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 JUNE 30, 1997
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 of 1934 during the preceding 12 months
(or for such shorter period 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 August 8, 1997:
29,049,725 shares.
INTRODUCTION
This Form 10-Q contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements should be read with the cautionary
statements and important factors included in this Form 10-Q at Item
7 -- "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Safe Harbor for Forward-Looking
Statements." Forward-looking statements are all statements other
than statements of historical fact, including without limitation
those that are identified by the use of the words "anticipates,"
"estimates," "expects," "intends," "plans," "predicts" and similar
expressions.
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 256 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, (Centennial), owns Williston Basin Interstate
Pipeline Company (Williston Basin), Knife River Corporation (Knife
River), the Fidelity Oil Group (Fidelity Oil) and Utility Services,
Inc. (Utility Services).
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 and, through its wholly owned subsidiary,
Prairielands Energy Marketing, Inc. (Prairielands),
seeks new energy markets while continuing to expand
present markets for natural gas and propane.
Knife River, through its wholly owned subsidiary, KRC
Holdings, Inc. (KRC Holdings) and its subsidiaries,
surface mines and markets aggregates and related
construction materials in Oregon, California, Alaska
and Hawaii. In addition, Knife River surface mines
and markets low sulfur lignite coal at mines located
in Montana and North Dakota.
Fidelity Oil is comprised of Fidelity Oil Co. and
Fidelity Oil Holdings, Inc., which own oil and
natural gas interests throughout the United States,
the Gulf of Mexico and Canada through investments
with several oil and natural gas producers.
Utility Services, through its wholly owned
subsidiaries, International Line Builders, Inc. and
High Line Equipment, Inc., installs and repairs
electric transmission and distribution lines in the
western United States and Hawaii and provides related
construction supplies and equipment.
INDEX
Part I -- Financial Information
Consolidated Statements of Income --
Three and Six Months Ended June 30, 1997 and 1996
Consolidated Balance Sheets --
June 30, 1997 and 1996, and December 31, 1996
Consolidated Statements of Cash Flows --
Six Months Ended June 30, 1997 and 1996
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II -- Other Information
Signatures
Exhibit Index
Exhibits
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MDU RESOURCES GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
1997 1996 1997 1996
(In thousands, except per share amounts)
Operating revenues:
Electric $31,770 $31,108 $69,043 $68,807
Natural gas 42,379 32,141 102,442 89,173
Construction materials and mining 35,081 29,845 58,084 45,413
Oil and natural gas production 16,150 17,119 35,623 33,349
125,380 110,213 265,192 236,742
Operating expenses:
Fuel and purchased power 10,221 10,021 22,399 22,216
Purchased natural gas sold 16,090 6,069 37,118 27,343
Operation and maintenance 60,876 52,913 114,670 96,845
Depreciation, depletion and
amortization 14,406 15,540 30,075 30,671
Taxes, other than income 5,339 5,469 11,726 11,384
106,932 90,012 215,988 188,459
Operating income:
Electric 4,268 5,287 12,716 13,970
Natural gas distribution (53) (348) 7,045 7,195
Natural gas transmission 7,177 6,141 14,590 11,846
Construction materials and mining 1,708 3,391 1,019 3,725
Oil and natural gas production 5,348 5,730 13,834 11,547
18,448 20,201 49,204 48,283
Other income -- net 2,048 1,694 2,709 3,041
Interest expense 7,041 6,727 14,133 13,739
Costs on natural gas repurchase
commitment 21 1,411 1,135 2,839
Income before income taxes 13,434 13,757 36,645 34,746
Income taxes 4,693 5,157 13,308 13,011
Net income 8,741 8,600 23,337 21,735
Dividends on preferred stocks 196 197 391 395
Earnings on common stock $ 8,545 $8,403 $22,946 $21,340
Earnings per common share $ .30 $ .30 $ .80 $ .75
Dividends per common share $ .2775 $.2725 $ .5550 $ .5450
Average common shares outstanding 28,736 28,477 28,666 28,477
The accompanying notes are an integral part of these consolidated statements.
MDU RESOURCES GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, June 30, December 31,
1997 1996 1996
(In thousands)
ASSETS
Property, plant and equipment:
Electric $552,636 $ 540,322 $546,477
Natural gas distribution 167,464 162,114 164,843
Natural gas transmission 281,205 266,914 273,775
Construction materials and mining 180,658 172,589 173,663
Oil and natural gas production 224,381 200,992 211,555
1,406,344 1,342,931 1,370,313
Less accumulated depreciation,
depletion and amortization 645,086 594,353 617,724
761,258 748,578 752,589
Current assets:
Cash and cash equivalents 31,514 27,857 47,799
Receivables 58,697 51,741 73,187
Inventories 28,003 24,118 27,361
Deferred income taxes 23,375 31,131 26,011
Prepayments and other current
assets 25,480 11,469 17,300
167,069 146,316 191,658
Natural gas available under
repurchase commitment 20,269 70,301 37,233
Investments 54,216 50,347 53,501
Deferred charges and other assets 43,570 58,754 54,192
$1,046,382 $1,074,296 $1,089,173
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock(Shares outstanding
-- 28,747,683, $3.33 par value
at June 30, 1997, and 28,476,981,
$3.33 par value at December 31,
1996 and June 30, 1996 $ 95,730 $ 94,828 $ 94,828
Other paid in capital 69,386 64,305 64,305
Retained earnings 198,572 184,003 191,541
363,688 343,136 350,674
Preferred stock subject to
mandatory redemption
requirements 1,800 1,900 1,800
Preferred stock redeemable at
option of the Company 15,000 15,000 15,000
Long-term debt 258,306 242,710 280,666
638,794 602,746 648,140
Commitments and contingencies --- --- ---
Current liabilities:
Short-term borrowings 7,675 3,637 3,950
Accounts payable 31,216 23,327 31,580
Taxes payable 3,379 19,236 8,683
Other accrued liabilities,
including reserved revenues 97,032 100,763 100,938
Dividends payable 8,173 7,957 8,099
Long-term debt and preferred
stock due within one year 6,854 15,837 11,854
154,329 170,757 165,104
Natural gas repurchase commitment 40,414 87,640 66,294
Deferred credits:
Deferred income taxes 119,299 118,942 116,208
Other 93,546 94,211 93,427
212,845 213,153 209,635
$1,046,382 $1,074,296 $1,089,173
The accompanying notes are an integral part of these consolidated statements.
MDU RESOURCES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
1997 1996
(In thousands)
Operating activities:
Net income $23,337 $21,735
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 30,075 30,671
Deferred income taxes and investment tax
credit -- net 4,444 2,086
Recovery of deferred natural gas contract litigation
settlement costs, net of income taxes 2,890 3,305
Changes in current assets and liabilities --
Receivables 14,490 10,220
Inventories (642) (169)
Other current assets (9,913) 324
Accounts payable (364) 1,066
Other current liabilities 1,877 5,653
Other noncurrent changes 2,743 (4,416)
Net cash provided by operating activities 68,937 70,475
Financing activities:
Net change in short-term borrowings 3,725 3,037
Issuance of long-term debt --- 48,600
Repayment of long-term debt (27,365) (44,529)
Issuance of common stock 5,983 ---
Retirement of natural gas repurchase commitment (37,018) (560)
Dividends paid (16,306) (15,916)
Net cash used in financing activities (70,981) (9,368)
Investing activities:
Capital expenditures including acquisition
of business --
Electric (7,098) (7,176)
Natural gas distribution (4,007) (2,467)
Natural gas transmission (3,935) (2,618)
Construction materials and mining (8,647) (21,570)
Oil and natural gas production (14,061) (38,837)
(37,748) (72,668)
Net proceeds from sale or disposition of property 2,889 9,730
Net capital expenditures (34,859) (62,938)
Sale of natural gas available under repurchase
commitment 21,333 449
Investments (715) (4,159)
Net cash used in investing activities (14,241) (66,648)
Decrease in cash and cash equivalents (16,285) (5,541)
Cash and cash equivalents -- beginning of year 47,799 33,398
Cash and cash equivalents -- end of period $31,514 $27,857
The accompanying notes are an integral part of these consolidated statements.
MDU RESOURCES GROUP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 1997 and 1996
(Unaudited)
1. Basis of presentation
The accompanying consolidated interim financial statements
were prepared in conformity with the basis of presentation
reflected in the consolidated financial statements included in
the Annual Report to Stockholders for the year ended
December 31, 1996 (1996 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 1996 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 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
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 (Federal District Court) against
Williston Basin and the Company disputing certain price and
volume issues under the contract.
Through the course of this action Moncrief submitted damage
calculations which totalled approximately $19 million or, under
its alternative pricing theory, approximately $39 million.
On June 26, 1997, the Federal District Court issued its
order awarding Moncrief damages of approximately $15.6 million.
On July 25, 1997, the Federal District Court issued an order
limiting Moncrief's reimbursable costs to post-judgment
interest, instead of both pre- and post-judgement interest as
Moncrief had sought. Williston Basin believes that it is
entitled to recover from ratepayers virtually all of the costs
that were incurred, as a result of these orders, as gas supply
realignment transition costs pursuant to the provisions of the
Federal Energy Regulatory Commission's (FERC) Order 636.
However, the amount of costs that can ultimately be recovered
is subject to approval by the FERC and market conditions.
Apache Corporation/Snyder Oil Corporation --
In December 1993, Apache Corporation (Apache) and Snyder
Oil Corporation (Snyder) filed suit in North Dakota District
Court, Northwest Judicial District, against Williston Basin and
the Company. Apache and Snyder are oil and natural gas
producers who had processing agreements with Koch Hydrocarbon
Company (Koch). Williston Basin and the Company had a natural
gas purchase contract with Koch. Apache and Snyder have
alleged they are entitled to damages for the breach of
Williston Basin's and the Company's contract with Koch.
Williston Basin and the Company believe that if Apache and
Snyder have any legal claims, such claims are with Koch, not
with Williston Basin or the Company. Williston Basin, the
Company and Koch have settled their disputes. Apache and
Snyder have recently provided alleged damages under differing
theories ranging up to $6.2 million without interest. A motion
to intervene in the case by several other producers, all of
whom had contracts with Koch but not with Williston Basin, was
denied in December 1996. Trial on this matter is scheduled for
September 8, 1997.
In a related matter, on March 14, 1997, a suit was filed by
nine other producers, several of whom had unsuccessfully tried
to intervene in the Apache and Snyder litigation, against Koch,
Williston Basin and the Company. The parties to this suit are
making claims similar to those in the Apache and Snyder
litigation, although no specific damages have been specified.
The above claims in Williston Basin's opinion, are without
merit and overstated. If any amounts are ultimately found to
be due the plaintiffs, Williston Basin plans to file for
recovery from ratepayers.
Coal Supply Agreement --
In November 1995, a suit was filed in District Court,
County of Burleigh, State of North Dakota (State District
Court) by Minnkota Power Cooperative, Inc., Otter Tail Power
Company, Northwestern Public Service Company and Northern
Municipal Power Agency (Co-owners), the owners of an aggregate
75 percent interest in the Coyote Station, against the Company
and Knife River. In its complaint, the Co-owners have alleged
a breach of contract against Knife River of the long-term coal
supply agreement (Agreement) between the owners of the Coyote
Station and Knife River. The Co-owners have requested a
determination by the State District Court of the pricing
mechanism to be applied to the Agreement and have further
requested damages during the term of such alleged breach on the
difference between the prices charged by Knife River and the
prices that may ultimately be determined by the State District
Court. The Co-owners also alleged a breach of fiduciary duties
by the Company as operating agent of the Coyote Station,
asserting essentially that the Company was unable to cause
Knife River to reduce its coal price sufficiently under the
Agreement, and are seeking damages in an unspecified amount.
In January 1996, the Company and Knife River filed separate
motions with the State District Court to dismiss or stay
pending arbitration. In May 1996, the State District Court
granted the Company's and Knife River's motions and stayed the
suit filed by the Co-owners pending arbitration, as provided
for in the Agreement.
In September 1996, the Co-owners notified the Company and
Knife River of their demand for arbitration of the pricing
dispute that had arisen under the Agreement. The demand for
arbitration, filed with the American Arbitration Association
(AAA), did not make any direct claim against the Company in its
capacity as operator of the Coyote Station. The Co-owners
requested that the arbitrators make a determination that the
pricing dispute is not a proper subject for arbitration. By
order dated April 25, 1997, the arbitration panel concluded
that the claims raised by the Co-owners are arbitrable. The
Co-owners have requested the arbitrators to make a
determination that the prices charged by Knife River were
excessive and that the Co-owners should be awarded damages
based upon the difference between the prices that Knife River
charged and a "fair and equitable" price, approximately $50
million or more. Upon application by the Company and Knife
River, the AAA administratively determined that the Company was
not a proper party defendant to the arbitration, and the
arbitration is proceeding against Knife River. By letter dated
May 14, 1997, Knife River requested permission to move for
summary judgement which permission was granted by the
arbitration panel over objections of the Co-owners. Knife
River filed its summary judgement motion on July 21, 1997.
Although unable to predict the outcome of the arbitration,
Knife River and the Company believe that the Co-owners' claims
are without merit and intend to vigorously defend the prices
charged pursuant to the Agreement.
Environmental Litigation --
For a description of litigation filed by Unitek
Environmental Services, Inc. against Hawaiian Cement, see Note
6 -- Environmental matters.
4. Regulatory matters and revenues subject to refund
Williston Basin has pending with the Federal Energy
Regulatory Commission (FERC) a general natural gas rate change
application implemented in 1992. In July 1995, the FERC issued
an order relating to Williston Basin's 1992 rate change
application. In August 1995, Williston Basin filed, under
protest, tariff sheets in compliance with the FERC's order,
with rates which went into effect on September 1, 1995.
