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1. | DESCRIPTION OF BUSINESS |
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
• | Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities; |
• | Level 2 - Significant observable pricing inputs other than quoted prices included within Level 1 that are, either directly or indirectly, observable as of the reporting date. Essentially, this represents inputs that are derived principally from or corroborated by observable market data; and |
• | Level 3 - May include one or more unobservable inputs that are significant in establishing a fair value estimate. These unobservable inputs are developed based on the best information available and may include our own internal data. |
Recognition and Measurement | ||||
Accounting Treatment | Balance Sheet | Income Statement | ||
Normal purchases and normal sales | - | Fair value not recorded | - | Change in fair value not recognized in earnings |
Mark-to-market | - | Recorded at fair value | - | Change in fair value recognized in, and recoverable through, the purchased-gas cost adjustment mechanisms |
• | established by independent, third-party regulators; |
• | designed to recover the specific entity’s costs of providing regulated services; and |
• | set at levels that will recover our costs when considering the demand and competition for our services. |
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2. | SUBSEQUENT EVENTS |
2. | SUBSEQUENT EVENTS |
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3. | RELATED-PARTY TRANSACTIONS |
Years Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(Thousands of dollars) | ||||||||||||
Cost of natural gas | $ | 226,582 | $ | 135,650 | $ | 203,585 | ||||||
Operations and maintenance | ||||||||||||
Direct employee labor and benefit costs | 177,526 | 165,798 | 178,151 | |||||||||
Allocated employee labor and benefit costs | 29,955 | 24,994 | 25,452 | |||||||||
Charges for general and administrative services | 36,078 | 24,059 | 28,266 | |||||||||
Depreciation and amortization | 6,940 | 6,033 | 6,444 | |||||||||
Other (income)/expense, net | (5,073 | ) | (2,668 | ) | 1,419 | |||||||
Interest expense | 60,930 | 60,305 | 53,357 | |||||||||
Total | $ | 532,938 | $ | 414,171 | $ | 496,674 |
• | Transition Services Agreement; |
• | Tax Matters Agreement; and |
• | Employee Matters Agreement. |
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4. | DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS |
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5. | REGULATORY ASSETS AND LIABILITIES |
December 31, 2013 | ||||||||||||||
Remaining Recovery Period | Current | Noncurrent | Total | |||||||||||
(Thousands of dollars) | ||||||||||||||
Under-recovered purchased-gas costs | 1 year | $ | 12,393 | $ | — | $ | 12,393 | |||||||
Reacquired debt costs | 14 years | 812 | 10,541 | 11,353 | ||||||||||
Pension and postretirement benefit costs | 5 to 20 years | 298 | 9,556 | 9,854 | ||||||||||
Weather normalization | 1 year | 3,730 | — | 3,730 | ||||||||||
Recoupable take-or-pay | 1 year | 586 | — | 586 | ||||||||||
Transition costs | 23 years | 19 | 433 | 452 | ||||||||||
Other | 1 to 25 years | 3,819 | 3,292 | 7,111 | ||||||||||
Total regulatory assets, net of amortization | 21,657 | 23,822 | 45,479 | |||||||||||
Accumulated removal costs (a) | up to 50 years | — | (21,375 | ) | (21,375 | ) | ||||||||
