UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
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 August 4, 2000:
62,705,861 shares.
INTRODUCTION
This Form 10-Q contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements should be read with the cautionary
statements and important factors included in this Form 10-Q at
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Safe Harbor for Forward-
looking Statements. Forward-looking statements are all
statements other than statements of historical fact, including
without limitation, those statements that are identified by the
words "anticipates," "estimates," "expects," "intends," "plans,"
"predicts" and similar expressions.
MDU Resources Group, Inc. (company) is a diversified natural
resource company which was incorporated under the laws of the
State of Delaware in 1924. Its principal executive offices are
at the Schuchart Building, 918 East Divide Avenue, P.O. Box 5650,
Bismarck, North Dakota 58506-5650, telephone (701) 222-7900.
Montana-Dakota Utilities Co. (Montana-Dakota), the public
utility division of the company, through the electric and natural
gas distribution segments, generates, transmits and distributes
electricity, distributes natural gas and provides related value-
added products and services in the Northern Great Plains.
The company, through its wholly owned subsidiary, Centennial
Energy Holdings, Inc. (Centennial), owns WBI Holdings, Inc. (WBI
Holdings), Knife River Corporation (Knife River), and Utility
Services, Inc. (Utility Services).
WBI Holdings is comprised of the pipeline and energy
services and the oil and natural gas production
segments. The pipeline and energy services segment
provides natural gas transportation, underground storage
and gathering services through regulated and
nonregulated pipeline systems and provides energy
marketing and management services throughout the United
States. The oil and natural gas production segment is
engaged in oil and natural gas acquisition, exploration
and production throughout the United States and in the
Gulf of Mexico.
Knife River mines and markets aggregates and related
value-added construction materials products and services
in the western United States, including Alaska and
Hawaii, and also operates lignite coal mines in Montana
and North Dakota.
Utility Services is a full-service engineering, design
and build company operating throughout the United States
specializing in construction and maintenance of power and
natural gas distribution and transmission systems as well
as communication and fiber optic facilities.
INDEX
Part I -- Financial Information
Consolidated Statements of Income --
Three and Six Months Ended June 30, 2000 and 1999
Consolidated Balance Sheets --
June 30, 2000 and 1999, and December 31, 1999
Consolidated Statements of Cash Flows --
Six Months Ended June 30, 2000 and 1999
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 Six Months
Ended Ended
June 30, June 30,
2000 1999 2000 1999
(In thousands, except per share amounts)
Operating revenues $362,979 $290,267 $734,968 $549,313
Operating expenses:
Fuel and purchased power 11,805 12,452 26,204 25,955
Purchased natural gas sold 95,004 71,750 266,774 162,455
Operation and maintenance 183,175 143,771 309,093 245,770
Depreciation, depletion and amortization 24,306 19,983 46,445 40,123
Taxes, other than income 7,610 6,663 15,943 13,901
321,900 254,619 664,459 488,204
Operating income 41,079 35,648 70,509 61,109
Other income -- net 4,307 1,065 6,676 4,833
Interest expense 10,924 8,452 21,205 17,258
Income before income taxes 34,462 28,261 55,980 48,684
Income taxes 13,336 10,465 21,490 18,167
Net income 21,126 17,796 34,490 30,517
Dividends on preferred stocks 191 193 383 386
Earnings on common stock $20,935 $ 17,603 $ 34,107 $ 30,131
Earnings per common share -- basic $ .35 $ .33 $ .58 $ .57
Earnings per common share -- diluted $ .35 $ .33 $ .58 $ .56
Dividends per common share $ .21 $ .20 $ .42 $ .40
Weighted average common shares
outstanding -- basic 59,987 53,373 58,519 53,260
Weighted average common shares
outstanding -- diluted 60,212 53,603 58,688 53,512
The accompanying notes are an integral part of these consolidated statements.
