Edgar Filing: MDU RESOURCES GROUP INC

(In thousands)

Property, plant and equipment additions in accounts payable

Wdesk | MDU-6-30-2014 Form 10-Q

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, 2014



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 definition 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	Smaller reporting company o

(Do not check if a smaller reporting company)

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 August 1, 2014: 193,946,489 shares.

DEFINITIONS

The following abbreviations and acronyms used in this Form 10-Q are defined below:



Abbreviation or Acronym
2013 Annual Report	Company's Annual Report on Form 10-K for the year ended December 31, 2013
ASC	FASB Accounting Standards Codification
Bbl	Barrel
Bicent	Bicent Power LLC
Big Stone Station	475-MW coal-fired electric generating facility near Big Stone City, South Dakota (22.7 percent ownership)
BLM	Bureau of Land Management
BOE	One barrel of oil equivalent - determined using the ratio of one barrel of crude oil, condensate or natural gas liquids to six Mcf of natural gas
BOPD	Barrels of oil per day
Brazilian Transmission Lines	Company's investment in the company owning ECTE, ENTE and ERTE (ownership interests in ENTE and ERTE were sold in the fourth quarter of 2010 and portions of the ownership interest in ECTE were sold in the third quarters of 2013 and 2012 and the fourth quarters of 2011 and 2010)
Btu	British thermal unit
California Superior Court	Superior Court of the State of California, County of Los Angeles (South District - Long Beach)
Calumet	Calumet Specialty Products Partners, L.P.
Cascade	Cascade Natural Gas Corporation, an indirect wholly owned subsidiary of MDU Energy Capital
CEM	Colorado Energy Management, LLC, a former direct wholly owned subsidiary of Centennial Resources (sold in the third quarter of 2007)
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
Colorado State District Court	Colorado Thirteenth Judicial District Court, Yuma County
Company	MDU Resources Group, Inc.
Connolly-Pacific	Connolly-Pacific Co., an indirect wholly owned subsidiary of Knife River
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 being built by Dakota Prairie Refining in southwestern North Dakota
Dakota Prairie Refining	Dakota Prairie Refining, LLC, a limited liability company jointly owned by WBI Energy and Calumet
dk	Decatherm
Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act
EBITDA	Earnings before interest, taxes, depreciation, depletion and amortization
ECTE	Empresa Catarinense de Transmissão de Energia S.A. (2.5 percent ownership interest at June 30, 2014, 2.5, 2.5, 2.5 and 14.99 percent ownership interests were sold in the third quarters of 2013 and 2012 and the fourth quarters of 2011 and 2010, respectively)
ENTE	Empresa Norte de Transmissão de Energia S.A. (entire 13.3 percent ownership interest sold in the fourth quarter of 2010)
EPA	U.S. Environmental Protection Agency
ERTE	Empresa Regional de Transmissão de Energia S.A. (entire 13.3 percent ownership interest sold in the fourth quarter of 2010)
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
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
Intermountain	Intermountain Gas Company, an indirect wholly owned subsidiary of MDU Energy Capital



JTL	JTL Group, Inc., 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
LPP	Lea Power Partners, LLC, a former indirect wholly owned subsidiary of Centennial Resources (member interests were sold in October 2006)
LWG	Lower Willamette Group
MBbls	Thousands of barrels
MBOE	Thousands of BOE
Mcf	Thousand cubic feet
MDU Brasil	MDU Brasil Ltda., an indirect wholly owned subsidiary of Centennial Resources
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.
MMBbls	Millions of barrels
MMBtu	Million Btu
MMcf	Million cubic feet
MMdk	Million decatherms
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
MW	Megawatt
NDPSC	North Dakota Public Service Commission
New York Supreme Court	Supreme Court of the State of New York, County of New York
NGL	Natural gas liquids
NSPS	New Source Performance Standards
Oil	Includes crude oil and condensate
Omimex	Omimex Canada, Ltd.
OPUC	Oregon Public Utility Commission
Oregon DEQ	Oregon State Department of Environmental Quality
Prairielands	Prairielands Energy Marketing, Inc., an indirect wholly owned subsidiary of WBI Holdings
PRP	Potentially Responsible Party
RCRA	Resource Conservation and Recovery Act
ROD	Record of Decision
SEC	U.S. Securities and Exchange Commission
Securities Act	Securities Act of 1933, as amended
SourceGas	SourceGas Distribution LLC
VIE	Variable interest entity
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

INTRODUCTION

The Company is a diversified natural resource company, 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 energy services and the exploration and production segments), Knife River (construction materials and contracting segment), MDU Construction Services (construction services segment), Centennial Resources and Centennial Capital (both reflected in the Other category). For more information on the Company's business segments, see Note 18.

INDEX



Part I -- Financial Information	Page

Consolidated Statements of Income -- Three and Six Months Ended June 30, 2014 and 2013	6

Consolidated Statements of Comprehensive Income -- Three and Six Months Ended June 30, 2014 and 2013	7

Consolidated Balance Sheets -- June 30, 2014 and 2013, and December 31, 2013	8

Consolidated Statements of Cash Flows -- Six Months Ended June 30, 2014 and 2013	9

Notes to Consolidated Financial Statements	10

Management's Discussion and Analysis of Financial Condition and Results of Operations	32