Over-recovered purchased-gas costs (b) | 1 year | (17,796 | ) | — | (17,796 | ) | ||||||||
Total regulatory liabilities | (17,796 | ) | (21,375 | ) | (39,171 | ) | ||||||||
Net regulatory assets and liabilities | $ | 3,861 | $ | 2,447 | $ | 6,308 |
December 31, 2012 | ||||||||||||||
Remaining Recovery Period | Current | Noncurrent | Total | |||||||||||
(Thousands of dollars) | ||||||||||||||
Under-recovered purchased-gas costs | 1 year | $ | 29,170 | $ | — | $ | 29,170 | |||||||
Reacquired debt costs | 15 years | 811 | 11,353 | 12,164 | ||||||||||
Pension and postretirement benefit costs | 5 to 20 years | 992 | 11,354 | 12,346 | ||||||||||
Weather normalization | 1 year | 18,978 | — | 18,978 | ||||||||||
Recoupable take-or-pay | 2 years | 6,911 | 622 | 7,533 | ||||||||||
Transition costs | 25 years | 442 | 10,610 | 11,052 | ||||||||||
Ad valorem tax | 1 year | 7,038 | — | 7,038 | ||||||||||
Other | 1 to 26 years | 4,377 | 4,239 | 8,616 | ||||||||||
Total regulatory assets, net of amortization | 68,719 | 38,178 | 106,897 | |||||||||||
Accumulated removal costs (a) | up to 50 years | — | (29,526 | ) | (29,526 | ) | ||||||||
Over-recovered purchased-gas costs (b) | 1 year | (9,584 | ) | — | (9,584 | ) | ||||||||
Total regulatory liabilities | (9,584 | ) | (29,526 | ) | (39,110 | ) | ||||||||
Net regulatory assets and liabilities | $ | 59,135 | $ | 8,652 | $ | 67,787 |
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6. | PROPERTY, PLANT AND EQUIPMENT |
December 31, | December 31, | |||||||
2013 | 2012 | |||||||
(Thousands of dollars) | ||||||||
Natural gas distribution pipelines and related equipment | $ | 3,703,593 | $ | 3,512,660 | ||||
Natural gas transmission pipelines and related equipment | 430,042 | 402,030 | ||||||
General plant and other | 326,004 | 304,346 | ||||||
Construction work in process | 74,435 | 50,341 | ||||||
Property, plant and equipment | 4,534,074 | 4,269,377 | ||||||
Accumulated depreciation and amortization | (1,489,216 | ) | (1,442,423 | ) | ||||
Net property, plant and equipment | $ | 3,044,858 | $ | 2,826,954 |
Years Ended December 31, | ||||
2013 | 2012 | 2011 | ||
2.0% - 3.0% | 2.0% - 3.0% | 2.0% - 2.9% |
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7. | SHARE-BASED PAYMENTS |
Number of Shares | Weighted- Average Price | ||||||
Nonvested December 31, 2012 | 205,300 | $ | 26.89 | ||||
Granted | 27,930 | $ | 47.36 | ||||
Released to participants | (84,114 | ) | $ | 19.69 | |||
Forfeited | (11,446 | ) | $ | 37.42 | |||
Nonvested December 31, 2013 | 137,670 | $ | 34.57 |
2013 | 2012 | 2011 | ||||||||||
Weighted-average grant date fair value (per share) | $ | 47.36 | $ | 36.60 | $ | 28.50 | ||||||
Fair value of shares granted (thousands of dollars) | $ | 1,323 | $ | 2,046 | $ | 2,310 |
Number of Units | Weighted- Average Price | ||||||
Nonvested December 31, 2012 | 363,874 | $ | 32.90 | ||||
Granted | 58,355 | $ | 51.89 | ||||
Released to participants | (130,975 | ) | $ | 24.05 | |||
Forfeited | (26,717 | ) | $ | 43.07 | |||
Nonvested December 31, 2013 | 264,537 | $ | 40.45 |
2013 | 2012 | 2011 | ||||
Volatility (a) | 22.27% | 27.00% | 39.91% | |||
Dividend yield | 3.04% | 2.86% | 3.30% | |||
Risk-free interest rate | 0.42% | 0.38% | 1.33% | |||
(a) - Volatility based on historical volatility over three years using daily stock price observations. |
2013 | 2012 | 2011 | ||||||||||
