UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
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 May 7, 1999: 53,156,004
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 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, distributes natural gas and
operates electric power generation, transmission and distribution
facilities, serving 256 communities in North Dakota, eastern
Montana, northern and western South Dakota and northern Wyoming.
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 subsidiaries,
provides underground storage, transportation and
gathering services through an interstate pipeline system
serving Montana, North Dakota, South Dakota and Wyoming,
produces natural gas, and seeks new energy markets while
continuing to expand present markets for natural gas and
propane in the Midwestern, Southern and Central regions
of the United States.
Knife River, through its wholly owned subsidiary, KRC
Holdings, Inc. (KRC Holdings) and its subsidiaries, mines
and markets aggregates and construction materials in
Alaska, California, Hawaii and Oregon, and operates
lignite coal mines 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.
Utility Services, through its wholly owned subsidiaries,
installs and repairs electric transmission and
distribution power lines, fiber optic cable and natural
gas pipeline and provides related supplies, equipment and
engineering services throughout the western United States
and Hawaii.
INDEX
Part I -- Financial Information
Consolidated Statements of Income --
Three Months Ended March 31, 1999 and 1998
Consolidated Balance Sheets --
March 31, 1999 and 1998, and December 31, 1998
Consolidated Statements of Cash Flows --
Three Months Ended March 31, 1999 and 1998
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
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 Ended
March 31,
1999 1998
(In thousands, except
per share amounts)
Operating revenues:
Electric $ 58,974 $ 44,740
Natural gas 128,931 73,543
Construction materials and mining 60,038 38,961
Oil and natural gas production 11,103 12,878
259,046 170,122
Operating expenses:
Fuel and purchased power 13,503 11,833
Purchased natural gas sold 90,705 32,175
Operation and maintenance 101,999 69,723
Depreciation, depletion and amortization 20,140 17,789
Taxes, other than income 7,238 6,393
233,585 137,913
Operating income:
Electric 11,175 8,448
Natural gas distribution 5,464 6,793
Natural gas transmission 9,135 12,895
Construction materials and mining (1,239) 1,158
Oil and natural gas production 926 2,915
25,461 32,209
Other income -- net 3,768 2,602
Interest expense 8,806 7,135
Income before income taxes 20,423 27,676
Income taxes 7,702 9,883
Net income 12,721 17,793
Dividends on preferred stocks 193 194
Earnings on common stock $ 12,528 $ 17,599
Earnings per common share -- basic $ .24 $ .39
Earnings per common share -- diluted $ .23 $ .39
Dividends per common share $ .20 $ .1917
Weighted average common shares outstanding -- basic 53,147 45,375
Weighted average common shares outstanding -- diluted 53,420 45,629
The accompanying notes are an integral part of these consolidated statements.
MDU RESOURCES GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, March 31, December 31,
1999 1998 1998
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 36,930 $ 50,857 $ 39,216
Receivables 123,639 89,131 124,114
Inventories 43,176 34,549 44,865
Deferred income taxes 20,974 17,896 16,918
Prepayments and other current assets 17,849 18,896 15,536
242,568 211,329 240,649
Investments 40,550 18,131 43,029
Property, plant and equipment:
Electric 587,299 567,416 583,047
Natural gas distribution 179,396 173,468 178,522
Natural gas transmission 312,766 289,781 304,054
Construction materials and mining 493,080 414,520 484,419
Oil and natural gas production 264,478 250,341 260,758
1,837,019 1,695,526 1,810,800
Less accumulated depreciation,
depletion and amortization 741,392 686,642 726,123
1,095,627 1,008,884 1,084,677
Deferred charges and other assets 95,289 72,933 84,420
$1,474,034 $1,311,277 $1,452,775
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 122 $ 1,625 $ 15,000
Long-term debt and preferred
stock due within one year 2,502 10,436 3,292
Accounts payable 61,326 31,128 60,023
Taxes payable 20,540 16,508 9,226
Dividends payable 10,824 9,633 10,799
Other accrued liabilities,
including reserved revenues 85,756 79,701 71,129
181,070 149,031 169,469
Long-term debt 417,778 338,073 413,264
Deferred credits and other liabilities:
Deferred income taxes 173,885 178,899 173,094
Other liabilities 128,777 140,664 129,506
302,662 319,563 302,600
Preferred stock subject to mandatory
redemption 1,600 1,700 1,600
Commitments and contingencies
Stockholders' equity:
Preferred stocks 15,000 15,000 15,000
Common stockholders' equity:
Common stock (Shares issued --
$3.33 par value, 53,395,525
at March 31, 1999, 32,991,683
at March 31, 1998 and 53,272,951
at December 31, 1998) 177,807 109,862 177,399
Other paid-in capital 174,264 160,792 171,486
Retained earnings 207,479 220,882 205,583
Treasury stock at cost -- 239,521
shares at March 31, 1999 and
December 31, 1998 and 159,681
shares at March 31, 1998 (3,626) (3,626) (3,626)
Total common stockholders' equity 555,924 487,910 550,842
Total stockholders' equity 570,924 502,910 565,842
$1,474,034 $1,311,277 $1,452,775
The accompanying notes are an integral part of these consolidated statements.
MDU RESOURCES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1999 1998
(In thousands)
Operating activities:
Net income $ 12,721 $ 17,793
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, depletion and amortization 20,140 17,789
Deferred income taxes and investment tax credit (3,352) 450
Changes in current assets and liabilities:
Receivables 475 7,785
Inventories 1,689 10,577
Other current assets (2,313) (3,295)
Accounts payable 1,303 (3,368)
Other current liabilities 25,966 (6,322)
Other noncurrent changes (11,453) (4,190)
Net cash provided by operating activities 45,176 37,219
Financing activities:
Net change in short-term borrowings (14,878) (7,722)
Issuance of long-term debt 25,089 37,301
Repayment of long-term debt (21,366) (6,670)
Issuance of common stock 3,186 ---
Retirement of natural gas repurchase commitment (1,288) (4,786)
Dividends paid (10,825) (9,634)
Net cash provided by (used in) financing activities (20,082) 8,489
Investing activities:
Capital expenditures including acquisitions of businesses:
Electric (5,159) (2,779)
Natural gas distribution (2,211) (1,617)
Natural gas transmission (9,256) (1,117)
Construction materials and mining (12,231) (11,054)
Oil and natural gas production (8,751) (10,935)
(37,608) (27,502)
Net proceeds from sale or disposition of property 7,130 946
Net capital expenditures (30,478) (26,556)
Sale of natural gas available under repurchase commitment 619 2,727
Investments 2,479 804
Net cash used in investing activities (27,380) (23,025)
Increase (decrease) in cash and cash equivalents (2,286) 22,683
Cash and cash equivalents -- beginning of year 39,216 28,174
Cash and cash equivalents -- end of period $ 36,930 $ 50,857
The accompanying notes are an integral part of these consolidated statements.
MDU RESOURCES GROUP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 1999 and 1998
(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, 1998 (1998 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 1998 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. For
the three months ended March 31, 1999 and 1998, comprehensive
income equaled net income as reported.
2. Seasonality of operations
Some of the company's operations are highly seasonal and
revenues from, and certain expenses for, such operations may
fluctuate significantly among quarterly periods. Accordingly,
the interim results may not be indicative of results for the
full fiscal year.
3. Cash flow information
Cash expenditures for interest and income taxes were as
follows:
Three Months Ended
March 31,
1999 1998
(In thousands)
Interest, net of amount capitalized $3,131 $3,033
Income taxes $ 130 $ 437
4. 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.
5. New accounting pronouncement
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 will adopt SFAS
No. 133 on January 1, 2000, and has not yet quantified the
impacts of adopting SFAS No. 133 on the company's financial
position or results of operations.
6. Derivatives
Williston Basin Interstate Pipeline Company (Williston
Basin), a wholly owned subsidiary of WBI Holdings, 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 generally offset by corresponding increases and
decreases in the value of the underlying commodity
transactions.
Innovative Gas Services, Incorporated, an indirect energy
marketing subsidiary of WBI Holdings, 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
generally 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 generally 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 compliance with its policies. The company
is exposed to credit-related losses in relation to financial
instruments in the event of nonperformance by counterparties,
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):
Three Months Ended
March 31,
1999 1998
Oil swap agreement:*
Weighted average fixed price per barrel --- $ 20.92
Notional amount (in barrels) --- 54
Natural gas swap agreements:*
Weighted average fixed price per MMBtu --- $ 2.23
Notional amount (in MMBtu's) --- 1,170
Natural gas collar agreements:*
Weighted average floor/ceiling
price per MMBtu $2.10/$2.51 $2.10/$2.67
Notional amount (in MMBtu's) 720 450
Interest rate swap agreement:**
Range of fixed interest rates --- 5.50%-6.50%
Notional amount (in dollars) --- $10,000
*Receive fixed -- pay variable
**Receive variable -- pay fixed
The following table summarizes hedge agreements
outstanding at March 31, 1999 (notional amounts in thousands):
Weighted
Average
Floor/Ceiling Notional
Year of Price Amount
Expiration (Per MMBtu) (In MMBtu's)
Natural gas collar
agreements* 1999 $2.10/$2.51 2,200
Weighted
Average Notional
Year of Fixed Price Amount
Expiration (Per MMBtu) (In MMBtu's)
Natural gas futures
contracts* 2000 $2.38 1,000
* 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 commodity hedge agreements are expected to be
generally 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 March 31, 1999, was $457,000.
