Attached files

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EX-12 - MDU RESOURCES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - MDU RESOURCES GROUP INCa2016q2ex12.htm
EX-95 - MDU RESOURCES MINE SAFETY DISCLOSURES - MDU RESOURCES GROUP INCa2016q2ex95.htm
EX-32 - MDU RESOURCES CERTIFICATION OF CEO AND CFO - MDU RESOURCES GROUP INCa2016q2ex32.htm
EX-31.B - MDU RESOURCES CERTIFICATION OF CHIEF FINANCIAL OFFICER - MDU RESOURCES GROUP INCa2016q2ex31b.htm
EX-31.A - MDU RESOURCES CERTIFICATION OF CHIEF EXECUTIVE OFFICER - MDU RESOURCES GROUP INCa2016q2ex31a.htm
EX-10.A - MDU RESOURCES SECTION 16 OFFICERS AND DIRECTORS - MDU RESOURCES GROUP INCa2016q2ex10a.htm


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, 2016
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 1-3480
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, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting 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
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 29, 2016: 195,304,376 shares.





Definitions
The following abbreviations and acronyms used in this Form 10-Q are defined below:
Abbreviation or Acronym
 
2015 Annual Report
Company's Annual Report on Form 10-K for the year ended December 31, 2015
AFUDC
Allowance for funds used during construction
ASC
FASB Accounting Standards Codification
ATBs
Atmospheric tower bottoms
Bbl
Barrel
Bombard Mechanical
Bombard Mechanical, LLC, an indirect wholly owned subsidiary of MDU Construction Services
Brazilian Transmission Lines
Company's former investment in companies owning three electric transmission lines
Btu
British thermal unit
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)
D.C. Circuit Court
United States Court of Appeals for the District of Columbia Circuit
dk
Decatherm
Dodd-Frank Act
Dodd-Frank Wall Street Reform and Consumer Protection Act
EPA
United States Environmental Protection Agency
ERISA
Employee Retirement Income Security Act of 1974
ESCP
Erosion and Sediment Control Plan
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)
FIP
Funding improvement plan
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
JTL - Montana
JTL Group, Inc. (Montana Corporation), an indirect wholly owned subsidiary of Knife River
JTL - Wyoming
JTL Group, Inc. (Wyoming Corporation), an indirect wholly owned subsidiary of Knife River
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
LTM
LTM, Incorporated, an indirect wholly owned subsidiary of Knife River
LWG
Lower Willamette Group
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

2



MEPP
Multiemployer pension plan
MISO
Midcontinent Independent System Operator, Inc.
MMBtu
Million Btu
MMdk
Million dk
MNPUC
Minnesota Public Utilities Commission
Montana-Dakota
Montana-Dakota Utilities Co., a public utility division of the Company
Montana DEQ
Montana Department of Environmental Quality
Montana First Judicial District Court
Montana First Judicial District Court, Lewis and Clark County
Montana Seventeenth Judicial District Court
Montana Seventeenth Judicial District Court, Phillips County
MPPAA
Multiemployer Pension Plan Amendments Act of 1980
MTPSC
Montana Public Service Commission
MW
Megawatt
NDPSC
North Dakota Public Service Commission
Nevada State District Court
District Court Clark County, Nevada
NGL
Natural gas liquids
Notice of Civil Penalty
Notice of Civil Penalty Assessment and Order
Oil
Includes crude oil and condensate
Omimex
Omimex Canada, Ltd.
OPUC
Oregon Public Utility Commission
Oregon DEQ
Oregon State Department of Environmental Quality
PRP
Potentially Responsible Party
RIN
Renewable Identification Number
ROD
Record of Decision
RP
Rehabilitation plan
SDPUC
South Dakota Public Utilities Commission
SEC
United States Securities and Exchange Commission
SEC Defined Prices
The average price of oil and natural gas during the applicable 12-month period, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions
Securities Act
Securities Act of 1933, as amended
Tesoro
Tesoro Refining & Marketing Company LLC
United States District Court for the District of Montana
United States District Court for the District of Montana, Great Falls Division
United States Supreme Court
Supreme Court of the United States
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

3



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, through the electric and natural gas distribution segments, generates, transmits and distributes electricity and distributes natural gas in Montana, North Dakota, South Dakota and Wyoming. Cascade distributes natural gas in Oregon and Washington. Intermountain distributes natural gas in Idaho. Great Plains distributes natural gas in western Minnesota and southeastern North Dakota. These operations also supply related value-added services.
The Company, through its wholly owned subsidiary, Centennial, owns WBI Holdings (comprised of the pipeline and midstream segment and Fidelity, formerly the Company's exploration and production business), Knife River (construction materials and contracting segment), MDU Construction Services (construction services segment), Centennial Resources and Centennial Capital (both reflected in the Other category).
In the second quarter of 2016, the Company sold all of the outstanding membership interests in Dakota Prairie Refining and exited that line of business. Therefore, the results of Dakota Prairie Refining are reflected in discontinued operations, other than certain general and administrative costs and interest expense which are reflected in the Other category.
In the second quarter of 2015, the Company announced its plan to market Fidelity and exit that line of business. The Company completed the sale of all of its marketed assets. Therefore, the results of Fidelity are reflected in discontinued operations, other than certain general and administrative costs and interest expense which are reflected in the Other category.
For more information on the Company's business segments and discontinued operations, see Notes 10 and 15.


