MDU Resources Group, Inc.
MDU RESOURCES GROUP INC (Form: 10-Q, Received: 08/04/2017 09:22:46)


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 June 30, 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 July 28, 2017 : 195,304,376  shares.





Index
 
Page
 
 
 
Definitions
 
 
 
 
Forward-Looking Statements
 
 
 
Introduction
 
 
 
Part I -- Financial Information
 
 
 
 
Item 1
Financial Statements
 
 
Consolidated Statements of Income --
Three and Six Months Ended June 30, 2017 and 2016
 
 
 
 
Consolidated Statements of Comprehensive Income --
Three and Six Months Ended June 30, 2017 and 2016
 
 
 
 
Consolidated Balance Sheets --
June 30, 2017 and 2016, and December 31, 2016
 
 
 
 
Consolidated Statements of Cash Flows --
Six Months Ended June 30, 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 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
ASU
FASB Accounting Standards Update
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.
Capital Electric
Capital Electric Construction Company, Inc., a direct wholly owned subsidiary of MDU Construction Services
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
MTPSC
Montana Public Service Commission

3



MW
Megawatt
NDPSC
North Dakota Public Service Commission
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
RIN
Renewable Identification Number
ROD
Record of Decision
SEC
United States Securities and Exchange Commission
Tesoro
Tesoro Refining & Marketing Company LLC
Tesoro Logistics
QEP Field Services, LLC doing business as Tesoro Logistics Rockies LLC
VIE
Variable interest entity
Washington DOE
Washington State Department of Ecology
WBI Energy
WBI Energy, Inc., a direct wholly owned subsidiary of WBI Holdings
WBI Energy 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 not statements of historical facts. From time to time, the Company may publish or otherwise make available forward-looking statements of this nature, including statements contained within Part I, Item 2 - MD&A - 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
Six Months Ended
 
June 30,
June 30,
 
2017

2016

2017

2016

 
(In thousands, except per share amounts)
Operating revenues:
 
 
 
 
Electric, natural gas distribution and regulated pipeline and midstream
$
225,485

$
206,052

$
659,100

$
591,918

Nonregulated pipeline and midstream, construction materials and contracting, construction services and other
842,154

837,896

1,346,465

1,312,245

Total operating revenues 
1,067,639

1,043,948

2,005,565

1,904,163

Operating expenses:
 

 

 

 

Electric fuel and purchased power
16,752

15,914

38,638

37,925

Purchased natural gas sold
57,668

47,439

250,617

208,474

Operation and maintenance:
 

 

 

 

Electric, natural gas distribution and regulated pipeline and midstream
77,273

77,078

156,013

151,703

Nonregulated pipeline and midstream, construction materials and contracting, construction services and other
743,656

722,742

1,222,132

1,165,243

Depreciation, depletion and amortization
51,658

54,248

102,983

109,132

Taxes, other than income
40,953

37,562

88,391

80,736

Total operating expenses
987,960

954,983

1,858,774

1,753,213

Operating income
79,679

88,965

146,791

150,950

Other income
782

872

1,798

1,921

Interest expense
20,766

22,219

41,068

45,087

Income before income taxes
59,695

67,618

107,521

107,784

Income taxes
15,290

21,320

27,478

29,620

Income from continuing operations
44,405

46,298

80,043

78,164

Loss from discontinued operations, net of tax (Note 8)
(3,190
)
(276,102
)
(1,504
)
(294,138
)
Net income (loss)
41,215

(229,804
)
78,539

(215,974
)
Loss from discontinued operations attributable to noncontrolling interest (Note 8)

(120,651
)

(131,691
)
Loss on redemption of preferred stocks
600


600


Dividends declared on preferred stocks

171

171

343

Earnings (loss) on common stock
$
40,615

$
(109,324
)
$
77,768

$
(84,626
)
Earnings (loss) per common share - basic:
 

 

 

 

Earnings before discontinued operations
$
.22

$
.24

$
.41

$
.40

Discontinued operations attributable to the Company, net of tax
(.01
)
(.80
)
(.01
)
(.83
)
Earnings (loss) per common share - basic
$
.21

$
(.56
)
$
.40

$
(.43
)
Earnings (loss) per common share - diluted:
 

 

 

 

Earnings before discontinued operations
$
.22

$
.24

$
.40

$
.40

Discontinued operations attributable to the Company, net of tax
(.01
)
(.80
)