Williston Basin requested rehearing of certain issues addressed
in the order. In July 1996, the FERC issued an order granting
in part and denying in part Williston Basin's rehearing
request. The FERC also remanded the issue of return on equity
for further hearings. A hearing on this matter was held in
August 1996. Williston Basin also appealed certain issues
contained in the FERC's orders to the U. S. Court of Appeals
for the D. C. Circuit (D. C. Circuit Court). On May 9, 1997,
the D. C. Circuit Court dismissed Williston Basin's petition
for rehearing without prejudice to refiling the petition at the
completion of the rehearing process before the FERC. On June
11, 1997, the FERC issued an order on the issue of return on
equity. In its order, the FERC changed its prior position and
determined to use the long-term growth rate for the economy as
a whole as measured by the gross domestic product in
determining return on equity. As a result, the FERC found
Williston Basin's allowed return on equity should be 11.73
percent instead of the 12.20 percent previously authorized. On
July 11, 1997, Williston Basin requested rehearing of the
FERC's determination relative to return on equity. A
compliance filing was made on July 25, 1997, pursuant to the
FERC's June 11, 1997 order.
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 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.
On February 3, 1997, Williston Basin filed briefs with the
D.C. Circuit Court related to its appeal of orders which had
been received from the FERC beginning in May 1993, regarding
the appropriate selling price of certain natural gas in
underground storage which was determined to be excess upon
Williston Basin's implementation of Order 636. The FERC
ordered that the gas be offered for sale to Williston Basin's
customers at its original cost. Williston Basin requested
rehearing of this matter on the grounds that the FERC's order
constituted a confiscation of its assets, which request was
subsequently denied by the FERC. Oral arguments on this matter
before the D.C. Circuit Court were held on May 9, 1997. On
June 20, 1997, the D.C. Circuit Court issued its opinion
affirming the FERC's previous orders issued on this matter.
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 3 of its
1996 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, for which Williston Basin has provided reserves.
Williston Basin appealed these orders to the D.C. Circuit
Court. In December 1996, the D.C. Circuit Court issued its
order ruling that the FERC's actions in allocating costs to the
Frontier gas were appropriate. Williston Basin is awaiting a
final order from the FERC.
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 the second quarter of 1996, 17.8 MMdk of
this natural gas had been sold. However, in the third quarter
of 1996, Williston Basin, based on a number of factors
including differences in regional natural gas prices and
natural gas sales occurring at that time, wrote down the
remaining 43.0 MMdk of this gas to its then current market
value. The value of this gas was determined using the sum of
discounted cash flows of expected future sales occurring at
then current regional natural gas prices as adjusted for
anticipated future price increases. This resulted in a write-
down aggregating $18.6 million ($11.4 million after tax). In
addition, Williston Basin wrote off certain other costs
related to this natural gas of approximately $2.5 million ($1.5
million after tax). The recognition of the then current market
value of this natural gas facilitated the sale by Williston
Basin of 23.2 MMdk from the date of the write-down through
June 30, 1997, and should allow Williston Basin to market the
remaining 19.8 MMdk on a sustained basis enabling Williston
Basin to liquidate this asset over approximately the next four
years.
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. In January 1994, Montana-Dakota, Williston
Basin and Rockwell International Corporation (Rockwell),
manufacturer of the valve sealant, reached an agreement under
which Rockwell has and will continue to 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 future environmental assessment and
remediation costs will aggregate $3 million to $15 million.
Based on such estimated cost, the expected recovery from
Rockwell and the ability of Montana-Dakota and Williston Basin
to recover their portions of such costs from ratepayers,
Montana-Dakota and Williston Basin believe that the ultimate
costs related to these matters will not be material to each of
their respective financial positions or results of operations.
In September 1995, Unitek Environmental Services, Inc. and
Unitek Solvent Services, Inc. (Unitek) filed a complaint
against Hawaiian Cement in the United States District Court for
the District of Hawaii (District Court) alleging that dust
emissions from Hawaiian Cement's cement manufacturing plant at
Kapolei, Hawaii (Plant) violated the Hawaii State
Implementation Plan (SIP) of the U.S. Clean Air Act (Clean Air
Act), constituted a continual nuisance and trespass on the
plaintiff's property, and that Hawaiian Cement's conduct
warranted the award of punitive damages. Hawaiian Cement is a
Hawaiian general partnership whose general partners are Knife
River Hawaii, Inc. and Knife River Dakota, Inc., indirect
wholly owned subsidiaries of the Company. Knife River Dakota,
Inc. purchased its partnership interest from Adelaide Brighton
Cement (Hawaii), Inc. on July 31, 1997. Unitek sought civil
penalties under the Clean Air Act (as described below), and up
to $20 million in damages for various claims (as described
above).
In August 1996, the District Court issued an order granting
Plaintiffs' motion for partial summary judgment relating to the
Clean Air Act, indicating that it would issue an injunction
shortly. The issue of civil penalties under the Clean Air Act
was reserved for further hearing at a later date, and Unitek's
claims for damages were not addressed by the District Court at
such time.
In September 1996, Unitek and Hawaiian Cement reached a
settlement which resolved all claims except as to Clean Air Act
penalties. Based on a joint petition filed by Unitek and
Hawaiian Cement, the District Court stayed the proceeding and
the issuance of an injunction while the parties continued to
negotiate the remaining Clean Air Act claims.
In May 1996, the EPA issued a Notice of Violation (NOV) to
Hawaiian Cement. The NOV stated that dust emissions from the
Plant violated the SIP. Under the Clean Air Act, the EPA has
the authority to issue an order requiring compliance with the
SIP, issue an administrative order requiring the payment of
penalties of up to $25,000 per day per violation (not to exceed
$200,000), or bring a civil action for penalties of not more
than $25,000 per day per violation and/or bring a civil action
for injunctive relief.
On April 7, 1997, a settlement resolving the remaining
Clean Air Act claims and the EPA's NOV issued in May 1996, was
reached by Hawaiian Cement, the EPA and Unitek. This
settlement is subject to public comment and the approval of the
District Court.
If the District Court approves the April 1997 settlement,
the total costs relating to both the September 1996 and April
1997 settlements are not expected to have a material effect on
the Company's results of operations.
7. Cash flow information
Cash expenditures for interest and income taxes were as
follows:
Three Months Ended
June 30,
1997 1996
(In thousands)
Interest, net of amount capitalized $12,384 $12,493
Income taxes $12,435 $10,754
8. Derivatives
The Company, in connection with the operations of Montana-
Dakota, Williston Basin and Fidelity Oil, has entered into
certain price swap and collar agreements (hedge agreements) to
manage a portion of the market risk associated with fluctuations
in the price of oil and natural gas. These hedge agreements are
not held for trading purposes. The hedge agreements call for
the Company to receive monthly payments from or make payments
to counterparties based upon the difference between a fixed and
a variable price as specified by the hedge agreements. The
variable price is either an oil price quoted on the New York
Mercantile Exchange (NYMEX) or a quoted natural gas price on the
NYMEX or Colorado Interstate Gas Index. The Company believes
that there is a high degree of correlation because the timing
of purchases and production and the hedge agreements are closely
matched, and hedge prices are established in the areas of the
Company's operations. Amounts payable or receivable on hedge
agreements are matched and reported in operating revenues on the
Consolidated Statements of Income as a component of the related
commodity transaction at the time of settlement with the
counterparty. The amounts payable or receivable are offset by
corresponding increases and decreases in the value of the
underlying commodity transactions.
Williston Basin and Knife River have entered into interest
rate swap agreements to manage a portion of their interest rate
exposure on a natural gas repurchase commitment and long-term
debt, respectively. These interest rate swap agreements are not
held for trading purposes. The interest rate swap agreements
call for the Company to receive quarterly payments from or make
payments to counterparties based upon the difference between
fixed and variable rates as specified by the interest rate swap
agreements. The variable prices are based on the three-month
floating London Interbank Offered Rate. Settlement amounts
payable or receivable under these interest rate swap agreements
are recorded in "Interest expense" for Knife River and "Costs
on natural gas repurchase commitment" for Williston Basin on the
Consolidated Statements of Income in the accounting period they
are incurred. The amounts payable or receivable are offset by
interest on the related debt instruments.
The Company's policy prohibits the use of derivative
instruments for trading purposes and the Company has procedures
in place to monitor their use. The Company is exposed to
credit-related losses in the event of nonperformance by
counterparties to these financial instruments, but does not
expect any counterparties to fail to meet their obligations
given their existing credit ratings.
The fair value of these derivative financial instruments
reflects the estimated amounts that the Company would receive
or pay to terminate the contracts at the reporting date, thereby
taking into account the current favorable or unfavorable
position on open contracts. The favorable or unfavorable
position is currently not recorded on the Company's financial
statements. Favorable and unfavorable positions related to oil
and natural gas hedge agreements will be offset by corresponding
increases and decreases in the value of the underlying commodity
transactions. Favorable and unfavorable positions on interest
rate swap agreements will be offset by interest on the related
debt instruments. In the event a hedge agreement does not
qualify for hedge accounting or when the underlying commodity
transaction or related debt instrument matures, is sold, is
extinguished, or is terminated, the current favorable or
unfavorable position on the open contract would be included in
results of operations. The Company's policy requires approval
to terminate a hedge agreement prior to its original maturity.
In the event a hedge agreement is terminated, the realized gain
or loss at the time of termination would be deferred until the
underlying commodity transaction or related debt instrument is
sold or matures and would be offset by corresponding increases
or decreases in the value of the underlying commodity
transaction.
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 Six Months
Ended Ended
June 30, June 30,
Business 1997 1996 1997 1996
Electric $ .9 $ 1.6 $ 4.3 $ 5.3
Natural gas distribution (.5) (.5) 3.3 3.4
Natural gas transmission 3.5 1.9 6.0 3.5
Construction materials and
mining 1.3 2.5 1.1 3.0
Oil and natural gas production 3.3 2.9 8.2 6.1
Earnings on common stock $ 8.5 $ 8.4 $ 22.9 $ 21.3
Earnings per common share $ .30 $ .30 $ .80 $ .75
Return on average common
equity for the 12 months
ended 13.1% 12.9%
Earnings for the quarter ended June 30, 1997, were up $142,000
from the comparable period a year ago due primarily to increased
volumes transported and increased natural gas prices at the natural
gas transmission business. Gains realized on the sale of natural
gas held under the repurchase commitment with Frontier Gas Storage
Company and decreased carrying costs associated with the repurchase
commitment at the natural gas transmission business also added to
the earnings increase. Higher natural gas prices and decreased
income taxes at the oil and natural gas production business further
improved earnings. Increased maintenance expenses at the electric
business, due to a ten-week maintenance outage at the Coyote
Station and repair costs associated with an April blizzard which
occurred primarily in North Dakota, largely offset the increase in
earnings. Decreased earnings at the construction materials and
mining business, due to reduced coal sales to the Coyote Station
relating to the previously mentioned Coyote Station maintenance
outage, also somewhat offset the earnings improvement. In
addition, declines in both oil and natural gas production at the
oil and natural gas production business partially offset the
earnings increase.
Earnings for the six months ended June 30, 1997, were up $1.6
million from the comparable period a year ago due primarily to
increased earnings at the natural gas transmission and oil and
natural gas production businesses. Increased volumes transported
at higher average rates, increased natural gas production and
prices, gains realized on the sale of natural gas held under the
repurchase commitment and decreased carrying costs associated with
the repurchase commitment contributed to the increase in earnings
at the natural gas transmission business. Higher oil and natural
gas prices and lower income taxes contributed to the increase in
earnings at the oil and natural gas production business. Increased
maintenance expenses at the electric business due to the previously
discussed Coyote Station maintenance outage partially offset the
increase in earnings. In addition, lower retail sales at the
electric and natural gas distribution businesses due to 8 percent
warmer weather than the comparable period a year ago, somewhat
offset the increase in earnings. Decreased earnings at the
construction materials and mining business, due to reduced coal
sales to the Coyote Station relating to the maintenance outage,
also somewhat offset the earnings improvement.
________________________________
Reference should be made to 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.
Montana-Dakota -- Electric Operations
Three Months Six Months
Ended Ended
June 30, June 30,
1997 1996 1997 1996
Operating revenues:
Retail sales $ 30.0 $ 29.0 $ 64.2 $ 63.4
Sales for resale and other 1.8 2.1 4.8 5.4
31.8 31.1 69.0 68.8
Operating expenses:
Fuel and purchased power 10.2 10.0 22.4 22.2
Operation and maintenance 11.2 10.0 21.6 20.7
Depreciation, depletion and
amortization 4.3 4.2 8.7 8.5
Taxes, other than income 1.8 1.6 3.6 3.4
27.5 25.8 56.3 54.8
Operating income 4.3 5.3 12.7 14.0
Retail sales (kWh) 465.2 456.4 1,008.8 1,017.5
Sales for resale (kWh) 45.8 74.2 160.7 233.4
Cost of fuel and purchased
power per kWh $ .018 $ .018 $ .018 $ .016
Montana-Dakota -- Natural Gas Distribution Operations
Three Months Six Months
Ended Ended
June 30, June 30,
1997 1996 1997 1996
Operating revenues:
Sales $ 25.9 $ 23.7 $ 81.5 $ 87.0
Transportation and other .7 .9 1.7 1.8
26.6 24.6 83.2 88.8
Operating expenses:
Purchased natural gas sold 16.9 14.8 55.4 60.5
Operation and maintenance 7.1 7.4 15.1 15.7
Depreciation, depletion and
amortization 1.7 1.7 3.5 3.4
Taxes, other than income 1.0 1.0 2.1 2.0
26.7 24.9 76.1 81.6
Operating income (.1) (.3) 7.1 7.2
Volumes (dk):
Sales 5.6 5.6 20.7 22.0
Transportation 1.8 1.7 4.7 4.3
Total throughput 7.4 7.3 25.4 26.3
Degree days (% of normal) 118.6% 120.2% 105.0% 113.6%
Average cost of natural gas,
including transportation,
per dk $ 3.01 $ 2.67 $ 2.66 $ 2.76
Williston Basin -- Natural Gas Transmission Operations
Three Months Six Months
Ended Ended
June 30, June 30,
1997* 1996 1997* 1996
Operating revenues:
Transportation $ 11.7** $ 13.3** $ 26.8** $ 27.4**
Storage 2.5 2.5 5.1 5.5
Energy marketing 7.3 --- 12.9 ---
Natural gas production and
other 1.5 1.6 3.9 3.2
23.0 17.4 48.7 36.1
Operating expenses:
Purchased gas sold 5.8 --- 9.9 ---
Operation and maintenance 8.7** 8.5** 19.7** 18.5**
Depreciation, depletion and
amortization --- 1.7 1.8 3.4
Taxes, other than income 1.3 1.1 2.7 2.3
15.8 11.3 34.1 24.2
Operating income 7.2 6.1 14.6 11.9
Volumes (dk):
Transportation--
Montana-Dakota 8.8 9.8 17.6 23.3
Other 11.3 9.6 23.7 16.6
20.1 19.4 41.3 39.9
Produced (Mdk) 1,654 1,488 3,411 2,876
* Effective January 1, 1997, Prairielands became a wholly owned subsidiary
of Williston Basin. Consolidated financial results are presented for
1997. In 1996, Prairielands' financial results were included with the
natural gas distribution business.
