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 SEPTEMBER 30, 1998
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.)
Schuchart Building
918 East Divide Avenue
P.O. Box 5650
Bismarck, North Dakota 58506-5650
(Address of principal executive offices)
(Zip Code)
(701) 222-7900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X. No.
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of November 6, 1998:
53,025,495 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
2 -- "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 statements that are identified by 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 the
Schuchart Building, 918 East Divide Avenue, P.O. Box 5650,
Bismarck, North Dakota 58506-5650, 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, Inc. (Centennial), owns WBI Holdings, Inc.
(WBI Holdings), Knife River Corporation (Knife River), the
Fidelity Oil Group (Fidelity Oil) and Utility Services, Inc.
(Utility Services).
WBI Holdings, through its wholly owned subsidiary,
Williston Basin Interstate Pipeline Company
(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. In addition, WBI Holdings,
through its wholly owned subsidiary, WBI Energy Services, Inc.
and its subsidiaries, seeks new energy markets while continuing
to expand present markets for natural gas and propane in the
Midwestern and/or southern regions of the United States.
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 Alaska, California, Hawaii and Oregon. 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, installs and repairs electric transmission,
electric and natural gas distribution, telecommunication cable
and fiber optic systems in the western United States and/or
Hawaii and provides related supplies, equipment and engineering
services.
INDEX
Part I -- Financial Information
Consolidated Statements of Income --
Three and Nine Months Ended September 30, 1998 and 1997
Consolidated Balance Sheets --
September 30, 1998 and 1997, and December 31, 1997
Consolidated Statements of Cash Flows --
Nine Months Ended September 30, 1998 and 1997
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 Nine Months
Ended Ended
September 30, September 30,
1998 1997 1998 1997
(In thousands, except per share amounts)
Operating revenues:
Electric $ 58,791 $ 48,031 $151,712 $117,074
Natural gas 64,110 34,476 175,756 136,919
Construction materials and mining 134,047 65,771 253,903 123,854
Oil and natural gas production 13,030 15,421 38,444 51,044
269,978 163,699 619,815 428,891
Operating expenses:
Fuel and purchased power 12,841 11,255 37,082 33,655
Purchased natural gas sold 38,461 9,870 81,970 46,988
Operation and maintenance 149,649 90,479 323,215 205,148
Depreciation, depletion and
amortization 20,006 16,869 57,161 46,943
Taxes, other than income 6,326 6,202 18,978 17,928
Write-down of oil and natural gas
properties (Note 6) --- --- 33,100 ---
227,283 134,675 551,506 350,662
Operating income:
Electric 11,565 9,646 27,515 22,362
Natural gas distribution (2,987) (2,339) 2,986 4,706
Natural gas transmission 8,357 6,745 29,081 21,335
Construction materials and mining 22,774 9,650 33,300 10,669
Oil and natural gas production 2,986 5,322 (24,573) 19,157
42,695 29,024 68,309 78,229
Other income -- net 1,202 1,399 6,359 2,972
Interest expense 8,050 7,783 22,400 21,916
Income before income taxes 35,847 22,640 52,268 59,285
Income taxes 13,309 8,445 17,723 21,753
Net income 22,538 14,195 34,545 37,532
Dividends on preferred stocks 194 196 582 586
Earnings on common stock $ 22,344 $ 13,999 $ 33,963 $ 36,946
Earnings per common share -- basic $ .42 $ .32 $ .68 $ .86
Earnings per common share -- diluted $ .42 $ .32 $ .68 $ .85
Dividends per common share $ .20 $ .1917 $ .5833 $ .5617
Average common shares
outstanding -- basic 52,703 43,577 49,698 43,194
Average common shares
outstanding -- diluted 53,062 43,733 49,966 43,332
The accompanying notes are an integral part of these consolidated statements.
MDU RESOURCES GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, September 30, December 31,
1998 1997 1997
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 51,006 $ 66,164 $ 28,174
Receivables 119,997 71,229 80,585
Inventories 50,997 45,391 41,322
Deferred income taxes 14,305 22,327 17,356
Prepayments and other current assets 19,601 28,796 12,479
255,906 233,907 179,916
Investments 24,722 18,537 18,935
Property, plant and equipment:
Electric 578,211 560,007 566,247
Natural gas distribution 176,850 169,005 172,086
Natural gas transmission 300,140 283,505 288,709
Construction materials and mining 468,490 238,742 243,110
Oil and natural gas production 273,983 232,736 240,193
1,797,674 1,483,995 1,510,345
Less accumulated depreciation,
depletion and amortization 709,272 655,210 670,809
1,088,402 828,785 839,536
Deferred charges and other assets 85,618 79,295 75,505
$1,454,648 $1,160,524 $1,113,892
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 8,272 $ 16,038 $ 3,347
Long-term debt and preferred
stock due within one year 5,456 8,792 7,902
Accounts payable 57,119 39,106 31,571
Taxes payable 9,157 6,223 9,057
Dividends payable 10,774 8,555 8,574
Other accrued liabilities,
including reserved revenues 77,151 101,390 88,563
167,929 180,104 149,014
Long-term debt 400,244 322,998 298,561
Deferred credits and other liabilities:
Deferred income taxes 182,586 121,563 119,747
Other liabilities 128,570 142,550 143,574
311,156 264,113 263,321
Commitments and contingencies
Stockholders' equity:
Preferred stock subject to mandatory
redemption requirements 1,700 1,800 1,700
Preferred stock redeemable at option
of the Company 15,000 15,000 15,000
16,700 16,800 16,700
Common stockholders' equity:
Common stock (Note 4)
(Shares outstanding -- 52,897,244,
$3.33 par value at September 30, 1998,
29,078,507, $3.33 par value at
September 30, 1997 and 29,143,332,
$3.33 par value at December 31, 1997) 176,945 96,831 97,047
Other paid-in capital 168,479 75,466 76,526
Retained earnings 216,821 204,212 212,723
Treasury stock at cost (239,521 shares) (3,626) --- ---
Total common stockholders'
equity 558,619 376,509 386,296
Total stockholders' equity 575,319 393,309 402,996
$1,454,648 $1,160,524 $1,113,892
The accompanying notes are an integral part of these consolidated statements.
MDU RESOURCES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1998 1997
(In thousands)
Operating activities:
Net income $ 34,545 $ 37,532
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 57,161 46,943
Deferred income taxes and investment
tax credit -- net 5,862 9,282
Recovery of deferred natural gas contract litigation
settlement costs, net of income taxes --- 3,130
Write-down of oil and natural gas properties, net of
income taxes (Note 6) 20,025 ---
Changes in current assets and liabilities --
Receivables (7,350) 16,569
Inventories (4,861) (8,352)
Other current assets (1,559) (10,496)
Accounts payable 11,531 2,028
Other current liabilities (15,219) 5,269
Other noncurrent changes (8,404) (111)
Net cash provided by operating activities 91,731 101,794
Financing activities:
Net change in short-term borrowings (2,795) 6,777
Issuance of long-term debt 111,370 53,129
Repayment of long-term debt (25,934) (21,488)
Issuance of common stock 29,795 10,059
Retirement of natural gas repurchase commitment (15,174) (49,361)
Dividends paid (30,447) (24,861)
Net cash provided by (used in) financing activities 66,815 (25,745)
Investing activities:
Capital expenditures including acquisitions of businesses --
Electric (5,267) (11,945)
Natural gas distribution (6,112) (6,155)
Natural gas transmission (12,874) (7,260)
Construction materials and mining (42,339) (36,005)
Oil and natural gas production (74,661) (22,561)
(141,253) (83,926)
Net proceeds from sale or disposition of property 3,083 2,665
Net capital expenditures (138,170) (81,261)
Sale of natural gas available under
repurchase commitment 7,094 25,928
Investments (4,638) (2,351)
Net cash used in investing activities (135,714) (57,684)
Increase in cash and cash equivalents 22,832 18,365
Cash and cash equivalents -- beginning of year 28,174 47,799
Cash and cash equivalents -- end of period $ 51,006 $ 66,164
The accompanying notes are an integral part of these consolidated statements.
MDU RESOURCES GROUP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 1998 and 1997
(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, 1997
(1997 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 1997 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. Reclassifications
Certain reclassifications have been made in the financial
statements for the prior period to conform to the current
presentation. Such reclassifications had no effect on net income
or common stockholders' equity as previously reported.
3. 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.
4. Common stock split
On May 14, 1998, the Company's Board of Directors approved
a three-for-two common stock split to be effected in the form of a
50 percent common stock dividend. The additional shares of common
stock were distributed on July 13, 1998, to common stockholders of
record on July 3, 1998. All common stock information appearing in
the accompanying consolidated financial statements has been
restated to give retroactive effect to the stock split.
Additionally, preference share purchase rights have been
appropriately adjusted to reflect the effects of the split.
5. New Accounting Pronouncements
On January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS No. 130). SFAS No. 130 provides authoritative
guidance on the reporting and display of comprehensive income
and its components. For the three months and nine months ended
September 30, 1998, comprehensive income equaled net income as
reported.
