UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
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
incorporation or organization) Identification No.)
400 North Fourth Street, Bismarck, North Dakota 58501
(Address of principal executive offices)
(Zip Code)
(701) 222-7900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X. No.
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of May 5, 1995: 18,984,654
shares.
<PAGE>
INTRODUCTION
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., operates bulk propane facilities in
southeastern North Dakota.
<PAGE>
INDEX
Part I
Condensed Consolidated Statements of Income --
Three Months Ended March 31, 1995 and 1994
Condensed Consolidated Balance Sheets --
March 31, 1995 and 1994, and December 31, 1994
Condensed Consolidated Statements of Cash Flows --
Three Months Ended March 31, 1995 and 1994
Notes to Condensed Consolidated Financial Statements
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II
Signatures
Exhibit Index
Exhibit
<PAGE>
MDU RESOURCES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
1995 1994
(In thousands, except
per share amounts)
Operating revenues:
Electric . . . . . . . . . . . . . . . . . . . $ 35,126 $ 35,798
Natural gas. . . . . . . . . . . . . . . . . . 52,584 60,107
Mining and construction materials. . . . . . . 18,863 19,882
Oil and natural gas production . . . . . . . . 9,945 8,575
116,518 124,362
Operating expenses:
Fuel and purchased power . . . . . . . . . . . 11,248 11,422
Purchased natural gas sold . . . . . . . . . . 19,930 26,837
Operation and maintenance. . . . . . . . . . . 43,703 43,656
Depreciation, depletion and amortization . . . 12,835 11,720
Taxes, other than income . . . . . . . . . . . 6,331 6,212
94,047 99,847
Operating income:
Electric . . . . . . . . . . . . . . . . . . . 8,224 8,711
Natural gas distribution . . . . . . . . . . . 5,436 5,673
Natural gas transmission . . . . . . . . . . . 5,522 6,760
Mining and construction materials. . . . . . . 760 1,651
Oil and natural gas production . . . . . . . . 2,529 1,720
22,471 24,515
Other income--net. . . . . . . . . . . . . . . . 794 928
Interest expense . . . . . . . . . . . . . . . . 6,003 6,538
Carrying costs on natural gas repurchase commitment 1,440 909
Income before taxes. . . . . . . . . . . . . . . 15,822 17,996
Income taxes . . . . . . . . . . . . . . . . . . 5,550 6,297
Net income . . . . . . . . . . . . . . . . . . . 10,272 11,699
Dividends on preferred stocks. . . . . . . 199 200
Earnings on common stock . . . . . . . . . . . . $ 10,073 $ 11,499
Earnings per common share. . . . . . . . . . . . $ .53 $ .61
Dividends per common share . . . . . . . . . . . $ .40 $ .39
Average common shares outstanding. . . . . . . . 18,985 18,985
The accompanying notes are an integral
part of these statements.
