UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
OR
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 (I.R.S. Employer Identification No.)
incorporation or organization)
400 North Fourth Street 58501
Bismarck, North Dakota (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (701) 222-7900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
Common Stock, par value $3.33 on which registered
and Preference Share Purchase Rights New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Preferred Stock, par value $100
(Title of Class)
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 X . No __.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. X
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant as of February 24, 1995: $510,213,000.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of February 24, 1995: 18,984,654 shares.
DOCUMENTS INCORPORATED BY REFERENCE.
1. Pages 27 through 53 of the Annual Report to Stockholders for 1994,
incorporated in Part II, Items 6 and 8 of this Report.
2. Proxy Statement, dated March 6, 1995, incorporated in Part III,
Items 10, 11, 12 and 13 of this Report.
<PAGE>
CONTENTS
PART I
Items 1 and 2 -- Business and Properties
General 2
Montana-Dakota Utilities Co.
Electric Generation, Transmission and Distribution
Retail Natural Gas and Propane Distribution
Williston Basin Interstate Pipeline Company
Knife River Coal Mining Company
Coal Operations
Construction Materials Operations
Consolidated Mining and Construction Materials
Operations
Fidelity Oil Group
Item 3 -- Legal Proceedings
Item 4 -- Submission of Matters to a Vote of
Security Holders
PART II
Item 5 -- Market for the Registrant's Common Stock and
Related Stockholder Matters
Item 6 -- Selected Financial Data
Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Item 8 -- Financial Statements and Supplementary Data
Item 9 -- Change in and Disagreements with Accountants
on Accounting and Financial Disclosure
PART III
Item 10 -- Directors and Executive Officers of the
Registrant
Item 11 -- Executive Compensation
Item 12 -- Security Ownership of Certain Beneficial
Owners and Management
Item 13 -- Certain Relationships and Related
Transactions
PART IV
Item 14 -- Exhibits, Financial Statement Schedules and
Reports on Form 8-K<PAGE>
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
General
MDU Resources Group, Inc. (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 400
North Fourth Street, Bismarck, North Dakota 58501, telephone
(701) 222-7900.
Montana-Dakota Utilities Co. (Montana-Dakota), the public
utility division of the Company, provides electric and/or natural
gas and propane distribution service at retail to 255 communities
in North Dakota, eastern Montana, northern and western South Dakota
and northern Wyoming, and owns and operates electric power
generation and transmission facilities.
The Company, through its wholly-owned subsidiary, Centennial
Energy Holdings, Inc. (Centennial), owns Williston Basin Interstate
Pipeline Company (Williston Basin), Knife River Coal Mining Company
(Knife River), the Fidelity Oil Group (Fidelity Oil) and
Prairielands Energy Marketing, Inc. (Prairielands).
Williston Basin produces natural gas and provides
underground storage, transportation and gathering
services through an interstate pipeline system serving
Montana, North Dakota, South Dakota and Wyoming.
Knife River surface mines and markets low sulfur
lignite coal at mines located in Montana and North
Dakota and, through its wholly-owned subsidiary, KRC
Holdings, Inc., surface mines and markets aggregates
and related construction materials in the Anchorage,
Alaska area, southern Oregon and north-central
California.
Fidelity Oil is comprised of Fidelity Oil Co. and
Fidelity Oil Holdings, Inc., which own oil and natural
gas interests in the western United States, the Gulf
Coast and Canada through investments with several oil
and natural gas producers.
Prairielands seeks new energy markets while continuing
to expand present markets for natural gas. Its
activities include buying and selling natural gas and
arranging transportation services to end users,
pipelines and local distribution companies and,
through its wholly-owned subsidiary, Gwinner Propane,
Inc., operating bulk propane facilities in
southeastern North Dakota.
The significant industries within the Company's retail utility
service area consist of agriculture and the related processing of
agricultural products and energy-related activities such as oil and
natural gas production, oil refining, coal mining and electric
power generation.
Details applicable to the Company's continuing construction
program and the expansion of the Company's non-regulated mining and
construction materials, and oil and natural gas production
operations are discussed in the sections devoted to each business.
See Item 7 -- "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of "Liquidity
and Capital Commitments" and the anticipated level of funds to be
generated internally for these activities.
All of the Company's electric and natural gas distribution
properties, with certain exceptions, are subject to the lien of the
Indenture of Mortgage dated May 1, 1939, as supplemented and
amended, from the Company to The Bank of New York and W. T.
Cunningham, successor trustees.
As of December 31, 1994, the Company had 2,053 full-time
employees with 94 employed at MDU Resources Group, Inc., including
Fidelity Oil and Prairielands, 1,208 at Montana-Dakota, 281 at
Williston Basin, 184 at Knife River's coal operations and 286 at
Knife River's construction materials operations. Approximately 567
and 89 of the Montana-Dakota and Williston Basin employees,
respectively, are represented by the International Brotherhood of
Electrical Workers. Labor contracts with such employees are in
effect through August 1995, for Montana-Dakota and December 1996,
for Williston Basin. Knife River's coal operations have a labor
contract through August 1995, with the United Mine Workers of
America, which represents its hourly workforce approximating 126
employees. Knife River's construction materials operations have
eight labor contracts covering 155 employees. These contracts have
expiration dates ranging from December 1995, to May 1997.
The financial results and data applicable to each of the
Company's business segments as well as their financing requirements
are set forth in Item 7 -- "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
Any reference to the Company's Consolidated Financial
Statements and Notes thereto shall be to the Consolidated Financial
Statements and Notes thereto contained on pages 27 through 51 in
the Company's Annual Report to Stockholders for 1994 (Annual
Report), which are incorporated by reference herein.
ENERGY DISTRIBUTION OPERATIONS AND PROPERTY (MONTANA-DAKOTA)
Electric Generation, Transmission and Distribution
General --
Montana-Dakota provides electric service at retail, serving
over 111,000 residential, commercial, industrial and municipal
customers located in 176 communities and adjacent rural areas as of
December 31, 1994. The principal properties owned by Montana-
Dakota for use in its electric operations include interests in
seven electric generating stations, as further described under
"System Supply, System Demand and Competition", and over 3,100
miles and 3,800 miles of transmission lines and distribution lines,
respectively. Montana-Dakota has obtained and holds valid and
existing franchises authorizing it to conduct its electric
operations in all of the municipalities it serves where such
franchises are required. As of December 31, 1994, Montana-Dakota's
net electric plant investment approximated $276.0 million.
The electric operations of Montana-Dakota are subject to
regulation by the Federal Energy Regulatory Commission (FERC) under
provisions of the Federal Power Act with respect to the
transmission and sale of power at wholesale in interstate commerce,
interconnections with other utilities, the issuance of securities,
accounting and other matters. These operations, including retail
rates, service, accounting and, in certain cases, security
issuances are also subject to regulation by the public service
commissions of North Dakota, Montana, South Dakota and Wyoming.
The percentage of Montana-Dakota's 1994 electric utility retail
operating revenues by jurisdiction is as follows: North Dakota --
60%; Montana -- 23%; South Dakota -- 8% and Wyoming -- 9%.
System Supply, System Demand and Competition --
Through an interconnected electric system, Montana-Dakota
serves markets in portions of the following states and their major
communities -- western North Dakota, including Bismarck, Dickinson
and Williston; eastern Montana, including Glendive and Miles City;
and northern South Dakota, including Mobridge. The interconnected
system consists of seven on-line electric generating stations
(including interests in the Big Stone Station and the Coyote
Station aggregating 22.7% and 25.0%, respectively) which have an
aggregate turbine nameplate rating attributable to Montana-Dakota's
interest of 394,588 Kilowatts (kW) and a total summer net
capability of 414,911 kW. The four principal generating stations
are steam-turbine generating units using lignite coal for fuel.
The nameplate rating for Montana-Dakota's ownership interest in
these four plants is 327,758 kW. The balance of Montana-Dakota's
interconnected system electric generating capability is supplied by
three combustion turbine peaking stations. Additionally, Montana-
Dakota has contracted to purchase ultimately up to 66,000 kW of
participation power from Basin Electric Power Cooperative (Basin)
(56,000 kW in 1994) for its interconnected system as described
herein. The following table sets forth details applicable to the
Company's electric generating stations:
Nameplate Summer 1994 Net
Generating Rating Capability Generation
Station Type (kW) (kW) (MWh)
North Dakota --
Coyote* Steam 103,647 106,500 620,714
Heskett Steam 86,000 102,000 442,911
Williston Combustion
Turbine 7,800 10,000 (38)**
South Dakota --
Big Stone* Steam 94,111 102,511 570,058
Montana --
Lewis & Clark Steam 44,000 43,800 256,582
Glendive Combustion
Turbine 34,780 30,100 7,053
Miles City Combustion
Turbine 24,250 20,000 3,839
394,588 414,911 1,901,119
*Reflects Montana-Dakota's ownership interest.
**Station use exceeded generation.
Virtually all of the current fuel requirements of Montana-
Dakota's principal generating stations are met with lignite coal
supplied by Knife River under various long-term contracts. See
below for a further discussion of the nonrenewal of the Big Stone
Station coal contract with Knife River.
During the years ended December 31, 1990, through December 31,
1994, the average cost of lignite coal consumed, including freight,
per million British thermal units (Btu) at Montana-Dakota's
electric generating stations (including the Big Stone and Coyote
stations) in the interconnected system and the average cost per
ton, including freight, of the lignite coal so consumed was as
follows:
Years Ended December 31,
1994 1993 1992 1991 1990
Average cost of
lignite coal per
million Btu. . . . $.97 $.96 $.97 $.99 $.98
Average cost of
lignite coal
per ton. . . . . . $12.88 $12.78 $12.79 $13.06 $13.10
In recent years, Knife River, in response to competitive
pressure, has reduced its coal prices and/or not passed through
cost increases which are allowed under the contracts. These price
concessions have allowed Montana-Dakota to be more competitive in
the Mid-Continent Area Power Pool (MAPP).
In June 1994, the owners of the Big Stone Station notified
Knife River that its contract for supplying approximately 2.1
million tons of lignite coal annually would not be renewed upon
expiration in mid-1995. To replace this coal supply, the Big Stone
Station owners entered into a contract with Westmoreland Resources,
Inc. (Westmoreland), which becomes effective immediately upon
termination of the existing contract and expires on December 31,
1999. Under the new contract, the Big Stone Station will purchase
from Westmoreland a minimum of 1.2 million tons annually with a
maximum not to exceed 2 million tons. Any fuel requirements which
exceed the amounts purchased from Westmoreland are expected to be
satisfied through spot market purchases.
The maximum electric peak demand experienced to date
attributable to sales to retail customers on the interconnected
system was 387,100 kW in July 1991. The 1994 summer peak was
369,800 kW. Montana-Dakota's latest forecast for its
interconnected system indicates that its annual peak will continue
to occur during the summer and the peak demand growth rate through
1999 will approximate 2.1% annually. Kilowatt-hour (kWh) sales
have increased approximately 1.3% annually during the most recent
five years. Montana-Dakota's latest forecast indicates that its
sales growth rates through 1999 will approximate .9% annually.
Montana-Dakota has a participation power contract through
October 31, 2006, with Basin for the ultimate purchase of up to
approximately 66,000 kW (14.8% of the unit's maximum net capacity)
from the Antelope Valley Station II, a lignite coal-fired
generating station located near Beulah, North Dakota. Currently
Montana-Dakota purchases 56,000 kW of such capacity and, under the
terms of the contract, Montana-Dakota will purchase, on an
incremental basis, an additional 5,000 kW of capacity each year for
the years 1995 and 1996 for a total of 66,000 kW annually for the
period 1996 through October 31, 2006. The contract requires the
payment of a fixed monthly demand charge in addition to a per unit
charge for power actually purchased.
Montana-Dakota anticipates having a summer capacity position
(after providing for the 15% MAPP reserve requirement) as follows:
1995 -- 21,000 kW reserve; 1996 -- 22,000 kW reserve; 1997 --
18,000 kW reserve; 1998 -- 14,000 kW reserve and 1999 -- 8,000 kW
reserve.
Montana-Dakota has major interconnections with its neighboring
utilities, all of whom are MAPP members, which it considers
adequate for coordinated planning, emergency assistance, exchange
of capacity and energy and power supply reliability.
Through a separate electric system (Sheridan System), Montana-
Dakota serves Sheridan, Wyoming and neighboring communities. That
system is supplied through an interconnection with Pacific Power &
Light Company under a supply contract through December 31, 1996.
The maximum peak demand experienced to date and attributable to
Montana-Dakota sales to retail consumers on that system was
approximately 46,600 kW and occurred in December 1983. Due to the
implementation of a peak shaving load management system, Montana-
Dakota estimates this annual peak will not be exceeded through
1998.
On September 9, 1994, Montana-Dakota entered into a ten-year
power supply contract with Black Hills Corporation, which operates
its electric utility as Black Hills Power and Light Company (BHPL).
Beginning January 1, 1997, BHPL will supply the electric power and
energy for Montana-Dakota's electric service requirements for its
Sheridan System. The contract is subject to approval of the FERC.
Montana-Dakota has in place integrated resource plans which are
used in planning for a reliable future supply of electricity which
will coincide with anticipated customer demand. On the supply
side, Montana-Dakota currently estimates that it has adequate
capacity available through existing generating stations and long-
term firm purchase contracts until approximately the year 2005. On
the demand side, Montana-Dakota currently offers rate and other
incentives to its customers designed to promote conservation, load
shifting and peak shaving efforts. The development and evaluation
of other economically feasible strategic marketing programs
continues. Montana-Dakota has filed, as required pursuant to
established filing requirements, its integrated resource plans with
the Montana, North Dakota and Wyoming public service commissions.
The electric utility industry has become, and can be expected
to become increasingly competitive, due to a variety of regulatory,
economic and technological changes. The increasing level of
competition is being fostered, in part, by the enactment in 1992 of
the National Energy Policy Act (NEPA). NEPA encourages competition
by allowing both utilities and non-utilities to form non-regulated
generation subsidiaries to supply additional electric demand
without being restricted by the Public Utility Holding Company Act
of 1935. As a result of competition in electric generation,
wholesale power markets have become increasingly competitive. In
addition, the FERC may order access to utility transmission systems
by third-party energy producers on a case-by-case basis and may
order electric utilities to enlarge their transmission systems to
transport (wheel) power, subject to certain conditions. To date,
no third party producers are connected to Montana-Dakota's system.
Although NEPA specifically bans federally-mandated wheeling of
power for retail customers, several state public utility regulatory
commissions are currently studying retail wheeling and at least two
of these states, California and Michigan, have proposed
implementing retail wheeling on a phased or experimental basis.
Retail wheeling means the movement of electric energy produced
by another entity over an electric utility's transmission and
distribution system, to a retail customer in the utility's service
territory. A requirement to transmit electricity directly to
retail customers would permit retail customers to purchase electric
capacity and energy from the electric utility in whose service area
they are located or from any other electric utility or independent
power producer. None of the legislatures or utility commissions in
Montana-Dakota's service territory have instituted proceedings on
retail wheeling at this time.
With the passage of NEPA and the advent of a more competitive
electric utility environment, Montana-Dakota has intensified its
ongoing strategic planning process and is implementing changes to
increase its competitiveness. Several of these changes include
consolidating small offices, modifying and simplifying operating
practices, maximizing the efficient utilization of electric
generating facilities and the utilization of state-of-the art
computer technology. Although Montana-Dakota is unable to predict
the extent of competition in the future or provide assurances as to
the effect of such on its operations, Montana-Dakota is presently
taking steps to effectively operate in an increasingly competitive
environment.
Regulatory Matters --
The cost of coal purchased from Knife River for use at
Montana-Dakota's electric generating stations is subject to certain
recoverability limits established by the Montana, North Dakota and
South Dakota public service commissions. These limits allow for
the recovery of coal costs which are established based on the
commissions' determination of a reasonable return on equity for
Knife River's coal operations, regardless of the actual cost of
coal purchased. Although disallowances have occurred in the past,
such amounts have not been material to Montana-Dakota's electric
operations. Legislation has been introduced in the states of North
Dakota and Montana which is intended to remove the effects of these
limitations.
Fuel adjustment clauses contained in North Dakota and South
Dakota jurisdictional electric rate schedules allow Montana-Dakota
to reflect increases or decreases in fuel and purchased power costs
(excluding demand charges) on a timely basis. Expedited rate
filing procedures in Wyoming allow Montana-Dakota to timely reflect
increases or decreases in fuel and purchased power costs as well as
changes in demand and load management costs. In Montana (23% of
electric revenues), such cost changes are includible in general
rate filings.
As a result of a 1993 inquiry by the North Dakota Public
Service Commission (NDPSC) regarding the level of Montana-Dakota's
electric earnings, the NDPSC reconsidered its prior order in which
it had permitted deferral, for a limited time period, of additional
expenses related to the implementation by Montana-Dakota of
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" (SFAS
No. 106). On January 19, 1994, the NDPSC issued an order which
requires the expensing, commencing January 1, 1994, of the ongoing
SFAS No. 106 incremental expense estimated at approximately $1.0
million annually. The order further stated that the SFAS No. 106
costs deferred by Montana-Dakota in 1993 are expected to be
recoverable in future rates.
Capital Requirements --
The following schedule (in millions of dollars) summarizes the
1994 actual and 1995 through 1997 anticipated construction
expenditures applicable to Montana-Dakota's electric operations:
Actual Estimated
1994 1995 1996 1997
Production . . . . . . . . $ 1.8 $ 6.0 $ 7.1 $ 6.7
Transmission . . . . . . . 1.4 1.7 2.5 2.0
Distribution, General
and Common . . . . . . . 11.0 9.4 10.8 8.2
$14.2 $17.1 $20.4 $16.9
Environmental Matters --
Montana-Dakota's electric operations, are subject to extensive
federal, state and local laws and regulations providing for
environmental, air, water and solid waste pollution control; state
facility-siting regulations; zoning and planning regulations of
certain state and local authorities; federal health and safety
regulations and state hazard communication standards.
Montana-Dakota believes it is in substantial compliance with all
existing applicable regulations, including environmental
regulations, as well as all applicable permitting requirements.
The Clean Air Act (Act) requires electric generating facilities
to reduce sulfur dioxide emissions by the year 2000 to a level not
exceeding 1.2 pounds per million Btu. Montana-Dakota's baseload
electric generating stations are lignite coal fired. All of these
stations, with the exception of the Big Stone Station, are equipped
with scrubbers or utilize an atmospheric fluidized bed combustion
boiler, which permits them to operate with emission levels less than
the 1.2 pounds per million Btu. Current assessments indicate that
the emissions requirement is expected to be met at the Big Stone
Station by switching to competitively priced lower sulfur
("compliance") coal.
In addition, the Act will limit the amount of nitrous oxide
emissions, although the rules as they relate to the majority of
Montana-Dakota's generating stations have not yet been finalized.
Accordingly, Montana-Dakota is unable to determine what
modifications may be necessary or the costs associated with any
changes which may be required.
Governmental regulations establishing environmental protection
standards are continuously evolving and, therefore, the character,
scope, cost and availability of the measures which will permit
compliance with evolving laws or regulations, cannot now be
accurately predicted. Montana-Dakota did not incur any significant
environmental expenditures in 1994 and does not expect to incur any
substantial capital expenditures related to environmental
facilities during 1995 through 1997.
Retail Natural Gas and Propane Distribution
General --
Montana-Dakota sells natural gas at retail, serving over 191,000
residential, commercial and industrial customers located in 140
communities and adjacent rural areas as of December 31, 1994, and
provides natural gas transportation services to certain customers
on its system. These services are provided through a natural gas
distribution system aggregating nearly 4,000 miles. In addition,
Montana-Dakota sells propane at retail, serving over 600 residential
and commercial customers in two small communities through propane
distribution systems aggregating 14 miles. Montana-Dakota has
obtained and holds valid and existing franchises authorizing it to
conduct natural gas and propane distribution operations in all of
the municipalities it serves where such franchises are required.
As of December 31, 1994, Montana-Dakota's net gas and propane
distribution plant investment approximated $83.4 million.
The natural gas distribution operations of Montana-Dakota are
subject to regulation by the public service commissions of North
Dakota, Montana, South Dakota and Wyoming regarding retail rates,
service, accounting and, in certain instances, security issuances.
The percentage of Montana-Dakota's 1994 natural gas and propane
utility operating revenues by jurisdiction is as follows: North
Dakota -- 44%; Montana -- 31%; South Dakota -- 18% and Wyoming --
7%.
System Supply, System Demand and Competition --
Montana-Dakota serves retail natural gas markets, consisting
principally of residential and firm commercial space and water
heating users, in portions of the following states and their major
communities -- North Dakota, including Bismarck, Dickinson,
Williston, Minot and Jamestown; eastern Montana, including Billings,
Glendive and Miles City; western and north-central South Dakota,
including Rapid City, Pierre and Mobridge; and northern Wyoming,
including Sheridan. These markets are highly seasonal and volumes
sold depend on weather patterns.
During 1993 and 1994, Montana-Dakota extended natural gas
service to 11 north-central South Dakota communities at a cost of
$8.3 million. This extension has the potential of adding
approximately 1.6 million decatherms (MMdk) to annual natural gas
sales.
The following table reflects Montana-Dakota's natural gas and
propane sales and natural gas transportation volumes during the last
five years:
Years Ended December 31,
Retail Natural Gas 1994 1993 1992 1991 1990
and Propane Throughput Mdk (thousands of decatherms)
Sales:
Residential. . . . . . 19,039 19,565 17,141 18,904 16,486
Commercial . . . . . . 12,403 11,196 9,256 10,865 11,382
Industrial . . . . . . 398 386 284 305 410
Total Sales. . . . . 31,840 31,147 26,681 30,074 28,278
Transportation:
Commercial . . . . . . 2,011 3,461 3,450 3,582 2,982
Industrial . . . . . . 7,267 9,243 10,292 8,679 8,824
Total Transporta-
tion . . . . . . . 9,278 12,704 13,742 12,261 11,806
Total Throughput . . . . 41,118 43,851 40,423 42,335 40,084
The restructuring of the natural gas industry, as described
under "Interstate Natural Gas Transmission Operations and Property
(Williston Basin)", has resulted in additional competition in
retail natural gas markets. In response to this increased
competition, Montana-Dakota has established various natural gas
transportation service rates for its distribution business to
retain interruptible commercial and industrial load. Certain of
these services include transportation under flexible rate schedules
and capacity release contracts whereby Montana-Dakota's
interruptible customers can avail themselves of the advantages of
open access transportation on the Williston Basin system. These
services have enhanced Montana-Dakota's competitive posture with
alternate fuels.
However, certain of Montana-Dakota's customers have the
potential of bypassing its distribution system by directly
accessing Williston Basin's or other pipelines' facilities. In
early 1994, two oil refineries located in Montana bypassed Montana-
Dakota through an interconnection with another company's
transportation facilities. Montana-Dakota continues to provide
limited services to these customers. The future utilization of
Montana-Dakota's facilities by these customers will be dependent
upon the competitiveness of its services.
The Company has been targeting small and large fleet vehicle
owners for the use of compressed natural gas (CNG) as a vehicle
fuel. CNG is a more environmentally sound fuel than gasoline,
dramatically reducing carbon monoxide and other emissions, and
costs substantially less than gasoline.
In recent years, Montana-Dakota has obtained the majority of
its annual natural gas requirements from Williston Basin, with the
balance being provided by various producers under firm contracts.
However, commensurate with Williston Basin's unbundling of its
various services as a result of its implementation of the FERC's
Order 636 in November 1993, as further described under "Interstate
Natural Gas Transmission Operations and Property (Williston Basin)"
Montana-Dakota elected to acquire approximately 85 percent of its
system requirements directly from producers and processors with the
balance still being provided by Williston Basin from its owned
natural gas reserves. Such natural gas is supplied under firm
contracts varying in length from less than one year to over five
years and is transported under firm transportation agreements by
Williston Basin and, with respect to Montana-Dakota's system
expansion into north-central South Dakota and to south-central
North Dakota, by South Dakota Intrastate Pipeline Company and
Northern Border Pipeline Company, respectively. Montana-Dakota has
also contracted with Williston Basin to provide firm storage
services which enable Montana-Dakota to purchase natural gas at
more nearly uniform daily volumes throughout the year and thus,
meet winter peak requirements as well as allow it to better manage
its gas costs.
Montana-Dakota has implemented an integrated resource plan
which is used in planning for a reliable future supply of natural
gas which will coincide with anticipated customer demand. Montana-
Dakota estimates that, based on supplies of natural gas currently
available through its suppliers and expected to be available, it
will have adequate supplies of natural gas to meet its system
requirements for the next five years. Other supply alternatives
being evaluated are the installation of peak shaving facilities,
the acquisition of storage gas inventories and deliverability, and
the interconnection with other pipelines. On the demand side,
Montana-Dakota is evaluating the use of various conservation
programs which include energy audits, weatherization programs and
incentives for the installation of high efficiency appliances such
as boilers, furnaces and water heaters. The development and
evaluation of other economically feasible strategic marketing
programs continues.
Regulatory Matters --
Montana-Dakota's retail natural gas rate schedules contain
clauses permitting adjustments in rates based upon changes in
natural gas commodity, transportation and storage costs. The
various commissions' current regulatory practices allow
Montana-Dakota to recover increases or refund decreases in such
costs within 24 months from the time such changes occur.
Montana-Dakota filed a general natural gas rate case with the
South Dakota Public Utilities Commission (SDPUC) in September 1993,
requesting increased revenues of approximately $1.3 million, or 5
percent. On January 19, 1994, Montana-Dakota and the SDPUC reached
a settlement of this proceeding which provides for additional
revenues of $605,000, or 47 percent of the original amount
requested, effective January 19, 1994. However, the issue related
to Montana-Dakota's request that the SDPUC authorize accrual
accounting for postretirement benefits, representing 26 percent of
the amount originally requested, was deferred. A rehearing was
held March 24, 1994, on the recovery of SFAS No. 106 costs. On
July 21, 1994, the Commission issued an order rejecting the
Company's request, determining that the pay-as-you-go method must
be used for ratemaking purposes.
On June 29, 1994, Montana-Dakota filed a general natural gas
rate application with the SDPUC requesting increased revenues of
approximately $1.1 million, or 3.7 percent. The filing also
included the recovery of SFAS No. 106 costs, which at the time of
the filing was still pending in the previous South Dakota general
natural gas rate application discussed above. Montana-Dakota and
the SDPUC reached a settlement of this proceeding on December 6,
1994, providing for a $500,000 annual increase effective
December 7, 1994. In addition, on December 22, 1994, Montana-
Dakota and the SDPUC reached a settlement granting Montana-Dakota's
request for accrual accounting for postretirement benefits and that
such costs should be recovered through general rates. The
settlement, which became effective January 1, 1995, allows Montana-
Dakota to collect $254,000 annually for ongoing postretirement
benefit costs including the recovery of deferred 1994 costs over an
18-year period.
On April 1, 1994, Montana-Dakota filed a general natural gas
rate increase application with the Montana Public Service
Commission (MPSC) requesting an increase of $2.6 million or 5.3%,
with 25% requested on an interim basis to be effective within 30
days. On October 26, 1994, the MPSC issued an order approving a
settlement of this proceeding which provided for additional annual
revenues of $900,000, or 35 percent of the original amount
requested. Also included as a part of the settlement was the
favorable resolution of outstanding purchased gas cost adjustment
filings dating back to December 1989, as well as proceedings
concerning the prudency of Montana-Dakota's decision not to
implement its 1990 and 1991 gas supply conversion options. The
settlement also included the expensing and recovery of current and
previously deferred SFAS No. 106 costs. The rate change became
effective November 1, 1994.
Montana-Dakota filed a general natural gas rate case with the
NDPSC on May 13, 1994, requesting increased revenues of
approximately $945,000, or 1.3 percent. On November 9, 1994,
Montana-Dakota and the NDPSC reached a settlement of this
proceeding which provided for additional revenues of $565,000, or
60 percent of the original amount requested, effective November 15,
1994.
Capital Requirements --
In 1994, Montana-Dakota expended $13.2 million for natural gas
and propane distribution facilities and currently anticipates
expending approximately $8.5 million, $9.4 million and $9.6 million
in 1995, 1996 and 1997, respectively.
Environmental Matters --
Montana-Dakota's natural gas and propane distribution
operations are generally subject to extensive federal, state and
local environmental, facility siting, zoning and planning laws and
regulations. Except with regard to the issues described below,
Montana-Dakota believes it is in substantial compliance with those
regulations.
Montana-Dakota and Williston Basin discovered polychlorinated
biphenyls (PCBs) in portions of their natural gas systems and
informed the United States Environmental Protection Agency (EPA) in
January 1991. Montana-Dakota and Williston Basin believe the PCBs
entered the system from a valve sealant. Both Montana-Dakota and
Williston Basin have initiated testing, monitoring and remediation
procedures, in accordance with applicable regulations and the work
plan submitted to the EPA and the appropriate state agencies. On
January 31, 1994, Montana-Dakota, Williston Basin and Rockwell
International Corporation (Rockwell), manufacturer of the valve
sealant, reached an agreement under which Rockwell will reimburse
Montana-Dakota and Williston Basin for a portion of certain
remediation costs. On the basis of findings to date, Montana-
Dakota and Williston Basin estimate that future environmental
assessment and remediation costs that will be incurred range from
$3 million to $15 million. This estimate depends upon a number of
assumptions concerning the scope of remediation that will be
required at certain locations, the cost of remedial measures to be
undertaken and the time period over which the remedial measures are
implemented. Both Montana-Dakota and Williston Basin consider
unreimbursed environmental remediation costs to be recoverable
through rates, since they are prudent costs incurred in the
ordinary course of business. Accordingly, Montana-Dakota and
Williston Basin have sought and will continue to seek recovery of
such costs through rate filings. Based on the estimated cost of
the remediation program and the expected recovery from third
parties and ratepayers, Montana-Dakota and Williston Basin believe
that the ultimate costs related to these matters will not be
material to Montana-Dakota's or Williston Basin's financial
position or results of operations.
In June 1990, Montana-Dakota was notified by the EPA that it
and several others were named as Potentially Responsible Parties
(PRPs) in connection with the cleanup of pollution at a landfill
site located in Minot, North Dakota. In June 1993, the EPA issued
its decision on the selected remediation to be performed at the
site. Based on the EPA's proposed remediation plan, current
estimates of the total cleanup costs for all parties, including
oversight costs, at this site range from approximately $3.7 million
to $4.8 million. Montana-Dakota believes that it was not a
material contributor to this contamination and, therefore, further
believes that its share of the liability for such cleanup will not
have a material effect on its results of operations.
CENTENNIAL ENERGY HOLDINGS, INC.
INTERSTATE NATURAL GAS TRANSMISSION OPERATIONS AND PROPERTY
(WILLISTON BASIN)
General --
Williston Basin owns and operates approximately 3,800 miles of
transmission, gathering and storage lines and 24 compressor
stations located in the states of Montana, North Dakota, South
Dakota and Wyoming. Through three underground storage fields
located in Montana and Wyoming, storage services are provided to
local distribution companies, producers, suppliers and others, and
serve to enhance system deliverability. Williston Basin's system
is strategically located near five natural gas producing basins
making natural gas supplies available to Williston Basin's
transportation and storage customers. In addition, Williston Basin
produces natural gas from owned reserves which is sold to others or
used by Williston Basin for its operating needs. Williston Basin
has interconnections with seven pipelines in Wyoming, Montana and
North Dakota which provide for supply and market access. At
December 31, 1994, the net interstate natural gas transmission
plant investment was approximately $159.0 million.
Under the Natural Gas Act (NGA), as amended, Williston Basin is
subject to the jurisdiction of the FERC regarding certificate, rate
and accounting matters applicable to natural gas purchases,
wholesale sales, transportation, gathering and related storage
operations.
System Demand and Competition --
The natural gas transmission industry, although regulated, is
very competitive. Beginning in the mid-1980s customers began
switching their natural gas volumes from a bundled merchant service
to transportation, and with the implementation of Order 636 which
unbundled pipelines' services, this transition was accelerated.
This change reflects most customers' willingness to purchase their
natural gas supply from other than pipelines. Williston Basin
competes with several pipelines for its customers' transportation
business and at times will have to discount rates in an effort to
retain market share. However, the strategic location of Williston
Basin's system near five natural gas producing basins and the
availability of underground storage and gathering services provided
by Williston Basin along with interconnections with other pipelines
serves to enhance Williston Basin's competitive position.
Although a significant portion of Williston Basin's firm
customers have relatively secure residential and commercial end-
users, virtually all have some price-sensitive end-users that could
switch to alternate fuels.
In recent years, Williston Basin has provided the majority of
Montana-Dakota's annual natural gas requirements. However, upon
Williston Basin's implementation of Order 636, Montana-Dakota
elected to acquire substantially all of its system requirements
directly from processors and other producers. Williston Basin
transports essentially all such natural gas for Montana-Dakota
under firm transportation agreements. In addition, Montana-Dakota
has contracted with Williston Basin to provide firm storage
services to facilitate meeting Montana-Dakota's winter peak
requirements.
See "Regulatory Matters and Revenues Subject to Refund -- Order
636" for a further discussion on Williston Basin's implementation
of Order 636.
For additional information regarding Williston Basin's sales
and transportation for 1992 through 1994, see Item 7 --
"Management's Discussion and Analysis of Financial Condition and
Results of Operations".
System Supply --
Williston Basin's underground storage facilities have a
certificated storage capacity of approximately 353,300 million
cubic feet (MMcf), including 28,900 MMcf and 46,300 MMcf of
recoverable and nonrecoverable native gas, respectively. Williston
Basin's storage facilities enable its customers to purchase natural
gas at more nearly uniform daily volumes throughout the year and
thus, facilitate meeting winter peak requirements.
In April 1993, Williston Basin filed an application with the
FERC for authority to increase its certificated storage withdrawal
capacity by 95 MMcf per day, which the FERC approved in September
1993. This increase will allow Williston Basin to expand and
enhance the storage services it offers to its customers. Williston
Basin has expended $9.5 million related to this enhancement, which
is essentially complete.
Natural gas supplies from traditional regional sources have
declined during the past several years and such declines are
anticipated to continue. As a result, Williston Basin anticipates
that a potentially significant amount of the future supply needed
to meet its customers' demands will come from off-system sources.
Williston Basin expects to facilitate the movement of these
supplies by making available its transportation and storage
services. Opportunities may exist to increase transportation and
storage services through system expansion or other pipeline
interconnections or enhancements and could provide substantial
future benefits to Williston Basin.
In 1993, Williston Basin interconnected its facilities with
those of Many Islands Pipeline Ltd., a subsidiary of TransGas Ltd.,
a Saskatchewan, Canada pipeline. This interconnect, from which
Williston Basin began receiving firm transportation gas in January
1994, currently provides access up to 10,000 Mcf per day firm
Canadian supply with additional opportunities for interruptible
volumes.
Natural Gas Production --
Williston Basin owns in fee or holds natural gas leases and
operating rights primarily applicable to the shallow rights (above
2,000 feet) in the Cedar Creek Anticline in southeastern Montana
and to all rights in the Bowdoin area located in north-central
Montana.
In 1994, Williston Basin undertook a drilling program designed
to increase production and to gain updated data from which to
assess the future production capabilities of its natural gas
reserves. In late 1994, upon analysis of the results of this
program, it was determined that the future production related to
these properties can be accelerated and, as a result, the economic
value of these reserves has become material to its operations.