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
(SFAS No. 133). SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in
the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and
losses to offset the related results on the hedged item in the
income statement, and requires that a company must formally
document, designate and assess the effectiveness of transactions
that receive hedge accounting treatment.
SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999. SFAS No. 133 must be applied to derivative
instruments and certain derivative instruments embedded in hybrid
contracts that were issued, acquired, or substantively modified
after December 31, 1997. The Company has not yet quantified
the impacts of adopting SFAS No. 133.
6. Write-down of oil and natural gas properties
The Company uses the full-cost method of accounting for its
oil and natural gas production activities. Under this method, all
costs incurred in the acquisition, exploration and development of
oil and natural gas properties are capitalized and amortized on the
units of production method based on total proved reserves.
Capitalized costs are subject to a "ceiling test" that limits such
costs to the aggregate of the present value of future net revenues
of proved reserves and the lower of cost or fair value of unproved
properties. Future net revenue is estimated based on end-of-quarter
prices adjusted for contracted price changes. If capitalized costs
exceed the full-cost ceiling at the end of any quarter, a permanent
write-down is required to be charged to earnings in that quarter.
Such a charge has no effect on the Company's cash flows.
Due to significantly lower oil prices, the Company's
capitalized costs under the full-cost method of accounting exceeded
the full-cost ceiling at June 30, 1998. The Company was required
to recognize a write-down of its oil and natural gas producing
properties. This charge amounted to $33.1 million pretax and
reduced earnings for the nine months ended September 30, 1998 by
$20 million.
7. 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 totaled approximately $19 million or, under its
alternative pricing theory, approximately $39 million.
In June 1997, the Federal District Court issued its order
awarding Moncrief damages of approximately $15.6 million. In July
1997, the Federal District Court issued an order limiting
Moncrief's reimbursable costs to post-judgment interest, instead of
both pre- and post-judgment interest as Moncrief had sought.
In August 1997, Moncrief filed a notice of appeal with the United
States Court of Appeals for the Tenth Circuit (U.S. Court of
Appeals) related to the Federal District Court's orders. In
September 1997, Williston Basin and the Company filed a notice of
cross-appeal. Oral argument before the U.S. Court of Appeals was
held September 23, 1998. Williston Basin and the Company are
awaiting a decision from the U.S. Court of Appeals.
Williston Basin believes that it is entitled to recover
from customers virtually all of the costs which might
ultimately be incurred as a result of this litigation 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 Northwest
Judicial District Court (North Dakota District Court), against
Williston Basin and the Company. Apache and Snyder are oil and
natural gas producers which 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 as Williston Basin, the Company and Koch have settled their
disputes. Apache and Snyder have submitted damage estimates under
differing theories aggregating up to $4.8 million without interest.
A motion to intervene in the case by several other producers, all of
which had contracts with Koch but not with Williston Basin, was denied
in December 1996. The trial before the North Dakota District Court
was completed in November 1997. Williston Basin and the Company
are awaiting a decision from the North Dakota District Court.
In a related matter, in March 1997, a suit was filed by
nine other producers, several of which 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 stated.
In Williston Basin's opinion, the claims of Apache and
Snyder are without merit and overstated and the claims of the nine
other producers are without merit. If any amounts are ultimately
found to be due, Williston Basin plans to file with the FERC for
recovery from customers.
Jack J. Grynberg --
In July 1996, Jack J. Grynberg (Grynberg) filed suit in
United States District Court for the District of Columbia (U.S.
District Court) against Williston Basin and over 70 other natural
gas pipeline companies. Grynberg, acting on behalf of the United
States under the False Claims Act, alleged improper measurement of
the heating content or volume of natural gas purchased by the
defendants resulting in the underpayment of royalties to the United
States. The United States government, particularly officials from
the Departments of Justice and Interior, reviewed the complaint and
the evidence presented by Grynberg and declined to intervene in the
action, permitting Grynberg to proceed on his own. In March 1997,
the U.S. District Court dismissed the suit without prejudice
against 53 of the defendants, including Williston Basin, on the
grounds that the parties were improperly joined in the suit and
that Grynberg's claim of fraud was not specific enough as it
related to any individual party to the suit. On May 15, 1998,
Grynberg appealed the U.S. District Court's decision. Williston
Basin joined other defendants and filed a motion for summary
affirmance. The motion was granted on October 6, 1998, and the
appeal was effectively dismissed.
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 electric generating station (Coyote Station), against
the Company (an owner of a 25 percent interest in the Coyote
Station) and Knife River. In its complaint, the Co-owners have
alleged a breach of contract against Knife River with respect to
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 the Co-owners are
seeking damages in an unspecified amount. In May 1996, the State
District Court 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 an April 1997 order, 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. 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. On October 9, 1998,
a hearing before the arbitration panel was completed. At the
hearing the Co-owners requested damages of approximately $24
million, including interest, plus a reduction in the future price
of coal under the Agreement. A decision from the arbitration panel
is expected after the completion of a post-hearing briefing.
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.
8. Regulatory matters and revenues subject to refund
Williston Basin had pending with the FERC a general natural
gas rate change application implemented in 1992. In October 1997,
Williston Basin appealed to the U.S. Court of Appeals for the D.C.
Circuit (D.C. Circuit Court) certain issues decided by the FERC in
prior orders concerning the 1992 proceeding. Oral argument before
the D.C. Circuit Court has been scheduled for November 19, 1998.
In December 1997, the FERC issued an order accepting, subject to
certain conditions, Williston Basin's July 1997 compliance filing.
In December 1997, Williston Basin submitted a compliance filing
pursuant to the FERC's December 1997 order and refunded $33.8
million to its customers, including $30.8 million to Montana-Dakota,
in addition to the $6.1 million interim refund that it had
previously made in November 1996. All such amounts had been
previously reserved. On March 25, 1998, the FERC issued an order
accepting Williston Basin's December 1997 compliance filing.
In June 1995, Williston Basin filed a general rate increase
application with the FERC. As a result of FERC orders issued after
Williston Basin's application was filed, Williston Basin filed
revised base rates in December 1995 with the FERC resulting in an
increase of $8.9 million or 19.1 percent over the then current
effective rates. Williston Basin began collecting such increase
effective January 1, 1996, subject to refund. On July 29, 1998,
the FERC issued an order which addressed various issues. On August
28, 1998, Williston Basin requested rehearing of such 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 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.
9. 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 1997 Annual
Report. As a part of the corporate realignment effected January 1,
1985, the Company agreed, pursuant to the settlement approved by
the FERC, to remove from rates the financing costs associated with
this natural gas.
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 which in December
1996 issued its order ruling that the FERC's actions in allocating
storage capacity costs to the Frontier gas were appropriate. On
August 28, 1998, Williston Basin requested rehearing on the July
29, 1998 FERC order which addressed various issues, including a
requirement that storage deliverability costs be allocated to the
Frontier gas.
10. 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 reimbursed
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.
11. Cash flow information
Cash expenditures for interest and income taxes were as
follows:
Nine Months Ended
September 30,
1998 1997
(In thousands)
Interest, net of amount capitalized $16,000 $16,865
Income taxes $24,178 $18,235
The Company's Consolidated Statements of Cash Flows include
the effects from acquisitions.
12. Derivatives
Williston Basin and Fidelity Oil have entered into certain
price swap and collar agreements to manage a portion of the market
risk associated with fluctuations in the price of oil and natural
gas. These swap and collar agreements are not held for trading
purposes. The swap and collar agreements call for Williston Basin
and Fidelity Oil 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 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 swap and collar agreements are closely matched, and hedge
prices are established in the areas of operations. Amounts payable
or receivable on the swap and collar 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.
Innovative Gas Services, Incorporated, an energy marketing
subsidiary of WBI Energy Services, Inc., participates in the natural
gas futures market to hedge a portion of the price risk associated
with natural gas purchase and sale commitments. These futures are
not held for trading purposes. Gains or losses on the futures
contracts are deferred until the transaction occurs, at which point
they are reported in "Purchased natural gas sold" on the
Consolidated Statements of Income. The gains or losses on the
futures contracts are offset by corresponding increases and
decreases in the value of the underlying commodity transactions.
Knife River had entered into an interest rate swap
agreement, which expired in August 1998, to manage a portion of its
interest rate exposure on long-term debt. This interest
rate swap agreement was not held for trading purposes. The interest
rate swap agreement called for Knife River 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 agreement. The variable prices were based on the
three-month floating London Interbank Offered Rate. Settlement
amounts payable or receivable under this interest rate swap
agreement were recorded in "Interest expense" on the Consolidated
Statements of Income in the accounting period they were incurred.
The amounts payable or receivable were offset by interest on the
related debt instrument.