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
is expected to generally offset the corresponding increases or
decreases in the value of the underlying commodity transaction
or interest on the related debt instrument.
7. Common stock
On May 14, 1998, the company's Board of Directors approved
a three-for-two common stock split 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. Common stock
information appearing in the accompanying Consolidated Statements
of Income has been restated to give retroactive effect to
the stock split.
At the Annual Meeting of Stockholders held on April 27,
1999, the company's common stockholders approved an amendment
to the Certificate of Incorporation increasing the authorized
number of common shares from 75 million shares to 150 million
shares and reducing the par value of the common stock from
$3.33 per share to $1.00 per share.
8. Business segment data
The company's operations are conducted through five
business segments. The company's reportable segments are those
that are based on the company's method of internal reporting,
which generally segregates the strategic business units due to
differences in products, services and regulation. The
electric, natural gas distribution, natural gas transmission,
construction materials and mining, and oil and natural gas
production businesses are substantially all located within the
United States. The electric business operates electric power
generation, transmission and distribution facilities in North
Dakota, South Dakota, Montana and Wyoming and installs and
repairs electric transmission and distribution power lines and
provides related supplies, equipment and engineering services
throughout the western United States and Hawaii. The natural
gas distribution business provides natural gas distribution
services in North Dakota, South Dakota, Montana and Wyoming.
The natural gas transmission business serves the Midwestern,
Southern and Central regions of the United States providing
natural gas transmission and related services including storage
and production along with energy marketing and management,
wholesale/retail propane and energy facility construction. The
construction materials and mining business produces and markets
aggregates and construction materials in Alaska, California,
Hawaii and Oregon, and operates lignite coal mines in Montana
and North Dakota. The oil and natural gas production business
is engaged in oil and natural gas acquisition, exploration and
production activities throughout the United States, the Gulf of
Mexico and Canada.
Segment information follows the same accounting policies as
described in Note 1 of the company's 1998 Annual Report.
Segment information included in the accompanying Consolidated
Statements of Income is as follows:
Operating
Operating Revenues Earnings
Revenues Inter- on Common
External segment Stock
Three Months (In thousands)
Ended March 31, 1999
Electric $ 58,974 $ --- $ 5,163
Natural gas distribution 61,126 --- 2,878
Natural gas transmission 67,805 20,583 5,531
Construction materials
and mining 57,762* 2,276 (1,373)
Oil and natural gas
production 11,103 --- 329
Intersegment eliminations --- (20,583) ---
Total $ 256,770 $ 2,276 $12,528
Three Months
Ended March 31, 1998
Electric $ 44,740 $ --- $ 3,592
Natural gas distribution 62,635 --- 3,627
Natural gas transmission 10,908 18,805 8,142
Construction materials
and mining 37,280* 1,681 252
Oil and natural gas
production 12,878 --- 1,986
Intersegment eliminations --- (18,805) ---
Total $ 168,441 $ 1,681 $17,599
* Includes sales, for use at the Coyote Station, an electric
generating station jointly owned by the company and other
utilities, of (in thousands) $1,786 and $1,774 for the three
months ended March 31, 1999 and 1998, respectively.
9. Regulatory matters and revenues subject to refund
Williston Basin had pending with the Federal Energy
Regulatory Commission (FERC) a general natural gas rate change
application implemented in 1992. In October 1997, Williston
Basin appealed to the United States 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. On
January 22, 1999, the D.C. Circuit Court issued its opinion
remanding the issues of return on equity, ad valorem taxes and
throughput to the FERC for further explanation and
justification. The mandate was issued by the D.C. Circuit
Court to the FERC on March 11, 1999. Based on the D.C. Circuit
Court's opinion, Williston Basin anticipates that the FERC will
modify its prior order thereby allowing Williston Basin to seek
reimbursement from its customers of a portion of the refunds
made in 1997 relating to certain of these remanded issues.
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. In July 1998, the FERC issued an order which addressed
various issues including storage cost allocations, return on
equity and throughput. In August 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.
10. Natural gas repurchase commitment
As described in Note 15 of its 1998 Annual Report, the
company has offered for sale since 1984 the inventoried natural
gas available under a repurchase commitment with Frontier Gas
Storage Company. 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. In August 1998, Williston Basin requested
rehearing on the July 1998 FERC order which addressed various
issues, including a requirement that storage deliverability
costs be allocated to the Frontier gas.
11. 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.
On April 20, 1999, the U.S. Court of Appeals issued its
order which affirmed in part and reversed in part the Federal
District Court's June 1997 decision. Additionally, the U.S.
Court of Appeals remanded the case to the Federal District
Court for further determination of the prices and volumes to be
used for determination of damages. The U.S. Court of Appeals
also remanded to the lower court for further consideration the
issue of whether pre-judgment interest on damages is
applicable. As a result of the decision by the U.S. Court of
Appeals, and in the absence of rehearing, the prior judgment of
$15.6 million by the Federal District Court will be vacated.
Based on the decision by the U.S. Court of Appeals, Williston
Basin estimates its liability for damages on the remanded
issues will be less than $5 million.
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 FERC's 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. In November 1998, the North Dakota
District Court entered an order directing the entry of judgment
in favor of Williston Basin and the company. In December 1998,
Apache and Snyder filed a motion for relief asking the North
Dakota District Court to reconsider its November 1998 order.
On February 4, 1999, the North Dakota District Court denied the
motion for relief filed by Apache and Snyder. On March 31,
1999, judgment was entered, thereby dismissing Apache and
Snyder's claims against the company.
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 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. However, the amount of costs that
can ultimately be recovered is subject to approval by the FERC
and market conditions.
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. In October
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. The company is currently
awaiting a final decision from the arbitration panel. Although
unable to predict the ultimate outcome of the arbitration,
Knife River and the company believe that the Co-owners' claims
for past damages (if any) are substantially overstated and
intend to vigorously defend the prices going forward.
12. 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.
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 (dollars in millions, where applicable)
summarizes the contribution to consolidated earnings by each of
the company's businesses.
Three Months
Ended
March 31,
1999 1998
Electric $ 5.2 $ 3.6
Natural gas distribution 2.9 3.6
Natural gas transmission 5.5 8.1
Construction materials and mining (1.4) .3
Oil and natural gas production .3 2.0
Earnings on common stock $ 12.5 $ 17.6
Earnings per common share - basic $ .24 $ .39*
Earnings per common share - diluted $ .23 $ .39*
Return on average common equity
for the 12 months ended 5.1%** 14.8%
________________________________
* Reflects the company's three-for-two common stock split
effected in July 1998.
**Reflects $39.9 million in noncash after-tax write-downs of oil and
natural gas properties in 1998.
Three Months Ended March 31, 1999 and 1998
Consolidated earnings for the quarter ended March 31, 1999,
decreased $5.1 million from the comparable period a year ago due to
lower earnings at the natural gas transmission, construction
materials and mining, oil and natural gas production and natural gas
distribution businesses. Increased earnings at the electric
business 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 (dollars in millions, where applicable) are
key financial and operating statistics for each of the company's
business units.