Information on Williston Basin's natural gas production,
average sales prices and production costs per Mcf related to its
natural gas interests for 1994 is as follows:
1994
Production (MMcf). . . . . . . . . . . . . . . . . . . . 4,932
Average sales price. . . . . . . . . . . . . . . . . . . $1.37
Production costs, including taxes,
per Mcf. . . . . . . . . . . . . . . . . . . . . . . . $0.47
Williston Basin's gross and net productive well counts and gross
and net developed and undeveloped acreage for its natural gas
interests at December 31, 1994, are as follows:
Gross Net
Productive Wells . . . . . . . . . . . . 504 452
Developed Acreage (000's). . . . . . . . 228 204
Undeveloped Acreage (000's). . . . . . . 54 48
The following table shows the results of natural gas development
wells drilled and tested during 1994:
1994
Productive . . . . . . . . . . . . . . . . . . . . . . . 13
Dry Holes. . . . . . . . . . . . . . . . . . . . . . . . ---
Total. . . . . . . . . . . . . . . . . . . . . . . . . 13
At December 31, 1994, there were no wells in the process of
drilling.
Williston Basin's recoverable proved developed and undeveloped
natural gas reserves approximated 99.3 Bcf at December 31, 1994.
These amounts are supported by a report dated January 31, 1995,
prepared by Ralph E. Davis Associates, Inc., an independent firm of
petroleum and natural gas engineers.
For additional information related to Williston Basin's natural
gas interests, see Note 18 of Notes to Consolidated Financial
Statements.
Pending Litigation --
W. A. Moncrief --
In November 1993, the estate of W. A. Moncrief (Moncrief), a
producer from whom Williston Basin purchased a portion of its
natural gas supply, filed suit in Federal District Court for the
District of Wyoming against Williston Basin and the Company
disputing certain price and volume issues under the contract. In
its complaint, Moncrief alleged that, for the period January 1,
1985, through December 31, 1992, it had suffered damages ranging
from $1.2 million to $5.0 million, without interest, on the price
paid by Williston Basin for natural gas purchased. Moncrief
requested that the Court award it such amount and further requested
that Williston Basin be obligated for damages for additional volumes
not purchased for the period November 1, 1993, (the date when
Williston Basin implemented FERC Order 636 and abandoned its natural
gas sales merchant function, see "Regulatory Matters and Revenues
Subject to Refund -- Order 636" for a further discussion of
Williston Basin's implementation of Order 636) to mid-1996, the
remaining period of the contract.
On June 9, 1994, Moncrief filed a motion to amend its complaint
whereby it alleged a new pricing theory under Section 105 of the
Natural Gas Policy Act for natural gas purchased in the past and for
future volumes which Williston Basin refused to purchase effective
November 1, 1993. On July 13, 1994, the Court denied Moncrief's
motion to amend its complaint.
However, on July 15, 1994, the Court, as part of addressing the
proper litigants in this matter, allowed Moncrief to amend its
complaint to assert its new pricing theory under the contract.
Through the course of this action Moncrief has submitted its damage
calculations which total approximately $18 million or, under its
alternative pricing theory, $38 million. Trial is scheduled for
June 12, 1995.
Moncrief's damage claims in Williston Basin's opinion, are
grossly overstated. Williston Basin further believes it has
meritorious defenses and intends to vigorously defend such suit.
Williston Basin plans to file for recovery from ratepayers of
amounts which may be ultimately due to Moncrief, if any.
Regulatory Matters and Revenues Subject to Refund --
General Rate Proceedings --
Williston Basin had pending with the FERC two general natural
gas rate change applications implemented in 1989 and 1992. On
May 3, 1994, the FERC issued an order relating to the 1989 rate
change. Williston Basin requested rehearing of certain issues
addressed in the order and a stay of compliance and refund pending
issuance of a final order by the FERC. The requested stay was
denied by the FERC and on July 20, 1994, Williston Basin refunded
$47.8 million to its customers, including $33.4 million to Montana-
Dakota, all of which had been reserved. Williston Basin's requested
rehearing is currently pending as is the issuance of an initial
order by the FERC with respect to the 1992 rate change application.
Reserves have been provided for a portion of the revenues that
have been collected subject to refund with respect to pending
regulatory proceedings and for the recovery of certain producer
settlement buy-out/buy-down costs, as discussed below, to reflect
future resolution of certain issues with the FERC. Williston Basin
believes that such reserves are adequate based on its assessment of
the ultimate outcome of the various proceedings.
Producer Settlement Cost Recovery --
In August 1993, Williston Basin filed to recover 75 percent of
$28.7 million ($21.5 million) in buy-out/buy-down costs paid to Koch
Hydrocarbon Company (Koch) as part of a lawsuit settlement under the
alternate take-or-pay cost recovery mechanism embodied in Order 500.
As permitted under Order 500, Williston Basin elected to recover 25
percent or $7.2 million of such costs through a direct surcharge to
sales customers, substantially all of which has been received. In
addition, through reserves previously provided, Williston Basin has
absorbed an equal amount. Williston Basin elected to recover the
remaining 50 percent ($14.3 million) through a throughput surcharge
applicable to both sales and transportation. Williston Basin began
collecting these costs, subject to refund, in October 1993, pending
final approval by the FERC. On August 17, 1994, the FERC issued an
order granting Williston Basin's request to collect such costs.
Order 636 --
In 1992, the FERC issued Order 636, which required fundamental
changes in the way natural gas pipelines operate. Under Order 636,
pipelines are required to offer unbundled sales, transportation,
storage and other services. Customers now have the option of
purchasing gas from other suppliers and pipelines are required to
provide "equivalent" services for all customers regardless from whom
they are purchasing gas. This order provides for the use of the
straight fixed variable rate design, under which all fixed storage
and transmission costs, including return on equity and associated
taxes, are included in a demand charge and all variable costs are
recovered through a commodity charge based on volumes. Order 636
allows pipelines to recover 100 percent of prudently incurred costs
(transition costs) resulting from implementation of the order.
Williston Basin had previously filed a tariff with the FERC
designed to comply with Order 636. In September 1993, the FERC
issued its order authorizing Williston Basin's implementation of
Order 636 tariffs effective November 1, 1993. Also included in the
order was the requirement that Williston Basin's excess storage gas
inventories must be offered for sale at Williston Basin's cost, as
opposed to fair market value. Williston Basin requested rehearing
of this issue on the grounds that the FERC's order constitutes a
confiscation of its assets. This matter is currently on appeal.
Williston Basin has also filed tariff sheets with the FERC
requesting recovery of certain gas supply realignment (GSR) costs.
On January 9, 1995, the FERC issued an order approving Williston
Basin's request to collect $13.4 million of GSR costs related to
payments made to Koch as part of a lawsuit settlement effective
December 1, 1993. In addition, on February 10, 1995 the FERC issued
an order approving Williston Basin's request to collect $925,000 of
GSR costs effective February 1, 1995, paid as part of a settlement
agreement with a natural gas producer which terminated all natural
gas contracts effective with the implementation of Order 636.
Montana-Dakota has also received approval for revised gas cost
tariffs from each of its four state regulatory commissions
reflecting the effects of Williston Basin's November 1, 1993
implementation of Order 636.
The financial effect of implementing Order 636 was not material
to the company's financial position or results of operations.
Natural Gas Repurchase Commitment --
The Company has offered for sale since 1984 the inventoried
natural gas available under a repurchase commitment with Frontier
Gas Storage Company, as described in Note 4 of Notes to Consolidated
Financial Statements. As a part of the corporate realignment
effected January 1, 1985, the Company agreed, pursuant to the
Settlement approved by the FERC, to remove from rates the financing
costs associated with this natural gas and not recover any loss on
its sale from customers.
In January 1986, because of the uncertainty as to when a sale
would be made, Williston Basin began charging the financing costs
associated with this repurchase commitment to operations as
incurred. Such costs, consisting principally of interest and
related financing fees, approximated $4.6 million, $3.9 million and
$5.8 million in 1994, 1993 and 1992, respectively.
The FERC has issued orders that have held that storage costs
should be allocated to this gas, prospectively beginning May 1992,
as opposed to being included in rates applicable to Williston
Basin's customers. These storage costs, as initially allocated to
the Frontier gas, approximated $2.1 million annually and represent
costs which Williston Basin may not recover. This matter is
currently on appeal. The issue regarding the applicability of
assessing storage charges to the gas creates additional uncertainty
as to the costs associated with holding the gas.
Beginning in October 1992, as a result of prevailing natural gas
prices, Williston Basin began to sell and transport a portion of the
natural gas held under the repurchase commitment. Through
December 31, 1994, 17.4 MMdk of this natural gas had been sold and
transported by Williston Basin to both on- and off-system markets.
Williston Basin will continue to aggressively market the remaining
43.3 MMdk of this natural gas whenever market conditions are
favorable. In addition, it will continue to seek long-term sales
contracts.
Other Information --
In March and May 1993, Williston Basin was directed by the
United States Minerals Management Service (MMS) to pay approximately
$3.5 million, plus interest, in claimed royalty underpayments.
These royalties are attributable to natural gas production by
Williston Basin from federal leases in Montana and North Dakota for
the period December 1, 1978, through February 29, 1988. Williston
Basin had filed appeals with both the MMS and the Courts regarding
this issue.
On July 16, 1994, Williston Basin and the MMS reached a
settlement which terminated the litigation and all administrative
proceedings. The settlement provided that Williston Basin make a
cash payment of $2.1 million, including interest, in satisfaction
of all claimed royalty underpayments. Williston Basin had
previously provided reserves adequate to cover the costs of the
settlement.
Additionally, on December 2, 1994, the MMS directed Williston
Basin to pay approximately $1.9 million, plus interest, in claimed
royalty underpayments for the period March 1, 1988, through
December 31, 1991 related to the aforementioned federal leases.
This matter is currently on appeal with the MMS.
In December 1993, Williston Basin received from the Montana
Department of Revenue (MDR) an assessment claiming additional
production taxes due of $3.7 million, plus interest, for 1988
through 1991 production. These claimed taxes result from the MDR's
belief that certain natural gas production during the period at
issue was not properly valued. Williston Basin does not agree with
the MDR and has reached an agreement with the MDR that the appeal
process be held in abeyance pending further review.
Capital Requirements --
The following schedule (in millions of dollars) summarizes the
1994 actual and 1995 through 1997 anticipated construction
expenditures applicable to Williston Basin's operations:
Actual Estimated
1994 1995 1996 1997
Production and Gathering . $ 2.1 $ 5.8 $10.7 $ 6.6
Underground Storage. . . . 7.7 .2 .7 .8
Transmission . . . . . . . 2.3 3.4 10.3 7.0
General. . . . . . . . . . 2.3 2.4 1.2 1.2
$14.4 $11.8 $22.9 $15.6
Environmental Matters --
Williston Basin's interstate natural gas transmission
operations are generally subject to federal, state and local
environmental, facility-siting, zoning and planning laws and
regulations. Except as may be found with regard to the issues
described below, Williston Basin believes it is in substantial
compliance with those regulations.
See "Environmental Matters" under "Montana-Dakota -- Retail
Natural Gas and Propane Distribution" for a discussion of PCBs
contained in Montana-Dakota's and Williston Basin's natural gas
systems.
In mid-1992, Williston Basin discovered that several of its
natural gas compressor stations had been operating without air
quality permits. As a result, in late 1992, applications for
permits were filed with the Montana Air Quality Bureau (Bureau),
the agency for the state of Montana which regulates air quality.
In March 1993, the Bureau cited Williston Basin for operating the
compressors without the requisite air quality permits and further
alleged excessive emissions by the compressor engines of certain
air pollutants, primarily oxides of nitrogen and carbon monoxide.
Williston Basin is currently engaged in discussions with the
Bureau regarding test results and requirements in meeting these
air emissions standards. Because the permitting process is not
complete at this time, Williston Basin is unable to determine the
costs that will be incurred to remedy the situation although such
costs are not expected to be material to its financial position or
results of operations.
MINING AND CONSTRUCTION MATERIALS OPERATIONS AND PROPERTY
(KNIFE RIVER)
Coal Operations:
General --
The Company, through Knife River, is engaged in lignite coal
mining operations. Knife River's surface mining operations are
located at Beulah and Gascoyne, North Dakota and Savage, Montana.
The average annual production from the Beulah, Gascoyne and Savage
mines approximates 2.5 million, 2.1 million and 300,000 tons,
respectively. Reserve estimates related to these mine locations
are discussed herein. During the last five years, Knife River
mined and sold the following amounts of lignite coal:
Years Ended December 31,
1994 1993 1992 1991 1990
(In thousands)
Tons sold:
Montana-Dakota generating
stations . . . . . . . . . 691 624 521 618 592
Jointly-owned generating
stations--
Montana-Dakota's share. . . 1,049 1,034 1,021 953 895
Others. . . . . . . . . . . 3,358 3,299 3,259 3,069 2,872
Industrial and other sales . 108 109 112 91 80
Total . . . . . . . . . . 5,206 5,066 4,913 4,731 4,439
Revenues . . . . . . . . . .$45,634 $44,230 $43,770 $41,201 $38,276
In recent years, in response to competitive pressures from
other mines, Knife River has reduced its coal prices and/or not
passed through cost increases which are allowed under its
contracts. Although Knife River has contracts in place specifying
the selling price of coal, these price concessions are being made
in an effort to remain competitive and maximize sales.
In June 1994, Knife River was notified by the owners of the Big
Stone Station that its contract for supplying approximately 2.1
million tons of lignite annually from the Gascoyne Mine would not
be renewed. The current contract expires in mid-1995 and Knife
River anticipates closing the Gascoyne Mine upon the expiration of
the contract. The costs of closing the Gascoyne Mine are not
expected to have a significant effect on Knife River's results of
operations.
Knife River, subsequent to the loss of the Big Stone contract,
does not anticipate any significant growth in its lignite coal
operations in the near future due to competition from coal and
other alternate fuel sources. Limited growth opportunities may be
available to Knife River's lignite coal operations through the
continued evaluation and pursuit of niche markets such as
agricultural products processing facilities, as well as
participating in the development of clean coal technologies.
In order to seek greater growth opportunities and to further
utilize its surface mining expertise, Knife River, in 1992, began
expanding its operations into the mining and marketing of
aggregates and related construction materials as discussed below.
Construction Materials Operations:
General --
In May 1992, KRC Aggregate, Inc. (KRC Aggregate), an indirect,
wholly-owned subsidiary of Knife River, entered into the sand and
gravel business in north-central California through the purchase of
certain properties, including mining and processing equipment.
These operations, located near Lodi, California, surface mine,
process and market aggregate products to various customers,
including road and housing contractors, tile manufacturers and
ready-mix plants, with a market area extending approximately 60
miles from the mine.
The assets of Alaska Basic Industries, Inc. (ABI) and its
subsidiaries were purchased by KRC Aggregate in April 1993. ABI is
a vertically integrated construction materials business
headquartered in Anchorage, Alaska. ABI's nine divisions handle
the sale of its sand and gravel aggregates and related products
such as ready-mixed concrete, asphalt and finished aggregate
products.
In September 1993, KRC Aggregate, purchased the stock of LTM,
Incorporated (LTM), Rogue Aggregates, Inc. (Rogue Aggregates) and
Concrete, Inc., then construction materials subsidiaries of Terra
Industries. Headquartered in Medford, Oregon, LTM and Rogue
Aggregates are vertically integrated construction materials
businesses serving southern Oregon markets. Their products include
sand and gravel aggregates, ready-mixed concrete, asphalt and
finished aggregate products. Concrete, Inc., headquartered in
Stockton, California, operates four ready-mix plants in San Joaquin
County. These ready-mix plants became part of KRC Aggregate's
Lodi, California operations.
On January 1, 1994, KRC Holdings, Inc., (KRC Holdings), a newly
formed, wholly-owned subsidiary of Knife River acquired ownership
of the above construction materials operations from KRC Aggregate.
KRC Aggregate, ABI, LTM, Rogue Aggregates and Concrete, Inc.
continue to operate as subsidiaries of KRC Holdings.
The following table reflects sales volumes and revenues for the
construction materials operations during the last three years:
Years Ended December 31,
(In thousands)
1994 1993 1992
Aggregates (tons). . . . . . . . . . 2,688 2,391 263
Asphalt (tons) . . . . . . . . . . . 391 141 ---
Ready-mixed concrete (cubic yards) . 315 157 ---
Revenues . . . . . . . . . . . . . . $71,012 $46,167 $ 1,262
Competition --
Knife River's construction materials products are marketed
under highly competitive conditions. Since there are generally no
measurable product differences in the market areas in which Knife
River conducts its construction materials businesses, price is the
principal competitive force these products are subject to, with
service, delivery time and proximity to the customer also being
significant factors. The number and size of competitors varies in
each of Knife River's principal market areas and product lines.
The demand for construction materials products is significantly
influenced by the cyclical nature of the construction industry in
general. The key economic factors affecting product demand are
changes in the level of local, state and federal governmental
spending, general economic conditions within the market area which
influences both the commercial and private sectors, and prevailing
interest rates. In addition, the seasonality of the construction
business in Knife River's market areas due to the influence of
weather is also a key factor affecting product demand.
Knife River is not dependent on any single customer or group of
customers for sales of its construction materials products, the
loss of which would have a materially adverse affect on its
construction materials businesses. During 1992, 1993 and 1994, no
single customer accounted for more than 10 percent of annual
construction materials revenues.
Consolidated Mining and Construction Materials Operations:
Capital Requirements --
The following schedule (in millions of dollars) summarizes the
1994 actual and 1995 through 1997 anticipated construction
expenditures applicable to Knife River's consolidated mining and
construction materials operations:
Actual Estimated
1994 1995 1996 1997
Coal . . . . . . . . . . $ .9 $ 2.8 $ 5.2 $ 4.9
Construction Materials . 2.7 4.6 2.9 2.6
$ 3.6 $ 7.4 $ 8.1 $ 7.5
Knife River continues to seek out growth opportunities. These
include not only identifying possibilities for alternate uses of
lignite coal but also investigating the acquisition of other
surface mining properties, particularly those relating to sand and
gravel aggregates and related products such as ready-mixed
concrete, asphalt and various finished aggregate processes. Any
capital expenditures related to other potential mining acquisitions
are not reflected in the above 1995 through 1997 capital needs.
Environmental Matters --
Knife River's mining and construction materials operations are
subject to regulation customary for surface mining operations,
including federal, state and local environmental and reclamation
regulations. Knife River believes that these operations are in
substantial compliance with those regulations.
Reserve Information --
As of December 31, 1994, Knife River had under ownership or
lease, reserves of approximately 236 million tons of recoverable
lignite coal at present mining locations. Such reserves estimates
were prepared by Paul Weir Company Incorporated, independent mining
engineers and geologists, in a report dated May 9, 1994, and have
been adjusted for 1994 production. Knife River estimates that
approximately 73 million tons of its reserves will be needed to
supply all of Montana-Dakota's existing generating stations for the
expected lives of those stations and to fulfill the existing
commitments of Knife River for sales to third parties.
As of December 31, 1994, the combined construction materials
operations had under ownership approximately 71 million tons of
recoverable aggregate reserves.
OIL AND NATURAL GAS OPERATIONS AND PROPERTY (FIDELITY OIL)
General --
The Company, through Fidelity Oil, is involved in the
acquisition, exploration, development and production of oil and
natural gas properties.
Fidelity Oil, through its net proceeds interests, owns in fee
or holds oil and natural gas leases and operating rights applicable
to the deep rights (below 2,000 feet) in the Cedar Creek Anticline
in southeastern Montana. Pursuant to an operating agreement with
Shell Western E&P, Inc., Shell as operator, controls all
development, production, operations and marketing applicable to
such acreage. As a net proceeds interest owner, Fidelity Oil is
entitled to proceeds only when a particular unit has reached payout
status.
Fidelity Oil undertakes ventures, through working-interest
agreements with selected partners, that vary from the acquisition
of producing properties with potential development opportunities to
exploration and are located in the western United States, offshore
in the Gulf of Mexico and in Canada. In these ventures, Fidelity
Oil shares revenues and expenses from the development of specified
properties in proportion to its investments.
Operating Information --
Information on Fidelity Oil's oil and natural gas production,
average sales prices and production costs per net equivalent barrel
related to its oil and natural gas net proceeds and working
interests for 1994, 1993 and 1992 are as follows:
1994 1993 1992
Oil:
Production (000's of barrels). . . . . 1,565 1,497 1,531
Average sales price. . . . . . . . . . $13.14 $14.84 $16.74
Natural Gas:
Production (MMcf). . . . . . . . . . . 9,228 8,817 5,024
Average sales price. . . . . . . . . . $1.84 $1.86 $1.53
Production costs, including taxes,
per net equivalent barrel. . . . . . . $4.04 $3.98 $4.81
Well and Acreage Information --
Fidelity Oil's gross and net productive well counts and gross
and net developed and undeveloped acreage for the net proceeds and
working interests at December 31, 1994, are as follows:
Gross Net
Productive Wells:
Oil. . . . . . . . . . . . . . . . . . . . 3,524 173
Natural Gas . . . . . . . . . . . . . . . 540 30
Total. . . . . . . . . . . . . . . . . . 4,064 203
Developed Acreage (000's). . . . . . . . . . 541 51
Undeveloped Acreage (000's). . . . . . . . . 644 68
Exploratory and Development Wells --
The following table shows the results of oil and natural gas
wells drilled and tested during 1994, 1993 and 1992:
Net Exploratory Net Development
Productive Dry Holes Total Productive Dry Holes Total Total
1994 4 3 7 6 1 7 14
1993 2 2 4 5 1 6 10
1992 --- 4 4 2 1 3 7
At December 31, 1994, there were 5 exploratory wells and 4
development wells in the process of drilling.
Capital Requirements --
The following summary reflects capital expenditures, including
those not subject to amortization, related to oil and natural gas
activities for the years 1994, 1993 and 1992:
1994 1993 1992
(In thousands)
Acquisitions . . . . . . . . . . . . . $ 5,542 $ 9,296 $ 9,976
Exploration. . . . . . . . . . . . . . 13,241 7,787 11,074
Development. . . . . . . . . . . . . . 19,739 7,836 4,715
Total Capital Expenditures . . . . . $38,522 $24,919 $25,765
Fidelity Oil plans additional commitments to oil and gas
investments and has budgeted approximately $36 million for each of
the years 1995 through 1997 for such activities. Such investments
are expected to be financed with a combination of funds on hand at
December 31, 1994, funds to be internally generated and the $20
million currently available under Fidelity Oil's long-term
financing arrangements, $3.0 million of which was outstanding at
December 31, 1994.
Reserve Information --
Fidelity Oil's recoverable proved developed and undeveloped oil
and natural gas reserves approximated 12.5 million barrels and 54.9
Bcf, respectively, at December 31, 1994. Of these amounts, 8.6
million barrels and 2.2 Bcf, as supported by a report dated
January 10, 1995, prepared by Ralph E. Davis Associates, Inc., an
independent firm of petroleum and natural gas engineers, were
related to its properties located in the Cedar Creek Anticline in
southeastern Montana.
For additional information related to Fidelity Oil's oil and
natural gas interests, see Note 18 of Notes to Consolidated
Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
Williston Basin has been named as a defendant in a legal action
primarily related to certain natural gas price and volume issues.
Such suit was filed by Moncrief as described under "Pending
Litigation". Williston Basin's assessment of this proceeding is
included in the description of the litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during
the fourth quarter of 1994.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
MDU Resources Group, Inc. common stock is listed on the New
York Stock Exchange and the Pacific Stock Exchange and uses the
symbol "MDU". The price range of the Company's common stock as
reported by the Wall Street Journal composite tape during 1994 and
1993 and dividends declared thereon were as follows:
Common
Common Common Stock
Stock Price Stock Price Dividends
(High) (Low) Per Share
1994
First Quarter . . . . . . . . $32 1/4 $29 3/8 $ .39
Second Quarter. . . . . . . . 32 1/8 26 1/2 .39
Third Quarter . . . . . . . . 28 1/4 25 3/8 .40
Fourth Quarter. . . . . . . . 28 25 3/8 .40
$1.58
1993
First Quarter . . . . . . . . $29 1/4 $25 7/8 $ .37
Second Quarter. . . . . . . . 32 1/2 29 .37
Third Quarter . . . . . . . . 32 29 3/4 .39
Fourth Quarter. . . . . . . . 33 1/8 30 1/2 .39
$1.52
As of December 31, 1994, the Company's common stock was held by
approximately 14,600 stockholders.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to selected Financial Data on pages 52 and 53
of the Company's Annual Report which is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The following table (in millions of dollars) summarizes the
contribution to consolidated earnings by each of the Company's
businesses.
Years ended December 31,
Business 1994 1993 1992
Utility --
Electric . . . . . . . . . . . . $11.7 $12.6 $13.3
Natural gas. . . . . . . . . . . .3 1.2 1.4
12.0 13.8 14.7
Natural gas transmission . . . . . 6.1 4.7 3.5
Mining and construction
materials. . . . . . . . . . . . 11.6 12.4 10.7
Oil and natural gas production . . 9.3 7.1 5.7
Earnings on common stock . . . . . $39.0 $38.0 $34.6
Earnings per common share. . . . . $2.06 $2.00 $1.82
Return on average common equity. . 12.1% 12.3% 11.6%
Earnings information presented in this table and in the
following discussion is before the $8.9 million ($5.5 million
after-tax) cumulative effect of a 1993 accounting change. See Note
1 of Notes to Consolidated Financial Statements for a further
discussion of this accounting change.
________________________________
Reference should be made to Items 1 and 2 -- "Business and
Properties" and Notes to Consolidated Financial Statements for
information pertinent to various commitments and contingencies.
Financial and operating data
The following tables (in millions, where applicable) are key
financial and operating statistics for each of the Company's
business units. Certain reclassifications have been made in the
following statistics for 1992 and 1993 to conform to the 1994
presentation. Such reclassifications had no effect on net income
or common stockholders' investment as previously reported.
Montana-Dakota -- Electric Operations
Years ended December 31,
1994 1993* 1992
Operating revenues . . . . . . . . $133.9 $131.1 $123.9
Fuel and purchased power . . . . . 43.2 41.3 37.9
Operation and maintenance
expenses . . . . . . . . . . . . 41.0 37.4 34.2
Operating income . . . . . . . . . 27.6 30.5 30.2
Retail sales (kWh) . . . . . . . . 1,955.1 1,893.7 1,829.9
Power deliveries to MAPP (kWh) . . 444.5 511.0 352.6
Cost of fuel and purchased
power per kWh. . . . . . . . . . $ .017 $ .016 $ .016
Montana-Dakota -- Natural Gas Distribution Operations
Years ended December 31,
1994 1993* 1992
Operating revenues:
Sales. . . . . . . . . . . . . . $151.7 $151.7 $123.8
Transportation & other . . . . . 3.6 4.3 4.4
Purchased natural gas sold . . . . 111.3 114.0 89.5
Operation and maintenance
expenses . . . . . . . . . . . . 30.0 28.6 26.0
Operating income . . . . . . . . . 3.9 4.7 4.5
Volumes (dk):
Sales. . . . . . . . . . . . . . 31.8 31.2 26.7
Transportation . . . . . . . . . 9.3 12.7 13.7
Total throughput . . . . . . . . . 41.1 43.9 40.4
Degree days (% of normal). . . . . 96.7% 105.5% 87.1%
Cost of natural gas, including
transportation, per dk . . . . . $ 3.50 $ 3.66 $ 3.35
*See Note 1 of Notes to Consolidated Financial Statements for a
discussion of an accounting change to reflect unbilled revenues.
Williston Basin
Years ended December 31,
1994 1993 1992
Operating revenues:
Sales for resale. . . . . . . . . $ --- $51.3* $63.5*
Transportation & other. . . . . . 70.9* 40.0* 35.5*
Purchased natural gas sold . . . . --- 20.6 33.6
Operation and maintenance
expenses . . . . . . . . . . . . 38.8** 39.0** 33.0**
Operating income . . . . . . . . . 21.3 20.1 21.3
Volumes (dk):
Sales for resale--
Montana-Dakota. . . . . . . . . --- 13.0 16.5
Other . . . . . . . . . . . . . --- .2 .3
Transportation--
Montana-Dakota. . . . . . . . . 33.0 18.5 11.2
Other . . . . . . . . . . . . . 30.9 40.9 53.3
Total throughput . . . . . . . . . 63.9 72.6 81.3
_________________________________
* Includes recovery of deferred
natural gas contract
buy-out/buy-down costs. . . . . $ 8.3 $13.0 $ 5.8
** Includes amortization of
deferred natural gas contract
buy-out/buy-down costs. . . . . $ 9.3 $11.8 $ 6.2
Knife River
Years ended December 31,
1994 1993 1992
Operating revenues:
Coal. . . . . . . . . . . . . . . $45.6 $44.2 $43.8
Construction materials. . . . . . 71.0 46.2 1.2
Operation and maintenance
expenses . . . . . . . . . . . . 84.5 59.6 21.2
Reclamation expense. . . . . . . . 3.8 3.1 3.0
Severance taxes. . . . . . . . . . 4.5 4.4 4.3
Operating income . . . . . . . . . 16.6 17.0 11.5
Sales (000's):
Coal (tons) . . . . . . . . . . . 5,206 5,066 4,913
Aggregates (tons) . . . . . . . . 2,688 2,391 263
Asphalt (tons). . . . . . . . . . 391 141 ---
Ready-mixed concrete
(cubic yards) . . . . . . . . . 315 157 ---
Fidelity Oil
Years ended December 31,
1994 1993 1992
Operating revenues . . . . . . . . $38.0 $39.1 $33.8
Operation and maintenance
expenses. . . . . . . . . . . . . 12.0 11.6 12.0
Depreciation, depletion and
amortization. . . . . . . . . . . 13.5 12.0 8.8
Operating income . . . . . . . . . 8.8 11.8 9.5
Production (000's):
Oil (barrels) . . . . . . . . . 1,565 1,497 1,531
Natural gas (Mcf). . . . . . . . 9,228 8,817 5,024
Average sales price:
Oil (per barrel) . . . . . . . . $13.14 $14.84 $16.74
Natural gas (per Mcf). . . . . . 1.84 1.86 1.53
1994 compared to 1993
Montana-Dakota--Electric Operations
The decline in operating income reflects increased fuel and
purchased power costs, principally higher demand charges associated
with the pass-through from Basin of periodic maintenance costs and
the purchase of an additional five megawatts of firm capacity
through a participation power contract. Increased operation
expenses, primarily higher payroll and benefit-related costs,
largely the accrual of SFAS No. 106 costs, also negatively affected
operating income. In addition, decreased deliveries to the MAPP,
the result of a delay in water conservation efforts by
hydroelectric generators, reduced operating income. Increased
retail sales to all major markets, the result of increased demand
due to more normal summer weather than that experienced in 1993,
partially offset the operating income decline.
Earnings for the electric business decreased due to the
operating income decline and increased long-term debt interest,
resulting from lower interest received from Williston Basin due to
the retirement of intercompany debt, partially offset by the
retirement of $15.0 million of 5.8 percent medium-term notes on
April 1, 1994. Decreased income taxes somewhat offset the earnings
decline.
Montana-Dakota--Natural Gas Distribution Operations
Operating income decreased at the natural gas distribution
business from the corresponding period in 1993 due to a 1.7 million
decatherm (MMdk) weather-related decline in sales and decreased
transportation volumes, primarily due to two oil refineries
bypassing Montana-Dakota's distribution facilities. In addition,
higher operation and maintenance expenses, primarily increased
payroll and benefit-related costs and increased distribution and
sales expenses due to the system expansion into north-central South
Dakota, and increased depreciation expense reduced operating
income. The benefits of general rate increases placed into effect
in December 1993, January 1994, November 1994, and December 1994 in
North Dakota, South Dakota, Wyoming and Montana and the addition of
nearly 5,000 customers improved operating income. Also
contributing operating income was a Wyoming Supreme Court order
granting recovery of a prior refund.
Gas distribution earnings decreased due to the operating income
decline and increased interest expense, primarily carrying costs
being accrued on natural gas costs refundable through rate
adjustments, higher financing costs related to increased capital
expenditures and the previously described intercompany debt
retirement. The return earned on the natural gas storage inventory
(included in Other Income--Net) somewhat mitigated the decline in
earnings.
Williston Basin
The increase in operating income reflects a January 1994 rate
change due to a rate stipulation agreement with the FERC and the
realization of revenue related to 5.0 MMdk of natural gas
transported to storage. Prior to the implementation of Order 636,
these revenues were recognized during the winter months when gas
was withdrawn from storage whereas such revenues are now recognized
primarily in the summer months when gas is transported to storage.
In addition, decreased operation and maintenance expenses,
depreciation and taxes other than income, primarily due to the sale
or transfer of unneeded facilities, further improved operating
income. Decreased net throughput, primarily to off-system markets
and LDC end users, partially offset the operating income increase.
A 1993 out-of-period credit adjustment to take-or-pay surcharge
amortizations also partially offset the improvement in operating
income. Income from company production decreased due to lower
average prices, partially offset by higher production.
Earnings for this business increased due to the operating
income improvement, decreased long-term debt interest, the result
of debt refinancing and debt retirements in July 1993, and April
1994, respectively, and increased interest being accrued on gas
supply realignment transition costs (included in Other Income--
Net). Partially offsetting the earnings improvement were increased
carrying costs associated with the natural gas repurchase
commitment, due to higher average rates, and decreased investment
income, the result of lower investable funds stemming from a
regulatory refund made in mid-1994.
Knife River
Coal Operations --
Operating income for the coal operations decreased primarily
due to increased operation and reclamation expenses. Higher
overburden removal costs at the Beulah Mine and costs associated
with an early retirement program stemming from the planned closing
of the Gascoyne Mine in mid-1995 were the primary factors
increasing operation expense. Reclamation expense increased as a
result of higher costs associated with the planned Gascoyne Mine
closure. An improvement in sales, primarily at the Gascoyne Mine,
mainly the result of increased demand by electric generation
customers, and increased selling prices at the Beulah Mine
partially offset the decline in coal operating income.
Construction Materials Operations --
Increased sales due to the September 1993 acquisition of the
Oregon construction materials businesses and improved cement,
asphalt and building materials sales at the Alaskan operations were
the primary contributors to the increase in construction materials
operating income. Somewhat offsetting this improvement was the
effects of a seasonal first quarter loss experienced at the Alaskan
operations which was acquired in April 1993 and reduced aggregate
and ready-mixed concrete sales at these operations due to fewer
large commercial construction projects in the area than a year ago.
Consolidated --
Earnings decreased due to the decline in coal operating income
and reduced investment income, primarily lower investable funds due
to the aforementioned acquisitions. The improvement in
construction materials operating income somewhat mitigated the
earnings decline.
Fidelity Oil
Operating income for the oil and natural gas production
business declined as a result of lower average oil prices and a
volume-related increase in operation expenses and depreciation,
depletion and amortization. Partially offsetting the operating
income decline was an improvement in oil and natural gas
production.
Earnings for this business improved due to the realization of
investment gains related to the sale of an equity investment in
General Atlantic Resources, Inc., which were $3.3 million (after-
tax) more than corresponding gains realized in 1993. The decline
in operating income partially offset the earnings increase.
1993 compared to 1992
Montana-Dakota--Electric Operations
Operating income for the electric business increased due to an
improvement in retail sales to residential and commercial markets,
primarily the result of colder weather in the first quarter of
1993. Also, improving operating income was an increase in
deliveries into the MAPP, the result of water conservation efforts
by hydroelectric generators and the temporary shutdown of a nuclear
generating station in Iowa. Increased fuel and purchased power
costs, largely higher demand charges associated with the purchase
of an additional five megawatts of firm capacity through a
participation power contract partially offset the improvement in
operating income. Higher operation and maintenance expenses also
negatively affected operating income. Employee benefit-related
costs increased operation expense while higher costs associated
with repairs made at the Heskett, Big Stone and Coyote stations
accounted for the increase in maintenance expense.
Earnings from this business unit declined as a result of a
decrease in Other Income--Net, reflecting the on-going effects of
adopting SFAS No. 106, and increased federal income taxes. A
decrease in interest expense due to lower interest rates stemming
from long-term debt refinancing in 1992 and lower average short-
term borrowings and interest rates, and the aforementioned
improvement in operating income, somewhat offset the earnings
decline.