MDU RESOURCES GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, June 30, December 31,
2000 1999 1999
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 39,120 $ 44,534 $ 77,504
Receivables 208,561 145,479 169,560
Inventories 64,448 51,834 64,608
Deferred income taxes 11,252 18,732 15,600
Prepayments and other current assets 37,719 24,470 24,424
361,100 285,049 351,696
Investments 43,274 43,783 43,128
Property, plant and equipment 2,294,389 1,883,363 2,042,281
Less accumulated depreciation,
depletion and amortization 829,941 758,874 794,105
1,464,448 1,124,489 1,248,176
Deferred charges and other assets 136,939 97,319 123,303
$2,005,761 $1,550,640 $1,766,303
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ --- $ 102 $ 14,693
Long-term debt and preferred
stock due within one year 3,856 2,374 4,428
Accounts payable 111,063 84,109 81,262
Taxes payable 3,571 8,178 6,842
Dividends payable 13,033 11,004 12,171
Other accrued liabilities,
including reserved revenues 76,265 77,374 67,931
207,788 183,141 187,327
Long-term debt 695,030 473,174 563,545
Deferred credits and other liabilities:
Deferred income taxes 220,693 177,871 213,771
Other liabilities 114,147 119,490 115,627
334,840 297,361 329,398
Preferred stock subject to mandatory
redemption 1,500 1,600 1,500
Commitments and contingencies
Stockholders' equity:
Preferred stocks 15,000 15,000 15,000
Common stockholders' equity:
Common stock (Shares issued --
$1.00 par value, 61,519,748
at June 30, 2000, 54,293,628
at June 30, 1999 and
57,277,915 at December 31, 1999) 61,520 54,294 57,278
Other paid-in capital 440,856 315,426 372,312
Retained earnings 252,853 214,270 243,569
Treasury stock at cost - 239,521
shares (3,626) (3,626) (3,626)
Total common stockholders' equity 751,603 580,364 669,533
Total stockholders' equity 766,603 595,364 684,533
$2,005,761 $1,550,640 $1,766,303
The accompanying notes are an integral part of these consolidated statements.
MDU RESOURCES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
2000 1999
(In thousands)
Operating activities:
Net income $ 34,490 $ 30,517
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, depletion and amortization 46,445 40,123
Deferred income taxes and investment tax credit 10,245 (112)
Changes in current assets and liabilities:
Receivables (25,989) (10,094)
Inventories 4,078 (1,414)
Other current assets (12,602) (4,860)
Accounts payable 21,537 20,928
Other current liabilities 4,071 4,594
Other noncurrent changes (1,437) (4,937)
Net cash provided by operating activities 80,838 74,745
Financing activities:
Net change in short-term borrowings (15,242) (19,098)
Issuance of long-term debt 147,476 80,503
Repayment of long-term debt (18,802) (22,408)
Issuance of common stock --- 3,184
Retirement of natural gas repurchase commitment --- (14,296)
Dividends paid (25,206) (21,829)
Net cash provided by financing activities 88,226 6,056
Investing activities
Capital expenditures including acquisitions of businesses (208,853) (71,016)
Net proceeds from sale or disposition of property 2,341 10,364
Net capital expenditures (206,512) (60,652)
Sale of natural gas available under repurchase commitment --- 1,330
Investments 64 (754)
Additions to notes receivable (5,000) (15,407)
Proceeds from notes receivable 4,000 ---
Net cash used in investing activities (207,448) (75,483)
Increase (decrease) in cash and cash equivalents (38,384) 5,318
Cash and cash equivalents -- beginning of year 77,504 39,216
Cash and cash equivalents -- end of period $ 39,120 $ 44,534
The accompanying notes are an integral part of these consolidated statements.
MDU RESOURCES GROUP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2000 and 1999
(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, 1999 (1999 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 1999 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 and six months ended June 30, 2000 and 1999,
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:
Six Months Ended
June 30,
2000 1999
(In thousands)
Interest, net of amount capitalized $ 17,362 $14,718
Income taxes $ 13,844 $19,673
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 pronouncements
In June 1998, the Financial Accounting Standards Board
(FASB) 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.
In June 1999, the FASB issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective
Date of FASB Statement No. 133" (SFAS No. 137), which delayed
the effective date of SFAS No. 133 to fiscal years beginning
after June 15, 2000. In June 2000, the FASB issued Statement
of Financial Accounting Standards No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities -
- an amendment of FASB Statement No. 133" (SFAS No. 138). The
company will adopt SFAS No. 133, as amended by SFAS No. 137 and
SFAS No. 138, on January 1, 2001. The company continues to
evaluate the effect of adopting SFAS No. 133, as amended, but
has not yet determined what impact this adoption will have on
the company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, "Revenue Recognition"
(SAB No. 101), which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements.