** Includes amortization and
related recovery of deferred
natural gas contract
buy-out/buy-down and gas supply
realignment costs. $ 2.2 $ 2.5 $ 4.7 $ 5.3
Knife River -- Construction Materials and Mining Operations***
Three Months Six Months
Ended Ended
June 30, June 30,
1997 1996 1997 1996
Operating revenues:
Construction materials $ 32.7 $ 22.6 $ 46.8 $ 29.0
Coal 2.4 7.3 11.3 16.4
35.1 29.9 58.1 45.4
Operating expenses:
Operation and maintenance 30.3 24.0 51.2 36.8
Depreciation, depletion and
amortization 2.7 1.7 4.7 3.2
Taxes, other than income .4 .8 1.2 1.7
33.4 26.5 57.1 41.7
Operating income 1.7 3.4 1.0 3.7
Sales (000's):
Aggregates (tons) 1,111 769 1,695 1,001
Asphalt (tons) 196 148 250 165
Ready-mixed concrete
(cubic yards) 113 88 182 131
Coal (tons) 214 646 978 1,473
*** Does not include information related to Knife River's 50 percent ownership
interest in Hawaiian Cement which was acquired in September 1995, and is
accounted for under the equity method. See Prospective Information for a
discussion of Knife River's purchase of the remaining 50 percent interest
in Hawaiian Cement.
Fidelity Oil -- Oil and Natural Gas Production Operations
Three Months Six Months
Ended Ended
June 30, June 30,
1997 1996 1997 1996
Operating revenues:
Oil $ 9.0 $ 10.0 $ 19.1 $ 18.3
Natural gas 7.1 7.1 16.5 15.0
16.1 17.1 35.6 33.3
Operating expenses:
Operation and maintenance 4.2 4.1 8.3 7.7
Depreciation, depletion and
amortization 5.7 6.2 11.4 12.2
Taxes, other than income .9 1.1 2.1 1.9
10.8 11.4 21.8 21.8
Operating income 5.3 5.7 13.8 11.5
Production (000's):
Oil (barrels) 525 561 1,045 1,070
Natural gas (Mcf) 3,345 3,650 6,766 7,156
Average sales price:
Oil (per barrel) $17.23 $17.67 $ 18.23 $ 16.98
Natural gas (per Mcf) 2.12 1.95 2.45 2.09
Amounts presented in the above tables for natural gas operating
revenues, purchased natural gas sold and operation and maintenance
expenses will not agree with the Consolidated Statements of Income
due to the elimination of intercompany transactions between
Montana-Dakota's natural gas distribution business and Williston
Basin's natural gas transmission business.
Three Months Ended June 30, 1997 and 1996
Montana-Dakota -- Electric Operations
Operating income at the electric business decreased primarily
due to higher maintenance expenses. Power generation maintenance
expense increased due to $1.6 million in costs associated with a
ten-week maintenance outage at the Coyote Station in 1997 and was
offset in part by 1996 costs resulting from maintenance work at the
Lewis and Clark Station. Higher transmission and distribution
maintenance expenses due to damages associated with an April 1997
blizzard which occurred primarily in North Dakota also added to the
increase in maintenance expense. Increased fuel and purchased
power costs, resulting from changes in generation mix between
higher cost versus lower cost generating stations due to the Coyote
Station outage, also added to the operating income decline.
Decreased purchased power demand charges partially offset the
increase in fuel and purchased power costs. The decrease in demand
charges, related to an existing participation power contract,
resulted from the 1996 pass-through of periodic maintenance charges
but were somewhat offset by increased demand charges related to a
new power supply contract with Black Hills Power and Light Company
beginning January 1, 1997. Higher operating revenue due to
increased retail sales, somewhat offset by decreased sales for
resale volumes, partially offset the operating income decline.
Increased retail sales to residential and commercial customers due
to both increased customers and warmer weather than a year ago were
partially offset by lower industrial sales due to the closing of an
abrasives manufacturer. Increased rates in Wyoming reflecting
recovery of costs associated with the previously discussed new
power supply contract, also added to the operating revenue
increase. Sales for resale volumes decreased due to reduced
generating station availability caused by the aforementioned Coyote
Station maintenance work and limitations on power deliveries due to
off-system storm-damaged transmission lines.
Earnings for the electric business decreased due to the
operating income decline and increased interest expense due to
higher average short-term debt balances.
Montana-Dakota -- Natural Gas Distribution Operations
Operating income improved at the natural gas distribution
business due to an increase in sales revenue. The increase on
sales revenue resulted from a general rate increase placed into
effect in Montana in May 1996 and the pass-through of higher
average natural gas costs. Decreased operations expense due to
lower payroll-related costs also added to the operating income
improvement.
Natural gas distribution earnings were unchanged from last
year. The increase in operating income was largely offset by gains
realized in 1996 on the disposal of property.
Williston Basin -- Natural Gas Transmission Operations
Operating income at the natural gas transmission business
increased primarily due to an improvement in natural gas production
revenues resulting from both increased prices and higher volumes
produced. Improved transportation volumes also added to the
operating income increase. Higher transportation to off-system
markets, primarily resulting from sales of natural gas held under
the repurchase commitment, somewhat offset by lower volumes
transported to storage, was largely responsible for the
transportation volume improvement. Sales of natural gas held under
the repurchase commitment were 4.5 MMdk, primarily volumes sold to
off-system markets and in place. Higher transportation revenues
associated with the transportation volume improvement were more
than offset by additional reserved revenues provided, with a
corresponding reduction in depreciation expense, as a result of
FERC orders relating to a 1992 general rate proceeding. The FERC
required a reduction in average depreciation rates which had been
reflected in the transportation rates charged to customers. In
addition, increased discounting of certain transportation services
somewhat offset the transportation volume increase. The increases
in energy marketing revenue, purchased natural gas sold and
operation and maintenance expense results from Prairielands
becoming a wholly owned subsidiary effective January 1, 1997.
Higher taxes, other than income, primarily production taxes,
partially offset the improvement in operating income.
Earnings for this business increased due to the operating
income improvement, gains realized on the sale of natural gas held
under the repurchase commitment and decreased carrying costs on
natural gas held under the repurchase commitment stemming from
lower average borrowings. In addition, lower company production
refund accruals (included in Other income -- net) contributed to
the increase in earnings. Increased interest expense largely
resulting from higher average reserved revenue balances partially
offset the earnings increase.
Knife River -- Construction Materials and Mining Operations
Construction Materials Operations --
Construction materials operating income increased $755,000
largely due to higher revenues. The revenue improvement is due to
revenues realized as a result of the acquisitions of Baldwin
Contracting Company, Inc. (Baldwin) in April 1996, Medford Ready
Mix, Inc. (Medford) in June 1996, and Orland Asphalt in February
1997. Revenues at most other construction materials operations
increased as a result of higher aggregate sales and construction
revenues, both due to increased demand, and increased average
asphalt prices due to changes in sales mix. The increase in
operation and maintenance and depreciation expenses was due
primarily to expenses associated with the above acquisitions.
Operation and maintenance expenses also increased at the other
construction materials operations due to the higher aggregate
volumes sold and increased asphalt costs realized due to changes in
sales mix.
Coal Operations --
Operating income for the coal operations decreased $2.4 million
due to lower coal revenues. A 449,000 ton decrease in sales to the
Coyote Station, a result of the previously discussed ten-week
maintenance outage, was the principal factor contributing to the
coal revenue decline. Higher average sales prices due to price
increases at the Beulah Mine partially offset the decrease in coal
revenues. Decreased operation and maintenance expenses,
reclamation and taxes other than income, all primarily due to the
decrease in volumes sold, partially offset the operating income
decline.
Consolidated --
Earnings declined largely due to the decrease in coal operating
income. The increase in construction materials operating income
somewhat offset the earnings decline.
Fidelity Oil -- Oil and Natural Gas Production Operations
Operating income for the oil and natural gas production
business decreased primarily as a result of lower oil revenues.
Decreased oil revenue resulted from a $611,000 decline due to lower
production and a $374,000 decrease due to lower average prices.
Lower natural gas production resulted in a $647,000 revenue decline
but was offset by a $642,000 improvement due to higher average
prices. Increased operation and maintenance expenses, primarily
higher administrative costs associated with a working interest
agreement and increased well maintenance, also added to the
operating income decline. Decreased depreciation, depletion and
amortization, the result of lower production, and decreased taxes
other than income, mainly decreased production taxes resulting from
lower oil prices, both somewhat offset the decrease in operating
income.
Earnings for this business unit increased due to decreased
income taxes and decreased interest expense due to lower average
long-term debt balances. The earnings improvement was partially
offset by lower operating income.
Six Months Ended June 30, 1997 and 1996
Montana-Dakota -- Electric Operations
Operating income at the electric business decreased primarily
due to higher maintenance expenses. Power generation maintenance
expense increased due to $1.6 million in costs resulting from a
ten-week maintenance outage at the Coyote Station in 1997 and was
somewhat offset by 1996 costs resulting from maintenance work at
the Lewis and Clark Station. Higher transmission and distribution
maintenance expense, due to damages associated with the April 1997
blizzard, also added to the increase in maintenance expense.
Increased fuel and purchased power costs, largely increased
purchase power demand charges, also added to the operating income
decline. The increase in demand charges is related to the new
power supply contract with Black Hills Power and Light Company
beginning January 1, 1997. Increased operating revenue resulting
from increased retail sales revenue, largely offset by decreased
sales for resale revenue, partially offset the operating income
decline. Increased rates in Wyoming reflecting recovery of costs
associated with the aforementioned new power supply contract,
contributed to the operating revenue increase. Decreased retail
sales to residential and industrial customers due to lower weather-
related demand in the first quarter partially offset the operating
revenue improvement. Sales for resale revenues decreased due to
lower sales resulting from reduced generating station availability
caused by the Coyote Station maintenance outage combined with weak
market conditions and limitations on power deliveries due to off-
system storm-damaged transmission lines. Higher average realized
rates somewhat offset the decline in sales for resale revenues.
Lower operation expenses, primarily lower payroll-related costs,
somewhat offset the operating income decline.
Earnings for the electric business decreased due to the
operating income decline and increased interest expense due to
higher average short-term debt balances.
Montana-Dakota -- Natural Gas Distribution Operations
Operating income decreased slightly at the natural gas
distribution business due to a decline in sales revenue. Reduced
weather-related sales of 1.2 million decatherms, primarily the
result of warmer winter weather in the first quarter, and the pass-
through of lower average natural gas costs were the principal
factors contributing to the sales revenue decline. A general rate
increase placed into effect in Montana in May 1996, partially
offset the sales revenue decline. Decreased operations expense due
to lower payroll-related costs partially offset the operating
income decline. The effects of higher volumes transported,
primarily to large industrial customers, were offset by lower
average transportation rates.
Natural gas distribution earnings decreased slightly due to the
decline in operating income. Decreased interest expense and
increased return on gas in storage and prepaid demand balances
(included in Other income -- net) largely offset the decline in
operating income. The decrease in interest expense resulted from
reduced carrying costs on natural gas costs refundable through rate
adjustments due to lower refundable balances.
Williston Basin -- Natural Gas Transmission Operations
Operating income at the natural gas transmission business
increased primarily due to increased natural gas production
revenues resulting from both higher volumes produced and increased
prices. Higher average transportation rates due to changes in
transportation mix and increased volumes transported also added to
the operating income improvement. Higher transportation to off-
system markets, primarily resulting from sales of natural gas held
under the repurchase commitment, somewhat offset by decreased on-
system transportation, was largely responsible for the
transportation volume increase. Sales of natural gas held under
the repurchase commitment were 12.9 MMdk. Higher transportation
revenues associated with the transportation volume improvement were
somewhat offset by additional reserved revenues provided, with a
corresponding reduction in depreciation expense, as a result of
FERC orders relating to a 1992 general rate proceeding as
previously discussed. In addition, increased discounting of
certain transportation services and reduced recovery of deferred
natural gas contract buy-out/buy-down and gas supply realignment
costs also reduced transportation revenues. The increase in energy
marketing revenue, purchased natural gas sold and operation and
maintenance expense results from Prairielands becoming a wholly
owned subsidiary effective January 1, 1997. Decreased storage
revenues due to lower withdrawals by interruptible storage
customers partially offset the increase in operating income.