Montana-Dakota--Natural Gas Distribution Operations
Sales increases of 4.5 MMdk, due to significantly colder
weather than 1992 and the addition of over 3,500 residential and
commercial customers, improved operating income for the natural gas
distribution business. However, partially offsetting this
improvement were the 1992 refinement of the estimated amount of
delivered but unbilled natural gas volumes and increased operation
and depreciation expenses. Employee benefit-related costs and
distribution and sales expenses related to the system expansion
into north-central South Dakota accounted for the majority of the
operation expense increase. A Wyoming rate decrease effective in
the second quarter of 1992 also reduced the operating income
improvement.
Gas distribution earnings decreased due to higher financing
costs related to increased capital expenditures and carrying
charges being accrued on natural gas costs refundable through rate
adjustments, offset in part by interest savings resulting from 1992
long-term debt refinancing. The operating income change and
increased Other Income--Net, primarily due to the return being
earned on deferred storage costs and increased interest income
earned on natural gas costs recoverable through rate adjustments in
Montana, reduced the earnings decline.
Williston Basin
Operating income declined at the natural gas transmission
business as a result of decreased transportation volumes reflecting
the effects of bypasses by two major transportation customers.
Partially offsetting the effects of these bypasses were the
increased movement of 3.4 MMdk of natural gas held under the
repurchase commitment, due to favorable natural gas prices, and
higher volumes transported on the November 1992 interconnection
with NSP (1.8 MMdk), although at lower average rates than those
replaced. Operating income was also negatively affected by the
delay in the implementation of Order 636 until November 1, 1993.
See Items 1 and 2 for Williston Basin for further discussions on
the implementation of Order 636. Operation expenses increased
slightly due to additional reserves related to the Koch settlement,
increased transmission expenses and higher employee benefit-related
costs. Largely offsetting the increased operation expenses are
lower contract restructuring amortizations, an out-of-period
adjustment to take-or-pay surcharge amortizations and a 1992
accrual for retroactive company production royalties. An
adjustment to regulatory reserves reflected in operating revenues
offset the effects of the additional reserves provided for the Koch
settlement. Maintenance expenses increased as a result of
compressor overhauls at several compressor station facilities. A
weather-related sales improvement of 3.3 MMdk combined with
increased general rates implemented in November 1992, partially
offset the operating income decline. Income from company
production improved due to increased production, but at lower
average prices.
Earnings for this business unit increased due to reduced
interest expense on long-term debt, the result of debt refinancing
in mid-1993, and lower carrying costs associated with the natural
gas repurchase commitment, primarily the result of both lower
borrowings and decreased average rates, offset in part by the
decline in operating income discussed above.
Knife River
Coal Operations --
Operating income decreased due to reduced selling prices at the
Gascoyne Mine, effective June 1, 1992, following an amendment to
the current coal supply agreement, and increased operation
expenses. Higher overburden removal costs at the Beulah Mine and
the accrual of SFAS No. 106 costs were the primary reasons for the
operation expense increase. An improvement in tons sold at all
mines, mainly the result of increased demand by electric generation
customers, somewhat reduced the coal operating income decline.
Construction Materials Operations --
Increased sales from the Alaskan and Oregon construction
materials businesses acquired in April and September 1993,
respectively, was the primary reason for the significant increase
in construction materials operating income.
Consolidated --
Earnings improved due to the construction materials operating
income improvement. These increased earnings were somewhat reduced
by lower coal operating income, decreased investment income
(included in Other Income--Net), primarily resulting from lower
investable funds due to the 1993 acquisitions and lower earned
returns, and increased federal income taxes.
Fidelity Oil
Operating income for the oil and natural gas production
business increased as a result of higher natural gas production and
prices. In addition, decreased operation and maintenance expenses
per equivalent barrel were somewhat offset by volume-related
increases in such costs. Partially offsetting the operating income
improvement was a decline in oil production and prices and
increased depreciation, depletion and amortization, reflecting both
increased production and higher rates.
The increase in operating income was further improved by the
realization of certain investment gains resulting in the earnings
improvement for this business. Increased interest expense,
stemming from both higher average borrowings and rates, and
increased federal income taxes, somewhat reduced earnings.
Prospective Information
Each of the Company's businesses is subject to competition,
varying in both type and degree. See Items 1 and 2 for a further
discussion on the effects of these competitive forces on each of
the Company's businesses.
The operating results of the Company's utility and pipeline
businesses are significantly influenced by the weather, the general
economies of their respective service territories, and the ability
to recover costs through the regulatory process.
In January 1995, Montana-Dakota, in an effort to increase the
efficiency of its electric and natural gas operations, announced
plans to close 45 district offices throughout its service area
during 1995 and early 1996. The closure of these offices will
reduce Montana-Dakota's workforce by approximately 90 employees.
Beginning October 1992, as a result of prevailing natural gas
prices, Williston Basin began to sell and transport a portion of
the natural gas held under the repurchase commitment. Williston
Basin will continue to aggressively market this natural gas
whenever market conditions are favorable. In addition, it will
continue to seek long-term sales contracts. See Items 1 and 2
under Williston Basin for additional information on the natural gas
held under this repurchase agreement.
In June 1994, Knife River was notified by the owners of the Big
Stone Station that its contract for supplying approximately 2.1
million tons of lignite annually would not be renewed. The current
contract expires in mid-1995 and Knife River anticipates closing
the Gascoyne Mine upon the expiration of the contract. The costs
of closing the Gascoyne Mine are not expected to have a significant
effect on Knife River's results of operations.
Knife River continues to seek additional growth opportunities.
These include not only identifying possibilities for alternate uses
of lignite coal but also investigating the acquisition of other
surface mining properties, particularly those relating to sand and
gravel aggregates and related products such as ready-mixed
concrete, asphalt and various finished aggregate products. See
Items 1 and 2 under Knife River for a discussion of acquisitions
made during 1992 and 1993.
See Items 1 and 2 for Montana-Dakota and Note 15 of Notes to
Consolidated Financial Statements contained in the 1994 Annual
Report for a further discussion on the Company's 1993 adoption of
SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions" and the Company's efforts regarding regulatory
recovery.
Liquidity and Capital Commitments
The Company's construction costs and additional investments in
mining and construction materials, and oil and natural gas
activities (in millions of dollars) for 1992 through 1994 and as
anticipated for 1995 through 1997 are summarized in the following
table, which also includes the Company's capital needs for the
retirement of maturing long-term securities.
Estimated
1992 1993 1994 Company/Description 1995 1996 1997
Montana-Dakota:
$ 13.2 $ 16.2 $14.2 Electric $ 17.1 $ 20.4 $ 16.9
6.5 15.0 13.2 Natural Gas Distribution 8.5 9.4 9.6
19.7 31.2 27.4 25.6 29.8 26.5
9.4 5.4 14.4 Williston Basin 11.8 22.9 15.6
16.3 46.5 3.6 Knife River 7.4 8.1 7.5
25.8 24.9 38.6 Fidelity 36.0 36.0 36.0
--- 1.0 1.0 Prairielands 4.6 .1 .8
71.2 109.0 85.0 85.4 96.9 86.4
Retirement/Repurchase
131.6 3.2 22.8 of Securities 20.6 17.5 16.5
$202.8 $112.2 $107.8 Total $106.0 $114.4 $102.9
In 1994 the Company's regulated businesses operated by Montana-
Dakota and Williston Basin provided all of the funds needed for
construction purposes. The Company's 1994 capital needs to retire
maturing long-term securities were $22.8 million.
It is anticipated that Montana-Dakota will continue to provide
all of the funds required for its construction requirements for the
years 1995 through 1997 from internal sources and through the use
of its $30 million revolving credit and term loan agreement, $17
million of which is outstanding at December 31, 1994, and through
the issuance of long-term debt, the amount and timing of which will
depend upon the Company's needs, internal cash generation and
market conditions.
Williston Basin expects to meet its construction requirements
and financing needs for the years 1995 through 1997 with a
combination of internally generated funds and lines of credit
aggregating $35 million, none of which is outstanding at
December 31, 1994, and through the issuance of long-term debt, the
amount and timing of which will depend upon the Company's needs,
internal cash generation and market conditions. On April 1, 1994,
Williston Basin borrowed $25 million under a term loan agreement,
with the proceeds used solely for the purpose of refinancing
purchase money mortgages payable to the Company. At December 31,
1994, $17.5 million is outstanding under the term loan agreement.
Knife River's 1994 capital needs were met through funds on hand
and funds generated from internal sources. It is anticipated that
funds on hand, funds generated from internal sources and lines of
credit aggregating $11 million, none of which is outstanding at
December 31, 1994, will continue to meet the needs of this business
unit for 1995 through 1997, excluding funds which may be required
for future acquisitions.
Fidelity Oil's 1994 capital needs related to its oil and
natural gas acquisition, development and exploration program were
met through funds generated from internal sources and a $20 million
line of credit. It is anticipated that Fidelity's 1995 through
1997 capital needs will be met from internal sources and its line
of credit. At December 31, 1994, $3.0 million is outstanding under
the line of credit.
See Note 13 of Notes to Consolidated Financial Statements for
a discussion of notices of proposed deficiency received from the
IRS proposing substantial additional income taxes. The level of
funds which could be required as a result of the proposed
deficiencies could be significant if the IRS position were upheld.
Prairielands' 1994 capital needs were met through funds
generated internally and lines of credit aggregating $5.4 million,
$680,000 of which is outstanding at December 31, 1994. It is
anticipated that Prairieland's 1995 through 1997 capital needs will
be met from internal sources and its lines of credit.
The Company utilizes its lines of credit aggregating $40
million and its $30 million revolving credit and term loan
agreement to meet its short-term financing needs and to take
advantage of market conditions when timing the placement of long-
term or permanent financing. There were no borrowings outstanding
at December 31, 1994, under the lines of credit.
The Company's issuance of first mortgage debt is subject to
certain restrictions imposed under the terms and conditions of its
Indenture of Mortgage. Generally, those restrictions require the
Company to pledge $1.43 of unfunded property to the Trustee for
each dollar of indebtedness incurred under the Indenture and that
annual earnings (pretax and before interest charges), as defined in
the Indenture, equal at least two times its annualized first
mortgage bond interest costs. Under the more restrictive of the
two tests, as of December 31, 1994, the Company could have issued
approximately $114 million of additional first mortgage bonds.
The Company's coverage of fixed charges including preferred
dividends was 2.9 and 3.0 times for 1994 and 1993, respectively.
Additionally, the Company's first mortgage bond interest coverage
was 3.3 times in 1994 compared to 3.4 times in 1993. Stockholders'
equity as a percent of total capitalization was 58% and 56% at
December 31, 1994 and 1993, respectively.
Effects of Inflation
The Company's consolidated financial statements reflect
historical costs, thus combining the impact of dollars spent at
various times. Such dollars have been affected by inflation, which
generally erodes the purchasing power of monetary assets and
increases operating costs. During times of chronic inflation, the
loss of purchasing power and increased operating costs could
potentially result in inadequate returns to stockholders primarily
because of the lag in rate relief granted by regulatory agencies.
Further, because the ratemaking process restricts the amount of
depreciation expense to historical costs, cash flows from the
recovery of such depreciation are inadequate to replace utility
plant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to Pages 27 through 51 of the Annual Report.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to Pages 2 through 5 and 12 and 13 of the
Company's Proxy Statement dated March 6, 1995 (Proxy Statement)
which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to Pages 6 through 11 of the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Reference is made to Page 13 of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Financial Statements, Financial Statement Schedules and
Exhibits.
Index to Financial Statements and Financial Statement
Schedules.
Page
1. Financial Statements:
Report of Independent Public Accountants. . . . . *
Consolidated Statements of Income for each
of the three years in the period ended
December 31, 1994 . . . . . . . . . . . . . . . *
Consolidated Balance Sheets at December 31,
1994, 1993 and 1992 . . . . . . . . . . . . . . *
Consolidated Statements of Capitalization at
December 31, 1994, 1993 and 1992. . . . . . . . *
Consolidated Statements of Cash Flows for
each of the three years in the period ended
December 31, 1994 . . . . . . . . . . . . . . . *
Notes to Consolidated Financial Statements. . . . *
2. Financial Statement Schedules (Schedules are
omitted because of the absence of the
conditions under which they are required, or
because the information required is included
in the Company's Consolidated Financial
Statements and Notes thereto.)
____________________
* The Consolidated Financial Statements listed in the above index
which are included in the Company's Annual Report to Stockholders
for 1994 are hereby incorporated by reference. With the
exception of the pages referred to in Items 6 and 8, the
Company's Annual Report to Stockholders for 1994 is not to be
deemed filed as part of this report.<PAGE>
3. Exhibits:
3(a) Composite Certificate of Incorporation
of MDU Resources Group, Inc., as amended
to date . . . . . . . . . . . . . . . . . . **
3(b) By-laws of MDU Resources Group, Inc.,
as amended to date. . . . . . . . . . . . . **
4(a) Indenture of Mortgage, dated as of
May 1, 1939, as restated in the
Forty-Fifth Supplemental Indenture,
dated as of April 21, 1992, and the
Forty-Sixth through Forty-Eighth
Supplements thereto between the Company
and the New York Trust Company
(The Bank of New York, successor
Corporate Trustee) and A. C.
Downing (W. T. Cunningham, successor
Co-Trustee), filed as Exhibit 4(a)
in Registration No. 33-66682; and
Exhibits 4(e), 4(f) and 4(g)
in Registration No. 33-53896. . . . . . . . *
+ 10(a) Management Incentive Compensation Plan,
filed as Exhibit 10(a) in Registration
No. 33-66682. . . . . . . . . . . . . . . . *
+ 10(b) 1992 Key Employee Stock Option Plan,
filed as Exhibit 10(f) in Registration
No. 33-66682. . . . . . . . . . . . . . . . *
+ 10(c) Restricted Stock Bonus Plan, filed as
Exhibit 10(b) in Registration
No. 33-66682. . . . . . . . . . . . . . . . *
+ 10(d) Supplemental Income Security Plan, as
amended to date . . . . . . . . . . . . . . **
+ 10(e) Directors' Compensation Policy, filed
as Exhibit 10(d) in Registration
No. 33-66682. . . . . . . . . . . . . . . . *
+ 10(f) Deferred Compensation Plan for Directors,
filed as Exhibit 10(e) in Registration
No. 33-66682. . . . . . . . . . . . . . . . *
13 Selected financial data, financial
statements and supplementary data as
contained in the Annual Report to
Stockholders for 1994 . . . . . . . . . . . **
21 Subsidiaries of MDU Resources Group, Inc. . **
23(a) Consent of Independent Public Accountants . **
23(b) Consent of Engineer . . . . . . . . . . . . **
23(c) Consent of Engineer . . . . . . . . . . . . **
27 Financial Data Schedule . . . . . . . . . . **
(b) Reports on Form 8-K.
None.
____________________
* Incorporated herein by reference as indicated.
** Filed herewith.
+ Management contract, compensatory plan or arrangement required
to be filed as an exhibit to this form pursuant to Item 14(c)
of this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MDU RESOURCES GROUP, INC.
By: /s/ Harold J. Mellen, Jr.
Harold J. Mellen, Jr. (President
and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant in the capacities and on the date indicated.
Signature Title Date
/s/ Harold J. Mellen, Jr. Chief Executive March 2, 1995
Harold J. Mellen, Jr. Officer
(President and Chief Executive Officer)and Director
/s/ Douglas C. Kane Chief Operating March 2, 1995
Douglas C. Kane (Executive Vice Officer and
President and Chief Operating Officer) Director
/s/ Warren L. Robinson Chief Financial March 2, 1995
Warren L. Robinson (Vice President, Officer
Treasurer and Chief Financial Officer)
/s/ Vernon A. Raile Chief Accounting March 2, 1995
Vernon A. Raile (Vice President, Officer
Controller and Chief Accounting Officer)
/s/ John A. Schuchart Director March 2, 1995
John A. Schuchart (Chairman of the Board)
/s/ Richard L. Muus Director March 2, 1995
Richard L. Muus
/s/ Robert L. Nance Director March 2, 1995
Robert L. Nance
/s/ John L. Olson Director March 2, 1995
John L. Olson
/s/ San W. Orr, Jr. Director March 2, 1995
San W. Orr, Jr.
/s/ Charles L. Scofield Director March 2, 1995
Charles L. Scofield
/s/ Homer A. Scott, Jr. Director March 2, 1995
Homer A. Scott, Jr.
/s/ Joseph T. Simmons Director March 2, 1995
Joseph T. Simmons
/s/ Stanley F. Staples, Jr. Director March 2, 1995
Stanley F. Staples, Jr.
/s/ Sister Thomas Welder Director March 2, 1995
Sister Thomas Welder<PAGE>
EXHIBIT INDEX
Exhibit No.
3(a) Composite Certificate of Incorporation
of MDU Resources Group, Inc., as amended
to date. . . . . . . . . . . . . . . . . . . . **
3(b) By-laws of MDU Resources Group, Inc.,
as amended to date . . . . . . . . . . . . . . **
4(a) Indenture of Mortgage, dated as of
May 1, 1939, as restated in the Forty-Fifth
Supplemental Indenture, dated as of April 21,
1992, and the Forty-Sixth through Forty-
Eighth Supplements thereto between the
Company and the New York Trust Company
(The Bank of New York, successor Corporate
Trustee) and A. C. Downing (W. T.
Cunningham, successor Co-Trustee), filed
as Exhibit 4(a) in Registration No. 33-66682;
and Exhibits 4(e), 4(f) and 4(g) in
Registration No. 33-53896. . . . . . . . . . . *
+ 10(a) Management Incentive Compensative Plan,
filed as Exhibit 10(a) in Registration
No. 33-66682 . . . . . . . . . . . . . . . . . *
+ 10(b) 1992 Key Employee Stock Option Plan,
filed as Exhibit 10(f) in Registration
No. 33-66682 . . . . . . . . . . . . . . . . . *
+ 10(c) Restricted Stock Bonus Plan, filed as
Exhibit 10(b) in Registration
No. 33-66682 . . . . . . . . . . . . . . . . . *
+ 10(d) Supplemental Income Security Plan, as
amended to date. . . . . . . . . . . . . . . . **
+ 10(e) Directors' Compensation Policy, filed as
Exhibit 10(d) in Registration
No. 33-66682 . . . . . . . . . . . . . . . . . *
+ 10(f) Deferred Compensation Plan for Directors,
filed as Exhibit 10(e) in Registration
No. 33-66682 . . . . . . . . . . . . . . . . . *
13 Selected financial data, financial
statements and supplementary data
contained in the Annual Report to
Stockholders for 1994. . . . . . . . . . . . . **
21 Subsidiaries of MDU Resources Group, Inc.. . . **
23(a) Consent of Independent Public Accountants. . . **
23(b) Consent of Engineer. . . . . . . . . . . . . . **
23(c) Consent of Engineer. . . . . . . . . . . . . . **
27 Financial Data Schedule. . . . . . . . . . . . **
____________________
* Incorporated herein by reference as indicated.
** Filed herewith.
+ Management contract, compensatory plan or arrangement
required to be filed as an exhibit to this form pursuant
to Item 14(c) of this report.
RESTATED CERTIFICATE OF INCORPORATION
OF
MDU RESOURCES GROUP, INC.
MDU RESOURCES GROUP, INC. (formerly known as
Montana-Dakota Utilities Co. and originally incorporated as
Minnesota Northern Power Co.) hereby restates its Certificate
of Incorporation filed with the Secretary of State of the
State of Delaware on March 14, 1924. This Restated
Certificate of Incorporation merely restates and integrates,
but does not further amend, the Certificate of Incorporation,
as heretofore amended or supplemented, and there is no
discrepancy between those provisions and the provisions of
this Restated Certificate of Incorporation. This Restated
Certificate of Incorporation is duly adopted by the Board of
Directors of MDU Resources Group, Inc. ("Corporation") in
accordance with Section 245 of the Delaware General
Corporation Law.
FIRST. The name of this Corporation is MDU
RESOURCES GROUP, INC. (the "Corporation").
SECOND. The registered office of the Corporation in
the State of Delaware is located at 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801. The name of
its registered agent at such address is The Corporation Trust
Company.
THIRD. The purpose of the Corporation is to engage
in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
Included within this purpose, without limiting the generality
of the foregoing sentence is (1) to own and operate electric
and gas public utility systems and (2) to transact business as
a multidimensional natural resource company.
The Corporation shall have and exercise all the
powers conferred upon corporations by the General Corporation
Law of Delaware.
FOURTH. The total number of shares of stock which
the Corporation shall have authority to issue is Seventy-seven
Million (77,000,000) divided into four classes, namely,
Preferred Stock, Preferred Stock A, Preference Stock, and
Common Stock. The total number of shares of such Preferred
Stock authorized is Five Hundred Thousand (500,000) shares of
the par value of One Hundred Dollars ($100) per share
(hereinafter called the "Preferred Stock") amounting in the
aggregate to Fifty Million dollars ($50,000,000). The total
number of shares of such Preferred Stock A authorized is One
Million (1,000,000) shares without par value (hereinafter
called the "Preferred Stock A"). The total number of shares
of such Preference Stock authorized is Five Hundred Thousand
(500,000) shares without par value (hereinafter called the
"Preference Stock"). The total number of shares of such
Common Stock authorized is Seventy-five Million (75,000,000)
of the par value of Three and 33/100 Dollars ($3.33) per share
(hereinafter called the "Common Stock"), amounting in the
aggregate to Two Hundred Forty-nine Million Seven Hundred
Fifty Thousand Dollars ($249,750,000).
The Preferred Stock and the Preferred Stock A shall
rank equally with no preference or priority of the Preferred
Stock over the Preferred Stock A or of the Preferred Stock A
over the Preferred Stock with respect to earnings, and assets
upon liquidation, dissolution or winding up of the
Corporation, and the Preferred Stock and the Preferred Stock
A shall be senior to the Preference Stock with respect to
earnings, and assets upon liquidation, dissolution or winding
up of the Corporation, and the Preference Stock in turn shall
be senior to the Common Stock with respect thereto.
The description of such classes of stock, and the
designations and the powers, preferences and rights and the
qualifications, limitations or restrictions thereof are as
follows:
1. The Preferred Stock may be issued from time to
time either (a) as Preferred Stock of a series to be
designated 4.50% series Preferred Stock, or (b) if so
determined from time to time by resolution or resolutions
adopted by the Board of Directors either in whole or in
part as one or more other series, each series to be
appropriately designated by distinguishing number, letter
or title prior to the issue of any shares thereof. One
Hundred Thousand (100,000) shares of the Preferred Stock
are hereby designated as 4.50% Series Preferred Stock.
The number of shares of the Preferred Stock so designated
as 4.50% Series Preferred Stock may be increased (but not
above the number of shares then authorized) or decreased
(but not below the number of shares thereof then
outstanding) by a resolution or resolutions adopted by
the Board of Directors in the same manner as the Board
may be resolution create other series of the Preferred
Stock.
2. The Preferred Stock of all series shall be of
the same class and of equal rank and shall be identical
in all respects except that
(a) the maximum dividend rate of the 4.50% Series
Preferred Stock shall be four and fifty
hundredths per cent (4.50%) per annum, and the
maximum dividend rate of the Preferred Stock
of each other series shall be such rate as
shall have been fixed and determined by the
Board of Directors to accrue in respect of the
shares of stock of each such other series from
a date to be determined as hereinafter
provided;
(b) the amount per share which the Preferred Stock
shall be entitled to receive as a premium in
case of the redemption thereof shall be Five
Dollars ($5.00) per share in the case of the
4.50% Series Preferred Stock, and in the case
of each other series of the Preferred Stock
shall be such amount, if any, as shall have
been fixed and determined by the Board of
Directors;
(c) a sinking fund or other retirement obligation
may be provided for each series of the
Preferred Stock, other than the 4.50% Series
Preferred Stock, at such rate and on such
terms as shall have been fixed and determined
by the Board of Directors in respect of the
shares of stock of each such series;
(d) the shares of each series of the Preferred
Stock, other than the 4.50% Series Preferred
Stock, may be made convertible into, or
exchangeable for, shares of any other class or
classes, or of any other series of the same or
of any other class or classes, of stock of the
Corporation, at such price or prices, or at
such rates of exchange and with such
adjustments as shall have been fixed and
determined by the Board of Directors in
respect of the shares of stock of each such
series; and
(e) the shares of each series of the Preferred
Stock, other than the 4.50% Series Preferred
Stock, shall possess such voting power, in
addition to that provided for in paragraph 13,
as shall have been fixed and determined by the
Board of Directors in respect of the shares of
stock of each such series.
The description and terms of the Preferred Stock of
each series in the foregoing particulars (except as in
this section fixed and determined in respect of the 4.50%
Series Preferred Stock) shall be fixed and determined by
the Board of Directors at the time of the authorization
of the issue of the original shares of each such other
series. All shares of each series shall be alike in
every particular.
3. The Preferred Stock A may be issued from time to
time by resolution or resolutions adopted by the Board of
Directors, either in whole or in part as one or more
series, each series to be appropriately designated by
distinguishing number, letter or title prior to the issue
of any shares thereof.
4. The Preferred Stock A of all series shall be of
the same class and of equal rank and shall be identical
in all respects except that
(a) the maximum dividend rate of the Preferred
Stock A of each series shall be such rate as
shall have been fixed and determined by the
Board of Directors to accrue in respect of the
shares of stock of each such series from a
date to be determined as hereinafter provided;
(b) the terms and conditions on which the shares
of each series may be redeemed and in the
amount or amounts per share which the
Preferred Stock A of each series shall be
entitled to receive in case of the redemption
thereof shall be such as shall have been fixed
and determined by the Board of Directors for
each such series;
(c) the amount per share which the Preferred Stock
A of each series shall be entitled to receive
in the event of any liquidation, dissolution
or winding up of this Corporation, whether
voluntary or involuntary, shall be such amount
as shall have been fixed and determined by the
Board of Directors for such purpose for each
such series;
(d) a sinking fund or other retirement obligation
may be provided for any or all series of the
Preferred Stock A, at such rate and on such
terms as shall have been fixed and determined
by the Board of Directors in respect of the
shares of stock of each such series;
(e) the shares of any or all series of the
Preferred Stock A may be made convertible
into, or exchangeable for, shares of any other
class or classes, or of any other series of
the same or of any other class or classes, of
stock of the Corporation, at such price or
prices, or at such rates of exchange and with
such adjustments as shall have been fixed and
determined by the Board of Directors in
respect of the shares of stock of each such
series; and
(f) the shares of each series of the Preferred
Stock A shall possess such voting power, in
addition to that provided for in paragraph 13,
as shall have been fixed and determined by the
Board of Directors in respect of the shares of
stock of each such series.
The description and terms of the Preferred Stock A
of each series in the foregoing particulars and the
number of shares constituting each series shall be fixed
and determined by the Board of Directors at the time of
the authorization of the issue of the original shares of
each such series. All shares of each series shall be
alike in every particular.
5. The Preference Stock may be issued from time to
time by resolution or resolutions adopted by the Board of
Directors, either in whole or in part as one or more
series, each series to be appropriately designated by
distinguishing number, letter or title prior to the issue
of any shares thereof.
6. The Preference Stock of all series shall be of
the same class and of equal rank and shall be identical
in all respects except that
(a) the maximum dividend rate of the Preference
Stock of each series shall be such rate as
shall have been fixed and determined by the
Board of Directors to accrue in respect of the
shares of stock of each such series from a
date to be determined as hereinafter provided;
(b) the terms and conditions on which the shares
of each series may be redeemed and the amount
or amounts per share which the Preference
Stock of each series shall be entitled to
receive in case of the redemption thereof
shall be such as shall have been fixed and
determined by the Board of Directors for each
such series;
(c) the amount per share which the Preference
Stock of each series shall be entitled to
receive in the event of any liquidation,
dissolution or winding up of this Corporation,
whether voluntary or involuntary, shall be
such amount as shall have been fixed and
determined by the Board of Directors for such
purpose for each such series;
(d) a sinking fund or other retirement obligation
may be provided for any or all series of the
Preference Stock, at such rate and on such
terms as shall have been fixed and determined
by the Board of Directors in respect of the
shares of stock of each such series; and
(e) the shares of any or all series of the
Preference Stock may be made convertible into,
or exchangeable for, shares of the Common
Stock, at such price or prices, or at such
rates of exchange and with such adjustments as
shall have been fixed and determined by the
Board of Directors in respect of the shares of
stock of each such series.
The description and terms of the Preference Stock of
each series in the foregoing particulars and the number
of shares constituting each series shall be fixed and
determined by the Board of Directors at the time of the
authorization of the issue of the original shares of each
such series. All shares of each series shall be alike in
every particular.
7. In preference to the Preference Stock and the
Common Stock, out of the surplus or net profits of this
Corporation, as and when declared by the Board of
Directors, the holders of the 4.50% Series Preferred
Stock shall be entitled to receive dividends at but not
exceeding the maximum dividend rate herein fixed and
determined, and the holders of the other series of
Preferred Stock and all series of the Preferred Stock A
shall be entitled to receive dividends, in preference to
the Preference Stock and the Common Stock, out of the
surplus or net profits of this Corporation, as and when
declared by the Board of Directors, at but not exceeding
the maximum dividend rates fixed and determined by the
Board of Directors and expressed in the certificates
therefor, payable quarterly on January 1st, April 1st,
July 1st, and October 1st in each year, before any
dividends shall be declared or paid upon or set apart for
the Preference Stock or the Common Stock and before any
sum shall be paid or set apart for the purchase or
redemption of any series of the Preferred Stock, the
Preferred Stock A or the Preference Stock, or the Common
Stock. Such dividends on the Preferred Stock shall be
cumulative from January 1, 1951, as to all shares issued
on or before and outstanding on January 1, 1951; such
dividends on all the Preferred Stock issued after January
1, 1951 and on the Preferred Stock A shall be cumulative
from such date or dates as the Board of Directors shall
fix at the time of issue thereof, or if no such date or
dates shall be fixed, then from the respective dates of
issue thereof, so that if in any dividend period or
periods full cumulative dividends, at the maximum rates
fixed and determined therefor, accrued on all outstanding
shares of Preferred Stock and Preferred Stock A for all
past dividend periods and for the then current dividend
period, shall not have been paid, the deficiency shall be
declared and paid or set apart for payment before any
dividends shall be declared or paid upon or set apart for
the Preference Stock or for the Common Stock and before
any sum shall be paid or set apart for the purchase or
redemption of any series of the Preferred Stock, the
Preferred Stock A or the Preference Stock, or the Common
Stock.
If at any time Preferred Stock or Preferred Stock A
of more than one series shall be outstanding, any
dividends paid upon the Preferred Stock or the Preferred
Stock A in an amount less than full cumulative dividends
accrued or in arrears upon all the Preferred Stock and
the Preferred Stock A outstanding shall be divided among
the outstanding series of the Preferred Stock and the
Preferred Stock A in proportion to the aggregate amounts
which would be distributable to each series of the
Preferred Stock and the Preferred Stock A if full
cumulative dividends were at said time to be declared and
paid thereon.
8. Subject to the prior rights and preferences of
the Preferred Stock and the Preferred Stock A
hereinbefore set forth, out of the surplus or net profits
of this Corporation remaining after full cumulative
dividends as aforesaid upon all series of the Preferred
Stock and the Preferred Stock A then outstanding have
been paid for all past dividend periods and after full
cumulative dividends upon all series of the Preferred
Stock and the Preferred Stock A for the current dividend
period have been declared and paid or set apart for
payment, then, as and when declared by the Board of
Directors, the holders of the Preference Stock of all
series shall be entitled to receive dividends at but not
exceeding the maximum dividend rates fixed and determined
by the Board of Directors and expressed in the resolution
or resolutions authorizing the creation and issuance of
each such series, payable quarterly on January 1st, April
1st, July 1st, and October 1st in each year, before any
dividends shall be declared or paid upon or set apart for
the Common Stock and before any sum shall be paid or set
apart for the purchase or redemption of the Preference
Stock of any series or the Common Stock. Such dividends
on the Preference Stock shall be cumulative from such
date or dates as the Board of Directors shall fix at the
time of issue thereof, or if no such date or dates shall
be fixed, then from the respective dates of issue
thereof, so that if in any dividend period or periods
full cumulative dividends, at the maximum rates fixed and
determined therefor, accrued on all outstanding shares of
Preference Stock for all past dividend periods and for
the then current dividend period, shall not have been
paid, the deficiency shall be declared and paid or set
apart for payment before any dividends shall be declared
or paid upon or set apart for the Common Stock and before
any sum shall be paid or set apart for the purchase or
redemption of the Preference Stock of any series or the
Common Stock.
If at any time the Preference Stock of more than one
series shall be outstanding, any dividends paid upon the
Preference Stock in an amount less than full cumulative
dividends accrued or in arrears upon all the Preference
Stock outstanding shall be divided among the outstanding
series of Preference Stock in proportion to the aggregate
amounts which would be distributable to the Preference
Stock of each series if full cumulative dividends were at
said time to be declared and paid thereon.
9. Subject to the prior rights and preferences of
the Preferred Stock, the Preferred Stock A and the
Preference Stock hereinbefore set forth, out of any
surplus or net profits of this Corporation remaining
after full cumulative dividends as aforesaid upon all
series of the Preferred Stock, the Preferred Stock A and
the Preference Stock then outstanding have been paid for
all past dividend periods and after full cumulative
dividends upon all series of the Preferred Stock, the
Preferred Stock A and the Preference Stock for the
current dividend period have been declared and paid or
set apart for payment and after making such provision, if
any, as the Board of Directors may deem necessary for
working capital, then and not otherwise, dividends may be
declared and paid upon the Common Stock, to the exclusion
of the holders of the Preferred Stock, the Preferred
Stock A and the Preference Stock, and no holder of any
series of the Preferred Stock, the Preferred Stock A or
the Preference Stock shall be entitled to receive or
shall receive dividends in excess of the maximum dividend
rates herein set forth or fixed in the certificates
therefor or in the resolution or resolutions authorizing
the creation and issuance of each such series.
The right to receive any dividends which may be
declared payable in stock of any class is vested in the
holders of the Common Stock exclusively, but no such
dividends shall be declared in any dividend period unless
full cumulative dividends upon all series of the
Preferred Stock, the Preferred Stock A and the Preference
Stock then outstanding shall have been paid for all past
dividend periods and shall have been declared and paid or
set apart for payment for the current dividend period.
10. All series of the Preferred Stock and the
Preferred Stock A shall be preferred as to both earnings,
and assets, and in the event of any liquidation,
dissolution or winding up of this Corporation, whether
voluntary or involuntary, before any assets of the
Corporation shall be distributed among or paid over to
the holders of the Preference Stock or the Common Stock,
the holders of the Preferred Stock of each series shall
be entitled to be paid One Hundred Dollars ($100.00) per
share, and the holders of the Preferred Stock A of each
series shall be entitled to be paid that amount which
shall have been fixed and determined for such purpose by
the Board of Directors in the resolution or resolutions
authorizing the creation and issuance of each such
series, in each case together with a sum of money
equivalent in the case of each share of stock to all
cumulative dividends on the Preferred Stock or the
Preferred Stock A, as the case may be, accrued and in
arrears thereon, before any distribution of the assets
shall be made to the holders of the Preference Stock or
the Common Stock, but the holders of the Preferred Stock
and the Preferred Stock A shall not be entitled to any
further participation in such distribution, and the
holders of the Common Stock, subject to the prior rights
and preferences of the Preference Stock, shall be
entitled, to the exclusion of the holders of the
Preferred Stock, the Preferred Stock A and the Preference
Stock, to share ratably in all the assets of this
Corporation remaining after payment to the holders of the
Preferred Stock, and the Preferred Stock A and the
Preference Stock of their full preferential amounts. If
upon any such liquidation, dissolution or winding up of
this Corporation, the assets distributable among the
holders of the Preferred Stock and the Preferred Stock A
shall be insufficient to permit the payment in full to
such holders of the preferential amounts aforesaid, then
the entire assets of this Corporation to be distributed
shall be distributed among the holders of the Preferred
Stock and the Preferred Stock A then outstanding ratably
in proportion to the full preferential amounts to which
they are respectively entitled.
