MDU Resources Group, Inc.
MDU RESOURCES GROUP INC (Form: 10-Q, Received: 05/08/2017 09:46:46)


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
OR
o 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
 
41-0423660
(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)

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 ý  No o .
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ý No o .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 (Check one):
Large accelerated filer ý
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
 
Emerging growth company o
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o No ý .
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of May 1, 2017 : 195,304,376  shares.





Index
 
Page
 
 
 
Forward-Looking Statements
 
 
 
Introduction
 
 
 
Part I -- Financial Information
 
 
 
 
Item 1
Financial Statements
 
 
Consolidated Statements of Income --
Three Months Ended March 31, 2017 and 2016
 
 
 
 
Consolidated Statements of Comprehensive Income --
Three Months Ended March 31, 2017 and 2016
 
 
 
 
Consolidated Balance Sheets --
March 31, 2017 and 2016, and December 31, 2016
 
 
 
 
Consolidated Statements of Cash Flows --
Three Months Ended March 31, 2017 and 2016
 
 
 
 
Notes to Consolidated Financial Statements
 
 
 
Item 2
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
Item 4
Controls and Procedures
 
 
 
Part II -- Other Information
 
 
 
 
Item 1
Legal Proceedings
 
 
 
Item 1A
Risk Factors
 
 
 
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 4
Mine Safety Disclosures
 
 
 
Item 5
Other Information
 
 
 
Item 6
Exhibits
 
 
 
Signatures
 
 
 
 
Exhibit Index
 
 
 
Exhibits
 
 

2



Definitions
The following abbreviations and acronyms used in this Form 10-Q are defined below:
Abbreviation or Acronym
 
2016 Annual Report
Company's Annual Report on Form 10-K for the year ended December 31, 2016
AFUDC
Allowance for funds used during construction
ASC
FASB Accounting Standards Codification
ATBs
Atmospheric tower bottoms
Brazilian Transmission Lines
Company's former investment in companies owning three electric transmission lines in Brazil
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.
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
IFRS
International Financial Reporting Standards
Intermountain
Intermountain Gas Company, an indirect wholly owned subsidiary of MDU Energy Capital
IPUC
Idaho Public Utilities Commission
Knife River
Knife River Corporation, a direct wholly owned subsidiary of Centennial
Knife River - Northwest
Knife River Corporation - Northwest, an indirect wholly owned subsidiary of Knife River
kWh
Kilowatt-hour
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
MDU Energy Capital
MDU Energy Capital, LLC, a direct wholly owned subsidiary of the Company
MISO
Midcontinent Independent System Operator, Inc.
MMdk
Million dk
MNPUC
Minnesota Public Utilities Commission
Montana-Dakota
Montana-Dakota Utilities Co., a public utility division of the Company
Montana Seventeenth Judicial District Court
Montana Seventeenth Judicial District Court, Phillips County
MTPSC
Montana Public Service Commission
MW
Megawatt

3



NDPSC
North Dakota Public Service Commission
Omimex
Omimex Canada, Ltd.
OPUC
Oregon Public Utility Commission
Oregon DEQ
Oregon State Department of Environmental Quality
Pronghorn
Natural gas processing plant located near Belfield, North Dakota (WBI Energy Midstream's 50 percent ownership interests were sold effective January 1, 2017)
PRP
Potentially Responsible Party
ROD
Record of Decision
SEC
United States Securities and Exchange Commission
Securities Act
Securities Act of 1933, as amended
Tesoro
Tesoro Refining & Marketing Company LLC
Tesoro Logistics
QEP Field Services, LLC doing business as Tesoro Logistics Rockies LLC
United States District Court for the District of Montana
United States District Court for the District of Montana, Great Falls Division
VIE
Variable interest entity
Washington DOE
Washington State Department of Ecology
WBI Energy
WBI Energy, Inc., an indirect wholly owned subsidiary of WBI Holdings
WBI Energy Midstream
WBI Energy Midstream, LLC, an indirect 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

4



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 other than statements of historical facts. From time to time, the Company may publish or otherwise make available forward-looking statements of this nature, including statements contained within Part I, Item 2 - MD&A - Prospective Information.
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 of 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 2016 Annual Report and subsequent filings with the SEC.
Introduction
The Company is a regulated energy delivery and construction materials and services business, which was incorporated under the laws of the state of Delaware in 1924. Its principal executive offices are at 1200 West Century Avenue, P.O. Box 5650, Bismarck, North Dakota 58506-5650, telephone (701) 530-1000.
Montana-Dakota, Great Plains, Cascade and Intermountain comprise 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 comprised of the pipeline and midstream segment and Fidelity, formerly the Company's exploration and production business. 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 and discontinued operations, see Notes  8 and 13 .

5



Part I -- Financial Information
Item 1. Financial Statements
MDU Resources Group, Inc.
Consolidated Statements of Income
(Unaudited)
 
Three Months Ended
 
March 31,
 
2017

2016

 
(In thousands, except per share amounts)
Operating revenues:
 
 
Electric, natural gas distribution and regulated pipeline and midstream
$
433,614

$
385,865

Nonregulated pipeline and midstream, construction materials and contracting, construction services and other
504,311

474,349

Total operating revenues 
937,925

860,214

Operating expenses:
 

 

Fuel and purchased power
21,886

22,011

Purchased natural gas sold
192,948

161,035

Operation and maintenance:
 

 

Electric, natural gas distribution and regulated pipeline and midstream
78,738

74,625

Nonregulated pipeline and midstream, construction materials and contracting, construction services and other
478,478

442,500

Depreciation, depletion and amortization
51,325

54,884

Taxes, other than income
47,438

43,174

Total operating expenses
870,813

798,229

Operating income
67,112

61,985

Other income
1,017

1,049

Interest expense
20,303

22,868

Income before income taxes
47,826

40,166

Income taxes
12,188

8,301

Income from continuing operations
35,638

31,865

Income (loss) from discontinued operations, net of tax (Note 8)
1,687

(18,036
)
Net income
37,325

13,829

Loss from discontinued operations attributable to noncontrolling interest (Note 8)

(11,040
)
Dividends declared on preferred stocks
171

171

Earnings on common stock
$
37,154

$
24,698

Earnings per common share - basic:
 

 

Earnings before discontinued operations
$
.18

$
.16

Discontinued operations attributable to the Company, net of tax
.01

(.03
)
Earnings per common share - basic
$
.19

$
.13

Earnings per common share - diluted:
 

 

Earnings before discontinued operations
$
.18

$
.16

Discontinued operations attributable to the Company, net of tax
.01

(.03
)
Earnings per common share - diluted
$
.19

$
.13

Dividends declared per common share
$
.1925

$
.1875

Weighted average common shares outstanding - basic
195,304

195,284

Weighted average common shares outstanding - diluted
196,023

195,284

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

6



MDU Resources Group, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three Months Ended
 
March 31,
 
2017
2016
 
(In thousands)
Net income
$
37,325

$
13,829

Other comprehensive loss:
 
 
Reclassification adjustment for loss on derivative instruments included in net income, net of tax of $56 and $57 for the three months ended in 2017 and 2016, respectively
91

92

Postretirement liability adjustment:
 
 
Amortization of postretirement liability (gains) losses included in net periodic benefit cost, net of tax of $217 and $(969) for the three months ended in 2017 and 2016, respectively
357

(1,595
)
Reclassification of postretirement liability adjustment from regulatory asset, net of tax of $(725) and $0 for the three months ended in 2017 and 2016, respectively
(917
)

Postretirement liability adjustment
(560
)
(1,595
)
Foreign currency translation adjustment recognized during the period, net of tax of $5 and $15 for the three months ended in 2017 and 2016, respectively
9

25

Net unrealized gain on available-for-sale investments:
 
 
Net unrealized gain (loss) on available-for-sale investments arising during the period, net of tax of $(15) and $5 for the three months ended in 2017 and 2016, respectively
(27
)
8

Reclassification adjustment for loss on available-for-sale investments included in net income, net of tax of $19 and $19 for the three months ended in 2017 and 2016, respectively
35

36

Net unrealized gain on available-for-sale investments
8

44

Other comprehensive loss
(452
)
(1,434
)
Comprehensive income
36,873

12,395

Comprehensive loss from discontinued operations attributable to noncontrolling interest