Quantitative and Qualitative Disclosures About Market Risk	49

Controls and Procedures	50

Part II -- Other Information

Legal Proceedings	50

Risk Factors	51

Mine Safety Disclosures	53

Exhibits	53

Signatures	54

Exhibit Index	55

Exhibits

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,
	2014			2013			2014			2013
	(In thousands, except per share amounts)
Operating revenues:
Electric, natural gas distribution and pipeline and energy services	$	254,689		$	227,442		$	746,231		$	651,565
Exploration and production, construction materials and contracting, construction services and other	839,357			833,153			1,390,668			1,340,633
Total operating revenues	1,094,046			1,060,595			2,136,899			1,992,198
Operating expenses:
Fuel and purchased power	21,046			18,169			47,590			39,777
Purchased natural gas sold	84,415			70,255			329,307			269,442
Operation and maintenance:
Electric, natural gas distribution and pipeline and energy services	61,764			76,627			129,047			142,730
Exploration and production, construction materials and contracting, construction services and other	675,330			661,495			1,121,282			1,055,511
Depreciation, depletion and amortization	103,126			95,289			202,683			188,850
Taxes, other than income	49,431			47,382			105,152			99,979
Total operating expenses	995,112			969,217			1,935,061			1,796,289
Operating income	98,934			91,378			201,838			195,909
Loss from equity method investments	(297		)	(7		)	(245		)	(319		)
Other income	2,777			1,436			4,908			2,677
Interest expense	21,516			21,427			42,487			42,300
Income before income taxes	79,898			71,380			164,014			155,967
Income taxes	27,118			24,988			55,050			52,983
Income from continuing operations	52,780			46,392			108,964			102,984
Income (loss) from discontinued operations, net of tax (Note 11)	547			(59		)	502			(136		)
Net income	53,327			46,333			109,466			102,848
Net loss attributable to noncontrolling interest	(779		)	(179		)	(1,302		)	(179		)
Dividends declared on preferred stocks	171			171			342			342
Earnings on common stock	$	53,935		$	46,341		$	110,426		$	102,685

Earnings per common share - basic:
Earnings before discontinued operations	$	.28		$	.25		$	.58		$	.54
Discontinued operations, net of tax	—			—			—			—
Earnings per common share - basic	$	.28		$	.25		$	.58		$	.54

Earnings per common share - diluted:
Earnings before discontinued operations	$	.28		$	.24		$	.58		$	.54
Discontinued operations, net of tax	—			—			—			—
Earnings per common share - diluted	$	.28		$	.24		$	.58		$	.54

Dividends declared per common share	$	.1775		$	.1725		$	.3550		$	.3450

Weighted average common shares outstanding - basic	192,060			188,831			190,946			188,831

Weighted average common shares outstanding - diluted	192,659			189,463			191,543			189,460

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

MDU RESOURCES GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
	(In thousands)
Net income	$	53,327		$	46,333		$	109,466		$	102,848
Other comprehensive income (loss):
Net unrealized gain (loss) on derivative instruments qualifying as hedges:
Net unrealized gain (loss) on derivative instruments arising during the period, net of tax of $0 and $52 for the three months ended and $0 and $(3,116) for the six months ended in 2014 and 2013, respectively	—			254			—			(5,594		)
Reclassification adjustment for (gain) loss on derivative instruments included in net income, net of tax of $10 and $(322) for the three months ended and $213 and $(1,948) for the six months ended in 2014 and 2013, respectively	13			(395		)	357			(3,168		)
Net unrealized gain (loss) on derivative instruments qualifying as hedges	13			(141		)	357			(8,762		)
Amortization of postretirement liability losses included in net periodic benefit cost, net of tax of $150 and $543 for the three months ended and $318 and $862 for the six months ended in 2014 and 2013, respectively	245			424			520			1,072
Foreign currency translation adjustment recognized during the period, net of tax of $26 and $(234) for the three months ended and $54 and $(197) for the six months ended in 2014 and 2013, respectively	42			(390		)	88			(302		)
Net unrealized gain (loss) on available-for-sale investments:
Net unrealized gain (loss) on available-for-sale investments arising during the period, net of tax of $4 and $(77) for the three months ended and $5 and $(100) for the six months ended in 2014 and 2013, respectively	8			(142		)	10			(187		)
Reclassification adjustment for loss on available-for-sale investments included in net income, net of tax of $17 and $23 for the three months ended and $17 and $42 for the six months ended in 2014 and 2013, respectively	32			43			32			79
Net unrealized gain (loss) on available-for-sale investments	40			(99		)	42			(108		)
Other comprehensive income (loss)	340			(206		)	1,007			(8,100		)
Comprehensive income	53,667			46,127			110,473			94,748
Comprehensive loss attributable to noncontrolling interest	(779		)	(179		)	(1,302		)	(179		)
Comprehensive income attributable to common stockholders	$	54,446		$	46,306		$	111,775		$	94,927

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

MDU RESOURCES GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)



	June 30, 2014			June 30, 2013			December 31, 2013
(In thousands, except shares and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	90,318		$	114,971		$	45,225
Receivables, net	731,247			734,765			713,067
Inventories	331,422			345,885			282,391
Deferred income taxes	29,110			27,959			25,048
Commodity derivative instruments	129			9,797			1,447
Prepayments and other current assets	93,980			58,870			49,510
Total current assets	1,276,206			1,292,247			1,116,688
Investments	116,594			106,508			112,939
Property, plant and equipment	9,390,538			8,454,204			8,803,866
Less accumulated depreciation, depletion and amortization	4,011,858			3,709,679			3,872,487
Net property, plant and equipment	5,378,680			4,744,525			4,931,379
Deferred charges and other assets:
Goodwill	636,039			636,039			636,039
Other intangible assets, net	11,266			15,312			13,099
Other	249,532			297,040			251,188
Total deferred charges and other assets	896,837			948,391			900,326
Total assets	$	7,668,317		$	7,091,671		$	7,061,332
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings	$	—		$	31,600		$	11,500
Long-term debt due within one year	42,215			69,091			12,277
Accounts payable	424,201			411,621			404,961
Taxes payable	48,985			89,896			74,175
Dividends payable	34,388			32,745			33,737
Accrued compensation	50,024			44,159			69,661
Commodity derivative instruments	17,449			1,388			7,483
Other accrued liabilities	179,402			185,389			171,106
Total current liabilities	796,664			865,889			784,900
Long-term debt	2,144,879			1,937,663			1,842,286
Deferred credits and other liabilities:
Deferred income taxes	925,813			782,838			859,306
Other liabilities	736,519			810,639			718,938
Total deferred credits and other liabilities	1,662,332			1,593,477			1,578,244
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 - 194,138,654 at June 30, 2014, 189,369,450 at June 30, 2013 and 189,868,780 at December 31, 2013	194,139			189,369			189,869
Other paid-in capital	1,186,900			1,040,379			1,056,996
Retained earnings	1,645,291			1,494,419			1,603,130
Accumulated other comprehensive loss	(37,198		)	(56,821		)	(38,205		)
Treasury stock at cost - 538,921 shares	(3,626		)	(3,626		)	(3,626		)
Total common stockholders' equity	2,985,506			2,663,720			2,808,164
Total stockholders' equity	3,000,506			2,678,720			2,823,164
Noncontrolling interest	63,936			15,922			32,738
Total equity	3,064,442			2,694,642			2,855,902
Total liabilities and equity	$	7,668,317		$	7,091,671		$	7,061,332