11. As hereinbefore set forth, the Preference Stock
of all series shall rank junior to all series of the
Preferred Stock and the Preferred Stock A with respect to
both earnings, and assets, and in the event of any
liquidation, dissolution or winding up of this
Corporation, whether voluntary or involuntary, after
payment to the holders of the Preferred Stock and the
Preferred Stock A of all amounts payable to them in such
event and before any assets of the Corporation shall be
distributed among or paid over to the holders of the
Common Stock, the holders of the Preference Stock of each
series shall be entitled to be paid that amount which
shall have been fixed and determined for such purpose by
the Board of Directors in the resolution or resolutions
authorizing the creation and issuance of each such
series, in each case together with a sum of money
equivalent in the case of each share of stock to all
cumulative dividends on the Preference Stock, accrued and
in arrears thereon, before any distribution of the assets
shall be made to the holders of the Common Stock, but the
holders of the Preference Stock shall not be entitled to
any further participation in such distribution, and the
holders of the Common Stock shall be entitled, to the
exclusion of the holders of the Preferred Stock, the
Preferred Stock A and the Preference Stock, to share
ratably in all the assets of this Corporation remaining
after payment to the holders of the Preferred Stock, the
Preferred Stock A and the Preference Stock of their full
preferential amounts aforesaid. If upon any such
liquidation, dissolution or winding up of this
Corporation, the assets distributable among the holders
of the Preference Stock shall be insufficient to permit
the payment in full to such holders of the preferential
amounts aforesaid, then the entire assets of this
Corporation to be distributed, after payment to the
holders of the Preferred Stock and the Preferred Stock A
of all amounts payable to them in such event, shall be
distributed among the holders of the Preference Stock
then outstanding ratably in proportion to the full
preferential amounts to which they are entitled.
Nothing in paragraph 10 or this paragraph 11 shall
be deemed to prevent the purchase or redemption of any
series of the Preferred Stock, the Preferred Stock A or
the Preference Stock, in any manner permitted by
paragraph 12. A consolidation or merger of this
Corporation with any other corporation or corporations
shall not be regarded as a liquidation, dissolution or
winding up of this Corporation within the meaning of
paragraph 10 or this paragraph 11, but no such
consolidation or merger shall in any manner impair the
rights or preferences of any of the Preferred Stock, the
Preferred Stock A or the Preference Stock.
12. This Corporation may at the option of the Board
of Directors from time to time on any dividend payment
date redeem the whole or any part of any series of the
Preferred Stock, the Preferred Stock A or the Preference
Stock; with respect to the Preferred Stock, by paying One
Hundred Dollars ($100.00) per share for each share
thereof so redeemed, plus a premium of such additional
amount per share as herein fixed and determined for the
4.50% Series Preferred Stock, and in the case of any
other series of the Preferred Stock, such premium, if
any, as shall have been fixed and determined by the Board
of Directors, together in each case with the amount of
any dividends accrued and in arrears thereon; with
respect to the Preferred Stock A and the Preference
Stock, by paying the appropriate amount per share which
shall have been fixed and determined by the Board of
Directors in the resolution or resolutions authorizing
the creation and issuance of each such series of the
Preferred Stock A or the Preference Stock, together in
each case with the amount of any dividends accrued and in
arrears thereon. Notice of such election to redeem
shall, not less than thirty days prior to the dividend
date upon which the stock is to be redeemed, be mailed to
each holder of stock so to be redeemed at his address as
it appears on the books of the Corporation. In case less
than all of the outstanding Preferred Stock, the
Preferred Stock A or the Preference Stock of any series
is to be redeemed, the amount to be redeemed may be
determined by the Board of Directors; the method of
effecting such redemption, whether by lot or pro rata or
otherwise, is to be determined by the Board of Directors
at the time of issuance. If, on or before the redemption
date named in such notice, the funds necessary for such
redemption shall have been set aside by the Corporation
so as to be available for payment on demand to the
holders of the stock so called for redemption, then,
notwithstanding that any certificate of stock so called
for redemption shall not have been surrendered for
cancellation, the dividends thereon shall cease to accrue
from and after the date of redemption so designated, and
all rights with respect to such stock so called for
redemption, including any right to vote or otherwise
participate in the determination of any proposed
corporate action, shall forthwith after such redemption
date cease and determine, except only the right of the
holder to receive the redemption price therefor but
without interest.
13. Except as otherwise required by the laws of
Delaware and except as may be otherwise provided herein
and by the Board of Directors in accordance with
paragraphs 2(e) and 4(f), the holders of the Common Stock
shall exclusively possess all voting power for the
election of directors and for all other purposes, and the
holders of the Preferred Stock, the Preferred Stock A and
the Preference Stock shall have no voting power, and no
owner or holder thereof shall vote thereon or be entitled
to receive notice of any meeting of the stockholders;
provided that if at any time and whenever cumulative
dividends on the Preferred Stock or on the Preferred
Stock A shall be in default and unpaid, in whole or in
part, for a period of one year, the holders of the
Preferred Stock and the Preferred Stock A shall have the
same voting powers as the holders of the Common Stock,
to-wit: one vote for each share of stock; and further
provided that if at any time and whenever cumulative
dividends on the Preference Stock shall be in default and
unpaid, in whole or in part, for a period of one year,
the holders of the Preference Stock shall have the same
voting powers as the holders of the Common Stock, to-wit:
one vote for each share of stock, and the holders of the
Preferred Stock and the Preferred Stock A or the
Preference Stock, as the case may be, shall be entitled
to receive notices of meetings of stockholders, and such
voting power shall so continue to vest in the holders of
the Preferred Stock and the Preferred Stock A or the
Preference Stock, as the case may be, until all arrears
in the payment of cumulative dividends on the Preferred
Stock and the Preferred Stock A or on the Preference
Stock, as the case may be, shall have been paid and the
dividends thereon for the current dividend period shall
have been declared and the funds for the payment thereof
set aside, on the condition, however, that as often as
thereafter defaulted dividends shall have been paid in
full and provision made for the current dividend as
herein provided (and such payment shall be made as
promptly as shall be consistent with the best interests
of the Corporation), the holders of the Preferred Stock
and the Preferred Stock A or of the Preference Stock, as
the case may be, shall be divested of such voting power
and the voting power shall revest exclusively in the
holders of the Common Stock, subject always to the same
provisions for the vesting of voting power in the holders
of the Preferred Stock and the Preferred Stock A or of
the Preference Stock, as the case may be, in case of any
similar default or defaults in the payment of cumulative
dividends either on the Preferred Stock or the Preferred
Stock A or on the Preference Stock, as the case may be,
for one year and the revesting of such entire voting
power in the holders of the Common Stock, in the event
that such default or defaults shall be cured as above
provided.
14. The vote or consent of the holders of a
majority of the Preference Stock at the time outstanding,
voting as a class, shall be required for any amendment of
the Certificate of Incorporation altering materially any
existing provision of the Preference Stock, for the
creation, or an increase in the authorized amount, of any
class of stock ranking, as to earnings, and assets, prior
to, or on a parity with, the Preference Stock, or for an
increase in the authorized amount of the Preference
Stock; provided, however, that if any amendment of the
Certificate of Incorporation shall affect adversely the
rights or preferences of one or more, but not all, of the
series of the Preference Stock at the time outstanding or
shall unequally adversely affect the rights or
preferences of different series of the Preference Stock
at the time outstanding, the vote or consent of the
holders of a majority of such shares of each such series
so adversely or unequally adversely affected shall be
required in lieu of or (if such vote or consent is
required by law) in addition to the vote or consent of
the holders of a majority of the outstanding shares of
the Preference Stock, voting as a class.
15. No holder of stock of this Corporation of any
class shall have any pre-emptive or preferential rights
of subscription to any shares of any class of stock of
this Corporation, whether now or hereafter authorized, or
to any obligations convertible into stock of the
Corporation, issued or sold, nor any right of
subscription to any thereof other than such, if any, as
the Board of Directors in its discretion may from time to
time determine, and at such price as the Board of
Directors may from time to time fix and determine
pursuant to the authority conferred by this Certificate;
and any shares of stock or convertible obligations which
the Board of Directors may determine to offer for
subscription to the holders of stock may, as said Board
shall determine, be offered exclusively to holders of the
Preferred Stock, to holders of the Preferred Stock A, to
holders of the Preference Stock or to holders of the
Common Stock, or partly to the holders of the Preferred
Stock, partly to the holders of the Preferred Stock A,
partly to the holders of the Preference Stock and partly
to the holders of the Common Stock, and in such case in
such proportions as among said classes of stock as the
Board of Directors in its discretion may determine.
Resolutions of the Board of Directors
contained in Certificate of Designation
of 4.70% Series Preferred Stock
filed November 29, 1955
RESOLVED that, pursuant to authority expressly
granted to and vested in the Board of Directors of the
Corporation by the provisions of the Certificate of
Incorporation, as amended, the Board of Directors hereby
creates a series of fifty thousand (50,000) shares of
Preferred Stock of the Corporation (the Preferred stock of all
series as a class being hereinafter called the "Preferred
Stock"), and hereby fixes the designation and the preferences
and relative, participating, optional or other special rights
and the qualifications, limitations or restrictions of such
series (in addition to the designation, powers, preferences
and rights, and the qualifications, limitations or
restrictions of such series set forth in the Certificate of
Incorporation, as amended, which are applicable to the
Preferred Stock of all Series), as follows:
1. The designation of the Series shall be "4.70%
Series Preferred Stock" (Cumulative) (hereinafter called
the "4.70% Series") and the number of shares which shall
constitute said Series shall be 50,000; and such number
shall not be increased.
2. The annual dividend rate of the 4.70% Series
shall be four and seventy hundredths per cent. (4.70%) of
the par value of said shares, and no more, and the date
from which dividends shall accrue in respect of all
shares of the 4.70% Series shall be the date of issue
thereof.
3. The price at which the shares of the 4.70%
Series may be redeemed shall be as specified in Paragraph
6 of Article FOURTH of the Certificate of Incorporation,
as amended, plus a premium as follows: $5 per share to
and including January 1, 1961; $4 per share thereafter to
and including January 1, 1966; $3 per share thereafter to
and including January 1, 1971; and $2 per share
thereafter; together with the amount of any dividends
accrued and in arrears thereon.
4. So long as any of the shares of the 4.70% Series
are outstanding, in addition to any other vote or consent
of stockholders required in the Certificate of
Incorporation, as amended, or by law, the vote or consent
of the holders of at least sixty-six and two-thirds per
cent. (66-2/3%) of the shares of the 4.70% Series at the
time outstanding, given in person or by proxy, either in
writing without a meeting (if permitted by law) or at any
meeting called for the purpose, shall be necessary to
effect or validate:
(a) any amendment, alteration or repeal of any of
the provisions of the Certificate of
Incorporation, as amended, or By-Laws of the
Corporation, which affects adversely the
voting powers, rights or preferences of the
holders of the 4.70% Series;
(b) the authorization or creation of, or the
increase in the authorized amount of, any
stock of any class or any security convertible
into stock of any class ranking prior to the
Preferred Stock;
(c) the voluntary dissolution, liquidation or
winding up of the affairs of the Corporation,
or the sale, lease or conveyance by the
Corporation of all or substantially all its
property or assets;
(d) the merger or consolidation of the Corporation
with or into any other corporation, unless the
Corporation resulting from such merger or
consolidation will have after such merger or
consolidation no class of stock and no other
securities convertible into stock of any class
either authorized or outstanding which stock
shall rank prior to the Preferred Stock,
except the same number of shares of such stock
and the same amount of such other securities
with the same rights and preferences as such
stock and securities of the Corporation
respectively authorized and outstanding
immediately preceding such merger or
consolidation, and each holder of Preferred
Stock immediately preceding such merger or
consolidation shall receive the same number of
shares, with the same rights and preferences,
of the resulting corporation; or
(e) the purchase or redemption (for sinking fund
purposes or otherwise) of less than all of the
Preferred Stock at the time outstanding unless
the full dividend on all shares of Preferred
Stock of all series then outstanding shall
have been paid or declared and a sum
sufficient for payment thereof set apart;
provided, however, that the amendment of the
provisions of the Certificate of
Incorporation, as amended, so as to authorize
or create or to increase the authorized amount
(a) of the Common Stock and any other class of
stock of the Corporation hereafter authorized
over which the Preferred Stock has preference
or priority in the payment of dividends or in
the distribution of assets on any liquidation,
dissolution or winding up of the Corporation
or (b) of stock of any class ranking on a
parity with the Preferred Stock, shall not be
deemed to affect adversely the voting powers,
rights or preferences of the holders of the
4.70% Series; and provided further, that no
such consent of the holders of the 4.70%
Series shall be required, if at or prior to
the time when such amendment, alteration or
repeal is to take effect or when the
authorization, creation or increase of any
such prior stock or convertible security is to
be made, or when such consolidation or merger,
voluntary liquidation, dissolution or winding
up, sale, lease, conveyance, purchase or
redemption is to take effect, as the case may
be, either (I) the consent of the holders of
at least sixty-six and two-thirds per cent.
(66-2/3%) of the shares of the Preferred Stock
at the time outstanding shall have been so
given to any such action except an amendment,
alteration or repeal affecting the shares of
the 4.70% Series differently from other series
of Preferred Stock, or (II) provision is to be
made for the redemption of all shares of the
4.70% Series at the time outstanding.
5. So long as any shares of the 4.70% Series are
outstanding, in addition to any other vote or consent of
stockholders required in the Certificate of
Incorporation, as amended, or by law, the vote or consent
of the holders of a majority of the shares of the 4.70%
Series at the time outstanding, given in person or by
proxy, either in writing without a meeting (if permitted
by law) or at any meeting called for the purpose, shall
be necessary to effect or validate any increase in the
authorized amount of the Preferred Stock, or the
authorization or creation of, or the increase in the
authorized amount of, any stock of any class or any
security convertible into stock of any class ranking on
a parity with the Preferred Stock including any such
action taken in connection with the merger or
consolidation of the Corporation with or into any other
corporation by either party thereto; provided, however,
that no such consent of the holders of the 4.70% Series
shall be required if, at or prior to the time the
authorization or increase of any such parity stock or
convertible security or any such additional shares of
Preferred Stock is to be made, as the case may be, either
(I) the consent of the holders of a majority of the
shares of the Preferred Stock at the time outstanding
shall have been so given to any such action, or (II)
provision is to be made for the redemption of all shares
of the 4.70% Series at the time outstanding.
6. No sinking fund or other retirement obligation
shall be provided for the shares of the 4.70% Series.
Resolutions of the Board of Directors
contained in Certificate of Designation
of 5.10% Series Preferred Stock
filed April 28, 1961
RESOLVED that, pursuant to authority expressly
granted to and vested in the Board of Directors of the
Corporation by the provisions of the Certificate of
Incorporation, as amended, the Board of Directors hereby
creates a series of fifty thousand (50,000) shares of
Preferred Stock of the Corporation (the Preferred Stock of all
series as a class being hereinafter called the "Preferred
Stock"), and hereby fixes the designation and the preferences
and relative, participating, optional or other special rights
and the qualifications, limitations or restrictions of such
series (in addition to the designation, powers, preferences
and rights, and the qualifications, limitations or
restrictions of such series set forth in the Certificate of
Incorporation, as amended, which are applicable to the
Preferred Stock of all Series), as follows:
1. The designation of the Series shall be "5.10%
Series Preferred Stock" (Cumulative) (hereinafter called
the "5.10% Series) and the number of shares which shall
constitute said Series shall be 50,000; such number shall
not be increased and shall be decreased by the number of
shares of said Series at any time retired by the Company.
2. The annual dividend rate of the 5.10% Series
shall be five and ten hundredths per cent (5.10%) of the
par value of said shares, and no more, and the date from
which dividends shall accrue in respect of all shares of
the 5.10% Series shall be the date of issue thereof.
3. The price at which the shares of the 5.10%
Series may be redeemed shall be as specified in paragraph
6 of Article FOURTH of the Certificate of Incorporation,
as amended, plus a premium as follows: $7.50 per share
to and including January 1, 1966; $7.00 per share
thereafter to and including January 1, 1967; $6.50 per
share thereafter to and including January 1, 1968; $6.00
per share thereafter to and including January 1, 1969;
$5.50 per share thereafter to and including January 1,
1970; $5.00 per share thereafter to and including January
1, 1971; $4.50 per share thereafter to and including
January 1, 1972; $4.00 per share thereafter to and
including January 1, 1973; $3.50 per share thereafter to
and including January 1, 1974; $3.00 per share thereafter
to and including January 1, 1975; $2.50 per share
thereafter to and including January 1, 1977; $2.00 per
share thereafter; together with the amount of any
dividends accrued and in arrears thereon.
4. So long as any of the shares of the 5.10% Series
are outstanding, in addition to any other vote or consent
of stockholders required in the Certificate of
Incorporation, as amended, or by law, the vote or consent
of the holders of at least sixty-six and two-thirds per
cent. (66 2/3%) of the shares of the 5.10% Series at the
time outstanding, given in person or by proxy, either in
writing without a meeting (if permitted by law) or at any
meeting called for the purpose, shall be necessary to
effect or validate:
(a) any amendment, alteration or repeal of any of
the provisions of the Certificate of
Incorporation, as amended, or By-Laws of the
Corporation, which affects adversely the
voting powers, rights or preferences of the
holders of the 5.10% Series;
(b) the authorization or creation of, or the
increase in the authorized amount of, any
stock of any class or any security convertible
into stock of any class ranking prior to the
Preferred Stock;
(c) the voluntary dissolution, liquidation or
winding up of the affairs of the Corporation,
or the sale, lease or conveyance by the
Corporation of all or substantially all its
property or assets;
(d) the merger or consolidation of the Corporation
with or into any other corporation, unless the
corporation resulting from such merger or
consolidation will have after such merger or
consolidation no class of stock and no other
securities convertible into stock of any class
either authorized or outstanding which stock
shall rank prior to the Preferred Stock,
except the same number of shares of such stock
and the same amount of such other securities
with the same rights and preferences as such
stock and securities of the Corporation
respectively authorized and outstanding
immediately preceding such merger or
consolidation, and each holder of Preferred
Stock immediately preceding such merger or
consolidation shall receive the same number of
shares, with the same rights and preferences,
of the resulting corporation; or
(e) the purchase or redemption (for sinking fund
purposes or otherwise) of less than all of the
Preferred Stock at the time outstanding unless
the full dividend on all shares of Preferred
Stock of all series then outstanding shall
have been paid or declared and a sum
sufficient for payment thereof set apart;
provided, however, that the amendment of the provisions
of the Certificate of Incorporation, as amended, so as to
authorize or create or to increase the authorized amount
(a) of the Common Stock and any other class of stock of
the Corporation hereafter authorized over which the
Preferred Stock has preference or priority in the payment
of dividends or in the distribution of assets on any
liquidation, dissolution or winding up of the Corporation
or (b) of any class ranking on a parity with the
Preferred Stock, shall not be deemed to affect adversely
the voting powers, rights or preferences of the holders
of the 5.10% Series; and provided further, that no such
consent of the holders of the 5.10% Series shall be
required, if at or prior to the time when such amendment,
alteration or repeal is to take effect or when the
authorization, creation or increase of any such prior
stock or convertible security is to be made, or when such
consolidation or merger, voluntary liquidation,
dissolution or winding up, sale, lease, conveyance,
purchase or redemption is to take effect, as the case may
be, either (i) the consent of the holders of at least
sixty-six and two-thirds per cent. (66 2/3%) of the
shares of the Preferred Stock at the time outstanding
shall have been so given to any such action except an
amendment, alteration or repeal affecting the shares of
the 5.10% Series differently from other series of
Preferred Stock, or (ii) provision is to be made for the
redemption of all shares of the 5.10% Series at the time
outstanding.
5. So long as any shares of the 5.10% Series are
outstanding, in addition to any other vote or consent of
stockholders required in the Certificate of
Incorporation, as amended, or by law, the vote or consent
of the holders of a majority of the shares of the 5.10%
Series at the time outstanding, given in person or by
proxy, either in writing without a meeting (if permitted
by law) or at any meeting called for the purpose, shall
be necessary to effect or validate any increase in the
authorized amount of the Preferred Stock, or the
authorization or creation of, or the increase in the
authorized amount of, any stock of any class or any
security convertible into stock of any class ranking on
a parity with the preferred Stock including any such
action taken in connection with the merger or
consolidation of the Corporation with or into any other
corporation by either party thereto; provided, however,
that no such consent of the holders of the 5.10% Series
shall be required if, at or prior to the time the
authorization or increase of any such parity stock or
convertible security or any such additional shares of
Preferred Stock so to be made, as the case may be, either
(i) the consent of the holders of a majority of the
shares of the Preferred Stock at the time outstanding
shall have been so given to any such action, or (ii)
provision is to be made for the redemption of all shares
of the 5.10% Series at the time outstanding.
6. As a sinking fund for the retirement of the
shares of the 5.10% Series, the Company agrees to
purchase (out of any funds of the Company legally
available therefor after full dividends on the Preferred
Stock of all Series then outstanding for all past
dividend periods and for the current period have been
paid or declared and a sum sufficient for the payment
thereof set apart) 1,000 shares of the 5.10% Series in
each year, commencing January 1, 1962, at the price of
$100 per share together with the amount of any dividends
accrued and unpaid thereon; provided that no shares of
the 5.10% Series shall be purchased pursuant to this
paragraph unless tendered by the holders thereof as
hereinafter provided; and provided further that the
purchase obligation of the Company under this paragraph
shall not be cumulative from year to year even though
less than 1,000 shares of said Series may be purchased in
any year if in such year the Company shall have duly
called for tenders and purchased shares duly tendered as
hereinafter provided. Shares of the 5.10% Series
purchased pursuant to this paragraph shall be cancelled
and retired. The Company will, at least 40 and not more
than 50 days before each January 1, mail a letter to all
holders of record of shares of the 5.10% Series, stating
that it is calling for tenders of 1,000 shares of said
Series for purchase and retirement under the sinking fund
on the following January 1, at $100 per share and accrued
and unpaid dividends; the letter shall ask each holder of
shares of the 5.10% Series to indicate, by return letter
to be received by the Company at a date fixed at least 20
and not more than 25 days before such January 1, the
number of shares, if any, which such holder tenders for
sale; if more than 1,000 shares are duly tendered by all
holders of record, the Company shall first purchase from
each holder tendering shares the number of shares
tendered up to a number of shares (rounding to the
nearest 10 shares) equal as nearly as practicable to 2%
of the sum of (i) the number of shares of the 5.10%
Series then of record in the name of such holder, and
(ii) the number of shares of said Series previously
retired that were of record in the name of such holder at
the time of their redemption or purchase for retirement,
and thereafter purchases shall be made pro rata (as
nearly as practicable and rounding to the nearest 10
shares) on the basis of the shares of said Series duly
tendered for sale or, in the case of holders duly
tendering 1,000 shares, held of record; within three days
after the date on which tenders are to be received, the
Company shall by letter notify all holders of record of
shares of the 5.10% Series of the number of shares
tendered and the number of shares held by each holder to
be retired; and the Company shall make payment for shares
purchased pursuant to this paragraph upon surrender of
stock certificates to the Transfer Agent on or after the
January 1 retirement date.
Resolutions of the Board of Directors
contained in Certificate of Designation
of Series A Preference Stock
filed December 14, 1988
MDU Resources Group, Inc., a corporation organized and
existing under the General Corporation Law of the State of
Delaware (hereinafter called the "Corporation") hereby
certifies that the following resolution was adopted by the
Board of Directors of the Company as required by Section 151
of the General Corporation Law at a meeting duly called and
held on November 3, 1988:
RESOLVED, that pursuant to the authority granted to and
vested in the Board of Directors of the Corporation in
accordance with the provisions of its Certificate of
Incorporation, the Board of Directors hereby establishes a
series of preference stock, without par value of the
Corporation to be designated the Series A Preference Stock,
without par value (the "Series A Preference Stock"), and
hereby states that the 250,000 shares of Series A Preference
Stock shall have the following preferences, limitations and
other rights:
1.01. Dividends and Distribution
(A) Subject to the rights of the holders of any shares
of any series of Preferred Stock, Preferred Stock A (or any
similar stock) ranking prior and superior to the Series A
Preference Stock with respect to dividends, the holders of
shares of Series A Preference Stock, in preference to the
holders of Common Stock, and of any other junior stock, shall
be entitled to receive, when, as and if declared by the Board
of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the first day of
January, April, July and October in each year (each such date
being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment
Date after the first issuance of a share or fraction of a
share of Series A Preference Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1
or (b) subject to the provision for adjustment hereinafter set
forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of
Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on
the Common Stock since the immediately preceding Quarterly
Dividend Payment Date or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share
or fraction of a share of Series A Preference Stock. In the
event the Company shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount to which holders of
shares of Series A Preference Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction,
the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Company shall declare a dividend or distribution
on the Series A Preference Stock as provided above immediately
after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common
Stock); provided that, in the event no dividend or
distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date
and the next subsequent Quarterly Dividend Payment Date, a
dividend of $1 per share on the Series A Preference Stock
shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividend shall begin to accrue and be cumulative on
outstanding shares of Series A Preference Stock from the
Quarterly Dividend Payment Date next preceding the date of
issue of such shares, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of
holders of shares of Series A Preference Stock entitled to
receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends
shall not bear interest. Dividends paid on the shares of
Series A Preference Stock in an amount less than the total
amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share
basis among all such shares at the time outstanding. The
Board of Directors may fix a record date for the determination
of holders of shares of Series A Preference Stock entitled to
receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days
prior to the date fixed for the payment thereof.
1.02. Voting Rights
The holders of shares of Series A Preference Stock shall
have no voting rights except as otherwise provided by law or
as set forth in the Company's Certificate of Incorporation.
1.03. Certain Restrictions
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preference Stock as
provided in 1.01 above are in arrears, thereafter and until
all accrued and unpaid dividends and distributions, whether or
not declared, on shares of Series A Preference Stock
outstanding shall have been paid in full, the Corporation
shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution
or winding up) to the Series A Preference Stock:
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution
or winding up) with the Series A Preference Stock, except
dividends paid ratably on the Series A Preference Stock
and all such parity stock on which dividends are payable
or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled:
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either
as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preference Stock, provided
that the Company may at any time redeem, purchase or
otherwise acquire shares of any such junior stock in
exchange for shares of any stock of the Company ranking
junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Preference
Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preference Stock, or
any shares of stock ranking on a parity with the Series
A Preference Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by
the Board of Directors) to all holders of such shares
upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and
other relative rights and preferences of the respective
series and classes, shall determine in good faith will
result in fair and equitable treatment among the
respective series or classes.
(B) The Company shall not permit any subsidiary of the
Company to purchase or otherwise acquire for consideration any
shares of the stock of the Company unless the Company could,
under paragraph (A) of this Section 1.03 purchase or otherwise
acquire such shares at such time and in such manner.
1.04. Reacquired Shares
Any shares of Series A Preference Stock purchased or
otherwise acquired by the Company in any manner whatsoever
shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preference Stock and may be
reissued as part of a new series of Preference Stock subject
to the conditions and restrictions on issuance set forth
herein, in the Certificate of Incorporation, or in any other
Certificate of Designation creating a series of Preference
Stock or any similar stock or as otherwise required by law.
1.05. Liquidation, Dissolution or Winding Up
Upon any liquidation, dissolution or winding up of the
Company, no distribution shall be made (1) to the holders of
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A
Preference Stock unless, prior thereto, the holders of shares
of Series A Preference Stock shall have received $100 per
share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the
date of such payment, provided that the holders of shares of
Series A Preference Stock shall be entitled to receive an
aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the
aggregate amount to be distributed per share to holders of
shares of Common Stock, or (2) to the holders of shares of
stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A
Preference Stock, except distributions made ratably on the
Series A Preference Stock and all such parity stock in
proportion to the total amounts to which the holders of all
such shares are entitled upon such liquidation, dissolution or
winding up. In the event the Company shall at any time
declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in
shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the aggregate
amount to which holders of shares of Series A Preference Stock
were entitled immediately prior to such event under the
proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
1.06. Consolidation, Merger, etc.
In case the Company shall enter into any consolidation,
merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any
such case each share of Series A Preference Stock shall at the
same time be similarly exchanged or changed into an amount per
share, subject to the provision for adjustment hereinafter set
forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind),
as the case may be, into which or for which each share of
Common Stock is changed or exchanged. In the event the
Company shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in
each such case the amount set forth in the preceding sentence
with respect to the exchange or change of shares of Series A
Preference Stock shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
1.07. Redemption
The shares of Series A Preference Stock shall not be
redeemable.
1.08. Rank
The Series A Preference Stock shall rank, with respect to
the payment of dividends and the distribution of assets,
junior to all series of any other class of the Company's
Preferred Stock and Preferred Stock A.
1.09. Amendment
The Certificate of Incorporation of the Company shall not
be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series
A Preference Stock so as to affect them adversely without the
affirmative vote of the holders of at least a majority of the
outstanding shares of Series A Preference Stock, voting
together as a single series.
FIFTH. The number of shares with which this
Corporation will commence business is ten (10).
SIXTH. The names and places of residence of the
subscribers to the capital stock and the number of shares
subscribed for by each are as follows:
Name Residence No. of Shares
T. L. Croteau Wilmington, Delaware 8
M. A. Bruce Wilmington, Delaware 1
A. M. Hoven Wilmington, Delaware 1
SEVENTH. The Corporation is to have perpetual
existence.
EIGHTH. The private property of the stockholders of
the Corporation shall not be subject to the payment of
corporate debts to any extent whatever.
NINTH. In furtherance, and not in limitation of the
powers conferred by statute, the Board of Directors is
expressly authorized:
Except as otherwise set forth therein, to make,
alter or repeal the By-Laws of the Corporation.
To authorize and cause to be executed mortgages and
liens upon the real and personal property of the
Corporation.
To set apart out of any of the funds of the
Corporation available for dividends a reserve or reserves
for any proper purpose or to abolish any such reserve in
the manner in which it was created.
By resolution or resolutions, passed by a majority
of the whole Board to designate one or more committees,
each committee to consist of two or more of the directors
of the Corporation, which, to the extent provided in said
resolution or resolutions or in the By-Laws of the
Corporation, shall have and may exercise the powers of
the Board of Directors in the management of the business
and affairs of the Corporation, and may have power to
authorize the seal of the Corporation to be affixed to
all papers which may require it. Such committee or
committees shall have such name or names as may be stated
in the By-Laws of the Corporation or as may be determined
from time to time by resolution adopted by the Board of
Directors.
When and as authorized by the affirmative vote of
the holders of a majority of the stock issued and
outstanding having voting power given at a stockholders'
meeting duly called for that purpose, or when authorized
by the written consent of the holders of a majority of
the voting stock issued and outstanding, to sell, lease
or exchange all of the property and assets of the
Corporation, including its good will and its corporate
franchises, upon such terms and conditions and for such
consideration, which may be whole or in part shares of
stock in, and/or other securities of, any other
corporation or corporations, as its Board of Directors
shall deem expedient and for the best interests of the
Corporation.
The Corporation may in its By-Laws confer powers
upon its Board of Directors in addition to the foregoing,
and in addition to the powers and authorities expressly
conferred upon it by statute.
Both stockholders and directors shall have power, if
the By-Laws so provide, to hold their meetings, and to
have one or more offices within or without the State of
Delaware, and to keep the books of the surviving
Corporation (subject to the provisions of the statutes),
outside of the State of Delaware at such places as may be
from time to time designated by the Board of Directors.
TENTH. This Corporation reserves the right to
amend, alter, change or repeal any provision contained in this
Certificate of Incorporation in the manner now or hereafter
prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
ELEVENTH. Whenever a compromise or arrangement is
proposed between this Corporation and its creditors or any
class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the
application in a summary way of this Corporation or of any
creditor or stockholder thereof, or on the application of any
receiver or receivers appointed for this Corporation under the
provisions of Section 3883 of the Revised Code of 1915 of said
State, or on the application of trustees in dissolution or of
any receiver or receivers appointed for this Corporation under
the provisions of Section 43 of the General Corporation Law of
the State of Delaware, order a meeting of the creditors or
class of creditors, and/or of stockholders or class of
stockholders of this Corporation, as the case may be, to be
summoned in such manner as the said Court directs. If a
majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or
class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any
reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement
and the said reorganization shall, if sanctioned by the Court
to which the said application has been made, be binding on all
the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as
the case may be, and also on this Corporation.
TWELFTH. Part I. For the purposes of this Article
TWELFTH, the following terms shall have the meaning
hereinafter set forth:
(a) "Affiliate" or "Associate" shall have the
respective meanings ascribed to such terms in the General
Rules and Regulations under the Securities Exchange Act
of 1934 as in effect on January 1, 1985.
(b) A person shall be a "Beneficial Owner" of any
Voting Stock:
(i) which such person or any of its
Affiliates or Associates (as herein defined)
beneficially owns, directly or indirectly; or
(ii) which such person or any of its
Affiliates or Associates has (A) the right to
acquire (whether such right is exercisable
immediately or only after the passage of time),
pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or
otherwise, or (B) the right to vote pursuant to any
agreement, arrangement or understanding; or
(iii) which are beneficially owned, directly
or indirectly, by any other person with which such
person or any of its Affiliates or Associates has
any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing
of any shares of Voting Stock.
(c) "Business Combination" shall mean any of the
following:
(i) any merger or consolidation of the
Corporation or any Subsidiary with (A) any
Interested Stockholder or (B) any other corporation
(whether or not itself an Interested Stockholder)
which is, or after such merger or consolidation
would be, an Affiliate of an Interested
Stockholder; or
(ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition (in one
transaction or a series of transactions) to or with
any Interested Stockholder or any Affiliate of any
Interested Stockholder of any assets of the
Corporation or any Subsidiary having an aggregate
Fair Market Value of $5,000,000 or more but shall
not include transactions between the Corporation
and its Subsidiaries; or
(iii) the issuance or transfer by the
Corporation or any subsidiary (in one transaction
or a series of transactions) of any securities of
the Corporation or any subsidiary to any Interested
Stockholder or any Affiliate of any Interested
Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an
aggregate Fair Market Value of $5,000,000 or more;
or,
(iv) the adoption of any plan or proposal for
the liquidation or dissolution of the Corporation
proposed by or on behalf of an Interested
Stockholder or any Affiliate of any Interested
Stockholder; or
(v) any reclassification of securities
(including any reverse stock split), or
recapitalization of the Corporation, statutory
share exchange, or any merger or consolidation of
the Corporation with any of its Subsidiaries or any
other transaction (whether or not with or into or
otherwise involving an Interested Stockholder)
which has the effect, directly or indirectly, of
increasing the proportionate share of the
outstanding shares of any class of equity or
convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by
any Interested Stockholder or any Affiliate of any
Interested Stockholder.
(d) "Continuing Director" shall mean any member of
the Board of Directors of the Corporation (the "Board")
who is unaffiliated with, and not a nominee of, the
Interested Stockholder (as such term is used in the
context of a Business Combination) and was a member of
the Board prior to the time that the Interested
Stockholder became an Interested Stockholder and any
successor of a Continuing Director who is unaffiliated
with, and not a nominee of, the Interested Stockholder
and is designated to succeed a Continuing Director by
two-thirds of Continuing Directors then on the Board.