(11,040
)
Comprehensive income attributable to common stockholders
$
36,873

$
23,435

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



7



MDU Resources Group, Inc.
Consolidated Balance Sheets
(Unaudited)
 
March 31, 2017
March 31, 2016
December 31, 2016
(In thousands, except shares and per share amounts)
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
50,735

$
90,573

$
46,107

Receivables, net
554,185

526,619

630,243

Inventories
250,609

259,756

238,273

Prepayments and other current assets
79,254

52,380

48,461

Current assets held for sale
7,290

99,544

14,391

Total current assets
942,073

1,028,872

977,475

Investments
129,009

121,955

125,866

Property, plant and equipment
6,544,077

6,448,514

6,510,229

Less accumulated depreciation, depletion and amortization
2,609,303

2,521,108

2,578,902

Net property, plant and equipment
3,934,774

3,927,406

3,931,327

Deferred charges and other assets:
 

 

 

Goodwill
631,791

641,527

631,791

Other intangible assets, net
5,347

7,803

5,925

Other
409,745

351,814

415,419

Noncurrent assets held for sale
95,719

485,885

196,664

Total deferred charges and other assets 
1,142,602

1,487,029

1,249,799

Total assets
$
6,148,458

$
6,565,262

$
6,284,467

Liabilities and Equity
 

 

 

Current liabilities:
 

 

 

Long-term debt due within one year
$
43,499

$
98,540

$
43,598

Accounts payable
239,013

233,021

279,962

Taxes payable
74,638

56,298

48,164

Dividends payable
37,767

36,791

37,767

Accrued compensation
32,350

40,420

65,867

Other accrued liabilities
188,373

182,804

184,377

Current liabilities held for sale
2,394

117,777

9,924

Total current liabilities 
618,034

765,651

669,659

Long-term debt
1,659,507

1,759,514

1,746,561

Deferred credits and other liabilities:
 

 

 

Deferred income taxes
666,905

670,299

668,226

Other
890,107

811,789

883,777

Noncurrent liabilities held for sale

62,625


Total deferred credits and other liabilities 
1,557,012

1,544,713

1,552,003

Commitments and contingencies






Equity :
 

 

 

Preferred stocks
15,000

15,000

15,000

Common stockholders' equity:
 

 

 

Common stock
 

 

 

Authorized - 500,000,000 shares, $1.00 par value
Shares issued - 195,843,297 at March 31, 2017 and 2016 and
December 31, 2016
195,843

195,843

195,843

Other paid-in capital
1,231,171

1,229,431

1,232,478

Retained earnings
911,702

984,315

912,282

Accumulated other comprehensive loss
(36,185
)
(38,582
)
(35,733
)
Treasury stock at cost - 538,921 shares
(3,626
)
(3,626
)
(3,626
)
Total common stockholders' equity
2,298,905

2,367,381

2,301,244

Total stockholders' equity
2,313,905

2,382,381

2,316,244

Noncontrolling interest

113,003


Total equity
2,313,905

2,495,384

2,316,244

Total liabilities and equity 
$
6,148,458

$
6,565,262

$
6,284,467

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

8



MDU Resources Group, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
 
Three Months Ended
 
 
March 31,
 
 
2017

2016

 
 
(In thousands)
Operating activities:
 
 
 
Net income
 
$
37,325

$
13,829

Income (loss) from discontinued operations, net of tax
 
1,687

(18,036
)
Income from continuing operations
 
35,638

31,865

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 

Depreciation, depletion and amortization
 
51,325

54,884

Deferred income taxes
 
(332
)
7,926

Changes in current assets and liabilities, net of acquisitions:
 
 

 
Receivables
 
63,684

61,931

Inventories
 
(13,676
)
(18,828
)
Other current assets
 
(31,006
)
(22,909
)
Accounts payable
 
(23,380
)
(40,584
)
Other current liabilities
 
(1,179
)
18,690

Other noncurrent changes
 
2,161

(7,711
)
Net cash provided by continuing operations
 
83,235

85,264

Net cash provided by (used in) discontinued operations
 
3,304

(39,715
)
Net cash provided by operating activities
 
86,539

45,549

Investing activities:
 
 

 

Capital expenditures
 
(72,316
)
(114,706
)
Net proceeds from sale or disposition of property and other
 
117,967

10,411

Investments
 
(116
)
(503
)
Net cash provided by (used in) continuing operations
 
45,535

(104,798
)
Net cash provided by discontinued operations
 
54

25,263

Net cash provided by (used in) investing activities
 
45,589

(79,535
)
Financing activities:
 
 

 

Issuance of long-term debt
 
59,985

226,585

Repayment of long-term debt
 
(147,277
)
(164,855
)
Dividends paid
 
(37,767
)
(36,784
)
Repurchase of common stock
 
(1,684
)

Tax withholding on stock-based compensation
 
(757
)
(316
)
Net cash provided by (used in) continuing operations
 
(127,500
)
24,630

Net cash provided by discontinued operations
 

16,025

Net cash provided by (used in) financing activities
 
(127,500
)
40,655

Effect of exchange rate changes on cash and cash equivalents
 

1

Increase in cash and cash equivalents
 
4,628

6,670

Cash and cash equivalents -- beginning of year
 
46,107

83,903

Cash and cash equivalents -- end of period
 
$
50,735

$
90,573

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

9



MDU Resources Group, Inc.
Notes to Consolidated
Financial Statements
March 31, 2017 and 2016
(Unaudited)
Note 1 - Basis of presentation
The accompanying consolidated interim financial statements were prepared in conformity with the basis of presentation reflected in the consolidated financial statements included in the Company's 2016 Annual Report, and the standards of accounting measurement set forth in the interim reporting guidance in the ASC and any amendments thereto adopted by the FASB. 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 2016 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. Management has also evaluated the impact of events occurring after March 31, 2017 , up to the date of issuance of these consolidated interim financial statements.
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. The Company's consolidated financial statements and accompanying notes for current and prior periods have been restated. 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  8 .
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 consist 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 $26.3 million , $30.5 million and $29.2 million at March 31, 2017 and 2016 , and December 31, 2016 , 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 March 31, 2017 and 2016 , and December 31, 2016 , was $10.9 million , $11.1 million and $10.5 million , respectively.
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 is included in inventories. Inventories consisted of:
 
March 31, 2017

March 31, 2016

December 31, 2016

 
(In thousands)
Aggregates held for resale
$
120,392

$
127,101

$
115,471

Asphalt oil
50,538

52,065

29,103

Materials and supplies
22,074

21,645

18,372

Merchandise for resale
16,546

17,441

16,437

Natural gas in storage (current)
11,282

11,305

25,761

Other
29,777

30,199

33,129

Total
$
250,609

$
259,756

$
238,273

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 $ 49.5 million , $ 49.1 million and $ 49.5 million at March 31, 2017 and 2016 , and December 31, 2016 , respectively.

10



Note 5 - Earnings per common share
Basic earnings per common share were computed by dividing earnings on common stock by the weighted average number of shares of common stock outstanding during the applicable period. Diluted earnings per common share were computed by dividing earnings on common stock by the total of the weighted average number of shares of common stock outstanding during the applicable period, plus the effect of outstanding performance share awards. 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 was as follows:
 