Electric Operations
Three Months
Ended
March 31,
1999 1998
Operating revenues:
Retail sales $ 34.0 $ 33.0
Sales for resale and other 6.2 3.3
Utility services 18.8 8.4
59.0 44.7
Operating expenses:
Fuel and purchased power 13.5 11.8
Operation and maintenance 26.6 17.6
Depreciation, depletion and amortization 5.1 4.7
Taxes, other than income 2.6 2.1
47.8 36.2
Operating income 11.2 8.5
Retail sales (million kWh) 536.1 523.2
Sales for resale (million kWh) 268.6 129.4
Average cost of fuel and purchased
power per kWh $ .016 $ .017
Natural Gas Distribution Operations
Three Months
Ended
March 31,
1999 1998
Operating revenues:
Sales $ 60.1 $ 61.5
Transportation and other 1.0 1.1
61.1 62.6
Operating expenses:
Purchased natural gas sold 44.9 45.4
Operation and maintenance 7.8 7.5
Depreciation, depletion and amortization 1.8 1.8
Taxes, other than income 1.1 1.1
55.6 55.8
Operating income 5.5 6.8
Volumes (MMdk):
Sales 13.2 14.0
Transportation 3.1 3.2
Total throughput 16.3 17.2
Degree days (% of normal) 87% 94%
Average cost of natural gas, including
transportation, per dk $ 3.40 $ 3.24
Natural Gas Transmission Operations
Three Months
Ended
March 31,
1999 1998
Operating revenues:
Transportation and storage $ 15.4 $ 19.0
Energy marketing and natural
gas production 73.0 10.7
88.4 29.7
Operating expenses:
Purchased natural gas sold 66.4 5.6
Operation and maintenance 8.6 7.7
Depreciation, depletion and amortization 2.7 2.0
Taxes, other than income 1.6 1.5
79.3 16.8
Operating income 9.1 12.9
Transportation volumes (MMdk):
Montana-Dakota 8.3 8.4
Other 8.8 14.4
17.1 22.8
Produced (Mdk) 2,668 1,751
Construction Materials and Mining Operations
Three Months
Ended
March 31,
1999 1998
Operating revenues:
Construction materials $ 50.1 $ 29.7
Coal 10.0 9.3
60.1 39.0
Operating expenses:
Operation and maintenance 54.7 33.1
Depreciation, depletion and amortization 5.7 3.9
Taxes, other than income .9 .9
61.3 37.9
Operating income (loss) (1.2) 1.1
Sales (000's):
Aggregates (tons) 1,538 863
Asphalt (tons) 104 30
Ready-mixed concrete (cubic yards) 217 139
Coal (tons) 879 788
Oil and Natural Gas Production Operations
Three Months
Ended
March 31,
1999 1998
Operating revenues:
Oil $ 5.0 $ 6.8
Natural gas 6.1 6.1
11.1 12.9
Operating expenses:
Operation and maintenance 4.3 3.8
Depreciation, depletion and amortization 4.9 5.4
Taxes, other than income 1.0 .8
10.2 10.0
Operating income .9 2.9
Production:
Oil (000's of barrels) 481 483
Natural gas (MMcf) 3,476 2,808
Average sales price:
Oil (per barrel) $ 10.35 $ 14.05
Natural gas (per Mcf) 1.76 2.17
Amounts presented in the preceding tables for natural gas
operating revenues and purchased natural gas sold for the three
months ended March 31, 1999 and 1998, 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 March 31, 1999 and 1998
Electric Operations
Electric earnings increased due to increased electric utility
earnings and earnings at the utility services companies acquired
since the comparable period last year. Sales for resale revenue
improved due to 108 percent higher volumes resulting from increased
generating station availability, favorable contracts and reduced
line load constraints and higher average rates due to favorable
contracts. Higher retail sales to residential, commercial and
industrial customers also contributed to the earnings improvement.
Increased operation and maintenance expense resulting primarily from
higher materials and subcontractor costs at the Heskett and Big
Stone stations partially offset the electric utility earnings
improvement. Utility services contributed $897,000 to earnings
during the first quarter of 1999 compared to $352,000 a year ago.
Natural Gas Distribution Operations
Earnings decreased at the natural gas distribution business
due to reduced weather-related sales, the result of 8 percent
warmer weather. A rate reduction implemented in North Dakota
and increased operation and maintenance expense also contributed
to the earnings decline. Increased return on gas in storage and
prepaid demand balances partially offset the decrease in
earnings.
Natural Gas Transmission Operations
Earnings at the natural gas transmission business decreased due
to lower transportation revenues resulting from a $5.0 million ($3.1
million after tax) reversal of reserves in 1998 relating to a FERC
order concerning a compliance filing and decreased transportation to
off-system markets at lower average transportation rates. Reduced
sales of natural gas held under the repurchase commitment and lower
average prices received on company-owned production also added to
the decline in earnings. Earnings from new acquisitions, the
recognition of $1.7 million resulting from a favorable 1999 order
received from the D.C. Circuit Court relating to the 1992 general
rate proceeding, increased storage revenues and higher production
from company-owned reserves partially offset the earnings decline.
The increase in energy marketing revenue and the related increase in
purchased natural gas sold resulted from the acquisition of a
natural gas marketing business in July 1998.
Construction Materials and Mining Operations
Construction materials and mining earnings decreased largely due
to normal seasonal losses realized in 1999 by construction materials
businesses not owned during the full quarter last year and wet
weather experienced at the larger construction materials markets.
Increased ready-mixed concrete volumes, a transportation volume-
related credit and lower cement costs were largely offset by higher
selling, general and administrative costs and increased aggregate
costs due to higher off-season maintenance at the existing
construction materials operations. Higher interest expense
resulting mainly from increased acquisition-related long-term debt
also added to the decline in earnings. Earnings at the coal
operations increased slightly due to higher demand-related sales.
Oil and Natural Gas Production Operations
Earnings for the oil and natural gas production business
decreased largely as a result of decreased operating revenues
resulting from realized oil and natural gas prices which were 26
percent and 19 percent lower than last year, respectively.
Increased natural gas production due to new acquisitions
somewhat offset the operating revenue decline. Operation and
maintenance expenses increased due largely to the previously
mentioned acquisitions. Decreased depreciation, depletion and
amortization due to lower rates resulting from the 1998 write-
downs of oil and natural gas properties partially offset the
decrease in earnings.
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).
Nonregulated Operations --
Certain important factors which could cause actual results
or outcomes for the company and all or certain of its
nonregulated 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 Nonregulated 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.
Prospective Information
Montana-Dakota has obtained and holds valid and existing
franchises authorizing it to conduct its electric operations in
all of the municipalities it serves where such franchises are
required. As franchises expire, Montana-Dakota may face
increasing competition in its service areas, particularly its
service to smaller towns, from rural electric cooperatives.
Montana-Dakota intends to protect its service area and seek
renewal of all expiring franchises and will continue to take
steps to effectively operate in an increasingly competitive
environment.
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 March 31, 1999, 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, vendors and major customers, that such entities are
year 2000 compliant. The company has identified key suppliers,
vendors and customers and as of March 31, 1999, based on
contacts with and representations obtained from approximately 63
percent of these third parties, the company is not aware of any
material third party year 2000 problems. The company will
continue to contact those material third parties that have not
responded 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 March 31, 1999, 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. The testing phase
involves testing systems to confirm year 2000 readiness. The
implementation phase is the process of moving a remediated item
into production status. The table below represents the
approximate percentage of completion by business segment for the
remediation, testing and implementation phases as of March 31,
1999.
Remediation Testing Implementation
Electric and Natural
Gas Distribution 87% 62% 89%
Natural Gas Transmission 93% 61% 95%
Construction Materials
and Mining 40% 20% 35%
Oil and Natural Gas
Production 95% 90% 90%
The company has established a target date of October 1,
1999, to complete the remediation, testing and implementation
phases.
Costs --
The estimated total 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 March 31, 1999, the
company has incurred incremental costs of less than $750,000.
These costs are being funded through cash flows from operations.
The company has not established a formal process to track
internal year 2000 costs but such costs would be principally
related to payroll and benefits. 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 is developing contingency plans for
its mission-critical operations. As of March 31, 1999, the
utility division, which includes electric generation and
transmission and electric and natural gas distribution, has
prepared preliminary contingency plans in accordance with
guidelines and schedules set forth by the North American
Electric Reliability Council (NERC) working in conjunction with
the Mid-Continent Area Power Pool, the utility's regional
reliability council. Such plans are in addition to existing
business recovery and emergency plans established to restore
electric and natural gas service following an interruption
caused by weather or equipment failure. In addition, the
company has and will continue to participate with the NERC in
national drills to assess industry preparation. The natural gas
transmission business has adopted the guidelines used at the
utility and has materially completed plans for its
administrative and accounting systems. The contingency plans
for its other business operations are in the development stage.
The oil and natural gas production and the construction
materials and mining businesses are in various stages of their
contingency planning efforts. Some of the additional
contingency plans under consideration include but are not
limited to: stockpiling inventories, increasing staffing at
critical times, identifying alternative suppliers for critical
products and services, using the company's radio system in the
event there is a partial loss of voice and data communications
and developing manual workarounds and backup procedures.
Contingency plans will continue to be developed and finalized
and the company anticipates having all such contingency plans in
place by October 1, 1999.
Liquidity and Capital Commitments
The 1999 electric and natural gas distribution capital
expenditures are estimated at $30.8 million, including those for
system upgrades, routine replacements, service extensions and
routine equipment maintenance and replacements. It is
anticipated that all of the funds required for these capital
expenditures will be met from internally generated funds, the
company's $40 million revolving credit and term loan agreement,
existing short-term lines of credit aggregating $50 million, a
commercial paper credit facility at Centennial, as described
below, and through the issuance of long-term debt, the amount
and timing of which will depend upon needs, internal cash
generation and market conditions. At March 31, 1999, $22
million under the revolving credit and term loan agreement and
none of the commercial paper supported by the short-term lines
of credit were outstanding.