(e) "Fair Market Value" means:
(i) in the case of stock, the highest closing
sale price during the thirty-day period immediately
preceding the date in question of a share of such
stock on the Composite Tape for the New York Stock
Exchange-Listed Stocks, or, if such stock is not
quoted on the Composite Tape for the New York Stock
Exchange, or, if such stock is not listed on such
Exchange, on the principal United States securities
exchange registered under the Securities Exchange
Act of 1934 on which such stock is listed, or, if
such stock is not listed on any such exchange, the
highest closing bid quotation with respect to a
share of such stock during the thirty-day period
preceding the date in question on the National
Association of Securities Dealers, Inc. Automated
Quotations System ("NASDAQ") or, if NASDAQ is not
then in use, any other system then in use, or, if
no such quotations are available, the fair market
value on the date in question of a share of such
stock as determined by two-thirds of the Continuing
Directors in good faith; and
(ii) in the case of property other than cash
or stock, the fair market value of such property on
the date in question as determined by a majority of
the Continuing Directors in good faith.
(f) "Institutional Voting Stock" shall mean any
class of Voting Stock which was issued to and continues
to be held solely by one or more insurance companies,
pension funds, commercial banks, savings banks and/or
similar financial institutions or institutional
investors.
(g) "Interested Stockholder" shall mean any person
(other than the Corporation or any Subsidiary) who or
which:
(i) is the Beneficial Owner, directly or
indirectly, of more than 10 percent of the voting
power of the then outstanding Voting Stock; or
(ii) is an Affiliate of the Corporation and at
any time within the two-year period immediately
prior to the date in question, became the
Beneficial Owner, directly or indirectly, of 10
percent or more of the voting power of the then
outstanding Voting Stock; or
(iii) is an assignee of or has otherwise
succeeded to any shares of Voting Stock which were
at any time within the two-year period immediately
prior to the date in question beneficially owned by
any Interested Stockholder, if such assignment or
succession shall have occurred in the course of a
transaction or series of transactions not involving
a public offering within the meaning of the
Securities Act of 1933.
For the purpose of determining whether a person is an
Interested Stockholder pursuant to this paragraph (g), the
number of shares of Voting Stock deemed to be outstanding
shall include shares deemed owned through application of
paragraph (b) of this Part I but shall not include any other
shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
(h) In the event of any Business Combination in
which the Corporation survives the phrase "consideration
other than cash to be received" as used in Sections (a)
and (b) of Part II of this Article TWELFTH shall include
the shares of Common Stock and/or the shares of any other
class of outstanding Voting Stock retained by the holders
of such shares.
(i) A "person" shall mean any individual, firm,
partnership, trust, corporation or other entity.
(j) "Subsidiary" means any corporation of which a
majority of any class of equity security is owned,
directly or indirectly, by the Corporation; provided,
however, that for the purposes of the definition of
Interested Stockholder set forth in paragraph (g) of this
Part I, the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity
security is owned, directly or indirectly, by the
Corporation.
(k) "Voting Stock" shall mean each share of stock
of the Corporation generally entitled to vote in
elections of directors.
The Continuing Directors of the Corporation shall have
the power and duty to determine, for the purposes of this
Article TWELFTH, on the basis of information known to them
after reasonable inquiry, all facts necessary to determine the
applicability of the various provisions of this Article
TWELFTH, including (a) whether a person is an Interested
Stockholder, (b) the number of shares of Voting Stock
beneficially owned by any person, (c) whether a person is an
Affiliate or Associate of another, and (d) whether a class of
Voting Stock is Institutional Voting Stock. Any such
determination made in good faith shall be binding and
conclusive on all parties.
PART II.
Except as otherwise expressly provided in Part III of
this Article TWELFTH and in addition to any other provision of
law and as may otherwise be set forth in the Certificate of
Incorporation, the consummation of any Business Combination
shall require that all of the following conditions shall have
been met:
(a) The aggregate amount of the cash and the Fair
Market Value as of the date of the consummation of the
Business Combination of consideration other than cash to
be received per share by holders of Common Stock in such
Business Combination shall be at least equal to the
highest of the following:
(i) (if applicable) the highest per share
price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid
by the Interested Stockholder for any shares of
Common Stock acquired by it (A) within the two-year
period immediately prior to the first public
announcement of the proposal of the Business
Combination (the "Announcement Date") or (B) in the
transaction in which it became an Interested
Stockholder, whichever is highest;
(ii) the Fair Market Value per share of Common
Stock on the Announcement Date or on the date on
which the Interested Stockholder became an
Interested Stockholder (such latter date is
referred to in this Article TWELFTH as the
"Determination Date"), whichever is higher; and
(iii) (if applicable) the price per share
equal to the Fair Market Value per share of Common
Stock determined pursuant to paragraph (ii) above,
multiplied by the ratio of (A) the highest per
share price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid
by the Interested Stockholder for any shares of
Common Stock acquired by it within the two-year
period immediately prior to the Announcement Date
to (B) the Fair Market Value per share of Common
Stock on the first day in such two-year period upon
which the Interested Stockholder acquired any
shares of Common Stock.
(b) The aggregate amount of the cash and the Fair
Market Value as of the date of the consummation of the
Business Combination of consideration other than cash to
be received per share by holders of shares of any class
of outstanding Voting Stock other than Common Stock (and
other than Institutional Voting Stock), shall be at least
equal to the highest of the following (it being intended
that the requirements of this paragraph (b) shall be
required to be met with respect to every class of
outstanding Voting Stock, whether or not the Interested
Stockholder has previously acquired any shares of a
particular class of Voting Stock):
(i) (if applicable) the highest per share
price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid
by the Interested Stockholder for any shares of
such class of Voting Stock acquired by it (A)
within the two-year period immediately prior to the
Announcement Date or (B) in the transaction in
which it became an Interested Stockholder,
whichever is higher;
(ii) (if applicable) the highest preferential
amount per share to which the holders of shares of
such class of Voting Stock are entitled in the
event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
(iii) the Fair Market Value per share of such
class of Voting Stock on the Announcement Date or
on the Determination Date, whichever is higher; and
(iv) (if applicable) the price per share equal
to the Fair Market Value per share of such class of
Voting Stock determined pursuant to paragraph
(b)(iii) above, multiplied by the ratio of (A) the
highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Stockholder for any
shares of such class of Voting Stock acquired by it
within the two-year period immediately prior to the
Announcement Date to (B) the Fair Market Value per
share of such class of Voting Stock on the first
day in such two-year period upon which the
Interested Stockholder acquired any shares of such
class of Voting Stock.
(c) The consideration to be received by holders of
a particular class of outstanding Voting Stock (including
Common Stock) shall be in cash or in the same form as the
Interested Stockholder has previously paid for shares of
such class of Voting Stock. If the Interested
Stockholder has paid for shares of any class of Voting
Stock with varying forms of consideration, the form of
consideration for such class of Voting Stock shall be
either cash or the form used to acquire the largest
number of shares of such class of Voting Stock previously
acquired by it.
(d) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of
such Business Combination:
(i) except as approved by two-thirds of the
Continuing Directors, there shall have been no
failure to declare and pay at the regular date
therefor any full quarterly dividends (whether or
not cumulative) on the outstanding Preferred Stock;
(ii) there shall have been (A) no reduction in
the annual rate of dividends paid on the Common
Stock (except as necessary to reflect any
subdivision of the Common Stock), except as
approved by two-thirds of the Continuing Directors,
and (B) an increase in such annual rate of
dividends as necessary to reflect any reclassi-
fication (including any reverse stock split),
recapitalization, reorganization or any similar
transaction which has the effect of reducing the
number of outstanding shares of the Common Stock,
unless the failure so to increase such annual rate
is approved by two-thirds of the Continuing
Directors; and
(iii) such Interested Stockholder shall have
not become the beneficial owner of any additional
shares of Voting Stock except as part of the
transaction which results in such Interested
Stockholder becoming an Interested Stockholder.
(e) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall
not have received the benefit, directly or indirectly
(except proportionately as a stockholder), of any loans,
advances, guarantees, pledges or other financial
assistance or any tax credits or other tax advantages
provided by the Corporation, whether in anticipation of
or in connection with such Business Combination or
otherwise.
(f) A proxy or information statement describing the
proposed Business Combination and containing the
information specified for proxy or information statements
under the Securities Exchange Act of 1934 and the rules
and regulations thereunder (or any subsequent provisions
replacing such Act, rules or regulations) shall be mailed
to stockholders of the Corporation at least thirty days
prior to the consummation of such Business Combination
(whether or not such proxy or information statement is
required to be mailed pursuant to such Act or subsequent
provisions).
PART III.
Unless the Business Combination shall have been approved
by two-thirds of the Continuing Directors, (a) the provisions
of Part II of this Article TWELFTH shall be applicable to each
particular Business Combination, and (b) any such Business
Combination shall be approved by the affirmative vote of at
least four-fifths of the voting power of all shares of Voting
Stock (considered for purposes of this Article TWELFTH as one
class, it being understood that for purposes of this Article
TWELFTH, each share of Voting Stock shall have the number of
votes granted to it pursuant to Article FOURTH of the
Certificate of Incorporation).
PART IV.
Nothing contained in this Article TWELFTH shall be
construed to relieve any Interested Stockholder from any
fiduciary obligation imposed by law.
THIRTEENTH. (a) The business and affairs of the
Corporation shall be managed by the Board of Directors
consisting of not less than six nor more than fifteen persons.
The exact number of directors within the limitations specified
in the preceding sentence shall be fixed from time to time by
the Board of Directors pursuant to a resolution adopted by
two-thirds of the Continuing Directors. The directors need
not be elected by ballot unless required by the By-Laws of the
Corporation.
The Board of Directors shall be divided into three
classes as nearly equal in number as may be. The initial term
of office of each director in the first class shall expire at
the annual meeting of stockholders in 1986; the initial term
of office of each director in the second class shall expire at
the annual meeting of stockholders in 1987; and the initial
term of office of each director in the third class shall
expire at the annual meeting of stockholders in 1988. At each
annual election commencing at the annual meeting of
stockholders of 1986, the successors to the class of directors
whose term expires at that time shall be elected to hold
office for a term of three years to succeed those whose term
expires, so that the term of one class of directors shall
expire each year. Each director shall hold office for the
term for which he is elected or appointed and until his
successor shall be elected and qualified or until his death,
or until he shall resign or be removed.
In the event of any increase or decrease in the
authorized number of directors, (i) each director then serving
as such shall nevertheless continue as a director of the class
of which he is a member until the expiration of his current
term, or his earlier resignation, removal from office or
death, and (ii) the newly created or eliminated directorships
resulting from such increase or decrease shall be apportioned
by the Board of Directors among the three classes of directors
so as to maintain such classes as nearly equal in number as
may be.
(b) Newly created directorships resulting from any
increase in the authorized number of directors or any
vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office
or other cause shall be filled by a two-thirds vote of the
Continuing Directors then in office, or a sole remaining
director, although less than a quorum, and directors so chosen
shall hold office for a term expiring at the annual meeting of
stockholders at which the term of the class to which they have
been elected expires. If one or more directors shall resign
from the Board effective as of a future date, such vacancy or
vacancies shall be filled pursuant to the provisions hereof,
and such new directorship(s) shall become effective when such
resignation or resignations shall become effective, and each
director so chosen shall hold office as herein provided in the
filling of other vacancies.
(c) Any director or the entire Board of Directors may be
removed; however, such removal must be for cause and must be
approved as set forth in this Section. Except as may
otherwise be provided by law, cause for removal shall be
construed to exist only if: (i) the director whose removal is
proposed has been convicted, or where a director was granted
immunity to testify where another has been convicted, of a
felony by a court of competent jurisdiction and such
conviction is no longer subject to direct appeal; (ii) such
director has been grossly negligent in the performance of his
duties to the Corporation; or (iii) such director has been
adjudicated by a court of competent jurisdiction to be
mentally incompetent, which mental incompetency directly
affects his ability as a director of the Corporation, and such
adjudication is no longer subject to direct appeal.
Removal for cause, as cause is defined above, must be
approved by at least a majority vote of the shares of the
Corporation then entitled to be voted at an election for that
director, and the action for removal must be brought within
three months of such conviction or adjudication.
Notwithstanding the foregoing, and except as otherwise
provided by law, in the event that Preferred Stock of the
Corporation is issued and holders of any one or more series of
such Preferred Stock are entitled, voting separately as a
class, to elect one or more directors of the Corporation to
serve for such terms as set forth in the Certificate of
Incorporation, the provisions of this Article THIRTEENTH,
Section (c), shall also apply, in respect to the removal of a
director or directors so elected to the vote of the holders of
the outstanding shares of that class and not to the vote of
the outstanding shares as a whole.
(d) Any directors elected pursuant to special voting
rights of one or more series of Preferred Stock, voting as a
class, shall be excluded from, and for no purpose be counted
in, the scope and operation of the foregoing provisions,
unless expressly stated.
FOURTEENTH: The Board of Directors, in evaluating
any proposal by another party to (a) make a tender or exchange
offer for any securities of the Corporation, (b) effect a
Business Combination (as defined in Article TWELFTH), or (c)
effect any other transaction having an effect upon the
properties, operations or control of the Corporation similar
to a tender or exchange offer or Business Combination, as the
case may be, whether by an Interested Stockholder (as defined
in Article TWELFTH or otherwise, may, in connection with the
exercise of its judgment as to what is in the best interests
of the Corporation and its stockholders, give due
consideration to the following:
(i) the consideration to be received by the
Corporation or its stockholders in connection with such
transaction in relation not only to the then current
market price for the outstanding capital stock of the
Corporation, but also to the market price for the capital
stock of the Corporation over a period of years, the
estimated price that might be achieved in a negotiated
sale of the Corporation as a whole or in part through
orderly liquidation, the premiums over market price for
the securities of other corporations in similar
transactions, current political, economic and other
factors bearing on securities prices and the
Corporation's financial condition, future prospects and
future value as an independent Corporation;
(ii) the character, integrity and business
philosophy of the other party or parties to the
transaction and the management of such party or parties;
(iii) the business and financial conditions and
earnings prospects of the other party or parties to the
transaction, including, but not limited to, debt service
and other existing or likely financial obligations of
such party or parties, the intention of the other party
or parties to the transaction regarding the use of the
assets of the Corporation to finance the acquisition, and
the possible effect of such conditions upon the
Corporation and its Subsidiaries and the other elements
of the communities in which the Corporation and its
Subsidiaries operate or are located;
(iv) the projected social, legal and economic
effects of the proposed action or transaction upon the
Corporation or its Subsidiaries, its employees,
suppliers, customers and others having similar
relationships with the Corporation, and the communities
in which the Corporation and its Subsidiaries do
business;
(v) the general desirability of the continuance of
the Corporation as an independent entity; and
(vi) such other factors as the Continuing Directors
may deem relevant.
FIFTEENTH. Notwithstanding anything to the contrary
contained in this Certificate of Incorporation or the By-Laws
of the Corporation (and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate of
Incorporation or the By-Laws of the Corporation), the
affirmative vote of the holders of at least four-fifths of the
voting power of the then outstanding Voting Stock shall be
required to amend, alter, change or repeal, or to adopt any
provision inconsistent with, Articles TWELFTH, THIRTEENTH,
FOURTEENTH, FIFTEENTH and SIXTEENTH of this Certificate of
Incorporation, provided that such four-fifths vote shall not
be required for any amendment, alteration, change or repeal
recommended to the stockholders by two-thirds of the
Continuing Directors, as defined in Article TWELFTH.
SIXTEENTH. Any action required or permitted to be
taken by the stockholders of the Corporation must be effected
at a duly called annual or special meeting of stockholders of
the Corporation and may not be effected by any consent in
writing by such stockholders. Special meetings of
stockholders of the Corporation may be called only by the
Chairman or President and shall be called by the Chairman,
President or the Secretary upon the written request of two-
thirds of the Continuing Directors. Stockholders of the
Corporation shall not be entitled to request a special meeting
of stockholders.
SEVENTEENTH. No director of the Corporation shall
be liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for
liability (a) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve international
misconduct or a knowing violation of law, (c) under Section
174 of the Delaware General Corporation Law, or (d) for any
transaction from which the director derived an improper
personal benefit.
IN WITNESS WHEREOF, MDU Resources Group, Inc. has caused
its corporate seal to be hereunto affixed, and this Restated
Certificate of Incorporation to be signed by John A.
Schuchart, its Chairman of the Board and Chief Executive
Officer, and Lester H. Loble, II, its Secretary, this 3rd day
of November, 1994.
MDU RESOURCES GROUP, INC.
ATTEST:
/s/ Lester H. Loble, II By: /s/ John A. Schuchart
Lester H. Loble, II John A. Schuchart
Secretary Chairman of the Board
and Chief Executive Officer
(CORPORATE SEAL)
STATE OF NORTH DAKOTA )
) ss.
COUNTY OF BURLEIGH )
BE IT REMEMBERED that on this 3rd day of November, 1994,
before me, Bruce J. Gallagher, a Notary Public for the State
of North Dakota, personally appeared John A. Schuchart and
Lester H. Loble, II, personally known by me to be the Chairman
of the Board and Chief Executive Officer and the Secretary,
respectively, of MDU Resources Group, Inc., and they severally
acknowledged that the execution of said Certificate is their
act and deed and the act and deed of said corporation and that
the facts therein stated are true.
Given under my hand and seal of office the day and year
aforesaid.
/s/ Bruce J. Gallagher
Bruce J. Gallagher, Notary Public
Burleigh County, North Dakota
(NOTARY SEAL) My Commission expires: 8-23-95
TABLE OF CONTENTS
TO BYLAWS
1. Amendments
2. Certificates of Stock
3. Chairman and Vice Chairman of the Board
4. Checks
5. Chief Executive Officer
6. Chief Operating Officer
7. Committees
8. Compensation of Directors
9. Directors
10. Directors Indemnified
11. Directors Meetings
12. Dividends
13. Election of Officers
14. Execution of Instruments
15. Execution of Proxies
16. Fiscal Year
17. Inspection of Books and Records
18. Lost Certificates
19. Notices
20. Officers
21. Offices
22. President
23. Qualifications
24. Record Date
25. Registered Stockholders
26. Seal
27. Secretary and Assistant Secretaries
28. Stockholders Meetings
29. Transfers of Stock
30. Treasurer and Assistant Treasurer
31. Vice Presidents<PAGE>
BYLAWS OF
MDU RESOURCES GROUP, INC.
OFFICES
1.01 Registered Office. The registered office shall be in
the City of Wilmington, County of New Castle, State of
Delaware.
1.02 Other Offices. The Corporation may also have offices
at such other places, both within and without the State of
Delaware, as the Board of Directors may from time to time
determine or the business of the Corporation may require.
MEETINGS OF STOCKHOLDERS
2.01 Place of Meetings. All meetings of the stockholders
for the election of Directors shall be held in the City of
Bismarck, State of North Dakota, at such place as may be
fixed from time to time by the Board of Directors, or at
such other place, either within or without the State of
Delaware, as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting.
Meetings of stockholders for any other purpose may be held
at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or
in a duly executed waiver of notice thereof.
2.02 Annual Meetings. Annual meetings of stockholders,
commencing with the year 1973, shall be held on the fourth
Tuesday of April in each year, if not a legal holiday, and
if a legal holiday, then on the next secular day following,
at 11:00 A.M., or at such other date and time as shall be
designated from time to time by the Board of Directors and
stated in the notice of the meeting, at which they shall
elect by a plurality vote, by written ballot, a Board of
Directors, and transact such other business as may properly
be brought before the meeting.
2.03 Notice of Annual Meeting. Written notice of the
annual meeting, stating the place, date and hour of the
meeting, shall be given to each stockholder entitled to vote
at such meeting not less than ten nor more than sixty days
before the date of the meeting.
2.04 Stockholders List. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at
least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the
meeting, either at a place within the City where the meeting
is to be held, which place shall be specified in the notice
of the meeting, or, if not so specified, at the place where
the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder
who is present.
2.05 Notice of Special Meeting. Written notice of a
special meeting, stating the place, date and hour of the
meeting and the purpose or purposes for which the meeting is
called, shall be given not less than ten nor more than sixty
days before the date of the meeting, to each stockholder
entitled to vote at such meeting.
2.06 Quorum. The holders of a majority of the stock
issued and outstanding and entitled to vote in person or by
proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business, except as
provided herein and except as otherwise provided by statute
or by the Certificate of Incorporation. If, however, such
quorum shall not be present or represented at any meeting of
the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power
to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall
be present or represented. At such adjourned meeting at
which a quorum shall be present or represented, any business
may be transacted which might have been transacted at the
meeting as originally notified. If the adjournment is for
more than thirty days, or if, after the adjournment, a new
record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
2.07 Voting Rights. When a quorum is present at any
meeting, the vote of the holders of a majority of the stock
having voting power, present in person or represented by
proxy, shall decide any question brought before such
meeting, unless the question is one upon which, by express
provision of the statutes, the Certificate of Incorporation
or these Bylaws, a different vote is required, in which case
such express provision shall govern and control the decision
of such question. Unless otherwise provided in the
Certificate of Incorporation, each stockholder shall, at
every meeting of the stockholders, be entitled to one vote
in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy
shall be voted on after three years from its date, unless
the proxy provides for a longer period.
DIRECTORS
3.01 Authority of Directors. The business of the
Corporation shall be managed by its Board of Directors which
may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by statute or by the
Certificate of Incorporation or by these Bylaws directed or
required to be exercised or done by the stockholders.
3.02 Qualifications. No person shall be eligible as a
Director of the Corporation who at the time of his election
has passed his seventieth birthday, provided that this age
qualification shall not apply to those persons who are
officers of the Corporation. Except for those persons who
have served as Chief Executive Officer of the Corporation, a
person shall be ineligible as a Director if at the time of
his election he is a retired officer of the Corporation. A
person who has served as Chief Executive Officer of the
Corporation shall be ineligible as a Director if at the time
of his election he has been retired as Chief Executive
Officer for more than five years. The Board of Directors may
elect from those persons who have been members of the Board
of Directors, Directors Emeritus.
3.03 Place of Meetings. The Board of Directors of the
Corporation may hold meetings, both regular and special,
either within or without the State of Delaware.
3.04 Annual Meetings. The first meeting of each newly
elected Board of Directors shall be held at such time and
place as shall be specified in a notice given as herein
provided for regular meetings of the Board of Directors, or
as shall be specified in a duly executed waiver of notice
thereof.
3.05 Regular Meetings. Regular meetings of the Board of
Directors may be held at the office of the Corporation in
Bismarck, North Dakota, on the second Thursday following the
first Monday of February, May, August and November of each
year; provided, however, that if a legal holiday, then on
the next preceding day that is not a legal holiday. Regular
meetings of the Board of Directors may be held at other
times and other places within or without the State of North
Dakota on at least five days' notice to each Director,
either personally or by mail, telephone or telegram.
3.06 Special Meetings. Special meetings of the Board may
be called by the Chairman of the Board, Chief Executive
Officer or President on three days' notice to each Director,
either personally or by mail, telephone or telegram; special
meetings shall be called by the Chairman, Chief Executive
Officer, President or Secretary in like manner and on like
notice on the written request of a majority of the Board of
Directors.
3.07 Quorum. At all meetings of the Board, a majority of
the Directors shall constitute a quorum for the transaction
of business and the act of a majority of the Directors
present at any such meeting at which there is a quorum shall
be the act of the Board of Directors, except as may be
otherwise specifically provided by statute, the Certificate
of Incorporation or by these Bylaws. If a quorum shall not
be present at any meeting of the Board of Directors, the
Directors present may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until
a quorum shall be present.
3.08 Participation of Directors by Conference Telephone.
Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, any member of the Board, or
of any committee designated by the Board, may participate in
any meeting of such Board or committee by means of
conference telephone or similar communication equipment by
means of which all persons participating in the meeting can
hear each other. Participation in any meeting by means of
conference telephone or similar communications equipment
shall constitute presence in person at such meeting.
3.09 Written Action of Directors. Unless otherwise
restricted by the Certificate of Incorporation or these
Bylaws, any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee
thereof may be taken without a meeting, if all members of
the Board or committee, as the case may be, consent thereto
in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
3.10 Committees. The Board of Directors may by resolution
passed by a majority of the whole Board designate one or
more committees, each committee to consist of two or more
Directors of the Corporation. The Board may designate one or
more Directors as alternate members of any committee who may
replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a
member of a committee, the member or members thereof present
at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified
member. The Chairman of the Board shall appoint another
member of the Board of Directors to fill any committee
vacancy which may occur. Any such committee shall have, and
may exercise, the power and authority specifically granted
by the Board to the committee, but no such committee shall
have the power or authority to amend the Certificate of
Incorporation, adopt an agreement of merger or
consolidation, recommend to the stockholders the sale, lease
or exchange of the Corporation's property and assets,
recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution, or amend the
Bylaws of the Corporation. Such committee or committees
shall have such name or names as may be determined from time
to time by resolution adopted by the Board of Directors.
3.11 Reports of Committees. Each committee shall keep
regular minutes of its meetings and report the same to the
Board of Directors when required.
3.12 Compensation of Directors. Unless otherwise
restricted by the Certificate of Incorporation, the Board of
Directors shall have the authority to fix the compensation
of Directors. The Directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting
of the Board of Directors or a stated salary as Director.
No such payment shall preclude any Director from serving the
Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be
allowed compensation for attending committee meetings.
3.13 Chairman and Vice Chairman of the Board. The
Chairman of the Board of Directors shall be chosen by the
Board of Directors at its first meeting after the annual
meeting of the stockholders of the Corporation. The Chairman
shall preside at all meetings of the Board of Directors and
stockholders of the Corporation, and shall, subject to the
direction and control of the Board, be its representative
and medium of communication, and shall perform such duties
as may from time to time be assigned to the Chairman by the
Board. The Vice Chairman shall be a Director and shall
preside at all meetings of the stockholders and the Board of
Directors in the absence of the Chairman of the Board.
NOTICES
4.01 Notices. Whenever, under the provisions of the
statutes or of the Certificate of Incorporation or of these
Bylaws, notice is required to be given to any Director or
stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail,
addressed to such Director or stockholder, at his address as
it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given
at the time when the same shall be deposited in the United
States mail. Notice to Directors may also be given by
telegram or telephone.
4.02 Waiver. Whenever any notice is required to be given
under the provisions of the statutes or of the Certificate
of Incorporation or of these Bylaws, a waiver thereof in
writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein,
shall be deemed equivalent thereto.
OFFICERS
5.01 Election, Qualifications. The officers of the
Corporation shall be chosen by the Board of Directors at its
first meeting after each annual meeting of stockholders and
shall include a President, a Chief Executive Officer, a
Chief Operating Officer, a Vice President, a Secretary and a
Treasurer. The Board of Directors may also choose additional
Vice Presidents, and one or more Assistant Vice Presidents,
Assistant Secretaries and Assistant Treasurers. Any number
of offices may be held by the same person, unless the
Certificate of Incorporation or these Bylaws otherwise
provide.
5.02 Additional Officers. The Board of Directors may
appoint such other officers and agents as it shall deem
necessary, who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall
be determined from time to time by the Board.
5.03 Salaries. The salaries of all principal officers of
the Corporation shall be fixed by the Board of Directors.
5.04 Term. The officers of the Corporation shall hold
office until their successors are chosen and qualify. Any
officer elected or appointed by the Board of Directors may
be removed at any time by the affirmative vote of a majority
of the Board of Directors. Any vacancy occurring in any
office of the Corporation shall be filled by the Board of
Directors.
5.05 Chief Executive Officer. The Chief Executive Officer
shall, subject to the authority of the Board of Directors,
determine the general policies of the Corporation. The Chief
Executive Officer shall submit a report of the operations of
the Company for the fiscal year to the stockholders at their
annual meeting and from time to time shall report to the
Board of Directors all matters within his knowledge which
the interests of the Corporation may require be brought to
the Board's notice.
5.06 The President. The President shall have general and
active management of the business of the Corporation and
shall see that all orders and resolutions of the Board of
Directors are carried into effect.
5.07 The Chief Operating Officer. The Chief Operating
Officer shall have general management oversight of the
subsidiaries and divisions of the Corporation.
5.08 The Vice Presidents. In the absence of the President
or in the event of his inability or refusal to act, the Vice
President (or in the event there be more than one Vice
President, the Vice Presidents in the order designated, or
in the absence of any designation, then in the order of
their election) shall perform the duties of the President,
and when so acting, shall have all the powers of and be
subject to all the restrictions upon the President. The Vice
Presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time
prescribe.
5.09 The Secretary and Assistant Secretaries. The
Secretary shall record all the proceedings of the meetings
of the stockholders and Directors in a book to be kept for
that purpose. He shall give, or cause to be given, notice of
all meetings of the stockholders and special meetings of the
Board of Directors, and shall perform such other duties as
may be prescribed by the Board of Directors or Chief
Executive Officer, under whose supervision he shall be. He
shall have custody of the corporate seal of the Corporation
and he, or an assistant secretary, shall have authority to
affix the same to any instrument requiring it. The Board of
Directors may give general authority to any other officer to
affix the seal of the Corporation.
The Assistant Secretary, or if there be more than one,
the Assistant Secretaries in the order determined by the
Board of Directors (or if there be no such determination,
then in the order of their election) shall, in the absence
of the Secretary or in the event of his inability or refusal
to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such
other powers as the Board of Directors may from time to time
prescribe.
5.10 Treasurer and Assistant Treasurers. The Treasurer
shall have the custody of the corporate funds and securities
and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the
name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors.
He shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the President
and the Board of Directors, at its regular meetings, or when
the Board of Directors so requires, an account of all his
transactions as Treasurer and of the financial condition of
the Corporation.
If required by the Board of Directors, he shall give the
Corporation a bond (which shall be renewed every six years)
in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the
restoration to the Corporation, in case of his death,
resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of
whatever kind in his possession or under his control
belonging to the Corporation.
The Assistant Treasurer, or if there shall be more than
one, the Assistant Treasurers in the order determined by the
Board of Directors (or if there be no such determination,
then in the order of their election), shall, in the absence
of the Treasurer or in the event of his inability or refusal
to act, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such
other powers as the Board of Directors may from time to time
prescribe.
5.11 Authority and Duties. In addition to the foregoing
authority and duties, all officers of the Corporation shall
respectively have such authority and perform such duties in
the management of the business of the Corporation as may be
designated from time to time by the Board of Directors.
5.12 Execution of Instruments. All deeds, bonds,
mortgages, notes, contracts and other instruments requiring
the seal of the Corporation shall be executed on behalf of
the Corporation by the Chief Executive Officer, President,
Chief Operating Officer or a Vice President and attested by
the Secretary or an Assistant Secretary or by the Treasurer
or an Assistant Treasurer, except where the execution and
attestation thereof shall be expressly delegated by the
Board of Directors to some other officer or agent of the
Corporation. When authorized by the Board of Directors, the
signature of any officer or agent of the Corporation may be
a facsimile.
5.13 Execution of Proxies. All capital stocks in other
corporations owned by this Corporation shall be voted at the
meetings, regular and/or special, of stockholders of said
other corporations by the Chief Executive Officer,
President, or Chief Operating Officer of this Corporation,
or, in the absence of any of them, by a Vice President, and
in the event of the presence of more than one Vice President
of this Corporation, then by a majority of said Vice
Presidents present at such stockholders meetings, and the
Chief Executive Officer, President, or Chief Operating
Officer and Secretary of this Corporation are hereby
authorized to execute in the name and under the seal of this
Corporation proxies in such form as may be required by the
corporations whose stock may be owned by this Corporation,
naming as the attorney authorized to act in said proxy such
individual or individuals as to said Chief Executive
Officer, President, or Chief Operating Officer and
Secretary shall deem advisable, and the attorney or
attorneys so named in said proxy shall, until the revocation
or expiration thereof, vote said stock at such stockholders
meetings only in the event that none of the officers of this
Corporation authorized to executive said proxy shall be
present thereat.
CERTIFICATES OF STOCK
6.01 Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed
by, or signed in the name of the Corporation by, the
Chairman or Vice Chairman of the Board of Directors, or the
Chief Executive Officer, President, Chief Operating Officer
or a Vice President and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares owned by him in
the Corporation.
6.02 Signatures. Any of or all the signatures on the
certificates may be facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
6.03 Special Designation on Certificates. If the
Corporation shall be authorized to issue more than one class
of stock or more than one series of any class, the powers,
designations, preferences and relative, participating,
optional or other special rights of each class of stock or
series thereof and the qualifications, limitations, or
restrictions of such preferences and/or rights shall be set
forth in full or summarized on the face or back of the
certificate which the Corporation shall issue to represent
such class or series of stock, provided, that, except as
otherwise provided in Section 202 of the General Corporation
Law of Delaware in lieu of the foregoing requirements, there
may be set forth on the face or back of the certificate
which the Corporation shall issue to represent such class or
series of stock, a statement that the Corporation will
furnish, without charge to each stockholder who so requests,
the powers, designations, preferences and relative,
participating, optional or other special rights of each
class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or
rights.
6.04 Lost Certificates. The Board of Directors may direct
a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate
or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or
to give the Corporation a bond in such sum as it may direct
as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
6.05 Transfers of Stock. Upon surrender to the
Corporation or the transfer agent of the Corporation of a
certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a
new certificate to the person entitled thereto, cancel the
old certificate and record the transaction upon its books.
6.06 Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof,
or to express consent to corporate action in writing without
a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled
to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty days nor less than
ten days before the date of such meeting, nor more than
sixty days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
6.07 Registered Stockholders. The Corporation shall be
entitled to recognize the exclusive right of a person
registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for
calls and assessments a person registered on its books as
the owner of shares, and shall not be bound to recognize any
equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
GENERAL PROVISIONS
7.01 Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificates
of Incorporation, if any, may be declared by the Board of
Directors at any regular or special meeting, pursuant to
law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of
the Certificates of Incorporation.
Before payment of any dividend, there may be set aside
out of the funds of the Corporation available for dividends
such sum or sums as the Directors from time to time, in
their absolute discretion, think proper as a reserve or
reserves to meeting contingencies, or for equalizing
dividends, or for repairing or maintaining any property of
the Corporation, or for such other purpose as the Directors
shall think conducive to the interest of the Corporation,
and the Directors may modify or abolish any such reserve in
the manner in which it was created.
7.02 Checks. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers
or such other person or persons as the Board of Directors
may from time to time designate or as designated by an
officer of the company if so authorized by the Board of
Directors.
7.03 Fiscal year. The fiscal year of the Corporation
shall be the calendar year.
7.04 Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its
organization and the words " Corporate Seal, Delaware." The
seal may be used by causing it or a facsimile thereof to be
impressed or affixed or imprinted, or otherwise.
7.05 Inspection of Books and Records. Any stockholder of
record, in person or by attorney or other agent, shall, upon
written demand under oath stating the purpose thereof, have
the right, during the usual hours of business, to inspect
for any proper purpose the Corporation's stock ledger, a
list of its stockholders, and its other books and records,
and to make copies or extracts therefrom. A proper purpose
shall mean a purpose reasonably related to such person's
interest as a stockholder. In every instance where an
attorney or other agent shall be the person who seeks the
right to inspection, the demand under oath shall be
accompanied by a power of attorney or such other writing
which authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be
directed to the Corporation at its registered office in the
State of Delaware or at its principal place of business in
Bismarck, North Dakota.
7.06 Amendments. These Bylaws may be altered, amended or
repealed or new Bylaws may be adopted by the stockholders or
by the Board of Directors, when such power is conferred upon
the Board of Directors by the Certificate of Incorporation,
at any regular meeting of the stockholders or of the Board
of Directors or at any special meeting of the stockholders
or of the Board of Directors if notice of such alteration,
amendment, repeal or adoption of new Bylaws be contained in
the notice of such special meeting.