Three Months Ended
 
March 31,
 
2017

2016

 
(In thousands)
Weighted average common shares outstanding - basic
195,304

195,284

Effect of dilutive performance share awards
719


Weighted average common shares outstanding - diluted
196,023

195,284

Shares excluded from the calculation of diluted earnings per share


Note 6 - New accounting standards
Revenue from Contracts with Customers In May 2014, the FASB issued guidance on accounting for revenue from contracts with customers. The guidance provides for a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance. This guidance was to be effective for the Company on January 1, 2017. In August 2015, the FASB issued guidance deferring the effective date of the revenue guidance one year and allowing entities to early adopt. With this decision, the guidance will be effective for the Company on January 1, 2018. Entities will have the option of using either a full retrospective or modified retrospective approach to adopting the guidance. Under the modified approach, an entity would recognize the cumulative effect of initially applying the guidance with an adjustment to the opening balance of retained earnings in the period of adoption. In addition, the modified approach will require additional disclosures. The Company is planning to adopt the guidance using the modified retrospective approach. The guidance will require expanded disclosures, both quantitative and qualitative, related to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company continues to evaluate the effects the guidance will have on its results of operations, financial position and cash flows.
Simplifying the Measurement of Inventory In July 2015, the FASB issued guidance regarding inventory that is measured using the first-in, first-out or average cost method. The guidance does not apply to inventory measured using the last-in, first-out or the retail inventory method. The guidance requires inventory within its scope to be measured at the lower of cost or net realizable value, which is the estimated selling price in the normal course of business less reasonably predictable costs of completion, disposal and transportation. These amendments more closely align GAAP with IFRS. The Company implemented the guidance on January 1, 2017, on a prospective basis. The guidance did not have a material effect on the Company's results of operations, financial position, cash flows or disclosures.
Balance Sheet Classification of Deferred Taxes In November 2015, the FASB issued guidance regarding the classification of deferred taxes on the balance sheet. The guidance requires all deferred tax assets and liabilities to be classified as noncurrent. These amendments will align GAAP with IFRS. Entities had the option to apply the guidance prospectively, for all deferred tax assets and liabilities, or retrospectively. The Company adopted the guidance in the fourth quarter of 2016 and applied the retrospective method of adoption. The guidance required a reclassification of current deferred income taxes to noncurrent deferred income taxes on the Consolidated Balance Sheets, but did not impact the Company's results of operations or cash flows. As a result of the retrospective application of this change in accounting principle, the Company reclassified deferred income taxes of $34.2 million  from current assets - deferred income taxes to deferred credits and other liabilities - deferred income taxes on its Consolidated Balance Sheet at March 31, 2016.
Recognition and Measurement of Financial Assets and Financial Liabilities In January 2016, the FASB issued guidance regarding the classification and measurement of financial instruments. The guidance revises the way an entity classifies and measures investments in equity securities, the presentation of certain fair value changes for financial liabilities measured at fair value and amends certain disclosure requirements related to the fair value of financial instruments. This guidance will be effective for the Company on January 1, 2018, with early adoption of certain amendments permitted. The guidance should be applied using a modified retrospective approach with the exception of equity securities without readily determinable fair values which will be applied prospectively. The Company is evaluating the effects the adoption of the new guidance will have on its results of operations, financial position, cash flows and disclosures.
Leases In February 2016, the FASB issued guidance regarding leases. The guidance requires lessees to recognize a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term on the statement of financial position for leases with terms of more than 12 months. The guidance also requires additional disclosures, both quantitative and qualitative, related to operating and finance leases for the lessee and sales-type, direct financing and operating

11



leases for the lessor. This guidance will be effective for the Company on January 1, 2019, and should be applied using a modified retrospective approach with early adoption permitted. There are a number of industry-specific implementation issues that are still unresolved and the final resolution of these issues could significantly impact the number of contracts that would be considered a lease for the Company under the new guidance. The Company is evaluating the effects the adoption of the new guidance will have on its results of operations, financial position, cash flows and disclosures.
Improvements to Employee Share-Based Payment Accounting In March 2016, the FASB issued guidance regarding simplification of several aspects of the accounting for share-based payment transactions. The guidance affects the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and calculation of dilutive shares. Certain amendments of this guidance were to be applied retrospectively and others prospectively. The Company adopted the guidance on January 1, 2017. All amendments in the guidance that apply to the Company were adopted on a prospective basis resulting in no adjustments being made to retained earnings. The adoption of the guidance impacted the Consolidated Statements of Income and the Consolidated Balance Sheets due to the taxes related to the stock-based compensation award that vested in February 2017 being recognized as income tax expense as compared to a reduction to additional paid-in capital under the previous guidance. Adoption of the guidance also increased the number of shares included in the diluted earnings per share calculation due to the exclusion of tax benefits in the incremental shares calculation. The change in the weighted average common shares outstanding - diluted did not result in a material effect on the earnings per common share - diluted.
Classification of Certain Cash Receipts and Cash Payments In August 2016, the FASB issued guidance to clarify the classification of certain cash receipts and payments in the statement of cash flows. The guidance is intended to standardize the presentation and classification of certain transactions, including cash payments for debt prepayment or extinguishment, proceeds from insurance claim settlements and distributions from equity method investments. In addition, the guidance clarifies how to classify transactions that have characteristics of more than one class of cash flows. This guidance will be effective for the Company on January 1, 2018, with early adoption permitted. An entity that elects early adoption must adopt all the amendments in the same period and apply any adjustments as of the beginning of the fiscal year. Entities must apply the guidance retrospectively unless it is impracticable to do so, in which case they may apply it prospectively as of the earliest date practicable. The Company is evaluating the effects the adoption of the new guidance will have on its cash flows and disclosures.
Clarifying the Definition of a Business In January 2017, the FASB issued guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The guidance provides a screen to determine when an integrated set of assets and activities is not a business. The guidance will also affect other aspects of accounting, such as determining reporting units for goodwill testing and whether an entity has acquired or sold a business. The guidance will be effective for the Company on January 1, 2018, and should be applied on a prospective basis with early adoption permitted for transactions that occur before the issuance or effective date of the amendments and only when the transactions have not been reported in the financial statements or made available for issuance. The Company is evaluating the effects the adoption of the new guidance will have on its results of operations, financial position, cash flows and disclosures.
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 should be applied on a prospective basis with early adoption permitted. The Company is evaluating the effects the adoption of the new guidance will have on its results of operations, financial position, cash flows and disclosures.
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost In March 2017, the FASB issued guidance to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The guidance requires the service cost component to be presented in the income statement in the same line item or items as other compensation costs arising from services performed during the period. Other components of net benefit cost shall be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The guidance also only allows the service cost component to be capitalized. The guidance will be effective for the Company on January 1, 2018, including interim periods, with early adoption permitted as of the beginning of an annual period for which the financial statements have not been issued. The guidance shall be applied on a retrospective basis for the financial statement presentation and on a prospective basis for the capitalization of the service cost component. The Company is evaluating the effects the adoption of the new guidance will have on its results of operations, financial position, cash flows and disclosures.

12



Note 7 - Comprehensive income (loss)
The after-tax changes in the components of accumulated other comprehensive loss were as follows:
Three Months Ended
March 31, 2017
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)
Balance at beginning of period
$
(2,300
)
$
(33,221
)
$
(149
)
$
(63
)
$
(35,733
)
Other comprehensive income (loss) before reclassifications


9

(27
)
(18
)
Amounts reclassified from accumulated other comprehensive loss
91

357


35

483

Amounts reclassified to accumulated other comprehensive loss from a regulatory asset

(917
)


(917
)
Net current-period other comprehensive income (loss)
91

(560
)
9

8

(452
)
Balance at end of period
$
(2,209
)
$
(33,781
)
$
(140
)
$
(55
)
$
(36,185
)
Three Months Ended
March 31, 2016
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)
Balance at beginning of period
$
(2,667
)
$
(34,257
)
$
(200
)
$
(24
)
$
(37,148
)
Other comprehensive income before reclassifications


25

8

33

Amounts reclassified from accumulated other comprehensive loss
92

(1,595
)

36

(1,467
)
Net current-period other comprehensive income (loss)
92

(1,595
)
25

44

(1,434
)
Balance at end of period
$
(2,575
)
$
(35,852
)
$
(175
)
$
20

$
(38,582
)
 
 
 
 
 
 
 
 
 
 
 
 
Reclassifications out of accumulated other comprehensive loss were as follows:
 
Three Months Ended
Location on Consolidated Statements of
Income
 
March 31,
 
2017
2016
 
(In thousands)
 
Reclassification adjustment for loss on derivative instruments included in net income
$
(147
)
$
(149
)
Interest expense
 
56

57

Income taxes
 
(91
)
(92
)
 
Amortization of postretirement liability gains (losses) included in net periodic benefit cost
(574
)
2,564

(a)
 
217

(969
)
Income taxes
 
(357
)
1,595

 
Reclassification adjustment for loss on available-for-sale investments included in net income
(54
)
(55
)
Other income
 
19

19

Income taxes
 
(35
)
(36
)
 
Total reclassifications
$
(483
)
$
1,467

 
(a) Included in net periodic benefit cost. For more information, see Note  14 .
 