(.83
)
Earnings (loss) per common share - diluted
$
.21

$
(.56
)
$
.40

$
(.43
)
Dividends declared per common share
$
.1925

$
.1875

$
.3850

$
.3750

Weighted average common shares outstanding - basic
195,304

195,304

195,304

195,294

Weighted average common shares outstanding - diluted
195,973

195,699

195,993

195,678

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
Six Months Ended
 
June 30,
June 30,
 
2017
2016
2017
2016
 
(In thousands)
Net income (loss)
$
41,215

$
(229,804
)
$
78,539

$
(215,974
)
Other comprehensive income (loss):
 
 
 
 
Reclassification adjustment for loss on derivative instruments included in net income (loss), net of tax of $56 and $56 for the three months ended and $112 and $114 for the six months ended in 2017 and 2016, respectively
92

91

183

183

Postretirement liability adjustment:
 
 
 
 
Amortization of postretirement liability (gains) losses included in net periodic benefit cost (credit), net of tax of $190 and $150 for the three months ended and $406 and $(819) for the six months ended in 2017 and 2016, respectively
312

248

669

(1,347
)
Reclassification of postretirement liability adjustment from regulatory asset, net of tax of $0 and $0 for the three months ended and $(725) and $0 for the six months ended in 2017 and 2016, respectively


(917
)

Postretirement liability adjustment
312

248

(248
)
(1,347
)
Foreign currency translation adjustment recognized during the period, net of tax of $(9) and $19 for the three months ended and $(3) and $33 for the six months ended in 2017 and 2016, respectively
(15
)
31

(6
)
56

Net unrealized gain on available-for-sale investments:
 
 
 
 
Net unrealized loss on available-for-sale investments arising during the period, net of tax of $(13) and $(16) for the three months ended and $(28) and $(10) for the six months ended in 2017 and 2016, respectively
(24
)
(30
)
(51
)
(19
)
Reclassification adjustment for loss on available-for-sale investments included in net income (loss), net of tax of $17 and $19 for the three months ended and $36 and $37 for the six months ended in 2017 and 2016, respectively
31

36

66

69

Net unrealized gain on available-for-sale investments
7

6

15

50

Other comprehensive income (loss)
396

376

(56
)
(1,058
)
Comprehensive income (loss)
41,611

(229,428
)
78,483

(217,032
)
Comprehensive loss from discontinued operations attributable to noncontrolling interest

(120,651
)

(131,691
)
Comprehensive income (loss) attributable to common stockholders
$
41,611

$
(108,777
)
$
78,483

$
(85,341
)
The accompanying notes are an integral part of these consolidated financial statements.



7



MDU Resources Group, Inc.
Consolidated Balance Sheets
(Unaudited)
 
June 30, 2017
June 30, 2016
December 31, 2016
(In thousands, except shares and per share amounts)
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
40,048

$
85,117

$
46,107

Receivables, net
661,771

637,166

630,243

Inventories
249,870

265,849

238,273

Prepayments and other current assets
63,953

50,309

48,461

Current assets held for sale
328

37,625

14,391

Total current assets
1,015,970

1,076,066

977,475

Investments
131,726

124,531

125,866

Property, plant and equipment
6,591,382

6,526,563

6,510,229

Less accumulated depreciation, depletion and amortization
2,638,098

2,551,941

2,578,902

Net property, plant and equipment
3,953,284

3,974,622

3,931,327

Deferred charges and other assets:
 

 

 

Goodwill
631,791

641,527

631,791

Other intangible assets, net
4,785

7,160

5,925

Other
416,759

360,520

415,419

Noncurrent assets held for sale
76,183

167,100

196,664

Total deferred charges and other assets 
1,129,518

1,176,307

1,249,799

Total assets
$
6,230,498

$
6,351,526

$
6,284,467

Liabilities and Stockholders' Equity
 

 

 

Current liabilities:
 

 

 

Long-term debt due within one year
$
83,499

$
58,598

$
43,598

Accounts payable
279,211

275,791

279,962

Taxes payable
55,037

45,749

48,164

Dividends payable
37,596

36,791

37,767

Accrued compensation
52,951

56,390

65,867

Other accrued liabilities
181,030

196,701

184,377

Current liabilities held for sale
4,481

28,237

9,924

Total current liabilities 
693,805

698,257

669,659

Long-term debt
1,677,977

1,928,709

1,746,561

Deferred credits and other liabilities:
 

 

 