7.07 Indemnification of Officers, Directors, Employees
and Agents; Insurance.
(a) The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any
threatened pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation)
by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him
in connection with such action, suit or proceeding if he
acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not,
of itself, create a presumption that the person did not act
in good faith and in a manner which he reasonably believed
to be in or not opposed to the best interest of the
Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct
was unlawful.
(b) The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best
interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue
or matter as to which such person shall have been adjudged
to be liable to the Corporation, unless and only to the
extent that the Court of Chancery or the court in which such
action or suit was brought, shall determine upon application
that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee
or agent of a corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding
referred to in subsections (a) and (b), or in defense of any
claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under the foregoing provisions
of this Section (unless ordered by a court) shall be made by
the Corporation only as authorized in the specific case upon
a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct as set
forth in subsections (a) and (b) of this Section. Such
determination shall be made (i) by a majority vote of the
Directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (ii) if there
are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (iii) by
the stockholders.
(e) Expenses (including attorneys' fees) incurred by
an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding
shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director or officer
to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Corporation
as authorized in this Section. Once the Corporation has
received the undertaking, the Corporation shall pay the
officer or director within 30 days of receipt by the
Corporation of a written application from the officer or
director for the expenses incurred by that officer or
director. In the event the Corporation fails to pay within
the 30-day period, the applicant shall have the right to sue
for recovery of the expenses contained in the written
application and, in addition, shall recover all attorneys'
fees and expenses incurred in the action to enforce the
application and the rights granted in this Section 7.07.
Expenses (including attorneys' fees) incurred by other
employees and agents shall be paid upon such terms and
conditions, if any, as the Board of Directors deems
appropriate.
(f) The indemnification and advancement of expenses
provided by, or granted pursuant to, the other subsections
of this Section shall not be deemed exclusive of any other
rights to which those seeking indemnity or advancement of
expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in
another capacity while holding such office.
(g) The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director,
officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of
this Section.
(h) For the purposes of this Section, references to
"the Corporation" include all constituent corporations
absorbed in a consolidation or merger, as well as the
resulting or surviving corporation, so that any person who
is or was a director, officer, employee or agent of such a
constituent corporation or is or was serving at the request
of such constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same
position under the provisions of this Section with respect
to the resulting or surviving corporation as he would if he
had served the resulting or surviving corporation in the
same capacity.
(i) For purposes of this Section, references to "other
enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes
assessed on a person with respect to any employee benefit
plan; and references to "serving at the request of the
Corporation" shall include any service as a director,
officer, employee or agent of the Corporation which imposes
duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan,
its participants or beneficiaries; and a person who acted in
good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the
Corporation" as referred to in this Section.
(j) The indemnification and advancement of expenses
provided by, or granted pursuant to, this Section shall,
unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such a person.
EXHIBIT D
MDU RESOURCES GROUP, INC.
SUPPLEMENTAL INCOME SECURITY PLAN
(As Amended and Restated Effective January 1, 1994)
<PAGE>
TABLE OF CONTENTS
INTRODUCTION
ARTICLE I -- DEFINITIONS
ARTICLE II -- ELIGIBILITY
ARTICLE III -- SUPPLEMENTAL DEATH AND RETIREMENT BENEFITS
ARTICLE IV -- EXCESS RETIREMENT BENEFITS
ARTICLE V -- DISABILITY BENEFITS
ARTICLE VI -- MISCELLANEOUS
ARTICLE VII -- ADDITIONAL AFFILIATED COMPANIES
<PAGE>
INTRODUCTION
The objective of the MDU Resources Group, Inc.
Supplemental Income Security Plan (the "Plan") is to provide
certain levels of survivor benefits and retirement income for a
select group of management or highly compensated employees and
their families. Eligibility for participation in this Plan shall
be limited to management or highly compensated employees who are
selected by the Chief Executive Officer of MDU Resources, Inc. (the
"Company"). This Plan became effective January 1, 1982, has been
amended from time to time thereafter, and has been amended and
restated effective January 1, 1994.
The Plan is intended to constitute an unfunded "excess
benefit plan" as defined in Section 3(36) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), to
the extent it provides benefits that would be paid under one or
more of the tax-qualified pension plans of the Company or certain
of its subsidiaries but for certain limitations set forth under the
Internal Revenue Code of 1986, as amended (the "Code"), and
constitutes an unfunded plan of deferred compensation maintained by
the Company primarily for the purpose of providing non-elective
deferred compensation for a select group of management or highly
compensated employees.
ARTICLE I -- DEFINITIONS
Unless a different meaning is plainly implied by the
context, the following terms as used in this Plan shall have the
following meanings:
1.1 "Administrator" means the Chief Executive Officer of
the Company or any other person to whom the Chief Executive Officer
of the Company has delegated the authority to administer the Plan.
The Manager of the Corporate Human Resources Department of the
Company is initially delegated the authority to perform the
administrative responsibilities required under the Plan.
1.2 "Affiliated Company" means any current or future
corporation which (i) is in a controlled group of corporations
(within the meaning of Section 414(b) of the Code) of which the
Company is a member and (ii) has been approved by the Chief
Executive Officer of the Company to adopt the Plan for the benefit
of its Employees.
1.3 "Beneficiary" means an individual or individuals,
any entity or entities (including corporations, partnerships,
estates or trusts) that shall be entitled to receive benefits
payable pursuant to the provisions of this Plan by virtue of a
Participant's death; provided, however, that if more than one such
person is designated as a Beneficiary hereunder, each such person's
proportionate share of the death benefit hereunder must clearly be
set forth in a written statement of the Participant received by and
filed with the Administrator prior to the Participant's death. If
such proportionate share for each Beneficiary is not set forth in
the designation, each Beneficiary shall receive an equal share of
the death benefits provided hereunder.
1.4 "Company" means MDU Resources Group, Inc., and its
successors, if any.
1.5 "Effective Date" of the Plan means January 1, 1982.
The Effective Date of this amendment and restatement of the Plan is
January 1, 1994.
1.6 "Eligible Retirement Date" means the First Eligible
Retirement Date and the last day of each subsequent calendar month.
1.7 "Employee" means each person actively employed by an
Employer, as determined by such Employer in accordance with its
practices and procedures.
1.8 "Employer" means the Company and any Affiliated
Company which shall adopt this Plan with respect to its Employees
with the prior approval of the Company as set forth in Article 7 of
the Plan.
1.9 "First Eligible Retirement Date" for a Participant
means the last day of the month during which such Participant is
both no longer actively employed by any Employer and has attained
at least age 65.
1.10 "Limitation on Benefits" shall mean the statutory
limitation on the maximum benefit that may be payable to
participants under a Pension Plan due to the application of
Sections 415 and 401(a)(17) of the Code.
1.11 "Participant" means a present or former management
or highly compensated Employee selected by the Chief Executive
Officer of the Company to receive benefits under this Plan. An
Employee will become a Participant at the time such Employee
commences participation hereunder pursuant to the provisions of
Section 2.1 hereof.
1.12 "Pension Plan" means the MDU Resource Group, Inc.
Pension Plan for Non-Bargaining Unit Employees, the Williston Basin
Interstate Pipeline Company Pension Plan for Non-Bargaining Unit
Employees, or the Knife River Coal Mining Company Salaried
Employees' Pension Plan, as in effect on the Effective Date and as
amended from time to time.
1.13 "Plan" means the Plan designated as the MDU
Resources Group, Inc. Supplemental Income Security Plan, as
embodied herein, and any amendments thereto.
1.14 "Plan Year" means the calendar year. The first Plan
Year for this Plan shall be the 1982 calendar year.
1.15 "Salary" means annual base earnings payable by an
Employer to a Participant excluding (i) bonuses and (ii) any other
form of supplemental income.
1.16 "Standard Actuarial Factors" means, with respect to
a Participant, the actuarial factors and assumptions used for the
calculation of actuarial equivalents under the Pension Plan under
which the Participant actively participates from time to time.
1.17 "Standard Life Insurance" means life insurance that
could be purchased from a commercial life insurance company at
standard rates without a surcharge assessed, based on an
individual's general good health.
1.18 "Standard Underwriting Factors" means life insurance
rating factors utilized by a commercial life insurance company
selected by the Chief Executive Officer of the Company which are
based on the risk assessment classifications utilized by such
insurer to determine if an applicant qualifies for insurance at
standard rates or if health or other factors might require a
surcharge.
1.19 "Year of Participation" means each Plan Year of
participation in the Plan by a Participant while actively employed
by one or more of the Employers (including years while such
Participant is qualified as totally disabled under the Employer's
disability plan), as determined in the sole discretion of the
Administrator.
ARTICLE II -- ELIGIBILITY
2.1 Eligibility for Participation. The Chief Executive
Officer of the Company shall determine which management and/or
highly compensated Employees may be eligible to participate in the
Plan. Each Employee who is selected as eligible to participate
hereunder and who meets the requirements for participation set
forth under Section 2.2 hereof shall commence participation on the
first day of the Plan Year coincident with or next following the
date of such Employee's selection.
2.2 Requirements for Participation. In order to be
eligible to participate in the Plan, an Employee selected by the
Chief Executive Officer of the Company must (i) be actively at work
for one or more of the Employers; (ii) have a current state of
health and physical condition that would satisfy customary
requirements for insurability under Standard Life Insurance;
provided, however, that no provision of this Plan shall be
construed or interpreted to limit participation in the Plan in
contravention of the Americans With Disabilities Act and related
federal and state laws; and (iii) consent to supply information or
to otherwise cooperate as necessary to allow the Company to obtain
life insurance on behalf of such Employee (as set forth under
Section 6.3 of the Plan).
2.3 Eligibility for Benefits. Subject to the provisions
of Articles III and IV hereof, Participants who terminate their
employment with an Employer subsequent to becoming vested in a
retirement benefit under a Pension Plan shall be eligible to
receive a benefit under this Plan. Plan benefits may commence (i)
as of the earlier to occur of (A) the first day of the month
following the date of the Participant's death or (B) if the
Participant who elects to receive retirement benefits under Article
3 hereof, the Participant's First Eligible Retirement Date, for
purposes of the benefits payable under Article III of the Plan, and
(ii) at the time benefit payments commence to the Participant under
a Pension Plan, for purposes of the benefits payable under Article
IV of the Plan.
2.4 Relationship to Other Plans. Participation in the
Plan shall not preclude or limit the participation of the
Participant in any other benefit plan sponsored by one or more of
the Employers for which such Participant otherwise would be
eligible. However, any benefits payable under this Plan shall not
be deemed salary or compensation to the Participant for purposes of
determining benefits under any other employee benefit plan
maintained by one or more of the Employers.
2.5 Forfeiture of Benefits. Notwithstanding any
provision of this Plan to the contrary, if any Participant is
discharged from employment by one or more of the Employers for
cause due to willful misconduct, dishonesty, or conviction of a
crime or felony, all as determined at the sole discretion of the
Chief Executive Officer of the Company the rights of such
Participant (or any Beneficiary of such Participant) to any present
or future benefit under this Plan shall be forfeited to the extent
not prohibited by applicable law.
ARTICLE III -- SUPPLEMENTAL DEATH AND RETIREMENT BENEFITS
3.1 Amount of Benefit. (a) Subject to the provisions
of Section 3.3 of the Plan, the monthly supplemental death and/or
retirement benefits payable on behalf of (or to) a Participant as
of such Participant's date of death (or First Eligible Retirement
Date) will be an amount determined at the sole discretion of the
Chief Executive Officer of Company at the time of the Participant's
commencement of participation in the Plan, as may be adjusted from
time to time thereafter by the Chief Executive Officer of the
Company. However, in no event will a Participant be entitled to
have a monthly supplemental death benefit paid on such
Participant's behalf (or be entitled to receive a monthly
supplemental retirement benefit) that exceeds the Monthly Death
Benefit or Monthly Retirement Benefit (as applicable) corresponding
to the Participant's Salary in effect at the date such initial or
revised benefit determination is to be effective, all as set forth
in Appendix A hereto. Changes in Salary do not automatically
result in changes to a Participant's level of benefits.
(b) Participants who died, terminated employment with,
or retired from, the Employers prior to January 1, 1990, will
receive benefits hereunder in accordance with the terms of the Plan
as in effect at the time of the Participant's death, termination of
employment or retirement from the Employers.
(c) The benefit amounts determined by the Chief
Executive Officer of the Company pursuant to Section (a) above are
based on the assumption that each Participant's health and physical
condition at the time of such Participant's commencement of
participation in the Plan meets customary requirements for Standard
Life Insurance. Benefits under the Plan may be reduced by the
Chief Executive Officer of the Company within a reasonable period
following the establishment of such benefit level in accordance
with Standard Underwriting Factors, but only with respect to that
portion of the monthly death or retirement benefit for which the
criteria for health and physical condition are not met.
Participants will be notified of any such reduction within a
reasonable period following participation in the Plan. Once
retirement benefits have been reduced under this Section 3.1, such
benefits shall not be further reduced for the remainder of the
Participant's participation in the Plan.
3.2 Amount of Monthly Benefit for Retirement or Death
Prior to Completing at Least 10 Years of Participation. If a
Participant retires or terminates employment with an Employer (for
reasons other than the Participant's death) before the Participant
completes at least 10 Years of Participation, the monthly death
and/or retirement benefits to which such Participant otherwise
would be entitled under the terms of Section 3.1 hereof shall be
reduced as follows:
Years of Participation Percent of Section
Completed by the Participant 3.1 Benefits Payable
Less than 3 years 0%
3 years but less than 5 years 10%
5 years but less than 7 years 25%
7 years but less than 9 years 50%
9 years but less than 10 years 75%
10 years or more 100%
3.3 Payment of Monthly Benefit. Upon attainment of age
65 or, as of such Participant's First Eligible Retirement Date (if
later), a Participant will be entitled to determine the form of
benefit payable to such Participant under subsection (a) hereof,
and the date of commencement of such benefits, subject to the
approval of the Chief Executive Officer of the Company, in
accordance with the terms of the Plan.
(a) The Participant may elect to receive:
(i) a monthly death benefit in amounts determined
pursuant to Section 3.1 hereof, multiplied by
the appropriate percentage amount set forth in
Section 3.2, or
(ii) in lieu of any death benefits under this Plan
a monthly retirement benefit determined in
accordance with Section 3.1, multiplied by the
appropriate percentage amount set forth in
Section 3.2, with no death benefit, or
(iii) a percentage of each benefit described in
subsections (a)(i) and (a)(ii) above.
The percentage of each benefit must be in
even increments of ten percent (10%).
(b) A Participant must select one of the options under
subsection (a) above. If, in accordance with Sections 3.3(a)(ii)
or (iii), a Participant has elected to receive less than one
hundred percent (100%) of such Participant's monthly retirement
benefit, the Participant may subsequently elect to begin receiving
an increased retirement benefit except that there may be no more
than two (2) such increases during the Participant's lifetime, and
no more than one (1) such increase during any calendar year. Any
such increase in retirement benefit payments will result in a
reduction in death benefits equal, when expressed as a percentage
amount, to the percentage increase in retirement benefit.
Participants shall not be entitled to decrease retirement benefit
payments.
(c) Elections under this Section 3.3 must be
communicated in writing to the Administrator and will be effective
as of the first day of the first month following the
Administrator's receipt and the approval of such request by the
Chief Executive Officer of the Company.
3.4 Payment of Monthly Death and Retirement Benefits.
(a) Death Benefits. Any death benefits payable with respect to a
Participant pursuant to Sections 3.3(a)(i) or 3.3(a)(iii) shall
commence on the first day of the calendar month next following the
date of the Participant's death and shall be payable in monthly
installments for a period of 180 months.
(b) Retirement Benefits. The monthly retirement
benefits under this Plan shall commence on the Eligible Retirement
Date selected by the Participant (upon 30 day's written notice to
the Administrator) and will be payable to such Participant in
monthly installments for a period of 180 months. In the event the
Participant dies prior to the completion of such 180-month payment
period, the balance of such retirement benefits shall be paid to
the Participant's Beneficiary at such times and in such amounts as
if the Participant had not died, such payment being made in
addition to any death benefits payable under Sections 3.3(a)(i) or
(iii) hereof. To the extent a Participant elects to commence
receiving increased retirement benefits pursuant to Section 3.3(b),
the amount of increase of retirement benefits shall be in the form
of a monthly benefit payable for a separate 180-month period.
(c) Method of Payment. Notwithstanding the provisions
of subsections (a) and (b) of this Section 3.4, the Chief Executive
Officer of the Company reserves the right to pay benefits in the
form of an actuarially equivalent single sum (as determined by the
Administrator) when retirement or death benefits are payable due to
termination of employment, excluding disability, or death prior to
the Participant's attainment of age 55.
3.5 Exclusions and Limitations. (a) No death benefits
will be payable with respect to a Participant in the event of such
Participant's death by suicide within two (2) years after
commencement of participation in the Plan, and no benefit increase
will apply in the event of any such Participant's death by suicide
within two (2) years after such Participant becomes eligible for an
increase in death benefits.
(b) In the event that a Participant misrepresents any
health or physical condition at the time of commencement of
participation in the Plan or at the time of a retirement or death
benefit increase, no retirement or death benefit or retirement or
death benefit increase will be payable under the Plan within two
(2) years of such misrepresentation.
3.6 Death of a Beneficiary. (a) In the event any
Beneficiary predeceases the Participant, is not in existence, is
not ascertainable, or is not locatable as of the date benefits
under the Plan become payable to such Beneficiary, Plan benefits
shall be paid to such contingent Beneficiary or Beneficiaries as
shall have been named by the Participant on the Participant's most
recent Beneficiary election form that has been received and filed
with the Administrator prior to the Participant's death. If no
contingent Beneficiary has been named, the contingent Beneficiary
shall be the Participant's estate.
(b) In the event any Beneficiary dies after commencing
to receive monthly benefits under the Plan but prior to the payment
of all monthly benefits to which such Beneficiary is entitled,
remaining benefits shall be paid to a beneficiary designated by the
deceased Beneficiary (the "Secondary Beneficiary"), provided such
designation has been received and filed with the Administrator
prior to the death of the Beneficiary. If no such person has been
designated by the deceased Beneficiary, the Secondary Beneficiary
shall be the estate of the Beneficiary. In the event the Secondary
Beneficiary shall die prior to the payment of all benefits to which
such Secondary Beneficiary is entitled, the remainder of such
payments shall be made to such Secondary Beneficiary's estate. If
the Administrator is in doubt as to the right of any person to
receive benefits under the Plan, the Administrator may retain such
amount, without liability for any interest thereon, until the
rights thereto are determined, or the Administrator may pay such
amount into any court of competent jurisdiction and such payment
shall be a complete discharge of the liability of the Plan and the
Employer therefor.
3.7 Discretion As To Benefit Amount. Notwithstanding
the foregoing, the Chief Executive Officer of the Company may, with
full and complete discretion, disregard Standard Underwriting
Factors and customary requirements for Standard Life Insurance in
establishing and/or increasing the amount of any Participant's
retirement or death benefit under the Plan.
3.8 Suspension of Benefits Upon Reemployment.
Employment with any Employer subsequent to the commencement of
retirement benefits under this Article III may, at the sole
discretion of the Chief Executive Officer of the Company, result in
the suspension of such benefits for the period of such employment
or reemployment.
ARTICLE IV -- EXCESS RETIREMENT BENEFITS
4.1 Participation. Benefits under this Article IV shall
be payable only to those Participants whose benefits under the
Pension Plan under which they otherwise participate are reduced or
limited by reason of the Limitation on Benefits, and only for such
period that such benefits are actually reduced or limited.
Furthermore, benefits under this Article IV also shall be payable
only to those Participants who are active Employees on or after
January 1, 1994.
4.2 Amount and Method of Payment. (a) Amount of
Benefit. The amount, if any, of the monthly benefit payable to or
on account of a Participant pursuant to this Article IV shall equal
the excess of (i) over (ii) where:
(i) equals the amount of monthly retirement
benefits which would be provided to the
Participant under the Pension Plan without
regard to the Limitation on Benefits; and
(ii) equals the amount of monthly retirement
benefits payable to such Participant under the
Pension Plan due to the application of the
Limitation on Benefits;
provided, however, that no benefit shall be payable to a
Participant under this Article IV unless the amount of such monthly
benefit is at least fifty dollars ($50). The benefit amount
provided under this Section 4.2(a) shall be determined with
reference to the form of benefit determined under Section 4.2(c)
hereof and shall be calculated in accordance with the Standard
Actuarial Factors utilized under the Pension Plan.
(b) Vesting. The amount of benefits payable to a
Participant under this Article IV shall be subject to the vesting
schedule set forth in the Pension Plan. A Participant shall be
vested in benefits under this Article IV to the same extent as such
Participant is vested in benefits under the Pension Plan.
(c) Payment of Benefit. The benefits provided under
this Article IV shall be paid to each such Participant, surviving
spouse (as defined under the Pension Plan) or joint annuitant (as
defined under the Pension Plan) at the same time and in the same
form and manner as benefits are payable under the Pension Plan.
Payments shall be made in accordance with, and subject to, the
terms and conditions of the Pension Plan; provided, however, that
no spousal consent shall be required to commence any form of
payment under this Article IV.
(d) Duration of Payments. Subject to Section 4.2(c),
benefits provided under this Article IV shall commence at the same
time as payments commence under the Pension Plan, and shall
continue to the later of the death of the Participant or, if
applicable, in a reduced amount until the death of the
Participant's lawful spouse or joint annuitant, whichever is
applicable.
(e) Treatment During Subsequent Employment. Employment
with any Employer subsequent to the commencement of benefits under
this Article IV will result in the suspension of such benefits for
the period of such employment or reemployment to the extent forth
under the Pension Plan.
(f) Necessity of Actual Reduction. Notwithstanding any
other provision of this Plan, no amount shall be payable under this
Article IV unless the Participant's monthly benefit paid under the
Pension Plan is actually reduced because of application of the
Limitation on Benefits. Benefits payable to a Participant under
this Article IV shall not duplicate benefits payable to such
Participant from any other plan or arrangement of the Company. In
the event the Secretary of the Treasury or a change in law
liberalizes the limitations applicable to determining the
Limitation on Benefits such that a Participant may receive
additional benefits under the Pension Plan, and the Pension Plan
provides for the payment of such additional benefits to the
Participant, the amount payable under this Article IV shall be
reduced by a corresponding amount.
ARTICLE V -- DISABILITY BENEFITS
5.1 Monthly Disability Benefit. (a) If a Participant
becomes totally disabled following commencement of participation in
the Plan, the Participant shall continue to receive credit for
Years of Participation under the Plan for so long as the
Participant is totally disabled and such Participant's employment
with the Employer has not terminated. Following termination of the
Participant's employment with the Employer, the Participant's
monthly retirement benefits under Article III of the Plan shall
commence beginning on or after the Participant's First Eligible
Retirement Date.
(b) A Participant is "totally disabled" if such
Participant is disabled within the meaning of the applicable long-term
disability plan sponsored by such Participant's Employer.
(c) If a Participant who terminates employment with the
Company due to total disability dies while totally disabled and
before attaining age 65, any death benefit payable to the
Participant's Beneficiary will be determined and paid in accordance
with the terms of Article III.
ARTICLE VI -- MISCELLANEOUS
6.1 Amendment and Termination. Any action to amend,
modify, suspend or terminate the Plan may be taken at any time, and
from time to time, by resolution of the Board of Directors of the
Company (or any person or persons duly authorized by resolution of
the Board of Directors of the Company to take such action) in its
sole discretion and without the consent of any Participant or
Beneficiary, but no such action shall retroactively reduce any
benefits accrued by any Participant under this Plan prior to the
time of such action.
6.2 No Guarantee of Employment. Nothing contained
herein shall be construed as a contract of employment between a
Participant and any Employer or shall be deemed to give any
Participant the right to be retained in the employ of any Employer.
6.3 Funding of Plan and Benefit Payments. This Plan is
unfunded within the meaning of ERISA. Each Employer will make Plan
benefit payments from its general assets. Each Employer may
purchase policies of life insurance on the lives of Plan
Participants and to refuse participation in the Plan to any
Employee who, if requested to do so, declines to supply information
or to otherwise cooperate so that the Employer may obtain life
insurance on behalf of such Participant. The Employer will be the
owner and the beneficiary of any such policy, and Plan benefits
will be neither limited to nor secured by any such policy or its
proceeds. Participants and their Beneficiaries shall have no
right, title or interest in any such life insurance policies, in
any other assets of any Employer or in any investments any Employer
may make to assist it in meeting its obligations under the Plan.
All such assets shall be solely the property of such Employer and
shall be subject to the claims of such Employer's general
creditors. There are no assets of any Employer that are identified
or segregated for purposes of the payment of any benefits under
this Plan. To the extent a Participant or any other person
acquires a right to receive payments from an Employer under the
Plan, such right shall be no greater than the right of any
unsecured general creditor of such Employer and such person shall
have only the unsecured promise of the Employer that such payments
shall be made.
6.4 Payment Not Assignable. Participants and their
Beneficiaries shall not have the right to alienate, anticipate,
commute, sell, assign, transfer, pledge, encumber or otherwise
convey the right to receive any payments under the Plan, and any
payments under the Plan or rights thereto shall not be subject to
the debts, liabilities, contracts, engagements or torts of
Participants or their Beneficiaries nor to attachment, garnishment
or execution, nor shall they be transferable by operation of law in
the event of bankruptcy or insolvency. Any attempt, whether
voluntary or involuntary, to effect any such action shall be null,
void and of no effect.
6.5 Applicable Law. The Plan and all rights hereunder
shall be governed by and construed according to the laws of the
State of North Dakota, except to the extent such laws are preempted
by the laws of the United States of America.
6.6 Claims Procedure. (a) Participants and
Beneficiaries eligible for benefits under this Plan, or any person
duly authorized by them, have the right under ERISA and the Plan to
file a written claim to the Administrator for payment of such
benefits.
(b) If the claim is denied in whole or in part, the
claimant will receive written notice of the Administrator's
decision, including the specific reason for the decision, within 90
days after the Administrator received the claim. If the
Administrator needs more than 90 days to make a decision, the
Administrator will notify the individual in writing within the
initial 90-day period. An additional 90 days may be taken if the
Administrator sends this notice. The extension notice will show
the date by when the Administrator's decision will be sent.
6.7 Plan Administration. (a) The Plan shall be
administered by the Administrator. The Administrator shall serve
as the final review under the Plan and shall have sole and complete
discretionary authority to determine conclusively for all persons,
and in accordance with the terms of the documents or instruments
governing the Plan, any and all questions arising from the
administration of the Plan and interpretation of all Plan
provisions. The Administrator shall make the final determination
of all questions relating to participation of employees and
eligibility for benefits, and the amount and type of benefits
payable to any Participant or Beneficiary. In no way limiting the
foregoing, the Administrator shall have the following specific
duties and obligations in connection with the administration of the
Plan:
(i) To promulgate and enforce such rules,
regulations and procedures as may be proper
for the efficient administration of the Plan;
(ii) To determine all questions arising in the
administration, interpretation and application
of the Plan, including questions of
eligibility and of the status and rights of
Participants and any other persons hereunder;
(iii) To decide any dispute arising hereunder;
provided, however, that the Administrator
shall not participate in any matter
involving any questions relating solely
to the Administrator's own participation
or benefit under this Plan;
(iv) To advise the Boards of Directors of the
Employers regarding the known future need for
funds to be available for distribution;
(v) To correct defects, supply omissions and
reconcile inconsistencies to the extent
necessary to effectuate the Plan;
(vi) To compute the amount of benefits and other
payments which shall be payable to any
Participant or Beneficiary in accordance with
the provisions of the Plan and to determine
the person or persons to whom such benefits
shall be paid;
(vii) To make recommendations to the Board of
Directors of the Company with respect to
proposed amendments to the Plan;
(viii) To file all reports with government
agencies, Participants and other parties
as may be required by law, whether such
reports are initially the obligation of
the Employers, or the Plan;
(ix) To engage an actuary to the Plan, if
necessary, and to cause the liabilities of the
Plan to be evaluated by such actuary; and
(x) To have all such other powers as may be
necessary to discharge its duties hereunder.
(b) Decisions by the Administrator shall be final,
conclusive and binding on all parties and not subject to further
review.
(c) The Administrator may employ attorneys, consultants,
accountants or other persons (who may be attorneys, consultants,
actuaries, accountants or persons performing other services for, or
are employed by, any Employer or any affiliate of any Employer),
and the Administrator, the Employers and their other officers and
directors shall be entitled to rely upon the advice, opinions or
valuations of any such persons. No member of the Board of
Directors of any Employer, the Chief Executive Officer of the
Company, the Administrator, nor any other officer, director or
employee of the Company or of any Employer acting on behalf of the
Board of Directors of any Employer or the Chief Executive Officer
of the Company or the Administrator, shall be personally liable for
any action, determination or interpretation taken or made in good
faith with respect to the Plan, and all members of the Boards of
Directors of the Employers, the Chief Executive Officer of the
Company and the Administrator and each officer or employee of the
Company or of an Employer acting on their behalf shall be fully
indemnified and protected by the Company for all costs, liabilities
and expenses (including, but not limited to, reasonable attorneys'
fees and court costs) relating to any such action, determination or
interpretation.
6.8 Binding Nature. This Plan shall be binding upon and
inure to the benefit of the Employers and their successors and
assigns and to the Participants, their Beneficiaries and their
estates. Nothing in this Plan shall preclude any Employer from
consolidating or merging into or with, or transferring all or
substantially all of its assets to another company or corporation,
whether or not such other company or corporation assumes this Plan
and any obligation of the Employer hereunder.
6.9 Withholding Taxes. The Employers may withhold from
any benefits payable under this Plan all Federal, State, city or
other taxes as shall be required pursuant to any law or
governmental regulation or ruling.
6.10 Action Affecting Chief Executive Officer. To the
extent any action required to be taken by the Chief Executive
Officer of the Company would decrease, increase, accelerate, delay
or otherwise materially impact such individual's benefits under the
Plan, such action shall be taken instead by the Compensation
Committee of the Board of Directors of the Company.
6.11 Payments Due Missing Persons. The Administrator
shall make a reasonable effort to locate all persons entitled to
benefits (including retirement benefits and death benefits for
Beneficiaries) under the Plan; however, notwithstanding any
provisions of this Plan to the contrary, if, after a period of five
years from the date such benefits first become due, any such
persons entitled to benefits have not been located, their rights
under the Plan shall stand suspended. Before this provision
becomes operative, the Administrator shall send a certified letter
to all such persons at their last known address advising them that
their benefits under the Plan shall be suspended. Any such
suspended amounts shall be held by the Employer for a period of
three additional years (or a total of eight years from the time the
benefits first became payable) and thereafter such amounts shall be
forfeited and non-payable.
6.12 Liability Limited. Neither the Employers, the
Administrator, nor any agents, employees, officers, directors or
shareholders of any of them, nor any other person shall have any
liability or responsibility with respect to this Plan, except as
expressly provided herein.
6.13 Incapacity. If the Administrator shall receive
evidence satisfactory to it that a Participant or Beneficiary
entitled to receive any benefit under the Plan is, at the time when
such benefit becomes payable, a minor or is physically or mentally
incompetent to receive such benefit and to give a valid release
therefor, and that another person or an institution is then
maintaining or has custody of such Participant or Beneficiary and
that no guardian, committee or other representative of the estate
of such Participant or Beneficiary shall have been duly appointed,
the Administrator may make payment of such benefit otherwise
payable to such Participant or Beneficiary (or to such guardian,
committee or other representative of person's estate) to such other
person or institution, and the release of such other person or
institution shall be a valid and complete discharge for the payment
of such benefit.
6.14 Plurals. Where appearing in the Plan, the singular
shall include the plural, and vice versa, unless the context
clearly indicates a different meaning.
6.15 Headings. The headings and sub-headings in this
Plan are inserted for the convenience of reference only and are to
be ignored in any construction of the provisions hereof.
6.16 Severability. In case any provision of this Plan
shall be held illegal or void, such illegality or invalidity shall
not affect the remaining provisions of this Plan, but shall be
fully severable, and the Plan shall be construed and enforced as if
said illegal or invalid provisions had never been inserted herein.
6.17 Payment of Benefits. All amounts payable hereunder
may be paid directly by the Employer or pursuant to the terms of
the grantor trust, if any, established as a funding vehicle for
benefits provided hereunder.
ARTICLE VII -- ADDITIONAL AFFILIATED COMPANIES
7.1 Participation in the Plan. (a) Any Employer may
become an Affiliated Company with respect to this Plan with the
consent of the Chief Executive Officer of the Company, upon the
following conditions:
(i) such Employer shall make, execute and deliver
such instruments as the Company requires; and
(ii) such Employer shall designate the Company, the
Chief Executive Officer of the Company and the
Administrator, as its agents for purposes of
this Plan.
(b) Any such Affiliated Company may by action of its
Board of Directors withdraw from participation, subject to approval
by the Chief Executive Officer of the Company.
7.2 Effect of Participation. Each Affiliated Company
which with the consent of the Chief Executive Officer of the
Company complies with Section 7.1(a) shall be deemed to have
adopted this Plan for the benefit of its Employees who participate
in this Plan.
<PAGE>
IN WITNESS WHEREOF, the Company, as the sponsoring
employer of the Plan, has caused this Plan document to be duly
executed by its Chairman and Chief Executive Officer on this 3rd
day of November, 1994.
MDU RESOURCES GROUP, INC.
By:/s/ John A. Schuchart
John A. Schuchart
Chairman of the Board and
Chief Executive Officer
<PAGE>
APPENDIX A
Monthly Monthly
Level Salary Death Benefit Retirement Benefit*
D $ 50,000 - $ 59,999 $ 3,456 $ 1,728
E $ 60,000 - $ 74,999 $ 4,320 $ 2,160
F $ 75,000 - $ 99,999 $ 5,760 $ 2,880
G $100,000 - $124,999 $ 7,200 $ 3,600
H $125,000 - $149,999 $ 8,640 $ 4,320
I $150,000 - $174,999 $10,080 $ 5,040
J $175,000 - $199,999 $11,520 $ 5,760
K $200,000 - $224,999 $12,960 $ 6,480
L $225,000 - $249,999 $14,400 $ 7,200
M $250,000 - $274,999 $15,840 $ 7,920
N $275,000 - $299,999 $17,280 $ 8,640
O $300,000 - $324,999 $18,720 $ 9,360
P $325,000 - $349,999 $20,160 $10,080
The above schedule applies to those Participants who were Employees
on or after January 1, 1990. All benefits are paid for a maximum
of 180 months.
- - --------------------
* This amount shall be lesser than the net present value of the death
benefit, as determined at the sole discretion of the Administrator.
MDU RESOURCES GROUP, INC.
1994 FINANCIAL REPORT
REPORT OF MANAGEMENT
The management of MDU Resources Group, Inc. is responsible for the
preparation, integrity and objectivity of the financial information
contained in the consolidated financial statements and elsewhere in
this Annual Report. The financial statements have been prepared in
conformity with generally accepted accounting principles as applied
to its regulated and non-regulated businesses and necessarily include
some amounts that are based on informed judgments and estimates of
management.
To meet its responsibilities with respect to financial
information, management maintains and enforces a system of internal
accounting controls designed to provide assurance, on a cost-effective
basis, that transactions are carried out in accordance with
management's authorizations and that assets are safeguarded against
loss from unauthorized use or disposition. The system includes an
organizational structure which provides an appropriate segregation of
responsibilities, careful selection and training of personnel, written
policies and procedures and periodic reviews by the Internal Audit
Department. In addition, the company has a policy which requires all
employees to acknowledge their responsibility to maintain a high
standard of ethical conduct. Management believes that these measures
provide for a system that is effective and reasonably assures that all
transactions are properly recorded for the preparation of financial
statements. Management modifies and improves its system of internal
accounting controls in response to changes in business conditions.