Capital expenditures in 1999 for the natural gas
transmission business, including those for pipeline expansion
projects, routine system improvements and continued development
of natural gas reserves are estimated at $37.4 million. Capital
expenditures are expected to be met with a combination of
internally generated funds, a commercial paper credit facility
at Centennial, as described below, and through the issuance of
long-term debt, the amount and timing of which will depend upon
needs, internal cash generation and market conditions.
The 1999 capital expenditures for the construction
materials and mining business, including those for routine
equipment rebuilding and replacement and the building of
construction materials handling and transportation facilities,
are estimated at $48.3 million. It is anticipated that funds
generated from internal sources, a commercial paper credit
facility at Centennial, as described below, a $10 million line
of credit, $5.2 million of which was outstanding at March 31,
1999, and the issuance of long-term debt will meet the needs of
this business segment.
Capital expenditures for the oil and natural gas production
business related to its oil and natural gas acquisition,
development and exploration program are estimated at $63.6
million for 1999. It is anticipated that capital expenditures
will be met from internal sources, a $30 million note shelf
facility, $13 million of which was outstanding at March 31,
1999, a commercial paper credit facility at Centennial, as
described below, and the issuance of the company's equity
securities.
Centennial, a direct subsidiary of the company, has a
revolving credit agreement with various banks on behalf of its
subsidiaries that allows for borrowings of up to $200 million.
This facility supports the Centennial commercial paper program.
Under the commercial paper program, $109.7 million was
outstanding at March 31, 1999.
The estimated 1999 capital expenditures set forth above for
the electric, natural gas distribution, natural gas transmission
and construction materials and mining operations 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's issuance of first mortgage debt is subject to
certain restrictions imposed under the terms and conditions of
its Indenture of Mortgage. Generally, those restrictions require
the company to pledge $1.43 of unfunded property to the Trustee
for each dollar of indebtedness incurred under the Indenture and
that annual earnings (pretax and before interest charges), as
defined in the Indenture, equal at least two times its annualized
first mortgage bond interest costs. Under the more restrictive
of the two tests, as of March 31, 1999, the company could have
issued approximately $276 million of additional first mortgage
bonds.
The company's coverage of combined fixed charges and
preferred stock dividends was 2.2 and 2.5 times for the twelve
months ended March 31, 1999, and December 31, 1998, respectively.
Additionally, the company's first mortgage bond interest coverage
was 6.1 times for the twelve months ended March 31, 1999, and
December 31, 1998. Common stockholders' equity as a percent of
total capitalization was 56 percent at March 31, 1999, and
December 31, 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
There are no material changes in market risk faced by the
company from those reported in the company's Annual Report on
Form 10-K for the year ended December 31, 1998. For more
information on market risk, see Part II, Item 7A in the company's
Annual Report on Form 10-K for the year ended December 31, 1998,
and Notes to Consolidated Financial Statements in this Form 10-Q.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 20, 1999, the U.S. Court of Appeals issued its
order which affirmed in part and reversed in part the Federal
District Court's June 1997 decision relating to a suit filed by
the estate of W. A. Moncrief. Based on the decision by the
U.S. Court of Appeals, Williston Basin estimates its liability
for damages on the remanded issues will be less than $5 million.
For more information on this legal action, see Note 11 of Notes to
Consolidated Financial Statements.
On March 31, 1999, judgment was entered, dismissing Apache
and Snyder's claims against the company. For more information on
this legal action, see Note 11 of Notes to Consolidated Financial
Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The company's Annual Meeting of Stockholders was held on
April 27, 1999. Two proposals were submitted to stockholders as
described in the company's Proxy Statement dated March 15, 1999,
and were voted upon and approved by stockholders at the meeting.
The table below briefly describes the proposals and the results
of the stockholder votes.
Shares
Shares Against or Broker
For Withheld Abstentions Non-Votes
Proposal to amend Certificate
of Incorporation to increase
the number of authorized
shares of Common Stock and
reduce the par value 41,759,552 3,737,799 773,805 ---
Proposal to elect three directors:
For terms expiring in 2002 --
Thomas Everist 45,613,261 657,895 --- ---
Robert L. Nance 45,568,619 702,537 --- ---
John A. Schuchart 45,339,288 931,868 --- ---
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
3(a(1))Composite Certificate of Incorporation of the company,
as amended to date, filed as Exhibit 3(a) to Form 10-K
for the year ended December 31, 1994, in File No. 1-3480
3(a(2))Amendment to Article FOURTH of the Certificate
of Incorporation
10(a) Key Employee Stock Option Plan, as amended to date
10(b) Non-Employee Director Stock Compensation Plan, 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 May 13, 1999 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(a(1)) Composite Certificate of Incorporation of the company, as
amended to date, filed as Exhibit 3(a) to Form 10-K for the
year ended December 31, 1994, in File No. 1-3480
3(a(2)) Amendment to Article FOURTH of the Certificate of Incorporation
10(a) Key Employee Stock Option Plan, as amended to date
10(b) Non-Employee Director Stock Compensation Plan, 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
MDU RESOURCES GROUP, INC.
Certificate of Amendment
of
Certificate of Incorporation
MDU Resources Group, Inc., a corporation duly organized and
existing under the laws of the State of Delaware, hereby
certifies as follows:
1. That the Board of Directors of said Corporation, at a
meeting duly convened and held on the 12th day of November, 1998,
proposed an amendment to the Certificate of Incorporation of the
Corporation, as heretofore amended, and at said meeting adopted
resolutions setting forth the proposed amendment, declaring its
advisability, and directing that the proposed amendment be
considered at the next annual meeting of said Corporation by the
stockholders entitled to vote in respect thereof, such amendment
being set forth in the Corporation's Proxy Statement for the
1999 Annual Stockholders Meeting as follows:
RESOLVED, that the Board of Directors of MDU
Resources Group, Inc. hereby declares it advisable:
(A) That the number of shares of Common Stock
which the Company is authorized to issue be increased
from 75,000,000 shares of Common Stock with the par
value of $3.33, to 150,000,000 shares with the par
value of $1.00, effective at the close of business on
the date on which the appropriate Certificate of
Amendment to the Company's Certificate of Incorporation
is filed in the office of the Secretary of State of the
State of Delaware;
(B) That, in order to effect the foregoing, the
Certificate of Incorporation of the Company, as
heretofore amended, be further amended by deleting the
first paragraph of Article FOURTH, and by inserting in
place thereof a new first paragraph of said Article
FOURTH to read as follows:
FOURTH. The total number of shares of
stock which the Corporation shall have
authority to issue is One Hundred Fifty-two
Million (152,000,000) divided into four
classes, namely, Preferred Stock, Preferred
Stock A, Preference Stock, and Common Stock.
The total number of shares of such Preferred
Stock authorized is Five Hundred Thousand
(500,000) shares of the par value of One
Hundred Dollars ($100) per share (hereinafter
called the "Preferred Stock") amounting in
the aggregate to Fifty Million Dollars
($50,000,000). The total number of shares of
such Preferred Stock A authorized is One
Million (1,000,000) shares without par value
(hereinafter called the "Preferred Stock A").
The total number of shares of such Preference
Stock authorized is Five Hundred Thousand
(500,000) shares without par value
(hereinafter called the "Preference Stock").
The total number of shares of such Common
Stock authorized is One Hundred Fifty Million
(150,000,000) of the par value of One and
no/100 Dollars ($1.00) per share (hereinafter
called the "Common Stock"), amounting in the
aggregate to One Hundred Fifty Million
Dollars ($150,000,000).
FURTHER RESOLVED, that the Board of Directors
hereby directs that the proposed amendments be attached
as an exhibit to the proxy statement for the Company's
next Annual or Special Meeting of Stockholders for
consideration by the Stockholders entitled to vote in
respect thereof.
A copy of the resolutions was attached as Exhibit A to the
Corporation's Proxy Statement for the 1999 Annual Stockholders
Meeting, and the body of the Proxy Statement contained a
discussion of the proposed amendment.
2. That thereafter, on the 27th day of April, 1999, at
11:00 a.m., in accordance with the Bylaws of the Corporation, and
upon notice given in accordance with the laws of the State of
Delaware and said Bylaws, the Annual Meeting of Stockholders of
the Corporation was held, and there were present at such meeting,
in person or by proxy, the holders of more than a majority of the
shares of Common Stock of the Corporation outstanding and
entitled to vote, constituting a quorum of said stockholders.
3. That at said Annual Meeting of Stockholders, the
proposal to amend the Certificate of Incorporation to increase
the number of authorized shares of Common Stock from 75,000,000
shares to 150,000,000 shares and to reduce the par value of such
shares from $3.33 per share to $1.00 per share were presented for
consideration, and a vote of the holders of the Common Stock
voting in person or by proxy was taken for and against said
proposal.