13



Note 8 - Assets held for sale and discontinued operations
Assets held for sale
The assets and liabilities of Pronghorn were classified as held for sale in the fourth quarter of 2016. Pronghorn's results of operations for 2016 were included in the pipeline and midstream segment.

Pronghorn On November 21, 2016, WBI Energy Midstream announced it had entered into a purchase and sale agreement to sell its 50  percent non-operating ownership interest in Pronghorn to Tesoro Logistics. The transaction closed on January 1, 2017, which generated approximately $100 million of proceeds for the Company. The sale of Pronghorn further reduces the Company's risk exposure to commodity prices.

The carrying amounts of the major classes of assets and liabilities that were classified as held for sale associated with Pronghorn on the Company's Consolidated Balance Sheets were as follows:
 
December 31, 2016

 
(In thousands)
Assets
 
Current assets:
 
Prepayments and other current assets
$
68

Total current assets held for sale
68

Noncurrent assets:
 
Net property, plant and equipment
93,424

Goodwill
9,737

Less allowance for impairment of assets held for sale
2,311

Total noncurrent assets held for sale
100,850

Total assets held for sale
$
100,918

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. The Company's consolidated financial statements and accompanying notes for current and prior periods have been restated. 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 of 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 reduces the Company’s risk by decreasing exposure to commodity prices.
The Company retained certain liabilities of Dakota Prairie Refining which were reflected in current liabilities held for sale on the Consolidated Balance Sheets. Centennial continues to guarantee certain debt obligations of Dakota Prairie Refining; however, Tesoro has agreed to indemnify Centennial for any losses and litigation expenses arising from the guarantee. For more information related to the guarantee, see Note  16 .

14



The carrying amounts of the major classes of assets and liabilities that are classified as held for sale related to the operations of and activity associated with Dakota Prairie Refining on the Company's Consolidated Balance Sheets were as follows:
 
March 31, 2017

March 31, 2016

December 31, 2016

 
(In thousands)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$

$
365

$

Receivables, net

11,169


Inventories

17,056


Income taxes receivable
11,756

7,077

13,987

Prepayments and other current assets

6,124


Total current assets held for sale
11,756

41,791

13,987

Noncurrent assets:
 
 
 
Net property, plant and equipment

407,247


Other

8,846


Total noncurrent assets held for sale

416,093


Total assets held for sale
$
11,756

$
457,884

$
13,987

Liabilities
 
 
 
Current liabilities:
 
 
 
Short-term borrowings
$

$
61,525

$

Long-term debt due within one year

6,375


Accounts payable
16

27,454

7,425

Taxes payable

1,001


Accrued compensation

717


Other accrued liabilities

7,155


Total current liabilities held for sale
16

104,227

7,425

Noncurrent liabilities:
 
 
 
Long-term debt

62,625


Deferred income taxes (a)
55

24,137

14

Total noncurrent liabilities held for sale
55

86,762

14

Total liabilities held for sale
$
71

$
190,989

$
7,439

(a)
On the Company's Consolidated Balance Sheets, these amounts were reclassified to noncurrent deferred income tax assets and are
reflected in noncurrent assets held for sale.
 
In the first quarter of 2017, the Company recorded a reversal of a previously accrued liability of $7.0 million ( $4.3 million after tax) due to the resolution of a legal matter. At March 31, 2017, Dakota Prairie Refining had not incurred any material exit and disposal costs, and does not expect to incur any material exit and disposal costs.
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 all of Fidelity's oil and natural gas assets. The completion of these sales occurred between October 2015 and April 2016. 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.

15



The carrying amounts of the major classes of assets and liabilities that are classified as held for sale related to the operations of Fidelity on the Company's Consolidated Balance Sheets were as follows:
 
March 31, 2017

 
March 31, 2016

December 31, 2016

 
 
(In thousands)
 
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Receivables, net
$
266

 
$
3,619

$
355

 
Inventories

 
1,308


 
Income taxes receivable

 
50,478


 
Prepayments and other current assets

 
2,348


 
Total current assets held for sale
266

 
57,753

355

 
Noncurrent assets:
 
 
 
 
 
Investments

 
37


 
Net property, plant and equipment
4,515

 
9,363

5,507

 
Deferred income taxes
91,098

 
82,994

91,098

 
Other
161

 
161

161

 
Less allowance for impairment of assets held for sale

 
(1,374
)
938

 
Total noncurrent assets held for sale
95,774

 
93,929

95,828

 
Total assets held for sale
$
96,040

 
$
151,682

$
96,183

 
Liabilities
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
67

 
$
7,963

$
141

 
Taxes payable
4,732

(a)
35

19

(a)
Accrued compensation

 
761


 
Other accrued liabilities
2,311

 
4,791

2,358

 
Total current liabilities held for sale
7,110

 
13,550

2,518

 
Total liabilities held for sale
$
7,110

 
$
13,550

$
2,518

 
(a)
On the Company's Consolidated Balance Sheets, these amounts were reclassified to prepayments and other current assets and are reflected
in current assets held for sale.
 
The Company performed a fair value assessment of the assets and liabilities classified as held for sale. In the first quarter of 2016, the fair value assessment was determined using the market approach largely based on a purchase and sale agreement. The estimated fair value exceeded the carrying value and the Company recorded an impairment reversal of $1.4 million ( $900,000 after tax) in the first quarter of 2016. The impairment reversal was included in operating expenses from discontinued operations. The estimated fair value of Fidelity's assets has been categorized as Level 3 in the fair value hierarchy.
The Company incurred transaction costs of approximately $300,000 in the first quarter of 2016. In addition to the transaction costs, and due in part to the change in plans to sell the assets of Fidelity rather than sell Fidelity as a company, Fidelity incurred and expensed approximately $1.8 million of exit and disposal costs for the three months ended March 31, 2016, and has incurred $10.5 million of exit and disposal costs to date. Fidelity incurred no exit and disposal costs for the three months ended March 31, 2017, and the Company does not expect to incur any additional material exit and disposal costs. The exit and disposal costs are associated with severance and other related matters and exclude the office lease expiration discussed in the following paragraph.
Fidelity vacated its office space in Denver, Colorado in 2016. The Company incurred lease payments of approximately $500,000 in the first quarter of 2016.

16



Dakota Prairie Refining and Fidelity The reconciliation of the major classes of income and expense constituting pretax income (loss) from discontinued operations, which includes Dakota Prairie Refining and Fidelity, to the after-tax income (loss) from discontinued operations on the Company's Consolidated Statements of Income was as follows:
 
Three Months Ended
 
March 31,
 
2017

2016

 
(In thousands)
Operating revenues
$
105

$
47,976

Operating expenses
(6,577
)
69,769

Operating income (loss)
6,682

(21,793
)
Other income (expense)
(15
)
204

Interest expense

922

Income (loss) from discontinued operations before income taxes
6,667

(22,511
)
Income taxes
4,980

(4,475
)
Income (loss) from discontinued operations
1,687

(18,036
)
Loss from discontinued operations attributable to noncontrolling interest

(11,040
)
Income (loss) from discontinued operations attributable to the Company
$
1,687

$
(6,996
)
The pretax income (loss) from discontinued operations attributable to the Company, related to the operations of and activity associated with Dakota Prairie Refining, was $6.9 million and $(9.9) million for the three months ended March 31, 2017 and 2016, respectively.
Note 9 - Goodwill and other intangible assets
The changes in the carrying amount of goodwill were as follows:
Three Months Ended March 31, 2017
Balance at January 1, 2017

Goodwill Acquired
During the Year

Balance at March 31, 2017

 
(In thousands)
Natural gas distribution
$
345,736

$

$
345,736

Construction materials and contracting
176,290


176,290

Construction services
109,765


109,765

Total
$
631,791

$

$
631,791


Three Months Ended March 31, 2016
Balance at January 1, 2016

*
Goodwill Acquired
During the Year

Balance at March 31, 2016

*
 
(In thousands)
Natural gas distribution
$
345,736

 
$

$
345,736

 
Pipeline and midstream
9,737

 

9,737

 
Construction materials and contracting
176,290

 

176,290

 
Construction services
103,441

 
6,323

109,764

 
Total
$
635,204

 
$
6,323

$
641,527

 
* Balance is presented net of accumulated impairment of $12.3 million at the pipeline and midstream segment, which occurred in prior periods.

