3			15.6		13.1
Taxes, other than income	3.3		3.0			10.0		9.2
Total operating expenses	25.0		23.2			73.1		67.8
Operating income	11.4		9.1			32.0		25.7
Other income	.1		.8			.9		1.3
Interest expense	1.8		1.6			5.3		4.1
Income before income taxes	9.7		8.3			27.6		22.9
Income taxes	2.0		(2.7		)	5.9		1.0
Net income	$	7.7	$	11.0		$	21.7	$	21.9
Transportation volumes (MMdk)	111.1		92.7			319.9		259.3
Natural gas gathering volumes (MMdk)	3.6		3.8			10.5		11.2
Customer natural gas storage balance (MMdk):
Beginning of period	11.4		16.2			13.9		22.4
Net injection	12.8		7.1			10.3		.9
End of period	24.2		23.3			24.2		23.3

Three Months Ended September 30, 2019, Compared to Three Months Ended September 30, 2018 Pipeline and midstream earnings decreased $3.3 million (29 percent) as a result of:

Revenues: Increase of $4.1 million, largely attributable to increased volumes of natural gas transported through its system as a result of organic growth projects completed in 2018 and increased rates effective May 1, 2019, due to the rate case recently finalized with the FERC, as discussed in Note 19.

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

Depreciation, depletion and amortization: Increase of $1.3 million, primarily due to higher depreciation rates effective May 1, 2019, due to the recently finalized rate case with the FERC, as discussed in Note 19, and increased property, plant and equipment balances, largely the result of organic growth projects that have been placed into service.

Taxes, other than income: Increase of $300,000 resulting from higher property taxes in certain jurisdictions.

Other income: Decrease of $700,000 as a result of lower AFUDC.

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

Income taxes: Increase of $4.7 million, primarily driven by the absence in 2019 of an income tax benefit related to the reversal of a previously recorded regulatory liability based on a FERC final accounting order issued during the third quarter of 2018.

Nine Months Ended September 30, 2019, Compared to Nine Months Ended September 30, 2018 Pipeline and midstream earnings decreased $200,000 (1 percent) as a result of:

Revenues: Increase of $11.6 million, largely attributable to increased volumes of natural gas transported through its system as a result of organic growth projects completed in 2018 and increased rates effective May 1, 2019, due to the rate case recently finalized with the FERC, as discussed in Note 19. Revenue was also positively impacted by higher nonregulated project revenue.

Operation and maintenance: Increase of $2.0 million, largely from higher nonregulated project costs as a result of increased nonregulated project revenue, as previously discussed, and higher material and payroll-related costs.

Depreciation, depletion and amortization: Increase of $2.5 million, primarily due to increased property, plant and equipment balances, largely the result of organic growth projects that have been placed into service, and higher depreciation rates effective May 1, 2019, due to the recently finalized rate case with the FERC, as discussed in Note 19.

Taxes, other than income: Increase of $800,000 driven by higher property taxes in certain jurisdictions.

Other income: Decrease of $400,000 as a result of lower AFUDC, partially offset by higher returns on the Company's benefit plan investments.

Interest expense: Increase of $1.2 million, largely resulting from higher debt balances to finance the organic growth projects completed during 2018, as previously discussed.

Income taxes: Increase of $4.9 million, primarily driven by the absence in 2019 of an income tax benefit related to the reversal of a previously recorded regulatory liability based on a FERC final accounting order issued during the third quarter of 2018.

Outlook The Company has continued to experience the effects of natural gas production at record levels, which has provided opportunities for organic growth projects and increased demand. The completion of organic growth projects has contributed to the Company transporting increasing volumes of natural gas through its system. The record levels of natural gas supply have moderated the need for storage services and put downward pressure on natural gas prices and minimized pricing volatility. Both natural gas production levels and pressure on natural gas prices are expected to continue in the near term. The Company continues to focus on growth and improving existing operations through organic projects in all areas in which it operates. The following describes recent growth projects.

In September 2019, the Company completed and placed into service the Demicks Lake project in McKenzie County, North Dakota, as scheduled. The project included approximately 14 miles of 20-inch pipe and increased capacity by 175 MMcf per day. The Company began construction on the Line Section 22 Expansion project in the Billings, Montana, area in May of 2019 with an expected in-service date in November 2019. The project is designed to increase capacity by 22.5 MMcf per day to serve incremental demand in Billings, Montana. The Company has signed long-term contracts supporting both projects.

Additionally, the Company expects to begin construction on the Demicks Lake Expansion project, located in McKenzie County, North Dakota, in the fourth quarter of 2019. The Company has signed a long-term contract supporting this project, which is designed to increase capacity by 175 MMcf per day. The Demicks Lake Expansion project is expected to be in-service in the first quarter of 2020.