On June 26, 2000, the Securities and Exchange Commission
delayed the adoption date of SAB No. 101. SAB No. 101 is
effective for the company no later than October 1, 2000. SAB
No. 101 is not expected to have a material effect on the
company's financial position or results of operations.
6. Derivatives
The company utilizes derivative financial instruments,
including price swap and collar agreements and natural gas
futures, to manage a portion of the market risk associated with
fluctuations in the price of oil and natural gas. 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 swap and collar agreements call for the company to
receive monthly payments from or make payments to
counterparties based upon the difference between a fixed and a
variable price as specified by the 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,
Colorado Interstate Gas Index or other various indexes. 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. Gains or
losses on futures contracts are deferred until the underlying
commodity transaction occurs, at which point they are reported
in "Purchased natural gas sold" on the Consolidated Statements
of Income.
The following table summarizes hedge agreements entered
into by certain wholly owned subsidiaries of WBI Holdings as of
June 30, 2000. These agreements call for the subsidiaries of
WBI Holdings to receive fixed prices and pay variable prices.
(Notional amount and fair value in thousands)
Weighted
Average Notional
Fixed Price Amount Fair
(Per barrel) (In barrels) Value
Oil swap agreements
maturing in 2000 $19.55 386 $(4,659)
Weighted
Average Notional
Fixed Price Amount Fair
(Per MMBtu) (In MMBtu's) Value
Natural gas swap
agreements maturing
in 2000 $2.32 3,974 $(7,272)
Weighted
Average
Floor/Ceiling Notional
Price Amount Fair
(Per barrel) (In barrels) Value
Oil collar agreement
maturing in 2000 $20.00/$22.33 92 $ (825)
Weighted
Average
Floor/Ceiling Notional
Price Amount Fair
(Per MMBtu) (In MMBtu's) Value
Natural gas collar
agreements maturing
in 2000 $2.34/$2.69 1,922 $(3,735)
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.
In the event a derivative financial instrument does not
qualify for hedge accounting or when the underlying commodity
transaction 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 is sold or matures and is expected to generally
offset the corresponding increases or decreases in the value of
the underlying commodity transaction.
7. Business segment data
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. Prior to the fourth quarter
of 1999, the company reported five operating segments
consisting of electric, natural gas distribution, natural gas
transmission, construction materials and mining, and oil and
natural gas production. During the fourth quarter of 1999, the
company revised the components of the segments reported based
on organizational changes and the significance of current
segments. As a result, a utility services segment was
separated from the electric segment; gas production activities
previously included in the natural gas transmission segment are
now reflected in the oil and natural gas production segment;
and the remaining operations of the natural gas transmission
business were renamed pipeline and energy services.
The company's operations are now conducted through six
business segments and all prior period information has been
restated to reflect this change. As of June 30, 2000,
substantially all of the company's operations are located
within the United States. The electric business generates,
transmits and distributes electricity and the natural gas
distribution business distributes natural gas. These
operations also supply related value-added products and
services in the Northern Great Plains. The utility services
business is a full-service engineering, design and build
company operating throughout the United States specializing in
construction and maintenance of power and natural gas
distribution and transmission systems as well as communication
and fiber optic facilities. The pipeline and energy services
business provides natural gas transportation, underground
storage and gathering services through regulated and
nonregulated pipeline systems and provides energy marketing and
management services throughout the United States. The oil and
natural gas production business is engaged in oil and natural
gas acquisition, exploration and production throughout the
United States and in the Gulf of Mexico. The construction
materials and mining business mines and markets aggregates and
related value-added construction materials products and
services in the western United States, including Alaska and
Hawaii. It also operates lignite coal mines in Montana and
North Dakota.
Segment information follows the same accounting policies as
described in Note 1 of the company's 1999 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
(In thousands)
Three Months
Ended June 30, 2000
Electric $ 36,401 $ --- $ 3,035
Natural gas distribution 29,038 --- (669)
Utility services 24,352 --- 1,074
Pipeline and energy
services 97,574 9,616 919
Oil and natural gas
production 21,805 7,555 7,089
Construction materials
and mining 150,984 2,825* 9,487
Intersegment eliminations --- (17,171) ---
Total $ 360,154 $ 2,825* $ 20,935
Three Months
Ended June 30, 1999
Electric $ 36,948 $ --- $ 3,276
Natural gas distribution 25,881 --- (550)
Utility services 23,465 --- 1,788
Pipeline and energy
services 80,743 6,665 6,902
Oil and natural gas
production 15,360 3,165 3,922
Construction materials
and mining 104,790 3,080* 2,265
Intersegment eliminations --- (9,830) ---
Total $ 287,187 $ 3,080* $ 17,603
* In accordance with the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of
Regulation" (SFAS No. 71), intercompany coal sales are not
eliminated.