<PAGE>
MDU RESOURCES GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, March 31, December
1995 1994 31, 1994
(In thousands)
ASSETS
Property, plant and equipment:
Electric. . . . . . . . . . . . . . . . . .$ 519,829 $ 505,615 $ 514,152
Natural gas distribution. . . . . . . . . . 161,005 151,859 157,174
Natural gas transmission. . . . . . . . . . 265,328 253,894 263,971
Mining and construction materials . . . . . 149,401 145,872 147,284
Oil and natural gas production. . . . . . . 163,596 120,815 151,532
1,259,159 1,178,055 1,234,113
Less accumulated depreciation,
depletion and amortization. . . . . . . . 558,942 512,935 541,842
700,217 665,120 692,271
Current assets:
Cash and cash equivalents . . . . . . . . . 47,310 96,547 37,190
Receivables . . . . . . . . . . . . . . . . 50,172 57,286 55,409
Inventories . . . . . . . . . . . . . . . . 21,537 20,737 27,090
Deferred income taxes . . . . . . . . . . . 30,292 39,259 26,694
Other prepayments and current
assets. . . . . . . . . . . . . . . . . . 11,826 9,064 12,287
161,137 222,893 158,670
Natural gas available under
repurchase commitment . . . . . . . . . . . 70,910 74,406 70,913
Investments. . . . . . . . . . . . . . . . . 19,869 18,645 16,914
Deferred charges and other assets. . . . . . 61,417 69,947 65,950
$1,013,550 $1,051,011 $1,004,718
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock (Shares outstanding --
18,984,654, $3.33 par value at
March 31, 1995, and December 31, 1994,
and $5.00 par value at March 31, 1994). .$ 63,219 $ 94,923 $ 63,219
Other paid in capital . . . . . . . . . . . 95,914 64,210 95,914
Retained earnings . . . . . . . . . . . . . 170,529 163,093 168,050
329,662 322,226 327,183
Preferred stock subject to mandatory
redemption requirements . . . . . . . . . 2,000 2,100 2,000
Preferred stock redeemable at option
of the Company. . . . . . . . . . . . . . 15,000 15,000 15,000
Long-term debt. . . . . . . . . . . . . . . 206,343 221,077 217,693
553,005 560,403 561,876
Commitments and contingencies --- --- ---
Current liabilities:
Short-term borrowings . . . . . . . . . . . --- 750 680
Accounts payable. . . . . . . . . . . . . . 17,916 23,351 20,222
Taxes payable . . . . . . . . . . . . . . . 17,152 22,936 8,817
Other accrued liabilities,
including reserved revenues . . . . . . . 100,322 126,704 88,516
Dividends payable . . . . . . . . . . . . . 7,792 7,603 7,793
Long-term debt and preferred
stock due within one year . . . . . . . . 20,541 15,400 20,450
163,723 196,744 146,478
Natural gas repurchase commitment. . . . . . 88,401 92,759 88,404
Deferred credits:
Deferred income taxes . . . . . . . . . . . 114,082 112,111 114,341
Other . . . . . . . . . . . . . . . . . . . 94,339 88,994 93,619
208,421 201,105 207,960
$1,013,550 $1,051,011 $1,004,718
The accompanying notes are an integral part of these statements.
<PAGE>
MDU RESOURCES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1995 1994
(In thousands)
Operating activities:
Net income . . . . . . . . . . . . . . . . . . . $ 10,272 $ 11,699
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation, depletion and amortization . . . 12,835 11,720
Deferred income taxes and investment tax credit--net 1,097 168
Recovery of deferred natural gas contract litigation
settlement costs, net of income taxes. . . . 2,549 2,852
Changes in current assets and liabilities--
Receivables. . . . . . . . . . . . . . . . . 5,237 10,267
Inventories. . . . . . . . . . . . . . . . . 5,553 (1,322)
Other current assets . . . . . . . . . . . . (3,137) (1,818)
Accounts payable . . . . . . . . . . . . . . (2,306) (1,616)
Other current liabilities. . . . . . . . . . 20,140 32,868
Other noncurrent changes . . . . . . . . . . . 2,192 3,481
Net cash provided by operating activities . . . . 54,432 68,299
Financing activities:
Net change in short-term borrowings. . . . . . . (680) (8,790)
Issuance of long-term debt . . . . . . . . . . . 8,550 ---
Repayment of long-term debt. . . . . . . . . . . (19,815) (10,600)
Retirement of natural gas repurchase commitment. (3) (5,766)
Dividends paid . . . . . . . . . . . . . . . . . (7,793) (7,604)
Net cash used in financing activities. . . . . . (19,741) (32,760)
Investing activities:
Additions to property, plant and equipment--
Electric . . . . . . . . . . . . . . . . . . . (4,009) (2,384)
Natural gas distribution . . . . . . . . . . . (1,970) (11,065)
Natural gas transmission . . . . . . . . . . . (1,349) 4,809
Mining and construction materials. . . . . . . (2,133) (878)
Oil and natural gas production . . . . . . . . (12,158) (4,011)
(21,619) (13,529)
Sale of natural gas available under repurchase
commitment . . . . . . . . . . . . . . . . . . 3 4,625
Investments. . . . . . . . . . . . . . . . . . . (2,955) (1,787)
Net cash used in investing activities. . . . . . (24,571) (10,691)
Increase in cash and cash equivalents. . . . . . 10,120 24,848
Cash and cash equivalents--beginning of year . . 37,190 71,699
Cash and cash equivalents--end of period . . . . $ 47,310 $ 96,547
The accompanying notes are an integral
part of these statements.