Year Ended December 31, 2016
Balance at January 1, 2016

*
Goodwill Acquired
During the Year

Held for Sale

Balance at December 31, 2016

 
(In thousands)
Natural gas distribution
$
345,736

 
$

$

$
345,736

Pipeline and midstream
9,737

 

(9,737
)

Construction materials and contracting
176,290

 


176,290

Construction services
103,441

 
6,324


109,765

Total
$
635,204

 
$
6,324

$
(9,737
)
$
631,791

* Balance is presented net of accumulated impairment of $12.3 million at the pipeline and midstream segment, which occurred in prior periods.
 

17



Other amortizable intangible assets were as follows:
 
March 31, 2017

March 31, 2016

December 31, 2016

 
(In thousands)
Customer relationships
$
15,745

$
17,145

$
17,145

Less accumulated amortization
12,910

12,680

13,917

 
2,835

4,465

3,228

Noncompete agreements
2,430

2,430

2,430

Less accumulated amortization
1,695

1,548

1,658

 
735

882

772

Other
7,086

7,764

7,768

Less accumulated amortization
5,309

5,308

5,843

 
1,777

2,456

1,925

Total
$
5,347

$
7,803

$
5,925

Amortization expense for amortizable intangible assets for the three months ended March 31, 2017 and 2016, was $600,000 and $600,000 , respectively. Estimated amortization expense for amortizable intangible assets is $2.2 million in 2017 , $1.2 million in 2018 , $1.0 million in 2019 , $500,000 in 2020 , $200,000 in 2021 and $800,000 thereafter.
Note 10 - 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 $73.8 million , $69.1 million and $70.9 million , at March 31, 2017 and 2016 , and December 31, 2016 , respectively, are classified as investments on the Consolidated Balance Sheets. The net unrealized gains on these investments were $2.9 million and $1.6 million for the three months ended March 31, 2017 and 2016, respectively. The change in fair value, which is considered part of the cost of the plan, is classified in operation and maintenance expense on the Consolidated Statements of Income.
The Company did not elect the fair value option, which records gains and losses in income, for its available-for-sale securities, which include mortgage-backed securities and U.S. Treasury securities. These available-for-sale securities are recorded at fair value and are classified as investments on the Consolidated Balance Sheets. Unrealized gains or losses are recorded in accumulated other comprehensive income (loss). Details of available-for-sale securities were as follows:
March 31, 2017
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

 
(In thousands)
Mortgage-backed securities
$
9,971

$
8

$
(94
)
$
9,885

U.S. Treasury securities
412

1


413

Total
$
10,383

$
9

$
(94
)
$
10,298

March 31, 2016
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

 
(In thousands)
Mortgage-backed securities
$
10,467

$
46

$
(14
)
$
10,499

Total
$
10,467

$
46

$
(14
)
$
10,499

December 31, 2016
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

 
(In thousands)
Mortgage-backed securities
$
10,546

$
8

$
(105
)
$
10,449

Total
$
10,546

$
8

$
(105
)
$
10,449


18



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 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 three months ended March 31, 2017 and 2016 , there were no transfers between Levels 1 and 2.
The Company's assets and liabilities measured at fair value on a recurring basis were as follows:
 
Fair Value Measurements at March 31, 2017, Using
 
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Balance at March 31, 2017

 
(In thousands)
Assets:
 
 
 
 
Money market funds
$

$
2,551

$

$
2,551

Insurance contract*

73,775


73,775

Available-for-sale securities:
 
 
 
 
Mortgage-backed securities

9,885


9,885

U.S. Treasury securities

413


413

Total assets measured at fair value
$

$
86,624

$

$
86,624

* The insurance contract invests approximately 51  percent in fixed-income investments, 22  percent in common stock of large-cap companies, 13  percent in common stock of mid-cap companies, 11  percent in common stock of small-cap companies, 2  percent in target date investments and 1  percent in cash equivalents.
 
 
Fair Value Measurements at March 31, 2016, Using
 
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Balance at March 31, 2016

 
(In thousands)
Assets:
 
 
 
 
Money market funds
$

$
1,442

$

$
1,442

Insurance contract*

69,110


69,110

Available-for-sale securities:
 
 
 
 
Mortgage-backed securities

10,499


10,499

Total assets measured at fair value
$

$
81,051

$

$
81,051

* The insurance contract invests approximately 65  percent in fixed-income investments, 18  percent in common stock of large-cap companies, 9  percent in common stock of mid-cap companies, 6  percent in common stock of small-cap companies, 1  percent in target date investments and 1  percent in cash equivalents.
 

19



 
Fair Value Measurements at December 31, 2016, 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, 2016

 
(In thousands)
Assets:
 
 
 
 
Money market funds
$

$
1,602

$

$
1,602

Insurance contract*

70,921


70,921

Available-for-sale securities:
 
 
 
 
Mortgage-backed securities

10,449


10,449

Total assets measured at fair value
$

$
82,972

$

$
82,972

* The insurance contract invests approximately 52  percent in fixed-income investments, 22  percent in common stock of large-cap companies, 13  percent in common stock of mid-cap companies, 10  percent in common stock of small-cap companies, 1  percent in target date investments and 2  percent in cash equivalents.
 
For information about fair value assessments of assets and liabilities classified as held for sale, see Note  8 .
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 based on discounted future cash flows using current market interest rates. The estimated fair value of the Company's Level 2 long-term debt was as follows:
 
Carrying
Amount

Fair
Value

 
(In thousands)
Long-term debt at March 31, 2017
$
1,703,006

$
1,784,588

Long-term debt at March 31, 2016
$
1,858,054

$
1,928,150

Long-term debt at December 31, 2016
$
1,790,159

$
1,841,885

The carrying amounts of the Company's remaining financial instruments included in current assets and current liabilities approximate their fair values .
Note 11 - Equity
A summary of the changes in equity was as follows:
Three Months Ended March 31, 2017
Total
Equity

 
(In thousands)
Balance at December 31, 2016
$
2,316,244

Net income
37,325

Other comprehensive loss
(452
)
Dividends declared on preferred stocks
(171
)
Dividends declared on common stock
(37,596
)
Stock-based compensation
996

Repurchase of common stock
(1,684
)
Issuance of common stock upon vesting of stock-based compensation, net of shares used for tax withholdings
(757
)
Balance at March 31, 2017
$
2,313,905


20



Three Months Ended March 31, 2016
Total Stockholders' Equity

Noncontrolling Interest

Total
Equity

 
(In thousands)
Balance at December 31, 2015
$
2,396,505

$
124,043

$
2,520,548

Net income (loss)
24,869

(11,040
)
13,829

Other comprehensive loss
(1,434
)

(1,434
)
Dividends declared on preferred stocks
(171
)

(171
)
Dividends declared on common stock
(36,620
)

(36,620
)
Stock-based compensation
1,065


1,065

Issuance of common stock upon vesting of stock-based compensation, net of shares used for tax withholdings
(316
)

(316
)
Net tax deficit on stock-based compensation
(1,517
)

(1,517
)
Balance at March 31, 2016
$
2,382,381

$
113,003

$
2,495,384

Note 12 - Cash flow information
Cash expenditures for interest and income taxes were as follows:
 
Three Months Ended
 
March 31,
 
2017

2016

 
(In thousands)
Interest, net of amount capitalized and AFUDC - borrowed of $196 and $260 in 2017 and 2016, respectively
$
17,546

$
23,109

Income taxes refunded, net*
$
(2,762
)
$
(1,429
)
*
Income taxes refunded, net of discontinued operations, were $ (7.2) million and $ (1.4) million for the three months ended March 31, 2017 and 2016, respectively.
 