Operating
Operating Revenues Earnings
Revenues Inter- on Common
External segment Stock
(In thousands)
Six Months
Ended June 30, 2000
Electric $ 76,721 $ --- $ 6,259
Natural gas distribution 91,455 --- 1,910
Utility services 47,188 --- 1,527
Pipeline and energy
services 245,312 30,113 3,648
Oil and natural gas
production 44,848 11,745 13,498
Construction materials
and mining 223,034 6,410* 7,265
Intersegment eliminations --- (41,858) ---
Total $ 728,558 $ 6,410* $ 34,107
Six Months
Ended June 30, 1999
Electric $ 77,180 $ --- $ 7,543
Natural gas distribution 87,005 --- 2,328
Utility services 42,208 --- 2,684
Pipeline and energy
services 147,378 27,386 11,167
Oil and natural gas
production 27,634 5,876 5,518
Construction materials
and mining 160,766 7,142* 891
Intersegment eliminations --- (33,262) ---
Total $ 542,171 $ 7,142* $ 30,131
* In accordance with the provisions of SFAS No. 71,
intercompany coal sales are not eliminated.
The company has acquired a number of businesses during the
first six months of 2000, none of which were individually
material, including construction materials and mining
businesses with operations in Alaska, California, Montana, and
Oregon, utility services businesses based in California,
Colorado, and Montana, an energy services company based in
Texas and a coal bed natural gas development company and
related assets in Montana and Wyoming. The total purchase
consideration for these businesses, consisting of the company's
common stock, cash and the conversion of a note receivable to
purchase consideration was $196.6 million.
8. Regulatory matters and revenues subject to refund
In June 1995, Williston Basin Interstate Pipeline Company
(Williston Basin), an indirect wholly owned subsidiary of the
company, filed a general rate increase application with the
Federal Energy Regulatory Commission (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. 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. In June 1999, the FERC issued an
order approving and denying various issues addressed in
Williston Basin's rehearing request, and also remanding the
return on equity issue to an Administrative Law Judge for
further proceedings. In July 1999, Williston Basin requested
rehearing of certain issues which were contained in the
June 1999 FERC order. In September 1999, the FERC granted
Williston Basin's request for rehearing with respect to the
return on equity issue but also ordered Williston Basin to
issue interim refunds prior to the final determination in this
proceeding. As a result, in October 1999, Williston Basin
issued refunds to its customers totaling $11.3 million, all
from amounts which had previously been reserved. In December
1999, a hearing was held before the FERC regarding the return
on equity issue. In April 2000, the Administrative Law Judge
issued an Initial Decision regarding the remanded return on
equity issue, which matter is currently pending resolution. In
addition, in July 1999, Williston Basin appealed to the United
States Court of Appeals for the D.C. Circuit (D.C. Circuit
Court) certain issues concerning storage cost allocations as
decided by the FERC in its June 1999 order. In October 1999,
the D.C. Circuit Court issued an order which dismissed
Williston Basin's appeal but permitted Williston Basin to again
appeal such previously contested issues upon final
determination of all issues by the FERC in this proceeding.
In December 1999, Williston Basin filed a general natural
gas rate change application with the FERC. Williston Basin
began collecting such rates effective June 1, 2000, subject to
refund.
Reserves have been provided for a portion of the revenues
that have been collected subject to refund with respect to
pending regulatory proceedings and to reflect future resolution
of certain issues with the FERC. Williston Basin believes that
such reserves are adequate based on its assessment of the
ultimate outcome of the various proceedings.
9. Litigation
In March 1997, 11 natural gas producers filed suit in North
Dakota Northwest Judicial District Court (North Dakota District
Court) against Williston Basin and the company. The natural
gas producers had processing agreements with Koch Hydrocarbon
Company (Koch). Williston Basin and the company had natural
gas purchase contracts with Koch. The natural gas producers
alleged they were entitled to damages for the breach of
Williston Basin's and the company's contracts with Koch
although no specific damages were stated. A similar suit was
filed by Apache Corporation (Apache) and Snyder Oil Corporation
(Snyder) in North Dakota District Court in December 1993. The
North Dakota Supreme Court in December 1999 affirmed the North
Dakota District Court decision dismissing Apache's and Snyder's
claims against Williston Basin and the company. Based in part
upon the decision of the North Dakota Supreme Court affirming
the dismissal of the claims brought by Apache and Snyder,
Williston Basin and the company filed motions for summary
judgment to dismiss the claims of the 11 natural gas producers.