<PAGE>
MDU RESOURCES GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 1995 and 1994
(Unaudited)
1. Basis of presentation
The accompanying condensed consolidated interim financial
statements were prepared in conformity with the basis of
presentation reflected in the consolidated financial statements
included in the Annual Report to Stockholders for the year ended
December 31, 1994 (1994 Annual Report), and the standards of
accounting measurement set forth in Accounting Principles Board
Opinion No. 28 and any amendments thereto adopted by the
Financial Accounting Standards Board. Interim financial
statements do not include all disclosures provided in annual
financial statements and, accordingly, these financial
statements should be read in conjunction with those appearing
in the Company's 1994 Annual Report. The information is
unaudited but includes all adjustments which are, in the opinion
of management, necessary for a fair presentation of the
accompanying condensed consolidated interim financial
statements.
2. Seasonality of operations
Some of the Company's operations are highly seasonal and
revenues from, and certain expenses for, such operations may
fluctuate significantly among quarterly periods. Accordingly,
the interim results may not be indicative of results for the
full fiscal year.
3. Pending litigation
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 (Court) 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 of the
1994 Annual Report 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, approximately
$38 million. On March 10, 1995, the Court issued a summary
judgment dismissing Moncrief's pricing theories and
substantially reducing Moncrief's claims. On April 25, 1995,
the Court granted a motion by Moncrief and issued an order
wherein it agreed to certify its summary judgment to the United
States Court of Appeals for the Tenth Circuit for review. As
a result of this certification, the trial scheduled for June 12,
1995, will now be delayed.
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.
4. Regulatory matters and revenues subject to refund
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. On
April 5, 1995, the FERC issued an order on Williston Basin's
rehearing request, granting in part and denying in part those
issues addressed on rehearing. As a result of the FERC's order,
Williston Basin has filed to recover, through a direct bill to
its customers, approximately $2.5 million, plus interest, of the
amount previously refunded in July 1994. The issuance of an
initial order by the FERC with respect to Williston Basin's 1992
rate change application is currently pending.
Reserves have been provided for a portion of the revenues
collected subject to refund with respect to pending regulatory
proceedings and for the recovery of certain producer settlement
buy-out/buy-down costs 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.
5. 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 its 1994
Annual Report. As 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.
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 March 31, 1995, 17.4 MMdk of this natural gas had been
sold by Williston Basin for use by 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.
6. 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.
7. Federal tax matters
The Company's consolidated federal income tax returns were
under examination by the Internal Revenue Service (IRS) for the
tax years 1983 through 1991. 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 and
penalties. In 1992 and the first quarter of 1995, similar
notices of proposed deficiency were received for the years 1986
through 1988 and 1989 through 1991, respectively. 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 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 and intends to file
a protest for the tax years 1989 through 1991 contesting the
treatment proposed in the notices of proposed deficiency.
Although it is reasonably possible that the ultimate resolution
of such matters could result in a loss of up to approximately
$18 million in excess of consolidated reserves, management
believes the Company has meritorious defenses to mitigate or
eliminate the proposed deficiencies. In that regard, the
Company's outside 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.
8. Cash flow information
Cash expenditures for interest and income taxes were as
follows:
Three Months Ended
March 31,
1995 1994
(In thousands)
Interest, net of amount capitalized $6,898 $6,716
Income taxes $ 592 $ 589
During the three month period ended March 31, 1994, the
Company's natural gas transmission business sold $8.3 million
of natural gas in underground storage to the natural gas
distribution business. The cash flow effects of this
intercompany sale and purchase shown under "Investing
activities" were not eliminated.<PAGE>
ITEM 2. 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.