4



Index
Part I -- Financial Information
Page
 
 
Consolidated Statements of Income --
Three and Six Months Ended June 30, 2016 and 2015
 
 
Consolidated Statements of Comprehensive Income --
Three and Six Months Ended June 30, 2016 and 2015
 
 
Consolidated Balance Sheets --
June 30, 2016 and 2015, and December 31, 2015
 
 
Consolidated Statements of Cash Flows --
Six Months Ended June 30, 2016 and 2015
 
 
Notes to Consolidated Financial Statements
 
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
Quantitative and Qualitative Disclosures About Market Risk
 
 
Controls and Procedures
 
 
Part II -- Other Information
 
 
 
Legal Proceedings
 
 
Risk Factors
 
 
Mine Safety Disclosures
 
 
Exhibits
 
 
Signatures
 
 
Exhibit Index
 
 
Exhibits
 

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,
 
2016

2015

2016

2015

 
(In thousands, except per share amounts)
Operating revenues:
 
 
 
 
Electric, natural gas distribution and regulated pipeline and midstream
$
206,052

$
215,678

$
591,918

$
622,167

Nonregulated pipeline and midstream, construction materials and contracting, construction services and other
837,896

722,361

1,312,245

1,176,717

Total operating revenues 
1,043,948

938,039

1,904,163

1,798,884

Operating expenses:
 

 

 

 

Fuel and purchased power
15,914

19,327

37,925

43,146

Purchased natural gas sold
47,439

66,590

208,474

267,739

Operation and maintenance:
 

 

 

 

Electric, natural gas distribution and regulated pipeline and midstream
77,078

70,258

151,703

138,800

Nonregulated pipeline and midstream, construction materials and contracting, construction services and other
722,742

635,781

1,165,243

1,059,612

Depreciation, depletion and amortization
54,248

51,336

109,132

102,922

Taxes, other than income
37,562

35,038

80,736

76,648

Total operating expenses
954,983

878,330

1,753,213

1,688,867

Operating income
88,965

59,709

150,950

110,017

Other income
872

2,123

1,921

2,373

Interest expense
22,219

23,389

45,087

46,456

Income before income taxes
67,618

38,443

107,784

65,934

Income taxes
21,320

12,382

29,620

19,333

Income from continuing operations
46,298

26,061

78,164

46,601

Loss from discontinued operations, net of tax (Note 10)
(276,102
)
(263,419
)
(294,138
)
(593,404
)
Net loss
(229,804
)
(237,358
)
(215,974
)
(546,803
)
Loss from discontinued operations attributable to noncontrolling interest (Note 10)
(120,651
)
(7,754
)
(131,691
)
(11,282
)
Dividends declared on preferred stocks
171

171

343

342

Loss on common stock
$
(109,324
)
$
(229,775
)
$
(84,626
)
$
(535,863
)
Earnings (loss) per common share - basic:
 

 

 

 

Earnings before discontinued operations
$
.24

$
.13

$
.40

$
.24

Discontinued operations attributable to the Company, net of tax
(.80
)
(1.31
)
(.83
)
(2.99
)
Earnings (loss) per common share - basic
$
(.56
)
$
(1.18
)
$
(.43
)
$
(2.75
)
Earnings (loss) per common share - diluted:
 

 

 

 

Earnings before discontinued operations
$
.24

$
.13

$
.40

$
.24

Discontinued operations attributable to the Company, net of tax
(.80
)
(1.31
)
(.83
)
(2.99
)
Earnings (loss) per common share - diluted
$
(.56
)
$
(1.18
)
$
(.43
)
$
(2.75
)
Dividends declared per common share
$
.1875

$
.1825

$
.3750

$
.3650

Weighted average common shares outstanding - basic
195,304

194,805

195,294

194,643

Weighted average common shares outstanding - diluted
195,699

194,838

195,678

194,675

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,
 
2016
2015
2016

2015

 
(In thousands)
Net loss
$
(229,804
)
$
(237,358
)
$
(215,974
)
$
(546,803
)
Other comprehensive income (loss):
 
 
 
 
Reclassification adjustment for loss on derivative instruments included in net loss, net of tax of $56 and $60 for the three months ended and $114 and $121 for the six months ended in 2016 and 2015, respectively
91

100

183

199

Amortization of postretirement liability (gains) losses included in net periodic benefit cost, net of tax of $150 and $420 for the three months ended and $(819) and $649 for the six months ended in 2016 and 2015, respectively
248

584

(1,347
)
959

Foreign currency translation adjustment:
 
 
 
 
Foreign currency translation adjustment recognized during the period, net of tax of $19 and $6 for the three months ended and $33 and $(63) for the six months ended in 2016 and 2015, respectively
31

9

56

(103
)
Reclassification adjustment for loss on foreign currency translation adjustment included in net loss, net of tax of $0 and $0 for the three months ended and $0 and $491 for the six months ended in 2016 and 2015, respectively



802

Foreign currency translation adjustment
31

9

56

699

Net unrealized gain (loss) on available-for-sale investments:
 
 
 