Operation expenses increased primarily due to higher production
royalties but were somewhat offset by reduced amortization of
deferred natural gas contract buy-out/buy-down costs. Taxes other
than income increased due to increased production taxes somewhat
offsetting the operating income improvement.
Earnings for this business increased due to the operating
income improvement, gains realized on the sale of natural gas held
under the repurchase commitment and decreased carrying costs on the
repurchase commitment stemming from lower borrowings. Higher
interest expense, primarily the result of higher reserved revenue
balances, partially offset the earnings improvement.
Knife River -- Construction Materials and Mining Operations
Construction Materials Operations --
Construction materials operating income increased $172,000 due
to higher revenues primarily resulting from the Baldwin, Medford
and Orland acquisitions. Revenues at other construction materials
operations increased as a result of higher aggregate and ready-
mixed concrete sales, increased construction revenues, and higher
asphalt prices. The increase in operation and maintenance and
depreciation expenses was largely due to expenses associated with
the previously mentioned Baldwin, Medford and Orland Asphalt
acquisitions. Operation and maintenance expenses also increased at
the other construction materials operations due to higher aggregate
and ready-mixed concrete volumes sold.
Coal Operations --
Operating income for the coal operations decreased $2.9 million
primarily due to decreased revenues resulting from lower sales of
503,000 tons to the Coyote Station largely due to the ten-week
maintenance outage. Higher average sales prices due to price
increases at the Beulah Mine partially offset the reduction in coal
revenues. Decreased operation and maintenance expenses,
reclamation and taxes other than income, all primarily due to the
decrease in volumes sold, partially offset the operating income
decline.
Consolidated --
Earnings declined due to decreased operating income at the coal
business. Decreased income from Hawaiian Cement (included in Other
income -- net), resulting from lower volumes due to decreased
demand and above normal rainfall which slowed construction
activity, partially offset by an insurance settlement received
related to the Unitek litigation, also added to the earnings
decline. In addition, higher interest expense resulting mainly
from increased long-term debt due to the acquisition of Baldwin,
Medford and Orland Asphalt also added to the decrease in earnings.
Fidelity Oil -- Oil and Natural Gas Production Operations
Operating income for the oil and natural gas production
business increased primarily as a result of higher oil and natural
gas revenues. The increase in oil revenue resulted from a $1.1
million improvement due to higher average prices somewhat offset by
a $450,000 decrease due to lower production. Increased natural gas
revenue was due to a $2.5 million increase arising from higher
prices partially offset by a $954,000 decline due to lower
production. Decreased depreciation, depletion and amortization,
the result of both lower average rates and production, also added
to the increase in operating income. Increased operation and
maintenance expenses, primarily higher administrative costs
associated with a working interest agreement and increased well
maintenance, somewhat offset the operating income decline.
Earnings for this business unit increased due to the operating
income improvement and decreased income taxes. Decreased interest
expense due to lower average long-term debt balances also added to
the earnings increase.
Safe Harbor for Forward-Looking Statements
The Company is including the following cautionary statement in
this Form 10-Q to make applicable and to take advantage of the safe
harbor provisions of the Private Securities Litigation Reform Act
of 1995 for any forward-looking statements made by, or on behalf
of, the Company. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or
performance, and underlying assumptions (many of which are based,
in turn, upon further assumptions) and other statements which are
other than statements of historical facts. From time to time, the
Company may publish or otherwise make available forward-looking
statements of this nature. All such subsequent forward-looking
statements, whether written or oral and whether made by or on
behalf of the Company, are also expressly qualified by these
cautionary statements.
Forward-looking statements involve risks and uncertainties
which could cause actual results or outcomes to differ materially
from those expressed. The Company's expectations, beliefs and
projections are expressed in good faith and are believed by the
Company to have a reasonable basis, including without limitation
management's examination of historical operating trends, data
contained in the Company's records and other data available from
third parties, but there can be no assurance that the Company's
expectations, beliefs or projections will be achieved or
accomplished. Furthermore, any forward-looking statement speaks
only as of the date on which such statement is made, and the
Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances that
occur after the date on which such statement is made or to reflect
the occurrence of unanticipated events. New factors emerge from
time to time, and it is not possible for management to predict all
of such factors, nor can it assess the effect of each such factor
on the Company's business or the extent to which any such factor,
or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statement.
Regulated Operations --
In addition to other factors and matters discussed elsewhere
herein, some important factors that could cause actual results or
outcomes for the Company and its regulated operations to differ
materially from those discussed in forward-looking statements
include prevailing governmental policies and regulatory actions
with respect to allowed rates of return, financings, or industry
and rate structures, weather conditions, acquisition and disposal
of assets or facilities, operation and construction of plant
facilities, recovery of purchased power and purchased gas costs,
present or prospective generation, wholesale and retail competition
(including but not limited to electric retail wheeling and
transmission costs), availability of economic supplies of natural
gas, and present or prospective natural gas distribution or
transmission competition (including but not limited to prices of
alternate fuels and system deliverability costs).
Non-regulated Operations --
Certain important factors which could cause actual results or
outcomes for the Company and all or certain of its non-regulated
operations to differ materially from those discussed in forward-
looking statements include the level of governmental expenditures
on public projects and project schedules, changes in anticipated
tourism levels, competition from other suppliers, oil and natural
gas commodity prices, drilling successes in oil and natural gas
operations, ability to acquire oil and natural gas properties, and
the availability of economic expansion or development
opportunities.
Factors Common to Regulated and Non-Regulated Operations --
The business and profitability of the Company are also
influenced by economic and geographic factors, including political
and economic risks, changes in and compliance with environmental
and safety laws and policies, weather conditions, population growth
rates and demographic patterns, market demand for energy from
plants or facilities, changes in tax rates or policies,
unanticipated project delays or changes in project costs,
unanticipated changes in operating expenses or capital
expenditures, labor negotiations or disputes, changes in credit
ratings or capital market conditions, inflation rates, inability of
the various counterparties to meet their obligations with respect
to the Company's financial instruments, changes in accounting
principles and/or the application of such principles to the
Company, changes in technology and legal proceedings.
Prospective Information
On July 1, 1997, the Company acquired two affiliated electric
service companies, International Line Builders, Inc. and High Line
Equipment, Inc., located in Portland, Oregon. International Line
Builders, Inc. installs and repairs transmission and distribution
power lines in the western United States and Hawaii and High Line
Equipment, Inc. provides related construction supplies and
equipment.
On July 31, 1997, Knife River purchased the remaining 50
percent interest in Hawaiian Cement from Adelaide Brighton Cement,
Inc. of Adelaide, Australia. With the purchase, Knife River
becomes the sole owner of one of the largest construction materials
suppliers in Hawaii. The Company's initial 50 percent partnership
interest in Hawaiian Cement was acquired in September 1995. Since
September 1995, Hawaiian Cement has been accounted for under the
equity method, however, effective with the date of purchase,
Hawaiian Cement will be consolidated with the Company.
Knife River continues to seek additional growth opportunities.
These include 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.
Liquidity and Capital Commitments
Montana-Dakota's net capital needs for 1997 are estimated at
$25.4 million for net capital expenditures and $11.4 million for
the retirement of long-term securities. It is anticipated that
Montana-Dakota will continue to provide all of the funds required
for its net capital expenditures and securities retirements from
internal sources, through the use of its $30 million revolving
credit and term loan agreement, $26.5 million of which was
outstanding at June 30, 1997, 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's 1997 net capital needs are estimated at $14.4
million for net capital expenditures and $454,000 for the
retirement of long-term securities. Williston Basin expects to
meet its net capital expenditures and securities retirements for
1997 with a combination of internally generated funds, short-term
lines of credit aggregating $40.6 million, $325,000 of which was
outstanding at June 30, 1997, and through the issuance of long-term
debt, the amount and timing of which will depend upon Williston
Basin's needs, internal cash generation and market conditions.
Knife River's 1997 net capital expenditures are estimated at
$42.4 million, including those expended for the acquisition of
Orland Asphalt and the remaining 50 percent interest in Hawaiian
Cement. It is anticipated that these net capital expenditures will
be met through funds generated from internal sources, short-term
lines of credit aggregating $11 million, $7.4 million of which was
outstanding at June 30, 1997, a revolving credit agreement of $85
million, $46 million of which was outstanding at June 30, 1997, and
the issuance of long-term debt and the Company's equity securities.
On June 30, 1997, amounts available under the revolving credit
agreement increased from $55 million to $85 million.
Fidelity Oil's 1997 net capital expenditures related to its oil
and natural gas acquisition, development and exploration program
are estimated at $60 million. It is anticipated that Fidelity's
1997 net capital expenditures will be met from internal sources and
existing long-term credit facilities. Fidelity's borrowing base,
which is based on total proved reserves, is currently $65 million.
This consists of $20 million of issued notes, $10 million in an
uncommitted note shelf facility, and a $35 million revolving line
of credit, $450,000 of which was outstanding at June 30, 1997.
Other corporate net capital expenditures for 1997 are estimated
at $13.3 million. These capital expenditures are anticipated to be
met through the issuance of long-term debt and the Company's equity
securities.
The Company utilizes its short-term lines of credit aggregating
$40 million, none of which was outstanding on June 30, 1997, and
its $30 million revolving credit and term loan agreement, $26.5
million of which was outstanding at June 30, 1997, to meet its
short-term financing needs and to take advantage of market
conditions when timing the placement of long-term or permanent
financing.
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 June 30, 1997, the Company could have issued
approximately $256 million of additional first mortgage bonds.
The Company's coverage of combined fixed charges and preferred
dividends was 2.75 and 2.67 times for the twelve months ended June
30, 1997, and December 31, 1996, respectively. Additionally, the
Company's first mortgage bond interest coverage was 5.5 and 5.4
times for the twelve months ended June 30, 1997, and December 31,
1996, respectively. Common stockholders' investment as a percent
of total capitalization was 57% and 54% at June 30, 1997, and
December 31, 1996, respectively.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 26, 1997, the Federal District Court issued its
order awarding Moncrief damages of approximately $15.6
million and, on July 25, 1997, issued an order limiting
Moncrief's reimbursable costs to post-judgment interest.
For more information on this legal action, see Note 3 of
Notes to Consolidated Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10(h) 1997 Non-Employee Director Long-Term Incentive
Plan
10(i) 1997 Executive Long-Term Incentive Plan
12 Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Dividends
27 Financial Data Schedule
b) Reports on Form 8-K
Form 8-K was filed on June 26, 1997. Under Item 5--
Other Events, it was reported that the Federal
District Court issued its order awarding Moncrief
damages of $15.6 million.
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 August 12, 1997 BY /s/ Warren L. Robinson
Warren L. Robinson
Vice President, Treasurer
and Chief Financial Officer
BY /s/ Vernon A. Raile
Vernon A. Raile
Vice President, Controller and
Chief Accounting Officer
EXHIBIT INDEX
Sequential
Page No.
Exhibit No.
10(h) 1997 Non-Employee Director Long-Term
Incentive Plan
10(i) 1997 Executive Long-Term Incentive Plan
12 Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Dividends
27 Financial Data Schedule
MDU RESOURCES GROUP, INC.
1997 NON-EMPLOYEE DIRECTOR LONG-TERM INCENTIVE PLAN
Article 1. Establishment, Purpose and Duration
1.1 Establishment of the Plan. MDU Resources Group, Inc., a
Delaware corporation (hereinafter referred to as the "Company"),
hereby establishes an incentive plan to be known as the "MDU
Resources Group, Inc. 1997 Non-Employee Director Long-Term
Incentive Plan" (hereinafter referred to as the "Plan"), as set
forth in this document. The Plan permits the grant of Nonqualified
Stock Options (NQSO), Stock Appreciation Rights (SAR), Restricted
Stock, Performance Units, Performance Shares and other awards.
The Plan shall become effective when approved by the
stockholders at the annual meeting on April 22, 1997, (the
"Effective Date"), and shall remain in effect as provided in
Section 1.3 herein.
1.2 Purpose of the Plan. The purpose of the Plan is to
promote the success and enhance the value of the Company by linking
the personal interests of Participants to those of Company
stockholders and customers. The Plan is further intended to assist
the Company in its ability to motivate, attract and retain highly
qualified individuals to serve as directors of the Company.
1.3 Duration of the Plan. The Plan shall commence on the
Effective Date, as described in Section 1.1 herein, and shall
remain in effect, subject to the right of the Board of Directors to
terminate the Plan at any time pursuant to Article 14 herein, until
all Shares subject to it shall have been purchased or acquired
according to the Plan's provisions.
Article 2. Definitions
Whenever used in the Plan, the following terms shall have the
meanings set forth below and, when such meaning is intended, the
initial letter of the word is capitalized:
2.1 "Award" means, individually or collectively, a grant
under the Plan of NQSOs, SARs, Restricted Stock, Performance Units,
Performance Shares or any other type of award permitted under
Article 10 of the Plan.
2.2 "Award Agreement" means an agreement entered into by each
Participant and the Company, setting forth the terms and provisions
applicable to an Award granted to a Participant under the Plan.
2.3 "Base Value" of an SAR shall have the meaning set forth
in Section 7.1 herein.
2.4 "Board" or "Board of Directors" means the Board of
Directors of the Company.