Three Months
Ended
March 31,
Business 1995 1994
Electric $ 3.5 $ 3.7
Natural gas distribution 2.7 3.1
Natural gas transmission 1.6 2.3
Mining and construction materials .9 1.4
Oil and natural gas production 1.4 1.0
Earnings on common stock $10.1 $11.5
Earnings per common share $ .53 $ .61
Return on average common equity for the
12 months ended 11.6% 10.7%
Earnings for the quarter ended March 31, 1995, were down $1.4
million from the comparable period a year ago. Weather within the
primary four-state operating area of Montana, North Dakota, South
Dakota and Wyoming was 10 percent warmer than a year ago,
decreasing throughput at the natural gas distribution and
transmission businesses, decreasing retail sales at the electric
business and decreasing coal sales at the mining operations. Sales
declines were also experienced at the Company's California and
Oregon construction materials operations due to higher than normal
rainfall which slowed construction activity. The effect of
decreased natural gas prices lowered earnings from natural gas
production activities at both the natural gas transmission and oil
and natural gas production businesses. Increased oil prices, and
benefits derived from favorable rate changes at the natural gas
distribution and transmission businesses, somewhat offset the
consolidated earnings decline.
Reference should be made to Notes to Condensed Consolidated
Financial Statements for information concerning 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 1994 to conform to the 1995 presentation.
Such reclassifications had no effect on net income or common
stockholders' investment as previously reported.
Montana-Dakota -- Electric Operations
Three Months
Ended
March 31,
1995 1994
Operating revenues:
Retail sales $ 32.1 $ 32.9
Sales for resale and other 3.0 2.9
35.1 35.8
Operating expenses:
Fuel and purchased power 11.3 11.4
Operation and maintenance 9.6 10.0
Depreciation, depletion and amortization 4.0 3.9
Taxes, other than income 2.0 1.8
26.9 27.1
Operating income 8.2 8.7
Retail sales (kWh) 517.3 525.6
Sales for resale (kWh) 145.1 127.6
Cost of fuel and purchased power per kWh $ .016 $ .016
Montana-Dakota -- Natural Gas Distribution Operations
Three Months
Ended
March 31,
1995 1994
Operating revenues:
Sales $ 57.4 $ 68.5
Transportation and other 1.0 1.1
58.4 69.6
Operating expenses:
Purchased natural gas sold 42.2 53.9
Operation and maintenance 7.9 7.5
Depreciation, depletion and amortization 1.7 1.5
Taxes, other than income 1.1 1.0
52.9 63.9
Operating income 5.5 5.7
Volumes (dk):
Sales 13.6 14.4
Transportation 3.0 2.9
Total throughput 16.6 17.3
Degree days (% of normal) 93.0% 103.0%
Cost of natural gas, including
transportation, per dk $ 3.11 $ 3.74
Williston Basin
Three Months
Ended
March 31,
1995 1994
Operating revenues:
Transportation $ 14.5* $ 15.9*
Storage 3.3 2.7
Natural gas production and other 1.4 2.2
19.2 20.8
Operating expenses:
Operation and maintenance 10.8* 11.2*
Depreciation, depletion and amortization 1.8 1.7
Taxes, other than income 1.1 1.2
13.7 14.1
Operating income 5.5 6.7
Volumes (dk):
Transportation--
Montana-Dakota 12.5 14.5
Other 7.2 9.7
Total transportation 19.7 24.2
Produced (Mdk) 1,312 1,185
*Includes amortization and related recovery
of deferred natural gas contract
buy-out/buy-down and gas supply
realignment costs $ 4.0 $ 4.6
Knife River
Three Months
Ended
March 31,
1995 1994
Operating revenues:
Coal $ 12.6 $ 12.8
Construction materials 6.3 7.1
18.9 19.9
Operating expenses:
Operation and maintenance 15.1 15.2
Depreciation, depletion and amortization 1.6 1.6
Taxes, other than income 1.4 1.4
18.1 18.2
Operating income .8 1.7
Sales (000's):
Coal (tons) 1,397 1,431
Aggregates (tons) 245 276
Asphalt (tons) 24 17
Ready-mixed concrete (cubic yards) 43 52
Fidelity Oil
Three Months
Ended
March 31,
1995 1994
Operating revenues:
Natural gas $ 4.1 $ 4.6
Oil 5.8 4.0
9.9 8.6
Operating expenses:
Operation and maintenance 2.9 3.0
Depreciation, depletion and amortization 3.8 3.1
Taxes, other than income .7 .8
