FORM 10-K

82

MDU RESOURCES G ROUP, INC.

PART II

NOTE 2 -- ACQUISITIONS

In 2007, the Company acquired construction materials and contracting businesses in North Dakota, Texas and Wyoming, a construction

services business in Nevada, and Cascade, a natural gas distribution business, as discussed below. The total purchase consideration for

these businesses and properties and purchase price adjustments with respect to certain other acquisitions made prior to 2007, consisting

of the Company's common stock and cash and the outstanding indebtedness of Cascade, was $526.3 million.

On July 2, 2007, the acquisition of Cascade was finalized and Cascade became an indirect wholly owned subsidiary of the Company. The

acquisition of Cascade was funded with cash (largely proceeds from the sale of the domestic independent power production assets) and

debt. Cascade's natural gas service areas are in Washington and Oregon.

In 2006, the Company acquired a construction services business in Nevada, natural gas and oil production properties in Wyoming, and

construction materials and contracting businesses in California and Washington, none of which was material. The total purchase

consideration for these businesses and properties and purchase price adjustments with respect to certain other acquisitions made prior to

2006, consisting of the Company's common stock and cash, was $120.6 million.

In 2005, the Company acquired construction services businesses in Nevada, natural gas and oil production properties in southern Texas

and construction materials and contracting businesses in Idaho, Iowa and Oregon, none of which was material. The total purchase

consideration for these businesses and properties and purchase price adjustments with respect to certain other acquisitions acquired prior

to 2005, consisting of the Company's common stock and cash, was $245.2 million.

The above acquisitions were accounted for under the purchase method of accounting and, accordingly, the acquired assets and liabilities

assumed have been preliminarily recorded at their respective fair values as of the date of acquisition. On certain of the above acquisitions

made in 2007, final fair market values are pending the completion of the review of the relevant assets and liabilities as of the acquisition

date. The results of operations of the acquired businesses and properties are included in the financial statements since the date of each

acquisition. Pro forma financial amounts reflecting the effects of the above acquisitions are not presented, as such acquisitions were not

material to the Company's financial position or results of operations.

NOTE 3 -- DISCONTINUED OPERATIONS

Innovatum, a component of the pipeline and energy services segment, specialized in cable and pipeline magnetization and location. During

the third quarter of 2006, the Company initiated a plan to sell Innovatum because the Company determined that Innovatum is a non-

strategic asset. During the fourth quarter of 2006, the stock and a portion of the assets of Innovatum were sold and the Company sold the

remaining assets of Innovatum on January 23, 2008. The loss on disposal of Innovatum was not material.

During the fourth quarter of 2006, the Company initiated a plan to sell certain of the domestic assets of Centennial Resources. The plan to

sell was based on the increased market demand for independent power production assets, combined with the Company's desire to

efficiently fund future capital needs. The results of operations of these assets were shown in continuing operations in the Company's

financial statements in the Company's 2006 Annual Report on Form 10-K as the Company intended to have significant continuing

involvement with these assets in the form of continuing existing operation and maintenance agreements between CEM and these assets

after the sale.

The Company subsequently committed to a plan to sell CEM due to strong interest in the operations of CEM during the bidding process for

the domestic independent power production assets in the first quarter of 2007. As a result of the Company's commitment to a plan to sell

CEM, the Company would no longer have significant continuing involvement in the operations of the other domestic independent power

production assets after the sale. Therefore, in accordance with SFAS No. 144, the results of operations of the domestic independent power

production assets, including CEM, are presented as discontinued operations.

On July 10, 2007, Centennial Resources sold its domestic independent power production business consisting of Centennial Power and CEM

to Bicent Power LLC (formerly known as Montana Acquisition Company LLC). The transaction was valued at $636 million, which included

the assumption of approximately $36 million of project-related debt. The gain on the sale of the assets, excluding the gain on the sale of

Hartwell as discussed in Note 4, was approximately $85.4 million (after tax). A portion of the proceeds from the sale was used to pay a

dividend to the Company. This dividend was then used to prepay, in part, the outstanding term loan indebtedness that was incurred by the

Company to fund the Cascade acquisition. The remaining proceeds of the sale provided additional cash for growth opportunities.

In accordance with SFAS No. 144, the Company's consolidated financial statements and accompanying notes for prior periods have been

restated to present the results of operations of Innovatum and the domestic independent power production assets as discontinued

operations. In addition, the assets and liabilities of these operations were treated as held for sale, and as a result, no depreciation, depletion

and amortization expense was recorded from the time each of the assets was classified as held for sale.

In accordance with SFAS No. 142, at the time the Company committed to the plan to sell each of the assets, the Company was required to

test the respective assets for goodwill impairment. The fair value of Innovatum, a reporting unit for goodwill impairment testing, was

estimated using the expected proceeds from the sale, which was estimated to be the current book value of the assets of Innovatum other

than its goodwill. As a result, a goodwill impairment of $4.3 million (before tax) was recognized and recorded as part of discontinued

operations, net of tax, in the Consolidated Statements of Income in the third quarter of 2006. There were no goodwill impairments

associated with the other assets held for sale.