Weighted-average grant date fair value (per share) | $ | 52.30 | $ | 42.39 | $ | 34.68 | ||||||
Fair value of shares granted (thousands of dollars) | $ | 2,926 | $ | 4,286 | $ | 5,026 |
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8. | EMPLOYEE BENEFIT PLANS |
Years Ended December 31, | ||||||
2013 | 2012 | 2011 | ||||
Discount rate - pension plans | 4.25% | 5.00% | 5.50% | |||
Discount rate - postretirement plans | 4.00% | 5.00% | 5.50% | |||
Expected long-term return on plan assets | 8.25% | 8.25% | 8.25% | |||
Compensation increase rate | 3.45% - 3.50% | 3.20% - 3.80% | 3.30% - 3.90% |
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9. | INCOME TAXES |
Years Ended December 31, | |||||||||||
2013 | 2012 | 2011 | |||||||||
(Thousands of dollars) | |||||||||||
Current income tax provision (benefit) | |||||||||||
Federal | $ | — | $ | — | $ | (27,093 | ) | ||||
State | 67 | 360 | (4,087 | ) | |||||||
Total current income tax provision (benefit) | 67 | 360 | (31,180 | ) | |||||||
Deferred income tax provision | |||||||||||
Federal | 53,562 | 51,481 | 75,304 | ||||||||
State | 8,643 | 8,010 | 11,880 | ||||||||
Total deferred income tax provision | 62,205 | 59,491 | 87,184 | ||||||||
Total provision for income taxes | $ | 62,272 | $ | 59,851 | $ | 56,004 |
Years Ended December 31, | |||||||||||
2013 | 2012 | 2011 | |||||||||
(Thousands of dollars) | |||||||||||
Income before income taxes | $ | 161,467 | $ | 156,360 | $ | 142,762 | |||||
Federal statutory income tax rate | 35 | % | 35 | % | 35 | % | |||||
Provision for federal income taxes | 56,513 | 54,726 | 49,967 | ||||||||
State income taxes, net of federal tax benefit | 5,661 | 5,423 | 4,278 | ||||||||
Other, net | 98 | (298 | ) | 1,759 | |||||||
Income tax provision | $ | 62,272 | $ | 59,851 | $ | 56,004 |
December 31, | December 31, | ||||||
2013 | 2012 | ||||||
(Thousands of dollars) | |||||||
Deferred tax assets | |||||||
Net operating loss | $ | 40,125 | $ | 51,623 | |||
Other | 8,249 | 1,521 | |||||
Total deferred tax assets | 48,374 | 53,144 | |||||
Deferred tax liabilities | |||||||
Excess of tax over book depreciation | 750,305 | 690,776 | |||||
Purchased-gas cost adjustment | 4,695 | 6,513 | |||||
Other regulatory assets and liabilities, net | 2,563 | 8,684 | |||||
Total deferred tax liabilities | 757,563 | 705,973 | |||||
Net deferred tax liabilities | $ | 709,189 | $ | 652,829 |
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10. | COMMITMENTS AND CONTINGENCIES |
Operating Leases | ||||
(Millions of dollars) | ||||
2014 | $ | 2.7 | ||
2015 | 2.4 | |||
2016 | 2.2 | |||
2017 | 2.0 | |||
2018 | 1.9 | |||
Thereafter | 3.3 | |||
Total | $ | 14.5 |
• | an evaluation on whether natural gas pipeline integrity-management requirements should be expanded beyond current high-consequence areas; |
• | a verification of records for pipelines in class 3 and 4 locations and high-consequence areas to confirm maximum allowable operating pressures; and |
• | a requirement to test previously untested pipelines operating above 30 percent yield strength in high-consequence areas. |
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First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||
Year Ended December 31, 2013 | ||||||||||||||||
(Thousands of dollars) | ||||||||||||||||
Revenues | $ | 635,933 | $ | 311,608 | $ | 219,725 | $ | 522,686 | ||||||||