The motions for summary judgment were granted by the North
Dakota District Court on July 3, 2000.
In June 1999, several oil and gas royalty interest owners
filed suit in Colorado State District Court, in the City and
County of Denver, against WBI Production, Inc. (WBI
Production), an indirect wholly owned subsidiary of the
company, and several former producers of natural gas with
respect to certain gas production properties in the state of
Colorado. The complaint arose as a result of the purchase by
WBI Production, effective January 1, 1999, of certain natural
gas producing leaseholds from the former producers. Prior to
February 1, 1999, the natural gas produced from the leaseholds
was sold at above market prices pursuant to a natural gas
contract. Pursuant to the contract, the royalty interest
owners were paid royalties based upon the above market prices.
The royalty interest owners have alleged that WBI Production
took assignment of the rights to the natural gas contract from
the former owner of the contract and, with respect to natural
gas produced from such leases and sold at market prices
thereafter, wrongly ceased paying the higher royalties on such
gas.
In their complaint, the royalty interest owners have
alleged, in part, breach of oil and gas lease obligations and
unjust enrichment on the part of WBI Production and the other
former producers with respect to the amount of royalties being
paid to the royalty interest owners. The royalty interest
owners have requested damages under alternate theories of up to
approximately $11.6 million for additional royalties, excluding
interest. Motions for summary judgment are pending. Trial
before the Colorado State District Court is scheduled for the
week of October 2, 2000. WBI Production is vigorously
contesting the suit.
In July 1996, Jack J. Grynberg (Grynberg) filed suit in
United States District Court for the District of Columbia (U.S.
District Court) against Williston Basin and over 70 other
natural gas pipeline companies. Grynberg, acting on behalf of
the United States under the Federal False Claims Act, alleged
improper measurement of the heating content or volume of
natural gas purchased by the defendants resulting in the
underpayment of royalties to the United States. In March 1997,
the U.S. District Court dismissed the suit without prejudice
and the dismissal was affirmed by the D.C. Circuit Court in
October 1998. In June 1997, Grynberg filed a similar Federal
False Claims Act suit against Williston Basin and Montana-
Dakota and filed over 70 other separate similar suits against
natural gas transmission companies and producers, gatherers,
and processors of natural gas. In April 1999, the United
States Department of Justice decided not to intervene in these
cases. In response to a motion filed by Grynberg, the Judicial
Panel on Multidistrict Litigation consolidated all of these
cases in the Federal District Court of Wyoming (Federal
District Court). Oral argument on motions to dismiss was held
before the Federal District Court on March 17, 2000. Williston
Basin and Montana-Dakota are awaiting a decision from the
Federal District Court.
The Quinque Operating Company (Quinque), on behalf of
itself and subclasses of gas producers, royalty owners and
state taxing authorities, instituted a legal proceeding in
State District Court for Stevens County, Kansas, against over
200 natural gas transmission companies and producers,
gatherers, and processors of natural gas, including Williston
Basin and Montana-Dakota. The complaint, which was served on
Williston Basin and Montana-Dakota in September 1999, contains
allegations of improper measurement of the heating content and
volume of all natural gas measured by the defendants other than
natural gas produced from federal lands. In response to a
motion filed by the defendants in this suit, the Judicial Panel
on Multidistrict Litigation transferred the suit to the Federal
District Court for inclusion in the pretrial proceedings of the
Grynberg suit.
Williston Basin and Montana-Dakota believe the claims of
Grynberg and Quinque are without merit and intend to vigorously
contest these suits.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Prior to the fourth quarter of 1999, the company reported five
operating segments consisting of electric, natural gas distribution,
natural gas transmission, construction materials and mining, and oil
and natural gas production. During the fourth quarter of 1999, the
company revised the components of the segments reported based on
organizational changes and the significance of current segments. As
a result, a utility services segment was separated from the electric
segment; gas production activities previously included in the
natural gas transmission segment are now reflected in the oil and
natural gas production segment; and the remaining operations of the
natural gas transmission business were renamed pipeline and energy
services.