 
Net unrealized loss on available-for-sale investments arising during the period, net of tax of $(16) and $(23) for the three months ended and $(10) and $(34) for the six months ended in 2016 and 2015, respectively
(30
)
(43
)
(19
)
(64
)
Reclassification adjustment for loss on available-for-sale investments included in net loss, net of tax of $19 and $15 for the three months ended and $37 and $34 for the six months ended in 2016 and 2015, respectively
36

28

69

64

Net unrealized gain (loss) on available-for-sale investments
6

(15
)
50


Other comprehensive income (loss)
376

678

(1,058
)
1,857

Comprehensive loss
(229,428
)
(236,680
)
(217,032
)
(544,946
)
Comprehensive loss from discontinued operations attributable to noncontrolling interest
(120,651
)
(7,754
)
(131,691
)
(11,282
)
Comprehensive loss attributable to common stockholders
$
(108,777
)
$
(228,926
)
$
(85,341
)
$
(533,664
)
The accompanying notes are an integral part of these consolidated financial statements.



7



MDU Resources Group, Inc.
Consolidated Balance Sheets
(Unaudited)
 
June 30, 2016
June 30, 2015
December 31, 2015
(In thousands, except shares and per share amounts)
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
85,117

$
143,527

$
83,903

Receivables, net
637,166

597,606

582,475

Inventories
265,849

290,239

240,551

Deferred income taxes
33,938

38,087

33,121

Prepayments and other current assets
50,309

66,676

29,528

Current assets held for sale
85,124

147,162

54,847

Total current assets
1,157,503

1,283,297

1,024,425

Investments
124,531

119,446

119,704

Property, plant and equipment
6,526,563

6,131,044

6,387,702

Less accumulated depreciation, depletion and amortization
2,551,941

2,438,005

2,489,322

Net property, plant and equipment
3,974,622

3,693,039

3,898,380

Deferred charges and other assets:
 

 

 

Goodwill
641,527

635,204

635,204

Other intangible assets, net
7,160

8,506

7,342

Other
360,520

352,728

351,603

Noncurrent assets held for sale
123,721

1,160,657

565,509

Total deferred charges and other assets 
1,132,928

2,157,095

1,559,658

Total assets
$
6,389,584

$
7,252,877

$
6,602,167

Liabilities and Equity
 

 

 

Current liabilities:
 

 

 

Long-term debt due within one year
$
58,598

$
415,539

$
238,539

Accounts payable
275,791

234,894

286,061

Taxes payable
45,749

37,365

46,880

Dividends payable
36,791

35,734

36,784

Accrued compensation
56,390

47,771

45,192

Other accrued liabilities
196,701

164,427

167,322

Current liabilities held for sale
32,357

145,211

130,375

Total current liabilities 
702,377

1,080,941

951,153

Long-term debt
1,928,709

1,886,804

1,557,624

Deferred credits and other liabilities:
 

 

 

Deferred income taxes
700,539

739,342

696,750

Other liabilities
820,349

757,108

812,342

Noncurrent liabilities held for sale

101,790

63,750

Total deferred credits and other liabilities 
1,520,888

1,598,240

1,572,842

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 June 30, 2016, 195,411,301 at
June 30, 2015 and 195,804,665 at December 31, 2015
195,843

195,411

195,805

Other paid-in capital
1,230,342

1,220,615

1,230,119

Retained earnings
838,257

1,155,777

996,355

Accumulated other comprehensive loss
(38,206
)
(40,246
)
(37,148
)
Treasury stock at cost - 538,921 shares
(3,626
)
(3,626
)
(3,626
)
Total common stockholders' equity
2,222,610

2,527,931

2,381,505

Total stockholders' equity
2,237,610

2,542,931

2,396,505

Noncontrolling interest

143,961

124,043

Total equity
2,237,610

2,686,892

2,520,548

Total liabilities and equity 
$
6,389,584

$
7,252,877

$
6,602,167

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,
 
 
2016

2015

 
 
(In thousands)
Operating activities:
 
 
 
Net loss
 
$
(215,974
)
$
(546,803
)
Loss from discontinued operations, net of tax
 
(294,138
)
(593,404
)
Income from continuing operations
 
78,164

46,601

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

 

Depreciation, depletion and amortization
 
109,132

102,922

Deferred income taxes
 
3,608

11,119

Changes in current assets and liabilities, net of acquisitions:
 
 

 
Receivables
 
(44,909
)
(10,712
)
Inventories
 
(23,189
)
(47,559
)
Other current assets
 
(20,555
)
24,192

Accounts payable
 
7,339

14,447

Other current liabilities
 
33,214

(4,335
)
Other noncurrent changes
 
(14,626
)
(16,479
)
Net cash provided by continuing operations
 
128,178

120,196

Net cash provided by (used in) discontinued operations
 
(25,529
)
74,068

Net cash provided by operating activities
 
102,649

194,264

Investing activities:
 
 

 

Capital expenditures
 
(220,098
)
(272,514
)
Net proceeds from sale or disposition of property and other
 
14,778

29,550

Investments
 
(262
)
1,208

Net cash used in continuing operations
 
(205,582
)
(241,756
)
Net cash provided by (used in) discontinued operations
 
28,040

(160,622
)
Net cash used in investing activities
 
(177,542
)
(402,378
)
Financing activities:
 
 

 