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, and extend to a new connection with Northern Border Pipeline in McKenzie County, North Dakota. The Company's long-term customer commitments and anticipated incremental commitments with the continuing record levels of natural gas production in the Bakken region support the project at an increased design capacity of 350 MMcf per day. Construction is expected to begin in early 2021 with an estimated completion date late in 2021, which is dependent on regulatory and environmental permitting. On June 28, 2019, the Company filed with the FERC a request to initiate the National Environmental Policy Act pre-filing process and received FERC approval of the pre-filing request on July 3, 2019.

Construction Materials and Contracting

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

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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 acquisition activity supports this strategy.

As one of the country's largest sand and gravel producers, the segment continues to strategically manage its approximately 1.0 billion tons of aggregate reserves in all its markets, as well as take further advantage of being vertically integrated. The segment's vertical integration allows the segment to manage operations from aggregate mining to final lay-down of concrete and asphalt, with control of and access to permitted aggregate reserves being significant. The Company's aggregate reserves are naturally declining and as a result, the Company seeks acquisition opportunities to replace the reserves. In 2018, the Company's aggregate reserves increased by approximately 50 million tons primarily due to acquisition activity.

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. Although it is difficult to determine the split between inflation and supply/demand increases, diesel fuel costs remained fairly stable for the first nine months of 2019, while asphalt oil costs have trended higher in 2019 compared to 2018. Such volatility can have a negative impact on the segment's margins. Other variables that can impact the segment's margins include adverse weather conditions, the timing of project starts or completion and declines or delays in new and existing projects due to the cyclical nature of the construction industry and governmental infrastructure spending.

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 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
	September 30,					September 30,
	2019		2018			2019		2018
	(Dollars in millions)
Operating revenues	$	869.5	$	743.9		$	1,692.7	$	1,466.9
Cost of sales:
Operation and maintenance	668.9		586.0			1,384.4		1,210.9
Depreciation, depletion and amortization	19.7		15.1			55.2		42.1
Taxes, other than income	13.4		11.8			34.8		30.8
Total cost of sales	702.0		612.9			1,474.4		1,283.8
Gross margin	167.5		131.0			218.3		183.1
Selling, general and administrative expense:
Operation and maintenance	22.7		20.1			64.6		57.3
Depreciation, depletion and amortization	.9		.5			2.4		1.6
Taxes, other than income	.9		.8			3.7		3.6
Total selling, general and administrative expense	24.5		21.4			70.7		62.5
Operating income	143.0		109.6			147.6		120.6
Other income (expense)	.2		(.1		)	1.5		(1.0		)
Interest expense	6.4		4.4			18.6		12.5
Income before income taxes	136.8		105.1			130.5		107.1
Income taxes	34.2		26.2			33.2		27.4
Net income	$	102.6	$	78.9		$	97.3	$	79.7
Sales (000's):
Aggregates (tons)	11,860		10,366			24,815		21,860
Asphalt (tons)	3,317		3,380			5,396		5,581
Ready-mixed concrete (cubic yards)	1,372		1,103			3,124		2,623

Three Months Ended September 30, 2019, Compared to Three Months Ended September 30, 2018 Construction materials and contracting earnings increased $23.7 million (30 percent) as a result of:

Revenues: Increase of $125.6 million, primarily the result of higher revenues from contracting services and material sales due to strong economic environments in certain states and additional material volumes associated with the businesses acquired since the third quarter of 2018.

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Gross margin: Increase of $36.5 million, largely due to the higher revenues resulting from strong economic environments in certain states, as previously discussed, higher contracting bid margins and higher realized material prices. Also contributing was an increase in gains from asset sales in certain regions of approximately $7.0 million.

Selling, general and administrative expense: Increase of $3.1 million, largely related to the businesses acquired since the third quarter of 2018 and higher payroll-related costs.

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

Interest expense: Increase of $2.0 million, largely resulting from higher debt balances as a result of recent acquisitions.

Income taxes: Increase of $8.0 million, largely the result of increased income before income taxes.

Nine Months Ended September 30, 2019, Compared to Nine Months Ended September 30, 2018 Construction materials and contracting earnings increased $17.6 million (22 percent) as a result of:

Revenues: Increase of $225.8 million, primarily the result of higher revenues from contracting services and material sales due to strong economic environments in certain states and additional material volumes associated with the businesses acquired since the third quarter of 2018.

Gross margin: Increase of $35.2 million, largely resulting from higher revenues due to strong economic environments in certain states, as previously discussed, higher contracting bid margins and higher realized material prices. Also contributing was an increase in gains on asset sales in certain regions of approximately $6.8 million.

Selling, general and administrative expense: Increase of $8.2 million, primarily related to the businesses acquired since the third quarter of 2018 and higher payroll-related costs.

Other income (expense): Increase of $2.5 million, primarily due to higher returns on the Company's benefit plan investments.

Interest expense: Increase of $6.1 million, largely resulting from higher debt balances as a result of recent acquisitions.

Income taxes: Increase of $5.8 million, largely the result of increased income before income taxes.

Outlook The segment's vertically integrated aggregates-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 primarily to construction contractors in connection with street, highway and other public infrastructure projects, as well as private commercial 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 funding is, however, dependent on state and federal 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.

The Company remains optimistic about overall economic growth and infrastructure spending. The IBISWorld Incorporated Industry Report issued in June 2019 for sand and gravel mining in the United States projects a 1.1 percent annual growth rate through 2024. The report also states the demand for clay and refractory materials is projected to continue deteriorating in several downstream manufacturing industries. However, the report expects this decline will be offset by rising activity in the residential and nonresidential construction markets, growing public sector investment in the highway and bridge construction markets and the oil and gas sector growth. The Company believes stronger demand in the housing construction markets along with continued demand from the highway and bridge construction markets should provide a stable demand for construction materials and contracting products and services in the near future.

In the first quarter of 2019, the Company purchased additional aggregate deposits in Texas, which augments existing company operations and enhances its ability to sell aggregates to third parties in the coming years. Also, in the first quarter of 2019, the Company acquired Viesko Redi-Mix, Inc., a ready-mixed concrete supplier headquartered near Salem, Oregon. The Company continues to evaluate additional acquisition opportunities. For more information on the Company's business combinations, see Note 9.

The construction materials and contracting segment's backlog at September 30, 2019, was $746.9 million, up from $590.0 million at September 30, 2018. The increase in backlog was primarily attributable to increased agency work and bidding opportunities in nearly every region. The Company expects to complete a significant amount of backlog at September 30, 2019, during the next 12 months.

During the second quarter of 2019, the governor of Oregon signed House Bill 3427, which creates a Corporate Activity Tax. The tax was enacted in the third quarter of 2019 and is effective for the Company on January 1, 2020. The Company does not expect the additional taxation will have a material impact on the construction materials and contracting segment due to their operations in Oregon.

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Five of the labor contracts that Knife River was negotiating, as reported in Items 1 and 2 - Business Properties - General in the 2018 Annual Report, have been ratified.

Construction Services

Strategy and challenges The construction services segment provides inside and outside specialty contracting, as discussed in Note 17. The construction services segment focuses on providing a superior return on investment by building new and strengthening existing customer relationships; ensuring quality service; safely executing projects; effectively controlling costs; collecting on receivables; retaining, developing and recruiting talented employees; growing through organic and acquisition opportunities; and focusing efforts on projects that will permit higher margins while properly managing risk.

The construction services segment faces challenges in the highly competitive markets in which it operates. Competitive pricing environments, project delays, changes in management's estimates of variable consideration and the effects from restrictive regulatory requirements have negatively impacted revenues and margins in the past and could affect revenues and margins in the future. Additionally, margins may be negatively impacted on a quarterly basis due to adverse weather conditions, as well as timing of project starts or completions, 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 customer 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
	September 30,				September 30,
	2019		2018		2019		2018
	(In millions)
Operating revenues	$	479.6	$	330.4	$	1,365.4	$	988.0
Cost of sales:
Operation and maintenance	409.0		289.3		1,151.7		838.0
Depreciation, depletion and amortization	3.7		3.5		11.1		10.7
Taxes, other than income	14.1		9.7		44.6		32.0
Total cost of sales	426.8		302.5		1,207.4		880.7
Gross margin	52.8		27.9		158.0		107.3
Selling, general and administrative expense:
Operation and maintenance	21.4		14.6		63.9		51.0
Depreciation, depletion and amortization	.5		.4		1.3		1.1
Taxes, other than income	.9		1.0		3.4		3.3
Total selling, general and administrative expense	22.8		16.0		68.6		55.4
Operating income	30.0		11.9		89.4		51.9
Other income	.3		.5		1.4		1.1
Interest expense	1.6		.9		4.0		2.7
Income before income taxes	28.7		11.5		86.8		50.3
Income taxes	7.6		2.2		22.8		11.8
Net income	$	21.1	$	9.3	$	64.0	$	38.5

Three Months Ended September 30, 2019, Compared to Three Months Ended September 30, 2018 Construction services earnings increased $11.8 million (128 percent) as a result of:

Revenues: Increase of $149.2 million, largely the result of higher inside specialty contracting workloads from greater customer demand for hospitality and high-tech projects. Also contributing to the increase was higher outside specialty contracting workloads, primarily the result of increased demand for utility projects. Revenue was also positively impacted by the absence of $9.5 million in changes to estimates recorded in the third quarter of 2018 for variable consideration previously recognized on certain construction contracts.

Gross margin: Increase of $24.9 million, primarily 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.

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Selling, general and administrative expense: Increase of $6.8 million, primarily payroll-related costs, as well as increased professional services and office expenses.

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

Interest expense: Increase of $700,000, primarily due to higher debt balances as a result of additional working capital needs during the construction season.

Income taxes: Increase of $5.4 million, largely due to an increase in income before income taxes.

Nine Months Ended September 30, 2019, Compared to Nine Months Ended September 30, 2018 Construction services earnings increased $25.5 million (66 percent) as a result of:

Revenues: Increase of $377.4 million, largely the result of higher inside specialty contracting workloads from greater customer demand for hospitality and high-tech projects. Also contributing to the increase was higher outside specialty contracting workloads, primarily the result of increased demand for utility projects. Revenue was also positively impacted by the absence of $9.5 million in changes to estimates recorded in the third quarter of 2018 for variable consideration previously recognized on certain construction contracts.

Gross margin: Increase of $50.7 million, primarily 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.

Selling, general and administrative expense: Increase of $13.2 million, primarily payroll-related costs, as well as increased office expenses and professional services.

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

Interest expense: Increase of $1.3 million, primarily due to higher debt balances as a result of additional working capital needs during the construction season.

Income taxes: Increase of $11.0 million, largely due to an increase in income before income taxes.

Outlook The Company expects bidding activity to remain strong for both inside and outside specialty construction companies in 2019. Although bidding remains highly competitive in all areas, the Company expects the segment's skilled workforce will continue to provide a benefit in securing and executing profitable projects. The construction services segment had backlog at September 30, 2019, of $1.2 billion, up from $896.3 million at September 30, 2018. The increase in backlog was largely attributable to the new project opportunities that the Company continues to see across its diverse operations, particularly in inside specialty electrical and mechanical contracting for the hospitality and gaming, high-tech, mission critical and public entities. The Company's outside power, communications and natural gas specialty operations also have a high volume of available work. The Company expects to complete a significant amount of backlog at September 30, 2019, during the next 12 months. Additionally, the Company continues to further evaluate potential acquisition opportunities that would be accretive to the Company and continue to grow the Company's backlog.

In the third quarter of 2019, the Company purchased the assets of Pride Electric, Inc., an electrical construction company in Redmond, Washington. For more information on the Company's business combinations, see Note 9.

During the second quarter of 2019, the governor of Oregon signed House Bill 3427, which creates a Corporate Activity Tax. The tax was enacted in the third quarter of 2019 and is effective for the Company on January 1, 2020. The Company does not expect the additional taxation will have a material impact on the construction services segment due to their operations in Oregon.

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Other



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
	(In millions)
Operating revenues	$	2.9		$	3.1		$	13.6		$	8.5
Operating expenses:
Operation and maintenance	3.6			2.6			11.8			6.5
Depreciation, depletion and amortization	.5			.5			1.5			1.5
Taxes, other than income	—			—			.1			.1
Total operating expenses	4.1			3.1			13.4			8.1
Operating income (loss)	(1.2		)	—			.2			.4
Other income	.2			.4			.7			.6
Interest expense	.4			.5			1.5			2.2
Loss before income taxes	(1.4		)	(.1		)	(.6		)	(1.2		)
Income taxes	(5.4		)	(4.9		)	(4.1		)	(3.1		)
Net income	$	4.0		$	4.8		$	3.5		$	1.9

Three Months Ended September 30, 2019, Compared to Three Months Ended September 30, 2018 Included in Other are 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. Favorable income tax adjustments related to the consolidated Company's annualized estimated tax rate positively impacted the results of Other.

Nine Months Ended September 30, 2019, Compared to Nine Months Ended September 30, 2018 Included in Other was insurance activity at the Company's captive insurer 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. Favorable income tax adjustments related to the consolidated Company's annualized estimated tax rate for 2019 positively impacted the results of 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
	September 30,				September 30,
	2019		2018		2019		2018
	(In millions)
Intersegment transactions:
Operating revenues	$	8.0	$	7.2	$	51.3	$	41.7
Operation and maintenance	4.3		4.1		16.2		10.4
Purchased natural gas sold	3.7		3.1		35.1		31.3

For more information on intersegment eliminations, see Note 17.

Liquidity and Capital Commitments

At September 30, 2019, the Company had cash and cash equivalents of $67.0 million and available borrowing capacity of $543.6 million under the outstanding credit facilities of the Company's subsidiaries. The Company expects to meet its obligations for debt maturing within one year and its other operating and capital requirements from various sources, including internally generated funds; credit facilities of the Company's subsidiaries, as described in Capital resources; the issuance of long-term debt; and the issuance of equity securities.

Cash flows

Operating activities 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 flows provided by operating activities in the first nine months of 2019 decreased $114.3 million from the comparable period in 2018. The decrease in cash flows provided by operating activities was largely driven by an increase in accounts receivable as a result of higher revenues at the construction businesses as compared to the prior period. Also contributing to the decrease in cash flows provided by operating activities was the increase in natural gas purchases that include the effects of colder weather, higher gas costs and the timing of collection of such balances from customers at the natural gas distribution business. Partially offsetting

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these decreases to cash flows provided by operating activities were lower inventory balances due to the higher workloads at the construction materials and contracting business in 2019 as compared to the increase in inventory balances in 2018 due to the activity of the acquired businesses.

Investing activities Cash flows used in investing activities in the first nine months of 2019 was $448.6 million compared to $361.3 million in the first nine months of 2018. The increase in cash used in investing activities was primarily related to acquisition activity and asset purchases offset in part by proceeds on asset sales at the construction businesses.

Financing activities Cash flows provided by financing activities in the first nine months of 2019 was $258.6 million compared to $76.4 million in the first nine months of 2018. The change was largely the result of proceeds from issuance of common stock and higher debt borrowings in 2019 offset in part by the repayment of debt. The Company issued common stock for net proceeds of $105.6 million under its "at-the-market" offering and 401(k) plan during the first nine months of 2019 and increased long-term and short-term debt financing at the construction businesses for financing of acquisitions and working capital needs. The increase was also due to increased borrowings at the natural gas distribution business, largely resulting from short-term borrowings for higher natural gas costs, as previously discussed, and long-term borrowings for funding capital investments.

Defined benefit pension plans

There were no material changes to the Company's qualified noncontributory defined benefit pension plans from those reported in the 2018 Annual Report other than an increase of approximately $2.5 million for the year in pension expense in 2019, largely resulting from a revised assumption for the expected long-term rate of return on assets used to calculate the expense and an actual decline in asset values. For more information, see Note 18 and Part II, Item 7 in the 2018 Annual Report.

Capital expenditures

Capital expenditures for the first nine months of 2019 were $469.2 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 in the first nine months of 2018 were $398.3 million, which includes completed acquisitions at the construction materials and contracting business. Capital expenditures allocated to the Company's business segments are estimated to be approximately $645 million for 2019. The Company has included in the estimated capital expenditures for 2019 the completed purchase of additional aggregate deposits, the completed business combinations of a ready-mixed concrete supplier and an electrical company, the Demicks Lake project, the Line Section 22 Expansion project and the Demicks Lake Expansion project, as previously discussed in Business Segment Financial and Operating Data.

Estimated capital expenditures for 2019 also include system upgrades; service extensions; routine equipment maintenance and replacements; buildings, land and building improvements; pipeline 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; however, they are 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 2019 will be met from various sources, including internally generated funds; credit facilities of the Company's subsidiaries, as described later; issuance of long-term debt; and issuance of equity securities.

Capital resources

Certain debt instruments of the Company's subsidiaries contain restrictive and financial covenants and cross-default provisions. In order to borrow under the respective debt instruments, the subsidiary companies must be in compliance with the applicable covenants and certain other conditions, all of which the subsidiaries, as applicable, were in compliance with at September 30, 2019. 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 2018 Annual Report.

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The following table summarizes the outstanding revolving credit facilities of the Company's subsidiaries at September 30, 2019:



Company	Facility		Facility Limit			Amount Outstanding			Letters of Credit			Expiration Date
			(In millions)
Montana-Dakota Utilities Co.	Commercial paper/Revolving credit agreement	(a)	$	175.0		$	78.2	(b)	$	—		6/8/23
Cascade Natural Gas Corporation	Revolving credit agreement		$	100.0	(c)	$	8.9		$	2.2	(d)	6/7/24
Intermountain Gas Company	Revolving credit agreement		$	85.0	(e)	$	22.1		$	1.4	(d)	6/7/24
Centennial Energy Holdings, Inc.	Commercial paper/Revolving credit agreement	(f)	$	500.0		$	203.6	(b)	$	—		9/23/21


(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). There were no amounts outstanding under the credit agreement.


(b)	Amount outstanding under commercial paper program.


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


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


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


(f)	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 $600.0 million). There were no amounts outstanding under the 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, the subsidiary companies do not issue commercial paper in an aggregate amount exceeding the available capacity under their 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 the construction businesses.

Total equity as a percent of total capitalization was 54 percent, 57 percent and 55 percent at September 30, 2019 and 2018, and December 31, 2018, 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.

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 all or a portion of such securities if warranted by market conditions and the Company's capital requirements. Any public offer and sale of such securities will be made only by means of a prospectus meeting the requirements of 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 may be increased in the future.

On February 22, 2019, the Company entered into a Distribution Agreement with J.P. Morgan Securities LLC and MUFG Securities Americas Inc., as sales agents, with respect to the issuance and sale of up to 10.0 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 the agreement. Proceeds from the sale of shares of common stock under the 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 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. The net proceeds were used for capital expenditures and acquisitions. As of September 30, 2019, 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 of the Company's debt instruments use LIBOR as a benchmark for establishing the applicable interest rate. LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. These reforms and other pressures may cause LIBOR to disappear entirely or to perform differently than in the past. The Company has been proactive to anticipate the reform of LIBOR by replacing it with Secured Overnight Financing Rate in certain of their new debt instruments, as well as those that are being renewed. 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.

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Cascade Natural Gas Corporation On June 7, 2019, Cascade amended its revolving credit agreement to increase the borrowing limit from $75.0 million to $100.0 million and extend the maturity date from April 24, 2020 to June 7, 2024. The credit 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.

On June 13, 2019, Cascade issued $75.0 million of senior notes under a note purchase agreement with maturity dates ranging from June 13, 2029 to June 13, 2049, at a weighted average interest rate of 3.93 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.

Cascade's credit agreements also contain cross-default provisions. These provisions state that if Cascade fails to make any payment with respect to any indebtedness or contingent obligation, in excess of a specified amount, under any agreement that causes such indebtedness to be due prior to its stated maturity or the contingent obligation to become payable, Cascade will be in default under the revolving credit agreement.

Intermountain Gas Company On June 7, 2019, Intermountain amended its revolving credit agreement to extend the termination date from April 24, 2020 to June 7, 2024. The agreement contains customary covenants and provisions, including a covenant of Intermountain not to permit, at any time, the ratio of total debt to total capitalization to be greater than 65 percent.

On June 13, 2019, Intermountain issued $50.0 million of senior notes under a note purchase agreement with maturity dates ranging from June 13, 2029 to June 13, 2049, at a weighted average interest rate of 3.92 percent. The agreement contains customary covenants and provisions, including a covenant of Intermountain not to permit, at any time, the ratio of total debt to total capitalization to be greater than 65 percent.

Intermountain's credit agreements also contain cross-default provisions. These provisions state that if Intermountain fails to make any payment with respect to any indebtedness or contingent obligation, in excess of a specified amount, under any agreement that causes such indebtedness to be due prior to its stated maturity or the contingent obligation to become payable, or certain conditions result in an early termination date under any swap contract that is in excess of a specified amount, then Intermountain will be in default under the revolving credit agreement.

Centennial Energy Holdings, Inc. On April 4, 2019, Centennial issued $150.0 million of senior notes under a note purchase agreement with maturity dates ranging from April 4, 2029 to April 4, 2034, at a weighted average interest rate of 4.60 percent. The agreement contains customary covenants and provisions, including a covenant of Centennial not to permit, at any time, the ratio of total debt to total capitalization to be greater than 60 percent.

On April 12, 2019, Centennial entered into a $50.0 million term loan agreement with a variable interest rate which matures on April 11, 2020. The agreement contains customary covenants and provisions, including a covenant of Centennial not to permit, at any time, the ratio of funded debt to capitalization to be greater than 65 percent. The covenants also include certain limitations on subsidiary indebtedness, restrictions on the sale of certain assets, loans and investments.

On August 7, 2019, Centennial entered into a $50.0 million term loan agreement with a variable interest rate which matures on January 31, 2020. The agreement contains customary covenants and provisions, including a covenant of Centennial not to permit, at any time, the ratio of funded debt to capitalization to be greater than 65 percent. The covenants also include limitations on subsidiary indebtedness, restrictions on the sale of certain assets, loans and investments.

WBI Energy Transmission, Inc. On July 26, 2019, WBI Energy Transmission amended its uncommitted note purchase and private shelf agreement to extend the issuance period to May 16, 2022, and increase the aggregate issuance capacity from $200.0 million to $300.0 million. On July 3, 2019, WBI Energy Transmission contracted to issue an additional $45.0 million under the uncommitted private shelf agreement at an interest rate of 4.17 percent on December 16, 2019. The remaining capacity under this uncommitted private shelf agreement is $115.0 million.

Montana-Dakota Utilities Co. On July 24, 2019, Montana-Dakota entered into a $200.0 million note purchase agreement with maturity dates ranging from October 17, 2039 to November 18, 2059, at a weighted average interest rate of 3.95 percent. On October 17, 2019, Montana-Dakota issued $100.0 million in senior notes under the note purchase agreement with the remaining $100.0 million scheduled to be issued on November 18, 2019. 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.

Off balance sheet arrangements

As of September 30, 2019, the Company had no material off balance sheet arrangements as defined by the rules of the SEC.

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Contractual obligations and commercial commitments

There were no material changes in the Company's contractual obligations from continuing operations relating to operating leases, purchase commitments, asset retirement obligations, uncertain tax positions and minimum funding requirements for its defined benefit plans for 2019 from those reported in the 2018 Annual Report.

At September 30, 2019, the Company's commitments for long-term debt and estimated interest payments presented on a calendar-year basis were as follows:



	Remainder of 2019		1 - 3 years		3 - 5 years		More than 5 years		Total
	(In millions)
Long-term debt maturities*	$	50.1	$	367.8	$	247.3	$	1,587.8	$	2,253.0
Estimated interest payments**	24.9		249.4		140.5		525.9		940.7
	$	75.0	$	617.2	$	387.8	$	2,113.7	$	3,193.7


*	Unamortized debt issuance costs and discount are excluded from the table.


**	Represents the estimated interest payments associated with the Company's long-term debt outstanding at September 30, 2019, assuming current interest rates and consistent amounts outstanding until their respective maturity dates over the periods indicated in the table above.

For more information on contractual obligations and commercial commitments, see Part II, Item 7 in the 2018 Annual Report.

New Accounting Standards

For information regarding new accounting standards, see Note 6, 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; tax provisions; revenue recognized using the cost-to-cost measure of progress for contracts; and actuarially determined benefit costs. There were no material changes in the Company's critical accounting policies involving significant estimates from those reported in the 2018 Annual Report. For more information on critical accounting policies involving significant estimates, see Part II, Item 7 in the 2018 Annual Report.

Non-GAAP Financial Measures

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

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

Adjusted gross margin includes operating revenues less the cost of electric fuel and purchased power, purchased natural gas sold and certain taxes, other than income. These taxes, other than income, included as a reduction to adjusted gross margin relate to revenue taxes. These segments pass on to their customers the increases and decreases in the wholesale cost of power purchases, natural gas and other fuel supply costs in accordance with regulatory requirements. As such, the segments' revenues are directly impacted by the fluctuations in such commodities. Revenue taxes, which are passed back to customers, fluctuate with revenues as they are calculated as a percentage of revenues. For these reasons, period over period, the segments' operating income (loss) is 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
	September 30,				September 30,
	2019		2018		2019		2018
	(In millions)
Operating income	$	21.9	$	21.1	$	49.7	$	52.3
Adjustments:
Operating expenses:
Operation and maintenance	30.8		30.1		94.6		91.3
Depreciation, depletion and amortization	14.2		12.6		41.8		37.7
Taxes, other than income	4.1		3.7		12.5		11.2
Total adjustments	49.1		46.4		148.9		140.2
Adjusted gross margin	$	71.0	$	67.5	$	198.6	$	192.5

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



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019		2018
	(In millions)
Operating income (loss)	$	(15.6	)	$	(11.7	)	$	32.1	$	32.5
Adjustments:
Operating expenses:
Operation and maintenance	44.4			42.1			134.3		129.4
Depreciation, depletion and amortization	19.9			18.1			59.1		53.5
Taxes, other than income	6.1			5.4			17.9		16.5
Total adjustments	70.4			65.6			211.3		199.4
Adjusted gross margin	$	54.8		$	53.9		$	243.4	$	231.9

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to the impact of market fluctuations associated with interest rates. 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 2018 Annual Report.

At September 30, 2019, the Company had no outstanding interest rate hedges.

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 procedures include controls and procedures 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 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.

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 30, 2019, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

Index

Part II -- Other Information

Item 1. Legal Proceedings

For information regarding legal proceedings required by this item, see Note 20, which is incorporated herein by reference.

Item 1A. Risk Factors

Please refer to the Company's risk factors that are disclosed in Part I, Item 1A - Risk Factors in the 2018 Annual Report that could be materially harmful to the Company's business, prospects, financial condition or financial results if they occur. There were no material changes to the Company's risk factors provided in Part I, Item 1A - Risk Factors in the 2018 Annual Report.

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

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



ISSUER PURCHASES OF EQUITY SECURITIES
Period	(a) Total Number of Shares (or Units) Purchased (1)	(b) Average Price Paid per Share (or Unit)	(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2)	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (2)
July 1 through July 31, 2019	—	—	—	—
August 1 through August 31, 2019	—	—	—	—
September 1 through September 30, 2019	—	—	—	—
Total	—		—	—


(1)	Represents shares of common stock withheld by the Company to pay taxes 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.

Index



Exhibits Index
			Incorporated by Reference
Exhibit Number	Exhibit Description	Filed Herewith	Form	Period Ended	Exhibit	Filing Date	File Number

2(a)	Agreement and Plan of Merger, dated December 31, 2018, by and among MDU Resources Group, Inc., MDUR Newco, Inc. and MDU Newco Sub, Inc.		8-K		2(a)	1/2/19	1-03480
3(a)	Certificate of Merger, dated December 31, 2018		8-K		3(a)	1/2/19	1-03480
3(b)	Amended and Restated Certificate of Incorporation of MDU Resources Group, Inc.		8-K		3.2	5/8/19	1-03480
3(c)	Amended and Restated Bylaws of MDU Resources Group, Inc.		8-K		3.1	2/15/19	1-03480
*4(a)	Montana-Dakota Utilities Co. Note Purchase Agreement, dated July 24, 2019, among Montana-Dakota Utilities Co. and various purchasers of the notes	X
+10(a)	Instrument of Amendment to the MDU Resources Group, Inc. 401(k) Retirement Plan, dated August 22, 2019	X
31(a)	Certification of Chief Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
31(b)	Certification of Chief Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
32	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	X
95	Mine Safety Disclosures	X
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


*	Schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished as a supplement to the SEC upon request.


+	Management contract, compensatory plan or arrangement.

MDU Resources Group, Inc. agrees to furnish to the SEC upon request any instrument with respect to long-term debt that MDU Resources Group, Inc. has not filed as an exhibit pursuant to the exemption provided by Item 601(b)(4)(iii)(A) of Regulation S-K.

Index

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 1, 2019	BY:	/s/ Jason L. Vollmer
			Jason L. Vollmer
			Vice President, Chief Financial Officer and Treasurer


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


SECTION 16.	SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT .


1.	1250 Gladding Road, LLC, a Delaware limited liability company


4.	Anchorage Sand and Gravel Company, Inc., an Alaska corporation


5.	ARC Fabricators,, L.L.C., a South Dakota limited liability company


6.	Baldwin Contracting Company, Inc., a California corporation


9.	Bombard Mechanical, LLC, a Nevada limited liability company


10.	Capital Electric Construction Company, Inc., a Kansas corporation


11.	Capital Electric Line Builders, Inc., a Kansas corporation


12.	Cascade Natural Gas Corporation, a Washington corporation


14.	Centennial Energy Resources International, Inc., a Delaware corporation


15.	Centennial Energy Resources LLC, a Delaware limited liability company


16.	Centennial Holdings Capital LLC, a Delaware limited liability company


17.	Central Oregon Redi-Mix, L.L.C., an Oregon limited liability company


23.	Desert Fire Protection, LLC, a Nevada limited liability company


36.	Independent Fire Fabricators, LLC, a Nevada limited liability company


38.	International Line Builders, Inc., a Delaware corporation


45.	Knife River Corporation – Mountain West, a Delaware corporation


46.	Knife River Corporation – North Central, a Minnesota corporation


47.	Knife River Corporation – Northwest, an Oregon corporation


52.	Knife River Midwest, LLC, a Delaware limited liability company


54.	Lone Mountain Excavation & Utilities, LLC, a Nevada limited liability company


58.	MDU Energy Capital, LLC, a Delaware limited liability company


61.	MDU Resources International LLC, a Delaware limited liability company


62.	MDU Resources Luxembourg I LLC S.a.r.l., a Luxembourg limited liability company


63.	MDU Resources Luxembourg II LLC S.a.r.l., a Luxembourg limited liability company


64.	MDU United Construction Solutions, Inc., a Delaware corporation


65.	Nevada Solar Solutions, LLC, a Delaware limited liability company


66.	Nevada Valley Solar Solutions I, LLC, a Delaware limited liability company


69.	Prairie Cascade Energy Holdings, LLC, a Delaware limited liability company


70.	Prairie Intermountain Energy Holdings, LLC, a Delaware limited liability company