7.4 6.9
Operating income 2.5 1.7
Production (000's):
Natural gas (Mcf) 2,631 2,144
Oil (barrels) 395 370
Average sales price:
Natural gas (per Mcf) $ 1.53 $ 2.09
Oil (per barrel) 14.72 10.85
Amounts presented in the above tables for natural gas operating
revenues, purchased natural gas sold and operation and maintenance
expenses will not agree to the Condensed Consolidated Statements of
Income due to the elimination of intercompany transactions between
Montana-Dakota's natural gas distribution business and Williston
Basin.
Three Months Ended March 31, 1995 and 1994
Montana-Dakota--Electric Operations
The decline in operating income reflects decreased retail sales
revenue, primarily to residential and small commercial customers due
to lower weather-related demand, increased demand charges of
$186,000 largely associated with the purchase of an additional five
megawatts of firm capacity through a participation power contract,
and increased other taxes. Lower operation and maintenance
expenses, primarily decreased payroll-related costs, and increased
sales for resale but at reduced rates, partially offset the
operating income decline.
Earnings for the electric business decreased due to the operating
income decline.
Montana-Dakota--Natural Gas Distribution Operations
Operating income decreased at the natural gas distribution
business due to a decline in sales revenue, the result of 10 percent
warmer weather. Also, the pass-through of lower natural gas costs
contributed to the sales revenue decrease. The effect of rate
increases placed into effect in November 1994 and December 1994 in
North Dakota, South Dakota and Montana, aggregating approximately
$800,000 for the first quarter of 1995, and increased sales due to
the addition of nearly 5,300 customers partially offset the sales
revenue decline. In addition, higher operation 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
further reduced operating income.
Natural gas distribution earnings decreased due to the operating
income decline and a decreased return recognized on net storage gas
inventory and demand balances. This return decline of $636,000
results from decreases in the net book balance on which the natural
gas distribution business is allowed to earn a return.
Williston Basin
Operating income declined due to a $1.4 million decrease in
transportation revenues, primarily lower weather-related demand,
decreased transportation of natural gas held under the repurchase
commitment and increased natural gas withdrawn from prepaid storage,
partially offset by favorable rate changes. Increased storage
revenues of $623,000, primarily higher demand revenues associated
with the storage enhancement project completed in late 1994,
partially offset the operating income decline. Company production
revenue declined by $896,000 primarily due to an 86 cent per
decatherm decline in realized natural gas prices, which also reduced
operating income.
Earnings for this business decreased due to the operating income
decline and increased carrying costs of $531,000 associated with the
natural gas repurchase commitment, due to higher average interest
rates. Decreased long-term debt interest of $450,000, the result
of debt refinancing and debt retirements, partially offset the
earnings decline.
Knife River
Coal Operations --
Operating income for the coal operations decreased due to lower
coal revenues resulting from a decline in tons sold. The sales
decline was the result of reduced demand by electric generating
station customers due to warmer winter weather. Slightly higher
selling prices at all mines partially offset the decline in coal
revenues.
Construction Materials Operations --
Construction materials operating income declined due to lower
aggregate and ready-mixed concrete sales revenues, primarily at the
California operations, resulting from above normal rainfall which
slowed construction activity.
Consolidated --
Earnings decreased due to the decline in coal and construction
materials operating income.