Issuance of long-term debt
 
387,625

320,988

Repayment of long-term debt
 
(196,771
)
(35,137
)
Proceeds from issuance of common stock
 

14,499

Dividends paid
 
(73,575
)
(71,294
)
Tax withholding on stock-based compensation
 
(323
)

Net cash provided by continuing operations
 
116,956

229,056

Net cash provided by (used in) discontinued operations
 
(40,852
)
62,229

Net cash provided by financing activities
 
76,104

291,285

Effect of exchange rate changes on cash and cash equivalents
 
3

(123
)
Increase in cash and cash equivalents
 
1,214

83,048

Cash and cash equivalents -- beginning of year
 
83,903

60,479

Cash and cash equivalents -- end of period
 
$
85,117

$
143,527

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

9



MDU Resources Group, Inc.
Notes to Consolidated
Financial Statements
June 30, 2016 and 2015
(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 2015 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 2015 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, 2016, up to the date of issuance of these consolidated interim financial statements.

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 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 marketed 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.
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 10.
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 $31.7 million, $29.3 million and $27.8 million at June 30, 2016 and 2015, and December 31, 2015, 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, 2016 and 2015, and December 31, 2015, was $11.0 million, $8.6 million and $9.8 million, respectively.
Note 4 - Inventories and natural gas in storage
Natural gas in storage for the Company's regulated operations is generally carried at average cost, or cost using the last-in, first-out method. All other inventories are stated at the lower of average cost or market 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:

10



 
June 30, 2016

June 30, 2015

December 31, 2015

 
(In thousands)
Aggregates held for resale
$
130,544

$
123,457

$
115,854

Asphalt oil
42,591

79,422

36,498

Natural gas in storage (current)
19,689

11,310

21,023

Materials and supplies
20,765

22,594

16,997

Merchandise for resale
18,439

16,140

15,318

Other
33,821

37,316

34,861

Total
$
265,849

$
290,239

$
240,551

The remainder of natural gas in storage, which largely represents the cost of gas required to maintain pressure levels for normal operating purposes, is included in other assets and was $49.1 million, $49.3 million and $49.1 million at June 30, 2016 and 2015, and December 31, 2015, respectively.

Note 5 - Impairment of long-lived assets
During the second quarter of 2015, the Company recognized an impairment of coalbed natural gas gathering assets at the pipeline and midstream segment of $3.0 million, which is recorded in operation and maintenance expense on the Consolidated Statements of Income. The impairment is related to coalbed natural gas gathering assets located in Wyoming where there had been continued decline in natural gas development and production activity due to low natural gas prices. The coalbed natural gas gathering assets were written down to their estimated fair value that was determined using the income approach.

For more information on this nonrecurring fair value measurement, see Note 13.

For information regarding impairments related to the Company's discontinued operations, see Note 10.
Note 6 - 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,
 
2016

2015

2016

2015

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

194,805

195,294

194,643

Effect of dilutive performance share awards
395

33

384

32

Weighted average common shares outstanding - diluted
195,699

194,838

195,678

194,675

Shares excluded from the calculation of diluted earnings per share





11



Note 7 - Cash flow information
Cash expenditures for interest and income taxes were as follows:
 
Six Months Ended
 
June 30,
 
2016

2015

 
(In thousands)
Interest, net of amounts capitalized and AFUDC - borrowed of $548 and $4,481 in 2016 and 2015, respectively
$
44,860

$
44,564

Income taxes paid, net
$
29,891

$
7,147

Noncash investing transactions were as follows:
 
June 30,
 
2016

2015

 
(In thousands)
Property, plant and equipment additions in accounts payable
$
18,449

$
11,576

Note 8 - 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 evaluating the effects the adoption of the new revenue guidance will have on its results of operations, financial position, cash flows and disclosures, as well as its method of adoption.
Simplifying the Presentation of Debt Issuance Costs In April 2015, the FASB issued guidance on simplifying the presentation of debt issuance costs in the financial statements. This guidance requires entities to present debt issuance costs as a direct deduction to the related debt liability. The amortization of these costs will be reported as interest expense. The guidance was effective for the Company on January 1, 2016, and is to be applied retrospectively. Early adoption of this guidance was permitted, however the Company did not elect to do so. The guidance required a reclassification of the debt issuance costs 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 debt issuance costs of $100,000 and $100,000 from prepayments and other current assets and $5.4 million and $6.0 million from deferred charges and other assets - other to long-term debt on its Consolidated Balance Sheets at June 30, 2015 and December 31, 2015, respectively.
Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent) In May 2015, the FASB issued guidance on fair value measurement and disclosure requirements removing the requirement to include investments in the fair value hierarchy for which fair value is measured using the net asset value per share practical expedient. The new guidance also removes the requirement to make certain disclosures for all investments that are eligible to be measured at net asset value using the practical expedient, and rather limits those disclosures to investments for which the practical expedient has been elected. This guidance was effective for the Company on January 1, 2016, with early adoption permitted. The application of this guidance affected the Company's disclosures; however, it did not impact the Company's results of operations, financial position or 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. This guidance will be effective for the Company on January 1, 2017, and should be applied prospectively with early adoption permitted as of the beginning of an interim or annual reporting period. The Company is evaluating the effects the adoption of the new guidance will have on its results of operations, financial position and cash flows.
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 will require all deferred tax assets and liabilities to be classified as noncurrent. These amendments will align GAAP with IFRS. This guidance will be effective for the Company on January 1, 2017, with early adoption permitted. Entities will have the option to apply the guidance prospectively, for all deferred tax assets and liabilities, or