That a majority of the outstanding stock of the Corporation
entitled to vote and present at the Annual Meeting in person or
by proxy voted in favor of the proposal to amend Article FOURTH
to the Certificate of Incorporation as indicated in the following
table:
Shares Shares
Shares Shares Voted Voted
Out- Repre- For Against
standing sented Proposal Proposal
Common Stock 53,156,004 46,271,156 41,759,552 4,511,604*
*Includes 773,805 abstentions
6. That said amendment to the Certificate of Incorporation
of MDU Resources Group, Inc. as hereinbefore set forth have been
therefore duly adopted in accordance with the provisions of
Section 242 of the General Corporation Laws of the State of
Delaware.
IN WITNESS WHEREOF, MDU Resources Group, Inc. has caused its
corporate seal to be hereunto affixed, and this Certificate to be
signed by Martin A. White, its President and Chief Executive
Officer, and Lester H. Loble, II, its Secretary, this 28th day of
April, 1999.
MDU RESOURCES GROUP, INC.
ATTEST:
/s/ LESTER H. LOBLE, II By: /s/ MARTIN A. WHITE
Lester H. Loble, II, Secretary Martin A. White
President and Chief Executive Officer
MDU RESOURCES GROUP, INC.
KEY EMPLOYEE STOCK OPTION PLAN
(KESOP)
I. PURPOSE
The purpose of the MDU Resources Group, Inc. 1992 Key Employee
Stock Option Plan (the "Plan") is to motivate key employees of
MDU Resources Group, Inc. and its business units to achieve
specified long-term performance goals of MDU Resources Group,
Inc. or its business units and to encourage ownership by them of
the Common Stock of MDU Resources Group, Inc. The Plan
accomplishes these objectives through the grant of performance
accelerated Stock Options and the opportunity to earn dividend
equivalents.
II. DEFINITIONS
The following definitions shall be used for purposes of
administering the Plan:
"Agreement" means a written agreement evidencing each award
of Options, which shall contain such terms and be in such
form as the Compensation Committee may determine.
"Board" means the Board of Directors of the Company.
"Cause" means the (1) continued failure by a Participant to
perform his/her duties (except as a direct result of the
Participant's Disability) after receiving notification by
the Chief Executive Officer of the Company or an individual
designated by the Chief Executive Officer (or the Board of
Directors of the Company in the case of the Chief Executive
Officer) identifying the manner in which the Participant has
failed to perform his/her duties, (2) engaging in conduct,
which, in the opinion of a majority of the Board of
Directors of the Company or a business unit, is materially
injurious to the Company, or (3) conviction of any felony.
"Change of Control" means the earlier of the following to
occur: (a) the public announcement by the Company or by any
person (which shall not include the Company, any subsidiary
of the Company, or any employee benefit plan of the Company
or of any subsidiary of the Company) ("Person") that such
Person, who or which, together with all Affiliates and
Associates (within the meanings ascribed to such terms in
the Rule 12b-2 of the General Rules and Regulations under
the Exchange Act) of such Person, shall be the beneficial
owner of twenty percent (20%) or more of the voting stock of
the Company outstanding; (b) the commencement of, or after
the first public announcement of any Person to commence, a
tender or exchange offer the consummation of which would
result in any Person becoming the beneficial owner of voting
stock aggregating thirty percent (30%) or more of the then
outstanding voting stock of the Company; (c) the
announcement of any transaction relating to the Company
required to be described pursuant to the requirements of
Item 6(e) of Schedule 14A of Regulation 14A under the
Exchange Act; (d) a proposed change in constituency of the
Board such that, during any period of two (2) consecutive
years, individuals who at the beginning of such period
constitute the Board cease for any reason to constitute at
least a majority thereof, unless the election or nomination
for election by the stockholders of the Company of each new
Director was approved by a vote of at least two-thirds (2/3)
of the Directors then still in office who were members of
the Board at the beginning of the period; or (e) any other
event which shall be deemed by a majority of the
Compensation Committee to constitute a "change in control."
"Common Stock" means the Common Stock, $1.00 par value, of
the Company.
"Company" shall refer to MDU Resources Group, Inc.
"Companies" shall refer to MDU Resources Group, Inc. and its
business units.
"Compensation Committee" or "Committee" shall be the
Compensation Committee of the Board of Directors of the
Company or any Committee of the Board performing similar
functions as appointed from time to time by the Board. The
Committee shall be constituted, to the extent required, so
as to permit the Plan to comply with Rule 16b-3.
"Disability" means the inability of a Participant to perform
each and every duty pertaining to the Participant's regular
occupation by reason of any medically determinable physical
or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a
continuous period of not less than twelve months.
"Dividend Account" is defined in Section IV.D 6.
"Effective Date" means the date as of which the Plan is
approved by the stockholders of MDU Resources Group, Inc.
"Eligible Employee" means any key employee of any of the
Companies who, in the opinion of the Compensation Committee,
has significant responsibility for the continued growth,
development and financial success of the Company or any
business unit thereof.
"Exchange" means the New York Stock Exchange.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" means the average of the high and low
prices for shares of Common Stock traded on the Exchange on
the date of the grant of such Option or if no shares are
traded on that day, on the next preceding day on which
Common Stock was traded on the Exchange.
"Goals" means the separate financial and/or non-financial
objectives set by the Committee for any of the Companies.
"Option" or "Stock Option" means an option to purchase
Common Stock granted pursuant to the Plan. Options may not
be "incentive stock options" as that term is defined in
Section 422 of the Internal Revenue Code of 1986, as
amended.
"Participants" means those Eligible Employees selected by
the Committee for participation in the Plan and includes
their beneficiaries as applicable.
"Performance Cycle" means a time frame established by the
Committee pursuant to Section IV.D 4 for the measurement of
Goals.
"Plan" means this MDU Resources Group, Inc. 1992 Key
Employee Stock Option Plan, adopted by the Board on February
13, 1992, and approved by the stockholders on April 28,
1992, and as amended from time to time.
"Rule 16b-3" means Rule 16b-3 under the Exchange Act or any
successor rule.
"Termination of Service" means leaving the employ of the
Companies for any reason. Transfer between Companies is not
a Termination of Service.
"Trustee" means a trustee chosen by the Committee or any
successor trustee selected by the Committee.
III. ADMINISTRATION
Subject to and not inconsistent with the express provisions of
the Plan the Committee has the sole and complete discretion to
administer and interpret the Plan, including, but not limited to:
(a) designating the Participants to whom Options are
granted under the Plan;
(b) authorizing the Trustee to grant Options, determining
the time(s) when Options are granted and fixing the number
of shares of Common Stock underlying each Option granted
hereunder;
(c) determining the terms and conditions of an Option
granted (including, but not limited to, the exercise price,
any restriction or limitation, the vesting provisions,
acceleration of vesting or forfeiture waiver applicable to
any Option) and the terms of the related Agreement;
(d) determining the conditions of the awarding of Dividend
Equivalents;
(e) establishing performance goals and fixing and adjusting
the Goals;
(f) interpreting the terms and provisions of the Plan;
(g) adopting, amending, and rescinding rules and regulations
relating to the Plan; and
(h) making all determinations necessary or advisable for the
administration of the Plan.
All decisions made by the Committee pursuant to the provisions of
the Plan shall be final and binding on all persons, including the
Companies, the Trustee, and the Plan's Participants.
The Committee may also revise or adjust the vesting provisions
(except that the Committee may not extend vesting beyond nine
years), goals and their levels applicable to a Performance Cycle,
at any time to take into account, among other things, new
Participants, promotions, transfers, terminations, changes in law
and accounting and tax rules and to make such adjustments as the
Committee deems necessary or appropriate to reflect the
Companies' performances or the impact of extraordinary or unusual
items, events, or circumstances or in order to avoid windfalls or
hardships.
The Company and/or the Committee may consult with legal counsel,
who may be counsel for the Company or other counsel, with respect
to its obligations and duties hereunder or with respect to any
claim, action, or proceeding or any other matter.
No member or agent of the Committee shall be personally liable
for any action, determination, or interpretation made in good
faith with respect to the Plan or grants made hereunder, and all
members and agents of the Committee shall be fully protected by
the Company in respect of any such action, determination, or
interpretation.
The Committee's determination under the Plan, including without
limitation, determinations as to the Participants to receive
grants, the terms and provisions of such grants and the
Agreement(s) evidencing the same, need not be uniform and may be
made by it selectively among the Eligible Employees who receive
or are eligible to receive grants under the Plan, whether or not
such Eligible Employees are similarly situated.