2.5 "Change in Control" means the earliest of the following
to occur: (a) the public announcement by the Company or by any
person (which shall not include the Company, any subsidiary of the
Company, or any employee benefit plan of the Company or of any
subsidiary of the Company) ("Person") that such Person, who or
which, together with all Affiliates and Associates (within the
meanings ascribed to such terms in the Rule 12b-2 of the General
Rules and Regulations under the Exchange Act) of such Person, shall
be the beneficial owner of twenty percent (20%) or more of the
voting stock of the Company outstanding; (b) the commencement of,
or after the first public announcement of any Person to commence,
a tender or exchange offer the consummation of which would result
in any Person becoming the beneficial owner of voting stock
aggregating thirty percent (30%) or more of the then outstanding
voting stock of the Company; (c) the announcement of any
transaction relating to the Company required to be described
pursuant to the requirements of Item 6(e) of Schedule 14A of
Regulation 14A under the Exchange Act; (d) a proposed change in
constituency of the Board such that, during any period of two (2)
consecutive years, individuals who at the beginning of such period
constitute the Board cease for any reason to constitute at least a
majority thereof, unless the election or nomination for election by
the stockholders of the Company of each new Director was approved
by a vote of at least two-thirds (2/3) of the Directors then still
in office who were members of the Board at the beginning of the
period; (e) the sale or other disposition of all or substantially
all of the assets of Montana-Dakota Utilities Co., other than to a
subsidiary of the Company; or (f) any other event which shall be
deemed by a majority of the Committee to constitute a "change in
control".
2.6 "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
2.7 "Committee" means the Committee, as specified in
Article 3, appointed by the Board to administer the Plan with
respect to Awards.
2.8 "Company" means MDU Resources Group, Inc., a Delaware
corporation, or any successor thereto as provided in Article 15
herein.
2.9 "Director" means any individual who is a member of the
Board of Directors of the Company.
2.10 "Dividend Equivalent" means, with respect to Shares
subject to an Award, a right to be paid an amount equal to
dividends declared on an equal number of outstanding Shares.
2.11 "Employee" means any full-time or regularly-scheduled
part-time employee of the Company or of the Company's Subsidiaries,
who is not covered by any collective bargaining agreement to which
the Company or any of its Subsidiaries is a party.
2.12 "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, or any successor act thereto.
2.13 "Exercise Period" means the period during which an SAR or
Option is exercisable, as set forth in the related Award Agreement.
2.14 "Fair Market Value" shall mean the average of the high
and low sale prices as reported in the consolidated transaction
reporting system or, if there is no such sale on the relevant date,
then on the last previous day on which a sale was reported.
2.15 "Freestanding SAR" means an SAR that is granted
independently of any Option.
2.16 "Non-Employee Director" means any person who is elected
or appointed to the Board and who is not an Employee.
2.17 "Nonqualified Stock Option" or "NQSO" means an option to
purchase Shares, granted under Article 6 herein, which is not
intended to be an Incentive Stock Option under Section 422 of the
Code.
2.18 "Option" means a Nonqualified Stock Option.
2.19 "Option Price" means the price at which a Share may be
purchased by a Participant pursuant to an Option, as determined by
the Committee and set forth in the Option Award Agreement.
2.20 "Participant" means a Non-Employee Director who has
outstanding an Award granted under the Plan.
2.21 "Performance Unit" means an Award granted to a
Participant, as described in Article 9 herein.
2.22 "Performance Share" means an Award granted to a
Participant, as described in Article 9 herein.
2.23 "Period of Restriction" means the period during which the
transfer of Restricted Stock is limited in some way, as provided in
Article 8 herein.
2.24 "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act, as used in Sections 13(d) and
14(d) thereof, including usage in the definition of a "group" in
Section 13(d) thereof.
2.25 "Restricted Stock" means an Award of Shares granted to a
Participant pursuant to Article 8 herein.
2.26 "Shares" means the shares of common stock of the Company.
2.27 "Stock Appreciation Right" or "SAR" means a right,
granted alone or in connection with a related Option, designated as
an SAR, to receive a payment on the day the right is exercised,
pursuant to the terms of Article 7 herein. Each SAR shall be
denominated in terms of one Share.
2.28 "Subsidiary" means any corporation that is a "subsidiary
corporation" of the Company as that term is defined in
Section 424(f) of the Code.
2.29 "Tandem SAR" means an SAR that is granted in connection
with a related Option, the exercise of which shall require
forfeiture of the right to purchase a Share under the related
Option (and when a Share is purchased under the Option, the Tandem
SAR shall be similarly canceled).
Article 3. Administration
3.1 The Committee. The Plan shall be administered by any
committee appointed by the Board or by the Board of Directors (the
"Committee").
3.2 Authority of the Committee. The Committee shall have
full power except as limited by law, the Articles of Incorporation
and the Bylaws of the Company, subject to such other restricting
limitations or directions as may be imposed by the Board and
subject to the provisions herein, to determine the size and types
of Awards; to determine the terms and conditions of such Awards in
a manner consistent with the Plan; to construe and interpret the
Plan and any agreement or instrument entered into under the Plan;
to establish, amend or waive rules and regulations for the Plan's
administration; and (subject to the provisions of Article 14
herein) to amend the terms and conditions of any outstanding Award.
Further, the Committee shall make all other determinations which
may be necessary or advisable for the administration of the Plan.
As permitted by law, the Committee may delegate its authorities as
identified hereunder.
3.3 Restrictions on Share Transferability. The Committee may
impose such restrictions on any Shares acquired pursuant to Awards
under the Plan as it may deem advisable, including, without
limitation, restrictions to comply with applicable Federal
securities laws, with the requirements of any stock exchange or
market upon which such Shares are then listed and/or traded and
with any blue sky or state securities laws applicable to such
Shares.
3.4 Approval. The Committee or the Board shall approve all
Awards made under the Plan and all elections made by Participants,
prior to their effective date, to the extent necessary to comply
with Rule 16b-3 under the Exchange Act.
3.5 Decisions Binding. All determinations and decisions made
by the Committee pursuant to the provisions of the Plan and all
related orders or resolutions of the Board shall be final,
conclusive and binding on all persons, including the Company, its
stockholders, Participants and their estates and beneficiaries.
3.6 Costs. The Company shall pay all costs of administration
of the Plan.
Article 4. Shares Subject to the Plan
4.1 Number of Shares. Subject to Section 4.2 herein, the
maximum number of Shares available for grant under the Plan shall
be 200,000. Shares underlying lapsed or forfeited Awards, or
Awards that are not paid in Shares, may be reused for other Awards.
Shares granted pursuant to the Plan may be (i) authorized but
unissued Shares of Common Stock, (ii) treasury shares, or (iii)
shares purchased on the open market.
4.2 Adjustments in Authorized Shares. In the event of any
merger, reorganization, consolidation, recapitalization,
separation, liquidation, stock dividend, split-up, share
combination or other change in the corporate structure of the
Company affecting the Shares, such adjustment shall be made in the
number and class of Shares which may be delivered under the Plan,
and in the number and class of and/or price of Shares subject to
outstanding Awards granted under the Plan, as may be determined to
be appropriate and equitable by the Committee, in its sole
discretion, to prevent dilution or enlargement of rights; provided,
however, that the number of Shares subject to any Award shall
always be a whole number.
Article 5. Eligibility and Participation
5.1 Eligibility. Persons eligible to participate in the Plan
are any persons elected or appointed to the Board who are not
Employees.
5.2 Actual Participation. Subject to the provisions of the
Plan, the Committee may, from time to time, select from all
eligible Non-Employee Directors those to whom Awards shall be
granted and shall determine the nature and amount of each Award.
Article 6. Stock Options
6.1 Grant of Options. Subject to the terms and conditions of
the Plan, Options may be granted to a Non-Employee Director at any
time and from time to time, as shall be determined by the
Committee.
The Committee shall have complete discretion in determining
the number of Shares subject to Options granted to each Participant
(subject to Article 4 herein) and, consistent with the provisions
of the Plan, in determining the terms and conditions pertaining to
such Options.
6.2 Option Award Agreement. Each Option grant shall be
evidenced by an Option Award Agreement that shall specify the
Option Price, the term of the Option, the number of Shares to which
the Option pertains, the Exercise Period and such other provisions
as the Committee shall determine, including but not limited to any
rights to Dividend Equivalents.
6.3 Exercise of and Payment for Options. Options granted
under the Plan shall be exercisable at such times and be subject to
such restrictions and conditions as the Committee shall in each
instance approve.
A Participant may exercise an Option at any time during the
Exercise Period. Options shall be exercised by the delivery of a
written notice of exercise to the Company or its designee, setting
forth the number of Shares with respect to which the Option is to
be exercised, accompanied by provisions for full payment for the
Shares.
The Option Price upon exercise of any Option shall be payable
either: (a) in cash or its equivalent, (b) by tendering previously
acquired Shares having an aggregate Fair Market Value at the time
of exercise equal to the total Option Price (provided that the
Shares which are tendered must have been held by the Participant
for at least six (6) months prior to their tender to satisfy the
Option Price), (c) by Share withholding, (d) by cashless exercise
or (e)by a combination of (a),(b),(c), and/or (d).
As soon as practicable after receipt of a written notification
of exercise of an Option and provisions for full payment therefor,
there shall be delivered to the Participant, in the Participant's
name, Share certificates in an appropriate amount based upon the
number of Shares purchased under the Option(s).
6.4 Termination of Director Status. Each Option Award
Agreement shall set forth the extent to which the Participant shall
have the right to exercise the Option following termination of the
Participant's position on the Board of the Company. Such
provisions shall be determined in the sole discretion of the
Committee, shall be included in the Option Award Agreement entered
into with Participants, need not be uniform among all Options
granted pursuant to the Plan or among Participants and may reflect
distinctions based on the reasons for termination of director
status.
6.5 Transferability of Options. Except as otherwise
determined by the Committee and set forth in the Option Award
Agreement, no Option granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution, and all Options granted to a Participant under the
Plan shall be exercisable during his or her lifetime only by such
Participant or his or her legal representative.
Article 7. Stock Appreciation Rights
7.1 Grant of SARs. Subject to the terms and conditions of
the Plan, an SAR may be granted to a Non-Employee Director at any
time and from time to time as shall be determined by the Committee.
The Committee may grant Freestanding SARs, Tandem SARs or any
combination of these forms of SAR.
The Committee shall have complete discretion in determining
the number of SARs granted to each Participant (subject to
Article 4 herein) and, consistent with the provisions of the Plan,
in determining the terms and conditions pertaining to such SARs.
The Base Value of a Freestanding SAR shall equal the Fair
Market Value of a Share on the date of grant of the SAR. The Base
Value of Tandem SARs shall equal the Option Price of the related
Option.
7.2 SAR Award Agreement. Each SAR grant shall be evidenced
by an SAR Award Agreement that shall specify the number of SARs
granted, the Base Value, the term of the SAR, the Exercise Period
and such other provisions as the Committee shall determine.
7.3 Exercise and Payment of SARs. Tandem SARs may be
exercised for all or part of the Shares subject to the related
Option upon the surrender of the right to exercise the equivalent
portion of the related Option. A Tandem SAR may be exercised only
with respect to the Shares for which its related Option is then
exercisable.
Freestanding SARs may be exercised upon whatever terms and
conditions the Committee, in its sole discretion, imposes upon
them.
A Participant may exercise an SAR at any time during the
Exercise Period. SARs shall be exercised by the delivery of a
written notice of exercise to the Company, setting forth the number
of SARs being exercised. Upon exercise of an SAR, a Participant
shall be entitled to receive payment from the Company in an amount
equal to the product of:
(a) the excess of (i) the Fair Market Value of a Share on the
date of exercise over (ii) the Base Value multiplied by
(b) the number of Shares with respect to which the SAR is
exercised.
At the sole discretion of the Committee, the payment to the
Participant upon SAR exercise may be in cash, in Shares of
equivalent value, or in some combination thereof.
7.4 Termination of Director Status. Each SAR Award Agreement
shall set forth the extent to which the Participant shall have the
right to exercise the SAR following termination of the
Participant's position on the Board of the Company. Such
provisions shall be determined in the sole discretion of the
Committee, shall be included in the SAR Award Agreement entered
into with Participants, need not be uniform among all SARs granted
pursuant to the Plan or among Participants and may reflect
distinctions based on the reasons for termination of director
status.
7.5 Transferability of SARs. Except as otherwise determined
by the Committee and set forth in the SAR Award Agreement, no SAR
granted under the Plan may be sold, transferred, pledged, assigned,
or otherwise alienated or hypothecated, other than by will or by
the laws of descent and distribution, and all SARs granted to a
Participant under the Plan shall be exercisable during his or her
lifetime only by such Participant or his or her legal
representative.
Article 8. Restricted Stock
8.1 Grant of Restricted Stock. Subject to the terms and
conditions of the Plan, Restricted Stock may be granted to a Non-
Employee Director at any time and from time to time, as shall be
determined by the Committee.
The Committee shall have complete discretion in determining
the number of shares of Restricted Stock granted to each
Participant (subject to Article 4 herein) and, consistent with the
provisions of the Plan, in determining the terms and conditions
pertaining to such Restricted Stock.
8.2 Restricted Stock Award Agreement. Each Restricted Stock
grant shall be evidenced by a Restricted Stock Award Agreement that
shall specify the Period or Periods of Restriction, the number of
Restricted Stock Shares granted and such other provisions as the
Committee shall determine.
8.3 Transferability. Restricted Stock granted hereunder may
not be sold, transferred, pledged, assigned, or otherwise alienated
or hypothecated until the end of the applicable Period of
Restriction established by the Committee and specified in the
Restricted Stock Award Agreement. All rights with respect to the
Restricted Stock granted to a Participant under the Plan shall be
available during his or her lifetime only to such Participant or
his or her legal representative.
8.4 Certificate Legend. Each certificate representing
Restricted Stock granted pursuant to the Plan may bear
a legend substantially as follows:
"The sale or other transfer of the shares of stock
represented by this certificate, whether voluntary,
involuntary or by operation of law, is subject to certain
restrictions on transfer as set forth in MDU Resources
Group, Inc. 1997 Non-Employee Director Long-Term
Incentive Plan, and in a Restricted Stock Award
Agreement. A copy of such Plan and such Agreement may be
obtained from MDU Resources Group, Inc."