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 following table summarizes the Company's hedging
activity (notional amounts in thousands):
Nine Months Ended
September 30,
1998 1997
Oil swap agreements:*
Range of fixed prices per barrel $20.92 $19.77-$21.36
Notional amount (in barrels) 164 546
Natural gas swap/collar agreements:*
Range of fixed prices per MMBtu $1.54-$2.67 $1.30-$2.25
Notional amount (in MMBtu's) 4,914 6,324
Natural gas futures contracts:*
Range of fixed prices per MMBtu $2.21-$2.50 ---
Notional amount (in MMBtu's) 480 ---
Interest rate swap agreements:**
Range of fixed interest rates 5.50%-6.50% 5.50%-6.50%
Notional amount (in dollars) $10,000 $30,000
* Receive fixed -- pay variable
** Receive variable -- pay fixed
The following table summarizes swap and collar agreements
outstanding at September 30, 1998 (notional amounts in thousands):
Notional
Fixed Price Amount
Year (Per barrel) (In barrels)
Oil swap agreement* 1998 $20.92 55
Range of Notional
Fixed Prices Amount
Year (Per MMBtu) (In MMBtu's)
Natural gas swap/collar
agreements* 1998 $1.54-$2.67 1,168
1999 $2.10-$2.50 1,460
* Receive fixed -- pay variable
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. The
Company's net favorable position on all hedge agreements outstanding
at September 30, 1998, was $358,000. 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 or interest on the
related debt instrument.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For purposes of segment financial reporting and discussion of
results of operations, Electric includes the electric operations of
Montana-Dakota, as well as the operations of Utility Services.
Natural Gas Distribution includes Montana-Dakota's natural gas
distribution operations. Natural Gas Transmission includes WBI
Holdings' storage, transportation, gathering, natural gas production
and energy marketing operations. Construction Materials and Mining
includes the results of Knife River's operations, while Oil and
Natural Gas Production includes the operations of Fidelity Oil.
Overview
The following table (in millions of dollars) summarizes the
contribution to consolidated earnings by each of the Company's
businesses.
Three Months Nine Months
Ended Ended
September 30, September 30,
Business 1998 1997 1998 1997
Electric $ 5.4 $ 4.4 $ 12.0 $ 8.7
Natural gas distribution (2.4) (2.0) .4 1.3
Natural gas transmission 4.2 3.0 16.6 8.9
Construction materials and mining 13.3 5.6 19.2 6.8
Oil and natural gas production 1.8 3.0 (14.2) 11.2
Earnings on common stock $ 22.3 $ 14.0 $ 34.0 $ 36.9
Earnings per common share - basic $ .42 $ .32 $ .68 $ .86
Earnings per common share - diluted $ .42 $ .32 $ .68 $ .85
Return on average common equity
for the 12 months ended 10.8% 14.4%
Three Months Ended September 30, 1998 and 1997
Consolidated earnings for the quarter ended September 30, 1998,
were up $8.3 million from the comparable period a year ago due to
higher earnings at the construction materials and mining, natural
gas transmission and electric businesses. Decreased earnings at the
oil and natural gas production and natural gas distribution
businesses somewhat offset the earnings improvement.
Nine Months Ended September 30, 1998 and 1997
Consolidated earnings for the nine months ended September 30,
1998, were down $2.9 million from the comparable period a year ago
due to decreased earnings at the oil and natural gas production
business, largely resulting from a second quarter $20 million after
tax non-cash write-down of oil and natural gas properties, and lower
earnings at the natural gas distribution business. Increased
earnings at the construction materials and mining, natural gas
transmission and electric businesses somewhat offset the earnings
decline.
________________________________
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. Certain reclassifications have been made in the
following statistics for the prior period to conform to the current
presentation. Such reclassifications had no effect on net income
or common stockholders' equity as previously reported.
Electric Operations
Three Months Nine Months
Ended Ended
September 30, September 30,
1998 1997 1998 1997
Operating revenues:
Retail sales $ 35.1 $ 33.2 $ 97.6 $ 97.5
Sales for resale and other 3.8 2.7 11.7 7.5
Utility services 19.9 12.1 42.4 12.1
58.8 48.0 151.7 117.1
Operating expenses:
Fuel and purchased power 12.9 11.3 37.1 33.7
Operation and maintenance 26.7 20.3 65.5 42.0
Depreciation, depletion and
amortization 5.2 4.4 14.6 13.1
Taxes, other than income 2.4 2.3 7.0 5.9
47.2 38.3 124.2 94.7
Operating income 11.6 9.7 27.5 22.4
Retail sales (kWh) 550.8 517.6 1,533.5 1,526.3
Sales for resale (kWh) 112.2 70.6 421.7 231.3
Cost of fuel and purchased
power per kWh $ .018 $ .018 $ .018 $ .018
Natural Gas Distribution Operations
Three Months Nine Months
Ended Ended
September 30, September 30,
1998 1997 1998 1997
Operating revenues:
Sales $ 13.8 $ 16.1 $ 98.9 $ 97.5
Transportation and other .7 .7 2.5 2.5
14.5 16.8 101.4 100.0
Operating expenses:
Purchased gas sold 7.7 9.6 68.5 65.0
Operation and maintenance 7.0 6.8 21.5 22.0
Depreciation, depletion and
amortization 1.8 1.8 5.3 5.3
Taxes, other than income 1.0 .9 3.1 3.0
17.5 19.1 98.4 95.3
Operating income (loss) (3.0) (2.3) 3.0 4.7
Volumes (dk):
Sales 2.4 2.7 20.9 23.4
Transportation 2.1 2.1 7.0 6.8
Total throughput 4.5 4.8 27.9 30.2
Degree days (% of normal) 61.7% 91.0% 93.6% 104.4%
Average cost of gas, including
transportation, per dk $ 3.18 $ 3.57 $ 3.27 $ 2.77
Natural Gas Transmission Operations
Three Months Nine Months
Ended Ended
September 30, September 30,
1998 1997* 1998 1997*
Operating revenues:
Transportation and storage $ 14.4 $ 14.5 $ 47.3 $ 45.5
Energy marketing and
natural gas production 39.4 7.6 58.4 25.3
53.8 22.1 105.7 70.8
Operating expenses:
Purchased gas sold 35.0 4.4 44.8 14.4
Operation and maintenance 7.0 7.8 21.3 27.4
Depreciation, depletion and
amortization 2.1 1.9 6.2 3.7
Taxes, other than income 1.4 1.3 4.3 4.0
45.5 15.4 76.6 49.5
Operating income 8.3 6.7 29.1 21.3
Volumes (dk):
Transportation--
Montana-Dakota 8.0 9.0 24.0 26.6
Other 16.4 15.3 45.9 39.0
24.4 24.3 69.9 65.6
Produced (000's of dk) 1,676 1,709 5,145 5,120
* Includes $.4 million and $5.1 million for the three months and nine months
ended, respectively, of amortization and related recovery of deferred natural
gas contract buy-out/buy-down and/or gas supply realignment costs.
Construction Materials and Mining Operations
Three Months Nine Months
Ended Ended
September 30, September 30,
1998 1997** 1998 1997**
Operating revenues:
Construction materials $126.4 $ 58.8 $228.0 $105.7
Coal 7.7 7.0 25.9 18.2
134.1 65.8 253.9 123.9
Operating expenses:
Operation and maintenance 104.8 52.3 203.5 103.3
Depreciation, depletion and
amortization 5.6 3.1 14.6 7.8
Taxes, other than income .9 .8 2.5 2.1
111.3 56.2 220.6 113.2
Operating income 22.8 9.6 33.3 10.7
Sales (000's):
Aggregates (tons) 4,540 2,057 7,962 3,752
Asphalt (tons) 973 362 1,393 612
Ready-mixed concrete
(cubic yards) 342 177 740 358
Coal (tons) 678 593 2,239 1,571
** Prior to August 1, 1997, financial results did not include information
related to Knife River's ownership interest in Hawaiian Cement, 50
percent of which was acquired in September 1995, and was accounted for
under the equity method. On July 31, 1997, Knife River acquired the
50 percent interest in Hawaiian Cement that it did not previously own, and
subsequent to that date financial results are consolidated into Knife
River's financial statements.
Oil and Natural Gas Production Operations
Three Months Nine Months
Ended Ended
September 30, September 30,
1998 1997 1998 1997
Operating revenues:
Oil $ 5.7 $ 8.3 $ 18.8 $ 27.4
Natural gas 7.3 7.1 19.6 23.6
13.0 15.4 38.4 51.0
Operating expenses:
Operation and maintenance 4.1 3.5 11.4 11.9
Depreciation, depletion and
amortization 5.3 5.7 16.4 17.1
Taxes, other than income .6 .9 2.1 2.9
Write-down of oil and
natural gas properties --- --- 33.1 ---
10.0 10.1 63.0 31.9
Operating income (loss) 3.0 5.3 (24.6) 19.1
Production (000's):
Oil (barrels) 455 523 1,428 1,568
Natural gas (Mcf) 3,649 3,236 9,399 10,002
Average sales price:
Oil (per barrel) $12.65 $15.98 $13.21 $17.48
Natural gas (per Mcf) 1.99 2.19 2.08 2.36
Amounts presented in the above tables for natural gas operating
revenues and purchased natural gas sold for the three and nine
months ended September 30, 1998 and 1997, and operation and
maintenance expenses for the three and nine months ended September
30, 1997, 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 WBI Holdings' natural
gas transmission business.