IV. GENERAL PLAN DESCRIPTION
A. Overview
The Plan provides for each Participant to (a) receive
grant(s) of Stock Options, (b) have the opportunity to earn
dividend equivalents, and (c) have the opportunity to
achieve accelerated vesting of Stock Options and receive
additional grants of Stock Options based upon the
achievement of Goals established by the Committee over a
designated Performance Cycle.
B. Eligibility
On or after the Effective Date, subject to the provisions of
the Plan, the Committee shall, from time to time, select
Participants from Eligible Employees and arrange with the
Trustee to grant them Stock Options. At the time of
selection, the Committee shall specify the terms and
conditions of the new Participant's initial grant of
Options.
C. Authorization
The total number of shares of Common Stock as to which
Options may be granted may not exceed 800,000 shares; if any
unexercised options lapse or terminate for any reason, the
shares underlying the Options may be made subject to Options
granted to other Participants. In the event of the
declaration of a Common Stock dividend and/or Common Stock
split, reclassification or analogous change in the
capitalization or any distributions (other than regular cash
dividends) to holders of record between the date of grant
and the date of exercise of an Option, an appropriate
adjustment shall be made to the total number of shares as to
which Options may be granted, to the number of shares
subject to Options, and to the exercise price.
Shares of Common Stock, delivered under this Plan may be
authorized but unissued shares of Common Stock, or shares of
Common Stock purchased on the open market and held by the
Trustee, or shares of Common Stock from the 1983 Key
Employees' Stock Option Plan.
D. Stock Options and Dividend Equivalents
(1) Grants
Each Participant shall receive a grant of Options on
the date she or he becomes a Participant. The
Committee shall determine the size of the grant to each
Participant and authorize the Trustee to make the
grant. Participants may receive subsequent grants of
Options from the Trustee when and as directed by the
Committee.
(2) Exercise Price and Term
The exercise price for an Option granted under the Plan
is the Fair Market Value of the Company's Common Stock
on the date of the Option grant. An Option granted
shall generally have a term of ten years commencing
from the date of grant, subject to the provisions of
Sections V and VI and to the general discretion of the
Committee set forth in Section III.
(3) Vesting and Accelerated Vesting Provisions
No Option may be exercised before it has vested.
Generally Option grants have a vesting period (before
accelerated vesting) of nine years subject to the
provisions of Section VI and to the general discretion
of the Committee set forth in Section III. The vesting
period for all or a portion of Options granted to a
Participant may be accelerated by the Committee subject
to the achievement of Goals for a Performance Cycle.
(4) Performance Cycle and Goals
The Committee shall fix the starting and ending dates
of each Performance Cycle. The minimum term shall be
six months; the maximum term shall be nine years. A
Performance Cycle will be the time period used in
assessing the performance of each of the Companies in
comparison to the separate Goals established by the
Committee for each of the Companies. Performance
Cycles and Goals may vary for each of the Companies.
(5) Subsequent Grants; Accelerated Vesting
Additional grants of Options may be made by the Trustee
at the direction of the Committee to Participants at
any time.
In particular, but not by way of limitation, additional
grants of Options may be made to Participants at the
beginning of a new Performance Cycle based upon the
appropriate Companies' achievement of Performance Goals
and the results of accelerated vesting of all or a
portion of previous grants. The Committee will have
the authority to determine the size and terms of any
new Option grant for each Participant.
(6) Dividend Equivalents
At the beginning of each Performance Cycle, a Dividend
Account (the "Dividend Account") shall be established
for each Participant. If a dividend is declared by the
Board on the Common Stock of the Company an equivalent
amount shall be accrued in the Dividend Account of each
Participant for each share of Common Stock underlying
all unvested Options held by the Participant. At the
end of each Performance Cycle the Committee in its sole
discretion may award an amount between 0% and 150% of a
Participant's Dividend Account based on whether the
Goals established for that Performance Cycle were
achieved. Any earned portion of a Participant's
Dividend Account is paid in cash to that Participant at
the end of each Performance Cycle at a date and time
determined by the Committee. Any portion of a
Participant's Dividend Account not awarded to the
Participant by the Committee is forfeited. However,
shares of Common Stock underlying unvested Options
retain a dividend equivalent and a Participant can earn
the value of these dividend equivalents in subsequent
Performance Cycles.
(7) Exercise of Options
As provided in paragraph (3) of this section, generally
all Options granted to a Participant under the Plan
shall vest on the ninth anniversary of the date of
grant; provided, however, that if and to the extent the
vesting of an Option is accelerated at the end of a
Performance Cycle, the Option may thereafter be
exercised to the extent that the Option has vested. Any
vested Option may be exercised from time to time in
part or as a whole, at the discretion of the
Participant, from the date of vesting until termination
of the Option; no Option shall be exercisable after its
expiration date; subject in either case to the
provisions set forth in Section V and to the general
discretion of the Committee set forth in Section III.
Options may be exercised by giving written notice of
exercise to the Trustee specifying the number of shares
to be purchased. The notice shall be accompanied by
the exercise price. Payment may also be made in part
or in full by tendering shares of Common Stock already
owned by the Participant, based upon the Fair Market
Value of the Common Stock on the date the Option is
exercised, or through share withholding. Participants
may also simultaneously exercise Options and sell the
shares of Common Stock thereby acquired and use the
proceeds from the sale as payment for the purchase
price of the shares. Such transactions, to the extent
required, shall be effected in accordance with Section
16 of the Exchange Act and the rules thereunder.
(8) Nonassignability of Options
Options granted may not be assigned, transferred, or
pledged by the Participant other than by will or the
laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the
Internal Revenue Code or Title 1 of the Employee
Retirement Income Security Act, or the rules
thereunder.
V. Termination of Service
A. Upon any Termination of Service, unvested Options and
any amounts accrued in a Participant's Dividend Account
shall be forfeited unless the Committee decides otherwise
pursuant to Section III.
B. Death
If the Participant dies while still employed, then any
vested Options, to the extent that they are then
exercisable, may be fully exercised at any time within one
(1) year (even if this extends the term of the Options)
after the date of the Participant's death by the person
designated in the Participant's last will and testament or
by the personal representative of the Participant's estate.
C. Disability
If the Participant suffers Disability, then any vested
Options, to the extent that they are then exercisable, may
be fully exercised by the Participant at any time within one
(1) year (even if this extends the terms of the Options)
after the date of Disability or by a person qualified or
authorized to act on behalf of the Participant.
D. Cause
If a Participant's Termination of Service is for Cause, the
right to exercise any vested Option shall terminate with
such termination of employment. For this purpose, the
determination of the Committee as to whether employment was
terminated for Cause shall be final.
E. Other Termination of Service
In the event of the Participant's Termination of Service for
reasons other than Death, Disability, or Cause, to the
extent that any vested Options are then exercisable, the
Participant shall be entitled to exercise the Options for
the three (3) month period following such Termination of
service (even if this extends the term of the Options).
VI. Change of Control
Upon a Change of Control of the Company, all Options previously
granted under the Plan shall become immediately vested and
available for exercise. The value of the amounts accrued in the
Participant's Dividend Account shall be paid in full at 100% of
the amount thereof to the Participant in cash upon the Change of
Control.
VII. Miscellaneous Provisions
A. Unsecured General Creditor
Participants and their beneficiaries, heirs,
successors, and assigns shall have no legal or
equitable rights, interests, or other claims in any
property or assets of the Company, nor shall they be
beneficiaries of, or have any rights, claims, or
interests in any specified assets of the Company. Any
and all of the Company's assets shall be and remain
general, unpledged, unrestricted assets of the Company.
The Company's obligation under the Plan shall be that
of an unfunded and unsecured promise of the Company to
cause shares of Common Stock to be available or to pay
benefits in the future.
B. No Contract of Employment
Nothing contained in this Plan nor any related
Agreement nor any action taken in the administration of
the Plan shall be construed as a contract of employment
or as giving a Participant any right to be retained in
the service of the Company.
C. Withholding Taxes
No later than the date on which a Participant receives
Common Stock with respect to any Option exercised or
cash with respect to Dividend Equivalents awarded under
the Plan, the Participant shall pay in cash to the
Company or its delegate or make arrangements
satisfactory to the Company regarding the payment of
any federal, state, or local taxes required by law to
be withheld with respect to any such amounts. The
Participant may also make payment (i) by tendering
shares of the Common Stock already owned by the
Participant, based on the fair market value of the
Common Stock on the date the tax is owed or (ii) by
having such amounts withheld from the shares of the
Common Stock otherwise distributable to him/her upon
exercise of his/her Options. Any such withholding on
behalf of a Participant shall be done in accordance
with Section 16 of the Exchange Act and the rules
thereunder to the extent required. The obligations of
the Company under the Plan shall be conditioned on such
payment or arrangements. The Company or its delegate
may deduct any taxes from any payment due to the
Participant from the Company to the extent allowed by
law.