Fidelity Oil
Operating income for the oil and natural gas production business
increased as a result of higher oil revenues, $1.5 million of which
was due to higher average oil prices, and $271,000 of which stemmed
from increased production. Decreased natural gas prices reduced
natural gas revenues by $1.5 million but was largely offset by a
$1.0 million revenue improvement due to higher volumes produced.
Also, partially offsetting the operating income improvement was
increased depreciation, depletion and amortization of $707,000,
primarily the result of increased production.
Earnings for this business improved as a result of the increase
in operating income.
Prospective Information
Each of the Company's businesses is subject to competition,
varying in both type and degree. See Items 1 and 2 in the 1994
Annual Report on Form 10-K (1994 Form 10-K) for a further discussion
of the effects these competitive forces have on each of the
Company's businesses.
The operating results of the Company's electric, natural gas
distribution, natural gas transmission, and mining and construction
materials businesses are, in varying degrees, influenced by the
weather as well as by the general economic conditions within their
respective market areas. Additionally, the ability to recover costs
through the regulatory process affects the operating results of the
Company's electric, natural gas distribution and natural gas
transmission businesses.
In early 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 the four-state service
territory during 1995 and early 1996. These closings along with
other operating efficiencies are expected to result in a reduction
of between 7 and 8 percent of the utility's workforce.
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 in the 1994 Form 10-K under Knife River for a discussion of
acquisitions made during 1992 and 1993.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" (SFAS No. 121). SFAS No. 121 imposes stricter criteria
for assets, including regulatory assets, by requiring that such
assets be probable of future recovery at each balance sheet date.
The Company anticipates adopting SFAS No. 121 on January 1, 1996,
and does not expect that adoption will have a material affect on the
Company's financial position or results of operations. This
conclusion may change in the future depending on the extent to which
recovery of the Company's long-lived assets is influenced by an
increasingly competitive environment.
FERC Rulemaking on Transmission Access --
On March 29, 1995, the Federal Energy Regulatory Commission
(FERC) issued a Notice of Proposed Rulemaking (NOPR) on Open Access
Non-Discriminatory Transmission Services by Public Utilities and
Transmitting Utilities (FERC Docket No. RM95-8-000) and a
supplemental NOPR on Recovery of Stranded Costs (FERC Docket No.
RM94-7-001).
The rules proposed in the NOPR are intended to facilitate
competition among generators for sales to the bulk power supply
market. If adopted, the NOPR on open access transmission would
require public utilities under the Federal Power Act to file a
generic set of transmission tariff terms and conditions as set forth
in the rulemaking to provide open access to their transmission
systems. Previously, the FERC had not imposed on utilities a
general obligation to provide access to their transmission systems.
In addition, each public utility would also be required to establish
separate rates for its transmission and generation services for new
wholesale service, and to take transmission services (including
ancillary services) under the same tariffs that would be applicable
to third-party users for all of its new wholesale sales and
purchases of energy.
The supplemental NOPR on stranded costs provides a basis for
recovery by regulated public utilities of legitimate and verifiable
stranded costs associated with exiting wholesale requirements
customers and retail customers who become unbundled wholesale
transmission customers of the utility. FERC would provide public
utilities a mechanism for recovery of stranded costs that result
from municipalization, former retail customers becoming wholesale
customers, or the loss of a wholesale customer. FERC will consider
allowing recovery of stranded investment costs associated with
retail wheeling only if a state regulatory commission lacks the
authority to consider that issue.
Comments on the NOPR are due August 7, 1995. It is anticipated
that the proposed rule may be modified and that a final rule may
take effect in early 1996. The Company is currently evaluating the
NOPR to determine its impact on the Company and its customers, but
cannot predict the outcome of this matter.
Liquidity and Capital Commitments
The Company's regulated businesses operated by Montana-Dakota
and Williston Basin estimate construction costs of approximately
$37.4 million for the year 1995. The Company's 1995 capital needs
to retire maturing long-term securities are estimated at $20.6
million.