12



retrospectively. The Company is evaluating the effects the adoption of the new guidance will have on its financial position and disclosures; however, it will not impact the Company's results of operations or cash flows.
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 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. This guidance also requires additional disclosures. 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. 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 will affect the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This guidance will be effective for the Company on January 1, 2017, with early adoption permitted in any interim or annual period. An entity that elects early adoption must adopt all of the amendments in the same period. Certain amendments of this guidance are to be applied retrospectively and others 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.
Note 9 - Comprehensive income (loss)
The after-tax changes in the components of accumulated other comprehensive loss were as follows:
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
)
Three Months Ended
June 30, 2015
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
$
(2,972
)
$
(37,843
)
$
(139
)
$
30

$
(40,924
)
Other comprehensive income (loss) before reclassifications


9

(43
)
(34
)
Amounts reclassified from accumulated other comprehensive loss
100

584


28

712

Net current-period other comprehensive income (loss)
100

584

9

(15
)
678

Balance at end of period
$
(2,872
)
$
(37,259
)
$
(130
)
$
15

$
(40,246
)

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
)
Six Months Ended
June 30, 2015
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
$
(3,071
)
$
(38,218
)
$
(829
)
$
15

$
(42,103
)
Other comprehensive loss before reclassifications


(103
)
(64
)
(167
)
Amounts reclassified from accumulated other comprehensive loss
199

959

802

64

2,024

Net current-period other comprehensive income
199

959

699


1,857

Balance at end of period
$
(2,872
)
$
(37,259
)
$
(130
)
$
15

$
(40,246
)

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,
 
2016
2015
2016
2015
 
(In thousands)
 
Reclassification adjustment for loss on derivative instruments included in net loss:
 
 
 
 
 
Interest rate derivative instruments
$
(147
)
$
(160
)
$
(297
)
$
(320
)
Interest expense
 
56

60

114

121

Income taxes
 
(91
)
(100
)
(183
)
(199
)
 
Amortization of postretirement liability gains (losses) included in net periodic benefit cost
(398
)
(1,004
)
2,166

(1,608
)
(a)
 
150

420

(819
)
649

Income taxes
 
(248
)
(584
)
1,347

(959
)
 
Reclassification adjustment for loss on foreign currency translation adjustment included in net loss



(1,293
)
Other income
 



491

Income taxes
 



(802
)
 
Reclassification adjustment for loss on available-for-sale investments included in net loss
(55
)
(43
)
(106
)
(98
)
Other income
 
19

15

37

34

Income taxes
 
(36
)
(28
)
(69
)
(64
)
 
Total reclassifications
$
(375
)
$
(712
)
$
1,095

$
(2,024
)
 
 (a) Included in net periodic benefit cost. For more information, see Note 16.
 

14



Note 10 - Discontinued operations
The assets and liabilities of the Company's discontinued operations have been classified as held for sale and the results of operations are shown in 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 has cash in an escrow account for RINs obligations, which is 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 are reflected in current liabilities held for sale on the Consolidated Balance Sheet at June 30, 2016. Also, 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 18.


15



The carrying amounts of the major classes of assets and liabilities that are classified as held for sale related to the operations of Dakota Prairie Refining on the Company's Consolidated Balance Sheets were as follows:
 
June 30, 2016

June 30, 2015

 
December 31, 2015

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

$
845

 
$
688

 
Receivables, net
433

29,639

 
7,693

 
Inventories

24,166

 
13,176

 
Deferred income taxes

84

(a)

 
Income taxes receivable
12,550

7,332

 
2,495

 
Prepayments and other current assets
11,083

7,888

 
6,214

 
Total current assets held for sale
24,066

69,954

 
30,266

 
Noncurrent assets:
 
 
 
 
 
Net property, plant and equipment

418,885

 
412,717

 
Deferred income taxes
57,644

5,839

 
5,745

 
Other

5,729

 
9,627

 
Total noncurrent assets held for sale
57,644

430,453

 
428,089

 
Total assets held for sale
$
81,710

$
500,407

 
$
458,355

 
Liabilities
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Short-term borrowings
$

$
26,000

 
$
45,500

 
Long-term debt due within one year

3,000

 
5,250

 
Accounts payable
7,170

38,170

 
24,468

 
Taxes payable

1,601

 
1,391

 
Deferred income taxes


 
272

 
Accrued compensation

649

 
938

 
Other accrued liabilities
8,303

932

 
4,953

 
Total current liabilities held for sale
15,473

70,352

 
82,772

 
Noncurrent liabilities:
 
 
 
 
 
Long-term debt

66,000

 
63,750

 
Deferred income taxes

19,600

(b)
29,314

(b)
Total noncurrent liabilities held for sale

85,600

 
93,064

 
Total liabilities held for sale
$
15,473

$
155,952

 
$
175,836

 
(a)
On the Company's Consolidated Balance Sheet, this amount was reclassified to a current deferred income tax liability 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.
 