D. Ten Percent Limitation
No Option shall be granted under this Plan to a
Participant if at the time the Option is granted the
Participant shall own stock representing more than 10%
of the combined voting power of all classes of voting
stock of the Company.
E. Severability
In the event that any provision of the Plan or any
related Agreement is held invalid, void or
unenforceable, the same shall not affect, in any
respect whatsoever, the validity of any other provision
of the Plan or any related Agreement.
F. Inurement of Rights and Obligations
The rights and obligations under the Plan shall inure
to the benefit of, and shall be binding upon the
Company, its successors and assigns, and the
Participants and their beneficiaries consistent with
the terms of the Plan.
G. Amendments
The Board may at any time amend, suspend, or terminate
the Plan including, without limitation, modifications
to take into account and comply with any changes in
applicable securities or federal income tax laws and
regulations, or other applicable laws and regulations;
provided, that no modification to the Plan shall
increase the number of shares available under the Plan
by more than 10 percent without approval of the holders
of the Common Stock, except as otherwise permitted
under Section IV.C; and provided further, that any such
amendment, suspension, or termination must be
prospective in that it may not deprive Participants of
any Options or rights previously granted under the Plan
whether vested or not, without consent of the
Participant, except if required by statute or rules or
regulations promulgated thereunder.
H. Restrictions
Shares of Common Stock acquired by Participants
pursuant to the exercise of Options granted under the
Plan shall be subject to such restrictions on
transferability and disposition as are required by
federal and state security laws and such Participants
shall not sell or transfer any shares acquired except
in accordance with such laws.
I. Legal and Other Requirements
The obligation of the Company to cause Common Stock to
be available under the Plan shall be subject to all
applicable laws, regulations, rules and approvals,
including, but not limited to the receipt of any
necessary approvals by state or federal regulatory
bodies, and the effectiveness of a registration
statement under the Securities Act of 1933 if deemed
necessary or appropriate by the Company. Certificates
for shares of Common Stock issued hereunder may be
legended as the Committee shall deem appropriate.
J. Agreements
Each grant of Options by the Trustee shall be evidenced
by an Agreement between the Trustee and the Participant
which shall contain such restrictions, terms and
conditions as the Committee may require.
Notwithstanding anything to the contrary contained in
the Plan, the Company shall not be under any obligation
to honor any grants under the Plan to any Participant
hereunder unless such Participant shall execute all
appropriate Agreements with respect to such Options in
such form as the Committee may determine from time to
time.
K. Applicable Law
The Plan and any related Agreements shall be governed
in accordance with the laws of the State of North
Dakota.
VIII. Establishment of Trust
The Company shall establish with the Trustee a trust
consisting of such sums of money or other property
acceptable to the Trustee as shall from time to time be paid
or delivered to the Trustee, all investments made therewith
and proceeds thereof and all earnings and profits thereon.
The Trustee shall invest funds, if any, advanced by the
Company in shares of Common Stock. Upon the exercise of an
Option by a Participant, the Trustee shall take Common Stock
from the trust or shall purchase Common Stock on the open
market or from the Company and deliver certificates for such
shares to the Participant.
The Company shall have the right at any time to terminate
the trust but such termination shall not affect the rights
of any Participant to whom an Option has been granted under
the Plan. After effecting all purchases and transfers of
Common Stock as are required by the Plan pursuant to the
exercise of Options by Participants, the Trustee shall be
relieved of all further liability. Termination of the trust
shall take effect as of the date the last such transfer is
made. Upon such termination any assets remaining in the
trust shall be returned to the Company unless other
directions are given to the Trustee by the Company.
MDU RESOURCES GROUP, INC.
NON-EMPLOYEE DIRECTOR STOCK COMPENSATION PLAN
I. Purpose
The purpose of the MDU Resources Group, Inc. Non-Employee
Director Stock Compensation Plan is to provide ownership of the
Company's stock to non-employee members of the Board of Directors
in order to improve the Company's ability to attract and retain
highly qualified individuals to serve as directors of the Company
and to strengthen the commonality of interest between directors
and stockholders.
II. Definitions
When used herein, the following terms shall have the
respective meanings set forth below:
"Agent" means a securities broker-dealer selected by the
Company and registered under the Exchange Act.
"Annual Retainer" means the annual retainer payable by the
Company to Non-Employee Directors and shall include, for
purposes of this Plan, meeting fees, cash retainers and any
other cash compensation payable to Non-Employee Directors by
the Company for services as a Director.
"Annual Meeting of Stockholders" means the annual meeting of
stockholders of the Company at which directors of the
Company are elected.
"Board" or "Board of Directors" means the Board of Directors
of the Company.
"Committee" means a committee whose members meet the
requirements of Section IV(A) hereof, and who are appointed
from time to time by the Board to administer the Plan.
"Common Stock" means the common stock, $1.00 par value, of
the Company.
"Company" means MDU Resources Group, Inc., a Delaware
corporation, and any successor corporation.
"Effective Date" means the date as of which the Plan is
approved by the stockholders of the Company.
"Employee" means any officer or other common law employee of
the Company or of any of its business units or divisions or
of any Subsidiary.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Non-Employee Director" or "Participant" means any person
who is elected or appointed to the Board of Directors of the
Company and who is not an Employee.
"Plan" means the Company's Non-Employee Director Stock
Compensation Plan, adopted by the Board on February 9, 1995,
and approved by the stockholders on April 25, 1995, as it
may be amended from time to time.
"Plan Year" means the period commencing on the Effective
Date of the Plan and ending the next following December 31
and, thereafter, the calendar year.
"Stock Payment" means that portion of the Annual Retainer to
be paid to Non-Employee Directors in shares of Common Stock
rather than cash for services rendered as a director of the
Company, as provided in Section V hereof, including that
portion of the Stock Payment resulting from any election
specified in Section VI hereof.
"Subsidiary" means any corporation that is a "subsidiary
corporation" of the Company, as that term is defined in
Section 424(f) of the Internal Revenue Code of 1986, as
amended.
III. Shares of Common Stock Subject to the Plan
Subject to Section VII below, the maximum aggregate number
of shares of Common Stock that may be delivered under the Plan is
112,500 shares. The Common Stock to be delivered under the Plan
will be made available from authorized but unissued shares of
Common Stock, treasury stock or shares of Common Stock purchased
on the open market. Shares of Common Stock purchased on the open
market shall be purchased by the Agent in compliance with Rule
10b-6 and Rule 10b-18 under the Exchange Act to the extent
compliance shall be required. Shares of Common Stock purchased
on the open market by the Agent shall be purchased and held in
such manner that such shares are not returned to the status of
treasury stock or authorized but unissued shares of Common Stock.
IV. Administration
A. The Plan will be administered by a committee appointed
by the Board, consisting of two or more persons who are not
eligible to participate in the Plan. Members of the Committee
need not be members of the Board. The Company shall pay all
costs of administration of the Plan.
B. Subject to and not inconsistent with the express
provisions of the Plan, the Committee has and may exercise such
powers and authority of the Board as may be necessary or
appropriate for the Committee to carry out its functions under
the Plan. Without limiting the generality of the foregoing, the
Committee shall have full power and authority (i) to determine
all questions of fact that may arise under the Plan, (ii) to
interpret the Plan and to make all other determinations necessary
or advisable for the administration of the Plan and (iii) to
prescribe, amend and rescind rules and regulations relating to
the Plan, including, without limitation, any rules which the
Committee determines are necessary or appropriate to ensure that
the Company and the Plan will be able to comply with all
applicable provisions of any federal, state or local law. All
interpretations, determinations and actions by the Committee will
be final and binding upon all persons, including the Company and
the Participants.
V. Determination of Annual Retainer and Stock Payments
A. The Board shall determine the Annual Retainer payable
to all Non-Employee Directors of the Company.
B. Each director who is a Non-Employee Director
immediately following the date of the Company's Annual Meeting of
Stockholders shall receive on the fifteenth business day
following the Annual Meeting a Stock Payment of 450 shares of
Common Stock as a portion of the Annual Retainer payable to such
director for the Plan Year in which such date occurs.
Certificates evidencing the shares of Common Stock constituting
Stock Payments shall be registered in the respective names of the
Participants and shall be issued to each Participant. The cash
portion of the Annual Retainer shall be paid to Non-Employee
Directors at such times and in such manner as may be determined
by the Board of Directors.
C. Any director may decline a Stock Payment for any Plan
Year; provided, however, that no cash compensation shall be paid
in lieu thereof. Any director who declines a Stock Payment must
do so in writing prior to the performance of any services as a
Non-Employee Director for the Plan Year to which such Stock
Payment relates.