Three Months Ended September 30, 1998 and 1997
Electric Operations
Operating income increased at the electric business due to
increased operating income at the electric utility and the
acquisitions of Pouk & Steinle, Inc. in April 1998, and Harp Line
Constructors Co. (Harp Line) and Harp Engineering, Inc. (Harp
Engineering) in July 1998. Operating income improved at the utility
primarily due to increased retail sales and sales for resale
revenue. Retail sales revenue increased due to higher sales to
residential and commercial customers resulting from warmer weather
while sales for resale volumes improved due to favorable market
conditions. Increased depreciation expense, primarily increased
depreciable plant, somewhat offset the operating income increase.
Earnings for the electric business increased due to the
operating income improvement. Earnings attributable to Utility
Services were $982,000.
Natural Gas Distribution Operations
Operating income decreased at the natural gas distribution
business due to reduced operating revenue caused by lower weather-
related sales, the result of 32 percent warmer weather. The pass-
through of lower average gas costs added to the decline in operating
revenue. Increased operation and maintenance expense also added to
the decrease in operating income.
Natural gas distribution earnings decreased due to the
previously discussed decrease in operating income.
Natural Gas Transmission Operations
Operating income at the natural gas transmission business
increased primarily due to higher average transportation margins
resulting from higher volumes transported to storage partially
offset by lower volumes transported to off-system markets. Increased
prices on company-owned natural gas production and decreased
operations expense also added to the operating income improvement.
The decline in operations expense resulted from lower production
royalties caused by a 1997 royalty settlement with the United States
Minerals Management Service (MMS). The increase in energy marketing
revenue and the related increase in purchased gas sold resulted from
the acquisition of Innovative Gas Services, Incorporated (IGS) in
July 1998.
Earnings for this business increased due to the operating income
improvement and decreased interest expense.
Construction Materials and Mining Operations
Construction Materials Operations --
Construction materials operating income increased $12.6 million
primarily due to the acquisitions which have occurred since the
comparable period a year ago. These acquisitions include the 50
percent interest in Hawaiian Cement that Knife River did not
previously own in July 1997, Morse Bros., Inc. (MBI) and S2 - F
Corp. (S2-F) in March 1998, Angell Bros., Inc. in April 1998, and
Hap Taylor & Sons, Inc. in July 1998. Prior to August 1997, Knife
River's original 50 percent ownership interest in Hawaiian Cement
was accounted for under the equity method. However, with the
acquisition mentioned above, Knife River began consolidating
Hawaiian Cement into its financial statements. Operating income at
the other construction materials operations increased due primarily
to higher aggregate sales volumes and margins in southern Oregon
resulting from increased construction activity and higher cement
margins in Alaska and Hawaii due to lower costs. Increased ready-
mixed concrete volumes in Alaska and higher asphalt volumes in
California and southern Oregon also added to the operating income
improvement.
Coal Operations --
Operating income for the coal operations increased $613,000
largely due to increased revenues resulting primarily from higher
demand-related sales at both the Beulah and Savage mines.
Consolidated --
Earnings improved due to increased operating income at both the
construction materials and coal operations. Higher interest expense
resulting mainly from increased long-term debt due to the
aforementioned acquisitions partially offset the increase in
earnings.
Oil and Natural Gas Production Operations
Operating income for the oil and natural gas production business
decreased largely as a result of lower oil revenues. Decreased oil
revenue resulted from a $1.7 million decline due to lower average
prices and a $860,000 decrease due to lower production. Natural gas
revenues increased slightly due to a $824,000 increase arising from
higher production, including the effects of the acquisition of a
majority interest in the Willow Springs Field in east Texas in July
1998, somewhat offset by a $626,000 decline due to lower average
prices. Operation and maintenance expense increased due largely to
the previously mentioned acquisition. Taxes other than income
decreased mainly due to lower production taxes resulting from lower
commodity prices, partially offsetting the operating income decline.
Earnings for this business unit decreased due to the decrease
in operating income and increased interest expense. Lower income
taxes slightly offset the decline in earnings.
Nine Months Ended September 30, 1998 and 1997
Electric Operations
Operating income at the electric business increased due to the
acquisitions of International Line Builders, Inc. (ILB) and High
Line Equipment, Inc. (HLE) in July 1997, Pouk & Steinle, Inc. in
April 1998, and Harp Line and Harp Engineering in July 1998, and due
to increased operating income at the electric utility. Increased
sales for resale revenue and lower maintenance expense contributed
to the utility operating income increase. Sales for resale revenue
increased due to 82 percent higher volumes and higher margins of 29
percent, both due to favorable market conditions. The decrease in
maintenance expense was due to 1997 costs of $1.9 million associated
with a ten-week maintenance outage at the Coyote Station. In
addition, damages caused by an April 1997 blizzard also added to the
decline in maintenance expense for 1998. Increased average realized
retail rates also contributed to the operating income improvement.
Increased fuel and purchased power costs, largely higher purchased
power demand charges resulting from the pass-through of periodic
maintenance costs, partially offset the operating income improvement
at the electric utility.
Earnings for the electric business increased due to the
aforementioned operating income increase and decreased net interest
expense. Earnings attributable to Utility Services were $2.1
million.
Natural Gas Distribution Operations
Operating income decreased at the natural gas distribution
business due to reduced weather-related sales, the result of 10
percent warmer weather. Operating revenues increased due to
increased average realized rates and the pass-through of higher
average natural gas costs, partially offset by the aforementioned
reduction in sales volumes. Decreased operation and maintenance
expense due primarily to lower employee benefit-related costs
partially offset the operating income decline.
Natural gas distribution earnings decreased due to the
previously discussed decline in operating income, partially offset
by increased service and repair income.
Natural Gas Transmission Operations
Operating income at the natural gas transmission business
increased primarily due to increases in transportation revenues.
The increase in transportation revenue resulted from a $5.0 million
($3.1 million after tax) reversal of reserves in the first quarter
of 1998 for certain contingencies relating to a FERC order
concerning a compliance filing. Higher volumes transported to
storage, somewhat offset by lower volumes transported to on- and
off-system markets, and higher average discounted rates also
contributed to the revenue increase. Lower production royalties
caused by a 1997 MMS royalty settlement, as previously discussed in
the three months discussion, also added to the operating income
increase. In addition, higher average prices on company-owned
natural gas production added to the operating income improvement.
The increase in energy marketing revenue and the related increase
in purchased gas sold result from the acquisition of IGS in July
1998.
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 interest expense.
Construction Materials and Mining Operations
Construction Materials Operations --
Construction materials operating income increased $18.7 million
primarily due to the acquisitions previously described in the three
months discussion. Operating income at the other construction
materials operations increased due to higher aggregate sales volumes
and margins in Alaska and southern Oregon due to increased
construction activity, higher cement margins in Alaska and Hawaii
due to lower costs and lower asphalt costs in 1998 when compared to
higher cost 1997 flood-related work in California.
Coal Operations --
Operating income for the coal operations increased $3.9 million
primarily due to increased revenues resulting from higher sales,
primarily to the Coyote Station. The increase in 1998 sales to the
Coyote Station was largely due to a 1997 ten-week maintenance
outage. Increased operating expenses, all primarily due to the
increase in volumes sold, partially offset the operating income
improvement.
Consolidated --
Earnings increased due to increased operating income at both the
construction materials and coal operations and gains realized from
the sale of equipment. Higher interest expense resulting mainly
from increased long-term debt due to the previously noted
acquisitions, decreased Other income -- net due to the consolidation
of Hawaiian Cement, as previously described in the three months
discussion, and an insurance settlement received in 1997 related to
the Unitek litigation, all partially offset the increase in
earnings.
Oil and Natural Gas Production Operations
Operating income for the oil and natural gas production business
decreased largely as a result of the $33.1 million ($20 million
after tax) non-cash write-down of oil and natural gas properties,
as previously discussed in Note 6 of Notes to Consolidated Financial
Statements. Lower oil and natural gas revenues also added to the
decrease in operating income. Decreased oil revenue resulted from
a $6.7 million decline due to lower average prices and a $1.9
million decrease due to lower production. The decrease in natural
gas revenue was due to a $2.8 million decline arising from lower
average prices and a $1.2 million reduction due to lower production.
Decreased operation and maintenance expenses, the result of lower
production and decreased well maintenance, partially offset the
decrease in operating income. Decreased depreciation, depletion and
amortization due to lower production, and decreased taxes other than
income, mainly due to lower production taxes resulting from lower
commodity prices, also partially offset the operating income
decline.
Earnings for this business unit decreased due to the decrease
in operating income, partially offset by lower interest expense and
decreased income taxes.
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, 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, and the ability of the Company and third parties,
including suppliers and vendors, to identify and address year 2000
issues in a timely manner.
Year 2000 Compliance
The year 2000 issue is the result of computer programs having
been written using two digits rather than four digits to define the
applicable year. In 1997, the Company established a task force with
coordinators in each of its major operating units to address the
year 2000 issue. The scope of the year 2000 readiness effort
includes information technology (IT) and non-IT systems, including,
computer hardware, software, networking, communications, embedded
and micro-processor controlled systems, building controls and office
equipment. The Company's year 2000 plan is based upon a six-phase
approach involving awareness, inventory, assessment, remediation,
testing and implementation.