The company's Internal Audit Department is charged with the
responsibility for determining compliance with company procedures.
The Board of Directors, through its audit committee which is
comprised entirely of outside directors, oversees management's
responsibilities for financial reporting. The audit committee meets
regularly with management, the internal auditors and Arthur Andersen
LLP, independent public accountants, to discuss auditing and financial
matters and to assure that each is carrying out its responsibilities.
The internal auditors and Arthur Andersen LLP have full and free
access to the audit committee, without management present, to discuss
auditing, internal accounting control and financial reporting matters.
Arthur Andersen LLP is engaged to express an opinion on the
financial statements. Their audit is conducted in accordance with
generally accepted auditing standards and includes examining, on a
test basis, supporting evidence, assessing the company's accounting
principles used and significant estimates made by management and
evaluating the overall financial statement presentation to the extent
necessary to allow them to report on the fairness, in all material
respects, of the financial condition and operating results of the
company.<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
MDU RESOURCES GROUP, INC.
Years ended December 31, 1994 1993 1992
(In thousands, except per share amounts)
Operating Revenues
Electric $133,953 $131,109 $123,908
Natural gas 160,970 178,981 159,438
Mining and construction materials 116,646 90,397 45,032
Oil and natural gas production 37,959 39,125 33,797
449,528 439,612 362,175
Operating Expenses
Fuel and purchased power 43,203 41,298 37,892
Purchased natural gas sold 52,893 78,121 58,420
Operation and maintenance 203,269 167,374 126,311
Depreciation, depletion and
amortization 48,113 45,162 39,694
Taxes, other than income 23,875 23,565 22,799
371,353 355,520 285,116
Operating Income
Electric 27,596 30,520 30,188
Natural gas distribution 3,948 4,730 4,509
Natural gas transmission 21,281 20,108 21,331
Mining and construction materials 16,593 16,984 11,532
Oil and natural gas production 8,757 11,750 9,499
78,175 84,092 77,059
Other income--net 10,480 3,877 273
Interest expense--net 25,350 25,273 25,227
Carrying costs on natural gas
repurchase commitment (Note 4) 4,627 3,897 5,834
Income before taxes 58,678 58,799 46,271
Income taxes 18,833 19,982 10,900
Income before cumulative effect
of accounting change 39,845 38,817 35,371
Cumulative effect of accounting
change (Note 1) --- 5,521 ---
Net income 39,845 44,338 35,371
Dividends on preferred stocks 797 802 807
Earnings on common stock $ 39,048 $ 43,536 $ 34,564
Earnings per common share:
Earnings before cumulative effect
of accounting change $ 2.06 $ 2.00 $ 1.82
Cumulative effect of accounting
change --- .29 ---
Earnings $ 2.06 $ 2.29 $ 1.82
Dividends per common share $ 1.58 $ 1.52 $ 1.46
Average common shares outstanding 18,985 18,985 18,985
Pro forma amounts assuming
retroactive application of
accounting change:
Net income $ 39,845 $ 38,817 $ 35,852
Earnings per common share $ 2.06 $ 2.00 $ 1.85
The accompanying notes are an integral part of these consolidated statements.<PAGE>
CONSOLIDATED BALANCE SHEETS
MDU RESOURCES GROUP, INC.
December 31, 1994 1993 1992
(In thousands)
ASSETS
Property, Plant and Equipment
Electric $ 514,152 $ 503,690 $ 491,943
Natural gas distribution 157,174 141,100 125,314
Natural gas transmission 263,971 258,766 278,978
Mining and construction materials 147,284 145,014 104,370
Oil and natural gas production 151,532 116,833 93,667
1,234,113 1,165,403 1,094,272
Less accumulated depreciation,
depletion and amortization 541,842 501,451 469,232
692,271 663,952 625,040
Current Assets
Cash and cash equivalents 37,190 71,699 66,838
Receivables--net 55,409 67,553 57,902
Inventories 27,090 19,415 18,214
Deferred income taxes 26,694 32,243 18,962
Other prepayments and
current assets 12,287 14,262 40,497
158,670 205,172 202,413
Natural gas available under
repurchase commitment (Note 4) 70,913 79,031 92,038
Investments 16,914 16,858 61,934
Deferred charges and other assets 65,950 76,038 43,085
$1,004,718 $1,041,051 $1,024,510
CAPITALIZATION AND LIABILITIES
Capitalization (See Separate
Statements)
Common stockholders' investment $ 327,183 $ 318,131 $ 303,452
Preferred stocks 17,000 17,100 17,200
Long-term debt 217,693 231,770 249,845
561,876 567,001 570,497
Commitments and contingencies
(Notes 2, 3, 4, 5, 13 and 15) --- --- ---
Current Liabilities
Short-term borrowings 680 9,540 7,775
Accounts payable 20,222 24,967 25,397
Taxes payable 8,817 9,204 8,958
Other accrued liabilities,
including reserved revenues 88,516 107,566 112,996
Dividends payable 7,793 7,605 7,226
Long-term debt and preferred
stock due within one year 20,450 15,300 300
146,478 174,182 162,652
Natural gas repurchase commitment
(Note 4) 88,404 98,525 114,937
Deferred credits:
Deferred income taxes and
unamortized investment tax
credit 124,706 124,978 135,571
Other 83,254 76,365 40,853
207,960 201,343 176,424
$1,004,718 $1,041,051 $1,024,510
The accompanying notes are an integral part of these consolidated statements.<PAGE>
CONSOLIDATED STATEMENTS OF CAPITALIZATION
MDU RESOURCES GROUP, INC.
December 31, 1994 1993 1992
(In thousands)
Common Stockholders' Investment
Common stock (Note 9):
Authorized-- 75,000,000 shares,
$3.33 par value in 1994,
50,000,000 shares,
$5 par value in 1993
and 1992
Outstanding--18,984,654 shares $ 63,219 $ 94,923 $ 94,923
Other paid in capital 95,914 64,210 64,210
Retained earnings (Note 10) 168,050 158,998 144,319
Total common stockholders'
investment 327,183 318,131 303,452
Preferred Stocks (Note 11)
Authorized:
Preferred--500,000 shares,
cumulative, par value $100,
issuable in series
Preferred stock A--1,000,000
shares, cumulative, without par
value, issuable in series (none
outstanding)
Preference--500,000 shares,
cumulative, without par value,
issuable in series (none
outstanding)
Outstanding:
Subject to mandatory redemption
requirements--
Preferred--
5.10% Series--21,000 shares
in 1994 (22,000 in 1993 and
23,000 in 1992) 2,100 2,200 2,300
Other preferred stock--
4.50% Series--100,000 shares 10,000 10,000 10,000
4.70% Series--50,000 shares 5,000 5,000 5,000
15,000 15,000 15,000
Total preferred stocks 17,100 17,200 17,300
Less current maturities and
sinking fund requirements 100 100 100
Net preferred stocks 17,000 17,100 17,200
Long-term Debt (Note 12)
First mortgage bonds and notes 180,850 195,850 195,850
Pollution control lease and note
obligation, 6.2%, due in
annual installments to 2004 4,600 4,800 5,000
Senior secured note, 8.43%,
due December 31, 2000 15,000 15,000 ---
interest rates, terminating
October 6, 2002 3,000 1,500 19,400
Term loans at rates ranging from
5.95% to 8.50%, terminating
July 1, 1999 34,750 30,000 30,000
Other (157) (180) (205)
Total long-term debt 238,043 246,970 250,045
Less current maturities and sinking
fund requirements 20,350 15,200 200
Net long-term debt 217,693 231,770 249,845
Total capitalization $561,876 $567,001 $570,497
The accompanying notes are an integral part of these consolidated statements.<PAGE>
MDU RESOURCES GROUP, INC.
Years ended December 31, 1994 1993 1992
(In thousands)
Operating Activities
Net income $ 39,845 $ 44,338 $ 35,371
Cumulative effect of accounting
change --- (5,521) ---
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation, depletion and
amortization 48,113 45,162 39,694
Deferred income taxes and
investment tax credit--net 1,689 16,040 (789)
Recovery of deferred natural gas
contract litigation settlement
costs, net of income taxes 5,148 8,467 3,996
Changes in current assets and
liabilities:
Receivables 12,144 (775) (14,568)
Inventories (6,799) (1,201) (1,834)
Other current assets 7,524 12,954 (11,219)
Accounts payable (4,745) (430) 6,902
Other current liabilities (19,249) (8,160) 16,042
Other noncurrent changes 14,143 (13,687) 190
Net cash provided by operating
activities 97,813 97,187 73,785
Financing Activities
Net change in short-term borrowings (8,860) 1,765 7,775
Issuance of long-term debt 26,750 --- 158,350
Repayment of long-term debt (35,700) (3,100) (131,450)
Retirement of preferred stocks (100) (100) (100)
Retirement of natural gas
repurchase commitment (10,121) (16,412) (9,044)
Dividends paid (30,793) (29,659) (28,524)
Net cash used in financing
activities (58,824) (47,506) (2,993)
Investing Activities
Additions to property, plant and
equipment and acquisitions of
businesses:
Electric (14,188) (16,156) (13,226)
Natural gas distribution (19,033) (15,012) (6,461)
Natural gas transmission (6,147) (3,669) (9,452)
Mining and construction materials (3,597) (43,123) (16,295)
Oil and natural gas production (38,595) (24,943) (25,778)
(81,560) (102,903) (71,212)
Sale of natural gas available
under repurchase commitment 8,118 13,007 7,411
Investments (56) 45,076 5,254
Net cash used in investing
activities (73,498) (44,820) (58,547)
Increase (decrease) in cash
and cash equivalents (34,509) 4,861 12,245
Cash and cash equivalents--
beginning of year 71,699 66,838 54,593
Cash and cash equivalents--
end of year $ 37,190 $ 71,699 $ 66,838
The accompanying notes are an integral part of these consolidated statements.<PAGE>
NOTE 1
Statement of Principal Accounting Policies
Basis of Presentation
The consolidated financial statements of MDU Resources Group, Inc.
(the "company") include the accounts of two regulated businesses--
retail and wholesale sales of electricity and retail sales and/or
transportation of natural gas and propane, and natural gas
transmission and storage and, in 1992 and 1993, sales at wholesale--
and two non-regulated businesses--mining and construction materials
operations, and oil and natural gas production. The statements also
include the ownership interests in the assets, liabilities and
expenses of two jointly owned electric generating stations.
The company's regulated businesses are subject to various state
and federal agency regulation. The accounting policies followed by
these businesses are generally subject to the Uniform System of
Accounts of the Federal Energy Regulatory Commission (FERC). These
accounting policies differ in some respects from those used by its
non-regulated businesses.
The company's regulated businesses account for certain income and
expense items under the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of
Regulation" (SFAS No. 71). SFAS No. 71 allows these businesses to
defer as regulatory assets or liabilities certain items that would
have otherwise been reflected as expense or income, respectively,
based on the expected regulatory treatment in future rates. The
expected recovery or flowback of these deferred items are generally
based on specific ratemaking decisions or precedent for each item.
Regulatory assets and liabilities are being amortized consistent with
the regulatory treatment established by the FERC and the public
service commissions of Montana, North Dakota, South Dakota and
Wyoming.
Intercompany coal sales, which are made at prices approximately
the same as those charged to others, and the related utility fuel
purchases are not eliminated.
Property, Plant and Equipment and Investments
Additions to property, plant and equipment are recorded at cost when
first placed in service. When utility assets are retired, or
otherwise disposed of in the ordinary course of business, the original
cost and cost of removal, less salvage, is charged to accumulated
depreciation. The company is permitted to capitalize an allowance for
funds used during construction (AFUDC) on utility construction
projects and to include such amounts in rate base when the related
facilities are placed in service. AFUDC capitalized was insignificant
in 1994, 1993 and 1992. Property, plant and equipment are depreciated
on a straight-line basis over the average useful lives of the assets,
except for oil and natural gas production properties as described
below.
Investments, consisting principally of securities held for
corporate development purposes, are carried at market which
approximates cost.
Oil and Natural Gas
The company uses the full-cost method of accounting for its oil and
natural gas production activities. Under this method, all costs
incurred in the acquisition, exploration and development of oil and
natural gas properties are capitalized and amortized on the units of
production method based on total proved reserves. Cost centers for
amortization purposes are determined on a country-by-country basis.
Capitalized costs are subject to a "ceiling test" that limits such
costs to the aggregate of the present value of future net revenues of
proved reserves and the lower of cost or fair value of unproved
properties. Any conveyances of properties, including gains or losses
on abandonments of properties, are treated as adjustments to the cost
of the properties with no gain or loss realized.
Natural Gas in Underground Storage and Available Under Repurchase
Commitment
Natural gas in underground storage is carried at cost using the
last-in, first-out (LIFO) method. That portion of the cost of natural
gas in underground storage expected to be used within one year is
included in inventories.
Natural gas available under repurchase commitment is carried at
Frontier Gas Storage Company's cost of purchased natural gas, less an
allowance to reflect changed market conditions.
Inventories
Inventories, other than natural gas in underground storage, consist
primarily of materials and supplies and inventory held for resale.
These inventories are stated at the lower of average cost or market.
Utility Revenue and Energy Cost
Effective with a January 1, 1993 accounting change, the company began
recognizing revenue each month based on the services provided to all
customers during the month. Because meters for retail utility
customers are read and billed on a monthly cycle billing basis,
revenues (and related energy costs) are estimated and recorded for
those services provided from the date which meters were last read to
month end. Prior to 1993, the company recorded revenue and the cost
of purchased natural gas sold when customers were billed. Unbilled
utility revenues at December 31, 1994 and 1993, aggregated $15.6
million and $18.3 million, respectively, and are included in
"Receivables" in the company's Consolidated Balance Sheets. The
cumulative effect of this change on net income for the 12 months ended
December 31, 1993, is presented net of applicable income taxes of
$3,355,000.
Natural Gas Costs Recoverable Through Rate Adjustments
Under the terms of certain orders of the public service commissions of
Montana, North Dakota, South Dakota and Wyoming, the company is
deferring natural gas commodity, transportation and storage costs
which are greater or less than amounts presently being recovered
through its existing rate schedules. Such orders generally provide
that these amounts are recoverable or refundable through rate
adjustments within 24 months from the time such costs are paid.
Income Taxes
Effective with the adoption of SFAS No. 109, "Accounting for Income
Taxes" (SFAS No. 109) on January 1, 1993, as further described below,
the company is providing deferred federal and state income taxes on
all temporary differences. Prior to 1993, the company provided
deferred federal and state income taxes on all non-utility timing
differences and on all FERC jurisdictional utility timing differences.
With respect to state jurisdictions, deferred federal and state income
taxes were provided on utility timing differences only as permitted
for ratemaking purposes.
The company uses the deferral method of accounting for investment
tax credits and amortizes the credits on electric and natural gas
distribution plant over various periods which conform to the
ratemaking treatment prescribed by the public service commissions of
Montana, North Dakota, South Dakota and Wyoming.
Effective with the adoption of SFAS No. 109, the company elected
to record the cumulative effect of the accounting change on prior
years in 1993 as allowed by SFAS No. 109, with such amount being
immaterial to its financial position or results of operations. Excess
deferred income tax balances associated with Montana-Dakota's and
Williston Basin's rate-regulated activities have been recorded as a
regulatory liability and are included in "Other deferred credits" in
the company's Consolidated Balance Sheets at December 31, 1994 and
1993. This regulatory liability is expected to be reflected as a
reduction in future rates charged customers in accordance with
applicable regulatory procedures.
Cash Flow Information
Cash expenditures for interest and income taxes were as follows:
Years ended December 31, 1994 1993 1992
(In thousands)
Interest, net of amount capitalized $22,775 $22,717 $25,578
Income taxes $13,539 $24,545 $21,577
The company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash
equivalents.
Reclassifications
Certain reclassifications have been made in the financial statements
for 1993 and 1992 to conform to the 1994 presentation. Such
reclassifications had no effect on net income or common stockholders'
investment as previously reported.
NOTE 2
Pending Litigation
W.A. Moncrief
In November 1993, the estate of W.A. Moncrief (Moncrief), a producer
from whom Williston Basin purchased a portion of its natural gas
supply, filed suit in Federal District Court for the District of
Wyoming against Williston Basin and the company disputing certain
price and volume issues under the contract. In its complaint,
Moncrief alleged that, for the period January 1, 1985, through
December 31, 1992, it had suffered damages ranging from $1.2 million
to $5.0 million, without interest, on the price paid by Williston
Basin for natural gas purchased. Moncrief requested that the Court
award it such amount and further requested that Williston Basin be
obligated for damages for additional volumes not purchased for the
period November 1, 1993, (the date when Williston Basin implemented
FERC Order 636 and abandoned its natural gas sales merchant function,
see "Order 636" contained in Note 3 for a further discussion of
Williston Basin's implementation of Order 636) to mid-1996, the
remaining period of the contract.
On June 9, 1994, Moncrief filed a motion to amend its complaint
whereby it alleged a new pricing theory under Section 105 of the
Natural Gas Policy Act for natural gas purchased in the past and for
future volumes which Williston Basin refused to purchase effective
November 1, 1993. On July 13, 1994, the Court denied Moncrief's
motion to amend its complaint.
However, on July 15, 1994, the Court, as part of addressing the
proper litigants in this matter, allowed Moncrief to amend its
complaint to assert its new pricing theory under the contract.
Through the course of this action Moncrief has submitted its damage
calculations which total approximately $18 million or, under its
alternative pricing theory, $38 million. Trial is scheduled for
June 12, 1995.
Moncrief's damage claims, in Williston Basin's opinion, are
grossly overstated. Williston Basin further believes it has
meritorious defenses and intends to vigorously defend such suit.
Williston Basin plans to file for recovery from ratepayers of amounts
which may be ultimately due to Moncrief, if any.
NOTE 3
Regulatory Matters and Revenues Subject to Refund
General Rate Proceedings
Williston Basin had pending with the FERC two general natural gas rate
change applications implemented in 1989 and 1992. On May 3, 1994, the
FERC issued an order relating to the 1989 rate change. Williston
Basin requested rehearing of certain issues addressed in the order and
a stay of compliance and refund pending issuance of a final order by
the FERC. The requested stay was denied by the FERC and on July 20,
1994, Williston Basin refunded $47.8 million to its customers,
including $33.4 million to Montana-Dakota, all of which had been
reserved. Williston Basin's requested rehearing is currently pending
as is the issuance of an initial order by the FERC with respect to the
1992 rate change application.
Reserves have been provided for a portion of the revenues that
have been collected subject to refund with respect to pending
regulatory proceedings and for the recovery of certain producer
settlement buy-out/buy-down costs, as discussed below, to reflect
future resolution of certain issues with the FERC. Williston Basin
believes that such reserves are adequate based on its assessment of
the ultimate outcome of the various proceedings.
Producer Settlement Cost Recovery
In August 1993, Williston Basin filed to recover 75 percent of $28.7
million ($21.5 million) in buy-out/buy-down costs paid to Koch
Hydrocarbon Company (Koch) as part of a lawsuit settlement under the
alternate take-or-pay cost recovery mechanism embodied in Order 500.
As permitted under Order 500, Williston Basin elected to recover 25
percent or $7.2 million of such costs through a direct surcharge to
sales customers, substantially all of which has been received. In
addition, through reserves previously provided, Williston Basin has
absorbed an equal amount. Williston Basin elected to recover the
remaining 50 percent ($14.3 million) through a throughput surcharge
applicable to both sales and transportation. Williston Basin began
collecting these costs, subject to refund, in October 1993, pending
final approval by the FERC. On August 17, 1994, the FERC issued an
order approving Williston Basin's request to collect such costs.
Order 636
In 1992, the FERC issued Order 636, which required fundamental changes
in the way natural gas pipelines operate. Under Order 636, pipelines
are required to offer unbundled sales, transportation, storage and
other services. Customers now have the option of purchasing gas from
other suppliers and pipelines are required to provide "equivalent"
services for all customers regardless from whom they are purchasing
gas. This order provides for the use of the straight fixed variable
rate design, under which all fixed storage and transmission costs,
including return on equity and associated taxes, are included in a
demand charge and all variable costs are recovered through a commodity
charge based on volumes. Order 636 allows pipelines to recover 100
percent of prudently incurred costs (transition costs) resulting from
implementation of the order.
Williston Basin had previously filed a tariff with the FERC
designed to comply with Order 636. In September 1993, the FERC issued
its order authorizing Williston Basin's implementation of Order 636
tariffs effective November 1, 1993. Also included in the order was
the requirement that Williston Basin's excess storage gas inventories
must be offered for sale at Williston Basin's cost, as opposed to fair
market value. Williston Basin requested rehearing of this issue on
the grounds that the FERC's order constitutes a confiscation of its
assets. This matter is currently on appeal.
Williston Basin has also filed tariff sheets with the FERC
requesting recovery of certain gas supply realignment (GSR) costs. On
January 9, 1995, the FERC issued an order approving Williston Basin's
request to collect $13.4 million of GSR costs related to payments made
to Koch as part of a lawsuit settlement effective December 1, 1993.
In addition, Williston Basin has filed tariff sheets with the FERC
requesting recovery of $925,000 of GSR costs (effective February 1,
1995) paid as part of a settlement agreement with a natural gas
producer which terminated all natural gas contracts effective with the
implementation of Order 636.
Montana-Dakota has also received approval for revised gas cost
tariffs from each of its four state regulatory commissions reflecting
the effects of Williston Basin's November 1, 1993 implementation of
Order 636.
The financial effect of implementing Order 636 was not material
to the company's financial position or results of operations.
NOTE 4
Natural Gas Repurchase Commitment
The company has offered for sale since 1984 the inventoried natural
gas owned by Frontier Gas Storage Company (Frontier), a special
purpose, non-affiliated corporation. Through an agreement, an
obligation exists to repurchase all of the natural gas at Frontier's
original cost and reimburse Frontier for all of its financing and
general administrative costs. Frontier has financed the purchase of
the natural gas under a term loan agreement with several banks. At
December 31, 1994, borrowings totalled $89.5 million at a weighted
average interest rate of 6.2 percent. The term loan agreement will
terminate on October 2, 1999, subject to an option to renew this
agreement for up to five years, unless terminated earlier by the
occurrence of certain events.
The FERC has issued orders that have held that storage costs
should be allocated to this gas, prospectively beginning May 1992, as
opposed to being included in rates applicable to Williston Basin's
customers. These storage costs, as initially allocated to the
Frontier gas, approximated $2.1 million annually and represent costs
which Williston Basin may not recover. This matter is currently on
appeal. The issue regarding the applicability of assessing storage
charges to the gas creates additional uncertainty as to the costs
associated with holding the gas.
Beginning in October 1992, as a result of prevailing natural gas
prices, Williston Basin began to sell and transport a portion of the
natural gas held under the repurchase commitment. Through
December 31, 1994, 17.4 MMdk of this natural gas had been sold and
transported by Williston Basin to both on- and off-system markets.
Williston Basin will continue to aggressively market the remaining
43.3 MMdk of this natural gas whenever market conditions are
favorable. In addition, it will continue to seek long-term sales
contracts.
NOTE 5
Environmental Matters
Montana-Dakota and Williston Basin discovered polychlorinated
biphenyls (PCBs) in portions of their natural gas systems and informed
the United States Environmental Protection Agency (EPA) in
January 1991. Montana-Dakota and Williston Basin believe the PCBs
entered the system from a valve sealant. Both Montana-Dakota and
Williston Basin have initiated testing, monitoring and remediation
procedures, in accordance with applicable regulations and the work
plan submitted to the EPA and the appropriate state agencies. On
January 31, 1994, Montana-Dakota, Williston Basin and Rockwell
International Corporation (Rockwell), manufacturer of the valve
sealant, reached an agreement under which Rockwell will reimburse
Montana-Dakota and Williston Basin for a portion of certain
remediation costs. On the basis of findings to date, Montana-Dakota
and Williston Basin estimate that future environmental assessment and
remediation costs that will be incurred range from $3 million to $15
million. This estimate depends upon a number of assumptions
concerning the scope of remediation that will be required at certain
locations, the cost of remedial measures to be undertaken and the time
period over which the remedial measures are implemented. Both
Montana-Dakota and Williston Basin consider unreimbursed environmental
remediation costs to be recoverable through rates, since they are
prudent costs incurred in the ordinary course of business.
Accordingly, Montana-Dakota and Williston Basin have sought and will
continue to seek recovery of such costs through rate filings. Based
on the estimated cost of the remediation program and the expected
recovery from third parties and ratepayers, Montana-Dakota and
Williston Basin believe that the ultimate costs related to these
matters will not be material to Montana-Dakota's or Williston Basin's
financial position or results of operations.
In mid-1992, Williston Basin discovered that several of its
natural gas compressor stations had been operating without air quality
permits. As a result, in late 1992, applications for permits were
filed with the Montana Air Quality Bureau (Bureau), the agency for the
state of Montana which regulates air quality. In March 1993, the
Bureau cited Williston Basin for operating the compressors without the
requisite air quality permits and further alleged excessive emissions
by the compressor engines of certain air pollutants, primarily oxides
of nitrogen and carbon monoxide. Williston Basin is currently engaged
in discussions with the Bureau regarding test results and requirements
in meeting these air emissions standards. Because the permitting
process is not complete at this time, Williston Basin is unable to
determine the costs that will be incurred to remedy the situation
although such costs are not expected to be material to its financial
position or results of operations.
In June 1990, Montana-Dakota was notified by the EPA that it and
several others were named as Potentially Responsible Parties (PRPs) in
connection with the cleanup of pollution at a landfill site located in
Minot, North Dakota. In June 1993, the EPA issued its decision on the
selected remediation to be performed at the site. Based on the EPA's
proposed remediation plan, current estimates of the total cleanup
costs for all parties, including oversight costs, at this site range
from approximately $3.7 million to $4.8 million. Montana-Dakota
believes that it was not a material contributor to this contamination
and, therefore, further believes that its share of the liability for
such cleanup will not have a material effect on its results of
operations.
NOTE 6
Natural Gas in Underground Storage
Natural gas in underground storage included in natural gas
transmission and natural gas distribution property, plant and
equipment amounted to approximately $45 million at December 31, 1994,
$49 million at December 31, 1993, and $51 million at December 31,
1992. In addition, $6.9 million, $1.3 million and $3.7 million at
December 31, 1994, 1993 and 1992, respectively, of natural gas in
underground storage is included in inventories.
NOTE 7
Financial Instruments
Derivatives
In October 1994, the Financial Accounting Standards Board (FASB)
issued SFAS No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments" (SFAS No. 119).
SFAS No. 119 establishes disclosure practices for derivative and other
financial instruments.
The company periodically enters into swap and collar agreements
to hedge its exposure to price fluctuations in connection with
marketing of its oil and natural gas production. The company believes
that there is a high degree of correlation because the timing of
production and the hedge agreement are closely matched, and hedge
prices are established in the areas of the company's operations.
Recognized gains and losses on hedge transactions are matched and
reported as a component of the related transaction. The company's
hedging transactions did not have a material effect on its results of
operations for the years ended December 31, 1994, 1993 and 1992.
There were no derivative financial instruments outstanding at
December 31, 1994.
Fair Value
The estimated fair value of long-term debt and preferred stocks are
based on quoted market prices of the same or similar issues. The
estimated fair value of long-term debt and preferred stocks at
December 31 are as follows:
1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
(In thousands)
Long-term debt $238,043 $233,196 $246,970 $268,937
Preferred stocks $ 17,100 $ 6,614 $ 17,200 $ 6,110
The fair value of other financial instruments for which estimated
fair values have not been presented is not materially different than
the related book value.
NOTE 8
Short-term Borrowings
The company and its subsidiaries had unsecured lines of credit from
several banks totalling $91.4 million at December 31, 1994, $86
million at December 31, 1993, and $80 million at December 31, 1992.
These line of credit agreements provide for bank borrowings against
the lines and/or support for commercial paper issues. The agreements
provide for commitment fees at varying rates. Amounts outstanding
under the lines of credit were $680,000 at December 31, 1994,
$9.5 million at December 31, 1993, and $7.8 million at December 31,
1992. The weighted average interest rate for borrowings outstanding
at December 31, 1994, 1993 and 1992, was 8.5 percent, 4.2 percent and
5.2 percent, respectively. The unused portions of the lines of credit
are subject to withdrawal based on the occurrence of certain events.
NOTE 9
Common Stock
At the Annual Meeting of Stockholders held on April 26, 1994, the
company's common stockholders approved an amendment to the Certificate
of Incorporation increasing the authorized number of common shares
from 50 million shares to 75 million shares and reducing the par value
of the common stock from $5.00 per share to $3.33 per share. This
change had the effect of reducing the aggregate par value of common
stock outstanding by $31.7 million with a corresponding increase in
other paid in capital. There were no changes in the amounts
outstanding for common stock and other paid in capital during the
years ended December 31, 1993 and 1992.
The company's Dividend Reinvestment Plan (DRIP) provides holders
of all classes of the company's capital stock the opportunity to
invest their cash dividends in shares of common stock and to make
optional cash payments of up to $5,000 per quarter for the same
purpose. The company's Tax Deferred Compensation Savings Plans
pursuant to Section 401(k) of the Internal Revenue Code are funded
with common stock and also participate in the DRIP. Since January 1,
1989, these plans have been funded by the purchase of shares of common
stock on the open market. However, shares of authorized but unissued
common stock may be used for this purpose. At December 31, 1994,
there were 1,020,229 shares of common stock reserved for issuance
under the plans.
In November 1988, the company's Board of Directors declared,
pursuant to a stockholders' rights plan, a dividend of one preference
share purchase right (right) on each outstanding share of the
company's common stock. Each right becomes exercisable, upon the
occurrence of certain events, for one one-hundredth of a share of
Series A preference stock, without par value, at a purchase price of
$50, subject to certain adjustments. The rights are currently not
exercisable and will be exercisable only if a person or group
(acquiring person) either acquires ownership of 20 percent or more of
the company's common stock or commences a tender or exchange offer
that would result in ownership of 30 percent or more. In the event
the company is acquired in a merger or other business combination
transaction or 50 percent or more of its consolidated assets or
earnings power are sold, each right entitles the holder to receive
common stock of the acquiring person having a market value of twice
the exercise price of the right. The rights, which expire in November
1998, are redeemable in whole, but not in part, at the company's
option at any time for a price of $.02 per right.
NOTE 10
Retained Earnings
Changes in retained earnings for the years ended December 31, 1994,
1993 and 1992 are as follows:
1994 1993 1992
(In thousands)
Balance at beginning of year $158,998 $144,319 $137,472
Net income 39,845 44,338 35,371
198,843 188,657 172,843
Deduct:
Dividends declared--
Preferred stocks at required
annual rates 797 802 807
Common stock 29,996 28,857 27,717
30,793 29,659 28,524
Balance at end of year $168,050 $158,998 $144,319
NOTE 11
Preferred Stocks
The preferred stocks outstanding are subject to redemption, in whole
or in part, at the option of the company with certain limitations on
30 days notice on any quarterly dividend date.
The company is obligated to make annual sinking fund
contributions to retire the 5.10% Series preferred stock. The
redemption prices and sinking fund requirements, where applicable, are
summarized below:
Redemption Sinking Fund
Series Price (a) Shares Price (a)
Preferred stock:
4.50% $105.00 (b) --- ---
4.70% $102.00 (b) --- ---
5.10% $102.00 1,000 (c) $100.00
(a) Plus accrued dividends.
(b) These series are redeemable at the sole discretion of the company.
(c) Annually on December 1, if tendered.
In the event of a voluntary or involuntary liquidation, all
preferred stock series holders are entitled to $100 per share, plus
accrued dividends.
The aggregate annual sinking fund amount applicable to preferred
stock subject to mandatory redemption requirements for each of the
five years following December 31, 1994, is $100,000.
NOTE 12
Long-term Debt and Indenture Provisions
First mortgage bonds and notes outstanding at December 31 are as
follows:
1994 1993 1992
(In thousands)
9 1/8% Series, due May 15, 2006 $ 50,000 $ 50,000 $ 50,000
9 1/8% Series, due October 1, 2016 20,000 20,000 20,000
Pollution Control Refunding Revenue
Bonds, Series 1992:
Mercer County, North Dakota,
6.65%, due June 1, 2022 15,000 15,000 15,000
Morton County, North Dakota,
6.65%, due June 1, 2022 2,600 2,600 2,600
Richland County, Montana,
6.65%, due June 1, 2022 3,250 3,250 3,250
Secured Medium-Term Notes,
Series A:
5.80%, due April 1, 1994 --- 15,000 15,000
6.30%, due April 1, 1995 10,000 10,000 10,000
6.95%, due April 1, 1996 10,000 10,000 10,000
7.20%, due April 1, 1997 5,000 5,000 5,000
8.25%, due April 1, 2007 30,000 30,000 30,000
8.60%, due April 1, 2012 35,000 35,000 35,000
Total first mortgage bonds
and notes $180,850 $195,850 $195,850
The company has a revolving credit and term loan agreement which
totalled $30 million at December 31, 1994, 1993 and 1992. Amounts
outstanding under this agreement were $17 million at December 31,
1994, and $30 million at December 31, 1993 and 1992, respectively.
On April 1, 1994, Williston Basin borrowed $25 million under a
term loan agreement, with the proceeds used solely for the purpose of
refinancing purchase money mortgages payable to the company. At
December 31, 1994, there was $17.5 million available and outstanding
under the term loan agreement.
Fidelity Oil Co. has $15 million outstanding under a senior
secured note at December 31, 1994. In addition, Fidelity Oil Co. has
available $20 million under a secured line of credit, $3 million of
which was outstanding at December 31, 1994, and $1.5 million at
December 31, 1993. At December 31, 1992, Fidelity Oil Co. had a
secured line of credit which totalled $35 million, of which $19.4
million was outstanding. However, in January 1993, $15 million of the
line was converted to a senior secured note.
The amounts of long-term debt maturities and sinking fund
requirements for the five years following December 31, 1994, aggregate
$20.4 million in 1995; $34.4 million in 1996; $16.4 million in 1997;
$10.1 million in 1998 and $9.9 million in 1999. Substantially all of
the company's retail utility property is subject to the lien of its
Indenture of Mortgage. Under the terms and conditions of such
Indenture, the company could have issued approximately $114 million of
additional first mortgage bonds at December 31, 1994.
NOTE 13
Income Taxes
Income tax expense is summarized as follows:
1994 1993 1992
(In thousands)
Current:
Federal $11,995 $25,665 $ 18,272
State 2,644 3,997 3,359
Foreign 210 10 ---
14,849 29,672 21,631
Deferred:
Investment tax credit--net (1,137) (1,144) (1,183)
Income taxes--
Federal 4,589 (9,560) (8,505)
State 532 1,014 (1,043)
3,984 (9,690) (10,731)
Total income tax expense $18,833 $19,982 $ 10,900
Components of deferred tax assets and deferred tax liabilities
recognized in the company's Consolidated Balance Sheets at December 31
are as follows:
1994 1993
(In thousands)
Deferred tax assets:
Reserves for regulatory matters $ 25,212 $ 40,195
Natural gas available under
repurchase commitment 6,778 7,554
Accrued pension costs 5,646 4,955
Deferred investment tax credits 4,022 4,462
Accrued land reclamation 4,256 4,017
Natural gas costs refundable through
rate adjustments 4,034 ---
Other 10,638 5,149
Total deferred tax assets $ 60,586 $ 66,332
Deferred tax liabilities:
Depreciation and basis differences
on property, plant and equipment $109,648 $108,846
Basis differences on oil and natural gas
producing properties 21,049 15,889
Natural gas contract settlement and
restructuring costs 9,327 13,530
Long-term debt refinancing costs 4,745 5,223
Other 3,449 4,078
Total deferred tax liabilities $148,218 $147,566
Total income tax expense differs from the amount computed by
applying the statutory federal income tax rate to income before taxes.