The Company shall have the right to retain the certificates
representing Restricted Stock in the Company's possession until
such time as all restrictions applicable to such Shares have been
satisfied.
8.5 Removal of Restrictions. Restricted Stock shall become
freely transferable by the Participant after the last day of the
Period of Restriction applicable thereto. Once Restricted Stock is
released from the restrictions, the Participant shall be entitled
to have the legend referred to in Section 8.4 removed from his or
her stock certificate.
8.6 Voting Rights. During the Period of Restriction,
Participants holding Restricted Stock may exercise full voting
rights with respect to those Shares.
8.7 Dividends and Other Distributions. Subject to the
Committee's right to determine otherwise at the time of grant,
during the Period of Restriction, Participants holding Restricted
Stock shall receive all regular cash dividends paid with respect to
all Shares while they are so held. All other distributions paid
with respect to such Restricted Stock shall be credited to
Participants subject to the same restrictions on transferability
and forfeitability as the Restricted Stock with respect to which
they were paid and shall be paid to the Participant within forty-
five (45) days following the full vesting of the Restricted Stock
with respect to which such distributions were made.
8.8 Termination of Director Status. Each Restricted Stock
Award Agreement shall set forth the extent to which the Participant
shall have the right to receive unvested Restricted Stock following
termination of the Participant's position on the Board of the
Company. Such provisions shall be determined in the sole
discretion of the Committee, shall be included in the Restricted
Stock Award Agreement entered into with Participants, need not be
uniform among all grants of Restricted Stock or among Participants
and may reflect distinctions based on the reasons for termination
of director status.
Article 9. Performance Units and Performance Shares
9.1 Grant of Performance Units and Performance Shares.
Subject to the terms and conditions of the Plan, Performance Units
and/or Performance Shares may be granted to a Non-Employee Director
at any time and from time to time, as shall be determined by the
Committee.
The Committee shall have complete discretion in determining
the number of Performance Units and/or Performance Shares granted
to each Participant (subject to Article 4 herein) and, consistent
with the provisions of the Plan, in determining the terms and
conditions pertaining to such Awards.
9.2 Performance Unit/Performance Share Award Agreement. Each
grant of Performance Units and/or Performance Shares shall be
evidenced by a Performance Unit and/or Performance Share Award
Agreement that shall specify the number of Performance Units and/or
Performance Shares granted, the initial value (if applicable), the
Performance Period, the performance goals and such other provisions
as the Committee shall determine, including but not limited to any
rights to Dividend Equivalents.
9.3 Value of Performance Units/Performance Shares. Each
Performance Unit shall have an initial value that is established by
the Committee at the time of grant. The value of a Performance
Share shall be equal to the Fair Market Value of a Share. The
Committee shall set performance goals in its discretion which,
depending on the extent to which they are met, will determine the
number and/or value of Performance Units/Performance Shares that
will be paid out to the Participants. The time period during which
the performance goals must be met shall be called a "Performance
Period."
9.4 Earning of Performance Units/Performance Shares. After
the applicable Performance Period has ended, the holder of
Performance Units/Performance Shares shall be entitled to receive
a payout with respect to the Performance Units/Performance Shares
earned by the Participant over the Performance Period, to be
determined as a function of the extent to which the corresponding
performance goals have been achieved.
9.5 Form and Timing of Payment of Performance
Units/Performance Shares. Payment of earned Performance
Units/Performance Shares shall be made following the close of the
applicable Performance Period. The Committee, in its sole
discretion, may pay earned Performance Units/Performance Shares in
cash or in Shares (or in a combination thereof), which have an
aggregate Fair Market Value equal to the value of the earned
Performance Units/Performance Shares at the close of the applicable
Performance Period. Such Shares may be granted subject to any
restrictions deemed appropriate by the Committee.
9.6 Termination of Director Status. Each Performance
Unit/Performance Share Award Agreement shall set forth the extent
to which the Participant shall have the right to receive a
Performance Unit/Performance Share payment following termination of
the Participant's position on the Board of the Company during a
Performance Period. Such provisions shall be determined in the
sole discretion of the Committee, shall be included in the Award
Agreement entered into with Participants, need not be uniform among
all grants of Performance Units/Performance Shares or among
Participants and may reflect distinctions based on reasons for
termination of director status.
9.7 Transferability. Except as otherwise determined by the
Committee and set forth in the Performance Unit/Performance Share
Award Agreement, Performance Units/Performance Shares may not be
sold, transferred, pledged, assigned or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution, and a Participant's rights with respect to
Performance Units/Performance Shares granted under the Plan shall
be available during the Participant's lifetime only to such
Participant or the Participant's legal representative.
Article 10. Other Awards
The Committee shall have the right to grant other Awards which
may include, without limitation, the grant of Shares based on
certain conditions and the payment of Shares in lieu of cash, or
cash based on performance criteria established by the Committee.
Payment under or settlement of any such Awards shall be made in
such manner and at such times as the Committee may determine.
Article 11. Beneficiary Designation
Each Participant under the Plan may, from time to time, name
any beneficiary or beneficiaries (who may be named contingently or
successively) to whom any benefit under the Plan is to be paid in
case of his or her death before he or she receives any or all of
such benefit. Each such designation shall revoke all prior
designations by the same Participant, shall be in a form prescribed
by the Company, and will be effective only when filed by the
Participant in writing with the Company during the Participant's
lifetime. In the absence of any such designation, benefits
remaining unpaid at the Participant's death shall be paid to the
Participant's estate.
The spouse of a married Participant domiciled in a community
property jurisdiction shall join in any designation of beneficiary
or beneficiaries other than the spouse.
Article 12. Deferrals
The Committee may permit a Participant to defer the
Participant's receipt of the payment of cash or the delivery of
Shares that would otherwise be due to such Participant under the
Plan. If any such deferral election is permitted, the Committee
shall, in its sole discretion, establish rules and procedures for
such payment deferrals.
Article 13. Change in Control
The terms of this Article 13 shall immediately become
operative, without further action or consent by any person or
entity, upon a Change in Control, and once operative shall
supersede and take control over any other provisions of this Plan.
Upon a Change in Control
(a) Any and all Options and SARs granted hereunder shall
become immediately exercisable;
(b) Any restriction periods and restrictions imposed on
Restricted Shares shall be deemed to have expired and
such Restricted Shares shall become immediately vested in
full; and
(c) The target payout opportunity attainable under all
outstanding Awards of Performance Units, Performance
Shares and other Awards shall be deemed to have been
fully earned for the entire Performance Period(s) as of
the effective date of the Change in Control. The vesting
of all Awards denominated in Shares shall be accelerated
as of the effective date of the Change in Control, and
there shall be paid out in cash to Participants
immediately following the effective date of the Change in
Control the full amount of the targeted cash payout
opportunities associated with outstanding cash-based
Awards.
Article 14. Amendment, Modification and Termination
14.1 Amendment, Modification and Termination. The Board may,
at any time and from time to time, alter, amend, suspend or
terminate the Plan in whole or in part.
14.2 Awards Previously Granted. No termination, amendment or
modification of the Plan shall adversely affect in any material way
any Award previously granted under the Plan, without the written
consent of the Participant holding such Award, unless such
termination, modification or amendment is required by applicable
law.
Article 15. Successors
All obligations of the Company under the Plan, with respect to
Awards granted hereunder, shall be binding on any successor to the
Company, whether the existence of such successor is the result of
a direct or indirect purchase, merger, consolidation or otherwise,
of all or substantially all of the business and/or assets of the
Company.
Article 16. Legal Construction
16.1 Gender and Number. Except where otherwise indicated by
the context, any masculine term used herein also shall include the
feminine, the plural shall include the singular and the singular
shall include the plural.
16.2 Severability. In the event any provision of the Plan
shall be held illegal or invalid for any reason, the illegality or
invalidity shall not affect the remaining parts of the Plan, and
the Plan shall be construed and enforced as if the illegal or
invalid provision had not been included.
16.3 Requirements of Law. The granting of Awards and the
issuance of Shares under the Plan shall be subject to all
applicable laws, rules and regulations, and to such approvals by
any governmental agencies or national securities exchanges as may
be required.
16.4 Governing Law. To the extent not preempted by Federal
law, the Plan, and all agreements hereunder, shall be construed in
accordance with, and governed by, the laws of the State of
Delaware.
Approved by the Board of Directors February 6, 1997
Approved by the Stockholders April 22, 1997
MDU RESOURCES GROUP, INC.
1997 EXECUTIVE LONG-TERM INCENTIVE PLAN
Article 1. Establishment, Purpose and Duration
1.1 Establishment of the Plan. MDU Resources Group, Inc.,
a Delaware corporation (hereinafter referred to as the
"Company"), hereby establishes an incentive compensation plan to
be known as the "MDU Resources Group, Inc. 1997 Executive Long-
Term Incentive Plan" (hereinafter referred to as the "Plan"), as
set forth in this document. The Plan permits the grant of
Nonqualified Stock Options (NQSO), Incentive Stock Options (ISO),
Stock Appreciation Rights (SAR), Restricted Stock, Performance
Units, Performance Shares and other awards.
The Plan shall become effective when approved by the
stockholders at the annual meeting on April 22, 1997 (the
"Effective Date"), and shall remain in effect as provided in
Section 1.3 herein.
1.2 Purpose of the Plan. The purpose of the Plan is to
promote the success and enhance the value of the Company by
linking the personal interests of Participants to those of
Company stockholders and customers.
The Plan is further intended to provide flexibility to the
Company in its ability to motivate, attract and retain the
services of Participants upon whose judgment, interest and
special effort the successful conduct of its operations is
largely dependent.
1.3 Duration of the Plan. The Plan shall commence on the
Effective Date, as described in Section 1.1 herein, and shall
remain in effect, subject to the right of the Board of Directors
to terminate the Plan at any time pursuant to Article 15 herein,
until all Shares subject to it shall have been purchased or
acquired according to the Plan's provisions. However, in no
event may an Award be made under the Plan on or after the day
immediately preceding the tenth anniversary of the Effective
Date.
Article 2. Definitions
Whenever used in the Plan, the following terms shall have
the meanings set forth below and, when such meaning is intended,
the initial letter of the word is capitalized:
2.1 "Award" means, individually or collectively, a grant
under the Plan of NQSOs, ISOs, SARs, Restricted Stock,
Performance Units, Performance Shares or any other type of award
permitted under Article 10 of the Plan.
2.2 "Award Agreement" means an agreement entered into by
each Participant and the Company, setting forth the terms and
provisions applicable to an Award granted to a Participant under
the Plan.
2.3 "Base Value" of an SAR shall have the meaning set forth
in Section 7.1 herein.
2.4 "Board" or "Board of Directors" means the Board of
Directors of the Company.
2.5 "Change in Control" means the earliest of the following
to occur: (a) the public announcement by the Company or by any
person (which shall not include the Company, any subsidiary of
the Company, or any employee benefit plan of the Company or of
any subsidiary of the Company) ("Person") that such Person, who
or which, together with all Affiliates and Associates (within the
meanings ascribed to such terms in the Rule 12b-2 of the General
Rules and Regulations under the Exchange Act) of such Person,
shall be the beneficial owner of twenty percent (20%) or more of
the voting stock of the Company outstanding; (b) the commencement
of, or after the first public announcement of any Person to
commence, a tender or exchange offer the consummation of which
would result in any Person becoming the beneficial owner of
voting stock aggregating thirty percent (30%) or more of the then
outstanding voting stock of the Company; (c) the announcement of
any transaction relating to the Company required to be described
pursuant to the requirements of Item 6(e) of Schedule 14A of
Regulation 14A under the Exchange Act; (d) a proposed change in
constituency of the Board such that, during any period of two (2)
consecutive years, individuals who at the beginning of such
period constitute the Board cease for any reason to constitute at
least a majority thereof, unless the election or nomination for
election by the stockholders of the Company of each new Director
was approved by a vote of at least two-thirds (2/3) of the
Directors then still in office who were members of the Board at
the beginning of the period; (e) the sale or other disposition of
all or substantially all of the assets of Montana-Dakota
Utilities Co., other than to a subsidiary of the Company; or (f)
any other event which shall be deemed by a majority of the
Compensation Committee to constitute a "change in control".
2.6 "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
2.7 "Committee" means the Committee, as specified in
Article 3, appointed by the Board to administer the Plan with
respect to Awards.
2.8 "Company" means MDU Resources Group, Inc., a Delaware
corporation, or any successor thereto as provided in Article 17
herein.
2.9 "Director" means any individual who is a member of the
Board of Directors of the Company.
2.10 "Disability" means "permanent and total disability" as
defined under Section 22(e)(3)of the Code.
2.11 "Dividend Equivalent" means, with respect to Shares
subject to an Award, a right to be paid an amount equal to
dividends declared on an equal number of outstanding Shares.
2.12 "Eligible Employee" means an Employee who is eligible
to participate in the Plan, as set forth in Section 5.1 herein.
2.13 "Employee" means any full-time or regularly-scheduled
part-time employee of the Company or of the Company's
Subsidiaries, who is not covered by any collective bargaining
agreement to which the Company or any of its Subsidiaries is a
party. Directors who are not otherwise employed by the Company
shall not be considered Employees for purposes of the Plan. For
purposes of the Plan, transfer of employment of a Participant
between the Company and any one of its Subsidiaries (or between
Subsidiaries) shall not be deemed a termination of employment.
2.14 "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time, or any successor act thereto.
2.15 "Exercise Period" means the period during which an SAR
or Option is exercisable, as set forth in the related Award
Agreement.
2.16 "Fair Market Value" shall mean the average of the high
and low sale prices as reported in the consolidated transaction
reporting system or, if there is no such sale on the relevant
date, then on the last previous day on which a sale was reported.
2.17 "Freestanding SAR" means an SAR that is granted
independently of any Option.