State of Readiness --
The Company is conducting a corporate-wide awareness program,
compiling an inventory of IT and non-IT systems, and assigning
priorities to such systems. As of September 30, 1998, the awareness
and inventory phases, including assigning priorities to IT and non-
IT systems, have been substantially completed.
The assessment phase involves the review of each inventory item
for year 2000 compliance and efforts to obtain representations and
assurances from third parties, including suppliers and vendors, that
such entities are year 2000 compliant. As of September 30, 1998,
based on contacts with and representations obtained from third
parties to date, the Company is not aware of any material third
party year 2000 problems. The Company will continue to contact
third parties seeking written verification of year 2000 readiness.
Thus, the Company is presently unable to determine the potential
adverse consequences, if any, that could result from each such
entities' failure to effectively address the year 2000 issue. As
of September 30, 1998, the assessment phase, as it relates to the
Company's review of its inventory items, has been substantially
completed.
The remediation, testing and implementation phases of the
Company's year 2000 plan are currently in various stages of
completion. The remediation phase includes replacements,
modifications and/or upgrades necessary for year 2000 compliance
that were identified in the assessment phase. As of September 30,
1998, the remediation phase at the oil and natural gas production
business is substantially complete; at the electric, natural gas
distribution and natural gas transmission businesses is more than
50 percent complete; and at the construction materials and mining
business is in the beginning stages of completion. The testing
phase involves testing systems to confirm year 2000 readiness. As
of September 30, 1998, the testing phase at the oil and natural gas
production business is substantially complete; at the electric,
natural gas distribution and natural gas transmission businesses is
over 25 percent complete; and at the construction materials and
mining business is in the beginning stages of completion. The
implementation phase is the process of moving a year 2000 compliant
item into production status. As of September 30, 1998, the
implementation phase at the oil and natural production business is
substantially complete; at the electric, natural gas distribution
and natural gas transmission businesses is more than 50 percent
complete; and at the construction materials and mining business is
in the beginning stages of completion. The Company has established
a target date of October 1, 1999 to complete the remediation,
testing and implementation phases.
Costs --
The estimated incremental cost to the Company of the year 2000
issue is approximately $1 million to $3 million during the 1998
through 2000 time periods. As of September 30, 1998, the Company
has incurred incremental costs of less than $100,000. These costs
are being funded through cash flows from operations. The Company's
current estimate of costs of the year 2000 issue is based on the
facts and circumstances existing at this time, which were derived
utilizing numerous assumptions of future events.
Risks --
The failure to correct a material year 2000 problem, including
failures on the part of third parties, could result in a temporary
interruption in, or failure of, certain critical business
operations, including electric distribution, generation and
transmission; natural gas distribution, transmission, storage and
gathering; energy marketing; mining and marketing of coal,
aggregates and related construction materials; oil and natural gas
exploration, production, and development; and utility line
construction and repair services. Although the Company believes
the project will be completed by October 1, 1999, unforeseen and
other factors could cause delays in the project, the results of
which could have a material effect on the results of operations and
the Company's ability to conduct its business.
Contingency Planning --
Due to the general uncertainty inherent in the year 2000 issue,
including the uncertainty of the year 2000 readiness of third
parties, the Company anticipates having contingency plans in place
by October 1, 1999 designed to address the Company's critical
business operations as previously discussed.
Liquidity and Capital Commitments
Montana-Dakota's 1998 net capital expenditures are estimated at
$23.0 million, including those required for system upgrades, routine
replacements and service extensions. It is anticipated that
Montana-Dakota will continue to provide all of the funds required
for its net capital expenditures from internal sources, through the
use of the Company's $40 million revolving credit and term loan
agreement, $40 million of which was outstanding at September 30,
1998, and through the issuance of long-term debt of the Company, the
amount and timing of which will depend upon Montana-Dakota's needs,
internal cash generation and market conditions. On September 18,
1998, the Company issued $15 million in Secured Medium-Term Notes.
WBI Holdings' 1998 net capital expenditures are estimated at
$30.1 million, including those required for the acquisition of IGS
and Marcon Energy Corporation (MEC) and for routine system
improvements and continued development of natural gas reserves. WBI
Holdings expects to continue to meet its net capital expenditures
for 1998 with a combination of internally generated funds, short-
term lines of credit aggregating $35.6 million, $3.7 million of
which was outstanding at September 30, 1998, and through the
issuance of long-term debt and the Company's equity securities, the
amount and timing of which will depend upon WBI Holdings' needs,
internal cash generation and market conditions.
Knife River's 1998 net capital expenditures are estimated at
$164.6 million, including expenditures required for the acquisitions
of MBI, S2-F, Angell Bros., Inc. and Hap Taylor & Sons, Inc. and
routine equipment upgrades and replacements. It is anticipated that
these net capital expenditures will continue to be met through funds
generated from internal sources, lines of credit aggregating $45.5
million, $5.4 million of which was outstanding at September 30,
1998, a revolving credit agreement of $85 million, $77 million of
which was outstanding at September 30, 1998, and the issuance of the
Company's equity securities. On October 29, 1998, Knife River
privately placed $55 million of notes with the proceeds used to
repay other long-term debt.
Fidelity Oil's 1998 net capital expenditures related to its oil
and natural gas program are estimated at $94.0 million, including
those required for the acquisition of a majority interest in the
Willow Springs Field. It is anticipated that Fidelity's 1998 net
capital expenditures will be used to further enhance production and
reserve growth, and such expenditures will continue to be met from
internal sources, existing long-term credit facilities and the
issuance of the Company's equity securities. Fidelity's borrowing
base, which is based on total proved reserves, is currently $100
million. This consists of $16 million of issued notes, $14 million
in an uncommitted note shelf facility, and a $70 million revolving
line of credit, $46.9 million of which was outstanding at September
30, 1998.
Other corporate net capital expenditures for 1998 are estimated
at $18.9 million, including those expenditures required for the
acquisition of Pouk & Steinle, Inc., Harp Line and Harp Engineering,
and for routine equipment maintenance and replacements. These
capital expenditures are anticipated to be met through internal
sources, short-term lines of credit aggregating $4.8 million, $2.6
million of which was outstanding at September 30, 1998, and the
issuance of the Company's equity securities.
The estimated 1998 net capital expenditures set forth above do
not include potential future acquisitions. The Company continues
to seek additional growth opportunities, including investing in the
development of related lines of business. To the extent that
acquisitions occur, the Company anticipates that such acquisitions
would be financed with existing credit facilities and the issuance
of long-term debt and the Company's equity securities.
The Company utilizes its short-term lines of credit,
aggregating $50 million, none of which was outstanding on September
30, 1998, and its $40 million revolving credit and term loan
agreement, $40 million of which was outstanding at September 30,
1998, as previously described, to meet its short-term financing
needs and to take advantage of market conditions when timing the
placement of long-term or permanent financing.
Centennial presently intends to implement in the fourth quarter
of 1998, a $200 million commercial paper credit facility which would
be used to replace certain existing short-term credit facilities at
its subsidiaries.
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 September 30, 1998, the Company could have issued
approximately $270 million of additional first mortgage bonds.
The Company's coverage of combined fixed charges and preferred
stock dividends was 3.2 and 3.4 times for the twelve months ended
September 30, 1998, and December 31, 1997, respectively.
Additionally, the Company's first mortgage bond interest coverage
was 6.6 and 6.0 times for the twelve months ended September 30,
1998, and December 31, 1997, respectively. Common stockholders'
equity as a percent of total capitalization was 57 percent and 55
percent at September 30, 1998, and December 31, 1997, respectively.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Williston Basin joined other defendants and filed a motion for
summary affirmance in relation to the Grynberg legal proceeding.
The motion was granted on October 6, 1998 and the appeal was
effectively dismissed. For more information on this legal action,
see Note 7 of Notes to Consolidated Financial Statements.
On October 9, 1998, a hearing before the arbitration panel was
completed in relation to the long-term coal supply agreement between
the owners of the Coyote Station and Knife River. At the hearing
the Co-owners requested damages of approximately $24 million,
including interest, plus a reduction in the future price of coal
under the agreement. A decision from the arbitration panel is
expected after the completion of a post-hearing briefing. For more
information on this legal action, see Note 7 of Notes to
Consolidated Financial Statements.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 1, 1998 and October 26, 1998, the Company issued to the
shareholders of IGS and MEC, 192,023 shares (before stock split) and
15,141 shares (after stock split), respectively, of Common Stock,
$3.33 par value, (Company Common Stock) to acquire all of the issued
and outstanding capital stock of IGS and MEC. On July 1, 1998, July
16, 1998 and September 9, 1998, the Company issued to the
shareholders of Harp Line 372,939 shares (before stock split),
221,564 shares (after stock split), and 26,048 shares (after stock
split), respectively, of Company Common Stock, to acquire all of the
issued and outstanding capital stock of Harp Line. On July 1, 1998,
the Company issued to the shareholders of Harp Engineering, 14,771
shares (before stock split) of Company Common Stock, to acquire all
of the issued and outstanding capital stock of Harp Engineering.