Net margin | $ | 251,674 | $ | 178,447 | $ | 159,233 | $ | 223,654 | ||||||||
Operating income | $ | 101,838 | $ | 39,307 | $ | 14,189 | $ | 65,014 | ||||||||
Net income | $ | 53,492 | $ | 14,951 | $ | 434 | $ | 30,318 |
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||
Year Ended December 31, 2012 | ||||||||||||||||
(Thousands of dollars) | ||||||||||||||||
Revenues | $ | 517,765 | $ | 221,182 | $ | 204,932 | $ | 432,770 | ||||||||
Net margin | $ | 237,348 | $ | 157,488 | $ | 150,987 | $ | 210,566 | ||||||||
Operating income | $ | 98,338 | $ | 22,063 | $ | 17,107 | $ | 78,206 | ||||||||
Net income | $ | 52,047 | $ | 3,497 | $ | 2,323 | $ | 38,642 |
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• | Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities; |
• | Level 2 - Significant observable pricing inputs other than quoted prices included within Level 1 that are, either directly or indirectly, observable as of the reporting date. Essentially, this represents inputs that are derived principally from or corroborated by observable market data; and |
• | Level 3 - May include one or more unobservable inputs that are significant in establishing a fair value estimate. These unobservable inputs are developed based on the best information available and may include our own internal data. |
Recognition and Measurement | ||||
Accounting Treatment | Balance Sheet | Income Statement | ||
Normal purchases and normal sales | - | Fair value not recorded | - | Change in fair value not recognized in earnings |
Mark-to-market | - | Recorded at fair value | - | Change in fair value recognized in, and recoverable through, the purchased-gas cost adjustment mechanisms |
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Years Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(Thousands of dollars) | ||||||||||||
Cost of natural gas | $ | 226,582 | $ | 135,650 | $ | 203,585 | ||||||
Operations and maintenance | ||||||||||||
Direct employee labor and benefit costs | 177,526 | 165,798 | 178,151 | |||||||||
Allocated employee labor and benefit costs | 29,955 | 24,994 | 25,452 | |||||||||
Charges for general and administrative services | 36,078 | 24,059 | 28,266 | |||||||||
Depreciation and amortization | 6,940 | 6,033 | 6,444 | |||||||||
Other (income)/expense, net | (5,073 | ) | (2,668 | ) | 1,419 | |||||||
Interest expense | 60,930 | 60,305 | 53,357 | |||||||||
Total | $ | 532,938 | $ | 414,171 | $ | 496,674 |
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December 31, 2013 | ||||||||||||||
Remaining Recovery Period | Current | Noncurrent | Total | |||||||||||
(Thousands of dollars) | ||||||||||||||
Under-recovered purchased-gas costs | 1 year | $ | 12,393 | $ | — | $ | 12,393 | |||||||
Reacquired debt costs | 14 years | 812 | 10,541 | 11,353 | ||||||||||
Pension and postretirement benefit costs | 5 to 20 years | 298 | 9,556 | 9,854 | ||||||||||
Weather normalization | 1 year | 3,730 | — | 3,730 | ||||||||||
Recoupable take-or-pay | 1 year | 586 | — | 586 | ||||||||||
Transition costs | 23 years | 19 | 433 | 452 | ||||||||||
Other | 1 to 25 years | 3,819 | 3,292 | 7,111 | ||||||||||
Total regulatory assets, net of amortization | 21,657 | 23,822 | 45,479 | |||||||||||
Accumulated removal costs (a) | up to 50 years | — | (21,375 | ) | (21,375 | ) | ||||||||
Over-recovered purchased-gas costs (b) | 1 year | (17,796 | ) | — | (17,796 | ) | ||||||||