Deferred income taxes
668,239

666,601

668,226

Other
887,525

820,349

883,777

Total deferred credits and other liabilities 
1,555,764

1,486,950

1,552,003

Commitments and contingencies






Stockholders' equity :
 

 

 

Preferred stocks

15,000

15,000

Common stockholders' equity:
 

 

 

Common stock
 

 

 

Authorized - 500,000,000 shares, $1.00 par value
Shares issued - 195,843,297 at June 30, 2017 and 2016 and
December 31, 2016
195,843

195,843

195,843

Other paid-in capital
1,231,892

1,230,342

1,232,478

Retained earnings
914,632

838,257

912,282

Accumulated other comprehensive loss
(35,789
)
(38,206
)
(35,733
)
Treasury stock at cost - 538,921 shares
(3,626
)
(3,626
)
(3,626
)
Total common stockholders' equity
2,302,952

2,222,610

2,301,244

Total stockholders' equity
2,302,952

2,237,610

2,316,244

Total liabilities and stockholders' equity 
$
6,230,498

$
6,351,526

$
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)
 
 
Six Months Ended
 
 
June 30,
 
 
2017

2016

 
 
(In thousands)
Operating activities:
 
 
 
Net income (loss)
 
$
78,539

$
(215,974
)
Loss from discontinued operations, net of tax
 
(1,504
)
(294,138
)
Income from continuing operations
 
80,043

78,164

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 

 

Depreciation, depletion and amortization
 
102,983

109,132

Deferred income taxes
 
(5,293
)
3,608

Changes in current assets and liabilities, net of acquisitions:
 
 

 
Receivables
 
(43,478
)
(44,909
)
Inventories
 
(13,573
)
(23,189
)
Other current assets
 
(15,799
)
(20,555
)
Accounts payable
 
11,611

7,339

Other current liabilities
 
(6,387
)
33,214

Other noncurrent changes
 
(4,460
)
(14,626
)
Net cash provided by continuing operations
 
105,647

128,178

Net cash provided by (used in) discontinued operations
 
33,846

(25,529
)
Net cash provided by operating activities
 
139,493

102,649

Investing activities:
 
 

 

Capital expenditures
 
(143,764
)
(220,098
)
Net proceeds from sale or disposition of property and other
 
119,361

14,778

Investments
 
(358
)
(262
)
Net cash used in continuing operations
 
(24,761
)
(205,582
)
Net cash provided by discontinued operations
 
2,234

28,040

Net cash used in investing activities
 
(22,527
)
(177,542
)
Financing activities:
 
 

 

Issuance of long-term debt
 
63,827

387,625

Repayment of long-term debt
 
(93,275
)
(196,771
)
Dividends paid
 
(75,535
)
(73,575
)
Redemption of preferred stock
 
(15,600
)

Repurchase of common stock
 
(1,684
)

Tax withholding on stock-based compensation
 
(757
)
(323
)
Net cash provided by (used in) continuing operations
 
(123,024
)
116,956

Net cash used in discontinued operations
 

(40,852
)
Net cash provided by (used in) financing activities
 
(123,024
)
76,104

Effect of exchange rate changes on cash and cash equivalents
 
(1
)
3

Increase (decrease) in cash and cash equivalents
 
(6,059
)
1,214

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

83,903

Cash and cash equivalents -- end of period
 
$
40,048

$
85,117

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

9



MDU Resources Group, Inc.
Notes to Consolidated
Financial Statements
June 30, 2017 and 2016
(Unaudited)
Note 1 - Basis of presentation
The accompanying consolidated interim financial statements were prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Interim financial statements do not include all disclosures provided in annual financial statements and, accordingly, these financial statements should be read in conjunction with those appearing in the 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 June 30, 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 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 $32.7 million , $31.7 million and $29.2 million at June 30, 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 June 30, 2017 and 2016 , and December 31, 2016 , was $9.2 million , $11.0 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:
 
June 30, 2017

June 30, 2016

December 31, 2016

 
(In thousands)
Aggregates held for resale
$
123,316

$
130,544

$
115,471

Asphalt oil
46,852

42,591

29,103

Materials and supplies
22,657

20,765

18,372

Merchandise for resale
16,164

18,439

16,437

Natural gas in storage (current)
14,126

19,689

25,761

Other
26,755

33,821

33,129

Total
$
249,870

$
265,849

$
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 June 30, 2017 and 2016 , and December 31, 2016 , respectively.