On July 31, 1998 and September 9, 1998, the Company issued to the
shareholders of Hap Taylor & Sons, Inc., 383,692 shares (after stock
split) and 3,380 shares (after stock split), respectively, of
Company Common Stock, to acquire all of the issued and outstanding
capital stock of Hap Taylor & Sons, Inc. The Company Common Stock
issued in these transactions was issued in private sales exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
The shareholders have acknowledged that they are holding the Company
Common Stock as an investment and not with a view to distribution.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
3(b) By-laws of the Company, as amended to date
12 Computation of Ratio of Earnings to Fixed Charges and
Combined Fixed Charges and Preferred Stock Dividends
27 Financial Data Schedule
b) Reports on Form 8-K
None.
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 November 12, 1998 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
Exhibit No.
3(b) By-laws of the Company, as amended to date
12 Computation of Ratio of Earnings to Fixed Charges
and Combined Fixed Charges and Preferred Stock
Dividends
27 Financial Data Schedule
TABLE OF CONTENTS
TO BYLAWS
1. Amendments
2. Certificates of Stock
3. Chairman and Vice Chairman of the Board
4. Checks
5. Chief Executive Officer
6. Chief Operating Officer
7. Committees
8. Compensation of Directors
9. Directors
10. Directors and Officers Indemnified
11. Directors Meetings
12. Dividends
13. Election of Officers
14. Execution of Instruments
15. Execution of Proxies
16. Fiscal Year
17. Inspection of Books and Records
18. Lost Certificates
19. Notices
20. Officers
21. Offices
22. President
23. Qualifications
24. Record Date
25. Registered Stockholders
26. Seal
27. Secretary and Assistant Secretaries
28. Stockholders Meetings
29. Transfers of Stock
30. Treasurer and Assistant Treasurer
31. Vice Presidents
BYLAWS OF
MDU RESOURCES GROUP, INC.
OFFICES
1.01 Registered Office. The registered office shall be in
the City of Wilmington, County of New Castle, State of Delaware.
1.02 Other Offices. The Corporation may also have offices
at such other places, both within and without the State of
Delaware, as the Board of Directors may from time to time
determine or the business of the Corporation may require.
MEETINGS OF STOCKHOLDERS
2.01 Place of Meetings. All meetings of the stockholders
for the election of Directors shall be held in the City of
Bismarck, State of North Dakota, at such place as may be fixed
from time to time by the Board of Directors, or at such other
place, either within or without the State of Delaware, as shall
be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders
for any other purpose may be held at such time and place, within
or without the State of Delaware, as shall be stated in the
notice of the meeting or in a duly executed waiver of notice
thereof.
2.02 Annual Meetings. Annual meetings of stockholders,
commencing with the year 1973, shall be held on the fourth
Tuesday of April in each year, if not a legal holiday, and if a
legal holiday, then on the next secular day following, at 11:00
A.M., or at such other date and time as shall be designated from
time to time by the Board of Directors and stated in the notice
of the meeting, at which they shall elect by a plurality vote, by
written ballot, a Board of Directors, and transact such other
business as may properly be brought before the meeting.
2.03 Notice of Annual Meeting. Written notice of the annual
meeting, stating the place, date and hour of the meeting, shall
be given to each stockholder entitled to vote at such meeting not
less than ten nor more than sixty days before the date of the
meeting.
2.04 Stockholders List. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least
ten days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder
and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the City where the
meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is
present.
2.05 Notice of Special Meeting. Written notice of a special
meeting, stating the place, date and hour of the meeting and the
purpose or purposes for which the meeting is called, shall be
given not less than ten nor more than sixty days before the date
of the meeting, to each stockholder entitled to vote at such
meeting.
2.06 Quorum. The holders of a majority of the stock issued
and outstanding and entitled to vote in person or by proxy, shall
constitute a quorum at all meetings of the stockholders for the
transaction of business, except as provided herein and except as
otherwise provided by statute or by the Certificate of
Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at
the meeting as originally notified. If the adjournment is for
more than thirty days, or if, after the adjournment, a new record
date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
2.07 Voting Rights. When a quorum is present at any
meeting, the vote of the holders of a majority of the stock
having voting power, present in person or represented by
proxy, shall decide any question brought before such meeting,
unless the question is one upon which, by express provision of
the statutes, the Certificate of Incorporation or these Bylaws, a
different vote is required, in which case such express provision
shall govern and control the decision of such question. Unless
otherwise provided in the Certificate of Incorporation, each
stockholder shall, at every meeting of the stockholders, be
entitled to one vote in person or by proxy for each share of the
capital stock having voting power held by such stockholder, but
no proxy shall be voted on after three years from its date,
unless the proxy provides for a longer period.
2.08 Notice of Stockholder Nominees. Only persons who are
nominated in accordance with the procedures set forth in this
Section 2.08 shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of
the Corporation may be made at the annual meeting of stockholders
by or at the direction of the Board of Directors, or by any
stockholder of the Corporation entitled to vote for the election
of Directors at the meeting who complies with the notice
procedures set forth in this Section 2.08. Such nominations,
other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to
the Secretary of the Corporation.
To be timely, a stockholder's notice shall be delivered or
mailed and received at the principal executive offices of the
Corporation not less than 120 days prior to the date on which the
Corporation first mailed its proxy materials for the prior year's
annual meeting; provided, however, that in the event that notice
or public disclosure of the date of the meeting is given or made
to stockholders of the Corporation less than 130 days before the
date on which the Corporation first mailed its proxy materials
for the prior year's annual meeting, notice by the stockholder to
be timely must be so received not later than the close of
business on the 10th day following the day on which such notice
of the date of the meeting was mailed or such public disclosure
was made by the Corporation. The stockholder's notice shall set
forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a Director, (i) the name,
age, business address and residence address of such person, (ii)
the principal occupation or employment of such person, (iii) the
class and number of shares of the Corporation which are
beneficially owned by such person, and (iv) any other information
relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is
otherwise required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (including
without limitation such person's written consent to being named
in the proxy statement as a nominee and to serving as a Director
if elected); and (b) as to the stockholder giving the notice, (i)
the name and address, as they appear on the Corporation's books,
of such stockholder, and (ii) the class and number of shares of
the Corporation which are beneficially owned by such stockholder.
At the request of the Board of Directors, any person
nominated by the Board of Directors for election as a Director
shall furnish to the Secretary of the Corporation that
information required to be set forth in a stockholder's notice of
nomination which pertains to the nominee. No person shall be
eligible for election as a Director of the Corporation unless
nominated in accordance with the procedures set forth in this
Section 2.08.
The Chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not
made in accordance with the procedures prescribed by the Bylaws,
and if the Chairman should so determine, the Chairman shall so
declare to the meeting and the defective nomination shall be
disregarded.
2.09 Notice of Stockholder Business. At an annual meeting
of the stockholders, only such business shall be conducted as
shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be (a)
specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting or by the direction
of the Board of Directors, or (c) otherwise properly brought
before the meeting by a stockholder.
For business to be properly brought before an annual meeting
by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be
timely, the stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the
Corporation, not less than 120 days prior to the date on which
the Corporation first mailed its proxy materials for the prior
year's annual meeting; provided, however, that in the event that
notice or prior public disclosure of the date of the meeting is
given or made to stockholders by the Corporation less than 130
days before the date on which the Corporation first mailed its
proxy materials for the prior year's annual meeting, notice by
the stockholder to be timely must be so received not later than
the close of business on the 10th day following the day on which
such notice of the date of the annual meeting was mailed or such
public disclosure was made by the Corporation. The
stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be
brought to the annual meeting and the reasons for conducting
business at the annual meeting, (b) the name and address, as they
appear on the Corporation's books, of the stockholder proposing
such business, (c) the class and number of shares of the
Corporation which are beneficially owned by the stockholder, and
(d) any material interest of the stockholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no
business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Section 2.09.
The Chairman of the annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was
not properly brought before the meeting and, in accordance with
the provisions of this Section 2.09, and if he should so
determine, the Chairman shall so declare to the meeting and such
business not properly brought before the meeting shall not be
transacted.
DIRECTORS
3.01 Authority of Directors. The business of the
Corporation shall be managed by its Board of Directors which may
exercise all such powers of the Corporation and do all such
lawful acts and things as are not by statute or by the
Certificate of Incorporation or by these Bylaws directed or
required to be exercised or done by the stockholders.
3.02 Qualifications. No person shall be eligible as a
Director of the Corporation who at the time of his election has
passed his seventieth birthday, provided that this age
qualification shall not apply to those persons who are officers
of the Corporation. Except for those persons who have served as
Chief Executive Officer of the Corporation, a person shall be
ineligible as a Director if at the time of his election he is a
retired officer of the Corporation. A person who has served as
Chief Executive Officer of the Corporation shall be ineligible as
a Director if at the time of his election he has been retired as
Chief Executive Officer for more than five years. The Board of
Directors may elect from those persons who have been members of
the Board of Directors, Directors Emeritus.
3.03 Place of Meetings. The Board of Directors of the
Corporation may hold meetings, both regular and special, either
within or without the State of Delaware.
3.04 Annual Meetings. The first meeting of each newly
elected Board of Directors shall be held at such time and place
as shall be specified in a notice given as herein provided for
regular meetings of the Board of Directors, or as shall be
specified in a duly executed waiver of notice thereof.