Total regulatory liabilities | (17,796 | ) | (21,375 | ) | (39,171 | ) | ||||||||
Net regulatory assets and liabilities | $ | 3,861 | $ | 2,447 | $ | 6,308 |
December 31, 2012 | ||||||||||||||
Remaining Recovery Period | Current | Noncurrent | Total | |||||||||||
(Thousands of dollars) | ||||||||||||||
Under-recovered purchased-gas costs | 1 year | $ | 29,170 | $ | — | $ | 29,170 | |||||||
Reacquired debt costs | 15 years | 811 | 11,353 | 12,164 | ||||||||||
Pension and postretirement benefit costs | 5 to 20 years | 992 | 11,354 | 12,346 | ||||||||||
Weather normalization | 1 year | 18,978 | — | 18,978 | ||||||||||
Recoupable take-or-pay | 2 years | 6,911 | 622 | 7,533 | ||||||||||
Transition costs | 25 years | 442 | 10,610 | 11,052 | ||||||||||
Ad valorem tax | 1 year | 7,038 | — | 7,038 | ||||||||||
Other | 1 to 26 years | 4,377 | 4,239 | 8,616 | ||||||||||
Total regulatory assets, net of amortization | 68,719 | 38,178 | 106,897 | |||||||||||
Accumulated removal costs (a) | up to 50 years | — | (29,526 | ) | (29,526 | ) | ||||||||
Over-recovered purchased-gas costs (b) | 1 year | (9,584 | ) | — | (9,584 | ) | ||||||||
Total regulatory liabilities | (9,584 | ) | (29,526 | ) | (39,110 | ) | ||||||||
Net regulatory assets and liabilities | $ | 59,135 | $ | 8,652 | $ | 67,787 |
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December 31, | December 31, | |||||||
2013 | 2012 | |||||||
(Thousands of dollars) | ||||||||
Natural gas distribution pipelines and related equipment | $ | 3,703,593 | $ | 3,512,660 | ||||
Natural gas transmission pipelines and related equipment | 430,042 | 402,030 | ||||||
General plant and other | 326,004 | 304,346 | ||||||
Construction work in process | 74,435 | 50,341 | ||||||
Property, plant and equipment | 4,534,074 | 4,269,377 | ||||||
Accumulated depreciation and amortization | (1,489,216 | ) | (1,442,423 | ) | ||||
Net property, plant and equipment | $ | 3,044,858 | $ | 2,826,954 |
Years Ended December 31, | ||||
2013 | 2012 | 2011 | ||
2.0% - 3.0% | 2.0% - 3.0% | 2.0% - 2.9% |
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Number of Shares | Weighted- Average Price | ||||||
Nonvested December 31, 2012 | 205,300 | $ | 26.89 | ||||
Granted | 27,930 | $ | 47.36 | ||||
Released to participants | (84,114 | ) | $ | 19.69 | |||
Forfeited | (11,446 | ) | $ | 37.42 | |||
Nonvested December 31, 2013 | 137,670 | $ | 34.57 |
2013 | 2012 | 2011 | ||||||||||
Weighted-average grant date fair value (per share) | $ | 47.36 | $ | 36.60 | $ | 28.50 | ||||||
Fair value of shares granted (thousands of dollars) | $ | 1,323 | $ | 2,046 | $ | 2,310 |
Number of Units | Weighted- Average Price | ||||||
Nonvested December 31, 2012 | 363,874 | $ | 32.90 | ||||
Granted | 58,355 | $ | 51.89 | ||||
Released to participants | (130,975 | ) | $ | 24.05 | |||
Forfeited | (26,717 | ) | $ | 43.07 | |||
Nonvested December 31, 2013 | 264,537 | $ | 40.45 |
2013 | 2012 | 2011 | ||||
Volatility (a) | 22.27% | 27.00% | 39.91% | |||
Dividend yield | 3.04% | 2.86% | 3.30% | |||
Risk-free interest rate | 0.42% | 0.38% | 1.33% | |||
(a) - Volatility based on historical volatility over three years using daily stock price observations. |
2013 | 2012 | 2011 | ||||||||||
Weighted-average grant date fair value (per share) | $ | 52.30 | $ | 42.39 | $ | 34.68 | ||||||
Fair value of shares granted (thousands of dollars) | $ | 2,926 | $ | 4,286 | $ | 5,026 |