10



Note 5 - Earnings (loss) per common share
Basic earnings (loss) per common share were computed by dividing earnings (loss) on common stock by the weighted average number of shares of common stock outstanding during the applicable period. Diluted earnings (loss) per common share were computed by dividing earnings (loss) 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 (loss) was the same for both the basic and diluted earnings (loss)per share calculations. A reconciliation of the weighted average common shares outstanding used in the basic and diluted earnings (loss) per share calculations was as follows:
 
Three Months Ended
Six Months Ended
 
June 30,
June 30,
 
2017

2016

2017

2016

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

195,304

195,304

195,294

Effect of dilutive performance share awards
669

395

689

384

Weighted average common shares outstanding - diluted
195,973

195,699

195,993

195,678

Shares excluded from the calculation of diluted earnings per share




Note 6 - New accounting standards
Recently adopted accounting standards
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 align GAAP with IFRS. 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 $33.9 million  from current assets - deferred income taxes to deferred credits and other liabilities - deferred income taxes on its Consolidated Balance Sheet at June 30, 2016.
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 adopted 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.
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. 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 Statement of Income and the Consolidated Balance Sheet in the first quarter of 2017 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.
Recently issued accounting standards not yet adopted
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. In August 2015, the FASB issued guidance deferring the effective date of the revenue guidance 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.

The Company plans to adopt the guidance on January 1, 2018, and to use the modified retrospective approach. 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 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 does not anticipate a significant change in the timing of revenue recognition and

11



continues to evaluate all revenue streams to determine what effect the guidance will have on its results of operations, financial position, cash flows and disclosures.
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.
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 expects to adopt this guidance as required and does not expect the guidance to have a material effect 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.
Leases In February 2016, the FASB issued guidance regarding leases. The guidance requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet for operating and financing leases with terms of more than 12 months. The guidance remains largely the same for lessors, although some changes were made to better align lessor accounting with the new lessee accounting and to align with the revenue recognition standard. The guidance also requires additional disclosures, both quantitative and qualitative, related to operating and finance leases for the lessee and sales-type, direct financing and operating 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 continues to be industry-specific implementation issues that are 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. Due to the uncertainty of these issues, the Company cannot estimate the potential impact the adoption of the new guidance will have on its results of operations, financial position, cash flows and disclosures. The Company is planning to adopt the standard on January 1, 2019, utilizing the practical expedient that allows the Company to not reassess whether an expired or existing contract contains a lease, the classification of leases or initial direct costs.
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

12



Company is evaluating the effects the adoption of the new guidance will have on its results of operations, financial position, cash flows and disclosures.
Note 7 - Comprehensive income (loss)
The after-tax changes in the components of accumulated other comprehensive loss were as follows:
Three Months Ended
June 30, 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
$
(2,209
)
$
(33,781
)
$
(140
)
$
(55
)
$
(36,185
)
Other comprehensive loss before reclassifications


(15
)
(24
)
(39
)
Amounts reclassified from accumulated other comprehensive loss
92

312


31

435

Net current-period other comprehensive income (loss)
92

312

(15
)
7

396

Balance at end of period
$
(2,117
)
$
(33,469
)
$
(155
)
$
(48
)
$
(35,789
)
Three Months Ended
June 30, 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
$
(2,575
)
$
(35,852
)
$
(175
)
$
20

$
(38,582
)
Other comprehensive income (loss) before reclassifications


31

(30
)
1

Amounts reclassified from accumulated other comprehensive loss
91

248


36

375

Net current-period other comprehensive income
91

248

31

6

376

Balance at end of period
$
(2,484
)
$
(35,604
)
$
(144
)
$
26

$
(38,206
)
Six Months Ended
June 30, 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 loss before reclassifications


(6
)
(51
)
(57
)
Amounts reclassified from accumulated other comprehensive loss
183

669


66

918

Amounts reclassified to accumulated other comprehensive loss from a regulatory asset

(917
)


(917
)
Net current-period other comprehensive income (loss)
183

(248
)
(6
)
15

(56
)
Balance at end of period
$
(2,117
)
$
(33,469
)
$
(155
)
$
(48
)
$
(35,789
)

13



Six Months Ended
June 30, 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 (loss) before reclassifications


56

(19
)
37

Amounts reclassified from accumulated other comprehensive loss
183

(1,347
)