The Company's deferred tax assets were largely comprised of $137.6 million of federal and state net operating loss carryforwards that expire in 2037 if not utilized.
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. At June 30, 2016, 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 marketed 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, 2016

June 30, 2015

December 31, 2015

 
(In thousands)
Assets
 
 
 
Current assets:
 
 
 
Receivables, net
$
8,207

$
33,551

$
13,387

Inventories

6,748

1,308

Commodity derivative instruments

2,537


Income taxes receivable
52,847

31,033

9,665

Prepayments and other current assets
4

3,423

221

Total current assets held for sale
61,058

77,292

24,581

Noncurrent assets:
 
 
 
Investments

37

37

Net property, plant and equipment
5,507

1,097,576

793,422

Deferred income taxes
61,347

52,017

127,655

Other
161

161

161

Less allowance for impairment of assets held for sale
938

399,987

754,541

Total noncurrent assets held for sale
66,077

749,804

166,734

Total assets held for sale
$
127,135

$
827,096

$
191,315

Liabilities
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
456

$
49,400

$
25,013

Taxes payable

4,064

1,052

Deferred income taxes
4,120

1,401

3,620

Accrued compensation
1,459

4,460

13,080

Commodity derivative instruments

3,511


Other accrued liabilities
10,849

12,107

4,838

Total current liabilities held for sale
16,884

74,943

47,603

Noncurrent liabilities:
 
 
 
Other liabilities

35,790


Total noncurrent liabilities held for sale

35,790


Total liabilities held for sale
$
16,884

$
110,733

$
47,603

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. In 2015, the Company recorded impairments totaling $754.5 million ($475.4 million after tax) related to the assets and liabilities classified as held for sale, including an impairment of $400.0 million ($252.0 million after tax) during the second quarter of 2015. For more information, see Part II, Item 8 - Note 2, in the 2015 Annual Report.
The Company incurred transaction costs of approximately $300,000 in the first quarter of 2016, and $2.5 million in 2015. 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. The Company expects to incur an additional $300,000 of exit and disposal costs for the remainder of 2016. The exit and disposal costs are associated with severance and other related matters and exclude the office lease expiration discussed in the following paragraph. The majority of these exit and disposal activities were completed by the end of the second quarter of 2016.
Fidelity vacated its office space in Denver, Colorado. The Company incurred lease payments of approximately $400,000 and $900,000 for the three and six months ended June 30, 2016, respectively. Lease termination payments of $3.2 million and

17



$3.3 million were made during the second quarter of 2016 and fourth quarter of 2015, respectively. Existing office furniture and fixtures were relinquished to the lessor in the second quarter of 2016.
Historically, the Company used the full-cost method of accounting for its oil and natural gas production activities. Under this method, all costs incurred in the acquisition, exploration and development of oil and natural gas properties are capitalized and amortized on the units-of-production method based on total proved reserves.
Prior to the oil and natural gas properties being classified as held for sale, capitalized costs were subject to a "ceiling test" that limits such costs to the aggregate of the present value of future net cash flows from proved reserves discounted at 10 percent, as mandated under the rules of the SEC, plus the cost of unproved properties not subject to amortization, plus the effects of cash flow hedges, less applicable income taxes. Proved reserves and associated future cash flows are determined based on SEC Defined Prices and exclude cash outflows associated with asset retirement obligations that have been accrued on the balance sheet. If capitalized costs, less accumulated amortization and related deferred income taxes, exceed the full-cost ceiling at the end of any quarter, a permanent noncash write-down is required to be charged to earnings in that quarter regardless of subsequent price changes.
The Company's capitalized cost under the full-cost method of accounting exceeded the full-cost ceiling at March 31, 2015. SEC Defined Prices, adjusted for market differentials, were used to calculate the ceiling test. Accordingly, the Company was required to write down its oil and natural gas producing properties. The Company recorded a $500.4 million ($315.3 million after tax) noncash write-down in operating expenses from discontinued operations in the first quarter of 2015.
Dakota Prairie Refining and Fidelity
The reconciliation of the major classes of income and expense constituting pretax loss from discontinued operations, which includes Dakota Prairie Refining and Fidelity, to the after-tax net loss from discontinued operations on the Company's Consolidated Statements of Income were as follows:
 
Three Months Ended
Six Months Ended
 
June 30,
June 30,
 
2016

2015

2016

2015

 
(In thousands)
Operating revenues
$
74,756

$
91,468

$
122,732

$
148,109

Operating expenses
443,756

505,487

513,526

1,086,781

Operating loss
(369,000
)
(414,019
)
(390,794
)
(938,672
)
Other income
183

385

387

2,459

Interest expense
832

434

1,753

517

Loss from discontinued operations before income taxes
(369,649
)
(414,068
)
(392,160
)
(936,730
)
Income taxes
(93,547
)
(150,649
)
(98,022
)
(343,326
)
Loss from discontinued operations
(276,102
)
(263,419
)
(294,138
)
(593,404
)
Loss from discontinued operations attributable to noncontrolling interest
(120,651
)
(7,754
)
(131,691
)
(11,282
)
Loss from discontinued operations attributable to the Company
$
(155,451
)
$
(255,665
)
$
(162,447
)
$
(582,122
)

The pretax loss from discontinued operations attributable to the Company, related to the operations of Dakota Prairie Refining, were $244.0 million and $6.8 million for the three months ended and $253.9 million and $9.8 million for the six months ended June 30, 2016 and 2015, respectively.
Note 11 - Goodwill and other intangible assets
The changes in the carrying amount of goodwill were as follows:
Six Months Ended June 30, 2016
Balance as of
January 1, 2016

*
Goodwill Acquired
During the Year

Balance as of
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.
 