D. No Non-Employee Director shall be required to forfeit
or otherwise return any shares of Common Stock issued as a Stock
Payment pursuant to the Plan (including any shares of Common
Stock received as a result of an election under Section VI)
notwithstanding any change in status of such Non-Employee
Director which renders him ineligible to continue as a
Participant in the Plan. Any person who is a Non-Employee
Director immediately following the Company's Annual Meeting of
Stockholders shall be entitled to receive a Stock Payment as a
portion of the applicable Annual Retainer.
VI. Election to Increase Amount of Stock Payment
In lieu of receiving the cash portion of the Annual Retainer
for any Plan Year, a Participant may make a written election to
reduce the cash portion of such Annual Retainer by a specified
dollar amount and have such amount applied to purchase additional
shares of Common Stock of the Company. The election shall be
made on a form provided by the Committee and must be returned to
the Committee on or before the last business day of the year
prior to the year in which the election is to be effective. The
election form shall state the amount by which the Participant
desires to reduce the cash portion of the Annual Retainer, which
shall be applied toward the purchase of Common Stock; provided,
however, that no fractional shares may be purchased. Stock to be
delivered to Participants pursuant to this election shall be
delivered in December of each year. Cash in lieu of any
fractional share shall be paid to the Participant. An election
shall continue in effect until changed or revoked by the
Participant. No Participant shall be allowed to change or revoke
any election for the then current year, but may change an
election for any subsequent Plan Year. All shares of Common
Stock received pursuant to an election under this Article VI must
be held by a Participant for six months after receipt thereof.
VII. Adjustment For Changes in Capitalization
If the outstanding shares of Common Stock of the Company are
increased, decreased or exchanged for a different number or kind
of shares or other securities, or if additional shares or new or
different shares or other securities are distributed with respect
to such shares of Common Stock or other securities, through
merger, consolidation, sale of all or substantially all of the
property of the Company, reorganization or recapitalization,
reclassification, stock dividend, stock split, reverse stock
split, combinations of shares, rights offering, distribution of
assets or other distribution with respect to such shares of
Common Stock or other securities or other change in the corporate
structure or shares of Common Stock, the number of shares to be
granted annually, the maximum number of shares and/or the kind of
shares that may be issued under the Plan shall be appropriately
adjusted by the Committee. Any determination by the Committee as
to any such adjustment will be final, binding and conclusive.
The maximum number of shares issuable under the Plan as a result
of any such adjustment shall be rounded down to the nearest whole
share.
VIII. Amendment and Termination of Plan
A. The Board will have the power, in its discretion, to
amend, suspend or terminate the Plan at any time; provided,
however, that no amendment which requires stockholder approval in
order for the Plan to continue to comply with Rule 16b-3 under
the Exchange Act, including any successor to such Rule, shall be
effective unless such amendment shall be approved by the
requisite vote of the stockholders of the Company entitled to
vote thereon.
B. Notwithstanding the foregoing, any provision of the
Plan that either states the amount and price of securities to be
issued under the Plan and specifies the price and timing of such
issuances, or sets forth a formula that determines the amount,
price and timing of such issuances, shall not be amended more
than once every six months, other than to comport with changes in
the Internal Revenue Code, the Employee Retirement Income
Security Act, or the rules thereunder.
IX. Effective Date and Duration of the Plan
The Plan will become effective upon the Effective Date, and
shall remain in effect, subject to the right of the Board of
Directors to terminate the Plan at any time pursuant to Section
VIII, until all shares subject to the Plan have been purchased or
acquired according to the Plan's provisions.
X. Miscellaneous Provisions
A. Continuation of Directors in Same Status
Nothing in the Plan or any action taken pursuant to the Plan
shall be construed as creating or constituting evidence of any
agreement or understanding, express or implied, that the Company
will retain a Non-Employee Director as a director or in any other
capacity for any period of time or at a particular retainer or
other rate of compensation, as conferring upon any Participant
any legal or other right to continue as a director or in any
other capacity, or as limiting, interfering with or otherwise
affecting the right of the Company to terminate a Participant in
his capacity as a director or otherwise at any time for any
reason, with or without cause, and without regard to the effect
that such termination might have upon him as a Participant under
the Plan.
B. Compliance with Government Regulations
Neither the Plan nor the Company shall be obligated to issue
any shares of Common Stock pursuant to the Plan at any time
unless and until all applicable requirements imposed by any
federal and state securities and other laws, rules and
regulations, by any regulatory agencies or by any stock exchanges
upon which the Common Stock may be listed have been fully met.
As a condition precedent to any issuance of shares of Common
Stock and delivery of certificates evidencing such shares
pursuant to the Plan, the Board or the Committee may require a
Participant to take any such action and to make any such
covenants, agreements and representations as the Board or the
Committee, as the case may be, in its discretion deems necessary
or advisable to ensure compliance with such requirements. The
Company shall in no event be obligated to register the shares of
Common Stock deliverable under the Plan pursuant to the
Securities Act of 1933, as amended, or to qualify or register
such shares under any securities laws of any state upon their
issuance under the Plan or at any time thereafter, or to take any
other action in order to cause the issuance and delivery of such
shares under the Plan or any subsequent offer, sale or other
transfer of such shares to comply with any such law, regulation
or requirement. Participants are responsible for complying with
all applicable federal and state securities and other laws, rules
and regulations in connection with any offer, sale or other
transfer of the shares of Common Stock issued under the Plan or
any interest therein including, without limitation, compliance
with the registration requirements of the Securities Act of 1933,
as amended (unless an exemption therefrom is available), or with
the provisions of Rule 144 promulgated thereunder, if applicable,
or any successor provisions. Certificates for shares of Common
Stock may be legended as the Committee shall deem appropriate.
C. Nontransferability of Rights
No Participant shall have the right to assign the right to
receive any Stock Payment or any other right or interest under
the Plan, contingent or otherwise, or to cause or permit any
encumbrance, pledge or charge of any nature to be imposed on any
such Stock Payment (prior to the issuance of stock certificates
evidencing such Stock Payment) or any such right or interest.
D. Severability
In the event that any provision of the Plan is held invalid,
void or unenforceable, the same shall not affect, in any respect
whatsoever, the validity of any other provision of the Plan.
E. Governing Law
To the extent not preempted by Federal law, the Plan shall
be governed by the laws of the State of North Dakota.
MDU RESOURCES GROUP, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Twelve Months Year
Ended Ended
March 31, 1999 December 31, 1998
(In thousands of dollars)
Earnings Available for
Fixed Charges:
Net Income per Consolidated
Statements of Income $ 29,035 $ 34,107
Income Taxes 15,303 17,485
44,338 51,592
Rents (a) 1,789 1,749
Interest (b) 33,155 31,587
Total Earnings Available
for Fixed Charges $ 79,282 $ 84,928
Preferred Dividend Requirements $ 776 $ 777
Ratio of Income Before Income
Taxes to Net Income 153% 151%
Preferred Dividend Factor on
Pretax Basis 1,187 1,173
Fixed Charges (c) 34,944 33,336
Combined Fixed Charges and
Preferred Stock Dividends $ 36,131 $ 34,509
Ratio of Earnings to Fixed
Charges 2.3x 2.5x
Ratio of Earnings to
Combined Fixed Charges
and Preferred Stock Dividends 2.2x 2.5x
(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 FINANACIAL 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 541,131
<OTHER-PROPERTY-AND-INVEST> 595,046
<TOTAL-CURRENT-ASSETS> 242,568
<TOTAL-DEFERRED-CHARGES> 95,289
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,474,034
<COMMON> 177,009
<CAPITAL-SURPLUS-PAID-IN> 171,436
<RETAINED-EARNINGS> 207,479
<TOTAL-COMMON-STOCKHOLDERS-EQ> 555,924
1,600
15,000
<LONG-TERM-DEBT-NET> 417,778
<SHORT-TERM-NOTES> 122
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 2,402
100
<CAPITAL-LEASE-OBLIGATIONS> 0
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<OTHER-ITEMS-CAPITAL-AND-LIAB> 481,108
<TOT-CAPITALIZATION-AND-LIAB> 1,474,034
<GROSS-OPERATING-REVENUE> 259,046
<INCOME-TAX-EXPENSE> 7,702
<OTHER-OPERATING-EXPENSES> 233,585
<TOTAL-OPERATING-EXPENSES> 241,287
<OPERATING-INCOME-LOSS> 17,759
<OTHER-INCOME-NET> 3,768
<INCOME-BEFORE-INTEREST-EXPEN> 21,527
<TOTAL-INTEREST-EXPENSE> 8,806
<NET-INCOME> 12,721
193
<EARNINGS-AVAILABLE-FOR-COMM> 12,528
<COMMON-STOCK-DIVIDENDS> 10,632
<TOTAL-INTEREST-ON-BONDS> 2,433
<CASH-FLOW-OPERATIONS> 45,176
<EPS-PRIMARY> .24
<EPS-DILUTED> .23
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