69

(1,095
)
Net current-period other comprehensive income (loss)
183

(1,347
)
56

50

(1,058
)
Balance at end of period
$
(2,484
)
$
(35,604
)
$
(144
)
$
26

$
(38,206
)

Reclassifications out of accumulated other comprehensive loss were as follows:
 
Three Months Ended
Six Months Ended
Location on Consolidated Statements of
Income
 
June 30,
June 30,
 
2017
2016
2017
2016
 
(In thousands)
 
Reclassification adjustment for loss on derivative instruments included in net income (loss)
$
(148
)
$
(147
)
$
(295
)
$
(297
)
Interest expense
 
56

56

112

114

Income taxes
 
(92
)
(91
)
(183
)
(183
)
 
Amortization of postretirement liability gains (losses) included in net periodic benefit cost (credit)
(502
)
(398
)
(1,075
)
2,166

(a)
 
190

150

406

(819
)
Income taxes
 
(312
)
(248
)
(669
)
1,347

 
Reclassification adjustment for loss on available-for-sale investments included in net income (loss)
(48
)
(55
)
(102
)
(106
)
Other income
 
17

19

36

37

Income taxes
 
(31
)
(36
)
(66
)
(69
)
 
Total reclassifications
$
(435
)
$
(375
)
$
(918
)
$
1,095

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

14




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 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.
In connection with the sale, WBI Energy had cash in an escrow account for RINs obligations, which was included in current assets held for sale on the Consolidated Balance Sheet at June 30, 2016 . 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 .

15



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:
 
June 30, 2017

 
June 30, 2016

December 31, 2016

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

 
$
433

$

Income taxes receivable
5,552

(a)
12,550

13,987

Prepayments and other current assets

 
11,083


Total current assets held for sale
5,552

 
24,066

13,987

Noncurrent assets:
 
 
 
 
Deferred income taxes

 
57,644


Total noncurrent assets held for sale

 
57,644


Total assets held for sale
$
5,552

 
$
81,710

$
13,987

Liabilities
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
$

 
$
7,170

$
7,425

Other accrued liabilities

 
8,303


Total current liabilities held for sale

 
15,473

7,425

Noncurrent liabilities:
 
 
 
 
Deferred income taxes (b)
55

 

14

Total noncurrent liabilities held for sale
55

 

14

Total liabilities held for sale
$
55

 
$
15,473

$
7,439

(a)
On the Company's Consolidated Balance Sheets, this amount was reclassified to income taxes payable and is reflected in current liabilities held for sale.
(b)
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 June 30, 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.
The Company performed a fair value assessment of the assets and liabilities classified as held for sale. In the second quarter of 2016, the fair value assessment was determined using the market approach based on the sale transaction to Tesoro. The fair value assessment indicated an impairment based on the carrying value exceeding the fair value, which resulted in the Company recording an impairment of $251.9 million ( $156.7 million after tax) in the quarter ended June 30, 2016. The impairment was included in operating expenses from discontinued operations. The fair value of Dakota Prairie Refining’s assets has been categorized as Level 3 in the fair value hierarchy.
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.

16



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:
 
June 30, 2017

June 30, 2016

December 31, 2016

 
 
(In thousands)
 
Assets
 
 
 
 
Current assets:
 
 
 
 
Receivables, net
$
328

$
8,207

$
355

 
Income taxes receivable

5,348


 
Prepayments and other current assets

4


 
Total current assets held for sale
328

13,559

355

 
Noncurrent assets:
 
 
 
 
Net property, plant and equipment
2,064

5,507

5,507

 
Deferred income taxes
74,013

104,726

91,098

 
Other
161

161

161

 
Less allowance for impairment of assets held for sale

938

938

 
Total noncurrent assets held for sale
76,238

109,456

95,828

 
Total assets held for sale
$
76,566

$
123,015

$
96,183

 
Liabilities
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
$
138

$
456

$
141

 
Taxes payable
7,171


19

(a)
Accrued compensation

1,459


 
Other accrued liabilities
2,724

10,849

2,358

 
Total current liabilities held for sale
10,033

12,764

2,518

 
Total liabilities held for sale
$
10,033

$
12,764

$
2,518

 
(a)
On the Company's Consolidated Balance Sheets, this amount was reclassified to prepayments and other current assets and is reflected
in current assets held for sale.
 