 
 
 
 
Noncash investing transactions were as follows:
 
March 31,
 
2017

2016

 
(In thousands)
Property, plant and equipment additions in accounts payable
$
5,212

$
23,277

Note 13 - Business segment data
The Company's reportable segments are those that are based on the Company's method of internal reporting, which generally segregates the strategic business units due to differences in products, services and regulation. The internal reporting of these operating segments is defined based on the reporting and review process used by the Company's chief executive officer. The vast majority of the Company's operations are located within the United States.
The electric segment generates, transmits and distributes electricity in Montana, North Dakota, South Dakota and Wyoming. The natural gas distribution segment distributes natural gas in those states as well as in Idaho, Minnesota, Oregon and Washington. These operations also supply related value-added services.
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. For information on the Company's natural gas and oil gathering and processing facility sold on January 1, 2017, see Note 8.
The construction materials and contracting segment mines aggregates and markets crushed stone, sand, gravel and related construction materials, including ready-mixed concrete, cement, asphalt, liquid asphalt and other value-added products. It also performs integrated contracting services. This segment operates in the central, southern and western United States and Alaska and Hawaii.
The construction services segment provides utility construction services specializing in constructing and maintaining electric and communication lines, gas pipelines, fire suppression systems, and external lighting and traffic signalization. This segment also provides utility excavation and inside electrical and mechanical services, and manufactures and distributes transmission line construction equipment and other supplies.

21



The Other category includes the activities of Centennial Capital, which 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 deductible layers of the insured companies' general liability, automobile liability, pollution liability and other coverages. Centennial Capital also owns certain real and personal property. The Other category also includes certain general and administrative costs (reflected in operation and maintenance expense) and interest expense which were previously allocated to the refining business and Fidelity and do not meet the criteria for income (loss) from discontinued operations. The Other category also includes Centennial Resources' former investment in Brazil.
Discontinued operations includes the results and supporting activities of Dakota Prairie Refining and Fidelity other than certain general and administrative costs and interest expense as described above. Dakota Prairie Refining refined crude oil and produced and sold diesel fuel, naphtha, ATBs and other by-products of the production process. In the second quarter of 2016, the Company sold all of the outstanding membership interests in Dakota Prairie Refining. Fidelity engaged in oil and natural gas development and production activities in the Rocky Mountain and Mid-Continent/Gulf States regions of the United States. Between September 2015 and March 2016, the Company entered into purchase and sale agreements to sell all of Fidelity's oil and natural gas assets. The completion of these sales occurred between October 2015 and April 2016. For more information on discontinued operations, see Note  8 .
The information below follows the same accounting policies as described in Note 1 of the Company's Notes to Consolidated Financial Statements in the 2016 Annual Report. Information on the Company's businesses was as follows:
 
Three Months Ended
 
March 31,
 
2017

2016

 
(In thousands)
External operating revenues:
 
 
Regulated operations:
 
 
Electric
$
88,225

$
82,923

Natural gas distribution
342,519

299,395

Pipeline and midstream
2,870

3,547

 
433,614

385,865

Nonregulated operations:
 
 
Pipeline and midstream
3,643

8,697

Construction materials and contracting
200,776

209,852

Construction services
299,572

255,500

Other
320

300

 
504,311

474,349

Total external operating revenues
$
937,925

$
860,214

 
 
 
Intersegment operating revenues:
 

 

Regulated operations:
 
 
Electric
$

$

Natural gas distribution


Pipeline and midstream
21,489

21,098

 
21,489

21,098

Nonregulated operations:
 
 
Pipeline and midstream
34

84

Construction materials and contracting
86

118

Construction services
6

462

Other
1,743

1,669

 
1,869

2,333

Intersegment eliminations
(23,358
)
(23,431
)
Total intersegment operating revenues
$

$

 
 
 

22



 
Three Months Ended
 
March 31,
 
2017

2016

 
(In thousands)
Earnings on common stock:
 

 

Regulated operations:
 
 
Electric
$
14,333

$
11,119

Natural gas distribution
27,861

25,241

Pipeline and midstream
4,557

5,288

 
46,751

41,648

Nonregulated operations:
 
 
Pipeline and midstream
(628
)
1

Construction materials and contracting
(19,912
)
(14,471
)
Construction services
7,362

5,974

Other
(279
)
(1,458
)
 
(13,457
)
(9,954
)
Intersegment eliminations*
2,173


Earnings on common stock before income (loss) from
discontinued operations
35,467

31,694

Income (loss) from discontinued operations, net of tax*
1,687

(18,036
)
Loss from discontinued operations attributable to noncontrolling interest

(11,040
)
Total earnings on common stock
$
37,154

$
24,698

* Includes an elimination for the presentation of income tax adjustments between continuing and
discontinued operations.
 
Note 14 - Employee benefit plans
Pension and other postretirement plans
The Company has noncontributory defined benefit pension plans and other postretirement benefit plans for certain eligible employees. Components of net periodic benefit cost for the Company's pension and other postretirement benefit plans were as follows:
 
Pension Benefits
Other
Postretirement Benefits
Three Months Ended March 31,
2017

2016

2017

2016

 
(In thousands)
Components of net periodic benefit cost:
 
 
 
 
Service cost
$

$

$
447

$
450

Interest cost
4,014

4,390

808

949

Expected return on assets
(5,029
)
(5,280
)
(1,145
)
(1,149
)
Amortization of prior service credit


(343
)
(343
)
Amortization of net actuarial loss
1,793

1,593

336

448

Net periodic benefit cost, including amount capitalized
778

703

103

355

Less amount capitalized
107

81

(39
)
34

Net periodic benefit cost
$
671

$
622

$
142

$
321

 
 
 
 
 
Nonqualified benefit plans
In addition to the qualified plan defined pension benefits reflected in the table, the Company also has unfunded, nonqualified benefit plans for executive officers and certain key management employees that generally provide for defined benefit payments at age 65 following the employee's retirement or, upon death, to their beneficiaries for a 15-year period. In February 2016, the Company froze the unfunded, nonqualified defined benefit plans to new participants and eliminated benefit increases. Vesting for participants not fully vested was retained. The Company's net periodic benefit cost for these plans for the three months ended March 31, 2017 , was $1.2 million . The Company's net periodic benefit credit for these plans for the three months ended March 31, 2016 , was $1.9 million , which reflects a curtailment gain of $3.3 million .