3.05 Regular Meetings. Regular meetings of the Board of
Directors may be held at the office of the Corporation in
Bismarck, North Dakota, on the second Thursday following the
first Monday of February, May, August and November of each year;
provided, however, that if a legal holiday, then on the next
preceding day that is not a legal holiday. Regular meetings of
the Board of Directors may be held at other times and other
places within or without the State of North Dakota on at least
five days' notice to each Director, either personally or by mail,
telephone or telegram.
3.06 Special Meetings. Special meetings of the Board may be
called by the Chairman of the Board, Chief Executive Officer or
President on three days' notice to each Director, either
personally or by mail, telephone or telegram; special meetings
shall be called by the Chairman, Chief Executive Officer,
President or Secretary in like manner and on like notice on the
written request of a majority of the Board of Directors.
3.07 Quorum. At all meetings of the Board, a majority of
the Directors shall constitute a quorum for the transaction of
business and the act of a majority of the Directors present at
any such meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically
provided by statute, the Certificate of Incorporation or by these
Bylaws. If a quorum shall not be present at any meeting of the
Board of Directors, the Directors present may adjourn the meeting
from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
3.08 Participation of Directors by Conference Telephone.
Unless otherwise restricted by the Certificate of Incorporation
or these Bylaws, any member of the Board, or of any committee
designated by the Board, may participate in any meeting of such
Board or committee by means of conference telephone or similar
communication equipment by means of which all persons
participating in the meeting can hear each other. Participation
in any meeting by means of conference telephone or similar
communications equipment shall constitute presence in person at
such meeting.
3.09 Written Action of Directors. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws,
any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the Board or committee, as
the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board
or committee.
3.10 Committees. The Board of Directors may by resolution
passed by a majority of the whole Board designate one or more
committees, each committee to consist of two or more Directors of
the Corporation. The Board may designate one or more Directors
as alternate members of any committee who may replace any absent
or disqualified member at any meeting of the committee. In the
absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent
or disqualified member. The Chairman of the Board shall appoint
another member of the Board of Directors to fill any committee
vacancy which may occur. Any such committee shall have, and may
exercise, the power and authority specifically granted by the
Board to the committee, but no such committee shall have the
power or authority to amend the Certificate of Incorporation,
adopt an agreement of merger or consolidation, recommend to the
stockholders the sale, lease or exchange of the Corporation's
property and assets, recommend to the stockholders a dissolution
of the Corporation or a revocation of a dissolution, or amend the
Bylaws of the Corporation. Such committee or committees shall
have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors.
3.11 Reports of Committees. Each committee shall keep
regular minutes of its meetings and report the same to the Board
of Directors when required.
3.12 Compensation of Directors. Unless otherwise restricted
by the Certificate of Incorporation, the Board of Directors shall
have the authority to fix the compensation of Directors. The
Directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors and may be paid a fixed
sum for attendance at each meeting of the Board of Directors or a
stated salary as Director. No such payment shall preclude any
Director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing
committees may be allowed compensation for attending committee
meetings.
3.13 Chairman and Vice Chairman of the Board. The Chairman
of the Board of Directors shall be chosen by the Board of
Directors at its first meeting after the annual meeting of the
stockholders of the Corporation. The Chairman shall preside at
all meetings of the Board of Directors and stockholders of the
Corporation, and shall, subject to the direction and control of
the Board, be its representative and medium of communication, and
shall perform such duties as may from time to time be assigned to
the Chairman by the Board. The Vice Chairman shall be a Director
and shall preside at all meetings of the stockholders and the
Board of Directors in the absence of the Chairman of the Board.
NOTICES
4.01 Notices. Whenever, under the provisions of the
statutes or of the Certificate of Incorporation or of these
Bylaws, notice is required to be given to any Director or
stockholder, it shall not be construed to mean personal notice,
but such notice may be given in writing, by mail, addressed to
such Director or stockholder, at his address as it appears on the
records of the Corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same
shall be deposited in the United States mail. Notice to
Directors may also be given by telegram or telephone.
4.02 Waiver. Whenever any notice is required to be given
under the provisions of the statutes or of the Certificate of
Incorporation or of these Bylaws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed
equivalent thereto.
OFFICERS
5.01 Election, Qualifications. The officers of the
Corporation shall be chosen by the Board of Directors at its
first meeting after each annual meeting of stockholders and shall
include a President, a Chief Executive Officer, a Chief Operating
Officer, a Vice President, a Secretary and a Treasurer. The
Board of Directors may also choose additional Vice Presidents,
and one or more Assistant Vice Presidents, Assistant Secretaries
and Assistant Treasurers. Any number of offices may be held by
the same person, unless the Certificate of Incorporation or these
Bylaws otherwise provide.
5.02 Additional Officers. The Board of Directors may
appoint such other officers and agents as it shall deem
necessary, who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be
determined from time to time by the Board.
5.03 Salaries. The salaries of all principal officers of
the Corporation shall be fixed by the Board of Directors.
5.04 Term. The officers of the Corporation shall hold
office until their successors are chosen and qualify. Any
officer elected or appointed by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the
Board of Directors. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
5.05 Chief Executive Officer. The Chief Executive Officer
shall, subject to the authority of the Board of Directors,
determine the general policies of the Corporation. The Chief
Executive Officer shall submit a report of the operations of the
Company for the fiscal year to the stockholders at their annual
meeting and from time to time shall report to the Board of
Directors all matters within his knowledge which the interests of
the Corporation may require be brought to the Board's notice.
5.06 The President. The President shall have general and
active management of the business of the Corporation and shall
see that all orders and resolutions of the Board of Directors are
carried into effect.
5.07 The Chief Operating Officer. The Chief Operating
Officer shall have general management oversight of the
subsidiaries and divisions of the Corporation.
5.08 The Vice Presidents. In the absence of the President
or in the event of his inability or refusal to act, the Vice
President (or in the event there be more than one Vice President,
the Vice Presidents in the order designated, or in the absence of
any designation, then in the order of their election) shall
perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions
upon the President. The Vice Presidents shall perform such other
duties and have such other powers as the Board of Directors may
from time to time prescribe.
5.09 The Secretary and Assistant Secretaries. The Secretary
shall record all the proceedings of the meetings of the
stockholders and Directors in a book to be kept for that purpose.
He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors,
and shall perform such other duties as may be prescribed by the
Board of Directors or Chief Executive Officer, under whose
supervision he shall be. He shall have custody of the corporate
seal of the Corporation and he, or an assistant secretary, shall
have authority to affix the same to any instrument requiring it.
The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation.
The Assistant Secretary, or if there be more than one,
the Assistant Secretaries in the order determined by the Board of
Directors (or if there be no such determination, then in the
order of their election) shall, in the absence of the Secretary
or in the event of his inability or refusal to act, perform the
duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
5.10 Treasurer and Assistant Treasurers. The Treasurer
shall have the custody of the corporate funds and securities and
shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to
the credit of the Corporation in such depositories as may be
designated by the Board of Directors.
He shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for
such disbursements, and shall render to the President and the
Board of Directors, at its regular meetings, or when the Board of
Directors so requires, an account of all his transactions as
Treasurer and of the financial condition of the Corporation.
If required by the Board of Directors, he shall give
the Corporation a bond (which shall be renewed every six years)
in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration
to the Corporation, in case of his death, resignation, retirement
or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his
control belonging to the Corporation.
The Assistant Treasurer, or if there shall be more than one,
the Assistant Treasurers in the order determined by the Board of
Directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the Treasurer
or in the event of his inability or refusal to act, perform the
duties and exercise the powers of the Treasurer and shall perform
such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
5.11 Authority and Duties. In addition to the foregoing
authority and duties, all officers of the Corporation shall
respectively have such authority and perform such duties in the
management of the business of the Corporation as may be
designated from time to time by the Board of Directors.
5.12 Execution of Instruments. All deeds, bonds, mortgages,
notes, contracts and other instruments requiring the seal of the
Corporation shall be executed on behalf of the Corporation by the
Chief Executive Officer, President, Chief Operating Officer or a
Vice President and attested by the Secretary or an Assistant
Secretary or by the Treasurer or an Assistant Treasurer, except
where the execution and attestation thereof shall be expressly
delegated by the Board of Directors to some other officer or
agent of the Corporation. When authorized by the Board of
Directors, the signature of any officer or agent of the
Corporation may be a facsimile.
5.13 Execution of Proxies. All capital stocks in other
corporations owned by this Corporation shall be voted at the
meetings, regular and/or special, of stockholders of said other
corporations by the Chief Executive Officer, President, or Chief
Operating Officer of this Corporation, or, in the absence of any
of them, by a Vice President, and in the event of the presence of
more than one Vice President of this Corporation, then by a
majority of said Vice Presidents present at such stockholders
meetings, and the Chief Executive Officer, President, or Chief
Operating Officer and Secretary of this Corporation are hereby
authorized to execute in the name and under the seal of this
Corporation proxies in such form as may be required by the
corporations whose stock may be owned by this Corporation, naming
as the attorney authorized to act in said proxy such individual
or individuals as to said Chief Executive Officer, President, or
Chief Operating Officer and Secretary shall deem advisable, and
the attorney or attorneys so named in said proxy shall, until the
revocation or expiration thereof, vote said stock at such
stockholders meetings only in the event that none of the officers
of this Corporation authorized to execute said proxy shall be
present thereat.