The reasons for this difference are as follows:
1994 1993 1992
Amount % Amount % Amount %
(Dollars in thousands)
Computed tax at federal
statutory rate $20,537 35.0 $20,580 35.0 $15,732 34.0
Increases (reductions)
in provision for
taxes resulting from:
Depletion allowance (1,454) (2.5) (1,424) (2.4) (1,393)(3.0)
State income
taxes--net of
federal income tax
benefit 2,337 4.0 2,171 3.7 1,664 3.6
Tax-exempt interest (514) (.9) (725) (1.2) (958)(2.1)
Investment tax credit
amortization (1,137) (1.9) (1,144) (2.0) (1,183)(2.5)
Other items (936) (1.6) 524 .9 (2,962)(6.4)
Actual taxes $18,833 32.1 $19,982 34.0 $10,900 23.6
In 1992 deferred income tax expense resulted from differences in
the timing of recognizing certain revenues and expenses for tax and
financial statement purposes. The sources of these differences and
the tax effect are as follows:
1992
(In thousands)
Tax over book depreciation $ 1,426
Natural gas costs recoverable through
rate adjustments 1,478
Natural gas contract settlement and
restructuring (2,533)
Reserves for regulatory matters (7,270)
Unbilled utility revenue (1,778)
Well drilling and development costs 2,343
Land reclamation and other (3,214)
Total deferred income tax expense $(9,548)
The company's consolidated federal income tax returns were under
examination by the Internal Revenue Service (IRS) for the tax years
1983 through 1988. In September 1991, the company received a notice
of proposed deficiency from the IRS for the tax years 1983 through
1985 which proposed substantial additional income taxes, plus
interest. In an alternative position contained in the notice of
proposed deficiency, the IRS is claiming a lower level of taxes due,
plus interest as well as penalties. In May 1992, a similar notice of
proposed deficiency was received for the years 1986 through 1988.
Although the notices of proposed deficiency encompass a number of
separate issues, the principal issue is related to the tax treatment
of deductions claimed in connection with certain investments made by
Knife River and Fidelity Oil.
The company's tax counsel has issued opinions related to the
principal issue discussed above, stating that it is more likely than
not that the company would prevail in this matter. Thus, the company
intends to contest vigorously the deficiencies proposed by the IRS
and, in that regard, has timely filed protests for the 1983 through
1988 tax years contesting the treatment proposed in the notices of
proposed deficiency. If the IRS position were upheld, the resulting
deficiencies would have a material effect on results of operations.
NOTE 14
Business Segment Data
The company's operations are conducted through five business segments.
The electric, natural gas distribution, natural gas transmission,
mining and construction materials, and oil and natural gas production
businesses are substantially all located within the United States. A
description of these segments and their primary operations is
presented on the inside front cover.
Segment operating information at December 31, 1994, 1993 and
1992, is presented in the Consolidated Statements of Income. Other
segment information is presented below:
1994 1993 1992
(In thousands)
Depreciation, depletion and
amortization:
Electric $ 15,513 $ 15,307 $ 15,132
Natural gas distribution 6,118 5,114 4,809
Natural gas transmission 6,590 7,113 6,409
Mining and construction
materials 6,394 5,594 4,527
Oil and natural gas production 13,498 12,034 8,817
Total depreciation, depletion
and amortization $ 48,113 $ 45,162 $ 39,694
Investment information:
Identifiable assets--
Electric (a) $ 307,861 $ 306,179 $ 301,959
Natural gas distribution (a) 124,275 104,013 90,979
Natural gas transmission (a) 311,992 383,355 404,250
Mining and construction
materials 116,347 120,105 105,761
Oil and natural gas
production 106,631 89,690 80,128
Total identifiable assets 967,106 1,003,342 983,077
Corporate assets (b) 37,612 37,709 41,433
Total consolidated assets $1,004,718 $1,041,051 $1,024,510
(a) Includes, in the case of natural gas distribution and electric
property, allocations of common utility property. Natural gas
stored or available under repurchase commitment, as applicable,
is included in natural gas distribution and transmission
identifiable assets.
(b) Corporate assets consist of assets not directly assignable to a
business segment, i.e., cash and cash equivalents, certain
accounts receivable and other miscellaneous current and deferred
assets.
Approximately 6 percent of mining and construction materials
revenues in 1994 (7 percent in 1993 and 13 percent in 1992) represent
Knife River's direct sales of lignite coal to the company. The
company's share of Knife River's sales for use at two generating
stations jointly owned by the company and other utilities was
approximately 8 percent of mining and construction materials revenues
in 1994, 10 percent in 1993 and 20 percent in 1992.
In May 1992, KRC Holdings, Inc. (KRC Holdings), a wholly-owned
subsidiary of Knife River, entered into the sand and gravel business
in north-central California through the purchase of certain
properties, including mining and processing equipment. These
operations, located near Lodi, California, surface mine, process and
market aggregate products to various customers, including road and
housing contractors, tile manufacturers and ready-mix plants, with a
market area extending approximately 60 miles from the mine.
The assets of Alaska Basic Industries, Inc. (ABI) and its
subsidiaries were purchased by KRC Holdings in April 1993. ABI is a
vertically integrated construction materials business headquartered in
Anchorage, Alaska. ABI's nine divisions handle the sale of its sand
and gravel aggregates and related products such as ready-mixed
concrete, asphalt and finished aggregate products.
In September 1993, KRC Holdings, purchased the stock of LTM,
Incorporated (LTM), Rogue Aggregates, Inc. (Rogue Aggregates) and
Concrete, Inc., then construction materials subsidiaries of Terra
Industries. Headquartered in Medford, Oregon, LTM and Rogue
Aggregates are vertically integrated construction materials businesses
serving southern Oregon markets. Their products include sand and
gravel aggregates, ready-mixed concrete, asphalt and finished
aggregate products. Concrete, Inc., headquartered in Stockton,
California, operates four ready-mix plants in San Joaquin County.
These ready-mix plants became part of KRC Holding's Lodi, California
operations.
Pro forma amounts reflecting the effects of the above
acquisitions are not disclosed as such acquisitions were not material
to the company's financial position or results of operations.
NOTE 15
Employee Benefit Plans
The company has noncontributory defined benefit pension plans covering
substantially all full-time employees. Pension benefits are based on
employee's years of service and earnings. The company makes annual
contributions to the plans consistent with the funding requirements of
federal law and regulations.
Pension expense is summarized as follows:
1994 1993 1992
(In thousands)
Service cost/benefits earned during
the year $ 4,035 $ 3,277 $ 2,957
Interest cost on projected benefit
obligation 9,912 9,488 8,464
Loss (return) on plan assets 3,154 (14,540) (11,384)
Net amortization and deferral (15,410) 2,916 491
Total pension costs 1,691 1,141 528
Less amounts capitalized 198 133 75
Total pension expense $ 1,493 $ 1,008 $ 453
The funded status of the company's plans at December 31 is
summarized as follows:
1994 1993 1992
(In thousands)
Projected benefit obligation:
Vested $105,561 $108,718 $ 92,623
Nonvested 4,124 4,696 3,251
Accumulated benefit obligation 109,685 113,414 95,874
Provision for future pay increases 25,084 26,379 22,614
Projected benefit obligation 134,769 139,793 118,488
Plan assets at market value 139,332 149,184 140,623
(4,563) (9,391) (22,135)
Plus:
Unrecognized transition asset 9,315 10,305 11,295
Unrecognized net gains and prior
service costs 2,466 4,953 16,018
Accrued pension costs $ 7,218 $ 5,867 $ 5,178
The projected benefit obligation was determined using an assumed
discount rate of 8 percent (7 percent in 1993 and 8 percent in 1992)
and assumed long-term rates for estimated compensation increases of
5 percent (4 1/2 percent in 1993 and 5 percent in 1992). The change
in these assumptions had the effect of decreasing the projected
benefit obligation at December 31, 1994, by $16 million but increasing
the projected benefit obligation at December 31, 1993, by $15 million.
The assumed long-term rate of return on plan assets is 8 1/2 percent.
Plan assets consist primarily of debt and equity securities.
In addition to providing pension benefits, the company has a
policy of providing all eligible employees and dependents certain
other postretirement benefits which include health care and life
insurance upon their retirement. On January 1, 1993, the company
adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (SFAS No. 106). The company elected to
amortize the transition obligation of approximately $49 million at
January 1, 1993, which represents the accumulated postretirement
benefit obligation at the time of adoption, over 20 years as provided
by SFAS No. 106. The plans underlying these benefits may require
contributions by the employee depending on such employee's age and
years of service at retirement or the date of retirement. The
accounting for the health care plan anticipates future cost-sharing
changes that are consistent with the company's expressed intent to
increase retiree contributions each year by the excess of the expected
health care cost trend rate over 6 percent.
Postretirement benefits expense is summarized as follows:
1994 1993
(In thousands)
Service cost/benefits earned during the year $1,454 $1,098
Interest cost on accumulated postretirement
benefit obligation 4,584 3,932
Return on plan assets (176) ---
Amortization of transition obligation 2,458 2,458
Net amortization and deferral 76 ---
Total postretirement benefits cost 8,396 7,488
Less amounts capitalized 419 ---
Total postretirement benefits expense $7,977 $7,488
The funded status of the company's plans at December 31 is
summarized as follows:
1994 1993
(In thousands)
Accumulated postretirement benefit obligation:
Retirees eligible for benefits $36,985 $31,029
Active employees fully eligible for benefits 22 ---
Active employees not fully eligible 22,898 28,592
Total 59,905 59,621
Plan assets at market value 9,938 4,450
49,967 55,171
Less:
Unrecognized transition obligation 44,237 46,694
Unrecognized net losses 4,896 7,992
Accrued postretirement benefits cost $ 834 $ 485
The health care cost trend rate assumed in determining the
accumulated postretirement benefit obligation was 12 percent in 1993,
decreasing by 1 percent per year until an ultimate rate of 6 percent
is reached in 1999 and remaining level thereafter. The health care
cost trend rate assumption has a significant effect on the amounts
reported. To illustrate, increasing the assumed health care cost
trend rates by 1 percent each year would increase the accumulated
postretirement benefit obligation as of December 31, 1994, by $3.4
million and the aggregate of the service and interest cost components
of postretirement benefits expense by $270,000.
The accumulated postretirement benefit obligation was determined
using an assumed discount rate of 8 percent at December 31, 1994,
7 percent at December 31, 1993, and 8 percent at January 1, 1993, the
date of adoption, and assumed long-term rates for estimated
compensation increases, as they apply to life insurance benefits, of
5 percent (4 1/2 percent at December 31, 1993, and 5 1/2 percent at
January 1, 1993). The change in these assumptions had the effect of
decreasing the accumulated postretirement benefit obligation at
December 31, 1994, by $9 million but increasing the accumulated
postretirement benefit obligation at December 31, 1993, by $8 million.
The assumed long-term rate of return on assets is 7 1/2 percent. Plan
assets at December 31, 1994, consist primarily of short-term
investments.
The public service commissions of Montana, North Dakota, South
Dakota and Wyoming have authorized accrual accounting for ratemaking
purposes and generally require that these benefits be funded through
an external trust using the most tax-effective funding options
available. The majority of these costs are being recovered through
rates currently in effect. The FERC, in a policy statement issued in
December 1992, has adopted accrual accounting for these costs for
ratemaking purposes and has authorized limited deferral of the higher
accrual costs. Williston Basin expects to seek recovery of these
costs in its next general rate proceeding.
The company has an unfunded, nonqualified benefit plan for
executive officers and certain key management employees that provides
for defined benefit payments upon the employee's retirement or to
their beneficiaries upon death for a 15-year period. Investments
consist of life insurance carried on plan participants which is
payable to the company upon the employee's death. The cost of these
benefits was $1.7 million in 1994 and $1.4 million in 1993.
The company has a Key Employee Stock Option Plan under which the
company is authorized to grant options for up to 800,000 shares of
common stock with an option price equal to market value on the date of
grant. At December 31, 1994, 128,190 options, with an average option
price of $23.73 per share, were outstanding, none of which were
exercisable. The company has contributed $3.2 million to a trust
established to fund its commitment under the Plan.
The company has Tax Deferred Compensation Savings Plans for
eligible employees. Each participant may contribute amounts up to 10
percent of eligible compensation, subject to certain limitations. The
company contributes an amount equal to 50 percent of the participant's
savings contribution up to a maximum of 6 percent of such
participant's contribution. Company contributions were $1.9 million
in 1994, $1.7 million in 1993 and $1.5 million in 1992.
NOTE 16
Jointly Owned Facilities
The consolidated financial statements include the company's 22.7
percent and 25.0 percent ownership interests in the assets,
liabilities and expenses of the Big Stone Station and the Coyote
Station, respectively. Each owner of the Big Stone and Coyote
stations is responsible for providing its own financing of its
investment in the jointly owned facilities.
The company's share of the Big Stone Station and Coyote Station
operating expenses is reflected in the appropriate categories of
operating expenses in the Consolidated Statements of Income.
At December 31, the company's share of the cost of utility plant
in service and related accumulated depreciation for the stations was
as follows:
1994 1993 1992
(In thousands)
Big Stone Station:
Utility plant in service $ 46,923 $ 47,349 $ 46,398
Accumulated depreciation 25,505 24,663 23,326
$ 21,418 $ 22,686 $ 23,072
Coyote Station:
Utility plant in service $121,784 $121,380 $121,294
Accumulated depreciation 45,546 42,482 39,129
$ 76,238 $ 78,898 $ 82,165
NOTE 17
Quarterly Data (Unaudited)
The following unaudited information shows selected items by quarter
for the years 1994 and 1993:
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In thousands, except per share amounts)
1994
Operating revenues $124,362 $105,036 $106,528 $113,602
Operating expenses 99,847 89,880 87,618 94,008
Operating income 24,515 15,156 18,910 19,594
Net income 11,699 5,677 12,351 10,118
Earnings per common share .61 .29 .64 .52
Average common shares
outstanding 18,985 18,985 18,985 18,985
1993
Operating revenues $124,169 $ 88,995 $ 98,832 $127,616
Operating expenses 92,631 76,378 84,266 102,245
Operating income 31,538 12,617 14,566 25,371
Income before cumulative
effect of
accounting change 15,761 3,797 6,309 12,950
Cumulative effect of
accounting change 5,521 --- --- ---
Net income 21,282 3,797 6,309 12,950
Earnings per common share
before cumulative effect
of accounting change .82 .19 .32 .67
Cumulative effect of
accounting change per
common share .29 --- --- ---
Earnings per common share 1.11 .19 .32 .67
Average common shares
outstanding 18,985 18,985 18,985 18,985
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, quarterly
financial information may not be indicative of results for a full
year.
NOTE 18
Oil and Natural Gas Activities (Unaudited)
Fidelity Oil holds oil and natural gas interests primarily through a
series of working-interest agreements with several oil and natural gas
producers and through operating agreements with Shell Western E & P,
Inc. (Shell).
Fidelity Oil undertakes ventures, through working-interest
agreements with selected partners, that vary from the acquisition of
producing properties with potential development opportunities to
exploration and are located in the western United States, offshore in
the Gulf of Mexico and in Canada. In these ventures, Fidelity Oil
shares revenues and expenses from the development of specified
properties in proportion to its investments.
Fidelity Oil has net proceeds interests in the production of oil
and natural gas and has an operating agreement (Agreement) with Shell
applicable to certain of its acreage interests. Pursuant to the
Agreement, Shell, as operator, controls all development, production,
operations and marketing applicable to such acreage. As a net
proceeds interest owner, Fidelity Oil is entitled to proceeds only
when a particular unit has reached payout status.
In 1994, Williston Basin undertook a drilling program designed to
increase production and to gain updated data from which to assess the
future production capabilities of natural gas reserves held primarily
in Montana. In late 1994, upon analysis of the results of this
program, it was determined that the future production related to these
properties can be accelerated and, as a result, the economic value of
these reserves has become material to the company's consolidated oil
and natural gas production operations. Therefore, beginning in 1994,
the tables set forth below include information related to Williston
Basin's natural gas production activities.
The following information includes the company's proportionate
share of all its oil and natural gas interests.
The following table sets forth capitalized costs and related
accumulated depreciation, depletion and amortization related to oil
and natural gas producing activities at December 31:
1994 1993 1992
(In thousands)
Subject to amortization $155,316 $114,572 $91,058
Not subject to amortization 8,517 2,022 2,383
Total capitalized costs 163,833 116,594 93,441
Accumulated depreciation, depletion
and amortization 53,387 36,084 24,083
Net capitalized costs $110,446 $ 80,510 $69,358
Capital expenditures, including those not subject to
amortization, related to oil and natural gas producing activities for
the 12 months ended December 31 are as follows:
1994 1993 1992
(In thousands)
Acquisitions $ 5,542 $ 9,296 $ 9,976
Exploration 13,241 7,787 11,074
Development 21,189 7,836 4,715
Total capital expenditures $39,972 $24,919 $25,765
The following summary reflects income resulting from the
company's operations of oil and natural gas producing activities,
excluding corporate overhead and financing costs, for the 12 months
ended December 31:
1994 1993 1992
(In thousands)
Revenues $45,053 $39,125 $33,797
Production costs 18,463 13,700 13,965
Depreciation, depletion and
amortization 13,753 11,998 8,782
Pretax income 12,837 13,427 11,050
Income tax expense 4,324 4,606 3,658
Results of operations for
producing activities $8,513 $ 8,821 $ 7,392
The following table summarizes the company's estimated quantities
of proved developed oil and natural gas reserves at December 31, 1994,
1993 and 1992 and reconciles the changes between these dates.
Estimates of economically recoverable oil and natural gas reserves and
future net revenues therefrom are based upon a number of variable
factors and assumptions. For these reasons, estimates of economically
recoverable reserves and future net revenues may vary from actual
results.
1994 1993 1992
Natural Natural Natural
Oil Gas Oil Gas Oil Gas
(In thousands of barrels/Mcf)
Proved developed and
undeveloped reserves:
Balance at beginning
of year 11,200 50,300 12,200 37,200 11,600 27,500
Production (1,600) (9,200)(1,500)(8,800)(1,500) (5,000)
Extensions and
discoveries 1,300 17,800 600 10,600 100 5,300
Purchases of proved
reserves 600 2,900 500 9,200 900 8,200
Sales of reserves
in place (400) (2,700) (300) (100) --- (100)
Revisions to previous
estimates due to
improved secondary
recovery techniques
and/or changed
economic conditions 1,400 95,100* (300) 2,200 1,100 1,300
Balance at end of year 12,500 154,200 11,200 50,300 12,200 37,200
*Includes 99,300 MMcf of Williston Basin's natural gas reserves.
Proved developed reserves:
January 1, 1992 11,200 22,600
December 31, 1992 11,800 36,500
December 31, 1993 11,100 43,100
December 31, 1994 12,200 147,200**
**Includes 98,700 MMcf of Williston Basin's natural gas reserves.
Virtually all of the company's interests in oil and natural gas
reserves are located in the continental United States. Reserve
interests at December 31, 1994, applicable to the company's $9 million
gross investment in oil and natural gas properties located in Canada
comprise approximately 3 percent of the total reserves.
The standardized measure of the company's estimated discounted
future net cash flows of total proved reserves associated with its
various oil and natural gas interests at December 31 is as follows:
1994 1993 1992
(In thousands)
Future net cash flows before
income taxes $197,900 $119,800 $138,500
Future income tax expenses 48,800 15,600 26,600
Future net cash flows 149,100 104,200 111,900
10% annual discount for estimated
timing of cash flows 54,200 32,600 35,200
Discounted future net cash flows
relating to proved oil and natural
gas reserves $ 94,900 $ 71,600 $ 76,700
The following are the sources of change in the standardized
measure of discounted future net cash flows by year:
1994 1993 1992
(In thousands)
Beginning of year $ 71,600 $ 76,700 $ 54,100
Net revenues from production (23,800) (26,000) (19,700)
Change in net realization (4,100) (24,000) 13,100
Extensions, discoveries and improved
recovery, net of future production
and development costs 31,700 16,800 8,200
Purchases of proved reserves 5,800 14,100 16,000
Sales of reserves in place (3,700) (1,600) (200)
Changes in estimated future
development costs--net of those
incurred during the year (2,900) (3,800) 1,700
Accretion of discount 8,300 8,900 6,400
Net change in income taxes (4,000) 6,000 (8,000)
Revisions of previous quantity
estimates 16,500* 4,400 5,000
Other (500) 100 100
Net change 23,300 (5,100) 22,600
End of year $ 94,900 $ 71,600 $ 76,700
*Includes $19.1 million related to Williston Basin's natural gas
reserves.
The estimated discounted future cash inflows from estimated
future production of proved reserves were computed using year-end oil
and natural gas prices. Future development and production costs
attributable to proved reserves were computed by applying year-end
costs to be incurred in producing and further developing the proved
reserves. Future income tax expenses were computed by applying
statutory tax rates (adjusted for permanent differences and tax
credits) to estimated net future pretax cash flows.
<PAGE>
To the Board of Directors and Stockholders of MDU Resources Group,
Inc.:
We have audited the accompanying consolidated balance sheets and
statements of capitalization of MDU Resources Group, Inc. (a Delaware
corporation) and Subsidiaries as of December 31, 1994, 1993 and 1992,
and the related consolidated statements of income and cash flows for
each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
MDU Resources Group, Inc. and Subsidiaries as of December 31, 1994,
1993 and 1992, and the results of their operations and their cash
flows for each of the three years in the period ended December 31,
1994, in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 15 to the consolidated financial
statements, effective January 1, 1993, the company changed its method
of accounting for recording electric and natural gas distribution
revenues, postretirement benefits other than pensions and income
taxes.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Minneapolis, Minnesota,
January 24, 1995<PAGE>
1994 1993 1992
Selected Financial Data
Operating revenues: (000's)
Electric $133,953 $131,109 $123,908
Natural gas 160,970 178,981 159,438
Mining and construction
materials 116,646 90,397 45,032
Oil and natural gas production 37,959 39,125 33,797
$449,528 $439,612 $362,175
Operating income: (000's)
Electric $ 27,596 $ 30,520 $ 30,188
Natural gas distribution 3,948 4,730 4,509
Natural gas transmission 21,281 20,108 21,331
Mining and construction
materials 16,593 16,984 11,532
Oil and natural gas production 8,757 11,750 9,499
$ 78,175 $ 84,092 $ 77,059
Earnings (loss) on common
stock: (000's)
Electric $ 11,719 $ 12,652* $ 13,302
Natural gas distribution 285 1,182* 1,370
Natural gas transmission 6,155 4,713 3,479
Mining and construction
materials 11,622 12,359 10,662
Oil and natural gas production 9,267 7,109 5,751
Earnings on common stock
before cumulative effect
of accounting change 39,048 38,015* 34,564
Cumulative effect of
accounting change --- 5,521 ---
$ 39,048 $ 43,536 $ 34,564
Earnings per common share before
cumulative effect of
accounting change $ 2.06 $ 2.00* $ 1.82
Cumulative effect of accounting
change --- .29 ---
$ 2.06 $ 2.29 $ 1.82
Pro forma amounts assuming
retroactive application of
accounting change:
Net income (000's) $ 39,845 $ 38,817 $ 35,852
Earnings per common share $ 2.06 $ 2.00 $ 1.85
Common Stock Statistics
Weighted average common shares
outstanding (000's) 18,985 18,985 18,985
Dividends per common share $ 1.58 $ 1.52 $ 1.46
Book value per common share $ 17.23 $ 16.76 $ 15.98
Market price ratios:
Dividend payout 77% 76%* 80%
Yield 5.9% 5.0% 5.6%
Price/earnings ratio 13.2x 15.8x* 14.5x
Market value as a percent of
book value 157.4% 188.0% 165.0%
Profitability Indicators
Return on average common equity 12.1% 12.3%* 11.6%
Return on average invested
capital 9.1% 9.4%* 8.7%
Interest coverage 3.3x 3.4x* 3.3x
Fixed charges coverage, including
preferred dividends 2.9x 3.0x* 2.4x
General
Total assets (000's) $1,004,718 $1,041,051 $1,024,510
Net long-term debt (000's) $ 217,693 $ 231,770 $ 249,845
Redeemable preferred stock (000's) $ 2,100 $ 2,200 $ 2,300
Capitalization ratios:
Common stockholders' investment 58% 56% 53%
Preferred stocks 3 3 3
Long-term debt 39 41 44
100% 100% 100%
* Before cumulative effect of an accounting change reflecting the accrual
of estimated unbilled revenues.
<PAGE>
1991 1990 1989
Selected Financial Data
Operating revenues: (000's)
Electric $128,708 $124,156 $126,228
Natural gas 173,865 151,599 159,703
Mining and construction
materials 41,201 38,276 41,643
Oil and natural gas production 33,939 31,213 25,199
$377,713 $345,244 $352,773
Operating income: (000's)
Electric $ 34,647 $ 32,221 $ 32,592
Natural gas distribution 8,518 6,578 7,781
Natural gas transmission 19,904 19,362 24,835
Mining and construction
materials 9,682 7,749 9,087
Oil and natural gas production 12,552 12,523 10,420
$ 85,303 $ 78,433 $ 84,715
Earnings (loss) on common
stock: (000's)
Electric $ 15,292 $ 14,280 $ 13,385
Natural gas distribution 3,645 2,704 3,123
Natural gas transmission 449 (7,578)* 3,722
Mining and construction
materials 9,809 9,632 8,890
Oil and natural gas production 8,010 8,071 6,765
Earnings on common stock
before cumulative effect
of accounting change 37,205 27,109* 35,885
Cumulative effect of
accounting change --- --- ---
$ 37,205 $ 27,109* $ 35,885
Earnings per common share before
cumulative effect of
accounting change $ 1.96 $ 1.43* $ 1.89
Cumulative effect of accounting
change --- --- ---
$ 1.96 $ 1.43* $ 1.89
Pro forma amounts assuming
retroactive application of
accounting change:
Net income (000's) $ 37,619 $ 28,395* $ 36,861
Earnings per common share $ 1.94 $ 1.45 $ 1.90
Common Stock Statistics
Weighted average common shares
outstanding (000's) 18,985 18,985 18,985
Dividends per common share $ 1.435 $ 1.42 $ 1.47
Book value per common share $ 15.62 $ 15.12 $ 15.11
Market price ratios:
Dividend payout 73% 99%* 78%
Yield 5.8% 6.9% 6.5%
Price/earnings ratio 12.6x 14.3x* 12.0x
Market value as a percent of
book value 157.7% 135.6% 149.7%
Profitability Indicators
Return on average common equity 12.7% 9.4%* 12.5%
Return on average invested capital 9.6% 7.8%* 9.2%
Interest coverage 3.8x** 2.7x* 2.8x
Fixed charges coverage, including
preferred dividends 2.4x 1.9x* 2.3x
General
Total assets (000's) $964,691 $959,946 $971,401
Net long-term debt (000's) $220,623 $229,786 $234,333
Redeemable preferred stock (000's) $ 2,400 $ 2,500 $ 2,600
Capitalization ratios:
Common stockholders' investment 56% 54% 53%
Preferred stocks 3 3 3
Long-term debt 41 43 44
100% 100% 100%
* Reflects a $6.8 million or 36 cent per share after-tax effect of an
absorption of certain natural gas contract litigation settlement costs.
** Calculation reflects the provisions of the company's restatement of its
Indenture of Mortgage effective April 1992.<PAGE>
1994 1993 1992
Electric Operations
Sales to ultimate consumers
(thousand kWh) 1,955,136 1,893,713 1,829,933
Sales for resale (thousand kWh) 444,492 510,987 352,550
Electric system generating and
firm purchase capability--kW
(Interconnected system) 470,900 465,200 460,200
Demand peak--kW
(Interconnected system) 369,800 350,300 339,100
Electricity produced
(thousand kWh) 1,901,119 1,870,740 1,774,322
Electricity purchased
(thousand kWh) 700,912 701,736 593,612
Cost of fuel and purchased
power per kWh $.017 $.016 $.016
Natural Gas Distribution Operations
Sales (Mdk) 31,840 31,147 26,681
Transportation (Mdk) 9,278 12,704 13,742
Weighted average degree days--% of
previous year's actual 92% 115% 98%
Natural Gas Transmission Operations
Sales for resale (Mdk) --- 13,201 16,841
Transportation (Mdk) 63,870 59,416 64,498
Produced (Mdk) 4,732 3,876 3,551
Net recoverable reserves (MMcf) 99,265 --- ---
Energy Marketing Operations
Natural gas volumes (Mdk) 7,301 6,827 3,292
Propane (thousand gallons) 6,462 2,210 ---
Mining and Construction Materials Operations
Coal: (000's)
Sales in tons 5,206 5,066 4,913
Recoverable reserves in tons 236,100 230,600 235,700
Construction materials: (000's)
Aggregates (tons sold) 2,688 2,391 263
Asphalt (tons sold) 391 141 ---
Ready-mixed concrete (cubic
yards sold) 315 157 ---
Recoverable aggregate reserves
in tons 71,000 74,200 20,600
Oil and Natural Gas Production Operations
Production:
Oil (000's of barrels) 1,565 1,497 1,531
Natural gas (MMcf) 9,228 8,817 5,024
Average sales prices:
Oil (per barrel) $ 13.14 $14.84 $16.74
Natural gas (per Mcf) $ 1.84 $1.86 $ 1.53
Net recoverable reserves:
Oil (000's of barrels) 12,500 11,200 12,200
Natural gas (MMcf) 54,900 50,300 37,200
<PAGE>
1991 1990 1989
Electric Operations
Sales to ultimate consumers
(thousand kWh) 1,877,634 1,820,150 1,836,099
Sales for resale (thousand kWh) 331,314 285,564 311,327
Electric system generating and
firm purchase capability--kW
(Interconnected system) 454,400 451,600 451,600
Demand peak--kW
(Interconnected system) 387,100 381,600 383,600
Electricity produced
(thousand kWh) 1,736,187 1,674,648 1,773,849
Electricity purchased
(thousand kWh) 611,884 573,099 557,650
Cost of fuel and purchased
power per kWh $.016 $.016 $.017
Natural Gas Distribution Operations
Sales (Mdk) 30,074 28,278 31,643
Transportation (Mdk) 12,261 11,806 9,321
Weighted average degree days--% of
previous year's actual 101% 88% 112%
Natural Gas Transmission Operations
Sales for resale (Mdk) 19,572 19,658 27,274
Transportation (Mdk) 53,930 50,809 51,159
Produced (Mdk) 3,742 1,881 1,907
Net recoverable reserves (MMcf) --- --- ---
Energy Marketing Operations
Natural gas volumes (Mdk) 991 1,853 843
Propane (thousand gallons) --- --- ---
Mining and Construction Materials Operations
Coal: (000's)
Sales in tons 4,731 4,439 4,747
Recoverable reserves in tons 256,700 261,500 266,000
Construction materials: (000's)
Aggregates (tons sold) --- --- ---
Asphalt (tons sold) --- --- ---
Ready-mixed concrete (cubic
yards sold) --- --- ---
Recoverable aggregate reserves
in tons --- --- ---
Oil and Natural Gas Production Operations
Production:
Oil (000's of barrels) 1,491 1,374 1,348
Natural gas (MMcf) 2,565 1,846 1,605
Average sales prices:
Oil (per barrel) $19.90 $20.11 $16.26
Natural gas (per Mcf) $ 1.48 $ 1.63 $ 1.66
Net recoverable reserves:
Oil (000's of barrels) 11,600 12,400 12,000
Natural gas (MMcf) 27,500 16,100 10,800
SUBSIDIARIES OF MDU RESOURCES GROUP, INC.
December 31, 1994
State or Other
Jurisdiction
in Which
Incorporated
Alaska Basic Industries, Inc. Alaska
Anchorage Sand and Gravel Company, Inc. Alaska
Centennial Energy Holdings, Inc. Delaware
Concrete, Inc. California
Fidelity Oil Co. Delaware
Fidelity Oil Holdings, Inc. Delaware
Gwinner Propane, Inc. Delaware
Knife River Coal Mining Company Minnesota
KRC Aggregate, Inc. Delaware
KRC Holdings, Inc. Delaware
LTM, Incorporated Oregon
Prairielands Energy Marketing, Inc. Delaware
Rogue Aggregates, Inc. Oregon
WBI Canadian Pipeline, Ltd. Canada
Williston Basin Interstate Pipeline Company Delaware
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this Form 10-K of our report dated
January 24, 1995 included in the MDU Resources Group, Inc. Annual
Report to Stockholders for 1994. We also consent to the
incorporation of our report incorporated by reference in this
Form 10-K into the Company's previously filed Registration
Statements on Form S-3, No. 33-46605 and No. 33-66682, and on
Form S-8, No. 33-54486, No. 33-53896 and No. 33-53898.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
March 2, 1995<PAGE>
CONSENT OF ENGINEER
We hereby consent to the reference to our estimates dated
January 10 and 31, 1995, appearing in this Annual Report on Form
10-K.
We also consent to the incorporation by reference in the
Registration Statements on Form S-3, No. 33-46605 and
No. 33-66682, and on Form S-8, No. 33-54486, No. 33-53896 and
No. 33-53898 of MDU Resources Group, Inc. and in the related
Prospectuses of the reference to such reports appearing in this
Annual Report on Form 10-K.
/S/ RALPH E. DAVIS ASSOCIATES, INC.
RALPH E. DAVIS ASSOCIATES, INC.
Houston, Texas
March 2, 1995<PAGE>
CONSENT OF ENGINEER
We hereby consent to the reference to our report dated
May 9, 1994, appearing in this Annual Report on Form 10-K.
We also consent to the incorporation by reference in the
Registration Statements on Form S-3, No. 33-46605 and
No. 33-66682, and on Form S-8, No. 33-54486, No. 33-53896 and
No. 33-53898 of MDU Resources Group, Inc. and in the related
Prospectuses of the reference to such report appearing in this
Annual Report on Form 10-K.
/S/ WEIR INTERNATIONAL MINING CONSULTANTS
WEIR INTERNATIONAL MINING CONSULTANTS
Des Plaines, Illinois
March 2, 1995
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000067716
<NAME> MDU RESOURCES GROUP INC
<MULTIPLIER> 1000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 518,434
<OTHER-PROPERTY-AND-INVEST> 190,751
<TOTAL-CURRENT-ASSETS> 158,670
<TOTAL-DEFERRED-CHARGES> 65,950
<OTHER-ASSETS> 70,913
<TOTAL-ASSETS> 1,004,718
<COMMON> 63,219
<CAPITAL-SURPLUS-PAID-IN> 95,914
<RETAINED-EARNINGS> 168,050
<TOTAL-COMMON-STOCKHOLDERS-EQ> 327,183
2,000
15,000
<LONG-TERM-DEBT-NET> 306,097
<SHORT-TERM-NOTES> 680
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 20,350
100
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 333,308
<TOT-CAPITALIZATION-AND-LIAB> 1,004,718
<GROSS-OPERATING-REVENUE> 449,528
<INCOME-TAX-EXPENSE> 18,833
<OTHER-OPERATING-EXPENSES> 371,353
<TOTAL-OPERATING-EXPENSES> 390,186
<OPERATING-INCOME-LOSS> 59,342
<OTHER-INCOME-NET> 10,480
<INCOME-BEFORE-INTEREST-EXPEN> 69,822
<TOTAL-INTEREST-EXPENSE> 29,977
<NET-INCOME> 39,845
797
<EARNINGS-AVAILABLE-FOR-COMM> 39,048
<COMMON-STOCK-DIVIDENDS> 29,996
<TOTAL-INTEREST-ON-BONDS> 29,977
<CASH-FLOW-OPERATIONS> 97,813
<EPS-PRIMARY> 2.06
<EPS-DILUTED> 0
</TABLE>