23



Note 15 - Regulatory matters
On September 30, 2015, Great Plains filed an application for a natural gas rate increase with the MNPUC. Great Plains requested a total increase of approximately $1.6 million annually or approximately 6.4  percent above current rates to recover increased operating expenses along with increased investment in facilities, including the related depreciation expense and taxes. An interim increase of approximately $1.5 million or approximately 6.4  percent, subject to refund, was effective with service rendered on and after January 1, 2016. The MNPUC issued an order on September 6, 2016, authorizing an increase of approximately $1.1 million annually or approximately 5.2  percent with the requirement that Great Plains submit a compliance filing within 30 days. On September 22, 2016, Great Plains submitted the required compliance filing which included a refund plan to return the amount of interim revenues collected above the final rates. On December 22, 2016, the MNPUC issued an order approving the rates which were effective January 1, 2017. Great Plains issued refunds to customers on February 24, 2017.
On April 29, 2016, Cascade filed an application with the OPUC for a natural gas rate increase of approximately $1.9 million annually or approximately 2.8  percent above current rates. The request includes rate recovery associated with pipeline replacement and improvement projects to ensure the integrity of Cascade's system. On October 6, 2016, Cascade, staff of the OPUC and the interveners in the case filed a stipulation and settlement agreement reflecting an annual increase of approximately $754,000 effective March 1, 2017. The OPUC issued an order approving the stipulation and settlement agreement on December 12, 2016.
On June 10, 2016, Montana-Dakota filed an application for an increase in electric rates with the WYPSC. Montana-Dakota requested an increase of approximately $3.2 million annually or approximately 13.1  percent above current rates to recover Montana-Dakota's increased investment in facilities along with additional depreciation, operation and maintenance expenses including increased fuel costs, and taxes associated with the increases in investment. On December 28, 2016, Montana-Dakota and the interveners of the case filed a stipulation and agreement reflecting an increase of approximately $2.7 million annually or approximately 11.1 percent above current rates. On April 6, 2017, the WYPSC issued a final order approving the stipulation and agreement with rates effective with service rendered on and after March 1, 2017.
On August 12, 2016, Intermountain filed an application with the IPUC for a natural gas rate increase of approximately $10.2 million annually or approximately 4.1  percent above current rates. The request includes rate recovery associated with increased investment in facilities and increased operating expenses. On January 17, 2017, Intermountain provided the IPUC with an updated revenue request of approximately $9.4 million . A hearing was held March 1-3, 2017. On April 28, 2017, the IPUC issued an order approving an increase of approximately $4.1 million or approximately 1.6  percent above current rates based on a 9.5  percent return on equity effective with service rendered on and after May 1, 2017. Intermountain is reviewing the final order.
On September 1, 2016, and as amended on January 10, 2017, Montana-Dakota submitted an update to its transmission formula rate under the MISO tariff including a revenue requirement for the Company's multivalue project along with a true-up of prior year expenditures of $11.1 million , which was effective January 1, 2017.
On December 2, 2016, Montana-Dakota filed an application with the MTPSC requesting authority to implement gas and electric tax tracking adjustments for Montana state and local taxes and fees that reflect the changes in state and local property taxes applicable to natural gas and electric utilities pursuant to Montana law. The requested tax tracking adjustments would result in an increase in revenues of approximately $814,000 . On January 17, 2017, the MTPSC issued an order on the tax tracking adjustments. The gas tracking adjustment was approved as an increase to revenues of approximately $474,000 effective January 1, 2017. The electric tax tracking adjustment was approved as an increase to revenues of approximately $251,000 effective May 15, 2017. Montana-Dakota filed a motion for reconsideration of the electric tax tracking adjustment on January 27, 2017. The motion for reconsideration is pending before the MTPSC.
On December 21, 2016, Great Plains filed an application with the MNPUC requesting authority to implement a natural gas utility infrastructure cost tariff of approximately $456,000 annually effective beginning with service rendered May 20, 2017. The tariff will allow Great Plains to recover infrastructure investments, not previously included in rates, mandated by federal or state agencies associated with Great Plains' pipeline integrity programs. This matter is pending before the MNPUC.
On April 1, 2017, Montana-Dakota implemented Phase 2 of the electric rate case approved by the MTPSC on March 25, 2016. The annual increase of $4.7 million is effective with service rendered on and after April 1, 2017.
Montana-Dakota previously filed an application with the NDPSC on October 14, 2016, for an electric rate increase which also included a requested return on equity to be used in the determination of applications previously filed by Montana-Dakota for a renewable resource cost adjustment rider, an electric generation resource recovery rider, and a transmission cost adjustment rider. On April 7, 2017, Montana-Dakota, the NDPSC Advocacy Staff and the interveners in the case filed a settlement agreement resolving all issues in the general rate case. The settlement agreement included a net increase of approximately $7.5 million or 3.7  percent above previously approved final rates and a true-up of the return on equity used in the interim renewable resource cost adjustment, the electric generation resource recovery and transmission cost adjustment riders of 9.45  percent; a return on equity of 9.65  percent for base rates and the renewable resource cost adjustment rider on a go-forward basis; and a return on equity of 9.45  percent through December 31, 2019, for the natural gas-fired internal combustion engines and associated facilities included in the electric generation resource recovery rider. If the settlement agreement is approved by the NDPSC, final

24



rates will be less than the interim rates currently in effect. Therefore, Montana-Dakota will refund the difference to customers, which is approximately 19  percent of the amount collected from the general rate case interim increase, along with refunds, if any, to reflect true-ups for the various riders. The amount of refunds, less amounts previously accrued, are not expected to be material to the consolidated financial statements. A hearing on the settlement was held on April 10, 2017. This matter is pending before the NDPSC. The background information related to the settlement and related applications are discussed in the following paragraphs.
On October 26, 2015, Montana-Dakota filed an application with the NDPSC requesting a renewable resource cost adjustment rider for the recovery of the Thunder Spirit Wind project. On January 5, 2016, the NDPSC approved the rider to be effective January 7, 2016, resulting in an annual increase on an interim basis, subject to refund, of $15.1 million based upon a 10.5  percent return on equity. The interim rate is pending the determination of the return on equity in the general rate case application filed October 14, 2016, as discussed in this note.
On October 26, 2015, Montana-Dakota filed an application with the NDPSC for an update to the electric generation resource recovery rider. On March 9, 2016, the NDPSC approved the rider to be effective with service rendered on and after March 15, 2016, which resulted in interim rates, subject to refund, of $9.7 million based upon a 10.5  percent return on equity. The interim rates include recovery of Montana-Dakota's investment in the 88-MW simple-cycle natural gas turbine and associated facilities near Mandan, North Dakota, and the 19 MW of new generation from natural gas-fired internal combustion engines and associated facilities near Sidney, Montana. The net investment authorized for the natural gas-fired internal combustion engines and the return on equity on both investments are pending the general rate case application filed October 14, 2016, as discussed in this note.
On November 25, 2015, Montana-Dakota filed an application with the NDPSC for an update of its transmission cost adjustment rider for recovery of MISO-related charges and two transmission projects in North Dakota. On February 10, 2016, the NDPSC approved the transmission cost adjustment effective with service rendered on and after February 12, 2016, resulting in an annual increase on an interim basis, subject to refund, of $6.8 million based upon a 10.5  percent return on equity. The interim rate is pending the determination of the return on equity in the general rate case application filed October 14, 2016, as discussed in this note.
On October 14, 2016, Montana-Dakota filed an application with the NDPSC for an electric rate increase of approximately $13.4 million annually or 6.6  percent above current rates. The request includes rate recovery associated with increased investment in facilities, along with the related depreciation, operation and maintenance expenses and taxes associated with the increased investment. Montana-Dakota requested an interim increase of approximately $13.0 million or approximately 6.5  percent, subject to refund, to be effective within 60 days of the filing. On November 21, 2016, Montana-Dakota filed and on November 30, 2016, the NDPSC approved a revised interim increase of approximately $11.7 million , based on adjustments accepted by the NDPSC, or approximately 5.8  percent above current rates, subject to refund, effective with service rendered on or after December 13, 2016. This matter is pending the approval of the settlement agreement by the NDPSC, as previously discussed.
Note 16 - Contingencies
The Company is party to claims and lawsuits arising out of its business and that of its consolidated subsidiaries. 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. The Company had accrued liabilities of $29.1 million , $19.0 million and $31.8 million , which include liabilities held for sale, for contingencies, including litigation, production taxes, royalty claims and environmental matters at March 31, 2017 and 2016 , and December 31, 2016 , respectively, including amounts that may have been accrued for matters discussed in Litigation and Environmental matters within this note.
Litigation
Natural Gas Gathering Operations  Omimex filed a complaint against WBI Energy Midstream in Montana Seventeenth Judicial District Court in July 2010 alleging WBI Energy Midstream breached a gathering contract with Omimex as a result of the increased operating pressures demanded by a third party on a natural gas gathering system in Montana. In December 2011, Omimex filed an amended complaint alleging WBI Energy Midstream breached obligations to operate its gathering system as a common carrier under United States and Montana law. WBI Energy Midstream removed the action to the United States District Court for the District of Montana. The parties subsequently settled the breach of contract claim and, subject to final determination on liability, stipulated to the damages on the common carrier claim, for amounts that are not material. A trial on the common carrier claim was held during July 2013. On December 9, 2014, the United States District Court for the District of Montana issued an order determining WBI Energy Midstream breached its obligations as a common carrier and ordered judgment in favor of Omimex for the amount of the stipulated damages. WBI Energy Midstream filed an appeal from the United States