It is anticipated that Montana-Dakota will continue to provide
all of the funds required for its construction requirements from
internal sources and through the use of its $30 million revolving
credit and term loan agreement, none of which is outstanding at
March 31, 1995, 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 with a combination of internally generated
funds and lines of credit aggregating $35 million, none of which is
outstanding at March 31, 1995, 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
March 31, 1995, $15 million is outstanding under the term loan
agreement.
Knife River's capital needs for 1995, estimated at $7.4 million,
excluding those required for potential mining acquisitions, will be
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 March 31, 1995, will continue to
meet the needs of this business unit, excluding funds which may be
required for future acquisitions.
Fidelity Oil's 1995 capital needs related to its oil and natural
gas acquisition, development and exploration program, estimated at
$36 million, will be met through funds generated from internal
sources and a $20 million line of credit. At March 31, 1995, $10.6
million is outstanding under the line of credit.
See Note 7 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 deficiency could be significant if the IRS position
were upheld.
Prairielands' 1995 capital needs, estimated at $4.6 million,
will be met through funds generated internally and lines of credit
aggregating $5.4 million, none of which is outstanding at March 31,
1995.
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 March 31, 1995,
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 March 31, 1995, the Company could have issued
approximately $117 million of additional first mortgage bonds.
The Company's coverage of fixed charges including preferred
dividends was 2.8 and 2.9 times for the twelve months ended
March 31, 1995 and for the year 1994, respectively. Additionally,
the Company's first mortgage bond interest coverage was 3.3 times
for both the twelve months ended March 31, 1995 and for the year
1994. Stockholders' equity as a percent of total capitalization
was 60% and 58% at March 31, 1995, and December 31, 1994,
respectively.<PAGE>
PART II - OTHER INFORMATION
4. Results of Votes of Security Holders
The Company's Annual Meeting of Stockholders was held on
April 25, 1995. Two proposals were submitted to stockholders
as described in the Company's Proxy Statement dated March 6,
1995, and were voted upon and approved by stockholders at the
meeting. The table below briefly describes the proposals and
the results of the stockholder votes.
Shares
Against
Shares or Broker
For Withheld Abstentions Non-Votes
Proposal to elect four
directors for terms
expiring in 1998:
Douglas C. Kane 15,680,289 244,477 --- ---
Richard L. Muus 15,673,979 250,787 --- ---
John L. Olson 15,710,984 213,782 --- ---
Joseph T. Simmons 15,712,024 212,742 --- ---
Proposal to approve
Non-employee Director
Stock Compensation Plan 13,001,929 2,263,511 659,326 ---
6. Exhibits and Reports on Form 8-K
a) Exhibits
(27) Financial Data Schedule
b) Reports on Form 8-K
None.<PAGE>
SIGNATURES
Pursuant to the requirements 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.
DATE May 12, 1995 BY /s/ Warren L. Robinson
Warren L. Robinson
Vice President, Treasurer
and Chief Financial Officer
/s/ Vernon A. Raile
Vernon A. Raile
Vice President, Controller and
Chief Accounting Officer
<PAGE>
EXHIBIT INDEX
Exhibit No.
(27) Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME, CONDENSED CONSOLIDATED
BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000067716
<NAME> MDU RESOURCES GROUP INC.
<MULTIPLIER> 1000
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
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<TOTAL-NET-UTILITY-PLANT> 517,535
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<TOTAL-COMMON-STOCKHOLDERS-EQ> 329,662
2,000
15,000
<LONG-TERM-DEBT-NET> 294,744
<SHORT-TERM-NOTES> 0
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100
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<OTHER-ITEMS-CAPITAL-AND-LIAB> 351,603
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<OTHER-OPERATING-EXPENSES> 94,047
<TOTAL-OPERATING-EXPENSES> 99,597
<OPERATING-INCOME-LOSS> 16,921
<OTHER-INCOME-NET> 794
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<EARNINGS-AVAILABLE-FOR-COMM> 10,073
<COMMON-STOCK-DIVIDENDS> 7,594
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