The company's operations are now conducted through six business
segments and all prior period information has been restated to
reflect this change. For purposes of segment financial reporting
and discussion of results of operations, electric and natural gas
distribution include the electric and natural gas distribution
operations of Montana-Dakota. Utility services includes all the
operations of Utility Services, Inc. Pipeline and energy services
includes WBI Holdings' transportation, storage, gathering and energy
marketing and management services. Oil and natural gas production
includes the oil and natural gas acquisition, exploration,
development and production operations of WBI Holdings, while
construction materials and mining includes the results of Knife
River's operations.
Overview
The following table (dollars in millions, where applicable)
summarizes the contribution to consolidated earnings by each of
the company's business segments.
Three Months Six Months
Ended Ended
June 30, June 30,
2000 1999 2000 1999
Electric $ 3.0 $ 3.3 $ 6.3 $ 7.5
Natural gas distribution (.7) (.6) 1.9 2.3
Utility services 1.1 1.8 1.5 2.7
Pipeline and energy services .9 6.9 3.6 11.2
Oil and natural gas production 7.1 3.9 13.5 5.5
Construction materials and mining 9.5 2.3 7.3 .9
Earnings on common stock $20.9 $ 17.6 $ 34.1 $30.1
Earnings per common
share - basic $ .35 $.33 $.58 $.57
Earnings per common
share - diluted $ .35 $.33 $.58 $.56
Return on average common equity
for the 12 months ended 13.0% 9.3%*
________________________________
* Reflects the effect of a $19.9 million noncash after-tax write-
down of oil and natural gas properties in December 1998.
Three Months Ended June 30, 2000 and 1999
Consolidated earnings for the quarter ended June 30, 2000,
increased $3.3 million from the comparable period a year ago due
to higher earnings at the construction materials and mining and
oil and natural gas production businesses, partially offset by
lower earnings at all other business segments.
Six Months Ended June 30, 2000 and 1999
Consolidated earnings for the six months ended June 30, 2000,
increased $4.0 million from the comparable period a year ago due to
higher earnings at the oil and natural gas production and
construction materials and mining businesses, partially offset by
lower earnings at all other business segments.
________________________________
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 segments.
Electric
Three Months Six Months
Ended Ended
June 30, June 30,
2000 1999 2000 1999
Operating revenues:
Retail sales $ 30.5 $ 30.5 $ 64.5 $ 64.5
Sales for resale and other 5.9 6.4 12.2 12.7
36.4 36.9 76.7 77.2
Operating expenses:
Fuel and purchased power 11.8 12.4 26.2 26.0
Operation and maintenance 10.6 10.4 21.8 21.1
Depreciation, depletion and
amortization 4.8 4.6 9.5 9.2
Taxes, other than income 1.9 1.8 4.0 3.7
29.1 29.2 61.5 60.0
Operating income $ 7.3 $ 7.7 $ 15.2 $ 17.2
Retail sales (million kWh) 483.9 481.5 1,030.4 1,017.6
Sales for resale (million kWh) 201.4 248.7 458.2 517.3
Average cost of fuel and
purchased power per kWh $ .016 $ .016 $ .017 $ .016
Natural Gas Distribution
Three Months Six Months
Ended Ended
June 30, June 30,
2000 1999 2000 1999
Operating revenues:
Sales $ 28.2 $ 25.1 $ 89.6 $ 85.2
Transportation and other .8 .8 1.9 1.8
29.0 25.9 91.5 87.0
Operating expenses:
Purchased natural gas sold 19.6 16.5 65.3 61.5
Operation and maintenance 7.2 7.0 15.9 14.8
Depreciation, depletion and
amortization 1.9 1.8 3.8 3.6
Taxes, other than income 1.1 1.1 2.4 2.2