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

MDU RESOURCES GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Six Months Ended
	June 30,
	2014			2013
	(In thousands)
Operating activities:
Net income	$	109,466		$	102,848
Income (loss) from discontinued operations, net of tax	502			(136		)
Income from continuing operations	108,964			102,984
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	202,683			188,850
Loss, net of distributions, from equity method investments	245			1,491
Deferred income taxes	60,141			19,790
Unrealized (gain) loss on commodity derivatives	11,908			(7,215		)
Excess tax benefit on stock-based compensation	(4,729		)	—
Changes in current assets and liabilities, net of acquisitions:
Receivables	(8,501		)	(65,637		)
Inventories	(48,857		)	(29,923		)
Other current assets	(37,460		)	(18,044		)
Accounts payable	(23,277		)	18,940
Other current liabilities	(36,447		)	23,071
Other noncurrent changes	(13,638		)	(741		)
Net cash provided by continuing operations	211,032			233,566
Net cash provided by (used in) discontinued operations	(491		)	360
Net cash provided by operating activities	210,541			233,926

Investing activities:
Capital expenditures	(390,126		)	(431,439		)
Acquisitions, net of cash acquired	(206,304		)	—
Net proceeds from sale or disposition of property and other	11,917			20,884
Investments	(1,208		)	16
Net cash used in continuing operations	(585,721		)	(410,539		)
Net cash provided by discontinued operations	—			—
Net cash used in investing activities	(585,721		)	(410,539		)

Financing activities:
Issuance of short-term borrowings	—			29,600
Repayment of short-term borrowings	(11,500		)	—
Issuance of long-term debt	441,447			450,461
Repayment of long-term debt	(111,539		)	(214,473		)
Proceeds from issuance of common stock	132,268			—
Dividends paid	(67,717		)	(32,915		)
Excess tax benefit on stock-based compensation	4,729			—
Contribution from noncontrolling interest	32,500			10,000
Net cash provided by continuing operations	420,188			242,673
Net cash provided by discontinued operations	—			—
Net cash provided by financing activities	420,188			242,673
Effect of exchange rate changes on cash and cash equivalents	85			(131		)
Increase in cash and cash equivalents	45,093			65,929
Cash and cash equivalents -- beginning of year	45,225			49,042
Cash and cash equivalents -- end of period	$	90,318		$	114,971

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

MDU RESOURCES GROUP, INC.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

June 30, 2014 and 2013

(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 2013 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 2013 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, 2014, up to the date of issuance of these consolidated interim financial statements.

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 $29.6 million, $35.1 million and $36.4 million at June 30, 2014 and 2013, and December 31, 2013, 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, 2014 and 2013, and December 31, 2013, was $9.6 million, $10.6 million and $10.1 million, respectively.

Note 4 - Inventories and natural gas in storage

Inventories, other than natural gas in storage for the Company's regulated operations, are stated at the lower of average cost or market value. 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. 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, 2014		June 30, 2013		December 31, 2013
	(In thousands)
Aggregates held for resale	$	112,129	$	103,503	$	101,568
Asphalt oil	76,525		91,837		38,099
Materials and supplies	70,938		74,648		69,808
Merchandise for resale	25,507		27,330		21,720
Natural gas in storage (current)	10,903		14,287		16,417
Other	35,420		34,280		34,779
Total	$	331,422	$	345,885	$	282,391

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 $47.4 million, $48.6 million and $48.3 million at June 30, 2014 and 2013, and December 31, 2013, respectively.

Note 5 - Impairment of long-lived assets

During the second quarter of 2013, the Company recognized an impairment of coalbed natural gas gathering assets at the pipeline and energy services segment of $14.5 million ($9.0 million after tax), 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 and Montana where there has been a significant decline in natural gas development and production activity largely due to low natural gas prices. The coalbed natural gas gathering assets were written down to fair value that was determined using the income approach. For more information on this nonrecurring fair value measurement, see Note 15.

Note 6 - Earnings per common share

Basic earnings per common share were computed by dividing earnings on common stock by the weighted average number of shares of common stock outstanding during the applicable period. Diluted earnings per common share were computed by dividing earnings on common stock by the total of the weighted average number of shares of common stock outstanding during the applicable period, plus the effect of outstanding performance share awards. Common stock outstanding includes issued shares less shares held in treasury. Net income was the same for both the basic and diluted earnings per share calculations. A reconciliation of the weighted average common shares outstanding used in the basic and diluted earnings per share calculations was as follows:



	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2014	2013	2014	2013
	(In thousands)
Weighted average common shares outstanding - basic	192,060	188,831	190,946	188,831
Effect of dilutive performance share awards	599	632	597	629
Weighted average common shares outstanding - diluted	192,659	189,463	191,543	189,460
Shares excluded from the calculation of diluted earnings per share	—	—	—	—

Note 7 - Cash flow information

Cash expenditures for interest and income taxes were as follows:



	Six Months Ended
	June 30,
	2014		2013
	(In thousands)
Interest, net of amount capitalized	$	39,441	$	41,440
Income taxes paid (refunded), net	$	39,984	$	(2,649	)

Noncash investing transactions were as follows:

Note 8 - New Accounting Standard

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 will be effective for the Company on January 1, 2017. 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.