2.18 "Incentive Stock Option" or "ISO" means an option to
purchase Shares, granted under Article 6 herein, which is
designated as an Incentive Stock Option and satisfies the
requirements of Section 422 of the Code.
2.19 "Nonqualified Stock Option" or "NQSO" means an option
to purchase Shares, granted under Article 6 herein, which is not
intended to be an Incentive Stock Option under Section 422 of the
Code.
2.20 "Option" means an Incentive Stock Option or a
Nonqualified Stock Option.
2.21 "Option Price" means the price at which a Share may be
purchased by a Participant pursuant to an Option, as determined
by the Committee and set forth in the Option Award Agreement.
2.22 "Participant" means an Employee of the Company who has
outstanding an Award granted under the Plan.
2.23 "Performance Unit" means an Award granted to an
Employee, as described in Article 9 herein.
2.24 "Performance Share" means an Award granted to an
Employee, as described in Article 9 herein.
2.25 "Period of Restriction" means the period during which
the transfer of Restricted Stock is limited in some way, as
provided in Article 8 herein.
2.26 "Person" shall have the meaning ascribed to such term
in Section 3(a)(9) of the Exchange Act, as used in Sections 13(d)
and 14(d) thereof, including usage in the definition of a "group"
in Section 13(d) thereof.
2.27 "Restricted Stock" means an Award of Shares granted to
a Participant pursuant to Article 8 herein.
2.28 "Shares" means the shares of common stock of the
Company.
2.29 "Stock Appreciation Right" or "SAR" means a right,
granted alone or in connection with a related Option, designated
as an SAR, to receive a payment on the day the right is
exercised, pursuant to the terms of Article 7 herein. Each SAR
shall be denominated in terms of one Share.
2.30 "Subsidiary" means any corporation that is a
"subsidiary corporation" of the Company as that term is defined
in Section 424(f) of the Code.
2.31 "Tandem SAR" means an SAR that is granted in connection
with a related Option, the exercise of which shall require
forfeiture of the right to purchase a Share under the related
Option (and when a Share is purchased under the Option, the
Tandem SAR shall be similarly canceled).
Article 3. Administration
3.1 The Committee. The Plan shall be administered by the
Compensation Committee of the Board, or by any other Committee
appointed by the Board. The members of the Committee shall be
appointed from time to time by, and shall serve at the discretion
of, the Board of Directors.
3.2 Authority of the Committee. The Committee shall have
full power except as limited by law, the Articles of
Incorporation and the Bylaws of the Company, subject to such
other restricting limitations or directions as may be imposed by
the Board and subject to the provisions herein, to determine the
size and types of Awards; to determine the terms and conditions
of such Awards in a manner consistent with the Plan; to construe
and interpret the Plan and any agreement or instrument entered
into under the Plan; to establish, amend or waive rules and
regulations for the Plan's administration; and (subject to the
provisions of Article 15 herein) to amend the terms and
conditions of any outstanding Award. Further, the Committee
shall make all other determinations which may be necessary or
advisable for the administration of the Plan. As permitted by
law, the Committee may delegate its authorities as identified
hereunder.
3.3 Restrictions on Share Transferability. The Committee
may impose such restrictions on any Shares acquired pursuant to
Awards under the Plan as it may deem advisable, including,
without limitation, restrictions to comply with applicable
Federal securities laws, with the requirements of any stock
exchange or market upon which such Shares are then listed and/or
traded and with any blue sky or state securities laws applicable
to such Shares.
3.4 Approval. The Board or the Committee shall approve all
Awards made under the Plan and all elections made by
Participants, prior to their effective date, to the extent
necessary to comply with Rule 16b-3 under the Exchange Act.
3.5 Decisions Binding. All determinations and decisions
made by the Committee pursuant to the provisions of the Plan and
all related orders or resolutions of the Board shall be final,
conclusive and binding on all persons, including the Company, its
stockholders, Employees, Participants and their estates and
beneficiaries.
3.6 Costs. The Company shall pay all costs of
administration of the Plan.
Article 4. Shares Subject to the Plan
4.1 Number of Shares. Subject to Section 4.2 herein, the
maximum number of Shares available for grant under the Plan shall
be 1,200,000. Shares underlying lapsed or forfeited Awards, or
Awards that are not paid in Shares, may be reused for other
Awards. Shares granted pursuant to the Plan may be (i)
authorized but unissued Shares of Common Stock, (ii) treasury
shares, or (iii) shares purchased on the open market.
4.2 Adjustments in Authorized Shares. In the event of any
merger, reorganization, consolidation, recapitalization,
separation, liquidation, stock dividend, split-up, share
combination or other change in the corporate structure of the
Company affecting the Shares, such adjustment shall be made in
the number and class of Shares which may be delivered under the
Plan, and in the number and class of and/or price of Shares
subject to outstanding Awards granted under the Plan, as may be
determined to be appropriate and equitable by the Committee, in
its sole discretion, to prevent dilution or enlargement of
rights; provided, however, that the number of Shares subject to
any Award shall always be a whole number. Notwithstanding the
foregoing, (i) each such adjustment with respect to an Incentive
Stock Option shall comply with the rules of Section 424(a) of the
Code and (ii) in no event shall any adjustment be made which
would render any Incentive Stock Option granted hereunder to be
other than an incentive stock option for purposes of Section 422
of the Code.
Article 5. Eligibility and Participation
5.1 Eligibility. Persons eligible to participate in the
Plan include all officers and key employees of the Company and
its Subsidiaries, as determined by the Committee, including
Employees who are members of the Board, but excluding Directors
who are not Employees.
5.2 Actual Participation. Subject to the provisions of the
Plan, the Committee may, from time to time, select from all
eligible Employees those to whom Awards shall be granted and
shall determine the nature and amount of each Award.
Article 6. Stock Options
6.1 Grant of Options. Subject to the terms and conditions
of the Plan, Options may be granted to an Eligible Employee at
any time and from time to time, as shall be determined by the
Committee.
The Committee shall have complete discretion in determining
the number of Shares subject to Options granted to each
Participant (subject to Article 4 herein) and, consistent with
the provisions of the Plan, in determining the terms and
conditions pertaining to such Options. The Committee may grant
ISOs, NQSOs, or a combination thereof.
6.2 Option Award Agreement. Each Option grant shall be
evidenced by an Option Award Agreement that shall specify the
Option Price, the term of the Option, the number of Shares to
which the Option pertains, the Exercise Period and such other
provisions as the Committee shall determine, including but not
limited to any rights to Dividend Equivalents. The Option Award
Agreement shall also specify whether the Option is intended to be
an ISO or an NQSO.
The Option Price for each Share purchasable under any
Incentive Stock Option granted hereunder shall be not less than
one hundred percent (100%) of the Fair Market Value per Share at
the date the Option is granted; and provided, further, that in
the case of an Incentive Stock Option granted to a person who, at
the time such Incentive Stock Option is granted, owns shares of
stock of the Company or of any Subsidiary which possess more than
ten percent (10%) of the total combined voting power of all
classes of shares of stock of the Company or of any Subsidiary,
the Option Price for each Share shall be not less than one
hundred ten percent (110%) of the Fair Market Value per Share at
the date the Option is granted. The Option Price will be subject
to adjustment in accordance with the provisions of Section 4.2 of
the Plan.
No Incentive Stock Option by its terms shall be exercisable
after the expiration of ten (10) years from the date of grant of
the Option; provided, however, in the case of an Incentive Stock
Option granted to a person who, at the time such Option is
granted, owns shares of stock of the Company or of any Subsidiary
possessing more than ten percent (10%) of the total combined
voting power of all classes of shares of stock of the Company or
of any Subsidiary, such Option shall not be exercisable after the
expiration of five (5) years from the date such Option is
granted.
6.3 Exercise of and Payment for Options. Options granted
under the Plan shall be exercisable at such times and be subject
to such restrictions and conditions as the Committee shall in
each instance approve.
A Participant may exercise an Option at any time during the
Exercise Period. Options shall be exercised by the delivery of a
written notice of exercise to the Company or its designee,
setting forth the number of Shares with respect to which the
Option is to be exercised, accompanied by provisions for full
payment for the Shares.
The Option Price upon exercise of any Option shall be
payable either: (a) in cash or its equivalent, (b) by tendering
previously acquired Shares having an aggregate Fair Market Value
at the time of exercise equal to the total Option Price (provided
that the Shares which are tendered must have been held by the
Participant for at least six (6) months prior to their tender to
satisfy the Option Price), (c) by share withholding, (d) by
cashless exercise or (e) by a combination of (a),(b),(c), and/or
(d).
As soon as practicable after receipt of a written
notification of exercise of an Option and provisions for full
payment therefor, there shall be delivered to the Participant, in
the Participant's name, Share certificates in an appropriate
amount based upon the number of Shares purchased under the
Option(s).
6.4 Termination of Employment. Each Option Award Agreement
shall set forth the extent to which the Participant shall have
the right to exercise the Option following termination of the
Participant's employment with the Company and its Subsidiaries.
Such provisions shall be determined in the sole discretion of the
Committee (subject to applicable law), shall be included in the
Option Award Agreement entered into with Participants, need not
be uniform among all Options granted pursuant to the Plan or
among Participants and may reflect distinctions based on the
reasons for termination of employment. If the employment of a
Participant by the Company or by any Subsidiary is terminated for
any reason other than death, any Incentive Stock Option granted
to such Participant may not be exercised later than three (3)
months (one (1) year in the case of termination due to
Disability) after the date of such termination of employment.
6.5 Transferability of Options. Except as otherwise
determined by the Committee and set forth in the Option Award
Agreement, no Option granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution, and all Incentive Stock Options granted to a
Participant under the Plan shall be exercisable during his or her
lifetime only by such Participant.
Article 7. Stock Appreciation Rights
7.1 Grant of SARs. Subject to the terms and conditions of
the Plan, an SAR may be granted to an Eligible Employee at any
time and from time to time as shall be determined by the
Committee. The Committee may grant Freestanding SARs, Tandem
SARs or any combination of these forms of SAR.
The Committee shall have complete discretion in determining
the number of SARs granted to each Participant (subject to
Article 4 herein) and, consistent with the provisions of the
Plan, in determining the terms and conditions pertaining to such
SARs.
The Base Value of a Freestanding SAR shall equal the Fair
Market Value of a Share on the date of grant of the SAR. The
Base Value of Tandem SARs shall equal the Option Price of the
related Option.
7.2 SAR Award Agreement. Each SAR grant shall be evidenced
by an SAR Award Agreement that shall specify the number of SARs
granted, the Base Value, the term of the SAR, the Exercise Period
and such other provisions as the Committee shall determine.
7.3 Exercise and Payment of SARs. Tandem SARs may be
exercised for all or part of the Shares subject to the related
Option upon the surrender of the right to exercise the equivalent
portion of the related Option. A Tandem SAR may be exercised
only with respect to the Shares for which its related Option is
then exercisable.
Notwithstanding any other provision of the Plan to the
contrary, with respect to a Tandem SAR granted in connection with
an ISO: (i) the Tandem SAR will expire no later than the
expiration of the underlying ISO; (ii) the value of the payout
with respect to the Tandem SAR may be for no more than one
hundred percent (100%) of the difference between the Option Price
of the underlying ISO and the Fair Market Value of the Shares
subject to the underlying ISO at the time the Tandem SAR is
exercised; and (iii) the Tandem SAR may be exercised only when
the Fair Market Value of the Shares subject to the ISO exceeds
the Option Price of the ISO.
Freestanding SARs may be exercised upon whatever terms and
conditions the Committee, in its sole discretion, imposes upon
them.
A Participant may exercise an SAR at any time during the
Exercise Period. SARs shall be exercised by the delivery of a
written notice of exercise to the Company, setting forth the
number of SARs being exercised. Upon exercise of an SAR, a
Participant shall be entitled to receive payment from the Company
in an amount equal to the product of:
(a) the excess of (i) the Fair Market Value of a Share on
the date of exercise over (ii) the Base Value
multiplied by
(b) the number of Shares with respect to which the SAR is
exercised.
At the sole discretion of the Committee, the payment to the
Participant upon SAR exercise may be in cash, in Shares of
equivalent value, or in some combination thereof.
7.4 Termination of Employment. Each SAR Award Agreement
shall set forth the extent to which the Participant shall have
the right to exercise the SAR following termination of the
Participant's employment with the Company and its Subsidiaries.
Such provisions shall be determined in the sole discretion of the
Committee, shall be included in the SAR Award Agreement entered
into with Participants, need not be uniform among all SARs
granted pursuant to the Plan or among Participants and may
reflect distinctions based on the reasons for termination of
employment.
7.5 Transferability of SARs. Except as otherwise
determined by the Committee and set forth in the SAR Award
Agreement, no SAR granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution, and all SARs granted to a Participant under the
Plan shall be exercisable during his or her lifetime only by such
Participant or his or her legal representative.
Article 8. Restricted Stock
8.1 Grant of Restricted Stock. Subject to the terms and
conditions of the Plan, Restricted Stock may be granted to
Eligible Employees at any time and from time to time, as shall be
determined by the Committee.
The Committee shall have complete discretion in determining
the number of shares of Restricted Stock granted to each
Participant (subject to Article 4 herein) and, consistent with
the provisions of the Plan, in determining the terms and
conditions pertaining to such Restricted Stock.
8.2 Restricted Stock Award Agreement. Each Restricted
Stock grant shall be evidenced by a Restricted Stock Award
Agreement that shall specify the Period or Periods of
Restriction, the number of Restricted Stock Shares granted and
such other provisions as the Committee shall determine.
8.3 Transferability. Restricted Stock granted hereunder
may not be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated until the end of the applicable Period
of Restriction established by the Committee and specified in the
Restricted Stock Award Agreement. All rights with respect to the
Restricted Stock granted to a Participant under the Plan shall be
available during his or her lifetime only to such Participant or
his or her legal representative.