29.8 26.4 87.4 82.1
Operating income (loss) $ (.8) $ (.5) $ 4.1 $ 4.9
Volumes (MMdk):
Sales 4.7 5.0 18.0 18.2
Transportation 2.5 2.2 5.9 5.3
Total throughput 7.2 7.2 23.9 23.5
Degree days (% of normal) 106% 112% 91% 92%
Average cost of natural gas,
including transportation
thereon, per dk $ 4.13 $ 3.29 $ 3.63 $ 3.37
Utility Services
Three Months Six Months
Ended Ended
June 30, June 30,
2000 1999 2000 1999
Operating revenues $ 24.4 $ 23.5 $ 47.2 $ 42.2
Operating expenses:
Operation and maintenance 20.6 19.1 40.5 34.9
Depreciation, depletion
and amortization .9 .5 1.9 1.1
Taxes, other than income .8 .7 1.6 1.3
22.3 20.3 44.0 37.3
Operating income $ 2.1 $ 3.2 $ 3.2 $ 4.9
Pipeline and Energy Services
Three Months Six Months
Ended Ended
June 30, June 30,
2000 1999 2000 1999
Operating revenues:
Pipeline $ 14.4 $ 20.2 $ 29.4 $ 35.5
Energy services 92.8 67.2 246.0 139.3
107.2 87.4 275.4 174.8
Operating expenses:
Purchased natural gas sold 91.3 64.5 240.3 133.6
Operation and maintenance 8.7 6.7 17.6 14.0
Depreciation, depletion
and amortization 2.4 2.0 4.6 3.9
Taxes, other than income 1.0 1.2 2.4 2.4
103.4 74.4 264.9 153.9
Operating income $ 3.8 $ 13.0 $ 10.5 $ 20.9
Transportation volumes (MMdk):
Montana-Dakota 6.9 6.9 15.7 15.3
Other 15.6 12.5 26.8 21.6
22.5 19.4 42.5 36.9
Oil and Natural Gas Production
Three Months Six Months
Ended Ended
June 30, June 30,
2000 1999 2000 1999
Operating revenues:
Oil $ 10.6 $ 6.8 $ 21.0 $ 11.7
Natural gas 15.6 11.0 29.6 20.8
Other 3.2 .7 6.0 1.0
29.4 18.5 56.6 33.5
Operating expenses:
Purchased natural gas sold 1.1 .4 2.5 .4
Operation and maintenance 7.9 5.8 14.8 11.5
Depreciation, depletion
and amortization 5.7 5.2 11.2 10.7
Taxes, other than income 2.0 1.1 4.0 2.6
16.7 12.5 32.5 25.2
Operating income $ 12.7 $ 6.0 $ 24.1 $ 8.3
Production:
Oil (000's of barrels) 471 437 942 918
Natural gas (MMcf) 6,371 6,007 12,837 12,245
Average prices:
Oil (per barrel) $ 22.51 $ 15.44 $ 22.24 $ 12.77
Natural gas (per Mcf) $ 2.45 $ 1.83 $ 2.31 $ 1.70
Construction Materials and Mining
Three Months Six Months
Ended Ended
June 30, June 30,
2000 1999 2000 1999
Operating revenues:
Construction materials $ 146.1 $ 99.9 $ 214.4 $ 150.0
Coal 7.7 7.9 15.0 17.9
153.8 107.8 229.4 167.9
Operating expenses:
Operation and maintenance 128.4 94.9 199.0 149.7
Depreciation, depletion
and amortization 8.6 5.9 15.4 11.6
Taxes, other than income .8 .8 1.6 1.7
137.8 101.6 216.0 163.0
Operating income $ 16.0 $ 6.2 $ 13.4 $ 4.9
Sales (000's):
Aggregates (tons) 4,683 3,032 6,810 4,570
Asphalt (tons) 863 807 956 911
Ready-mixed concrete
(cubic yards) 419 290 707 508
Coal (tons) 694 763 1,372 1,641
Amounts presented in the preceding tables for operating
revenues, purchased natural gas sold and operation and
maintenance expenses will not agree with the Consolidated
Statements of Income due to the elimination of intercompany
transactions between the pipeline and energy services segment
and the natural gas distribution and oil and natural gas
production segments. The amounts relating to the elimination of
intercompany transactions for operating revenues, purchased
natural gas sold and operation and maintenance expenses are as
follows: $17.2 million, $17.0 million and $.2 million for the
three months ended June 30, 2000; $9.8 million, $9.7 million and
$.1 million for the three months ended June 30, 1999;
$41.8 million, $41.3 million and $.5 million for the six months
ended June 30, 2000; and $33.3 million, $33.0 million and
$.3 million for the six months ended June 30, 1999,
respectively.