25



District Court for the District of Montana's order and judgment. The parties reached a settlement of the matter in March 2017. The settlement provides for a payment by WBI Energy Midstream of an amount that is not material to the Company.
The Company also is subject to other litigation, and actual and potential claims in the ordinary course of its business which may include, but are not limited to, matters involving property damage, personal injury, and environmental, contractual, statutory and regulatory obligations. Accruals are based on the best information available but actual losses in future periods are affected by various factors making them uncertain. After taking into account liabilities accrued for the foregoing matters, management believes that the outcomes with respect to the above issues and other probable and reasonably possible losses in excess of the amounts accrued, while uncertain, will not have a material effect upon the Company's financial position, results of operations or cash flows.
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 a riverbed site adjacent to a commercial property site acquired by Knife River - Northwest from Georgia-Pacific West, Inc. in 1999. The riverbed site is part of the Portland, Oregon, Harbor Superfund Site. The EPA wants responsible parties to share in the cleanup of sediment contamination in the Willamette River. 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, a group of several entities, which does not include Knife River - Northwest or Georgia-Pacific West, Inc. Investigative costs are indicated to be in excess of $100 million . On January 6, 2017, Region 10 of the EPA issued a ROD with its selected remedy for cleanup of the in-river portion of the site. Implementation of the remedy 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 also received notice in January 2008 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. The Portland Harbor Natural Resource Trustee Council indicates the injury determination is appropriate to facilitate early settlement of damages and restoration for natural resource injuries. It is not possible to estimate the costs of natural resource damages until an assessment is completed and allocations are undertaken.
Based upon a review of the Portland Harbor sediment contamination evaluation by the Oregon DEQ and other information available, Knife River - Northwest does not believe it is a responsible party. In addition, Knife River - Northwest 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. By letter in March 2009, LWG 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 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 There are three claims against Cascade for cleanup of environmental contamination at manufactured gas plant sites operated by Cascade's predecessors.
The first claim is for contamination at a site in Eugene, Oregon which was received in 1995. There are PRPs in addition to Cascade that may be liable for cleanup of the contamination. Some of these PRPs have shared in the investigation costs. It is expected that these and other PRPs will share in the cleanup costs. Several alternatives for cleanup have been identified, with preliminary cost estimates ranging from approximately $500,000 to $11.0 million . The Oregon DEQ released a ROD in January 2015 that selected a remediation alternative for the site as recommended in an earlier staff report. It is not known at this time what share of the cleanup costs will actually be borne by Cascade; however, Cascade anticipates its proportional share could be approximately 50  percent. Cascade has accrued $1.6 million for remediation of this site. In January 2013, the OPUC approved Cascade's application to defer environmental remediation costs at the Eugene site for a period of 12 months starting November 30, 2012. Cascade received orders reauthorizing the deferred accounting for the 12-month periods starting November 30, 2013, December 1, 2014, and December 1, 2015. Cascade has requested authority to defer accounting for the 12-month period starting December 1, 2016, which is pending before the OPUC.
The second claim is for contamination at a 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

26



remedial investigation and feasibility study for the site. Cascade has accrued $12.4 million for the remedial investigation, feasibility study and remediation of this site. In April 2010, Cascade filed a petition with the WUTC for authority to defer the costs, which are included in other noncurrent assets, incurred in relation to the environmental remediation of this site. The WUTC approved the petition in September 2010, subject to conditions set forth in the order.
The third claim is 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. The notice indicates that current estimates to complete investigation and cleanup of the site exceed $8.0 million . Other PRPs have reached an agreed order and work plan with the Washington DOE for completion of a remedial investigation and feasibility study for the site. A report documenting the initial phase of the remedial investigation was completed in June 2011. There is currently not enough information available to estimate the potential liability to Cascade associated with this claim although 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 received notices from and entered into agreement with certain of its insurance carriers that they will participate in defense of Cascade for these 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. The accruals related to these matters are reflected in regulatory assets.
Guarantees
In June 2016, WBI Energy sold all of the outstanding membership interests in Dakota Prairie Refining. In connection with the sale, Centennial agreed to continue to guarantee certain debt obligations of Dakota Prairie Refining which totaled $62.6 million at March 31, 2017 , and are expected to mature by 2023. Tesoro agreed to indemnify Centennial for any losses and litigation expenses arising from the guarantee. The estimated fair values of the indemnity asset and guarantee liability are reflected in deferred charges and other assets - other and deferred credits and other liabilities - other, respectively, on the Consolidated Balance Sheets. Continuation of the guarantee was required as a condition to the sale of Dakota Prairie Refining.

In March 2016, a sale agreement was signed to sell Fidelity's assets in the Paradox Basin. In connection with the sale, Centennial agreed to guarantee Fidelity's indemnity obligations associated with the Paradox assets. The guarantee was required by the buyer as a condition to the sale of the Paradox Basin assets.

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 March 31, 2017 , the fixed maximum amounts guaranteed under these agreements aggregated $92.8 million . The amounts of scheduled expiration of the maximum amounts guaranteed under these agreements aggregate $8.3 million in 2017 ; $26.2 million in 2018 ; $54.3 million in 2019 ; and $4.0 million , which has no scheduled maturity date. There were no amounts outstanding under the above guarantees at March 31, 2017 . In the event of default under these guarantee obligations, the subsidiary issuing the guarantee for that particular obligation would be required to make payments under its guarantee.
Certain subsidiaries have outstanding letters of credit to third parties related to insurance policies and other agreements, some of which are guaranteed by other subsidiaries of the Company. At March 31, 2017 , the fixed maximum amounts guaranteed under these letters of credit aggregated $31.0 million . The amounts of scheduled expiration of the maximum amounts guaranteed under these letters of credit aggregate $30.3 million in 2017 and $700,000 in 2018. There were no amounts outstanding under the above letters of credit at March 31, 2017 . In the event of default under these letter of credit obligations, the subsidiary issuing the letter of credit for that particular obligation would be required to make payments under its 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 for these guarantees were reflected on the Consolidated Balance Sheet at March 31, 2017 .
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

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within the next 12 months; however, Centennial will likely continue to enter into surety bonds for its subsidiaries in the future. At March 31, 2017 , approximately $744.0 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.
Dakota Prairie Refining, LLC On February 7, 2013, WBI Energy and Calumet formed a limited liability company, Dakota Prairie Refining, and entered into an operating agreement to develop, build and operate Dakota Prairie Refinery in southwestern North Dakota. WBI Energy and Calumet each had a 50  percent ownership interest in Dakota Prairie Refining. WBI Energy's and Calumet's capital commitments, based on a total project cost of $300 million , under the agreement were $150 million and $75 million , respectively. Capital commitments in excess of $300 million were shared equally between WBI Energy and Calumet. Dakota Prairie Refining entered into a term loan for project debt financing of $75 million on April 22, 2013. The operating agreement provided for allocation of profits and losses consistent with ownership interests; however, deductions attributable to project financing debt was allocated to Calumet. Calumet's cash distributions from Dakota Prairie Refining were decreased by the principal and interest paid on the project debt, while the cash distributions to WBI Energy were not decreased. Pursuant to the operating agreement, Centennial agreed to guarantee Dakota Prairie Refining's obligation under the term loan. The net loss attributable to noncontrolling interest on the Consolidated Statements of Income is pretax as Dakota Prairie Refining was a limited liability company. For more information related to the guarantee, see Guarantees in this note.
Dakota Prairie Refining was determined to be a VIE, and the Company had determined that it was the primary beneficiary as it had an obligation to absorb losses that could have been potentially significant to the VIE through WBI Energy's equity investment and Centennial's guarantee of the third-party term loan. Accordingly, the Company consolidated Dakota Prairie Refining in its financial statements and recorded a noncontrolling interest for Calumet's ownership interest.
On June 24, 2016, WBI Energy entered into a membership interest purchase agreement with Tesoro to sell all of the outstanding membership interests in Dakota Prairie Refining to Tesoro. 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. For more information on the Company's discontinued operations, see Note  8 .
Dakota Prairie Refinery commenced operations in May 2015. The assets of Dakota Prairie Refining were used solely for the benefit of Dakota Prairie Refining. The total assets and liabilities of Dakota Prairie Refining were as follows:
 
March 31, 2016

 
(In thousands)
Assets
 
Current assets:
 
Cash and cash equivalents
$
478

Accounts receivable
11,169

Inventories
17,056

Prepayments and other current assets
6,124

Total current assets
34,827

Net property, plant and equipment
419,492

Deferred charges and other assets:
 
Other
8,941

Total deferred charges and other assets
8,941

Total assets
$
463,260

Liabilities
 
Current liabilities:
 
Short-term borrowings
$
63,200

Long-term debt due within one year
6,375

Accounts payable
27,697

Taxes payable
1,001

Accrued compensation
717

Other accrued liabilities
7,155

Total current liabilities
106,145