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Years Ended December 31, | ||||||
2013 | 2012 | 2011 | ||||
Discount rate - pension plans | 4.25% | 5.00% | 5.50% | |||
Discount rate - postretirement plans | 4.00% | 5.00% | 5.50% | |||
Expected long-term return on plan assets | 8.25% | 8.25% | 8.25% | |||
Compensation increase rate | 3.45% - 3.50% | 3.20% - 3.80% | 3.30% - 3.90% |
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Years Ended December 31, | |||||||||||
2013 | 2012 | 2011 | |||||||||
(Thousands of dollars) | |||||||||||
Current income tax provision (benefit) | |||||||||||
Federal | $ | — | $ | — | $ | (27,093 | ) | ||||
State | 67 | 360 | (4,087 | ) | |||||||
Total current income tax provision (benefit) | 67 | 360 | (31,180 | ) | |||||||
Deferred income tax provision | |||||||||||
Federal | 53,562 | 51,481 | 75,304 | ||||||||
State | 8,643 | 8,010 | 11,880 | ||||||||
Total deferred income tax provision | 62,205 | 59,491 | 87,184 | ||||||||
Total provision for income taxes | $ | 62,272 | $ | 59,851 | $ | 56,004 |
Years Ended December 31, | |||||||||||
2013 | 2012 | 2011 | |||||||||
(Thousands of dollars) | |||||||||||
Income before income taxes | $ | 161,467 | $ | 156,360 | $ | 142,762 | |||||
Federal statutory income tax rate | 35 | % | 35 | % | 35 | % | |||||
Provision for federal income taxes | 56,513 | 54,726 | 49,967 | ||||||||
State income taxes, net of federal tax benefit | 5,661 | 5,423 | 4,278 | ||||||||
Other, net | 98 | (298 | ) | 1,759 | |||||||
Income tax provision | $ | 62,272 | $ | 59,851 | $ | 56,004 |
December 31, | December 31, | ||||||
2013 | 2012 | ||||||
(Thousands of dollars) | |||||||
Deferred tax assets | |||||||
Net operating loss | $ | 40,125 | $ | 51,623 | |||
Other | 8,249 | 1,521 | |||||
Total deferred tax assets | 48,374 | 53,144 | |||||
Deferred tax liabilities | |||||||
Excess of tax over book depreciation | 750,305 | 690,776 | |||||
Purchased-gas cost adjustment | 4,695 | 6,513 | |||||
Other regulatory assets and liabilities, net | 2,563 | 8,684 | |||||
Total deferred tax liabilities | 757,563 | 705,973 | |||||
Net deferred tax liabilities | $ | 709,189 | $ | 652,829 |
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Operating Leases | ||||
(Millions of dollars) | ||||
2014 | $ | 2.7 | ||
2015 | 2.4 | |||
2016 | 2.2 | |||
2017 | 2.0 | |||
2018 | 1.9 | |||
Thereafter | 3.3 | |||
Total | $ | 14.5 |
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First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||
Year Ended December 31, 2013 | ||||||||||||||||
(Thousands of dollars) | ||||||||||||||||
Revenues | $ | 635,933 | $ | 311,608 | $ | 219,725 | $ | 522,686 | ||||||||
Net margin | $ | 251,674 | $ | 178,447 | $ | 159,233 | $ | 223,654 | ||||||||
Operating income | $ | 101,838 | $ | 39,307 | $ | 14,189 | $ | 65,014 | ||||||||
Net income | $ | 53,492 | $ | 14,951 | $ | 434 | $ | 30,318 |
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||
Year Ended December 31, 2012 | ||||||||||||||||
(Thousands of dollars) | ||||||||||||||||
Revenues | $ | 517,765 | $ | 221,182 | $ | 204,932 | $ | 432,770 | ||||||||
Net margin | $ | 237,348 | $ | 157,488 | $ | 150,987 | $ | 210,566 | ||||||||
Operating income | $ | 98,338 | $ | 22,063 | $ | 17,107 | $ | 78,206 | ||||||||
Net income | $ | 52,047 | $ | 3,497 | $ | 2,323 | $ | 38,642 |
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