The Company reclassified current income tax assets of $47.5 million and current income tax liabilities of $4.1 million to noncurrent assets - deferred income taxes at June 30, 2016, pursuant to the retrospective application of the adoption of the ASU related to the balance sheet classification of deferred taxes. For more information on this ASU, see Note  6 .
The Company performed a fair value assessment of the assets and liabilities classified as held for sale. In the second quarter of 2016, the fair value assessment was determined using the income and market approaches. The income approach was determined by using the present value of future estimated cash flows. The market approach was based on market transactions of similar properties. The estimated carrying value exceeded the fair value and the Company recorded an impairment of $900,000 ( $600,000 after tax) in the second quarter of 2016. 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 and impairment reversal were included in operating expenses from discontinued operations. The estimated fair value of Fidelity's assets have 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 $3.8 million and $5.6 million of exit and disposal costs for the three and six months ended
June 30, 2016 , respectively, and has incurred $10.5 million of exit and disposal costs to date. Fidelity incurred no exit and disposal costs for the three and six months ended June 30, 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 $400,000 and $900,000 for the three and six months ended June 30, 2016 , respectively. A lease termination payment of $3.2 million was made during the second quarter of 2016. Existing office furniture and fixtures were relinquished to the lessor in the second quarter of 2016.

17



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 loss from discontinued operations on the Company's Consolidated Statements of Income was as follows:
 
Three Months Ended
Six Months Ended
 
June 30,
June 30,
 
2017

2016

2017

2016

 
(In thousands)
Operating revenues
$
130

$
74,756

$
235

$
122,732

Operating expenses
1,205

443,756

(5,372
)
513,526

Operating income (loss)
(1,075
)
(369,000
)
5,607

(390,794
)
Other income (expense)
3

183

(13
)
387

Interest expense
239

832

239

1,753

Income (loss) from discontinued operations before income taxes
(1,311
)
(369,649
)
5,355

(392,160
)
Income taxes
1,879

(93,547
)
6,859

(98,022
)
Loss from discontinued operations
(3,190
)
(276,102
)
(1,504
)
(294,138
)
Loss from discontinued operations attributable to noncontrolling interest

(120,651
)

(131,691
)
Loss from discontinued operations attributable to the Company
$
(3,190
)
$
(155,451
)
$
(1,504
)
$
(162,447
)
The pretax income (loss) from discontinued operations attributable to the Company, related to the operations of and activity associated with Dakota Prairie Refining, were $0 and $(244.0) million for the three months ended and $6.9 million and $(253.9) million for the six months ended June 30, 2017 and 2016 , respectively.
Note 9 - Goodwill and other intangible assets
The changes in the carrying amount of goodwill were as follows:
Six Months Ended June 30, 2017
Balance at January 1, 2017

Goodwill Acquired
During the Year

Balance at June 30, 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


Six Months Ended June 30, 2016
Balance at January 1, 2016

*
Goodwill Acquired
During the Year

Balance at June 30, 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.
 

18



Other amortizable intangible assets were as follows:
 
June 30, 2017

June 30, 2016

December 31, 2016

 
(In thousands)
Customer relationships
$
15,745

$
17,145

$
17,145

Less accumulated amortization
13,302

13,108

13,917

 
2,443

4,037

3,228

Noncompete agreements
2,430

2,430

2,430

Less accumulated amortization
1,732

1,585

1,658

 
698

845

772

Other
7,086

7,764

7,768

Less accumulated amortization
5,442

5,486

5,843

 
1,644

2,278

1,925

Total
$
4,785

$
7,160

$
5,925

Amortization expense for amortizable intangible assets for the three and six months ended June 30, 2017 , was $600,000 and $1.2 million , respectively. Amortization expense for amortizable intangible assets for the three and six months ended June 30, 2016, was $600,000 and $1.3 million , 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 $73.1 million , $71.4 million and $70.9 million , at June 30, 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 $2.1 million and $5.0 million for the three and six months ended June 30, 2017 . The net unrealized gains on these investments were $2.3 million and $3.9 million for the three and six months ended June 30, 2016 . 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:
June 30, 2017
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

 
(In thousands)
Mortgage-backed securities
$
9,743

$
13

$
(86
)
$
9,670

U.S. Treasury securities
613



613

Total
$
10,356

$
13

$
(86
)
$
10,283

June 30, 2016
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

 
(In thousands)
Mortgage-backed securities
$
10,420

$
52

$
(12
)
$
10,460

Total
$
10,420

$
52

$
(12
)
$
10,460

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


19



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 six months ended June 30, 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 June 30, 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 June 30, 2017