CERTIFICATES OF STOCK
6.01 Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by, or signed in
the name of the Corporation by, the Chairman or Vice Chairman of
the Board of Directors, or the Chief Executive Officer,
President, Chief Operating Officer or a Vice President and by the
Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation.
6.02 Signatures. Any of or all the signatures on the
certificates may be facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the
date of issue.
6.03 Special Designation on Certificates. If the
Corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional
or other special rights of each class of stock or series thereof
and the qualifications, limitations, or restrictions of such
preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of
stock, provided, that, except as otherwise provided in Section
202 of the General Corporation Law of Delaware in lieu of the
foregoing requirements, there may be set forth on the face or
back of the certificate which the Corporation shall issue to
represent such class or series of stock, a statement that the
Corporation will furnish, without charge to each stockholder who
so requests, the powers, designations, preferences and relative,
participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
6.04 Lost Certificates. The Board of Directors may direct a
new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation
alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming the
certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the
Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it
shall require and/or to give the Corporation a bond in such sum
as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
6.05 Transfers of Stock. Upon surrender to the Corporation
or the transfer agent of the Corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the
transaction upon its books.
6.06 Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise
any rights in respect of any change, conversion or exchange of
stock or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be
more than sixty days nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action.
A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
6.07 Registered Stockholders. The Corporation shall be
entitled to recognize the exclusive right of a person registered
on its books as the owner of shares to receive dividends, and to
vote as such owner, and to hold liable for calls and assessments
a person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of Delaware.
GENERAL PROVISIONS
7.01 Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificates of
Incorporation, if any, may be declared by the Board of Directors
at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the Certificates of
Incorporation.
Before payment of any dividend, there may be set aside
out of the funds of the Corporation available for dividends such
sum or sums as the Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meeting
contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for such other
purpose as the Directors shall think conducive to the interest of
the Corporation, and the Directors may modify or abolish any such
reserve in the manner in which it was created.
7.02 Checks. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or
such other person or persons as the Board of Directors may from
time to time designate or as designated by an officer of the
company if so authorized by the Board of Directors.
7.03 Fiscal year. The fiscal year of the Corporation shall
be the calendar year.
7.04 Seal. The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its organization and the
words "Corporate Seal, Delaware." The seal may be used by causing
it or a facsimile thereof to be impressed or affixed or
imprinted, or otherwise.
7.05 Inspection of Books and Records. Any stockholder of
record, in person or by attorney or other agent, shall, upon
written demand under oath stating the purpose thereof, have the
right, during the usual hours of business, to inspect for any
proper purpose the Corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies
or extracts therefrom. A proper purpose shall mean a purpose
reasonably related to such person's interest as a stockholder.
In every instance where an attorney or other agent shall be the
person who seeks the right to inspection, the demand under oath
shall be accompanied by a power of attorney or such other writing
which authorizes the attorney or other agent to so act on behalf
of the stockholder. The demand under oath shall be directed to
the Corporation at its registered office in the State of Delaware
or at its principal place of business in Bismarck, North Dakota.
7.06 Amendments. These Bylaws may be altered, amended or
repealed or new Bylaws may be adopted by the stockholders or by
the Board of Directors, when such power is conferred upon the
Board of Directors by the Certificate of Incorporation, at any
regular meeting of the stockholders or of the Board of Directors
or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or
adoption of new Bylaws be contained in the notice of such special
meeting.
7.07 Indemnification of Officers, Directors, Employees and
Agents; Insurance.
(a) The Corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action
by or in the right of the Corporation) by reason of the fact that
such person is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such
action, suit or proceeding if such person acted in good faith and
in a manner such person reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe such person's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best
interest of the Corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that such
person's conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the
fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually
and reasonably incurred by such person in connection with the
defense or settlement of such action or suit if such person acted
in good faith and in a manner such person reasonably believed to
be in or not opposed to the best interests of the Corporation and
except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation, unless and only to the
extent that the Court of Chancery or the court in which such
action or suit was brought, shall determine upon application
that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(c) To the extent that a present or former director,
officer, employee or agent of a corporation has been successful
on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections (a) and (b), or in defense
of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of
this Section (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a
determination that indemnification of the present or former
director, officer, employee or agent is proper in the
circumstances because such person has met the applicable standard
of conduct as set forth in subsections (a) and (b) of this
Section. Such determination shall be made (1) by a majority
vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2) by a committee
of such directors designated by majority vote of such directors,
even though less than a quorum, or (3) if there are no such
directors, or if such directors so direct, by independent legal
counsel in a written opinion, or (4) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by a
present or former officer or director in defending any civil,
criminal, administrative or investigative action, suit or
proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director or officer to
repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the Corporation as
authorized in this Section. Once the Corporation has received
the undertaking, the Corporation shall pay the officer or
director within 30 days of receipt by the Corporation of a
written application from the officer or director for the expenses
incurred by that officer or director. In the event the
Corporation fails to pay within the 30-day period, the applicant
shall have the right to sue for recovery of the expenses
contained in the written application and, in addition, shall
recover all attorneys' fees and expenses incurred in the action
to enforce the application and the rights granted in this Section
7.07. Expenses (including attorneys' fees) incurred by other
employees and agents shall be paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
(f) The indemnification and advancement of expenses provided
by, or granted pursuant to, the other subsections of this Section
shall not be deemed exclusive of any other rights to which those
seeking indemnity or advancement of expenses may be entitled
under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while
holding such office.
(g) The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against such person
and incurred by such person in any such capacity, or arising out
of such person's status as such, whether or not the Corporation
would have the power to indemnify such person against such
liability under the provisions of this Section.
(h) For the purposes of this Section, references to "the
Corporation" include all constituent corporations absorbed in a
consolidation or merger, as well as the resulting or surviving
corporation, so that any person who is or was a director,
officer, employee or agent of such a constituent corporation or
is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall
stand in the same position under the provisions of this Section
with respect to the resulting or surviving corporation as such
person would if such person had served the resulting or surviving
corporation in the same capacity.
(i) For purposes of this Section, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving
at the request of the Corporation" shall include any service as a
director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted
in good faith and in a manner such person reasonably believed to
be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner
"not opposed to the best interests of the Corporation" as
referred to in this Section.
(j) The indemnification and advancement of expenses provided
by, or granted pursuant to, this Section shall, unless otherwise
provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators
of such a person.
MDU RESOURCES GROUP, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
Twelve Months Year
Ended Ended
September 30, 1998 December 31, 1997
(In thousands of dollars)
Earnings Available for
Fixed Charges:
Net Income per Consolidated
Statements of Income $ 51,630 $ 54,617
Income Taxes 26,713 30,743
78,343 85,360
Rents (a) 1,623 1,249
Interest (b) 32,104 33,047
Total Earnings Available
for Fixed Charges $112,070 $119,656
Preferred Dividend Requirements $ 778 $ 782
Ratio of Income Before Income
Taxes to Net Income 152% 156%
Preferred Dividend Factor on
Pretax Basis 1,183 1,220
Fixed Charges (c) 33,727 34,296
Combined Fixed Charges and
Preferred Dividends $ 34,910 $ 35,516
Ratio of Earnings to Fixed
Charges 3.3x 3.5x
Ratio of Earnings to
Combined Fixed Charges
and Preferred Dividends 3.2x 3.4x
(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.
<TABLE> <S> <C>
<ARTICLE> UT
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 531,608
<OTHER-PROPERTY-AND-INVEST> 581,516
<TOTAL-CURRENT-ASSETS> 255,906
<TOTAL-DEFERRED-CHARGES> 85,618
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,454,648
<COMMON> 176,148
<CAPITAL-SURPLUS-PAID-IN> 165,650
<RETAINED-EARNINGS> 216,821
<TOTAL-COMMON-STOCKHOLDERS-EQ> 558,619
1,700
15,000
<LONG-TERM-DEBT-NET> 400,244
<SHORT-TERM-NOTES> 8,272
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
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<CAPITAL-LEASE-OBLIGATIONS> 0
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<OTHER-ITEMS-CAPITAL-AND-LIAB> 465,357
<TOT-CAPITALIZATION-AND-LIAB> 1,454,648
<GROSS-OPERATING-REVENUE> 619,815
<INCOME-TAX-EXPENSE> 17,723
<OTHER-OPERATING-EXPENSES> 551,506
<TOTAL-OPERATING-EXPENSES> 569,229
<OPERATING-INCOME-LOSS> 50,586
<OTHER-INCOME-NET> 6,359
<INCOME-BEFORE-INTEREST-EXPEN> 56,945
<TOTAL-INTEREST-EXPENSE> 22,400
<NET-INCOME> 34,545
582
<EARNINGS-AVAILABLE-FOR-COMM> 33,963
<COMMON-STOCK-DIVIDENDS> 29,865
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<EPS-PRIMARY> .68
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