18



Six Months Ended June 30, 2015
Balance as of
January 1, 2015

*
Goodwill Acquired
During the Year

Balance as of
June 30, 2015

*
 
(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

 

103,441

 
Total
$
635,204

 
$

$
635,204

 
  * 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, 2015
Balance as of
January 1, 2015

*
Goodwill Acquired
During the Year

Balance as of
December 31, 2015

*
 
(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

 

103,441

 
Total
$
635,204

 
$

$
635,204

 
  * Balance is presented net of accumulated impairment of $12.3 million at the pipeline and midstream segment, which occurred in prior periods.
 
Other amortizable intangible assets were as follows:
 
June 30, 2016

June 30, 2015

December 31, 2015

 
(In thousands)
Customer relationships
$
17,145

$
20,975

$
20,975

Accumulated amortization
(13,108
)
(16,065
)
(16,845
)
 
4,037

4,910

4,130

Noncompete agreements
2,430

4,409

4,409

Accumulated amortization
(1,585
)
(3,581
)
(3,655
)
 
845

828

754

Other
7,764

8,300

8,304

Accumulated amortization
(5,486
)
(5,532
)
(5,846
)
 
2,278

2,768

2,458

Total
$
7,160

$
8,506

$
7,342

Amortization expense for amortizable intangible assets for the three and six months ended June 30, 2016, was $600,000 and $1.3 million, respectively. Amortization expense for amortizable intangible assets for the three and six months ended June 30, 2015, was $700,000 and $1.4 million, respectively. Estimated amortization expense for amortizable intangible assets is $2.5 million in 2016, $2.2 million in 2017, $1.2 million in 2018, $1.0 million in 2019, $500,000 in 2020 and $1.1 million thereafter.
Note 12 - Derivative instruments
The Company's policy allows the use of derivative instruments as part of an overall energy price, foreign currency and interest rate risk management program to efficiently manage and minimize commodity price, foreign currency and interest rate risk. As of June 30, 2016, the Company had no outstanding commodity, foreign currency or interest rate hedges.
The fair value of derivative instruments must be estimated as of the end of each reporting period and is recorded on the Consolidated Balance Sheets as an asset or a liability.
Fidelity
At June 30, 2015, Fidelity held oil swap agreements with total forward notional volumes of 1.1 million Bbl and natural gas swap agreements with total forward notional volumes of 1.8 million MMBtu. At June 30, 2016 and December 31, 2015, Fidelity had no outstanding derivative agreements. Fidelity historically utilized these derivative instruments to manage a portion of the market risk associated with fluctuations in the price of oil and natural gas on its forecasted sales of oil and natural gas production. The realized and unrealized gains and losses on the commodity derivative instruments, which were not designated as hedges, were both included in loss from discontinued operations and the associated assets and liabilities were classified as held for sale.

19



Centennial
Centennial has historically entered into interest rate derivative instruments to manage a portion of its interest rate exposure on the forecasted issuance of long-term debt. As of June 30, 2016 and 2015, and December 31, 2015, Centennial had no outstanding interest rate swap agreements.
Fidelity and Centennial
The gains and losses on derivative instruments were as follows:
 
Three Months Ended
Six Months Ended
 
June 30,
June 30,
 
2016
2015
2016

2015

 
(In thousands)
Interest rate derivatives designated as cash flow hedges:
 
 
 
 
Amount of loss reclassified from accumulated other comprehensive loss into interest expense (effective portion), net of tax
$
91

$
100

$
183

$
199

Commodity derivatives not designated as hedging instruments:
 
 
 
 
Amount of loss recognized in discontinued operations, before tax

(8,101
)

(19,309
)
Over the next 12 months net losses of approximately $400,000 (after tax) are estimated to be reclassified from accumulated other comprehensive income (loss) into earnings, as the hedged transactions affect earnings.
The location and fair value of the gross amount of the Company's derivative instruments on the Consolidated Balance Sheets were as follows:
Asset
Derivatives
Location on
Consolidated
Balance Sheets
Fair Value at June 30, 2015

 
 
(In thousands)
Not designated as hedges:
 
Commodity derivatives
Current assets held for sale
$
2,537

Total asset derivatives
 
$
2,537

Liability
Derivatives
Location on
Consolidated
Balance Sheets
Fair Value at June 30, 2015

 
 
(In thousands)
Not designated as hedges:
 

Commodity derivatives
Current liabilities held for sale
$
3,511

Total liability derivatives
 
$
3,511

All of the Company's commodity derivative instruments at June 30, 2015, were subject to legally enforceable master netting agreements. However, the Company's policy is to not offset fair value amounts for derivative instruments and, as a result, the Company's derivative assets and liabilities are presented gross on the Consolidated Balance Sheets. The gross derivative assets and liabilities (excluding settlement receivables and payables that may be subject to the same master netting agreements) presented on the Consolidated Balance Sheets and the amount eligible for offset under the master netting agreements is presented in the following table:
June 30, 2015
Gross Amounts Recognized on the Consolidated Balance Sheets