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, 2014	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	$	(3,421	)	$	(33,532	)	$	(621	)	$	36	$	(37,538	)
Other comprehensive income (loss) before reclassifications	—			—			42			8		50
Amounts reclassified from accumulated other comprehensive loss	13			245			—			32		290
Net current-period other comprehensive income	13			245			42			40		340
Balance at end of period	$	(3,408	)	$	(33,287	)	$	(579	)	$	76	$	(37,198	)



Three Months Ended June 30, 2013	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	$	(2,603	)	$	(53,699	)	$	(423	)	$	110		$	(56,615	)
Other comprehensive income (loss) before reclassifications	254			—			(390		)	(142		)	(278		)
Amounts reclassified from accumulated other comprehensive loss	(395		)	424			—			43			72
Net current-period other comprehensive income (loss)	(141		)	424			(390		)	(99		)	(206		)
Balance at end of period	$	(2,744	)	$	(53,275	)	$	(813	)	$	11		$	(56,821	)



Six Months Ended June 30, 2014	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	$	(3,765	)	$	(33,807	)	$	(667	)	$	34	$	(38,205	)
Other comprehensive income (loss) before reclassifications	—			—			88			10		98
Amounts reclassified from accumulated other comprehensive loss	357			520			—			32		909
Net current-period other comprehensive income	357			520			88			42		1,007
Balance at end of period	$	(3,408	)	$	(33,287	)	$	(579	)	$	76	$	(37,198	)



Six Months Ended June 30, 2013	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	$	6,018		$	(54,347	)	$	(511	)	$	119		$	(48,721	)
Other comprehensive income (loss) before reclassifications	(5,594		)	—			(302		)	(187		)	(6,083		)
Amounts reclassified from accumulated other comprehensive loss	(3,168		)	1,072			—			79			(2,017		)
Net current-period other comprehensive income (loss)	(8,762		)	1,072			(302		)	(108		)	(8,100		)
Balance at end of period	$	(2,744	)	$	(53,275	)	$	(813	)	$	11		$	(56,821	)

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,
	2014			2013			2014			2013
	(In thousands)
Reclassification adjustment for gain (loss) on derivative instruments included in net income:
Commodity derivative instruments	$	137		$	1,381		$	(250	)	$	5,896		Operating revenues
Interest rate derivative instruments	(160		)	(664		)	(320		)	(780		)	Interest expense
	(23		)	717			(570		)	5,116
	10			(322		)	213			(1,948		)	Income taxes
	(13		)	395			(357		)	3,168
Amortization of postretirement liability losses included in net periodic benefit cost	(395		)	(967		)	(838		)	(1,934		)	(a)
	150			543			318			862			Income taxes
	(245		)	(424		)	(520		)	(1,072		)
Reclassification adjustment for loss on available-for-sale investments included in net income	(49		)	(66		)	(49		)	(121		)	Other income
	17			23			17			42			Income taxes
	(32		)	(43		)	(32		)	(79		)
Total reclassifications	$	(290	)	$	(72	)	$	(909	)	$	2,017

(a) Included in net periodic benefit cost (credit). For more information, see Note 19.

Note 10 - Acquisition

On February 10, 2014, the Company entered into agreements to purchase working interests and leasehold positions in oil and natural gas production assets in the southern Powder River Basin of Wyoming. The effective date of the acquisition was October 1, 2013, and the closing occurred on March 6, 2014. The purchase price was $206.3 million, including purchase price adjustments.

The acquisition was accounted for under the acquisition method of accounting and, accordingly, the acquired assets and liabilities assumed have been recorded at their respective fair values as of the date of acquisition. The results of operations of the acquired properties are included in the financial statements since the date of the acquisition. Pro forma financial amounts reflecting the effects of the acquisition are not presented, as such acquisition was not material to the Company's financial position or results of operations.

Note 11 - Discontinued operations

In 2007, Centennial Resources sold CEM to Bicent. In connection with the sale, Centennial Resources agreed to indemnify Bicent and its affiliates from certain third party claims arising out of or in connection with Centennial Resources' ownership or

operation of CEM prior to the sale. In addition, Centennial had previously guaranteed CEM's obligations under a construction contract. The Company incurs legal expenses and had a benefit related to the resolution of this matter in the second quarter of 2014, which are reflected in discontinued operations in the consolidated financial statements and accompanying notes. Discontinued operations are included in the Other category. For more information, see Note 21.

Note 12 - Equity method investments

Investments in companies in which the Company has the ability to exercise significant influence over operating and financial policies are accounted for using the equity method. At June 30, 2014, the Company had no significant equity method investments.

In August 2006, MDU Brasil acquired ownership interests in the Brazilian Transmission Lines. The electric transmission lines are primarily in northeastern and southern Brazil. The transmission contracts provide for revenues denominated in the Brazilian Real, annual inflation adjustments and change in tax law adjustments. The functional currency for the Brazilian Transmission Lines is the Brazilian Real.

In 2009, multiple sales agreements were signed for the Company to sell its ownership interests in the Brazilian Transmission Lines. In November 2010, the Company completed the sale of its entire ownership interest in ENTE and ERTE and 59.96 percent of the Company's ownership interest in ECTE. The Company's remaining interest in ECTE is being sold over a four-year period. In August 2013 and 2012, and November 2011, the Company completed the sale of one-fourth of the remaining interest in each year. The Company recognized an immaterial gain in 2013. The Company's remaining ownership interest in ECTE is being accounted for under the cost method.

At June 30, 2013, the equity method investments had total assets of $114.8 million and long-term debt of $56.2 million. The Company's investment in its equity method investments was approximately $5.5 million, including undistributed earnings of $2.0 million, at June 30, 2013.

Note 13 - Goodwill and other intangible assets

The changes in the carrying amount of goodwill were as follows:



Six Months Ended June 30, 2014	Balance as of January 1, 2014*		Goodwill Acquired During the Year		Balance as of June 30, 2014*
	(In thousands)
Natural gas distribution	$	345,736	$	—	$	345,736
Pipeline and energy services	9,737		—		9,737
Construction materials and contracting	176,290		—		176,290
Construction services	104,276		—		104,276
Total	$	636,039	$	—	$	636,039

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



Six Months Ended June 30, 2013	Balance as of January 1, 2013*		Goodwill Acquired During the Year		Balance as of June 30, 2013*
	(In thousands)
Natural gas distribution	$	345,736	$	—	$	345,736
Pipeline and energy services	9,737		—		9,737
Construction materials and contracting	176,290		—		176,290
Construction services	104,276		—		104,276
Total	$	636,039	$	—	$	636,039

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



Year Ended December 31, 2013	Balance as of January 1, 2013*		Goodwill Acquired During the Year		Balance as of December 31, 2013*
	(In thousands)
Natural gas distribution	$	345,736	$	—	$	345,736
Pipeline and energy services	9,737		—		9,737
Construction materials and contracting	176,290		—		176,290
Construction services	104,276		—		104,276
Total	$	636,039	$	—	$	636,039

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

Other amortizable intangible assets were as follows:



	June 30, 2014			June 30, 2013			December 31, 2013
	(In thousands)
Customer relationships	$	21,310		$	21,310		$	21,310
Accumulated amortization	(14,734		)	(12,715		)	(13,726		)
	6,576			8,595			7,584
Noncompete agreements	5,080			6,186			6,186
Accumulated amortization	(3,936		)	(4,557		)	(4,840		)
	1,144			1,629			1,346
Other	10,921			10,979			10,995
Accumulated amortization	(7,375		)	(5,891		)	(6,826		)
	3,546			5,088			4,169
Total	$	11,266		$	15,312		$	13,099

Amortization expense for amortizable intangible assets for the three and six months ended June 30, 2014, was $1.0 million and $1.8 million, respectively. Amortization expense for amortizable intangible assets for the three and six months ended June 30, 2013, was $1.0 million and $1.8 million, respectively. Estimated amortization expense for amortizable intangible assets is $3.3 million in 2014, $2.5 million in 2015, $2.2 million in 2016, $1.9 million in 2017, $1.0 million in 2018 and $2.2 million thereafter.

Note 14 - 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, 2014, the Company had no outstanding 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, 2014 and 2013, and December 31, 2013, Fidelity held oil swap and collar agreements with total forward notional volumes of 2.5 million, 3.1 million and 2.9 million Bbl, respectively, and natural gas swap agreements with total forward notional volumes of 11.0 million, 21.4 million and 18.3 million MMBtu, respectively. Fidelity utilizes 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.

Effective April 1, 2013, Fidelity elected to de-designate all commodity derivative contracts previously designated as cash flow hedges and elected to discontinue hedge accounting prospectively for all of its commodity derivative instruments. When the criteria for hedge accounting is not met or when hedge accounting is not elected, realized gains and losses and unrealized gains and losses are both recorded in operating revenues on the Consolidated Statements of Income. As a result of discontinuing hedge accounting on commodity derivative instruments, gains and losses on the oil and natural gas derivative instruments remain in accumulated other comprehensive income (loss) as of the de-designation date and are reclassified into earnings in future periods as the underlying hedged transactions affect earnings. At April 1, 2013, accumulated other comprehensive income (loss) included $1.8 million of unrealized gains, representing the mark-to-market value of the Company's commodity

derivative instruments that qualified as cash flow hedges as of the balance sheet date. The Company expects to reclassify into earnings from accumulated other comprehensive income (loss) the remaining value related to de-designating commodity derivative instruments over the next 6 months.

Prior to April 1, 2013, changes in the fair value attributable to the effective portion of the hedging instruments, net of tax, were recorded in stockholders' equity as a component of accumulated other comprehensive income (loss). To the extent that the hedges were not effective or did not qualify for hedge accounting, the ineffective portion of the changes in fair market value was recorded directly in earnings. Gains and losses on the oil and natural gas derivative instruments were reclassified from accumulated other comprehensive income (loss) into operating revenues on the Consolidated Statements of Income at the date the oil and natural gas quantities were settled.

There were no components of the derivative instruments' gain or loss excluded from the assessment of hedge effectiveness. Gains and losses must be reclassified into earnings as a result of the discontinuance of cash flow hedges if it is probable that the original forecasted transactions will not occur, and there were no such reclassifications.

Certain of Fidelity's derivative instruments contain cross-default provisions that state if Fidelity or any of its affiliates fails to make payment with respect to certain indebtedness, in excess of specified amounts, the counterparties could require early settlement or termination of the derivative instruments in liability positions. The aggregate fair value of Fidelity's derivative instruments with credit-risk-related contingent features that are in a liability position at June 30, 2014 and 2013, and December 31, 2013, were $17.4 million, $1.4 million and $7.5 million, respectively. The aggregate fair value of assets that would have been needed to settle the instruments immediately if the credit-risk-related contingent features were triggered on June 30, 2014 and 2013, and December 31, 2013, were $17.4 million, $1.4 million and $7.5 million, respectively.

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, 2014 and 2013, and December 31, 2013, 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,
	2014			2013			2014			2013
	(In thousands)
Commodity derivatives designated as cash flow hedges:
Amount of loss recognized in accumulated other comprehensive loss (effective portion), net of tax	$	—		$	—		$	—		$	(6,154	)
Amount of (gain) loss reclassified from accumulated other comprehensive loss into operating revenues (effective portion), net of tax	(86		)	(871		)	158			(3,714		)
Amount of loss recognized in operating revenues (ineffective portion), before tax	—			—			—			(1,422		)

Interest rate derivatives designated as cash flow hedges:
Amount of gain recognized in accumulated other comprehensive loss (effective portion), net of tax	—			254			—			560
Amount of loss reclassified from accumulated other comprehensive loss into interest expense (effective portion), net of tax	99			475			199			546
Amount of loss recognized in interest expense (ineffective portion), before tax	—			(610		)	—			(769		)

Commodity derivatives not designated as hedging instruments:
Amount of gain (loss) recognized in operating revenues, before tax	(5,196		)	13,047			(11,908		)	8,637

Over the next 12 months net losses of approximately $535,000 (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, 2014		Fair Value at June 30, 2013		Fair Value at December 31, 2013
		(In thousands)
Not designated as hedges:
Commodity derivatives	Commodity derivative instruments	$	129	$	9,797	$	1,447
	Other assets - noncurrent	131		1,447		503
Total asset derivatives		$	260	$	11,244	$	1,950



Liability Derivatives	Location on Consolidated Balance Sheets	Fair Value at June 30, 2014		Fair Value at June 30, 2013		Fair Value at December 31, 2013
		(In thousands)
Not designated as hedges:
Commodity derivatives	Commodity derivative instruments	$	17,449	$	1,388	$	7,483
Total liability derivatives		$	17,449	$	1,388	$	7,483

All of the Company's commodity derivative instruments at June 30, 2014 and 2013, and December 31, 2013, 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, 2014	Gross Amounts Recognized on the Consolidated Balance Sheets		Gross Amounts Not Offset on the Consolidated Balance Sheets			Net
	(In thousands)
Assets:
Commodity derivatives	$	260	$	(260	)	$	—
Total assets	$	260	$	(260	)	$	—
Liabilities:
Commodity derivatives	$	17,449	$	(260	)	$	17,189
Total liabilities	$	17,449	$	(260	)	$	17,189



June 30, 2013	Gross Amounts Recognized on the Consolidated Balance Sheets		Gross Amounts Not Offset on the Consolidated Balance Sheets			Net
	(In thousands)
Assets:
Commodity derivatives	$	11,244	$	(1,388	)	$	9,856
Total assets	$	11,244	$	(1,388	)	$	9,856
Liabilities:
Commodity derivatives	$	1,388	$	(1,388	)	$	—
Total liabilities	$	1,388	$	(1,388	)	$	—



December 31, 2013	Gross Amounts Recognized on the Consolidated Balance Sheets		Gross Amounts Not Offset on the Consolidated Balance Sheets			Net
	(In thousands)
Assets:
Commodity derivatives	$	1,950	$	(1,950	)	$	—
Total assets	$	1,950	$	(1,950	)	$	—
Liabilities:
Commodity derivatives	$	7,483	$	(1,950	)	$	5,533
Total liabilities	$	7,483	$	(1,950	)	$	5,533

Note 15 - 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 $64.4 million, $54.0 million and $62.4 million, at June 30, 2014 and 2013, and December 31, 2013, respectively, are classified as Investments on the Consolidated Balance Sheets. The net unrealized gains on these investments were $1.1 million and $2.0 million for the three and six months ended June 30, 2014, respectively. The net unrealized gains on these investments were $700,000 and $5.1 million for the three and six months ended June 30, 2013, respectively. The change in fair value, which is considered part of the cost of the plan, is classified in operation and maintenance expense on the Consolidated Statements of Income.

The Company did not elect the fair value option, which records gains and losses in income, for its available-for-sale securities, which include mortgage-backed securities and U.S. Treasury securities. These available-for-sale securities are recorded at fair value and are classified as Investments on the Consolidated Balance Sheets. Unrealized gains or losses are recorded in accumulated other comprehensive income (loss). Details of available-for-sale securities were as follows:



June 30, 2014	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Mortgage-backed securities	$	7,989	$	91	$	(5	)	$	8,075
U.S. Treasury securities	2,066		30		—			2,096
Total	$	10,055	$	121	$	(5	)	$	10,171



June 30, 2013	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Mortgage-backed securities	$	8,035	$	58	$	(41	)	$	8,052
U.S. Treasury securities	1,920		15		(15		)	1,920
Total	$	9,955	$	73	$	(56	)	$	9,972



December 31, 2013	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Mortgage-backed securities	$	8,151	$	69	$	(27	)	$	8,193
U.S. Treasury securities	1,906		15		(4		)	1,917
Total	$	10,057	$	84	$	(31	)	$	10,110

The fair value of the Company's money market funds approximates cost.

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 consist of investments in short-term unsecured promissory notes and the value is based on comparable market transactions taking into consideration the credit quality of the issuer. 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.

The estimated fair value of the Company's Level 2 commodity derivative instruments is based upon futures prices, volatility and time to maturity, among other things. Counterparty statements are utilized to determine the value of the commodity derivative instruments and are reviewed and corroborated using various methodologies and significant observable inputs. The Company's and the counterparties' nonperformance risk is also evaluated.

The estimated fair value of the Company's Level 2 interest rate derivative instruments is measured using quoted market prices or pricing models using prevailing market interest rates as of the measurement date. Counterparty statements are utilized to determine the value of the interest rate derivative instruments and are reviewed and corroborated using various methodologies and significant observable inputs. The Company's and the counterparties' nonperformance risk is also evaluated.

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, 2014 and 2013, 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, 2014, 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, 2014
	(In thousands)
Assets:
Money market funds	$	—	$	19,990	$	—	$	19,990
Insurance contract*	—		64,449		—		64,449
Available-for-sale securities:
Mortgage-backed securities	—		8,075		—		8,075
U.S. Treasury securities	—		2,096		—		2,096
Commodity derivative instruments	—		260		—		260
Total assets measured at fair value	$	—	$	94,870	$	—	$	94,870
Liabilities:
Commodity derivative instruments	$	—	$	17,449	$	—	$	17,449
Total liabilities measured at fair value	$	—	$	17,449	$	—	$	17,449

* The insurance contract invests approximately 21 percent in common stock of mid-cap companies, 18 percent in common stock of small-cap companies, 29 percent in common stock of large-cap companies, 31 percent in fixed-income investments and 1 percent in cash equivalents.



	Fair Value Measurements at June 30, 2013, 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, 2013
	(In thousands)
Assets:
Money market funds	$	—	$	29,902	$	—	$	29,902
Insurance contract*	—		54,039		—		54,039
Available-for-sale securities:
Mortgage-backed securities	—		8,052		—		8,052
U.S. Treasury securities	—		1,920		—		1,920
Commodity derivative instruments	—		11,244		—		11,244
Total assets measured at fair value	$	—	$	105,157	$	—	$	105,157
Liabilities:
Commodity derivative instruments	$	—	$	1,388	$	—	$	1,388
Total liabilities measured at fair value	$	—	$	1,388	$	—	$	1,388

* The insurance contract invests approximately 28 percent in common stock of mid-cap companies, 28 percent in common stock of small-cap companies, 28 percent in common stock of large-cap companies and 16 percent in fixed-income investments.



	Fair Value Measurements at December 31, 2013, 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, 2013
	(In thousands)
Assets:
Money market funds	$	—	$	19,227	$	—	$	19,227
Insurance contract*	—		62,370		—		62,370
Available-for-sale securities:
Mortgage-backed securities	—		8,193		—		8,193
U.S. Treasury securities	—		1,917		—		1,917
Commodity derivative instruments	—		1,950		—		1,950
Total assets measured at fair value	$	—	$	93,657	$	—	$	93,657
Liabilities:
Commodity derivative instruments	$	—	$	7,483	$	—	$	7,483
Total liabilities measured at fair value	$	—	$	7,483	$	—	$	7,483

* The insurance contract invests approximately 29 percent in common stock of mid-cap companies, 28 percent in common stock of small-cap companies, 28 percent in common stock of large-cap companies and 15 percent in fixed-income investments.

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 and oil and natural gas properties, whenever events or changes in circumstances indicate that such carrying amounts may not be recoverable. During the second quarter of 2013, 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, 2013, coalbed

natural gas gathering assets were written down to the nonrecurring fair value measurement of $9.7 million. The fair value of these coalbed natural gas gathering assets have been categorized as Level 3 (Significant Unobservable Inputs) in the fair value hierarchy.

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, 2014	$	2,187,094	$	2,283,351
Long-term debt at June 30, 2013	$	2,006,754	$	2,090,208
Long-term debt at December 31, 2013	$	1,854,563	$	1,912,590

The carrying amounts of the Company's remaining financial instruments included in current assets and current liabilities approximate their fair values.

Note 16 - Long-term debt

On May 8, 2014, the Company amended its revolving credit agreement to increase the borrowing limit to $175.0 million and extend the termination date to May 8, 2019.

The Company entered into a $150.0 million note purchase agreement on January 28, 2014, and issued $50.0 million of Senior Notes on April 15, 2014, with a due date of April 15, 2044, at an interest rate of 5.2 percent. The remaining $100.0 million of Senior Notes was issued on July 15, 2014, with due dates ranging from July 15, 2024 to July 15, 2026, at a weighted average interest rate of 4.3 percent.

On May 8, 2014, Centennial entered into an amended and restated revolving credit agreement which increased the borrowing limit to $650.0 million and extended the termination date to May 8, 2019. The credit agreement contains customary covenants and provisions, including a covenant of Centennial not to permit, as of the end of any fiscal quarter, the ratio of total consolidated debt to total consolidated capitalization to be greater than 65 percent. Other covenants include restrictions on the sale of certain assets, limitations on subsidiary indebtedness and the making of certain loans and investments.

Centennial's revolving credit agreement contains cross-default provisions. These provisions state that if Centennial or any subsidiary of Centennial fails to make any payment with respect to any indebtedness or contingent obligation, in excess of a specified amount, under any agreement that causes such indebtedness to be due prior to its stated maturity or the contingent obligation to become payable, then Centennial will be in default under the revolving credit agreement.

Centennial entered into two separate two year $125.0 million term loan agreements with variable interest rates on March 31, 2014 and April 2, 2014, respectively. These agreements contain customary covenants and default provisions, including covenants not to permit, as of the end of any fiscal quarter, the ratio of Centennial's total debt to total capitalization to be greater than 65 percent. The covenants also include certain limitations on subsidiary indebtedness and restrictions on the sale of certain assets and on the making of certain loans and investments.

In addition, borrowings outstanding that were classified as long-term debt under the Company’s and Centennial’s commercial paper programs totaled $268.0 million at June 30, 2014, compared to $153.9 million at December 31, 2013, respectively.

Note 17 - Equity

A summary of the changes in equity was as follows:



Six Months Ended June 30, 2014	Total Stockholders' Equity			Noncontrolling Interest			Total Equity
	(In thousands)
Balance at December 31, 2013	$	2,823,164		$	32,738		$	2,855,902
Net income (loss)	110,768			(1,302		)	109,466
Other comprehensive income	1,007			—			1,007
Dividends declared on preferred stocks	(342		)	—			(342		)
Dividends declared on common stock	(68,025		)	—			(68,025		)
Stock-based compensation	2,796			—			2,796
Issuance of common stock upon vesting of performance shares, net of shares used for tax withholdings	(5,564		)	—			(5,564		)
Net tax benefit on stock-based compensation	4,729			—			4,729
Issuance of common stock	131,973			—			131,973
Contribution from noncontrolling interest	—			32,500			32,500
Balance at June 30, 2014	$	3,000,506		$	63,936		$	3,064,442



Six Months Ended June 30, 2013	Total Stockholders' Equity			Noncontrolling Interest			Total Equity
	(In thousands)
Balance at December 31, 2012	$	2,648,248		$	—		$	2,648,248
Net income (loss)	103,027			(179		)	102,848
Other comprehensive loss	(8,100		)	—			(8,100		)
Dividends declared on preferred stocks	(342		)	—			(342		)
Dividends declared on common stock	(65,147		)	—			(65,147		)
Stock-based compensation	2,453			—			2,453
Net tax deficit on stock-based compensation	(1,419		)	—			(1,419		)
Contribution from noncontrolling interest	—			16,101			16,101
Balance at June 30, 2013	$	2,678,720		$	15,922		$	2,694,642

Note 18 - 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 Company also has an investment in a foreign country, which consists of Centennial Resources' investment in ECTE.

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 energy services segment provides natural gas transportation, underground storage, processing and gathering services, as well as oil gathering, through regulated and nonregulated pipeline systems and processing facilities primarily in the Rocky Mountain and northern Great Plains regions of the United States. This segment is constructing the Dakota Prairie Refinery in conjunction with Calumet to refine crude oil and also provides cathodic protection and other energy-related services.

The exploration and production segment is engaged in oil and natural gas acquisition, exploration, development and production activities in the Rocky Mountain and Mid-Continent/Gulf States regions of the United States.

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 specializes in constructing and maintaining electric and communication lines, gas pipelines, fire suppression systems, and external lighting and traffic signalization equipment. This segment also provides utility excavation services and inside electrical wiring, cabling and mechanical services, sells and distributes electrical materials, and manufactures and distributes specialty equipment.

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 and pollution liability coverages. Centennial Capital also owns certain real and personal property. The Other category also includes Centennial Resources' investment in ECTE.

The information below follows the same accounting policies as described in Note 1 of the Company's Notes to Consolidated Financial Statements in the 2013 Annual Report. Information on the Company's businesses was as follows:



Three Months Ended June 30, 2014	External Operating Revenues		Inter- segment Operating Revenues			Earnings on Common Stock
	(In thousands)
Electric	$	65,149	$	—		$	7,823
Natural gas distribution	146,077		—			(4,494		)
Pipeline and energy services	43,463		7,888			5,789
	254,689		7,888			9,118
Exploration and production	129,309		10,271			19,180
Construction materials and contracting	434,452		8,106			10,554
Construction services	275,109		7,273			14,307
Other	487		1,744			1,608
	839,357		27,394			45,649
Intersegment eliminations	—		(35,282		)	(832		)
Total	$	1,094,046	$	—		$	53,935



Three Months Ended June 30, 2013	External Operating Revenues		Inter- segment Operating Revenues			Earnings on Common Stock
	(In thousands)
Electric	$	56,981	$	—		$	4,410
Natural gas distribution	127,584		—			(5,893		)
Pipeline and energy services	42,877		7,999			(6,395		)
	227,442		7,999			(7,878		)
Exploration and production	137,053		12,556			32,995
Construction materials and contracting	418,345		12,958			10,025
Construction services	277,259		2,340			12,915
Other	496		1,839			340
	833,153		29,693			56,275
Intersegment eliminations	—		(37,692		)	(2,056		)
Total	$	1,060,595	$	—		$	46,341




Six Months Ended June 30, 2014	External Operating Revenues		Inter- segment Operating Revenues			Earnings on Common Stock
	(In thousands)
Electric	$	138,796	$	—		$	18,856
Natural gas distribution	520,311		—			22,768
Pipeline and energy services	87,124		26,164			10,138
	746,231		26,164			51,762
Exploration and production	245,976		31,139			40,120
Construction materials and contracting	598,875		12,123			(13,019		)
Construction services	545,002		11,010			30,875
Other	815		3,468			1,872
	1,390,668		57,740			59,848
Intersegment eliminations	—		(83,904		)	(1,184		)
Total	$	2,136,899	$	—		$	110,426




Six Months Ended June 30, 2013	External Operating Revenues		Inter- segment Operating Revenues			Earnings on Common Stock
	(In thousands)
Electric	$	121,635	$	—		$	14,235
Natural gas distribution	459,337		—			26,624
Pipeline and energy services	70,593		26,717			(4,064		)
	651,565		26,717			36,795
Exploration and production	252,415		22,369			53,279
Construction materials and contracting	580,323		17,251			(10,557		)
Construction services	507,065		3,914			24,579
Other	830		3,657			645
	1,340,633		47,191			67,946
Intersegment eliminations	—		(73,908		)	(2,056		)
Total	$	1,992,198	$	—		$	102,685

Earnings from electric, natural gas distribution and pipeline and energy services are substantially all from regulated operations. Earnings from exploration and production, construction materials and contracting, construction services and other are all from nonregulated operations.

Note 19 - Employee benefit plans

The Company has noncontributory defined benefit pension plans and other postretirement benefit plans for certain eligible employees. Components of net periodic benefit cost for the Company's pension and other postretirement benefit plans were as follows:



							Other
							Postretirement
	Pension Benefits						Benefits
Three Months Ended June 30,	2014			2013			2014			2013
	(In thousands)
Components of net periodic benefit cost:
Service cost	$	31		$	37		$	380		$	334
Interest cost	4,405			4,106			924			667
Expected return on assets	(5,484		)	(4,875		)	(1,242		)	(1,065		)
Amortization of prior service cost (credit)	18			18			(348		)	(364		)
Amortization of net actuarial loss	1,121			1,716			6			407
Net periodic benefit cost, including amount capitalized	91			1,002			(280		)	(21		)
Less amount capitalized	73			158			(19		)	61
Net periodic benefit cost (credit)	$	18		$	844		$	(261	)	$	(82	)




							Other
							Postretirement
	Pension Benefits						Benefits
Six Months Ended June 30,	2014			2013			2014			2013
	(In thousands)
Components of net periodic benefit cost:
Service cost	$	64		$	77		$	759		$	838
Interest cost	8,845			8,124			1,782			1,607
Expected return on assets	(10,609		)	(9,958		)	(2,309		)	(2,172		)
Amortization of prior service cost (credit)	36			36			(696		)	(728		)
Amortization of net actuarial loss	2,434			3,580			324			1,078
Net periodic benefit cost, including amount capitalized	770			1,859			(140		)	623
Less amount capitalized	168			268			10			90
Net periodic benefit cost (credit)	$	602		$	1,591		$	(150	)	$	533

In addition to the qualified plan defined pension benefits reflected in the table, the Company has unfunded, nonqualified benefit plans for executive officers and certain key management employees that generally provide for defined benefit payments at age 65 following the employee's retirement or to their beneficiaries upon death for a 15-year period. The Company's net periodic benefit cost for this plan for the three and six months ended June 30, 2014, was $1.6 million and $3.3 million, respectively. The Company's net periodic benefit cost for this plan for the three and six months ended June 30, 2013, was $1.8 million and $3.6 million, respectively.

Note 20 - Regulatory matters and revenues subject to refund

On April 8, 2014, Montana-Dakota submitted a request to the NDPSC to update the environmental cost recovery rider to reflect actual costs incurred through February 2014 and projected costs through June 2015 related to the recovery of Montana-Dakota's share of the costs resulting from the environmental retrofit required to be installed at the Big Stone Station. The NDPSC approved the proposed rider on July 10, 2014, reflecting an annual amount of $8.6 million to be recovered under the rider. The rider was effective with service rendered on and after July 15, 2014.

On September 18, 2013, Montana-Dakota filed an application with the NDPSC for a natural gas rate increase. Montana-Dakota requested a total increase of $6.8 million annually or approximately 6.4 percent above current rates. The requested increase includes the costs associated with the increased investment in facilities, including ongoing investment in new and replacement distribution facilities, an operations building, automated meter reading and a new customer billing system. An interim increase of $4.3 million annually or approximately 4.0 percent went into effect for service rendered on or after November 17, 2013. On

December 30, 2013, the NDPSC approved a settlement agreement for an increase in the same amount as the interim increase. A hearing on the rate design portion of the case was held February 5, 2014. The NDPSC voted to approve an order approving the allocation of the revenue increase to each rate class and the rate design on April 9, 2014. Final rates were implemented May 1, 2014.

On February 27, 2014, Montana-Dakota filed an application with the NDPSC for approval of an electric generation resource recovery rider for recovery of Montana-Dakota's investment in the 88-MW simple-cycle natural gas turbine and associated facilities currently under construction near Mandan, ND. Montana-Dakota requested recovery of $7.4 million annually or approximately 4.6 percent above current rates. Advance determination of prudence and a certificate of public convenience and necessity were received from the NDPSC on April 11, 2012. On March 12, 2014, the NDPSC suspended the filing pending further review. The NDPSC held a hearing regarding this matter on May 28, 2014. The matter is pending before the NDPSC.

On October 31, 2013, WBI Energy Transmission filed a general natural gas rate change application with the FERC based on an increase in investments of $312 million, increased operating costs, and the effect of lower storage and off system volumes. On April 30, 2014, WBI Energy Transmission reached a settlement in princ