 
(In thousands)
Assets:
 
 
 
 
Money market funds
$

$
5,882

$

$
5,882

Insurance contract*

73,126


73,126

Available-for-sale securities:
 
 
 
 
Mortgage-backed securities

9,670


9,670

U.S. Treasury securities

613


613

Total assets measured at fair value
$

$
89,291

$

$
89,291

*
The insurance contract invests approximately 50  percent in fixed-income investments, 23  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 June 30, 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 June 30, 2016

 
(In thousands)
Assets:
 
 
 
 
Money market funds
$

$
1,525

$

$
1,525

Insurance contract*

71,355


71,355

Available-for-sale securities:
 
 
 
 
Mortgage-backed securities

10,460


10,460

Total assets measured at fair value
$

$
83,340

$

$
83,340

*
The insurance contract invests approximately 66  percent in fixed-income investments, 17  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.
 

20



 
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 June 30, 2017
$
1,761,476

$
1,864,884

Long-term debt at June 30, 2016
$
1,987,307

$
2,134,708

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:
Six Months Ended June 30, 2017
Total
Equity

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

Net income
78,539

Other comprehensive loss
(56
)
Dividends declared on preferred stocks
(171
)
Dividends declared on common stock
(75,192
)
Stock-based compensation
1,629

Repurchase of common stock
(1,684
)
Issuance of common stock upon vesting of stock-based compensation, net of shares used for tax withholdings
(757
)
Redemption of preferred stock
(15,600
)
Balance at June 30, 2017
$
2,302,952


Effective April 1, 2017, all outstanding preferred stock, including $300,000 of redeemable preferred stock classified as long-term debt, was redeemed for a repurchase price of approximately $15.9 million .

21



Six Months Ended June 30, 2016
Total Stockholders' Equity

Noncontrolling Interest

Total
Equity

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

$
124,043

$
2,520,548

Net loss
(84,283
)
(131,691
)
(215,974
)
Other comprehensive loss
(1,058
)

(1,058
)
Dividends declared on preferred stocks
(343
)

(343
)
Dividends declared on common stock
(73,239
)

(73,239
)
Stock-based compensation
2,015


2,015

Issuance of common stock upon vesting of stock-based compensation, net of shares used for tax withholdings
(323
)

(323
)
Net tax deficit on stock-based compensation
(1,664
)

(1,664
)
Contribution from noncontrolling interest

7,648

7,648

Balance at June 30, 2016
$
2,237,610

$

$
2,237,610

Note 12 - Cash flow information
Cash expenditures for interest and income taxes were as follows:
 
Six Months Ended
 
June 30,
 
2017

2016

 
(In thousands)
Interest, net of amount capitalized and AFUDC - borrowed of $418 and $548 in 2017 and 2016, respectively
$
39,207

$
44,860

Income taxes paid, net*
$
32,388

$
29,891

*
Income taxes refunded, net of discontinued operations, were $ (3.6) million and $ (500,000) for the six months ended June 30, 2017 and 2016, respectively.
 
 
 
 
 
Noncash investing transactions were as follows:
 
June 30,
 
2017

2016

 
(In thousands)
Property, plant and equipment additions in accounts payable
$
10,449

$
18,449

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.

22



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
Six Months Ended
 
June 30,
June 30,
 
2017

2016

2017

2016

 
(In thousands)
External operating revenues:
 
 
 
 
Regulated operations:
 
 
 
 
Electric
$
74,574

$
73,832

$
162,799

$
156,755

Natural gas distribution
131,592

112,770

474,111

412,165

Pipeline and midstream
19,319

19,450

22,190

22,998

 
225,485

206,052

659,100

591,918

Nonregulated operations:
 
 
 
 
Pipeline and midstream
4,520

10,268

8,163

18,966

Construction materials and contracting
501,426

541,257

702,203

751,108

Construction services
336,009

285,924

635,580

541,424

Other
199

447

519

747

 
842,154

837,896

1,346,465

1,312,245

Total external operating revenues
$
1,067,639

$
1,043,948

$
2,005,565

$
1,904,163

 
 
 
 
 
Intersegment operating revenues:
 

 

 

 

Regulated operations:
 
 
 
 
Electric
$

$

$

$

Natural gas distribution




Pipeline and midstream
6,353

6,594

27,841

27,691

 
6,353

6,594

27,841

27,691

Nonregulated operations: