Edgar Filing: MDU RESOURCES GROUP INC

Wdesk | Document

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 September 30, 2017

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to ______________

Commission file number 1-03480

MDU RESOURCES GROUP, INC.

(Exact name of registrant as specified in its charter)



Delaware		41-0423660
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1200 West Century Avenue

P.O. Box 5650

Bismarck, North Dakota 58506-5650

(Address of principal executive offices)

(Zip Code)

(701) 530-1000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act (Check one):



Large accelerated filer ý	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o
	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý.

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of October 27, 2017: 195,304,376 shares.

Index



		Page

Definitions		3

Forward-Looking Statements		5

Introduction		5

Part I -- Financial Information

Item 1	Financial Statements
	Consolidated Statements of Income -- Three and Nine Months Ended September 30, 2017 and 2016	6

	Consolidated Statements of Comprehensive Income -- Three and Nine Months Ended September 30, 2017 and 2016	7

	Consolidated Balance Sheets -- September 30, 2017 and 2016, and December 31, 2016	8

	Consolidated Statements of Cash Flows -- Nine Months Ended September 30, 2017 and 2016	9

	Notes to Consolidated Financial Statements	10

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3	Quantitative and Qualitative Disclosures About Market Risk	44

Item 4	Controls and Procedures	44

Part II -- Other Information

Item 1	Legal Proceedings	44

Item 1A	Risk Factors	44

Item 4	Mine Safety Disclosures	44

Item 5	Other Information	44

Item 6	Exhibits	44

Signatures		45

Exhibit Index		46

Exhibits

Definitions

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



Abbreviation or Acronym
2016 Annual Report	Company's Annual Report on Form 10-K for the year ended December 31, 2016
AFUDC	Allowance for funds used during construction
ASC	FASB Accounting Standards Codification
ASU	FASB Accounting Standards Update
ATBs	Atmospheric tower bottoms
Brazilian Transmission Lines	Company's former investment in companies owning three electric transmission lines in Brazil
Calumet	Calumet Specialty Products Partners, L.P.
Capital Electric	Capital Electric Construction Company, Inc., a direct wholly owned subsidiary of MDU Construction Services
Cascade	Cascade Natural Gas Corporation, an indirect wholly owned subsidiary of MDU Energy Capital
Centennial	Centennial Energy Holdings, Inc., a direct wholly owned subsidiary of the Company
Centennial Capital	Centennial Holdings Capital LLC, a direct wholly owned subsidiary of Centennial
Centennial Resources	Centennial Energy Resources LLC, a direct wholly owned subsidiary of Centennial
Company	MDU Resources Group, Inc.
Coyote Creek	Coyote Creek Mining Company, LLC, a subsidiary of The North American Coal Corporation
Coyote Station	427-MW coal-fired electric generating facility near Beulah, North Dakota (25 percent ownership)
Dakota Prairie Refinery	20,000-barrel-per-day diesel topping plant built by Dakota Prairie Refining in southwestern North Dakota
Dakota Prairie Refining	Dakota Prairie Refining, LLC, a limited liability company previously owned by WBI Energy and Calumet (previously included in the Company's refining segment)
dk	Decatherm
Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act
EPA	United States Environmental Protection Agency
Exchange Act	Securities Exchange Act of 1934, as amended
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission
Fidelity	Fidelity Exploration & Production Company, a direct wholly owned subsidiary of WBI Holdings (previously referred to as the Company's exploration and production segment)
GAAP	Accounting principles generally accepted in the United States of America
GHG	Greenhouse gas
Great Plains	Great Plains Natural Gas Co., a public utility division of the Company
IFRS	International Financial Reporting Standards
Intermountain	Intermountain Gas Company, an indirect wholly owned subsidiary of MDU Energy Capital
IPUC	Idaho Public Utilities Commission
Knife River	Knife River Corporation, a direct wholly owned subsidiary of Centennial
Knife River - Northwest	Knife River Corporation - Northwest, an indirect wholly owned subsidiary of Knife River
kWh	Kilowatt-hour
LWG	Lower Willamette Group
MD&A	Management's Discussion and Analysis of Financial Condition and Results of Operations
MDU Construction Services	MDU Construction Services Group, Inc., a direct wholly owned subsidiary of Centennial
MDU Energy Capital	MDU Energy Capital, LLC, a direct wholly owned subsidiary of the Company
MISO	Midcontinent Independent System Operator, Inc.
MMdk	Million dk
MNPUC	Minnesota Public Utilities Commission
Montana-Dakota	Montana-Dakota Utilities Co., a public utility division of the Company
MTPSC	Montana Public Service Commission



MW	Megawatt
NDPSC	North Dakota Public Service Commission
OPUC	Oregon Public Utility Commission
Oregon DEQ	Oregon State Department of Environmental Quality
Pronghorn	Natural gas processing plant located near Belfield, North Dakota (WBI Energy Midstream's 50 percent ownership interests were sold effective January 1, 2017)
PRP	Potentially Responsible Party
RIN	Renewable Identification Number
ROD	Record of Decision
SEC	United States Securities and Exchange Commission
SSIP	System Safety and Integrity Program
Tesoro	Tesoro Refining & Marketing Company LLC
Tesoro Logistics	QEP Field Services, LLC doing business as Tesoro Logistics Rockies LLC
VIE	Variable interest entity
Washington DOE	Washington State Department of Ecology
WBI Energy	WBI Energy, Inc., a direct wholly owned subsidiary of WBI Holdings
WBI Energy Midstream	WBI Energy Midstream, LLC, an indirect wholly owned subsidiary of WBI Holdings
WBI Energy Transmission	WBI Energy Transmission, Inc., an indirect wholly owned subsidiary of WBI Holdings
WBI Holdings	WBI Holdings, Inc., a direct wholly owned subsidiary of Centennial
WUTC	Washington Utilities and Transportation Commission

Forward-Looking Statements

This Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Exchange Act. Forward-looking statements are all statements other than statements of historical fact, including without limitation those statements that are identified by the words "anticipates," "estimates," "expects," "intends," "plans," "predicts" and similar expressions, and include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions (many of which are based, in turn, upon further assumptions) and other statements that are not statements of historical facts. From time to time, the Company may publish or otherwise make available forward-looking statements of this nature, including statements contained within Part I, Item 2 - MD&A - Prospective Information.

Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed. The Company's expectations, beliefs and projections are expressed in good faith and are believed by the Company to have a reasonable basis, including without limitation, management's examination of historical operating trends, data contained in the Company's records and other data available from third parties. Nonetheless, the Company's expectations, beliefs or projections may not be achieved or accomplished.

Any forward-looking statement contained in this document speaks only as of the date on which the statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances that occur after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of the factors, nor can it assess the effect of each factor on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. All forward-looking statements, whether written or oral and whether made by or on behalf of the Company, are expressly qualified by the risk factors and cautionary statements reported in Part I, Item 1A - Risk Factors in the 2016 Annual Report and subsequent filings with the SEC.

Introduction

The Company is a regulated energy delivery and construction materials and services business, which was incorporated under the laws of the state of Delaware in 1924. Its principal executive offices are at 1200 West Century Avenue, P.O. Box 5650, Bismarck, North Dakota 58506-5650, telephone (701) 530-1000.

Montana-Dakota, Great Plains, Cascade and Intermountain comprise the natural gas distribution segment. Montana-Dakota also comprises the electric segment.

The Company, through its wholly owned subsidiary, Centennial, owns WBI Holdings, Knife River, MDU Construction Services, Centennial Resources and Centennial Capital. WBI Holdings is comprised of the pipeline and midstream segment and Fidelity, formerly the Company's exploration and production business. Knife River is the construction materials and contracting segment, MDU Construction Services is the construction services segment, and Centennial Resources and Centennial Capital are both reflected in the Other category.

For more information on the Company's business segments and discontinued operations, see Notes 8 and 13.

Part I -- Financial Information

Item 1. Financial Statements

MDU Resources Group, Inc.

Consolidated Statements of Income

(Unaudited)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
	(In thousands, except per share amounts)
Operating revenues:
Electric, natural gas distribution and regulated pipeline and midstream	$	206,936		$	192,079		$	866,035		$	783,997
Nonregulated pipeline and midstream, construction materials and contracting, construction services and other	1,065,612			1,016,488			2,412,077			2,328,733
Total operating revenues	1,272,548			1,208,567			3,278,112			3,112,730
Operating expenses:
Operation and maintenance:
Electric, natural gas distribution and regulated pipeline and midstream	79,293			77,662			235,306			229,364
Nonregulated pipeline and midstream, construction materials and contracting, construction services and other	893,616			842,878			2,115,747			2,008,122
Total operation and maintenance	972,909			920,540			2,351,053			2,237,486
Electric fuel and purchased power	18,906			16,800			57,544			54,725
Purchased natural gas sold	33,319			34,321			283,936			242,795
Depreciation, depletion and amortization	52,155			54,094			155,138			163,226
Taxes, other than income	38,882			36,128			127,273			116,864
Total operating expenses	1,116,171			1,061,883			2,974,944			2,815,096
Operating income	156,377			146,684			303,168			297,634
Other income	1,011			1,741			2,809			3,662
Interest expense	20,909			22,278			61,978			67,365
Income before income taxes	136,479			126,147			243,999			233,931
Income taxes	46,930			37,761			74,406			67,381
Income from continuing operations	89,549			88,386			169,593			166,550
Loss from discontinued operations, net of tax (Note 8)	(2,198		)	(5,400		)	(3,702		)	(299,538		)
Net income (loss)	87,351			82,986			165,891			(132,988		)
Loss from discontinued operations attributable to noncontrolling interest (Note 8)	—			—			—			(131,691		)
Loss on redemption of preferred stocks	—			—			600			—
Dividends declared on preferred stocks	—			171			171			514
Earnings (loss) on common stock	$	87,351		$	82,815		$	165,120		$	(1,811	)
Earnings (loss) per common share - basic:
Earnings before discontinued operations	$	.46		$	.45		$	.86		$	.85
Discontinued operations attributable to the Company, net of tax	(.01		)	(.03		)	(.01		)	(.86		)
Earnings (loss) per common share - basic	$	.45		$	.42		$	.85		$	(.01	)
Earnings (loss) per common share - diluted:
Earnings before discontinued operations	$	.46		$	.45		$	.86		$	.85
Discontinued operations attributable to the Company, net of tax	(.01		)	(.03		)	(.02		)	(.86		)
Earnings (loss) per common share - diluted	$	.45		$	.42		$	.84		$	(.01	)
Dividends declared per common share	$	.1925		$	.1875		$	.5775		$	.5625
Weighted average common shares outstanding - basic	195,304			195,304			195,304			195,298
Weighted average common shares outstanding - diluted	195,783			195,811			195,922			195,794

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						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
	(In thousands)
Net income (loss)	$	87,351		$	82,986		$	165,891		$	(132,988	)
Other comprehensive income (loss):
Reclassification adjustment for loss on derivative instruments included in net income (loss), net of tax of $56 and $56 for the three months ended and $168 and $170 for the nine months ended in 2017 and 2016, respectively	92			92			275			275
Postretirement liability adjustment:
Amortization of postretirement liability (gains) losses included in net periodic benefit cost (credit), net of tax of $203 and $143 for the three months ended and $609 and $(676) for the nine months ended in 2017 and 2016, respectively	333			236			1,002			(1,111		)
Reclassification of postretirement liability adjustment from regulatory asset, net of tax of $0 and $0 for the three months ended and $(725) and $0 for the nine months ended in 2017 and 2016, respectively	—			—			(917		)	—
Postretirement liability adjustment	333			236			85			(1,111		)
Foreign currency translation adjustment recognized during the period, net of tax of $9 and $(2) for the three months ended and $5 and $32 for the nine months ended in 2017 and 2016, respectively	15			(4		)	9			52
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 $(10) and $(23) for the three months ended and $(38) and $(35) for the nine months ended in 2017 and 2016, respectively	(19		)	(42		)	(70		)	(65		)
Reclassification adjustment for loss on available-for-sale investments included in net income (loss), net of tax of $14 and $18 for the three months ended and $50 and $57 for the nine months ended in 2017 and 2016, respectively	27			33			93			106
Net unrealized gain (loss) on available-for-sale investments	8			(9		)	23			41
Other comprehensive income (loss)	448			315			392			(743		)
Comprehensive income (loss)	87,799			83,301			166,283			(133,731		)
Comprehensive loss from discontinued operations attributable to noncontrolling interest	—			—			—			(131,691		)
Comprehensive income (loss) attributable to common stockholders	$	87,799		$	83,301		$	166,283		$	(2,040	)

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

MDU Resources Group, Inc.

Consolidated Balance Sheets

(Unaudited)



	September 30, 2017			September 30, 2016			December 31, 2016
(In thousands, except shares and per share amounts)
Assets
Current assets:
Cash and cash equivalents	$	37,356		$	59,868		$	46,107
Receivables, net	739,402			665,142			630,243
Inventories	232,555			245,790			238,273
Prepayments and other current assets	89,625			49,082			48,461
Current assets held for sale	304			45,867			14,391
Total current assets	1,099,242			1,065,749			977,475
Investments	133,895			126,048			125,866
Property, plant and equipment	6,658,891			6,588,445			6,510,229
Less accumulated depreciation, depletion and amortization	2,667,762			2,583,566			2,578,902
Net property, plant and equipment	3,991,129			4,004,879			3,931,327
Deferred charges and other assets:
Goodwill	631,791			641,527			631,791
Other intangible assets, net	4,209			6,529			5,925
Other	419,846			360,537			415,419
Noncurrent assets held for sale	64,333			112,440			196,664
Total deferred charges and other assets	1,120,179			1,121,033			1,249,799
Total assets	$	6,344,445		$	6,317,709		$	6,284,467
Liabilities and Stockholders' Equity
Current liabilities:
Long-term debt due within one year	$	148,499		$	93,598		$	43,598
Accounts payable	304,101			281,373			279,962
Taxes payable	108,946			59,747			48,164
Dividends payable	37,596			36,791			37,767
Accrued compensation	67,097			58,604			65,867
Other accrued liabilities	184,580			191,904			184,377
Current liabilities held for sale	5,749			18,065			9,924
Total current liabilities	856,568			740,082			669,659
Long-term debt	1,592,053			1,808,350			1,746,561
Deferred credits and other liabilities:
Deferred income taxes	652,413			662,326			668,226
Other	889,494			821,890			883,777
Total deferred credits and other liabilities	1,541,907			1,484,216			1,552,003
Commitments and contingencies
Stockholders' equity:
Preferred stocks	—			15,000			15,000
Common stockholders' equity:
Common stock
Authorized - 500,000,000 shares, $1.00 par value Shares issued - 195,843,297 at September 30, 2017 and 2016 and December 31, 2016	195,843			195,843			195,843
Other paid-in capital	1,232,766			1,231,396			1,232,478
Retained earnings	964,275			884,339			912,282
Accumulated other comprehensive loss	(35,341		)	(37,891		)	(35,733		)
Treasury stock at cost - 538,921 shares	(3,626		)	(3,626		)	(3,626		)
Total common stockholders' equity	2,353,917			2,270,061			2,301,244
Total stockholders' equity	2,353,917			2,285,061			2,316,244
Total liabilities and stockholders' equity	$	6,344,445		$	6,317,709		$	6,284,467

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

MDU Resources Group, Inc.

Consolidated Statements of Cash Flows

(Unaudited)



	Nine Months Ended
	September 30,
	2017			2016
	(In thousands)
Operating activities:
Net income (loss)	$	165,891		$	(132,988	)
Loss from discontinued operations, net of tax	(3,702		)	(299,538		)
Income from continuing operations	169,593			166,550
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization	155,138			163,226
Deferred income taxes	(16,777		)	(1,346		)
Changes in current assets and liabilities, net of acquisitions:
Receivables	(121,128		)	(75,308		)
Inventories	2,047			(4,153		)
Other current assets	(40,655		)	(18,824		)
Accounts payable	30,097			15,514
Other current liabilities	66,647			48,973
Other noncurrent changes	(15,081		)	(25,284		)
Net cash provided by continuing operations	229,881			269,348
Net cash provided by discontinued operations	42,020			7,127
Net cash provided by operating activities	271,901			276,475
Investing activities:
Capital expenditures	(222,084		)	(303,873		)
Net proceeds from sale or disposition of property and other	121,162			17,583
Investments	(260		)	56
Net cash used in continuing operations	(101,182		)	(286,234		)
Net cash provided by discontinued operations	2,234			31,918
Net cash used in investing activities	(98,948		)	(254,316		)
Financing activities:
Issuance of long-term debt	133,437			341,777
Repayment of long-term debt	(183,968		)	(236,433		)
Dividends paid	(113,131		)	(110,366		)
Redemption of preferred stock	(15,600		)	—
Repurchase of common stock	(1,684		)	—
Tax withholding on stock-based compensation	(757		)	(323		)
Net cash used in continuing operations	(181,703		)	(5,345		)
Net cash used in discontinued operations	—			(40,852		)
Net cash used in financing activities	(181,703		)	(46,197		)
Effect of exchange rate changes on cash and cash equivalents	(1		)	3
Decrease in cash and cash equivalents	(8,751		)	(24,035		)
Cash and cash equivalents -- beginning of year	46,107			83,903
Cash and cash equivalents -- end of period	$	37,356		$	59,868

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

MDU Resources Group, Inc.

Notes to Consolidated

Financial Statements

September 30, 2017 and 2016

(Unaudited)

Note 1 - Basis of presentation

The accompanying consolidated interim financial statements were prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Interim financial statements do not include all disclosures provided in annual financial statements and, accordingly, these financial statements should be read in conjunction with those appearing in the 2016 Annual Report. The information is unaudited but includes all adjustments that are, in the opinion of management, necessary for a fair presentation of the accompanying consolidated interim financial statements and are of a normal recurring nature. Depreciation, depletion and amortization expense is reported separately on the Consolidated Statements of Income and therefore is excluded from the other line items within operating expenses. Management has also evaluated the impact of events occurring after September 30, 2017, up to the date of issuance of these consolidated interim financial statements.

The assets and liabilities for the Company's discontinued operations have been classified as held for sale and the results of operations are shown in loss from discontinued operations, other than certain general and administrative costs and interest expense which do not meet the criteria for income (loss) from discontinued operations. At the time the assets were classified as held for sale, depreciation, depletion and amortization expense was no longer recorded. Unless otherwise indicated, the amounts presented in the accompanying notes to the consolidated financial statements relate to the Company's continuing operations. For more information on the Company's discontinued operations, see Note 8.

Note 2 - Seasonality of operations

Some of the Company's operations are highly seasonal and revenues from, and certain expenses for, such operations may fluctuate significantly among quarterly periods. Accordingly, the interim results for particular businesses, and for the Company as a whole, may not be indicative of results for the full fiscal year.

Note 3 - Accounts receivable and allowance for doubtful accounts

Accounts receivable consist primarily of trade receivables from the sale of goods and services which are recorded at the invoiced amount net of allowance for doubtful accounts, and costs and estimated earnings in excess of billings on uncompleted contracts. The total balance of receivables past due 90 days or more was $27.2 million, $26.3 million and $29.2 million at September 30, 2017 and 2016, and December 31, 2016, respectively.

The allowance for doubtful accounts is determined through a review of past due balances and other specific account data. Account balances are written off when management determines the amounts to be uncollectible. The Company's allowance for doubtful accounts at September 30, 2017 and 2016, and December 31, 2016, was $9.0 million, $10.2 million and $10.5 million, respectively.

Note 4 - Inventories and natural gas in storage

Natural gas in storage for the Company's regulated operations is generally carried at lower of cost or net realizable value, or cost using the last-in, first-out method. All other inventories are stated at the lower of cost or net realizable value. The portion of the cost of natural gas in storage expected to be used within one year is included in inventories. Inventories consisted of:



	September 30, 2017		September 30, 2016		December 31, 2016
	(In thousands)
Aggregates held for resale	$	116,399	$	119,078	$	115,471
Natural gas in storage (current)	29,974		35,625		25,761
Asphalt oil	26,682		23,480		29,103
Materials and supplies	20,778		18,584		18,372
Merchandise for resale	15,346		15,672		16,437
Other	23,376		33,351		33,129
Total	$	232,555	$	245,790	$	238,273

The remainder of natural gas in storage, which largely represents the cost of gas required to maintain pressure levels for normal operating purposes, was included in deferred charges and other assets - other and was $49.5 million, $49.1 million and $49.5 million at September 30, 2017 and 2016, and December 31, 2016, respectively.

Note 5 - Earnings (loss) per common share

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



	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2017	2016	2017	2016
	(In thousands)
Weighted average common shares outstanding - basic	195,304	195,304	195,304	195,298
Effect of dilutive performance share awards	479	507	618	496
Weighted average common shares outstanding - diluted	195,783	195,811	195,922	195,794
Shares excluded from the calculation of diluted earnings per share	—	—	—	—

Note 6 - New accounting standards

Recently adopted accounting standards

Balance Sheet Classification of Deferred Taxes In November 2015, the FASB issued guidance regarding the classification of deferred taxes on the balance sheet. The guidance requires all deferred tax assets and liabilities to be classified as noncurrent. These amendments align GAAP with IFRS. The Company adopted the guidance in the fourth quarter of 2016 and applied the retrospective method of adoption. The guidance required a reclassification of current deferred income taxes to noncurrent deferred income taxes on the Consolidated Balance Sheets, but did not impact the Company's results of operations or cash flows. As a result of the retrospective application of this change in accounting principle, the Company reclassified deferred income taxes of $31.4 million from current assets - deferred income taxes to deferred credits and other liabilities - deferred income taxes on its Consolidated Balance Sheet at September 30, 2016.

Simplifying the Measurement of Inventory In July 2015, the FASB issued guidance regarding inventory that is measured using the first-in, first-out or average cost method. The guidance does not apply to inventory measured using the last-in, first-out or the retail inventory method. The guidance requires inventory within its scope to be measured at the lower of cost or net realizable value, which is the estimated selling price in the normal course of business less reasonably predictable costs of completion, disposal and transportation. These amendments more closely align GAAP with IFRS. The Company adopted the guidance on January 1, 2017, on a prospective basis. The guidance did not have a material effect on the Company's results of operations, financial position, cash flows or disclosures.

Improvements to Employee Share-Based Payment Accounting In March 2016, the FASB issued guidance regarding simplification of several aspects of the accounting for share-based payment transactions. The guidance affects the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and calculation of dilutive shares. The Company adopted the guidance on January 1, 2017. All amendments in the guidance that apply to the Company were adopted on a prospective basis resulting in no adjustments being made to retained earnings. The adoption of the guidance impacted the Consolidated Statement of Income and the Consolidated Balance Sheet in the first quarter of 2017 due to the taxes related to the stock-based compensation award that vested in February 2017 being recognized as income tax expense as compared to a reduction to additional paid-in capital under the previous guidance. Adoption of the guidance also increased the number of shares included in the diluted earnings per share calculation due to the exclusion of tax benefits in the incremental shares calculation. The change in the weighted average common shares outstanding - diluted did not result in a material effect on the earnings per common share - diluted.

Recently issued accounting standards not yet adopted

Revenue from Contracts with Customers In May 2014, the FASB issued guidance on accounting for revenue from contracts with customers. The guidance provides for a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance. In August 2015, the FASB issued guidance deferring the effective date of the revenue guidance and allowing entities to early adopt. With this decision, the guidance will be effective for the Company on January 1, 2018. Entities will have the option of using either a full retrospective or modified retrospective approach to adopting the guidance.

The Company plans to adopt the guidance on January 1, 2018, and to use the modified retrospective approach. Under the modified retrospective 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. To date, the Company has not identified any material cumulative effect adjustments to be made to retained earnings. In addition, the guidance will require expanded disclosures, both quantitative and qualitative, related to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. To date, the Company has reviewed nearly all of its revenue streams, completing the

preliminary evaluation of the impact of this guidance. Based on the preliminary evaluation, the Company does not anticipate a significant change in the timing of revenue recognition, results of operations, financial position or cash flows, however the Company will continue to evaluate the impact of this guidance through the date of adoption.

Recognition and Measurement of Financial Assets and Financial Liabilities In January 2016, the FASB issued guidance regarding the classification and measurement of financial instruments. The guidance revises the way an entity classifies and measures investments in equity securities, the presentation of certain fair value changes for financial liabilities measured at fair value and amends certain disclosure requirements related to the fair value of financial instruments. This guidance will be effective for the Company on January 1, 2018, with early adoption of certain amendments permitted. The guidance should be applied using a modified retrospective approach with the exception of equity securities without readily determinable fair values which will be applied prospectively. The Company is evaluating the effects the adoption of the new guidance will have on its results of operations, financial position, cash flows and disclosures.

Classification of Certain Cash Receipts and Cash Payments In August 2016, the FASB issued guidance to clarify the classification of certain cash receipts and payments in the statement of cash flows. The guidance is intended to standardize the presentation and classification of certain transactions, including cash payments for debt prepayment or extinguishment, proceeds from insurance claim settlements and distributions from equity method investments. In addition, the guidance clarifies how to classify transactions that have characteristics of more than one class of cash flows. This guidance will be effective for the Company on January 1, 2018, with early adoption permitted. Entities must apply the guidance retrospectively unless it is impracticable to do so, in which case they may apply it prospectively as of the earliest date practicable. The Company plans to adopt the guidance on January 1, 2018. The Company's initial evaluation of the guidance did not identify any changes to the current presentation of the statement of cash flows; therefore, no retrospective adjustments to prior periods will be necessary.

Clarifying the Definition of a Business In January 2017, the FASB issued guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The guidance provides a screen to determine when an integrated set of assets and activities is not a business. The guidance will also affect other aspects of accounting, such as determining reporting units for goodwill testing and whether an entity has acquired or sold a business. The guidance will be effective for the Company on January 1, 2018, and should be applied on a prospective basis with early adoption permitted for transactions that occur before the issuance or effective date of the amendments and only when the transactions have not been reported in the financial statements or made available for issuance. The Company expects to adopt this guidance as required and does not expect the guidance to have a material effect on its results of operations, financial position, cash flows and disclosures.

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost In March 2017, the FASB issued guidance to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The guidance requires the service cost component to be presented in the income statement in the same line item or items as other compensation costs arising from services performed during the period. Other components of net benefit cost shall be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The guidance also only allows the service cost component to be capitalized. The guidance will be effective for the Company on January 1, 2018, including interim periods, with early adoption permitted as of the beginning of an annual period for which the financial statements have not been issued. The guidance shall be applied on a retrospective basis for the financial statement presentation and on a prospective basis for the capitalization of the service cost component.

The Company plans to adopt the guidance as required on January 1, 2018, which will include the reclassification of all components of net periodic benefit costs, except for the service cost component, from operating expenses to other income on the Consolidated Statements of Income. The impact upon adoption of the new guidance will be an increase to operating income and decrease to other income on the Consolidated Statements of Income and no impact to earnings. The guidance will not have a material impact on the Company's disclosures or cash flows.

Leases In February 2016, the FASB issued guidance regarding leases. The guidance requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet for operating and financing leases with terms of more than 12 months. The guidance remains largely the same for lessors, although some changes were made to better align lessor accounting with the new lessee accounting and to align with the revenue recognition standard. The guidance also requires additional disclosures, both quantitative and qualitative, related to operating and finance leases for the lessee and sales-type, direct financing and operating leases for the lessor. This guidance will be effective for the Company on January 1, 2019, and should be applied using a modified retrospective approach with early adoption permitted. The Company continues to evaluate the potential impact the adoption of the new guidance will have on its results of operations, financial position, cash flows and disclosures. The Company is planning to adopt the standard on January 1, 2019, utilizing the practical expedient that allows the Company to not reassess whether an expired or existing contract contains a lease, the classification of leases or initial direct costs.

Simplifying the Test for Goodwill Impairment In January 2017, the FASB issued guidance on simplifying the test for goodwill impairment by eliminating Step 2, which required an entity to measure the amount of impairment loss by comparing the implied fair value of reporting unit goodwill with the carrying amount of such goodwill. This guidance requires entities to perform a quantitative impairment test, previously Step 1, to identify both the existence of impairment and the amount of impairment loss

by comparing the fair value of a reporting unit to its carrying amount. Entities will continue to have the option of performing a qualitative assessment to determine if the quantitative impairment test is necessary. The guidance also requires additional disclosures if an entity has one or more reporting units with zero or negative carrying amounts of net assets. The guidance will be effective for the Company on January 1, 2020, and should be applied on a prospective basis with early adoption permitted. The Company is evaluating the effects the adoption of the new guidance will have on its results of operations, financial position, cash flows and disclosures.

Note 7 - Comprehensive income (loss)

The after-tax changes in the components of accumulated other comprehensive loss were as follows:



Three Months Ended September 30, 2017	Net Unrealized Gain (Loss) on Derivative Instruments Qualifying as Hedges			Postretirement Liability Adjustment			Foreign Currency Translation Adjustment			Net Unrealized Gain (Loss) on Available-for-sale Investments			Total Accumulated Other Comprehensive Loss
	(In thousands)
Balance at beginning of period	$	(2,117	)	$	(33,469	)	$	(155	)	$	(48	)	$	(35,789	)
Other comprehensive income (loss) before reclassifications	—			—			15			(19		)	(4		)
Amounts reclassified from accumulated other comprehensive loss	92			333			—			27			452
Net current-period other comprehensive income	92			333			15			8			448
Balance at end of period	$	(2,025	)	$	(33,136	)	$	(140	)	$	(40	)	$	(35,341	)



Three Months Ended September 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	$	(2,484	)	$	(35,604	)	$	(144	)	$	26		$	(38,206	)
Other comprehensive loss before reclassifications	—			—			(4		)	(42		)	(46		)
Amounts reclassified from accumulated other comprehensive loss	92			236			—			33			361
Net current-period other comprehensive income (loss)	92			236			(4		)	(9		)	315
Balance at end of period	$	(2,392	)	$	(35,368	)	$	(148	)	$	17		$	(37,891	)



Nine Months Ended September 30, 2017	Net Unrealized Gain (Loss) on Derivative Instruments Qualifying as Hedges			Postretirement Liability Adjustment			Foreign Currency Translation Adjustment			Net Unrealized Gain (Loss) on Available-for-sale Investments			Total Accumulated Other Comprehensive Loss
	(In thousands)
Balance at beginning of period	$	(2,300	)	$	(33,221	)	$	(149	)	$	(63	)	$	(35,733	)
Other comprehensive income (loss) before reclassifications	—			—			9			(70		)	(61		)
Amounts reclassified from accumulated other comprehensive loss	275			1,002			—			93			1,370
Amounts reclassified to accumulated other comprehensive loss from a regulatory asset	—			(917		)	—			—			(917		)
Net current-period other comprehensive income	275			85			9			23			392
Balance at end of period	$	(2,025	)	$	(33,136	)	$	(140	)	$	(40	)	$	(35,341	)



Nine Months Ended September 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	—			—			52			(65		)	(13		)
Amounts reclassified from accumulated other comprehensive loss	275			(1,111		)	—			106			(730		)
Net current-period other comprehensive income (loss)	275			(1,111		)	52			41			(743		)
Balance at end of period	$	(2,392	)	$	(35,368	)	$	(148	)	$	17		$	(37,891	)

Reclassifications out of accumulated other comprehensive loss were as follows:



	Three Months Ended						Nine Months Ended						Location on Consolidated Statements of Income
	September 30,						September 30,
	2017			2016			2017			2016
	(In thousands)
Reclassification adjustment for loss on derivative instruments included in net income (loss)	$	(148	)	$	(148	)	$	(443	)	$	(445	)	Interest expense
	56			56			168			170			Income taxes
	(92		)	(92		)	(275		)	(275		)
Amortization of postretirement liability gains (losses) included in net periodic benefit cost (credit)	(536		)	(379		)	(1,611		)	1,787			(a)
	203			143			609			(676		)	Income taxes
	(333		)	(236		)	(1,002		)	1,111
Reclassification adjustment for loss on available-for-sale investments included in net income (loss)	(41		)	(51		)	(143		)	(163		)	Other income
	14			18			50			57			Income taxes
	(27		)	(33		)	(93		)	(106		)
Total reclassifications	$	(452	)	$	(361	)	$	(1,370	)	$	730

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

Note 8 - Assets held for sale and discontinued operations

Assets held for sale

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

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

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



	December 31, 2016
	(In thousands)
Assets
Current assets:
Prepayments and other current assets	$	68
Total current assets held for sale	68
Noncurrent assets:
Net property, plant and equipment	93,424
Goodwill	9,737
Less allowance for impairment of assets held for sale	2,311
Total noncurrent assets held for sale	100,850
Total assets held for sale	$	100,918

Discontinued operations

The assets and liabilities of the Company's discontinued operations have been classified as held for sale and the results of operations are shown in loss from discontinued operations, other than certain general and administrative costs and interest expense which do not meet the criteria for income (loss) from discontinued operations. At the time the assets were classified as held for sale, depreciation, depletion and amortization expense was no longer recorded.

Dakota Prairie Refining On June 24, 2016, WBI Energy entered into a membership interest purchase agreement with Tesoro to sell all of the outstanding membership interests in Dakota Prairie Refining to Tesoro. WBI Energy and Calumet each previously owned 50 percent of the Dakota Prairie Refining membership interests and were equal members in building and operating Dakota Prairie Refinery. To effectuate the sale, WBI Energy acquired Calumet’s 50 percent membership interest in Dakota Prairie Refining on June 27, 2016. The sale of the membership interests to Tesoro closed on June 27, 2016. The sale of Dakota Prairie Refining reduces the Company’s risk by decreasing exposure to commodity prices.

In connection with the sale, WBI Energy had cash in an escrow account for RINs obligations, which was included in current assets held for sale on the Consolidated Balance Sheet at September 30, 2016. The Company retained certain liabilities of Dakota Prairie Refining which were reflected in current liabilities held for sale on the Consolidated Balance Sheets. In October 2016, the RINs liability was paid and the cash was removed from escrow. 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 16.

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



	September 30, 2017			September 30, 2016		December 31, 2016
	(In thousands)
Assets
Current assets:
Receivables, net	$	—		$	13	$	—
Income taxes receivable	8,444		(a)	32,388		13,987
Prepayments and other current assets	—			7,741		—
Total current assets held for sale	8,444			40,142		13,987
Noncurrent assets:
Deferred income taxes	—			2,984		—
Total noncurrent assets held for sale	—			2,984		—
Total assets held for sale	$	8,444		$	43,126	$	13,987
Liabilities
Current liabilities:
Accounts payable	$	—		$	7,063	$	7,425
Other accrued liabilities	—			7,743		—
Total current liabilities held for sale	—			14,806		7,425
Noncurrent liabilities:
Deferred income taxes (b)	55			—		14
Total noncurrent liabilities held for sale	55			—		14
Total liabilities held for sale	$	55		$	14,806	$	7,439


(a)	On the Company's Consolidated Balance Sheets, this amount was reclassified to income taxes payable and is reflected in current liabilities held for sale.


(b)	On the Company's Consolidated Balance Sheets, these amounts were reclassified to noncurrent deferred income tax assets and are

reflected in noncurrent assets held for sale.<