8.4 Certificate Legend. Each certificate representing
Restricted Stock granted pursuant to the Plan may bear a legend
substantially as follows:
"The sale or other transfer of the shares of stock
represented by this certificate, whether voluntary,
involuntary or by operation of law, is subject to
certain restrictions on transfer as set forth in MDU
Resources Group, Inc. 1997 Executive Long-Term
Incentive Plan, and in a Restricted Stock Award
Agreement. A copy of such Plan and such Agreement may
be obtained from MDU Resources Group, Inc."
The Company shall have the right to retain the certificates
representing Restricted Stock in the Company's possession until
such time as all restrictions applicable to such Shares have been
satisfied.
8.5 Removal of Restrictions. Restricted Stock shall become
freely transferable by the Participant after the last day of the
Period of Restriction applicable thereto. Once Restricted Stock
is released from the restrictions, the Participant shall be
entitled to have the legend referred to in Section 8.4 removed
from his or her stock certificate.
8.6 Voting Rights. During the Period of Restriction,
Participants holding Restricted Stock may exercise full voting
rights with respect to those Shares.
8.7 Dividends and Other Distributions. Subject to the
Committee's right to determine otherwise at the time of grant,
during the Period of Restriction, Participants holding Restricted
Stock shall receive all regular cash dividends paid with respect
to all Shares while they are so held. All other distributions
paid with respect to such Restricted Stock shall be credited to
Participants subject to the same restrictions on transferability
and forfeitability as the Restricted Stock with respect to which
they were paid and shall be paid to the Participant within forty-
five (45) days following the full vesting of the Restricted Stock
with respect to which such distributions were made.
8.8 Termination of Employment. Each Restricted Stock Award
Agreement shall set forth the extent to which the Participant
shall have the right to receive unvested Restricted Stock
following termination of the Participant's employment with the
Company and its Subsidiaries. Such provisions shall be
determined in the sole discretion of the Committee, shall be
included in the Restricted Stock Award Agreement entered into
with Participants, need not be uniform among all grants of
Restricted Stock or among Participants and may reflect
distinctions based on the reasons for termination of employment.
Article 9. Performance Units and Performance Shares
9.1 Grant of Performance Units and Performance Shares.
Subject to the terms and conditions of the Plan, Performance
Units and/or Performance Shares may be granted to an Eligible
Employee at any time and from time to time, as shall be
determined by the Committee.
The Committee shall have complete discretion in determining
the number of Performance Units and/or Performance Shares granted
to each Participant (subject to Article 4 herein) and, consistent
with the provisions of the Plan, in determining the terms and
conditions pertaining to such Awards.
9.2 Performance Unit/Performance Share Award Agreement.
Each grant of Performance Units and/or Performance Shares shall
be evidenced by a Performance Unit and/or Performance Share Award
Agreement that shall specify the number of Performance Units
and/or Performance Shares granted, the initial value (if
applicable), the Performance Period, the performance goals and
such other provisions as the Committee shall determine, including
but not limited to any rights to Dividend Equivalents.
9.3 Value of Performance Units/Performance Shares. Each
Performance Unit shall have an initial value that is established
by the Committee at the time of grant. The value of a
Performance Share shall be equal to the Fair Market Value of a
Share. The Committee shall set performance goals in its
discretion which, depending on the extent to which they are met,
will determine the number and/or value of Performance
Units/Performance Shares that will be paid out to the
Participants. The time period during which the performance goals
must be met shall be called a "Performance Period."
9.4 Earning of Performance Units/Performance Shares. After
the applicable Performance Period has ended, the holder of
Performance Units/Performance Shares shall be entitled to receive
a payout with respect to the Performance Units/Performance Shares
earned by the Participant over the Performance Period, to be
determined as a function of the extent to which the corresponding
performance goals have been achieved.
9.5 Form and Timing of Payment of Performance
Units/Performance Shares. Payment of earned Performance
Units/Performance Shares shall be made following the close of the
applicable Performance Period. The Committee, in its sole
discretion, may pay earned Performance Units/Performance Shares
in cash or in Shares (or in a combination thereof), which have an
aggregate Fair Market Value equal to the value of the earned
Performance Units/Performance Shares at the close of the
applicable Performance Period. Such Shares may be granted
subject to any restrictions deemed appropriate by the Committee.
9.6 Termination of Employment. Each Performance
Unit/Performance Share Award Agreement shall set forth the extent
to which the Participant shall have the right to receive a
Performance Unit/Performance Share payment following termination
of the Participant's employment with the Company and its
Subsidiaries during a Performance Period. Such provisions shall
be determined in the sole discretion of the Committee, shall be
included in the Award Agreement entered into with Participants,
need not be uniform among all grants of Performance
Units/Performance Shares or among Participants and may reflect
distinctions based on reasons for termination of employment.
9.7 Transferability. Except as otherwise determined by the
Committee and set forth in the Performance Unit/Performance Share
Award Agreement, Performance Units/Performance Shares may not be
sold, transferred, pledged, assigned or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution, and a Participant's rights with respect to
Performance Units/Performance Shares granted under the Plan shall
be available during the Participant's lifetime only to such
Participant or the Participant's legal representative.
Article 10. Other Awards
The Committee shall have the right to grant other Awards
which may include, without limitation, the grant of Shares based
on certain conditions, the payment of Shares in lieu of cash, or
cash based on performance criteria established by the Committee,
and the payment of Shares in lieu of cash under other Company
incentive bonus programs. Payment under or settlement of any
such Awards shall be made in such manner and at such times as the
Committee may determine.
Article 11. Beneficiary Designation
Each Participant under the Plan may, from time to time, name
any beneficiary or beneficiaries (who may be named contingently
or successively) to whom any benefit under the Plan is to be paid
in case of his or her death before he or she receives any or all
of such benefit. Each such designation shall revoke all prior
designations by the same Participant, shall be in a form
prescribed by the Company, and will be effective only when filed
by the Participant in writing with the Company during the
Participant's lifetime. In the absence of any such designation,
benefits remaining unpaid at the Participant's death shall be
paid to the Participant's estate.
The spouse of a married Participant domiciled in a community
property jurisdiction shall join in any designation of
beneficiary or beneficiaries other than the spouse.
Article 12. Deferrals
The Committee may permit a Participant to defer the
Participant's receipt of the payment of cash or the delivery of
Shares that would otherwise be due to such Participant under the
Plan. If any such deferral election is permitted, the Committee
shall, in its sole discretion, establish rules and procedures for
such payment deferrals.
Article 13. Rights of Employees
13.1 Employment. Nothing in the Plan shall interfere with
or limit in any way the right of the Company to terminate any
Participant's employment at any time, for any reason or no reason
in the Company's sole discretion, nor confer upon any Participant
any right to continue in the employ of the Company.
13.2 Participation. No Employee shall have the right to be
selected to receive an Award under the Plan, or, having been so
selected, to be selected to receive a future Award.
Article 14. Change in Control
The terms of this Article 14 shall immediately become
operative, without further action or consent by any person or
entity, upon a Change in Control, and once operative shall
supersede and take control over any other provisions of this
Plan.
Upon a Change in Control
(a) Any and all Options and SARs granted hereunder shall
become immediately exercisable;
(b) Any restriction periods and restrictions imposed on
Restricted Shares shall be deemed to have expired and
such Restricted Shares shall become immediately vested
in full; and
(c) The target payout opportunity attainable under all
outstanding Awards of Performance Units, Performance
Shares and other Awards shall be deemed to have been
fully earned for the entire Performance Period(s) as of
the effective date of the Change in Control. The
vesting of all Awards denominated in Shares shall be
accelerated as of the effective date of the Change in
Control, and there shall be paid out in cash to
Participants immediately following the effective date
of the Change in Control the full amount of the
targeted cash payout opportunities associated with
outstanding cash-based Awards.
Article 15. Amendment, Modification and Termination
15.1 Amendment, Modification and Termination. The Board
may, at any time and from time to time, alter, amend, suspend or
terminate the Plan in whole or in part, provided that no
amendment shall be made which shall increase the total number of
Shares which may be issued and sold pursuant to Incentive Stock
Options, reduce the minimum exercise price in the case of an
Incentive Stock Option or modify the provisions of the Plan
relating to eligibility with respect to Incentive Stock Options
unless such amendment is made by or with the approval of the
stockholders within 12 months of the effective date of such
amendment, but only if such approval is required by any
applicable provision of law. The Board of Directors of the
Company is also authorized to amend the Plan and the Options
granted hereunder to maintain qualification as "incentive stock
options" within the meaning of Section 422 of the Code, if
applicable.
15.2 Awards Previously Granted. No termination, amendment
or modification of the Plan shall adversely affect in any
material way any Award previously granted under the Plan, without
the written consent of the Participant holding such Award, unless
such termination, modification or amendment is required by
applicable law and except as otherwise provided herein.
Article 16. Withholding
16.1 Tax Withholding. The Company shall have the power and
the right to deduct or withhold, or require a Participant to
remit to the Company, an amount sufficient to satisfy Federal,
state and local taxes (including the Participant's FICA
obligation) required by law to be withheld with respect to an
Award made under the Plan.
16.2 Share Withholding. With respect to withholding
required upon the exercise of Options or SARs, upon the lapse of
restrictions on Restricted Stock, or upon any other taxable event
arising out of or as a result of Awards granted hereunder,
Participants may elect to satisfy the withholding requirement, in
whole or in part, by tendering previously-owned Shares or by
having the Company withhold Shares having a Fair Market Value on
the date the tax is to be determined equal to the statutory total
tax which could be imposed on the transaction. All elections
shall be irrevocable, made in writing and signed by the
Participant.
Article 17. Successors
All obligations of the Company under the Plan, with respect
to Awards granted hereunder, shall be binding on any successor to
the Company, whether the existence of such successor is the
result of a direct or indirect purchase, merger, consolidation or
otherwise, of all or substantially all of the business and/or
assets of the Company.
Article 18. Legal Construction
18.1 Gender and Number. Except where otherwise indicated by
the context, any masculine term used herein also shall include
the feminine, the plural shall include the singular and the
singular shall include the plural.
18.2 Severability. In the event any provision of the Plan
shall be held illegal or invalid for any reason, the illegality
or invalidity shall not affect the remaining parts of the Plan,
and the Plan shall be construed and enforced as if the illegal or
invalid provision had not been included.
18.3 Requirements of Law. The granting of Awards and the
issuance of Shares under the Plan shall be subject to all
applicable laws, rules and regulations, and to such approvals by
any governmental agencies or national securities exchanges as may
be required.
18.4 Governing Law. To the extent not preempted by Federal
law, the Plan, and all agreements hereunder, shall be construed
in accordance with, and governed by, the laws of the State of
Delaware.
Approved by the Board of Directors February 7, 1997
Approved by the Stockholders April 22, 1997
Exhibit 12
MDU RESOURCES GROUP, INC.
COMPUTATION OF RATIO OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
Twelve Months Year
Ended Ended
June 30, 1997 December 31, 1996
(In thousands of dollars)
Earnings Available for
Fixed Charges:
Net Income per Consolidated
Statements of Income $ 47,074 $45,470
Income Taxes 16,384 16,087
63,458 61,557
Rents (a) 1,032 1,031
Interest (b) 33,621 34,101
Total Earnings Available
for Fixed Charges $ 98,111 $96,689
Preferred Dividend Requirements $ 784 $ 787
Ratio of Income Before Income
Taxes to Net Income 135% 135%
Preferred Dividend Factor on
Pretax Basis 1,058 1,062
Fixed Charges (c) 34,653 35,132
$ 35,711 $36,194
Ratio of Earnings to
Combined Fixed Charges
and Preferred Dividends 2.75x 2.67x
(a) Represents portion (33 1/3%) of rents which is estimated to
approximately constitute the return to the lessors on their
investment in leased premises.
(b) Represents interest and amortization of debt discount and
expense on all indebtedness and excludes amortization of gains
or losses on reacquired debt which, under the Uniform System
of Accounts, is classified as a reduction of, or increase in,
interest expense in the Consolidated Statements of Income.
Also includes carrying costs associated with natural gas
available under a repurchase agreement with Frontier Gas
Storage Company as more fully described in Notes to
Consolidated Financial Statements.
(c) Represents rents and interest, both as defined above.
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME, CONSOLIDATED BALANCE SHEETS AND
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
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 522,069
<OTHER-PROPERTY-AND-INVEST> 293,405
<TOTAL-CURRENT-ASSETS> 167,069
<TOTAL-DEFERRED-CHARGES> 43,570
<OTHER-ASSETS> 20,269
<TOTAL-ASSETS> 1,046,382
<COMMON> 95,730
<CAPITAL-SURPLUS-PAID-IN> 69,386
<RETAINED-EARNINGS> 198,572
<TOTAL-COMMON-STOCKHOLDERS-EQ> 363,688
1,800
15,000
<LONG-TERM-DEBT-NET> 298,720
<SHORT-TERM-NOTES> 7,675
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 6,754
100
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 352,645
<TOT-CAPITALIZATION-AND-LIAB> 1,046,382
<GROSS-OPERATING-REVENUE> 265,192
<INCOME-TAX-EXPENSE> 13,308
<OTHER-OPERATING-EXPENSES> 215,988
<TOTAL-OPERATING-EXPENSES> 229,296
<OPERATING-INCOME-LOSS> 35,896
<OTHER-INCOME-NET> 3,528
<INCOME-BEFORE-INTEREST-EXPEN> 39,424
<TOTAL-INTEREST-EXPENSE> 16,087
<NET-INCOME> 23,337
391
<EARNINGS-AVAILABLE-FOR-COMM> 22,946
<COMMON-STOCK-DIVIDENDS> 15,915
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