Gross Amounts Not Offset on the Consolidated Balance Sheets

Net

 
(In thousands)
Assets:
 
 
 
Commodity derivatives
$
2,537

$
(2,537
)
$

Total assets
$
2,537

$
(2,537
)
$

Liabilities:
 
 
 
Commodity derivatives
$
3,511

$
(2,537
)
$
974

Total liabilities
$
3,511

$
(2,537
)
$
974


20



Note 13 - 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 $71.4 million, $68.2 million and $67.5 million, at June 30, 2016 and 2015, and December 31, 2015, respectively, are classified as investments on the Consolidated Balance Sheets. 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 net unrealized gains on these investments were $400,000 and $2.4 million for the three and six months ended June 30, 2015. 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, 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

June 30, 2015
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

 
(In thousands)
Mortgage-backed securities
$
8,072

$
29

$
(28
)
$
8,073

U.S. Treasury securities
2,327

22


2,349

Total
$
10,399

$
51

$
(28
)
$
10,422

December 31, 2015
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

 
(In thousands)
Mortgage-backed securities
$
9,128

$
19

$
(49
)
$
9,098

U.S. Treasury securities
1,315


(6
)
1,309

Total
$
10,443

$
19

$
(55
)
$
10,407

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, 2016 and 2015, there were no transfers between Levels 1 and 2.

21



The Company's assets and liabilities measured at fair value on a recurring basis were as follows:
 
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 9 percent in common stock of mid-cap companies, 6 percent in common stock of small-cap companies, 17 percent in common stock of large-cap companies, 66 percent in fixed-income investments, 1 percent in target date investments and 1 percent in cash equivalents.
 
 
Fair Value Measurements at June 30, 2015, 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, 2015

 
(In thousands)
Assets:
 
 
 
 
Money market funds
$

$
860

$

$
860

Insurance contract*

68,187


68,187

Available-for-sale securities:
 
 
 
 
Mortgage-backed securities

8,073


8,073

U.S. Treasury securities

2,349


2,349

Total assets measured at fair value
$

$
79,469

$

$
79,469

* The insurance contract invests approximately 20 percent in common stock of mid-cap companies, 18 percent in common stock of small-cap companies, 28 percent in common stock of large-cap companies, 32 percent in fixed-income investments, 1 percent in target date investments and 1 percent in cash equivalents.
 
 
Fair Value Measurements at December 31, 2015, 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, 2015

 
(In thousands)
Assets:
 
 
 
 
Money market funds
$

$
1,420

$

$
1,420

Insurance contract*

67,459


67,459

Available-for-sale securities:
 
 
 
 
Mortgage-backed securities

9,098


9,098

U.S. Treasury securities

1,309


1,309

Total assets measured at fair value
$

$
79,286

$

$
79,286

* The insurance contract invests approximately 9 percent in common stock of mid-cap companies, 7 percent in common stock of small-cap companies, 19 percent in common stock of large-cap companies, 63 percent in fixed-income investments, 1 percent in target date investments and 1 percent in cash equivalents.
 
The Company applies the provisions of the fair value measurement standard to its nonrecurring, non-financial measurements, including long-lived asset impairments. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. The Company reviews the carrying value of its long-lived assets, excluding goodwill, whenever events or changes in circumstances indicate that such carrying amounts may not be recoverable.

22



During the second quarter of 2015, coalbed natural gas gathering assets were reviewed for impairment and found to be impaired and were written down to their estimated fair value using the income approach. Under this approach, fair value is determined by using the present value of future estimated cash flows. The factors used to determine the estimated future cash flows include, but are not limited to, internal estimates of gathering revenue, future commodity prices and operating costs and equipment salvage values. The estimated cash flows are discounted using a rate that approximates the weighted average cost of capital of a market participant. These fair value inputs are not typically observable. At June 30, 2015, coalbed natural gas gathering assets were written down to the nonrecurring fair value measurement of $1.1 million. The fair value of these coalbed natural gas gathering assets have been categorized as Level 3 in the fair value hierarchy.
The Company performed fair value assessments of the assets and liabilities classified as held for sale. For more information on these Level 3 nonrecurring fair value measurements, see Note 10.
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, 2016
$
1,987,307

$
2,134,708

Long-term debt at June 30, 2015
$
2,302,343

$
2,395,095

Long-term debt at December 31, 2015
$
1,796,163

$
1,819,828

The carrying amounts of the Company's remaining financial instruments included in current assets and current liabilities approximate their fair values.
Note 14 - Equity
A summary of the changes in equity was as follows:
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

Six Months Ended June 30, 2015
Total Stockholders' Equity

Noncontrolling Interest

Total
Equity

 
(In thousands)
Balance at December 31, 2014
$
3,134,041

$
115,743

$
3,249,784

Net loss
(535,521
)
(11,282
)
(546,803
)
Other comprehensive income
1,857


1,857

Dividends declared on preferred stocks
(342
)

(342
)
Dividends declared on common stock
(71,078
)

(71,078
)
Stock-based compensation
1,107


1,107

Net tax deficit on stock-based compensation
(1,632
)

(1,632
)
Issuance of common stock
14,499


14,499