Discontinued Operations and Disposal Groups

6 Months Ended

Jun. 30, 2023

Discontinued Operations and Disposal Groups [Abstract]

Disposal Groups, Including Discontinued Operations, Disclosure

Discontinued operations

On May 31, 2023, the Company completed the previously announced separation of Knife River, its construction materials and contracting segment, into a new publicly traded company. The separation was achieved through the Company's pro-rata distribution of approximately 90 percent of the outstanding shares of Knife River to the Company's common stockholders. To effect the separation, the Company distributed to its stockholders one share of Knife River common stock for every four shares of the Company's common stock held on May 22, 2023, the record date for the distribution, with the Company retaining approximately 10 percent of the shares of Knife River common stock immediately following the separation. The Company intends to dispose of the retained shares within twelve months after the separation.

As a result of the separation, the historical assets and liabilities for Knife River have been classified as assets and liabilities of discontinued operations and the historical results of operations are shown in Discontinued operations, net of tax, other than allocated general corporate overhead costs of the Company, which do not meet the criteria for income (loss) from discontinued operations. The Company’s consolidated financial statements and accompanying notes for prior periods have been restated. For the comparative periods, Knife River's operations are only reflected through May 2023, whereas 2022 includes the full three and six months from Knife River's operations.

On April 25, 2023, Knife River issued $425 million of senior notes, pursuant to an indenture, due 2031 to qualified institutional buyers. Knife River also entered into a new credit agreement which provided a revolving credit facility in an initial amount of up to $350 million and a senior secured term loan facility in an amount up to $275 million. The net proceeds from the notes offering, revolving credit facility and the term loan were used to repay $825 million of Knife River's intercompany obligations owed to Centennial. Centennial used the entirety of these proceeds from Knife River to repay a portion of its existing third-party indebtedness.

As a result of the separation, the Company retained legal ownership of 538,921 shares of the Company's common stock that were historically owned by a subsidiary of Knife River and recorded in Treasury stock at cost. Following the separation, the 538,921 treasury shares were retired.

The Company will provide to Knife River and Knife River will provide to the Company transition services in accordance with the TSA entered into on May 31, 2023. For the three and six months ended June 30, 2023, the Company received $599,000 and paid $277,000 related to these activities. The majority of the transition services are expected to be provided for a period of one year, however, no longer than two years after the separation.

Separation costs of $41.2 million and $46.1 million, net of tax, were incurred during the three and six months ended June 30, 2023, respectively. Separation costs incurred are presented in income (loss) from discontinued operations in the Consolidated Statements of Income. These charges primarily relate to transaction and third-party support costs, one-time business separation fees and related tax charges.

The Company had no assets or liabilities related to the discontinued operations of Knife River on its balance sheet as of June 30, 2023. The carrying amounts of the major classes of assets and liabilities of discontinued operations included in the Company’s Consolidated Balance Sheets were as follows:


	June 30, 2022		December 31, 2022
Assets	(In Thousands)
Current assets:
Cash and cash equivalents	$	1,569	$	790
Receivables, net	423,420		241,302
Inventories	350,457		323,277
Prepayments and other current assets	23,219		17,849
Total current assets of discontinued operations	798,665		583,218
Noncurrent assets:
Net property, plant and equipment	1,264,604		1,315,213
Goodwill	274,302		274,540
Other intangible assets, net	14,827		13,430
Investments	33,400		33,086
Operating lease right-of-use assets	45,932		45,872
Other	2,962		3,610
Total noncurrent assets of discontinued operations	1,636,027		1,685,751
Total assets of discontinued operations	$	2,434,692	$	2,268,969
Liabilities
Current liabilities:
Short-term borrowings	$	100,000	$	208,000
Long-term debt due within one year	128,134		30,211
Accounts payable	174,585		122,309
Taxes payable	(12,500)		8,502
Accrued compensation	28,621		29,192
Operating lease liabilities due within one year	13,666		13,210
Other accrued liabilities	69,811		76,200
Total current liabilities of discontinued operations	502,317		487,624
Noncurrent liabilities:
Long-term debt	709,632		445,546
Deferred income taxes	169,484		175,804
Asset retirement obligations	27,779		33,015
Operating lease liabilities	32,266		32,663
Other	88,284		78,876
Total noncurrent liabilities of discontinued operations	1,027,445		765,904
Total liabilities of discontinued operations	$	1,529,762	$	1,253,528

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 were as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
	(In thousands)
Operating revenues	$	428,020	$	711,227	$	735,259	$	1,020,726
Operating expenses	416,686		653,116		767,960		1,002,728
Operating income (loss)	11,334		58,111		(32,701)		17,998
Other income (expense)	1,889		(2,037)		2,381		(3,394)
Interest expense	23,544		8,926		37,611		15,293
Income (loss) from discontinued operations before income taxes	(10,321)		47,148		(67,931)		(689)
Income taxes	6,620		12,243		(5,467)		1,409
Income (loss) from discontinued operations	$	(16,941)	$	34,905	$	(62,464)	$	(2,098)