Three Months Ended June 30, 2000 and 1999
Electric
Electric earnings decreased due to lower sales for resale
and higher maintenance costs, both the result of maintenance at
certain of the company's electric generating stations. Increased
depreciation expense, resulting from higher depreciable property,
plant and equipment balances, also added to the earnings decline.
Higher realized prices partially offset the earnings decrease.
Natural Gas Distribution
Earnings decreased slightly at the natural gas distribution
business due to lower sales volumes resulting from warmer
weather. The pass-through of higher average natural gas costs
more than offset the decline in sales revenue from the lower
sales volumes. Higher realized prices and increased service and
repair income partially offset the earnings decline.
Utility Services
Utility services earnings declined due to decreased
workloads at the company's Pacific Northwest operations, largely
due to utility merger activity. However, this earnings reduction
was somewhat offset by higher earnings at the company's Montana
operations, the result of higher workloads relating largely to
fiber optic installation projects.
Pipeline and Energy Services
Earnings at the pipeline and energy services business decreased
due in part to the recognition in 1999 of a $4.4 million after-tax
reserve revenue adjustment and resulting increase to income
associated with FERC orders received in the 1992 and 1995 rate case
proceedings. Also contributing to the earnings decline were lower
natural gas margins from energy services. Partially offsetting
these results were higher volumes of natural gas transported at the
pipeline combined with higher average transportation rates.
Oil and Natural Gas Production
Earnings for the oil and natural gas production business
increased primarily as a result of increased operating revenues
resulting from realized oil and natural gas prices which were 46
percent and 34 percent higher than last year, respectively.
Higher oil and natural gas production due to acquisitions since
the comparable period last year and ongoing development of
existing properties, along with increased other revenue due to
higher sales of inventoried natural gas, added to the earnings
increase. Partially offsetting the earnings improvement was
higher operation and maintenance expense, largely increased
lease operating expenses largely due to acquisitions and higher
maintenance on existing properties and increased acquisition-
related general and administrative costs. Higher interest
expense due to higher average borrowings and interest rates, and
an increase in depreciation, depletion and amortization expense,
largely volume-related, also partially offset the earnings
increase.
Construction Materials and Mining
Construction materials and mining earnings increased largely
due to higher earnings at the coal operations resulting from last
year's $3.7 million after-tax charge, the result of a coal
arbitration preceding that was concluded in the second half of
1999, combined with higher average coal prices. Earnings at the
construction materials business also increased due to earnings
from businesses acquired since the comparable period last year,
higher aggregate sales volumes and a gain of $1.2 million after-
tax on the sale of nonstrategic property. Higher selling,
general and administrative costs, and higher interest expense,
due to higher average borrowings and interest rates, partially
offset the earnings improvement.
Six Months Ended June 30, 2000 and 1999
Electric
Electric earnings decreased largely due to higher fuel and
purchased power costs resulting from higher coal costs and
increased generation at higher cost versus lower cost generating
stations. Higher maintenance expense and lower sales for resale,
both the result of maintenance at certain of the company's
electric generating stations, increased depreciation expense due
to higher property, plant and equipment balances, and higher
property taxes also added to the earnings decline. Higher
realized prices partially offset the earnings decrease.
Natural Gas Distribution
Earnings declined at the natural gas distribution business
largely due to higher operations expense, resulting from
increased payroll costs, partially offset by lower employee-
benefit costs. Increased depreciation expense, stemming from
higher property, plant and equipment balances, and higher
property taxes also added to the earnings decrease. The pass-
through of higher average natural gas costs more than offset the
decline in sales revenue resulting from lower weather-related
sales volumes. Higher service and repair income, increased
transportation volumes and higher average realized prices
partially offset the earnings decline.
Utility Services
Utility services earnings declined due to decreased
workloads at the company's Pacific Northwest operations, as
previously discussed. However, this earnings reduction was
partially offset by higher earnings at the company's Montana
operations, the result of higher workloads relating largely to
fiber optic installation projects and favorable weather
conditions. Earnings from companies acquired since the
comparable period last year also partially offset the earnings
decline.
Pipeline and Energy Services
Earnings at the pipeline and energy services business
decreased due in part to the previously discussed 1999 $4.4
million after-tax reserve revenue adjustment, and the recognition
in income in the first quarter of 1999 of $1.7 million resulting
from a favorable order received from the D.C. Circuit Court relating
to the 1992 general rate proceeding. Lower natural gas margins
from energy services and higher operating expenses at the pipeline
also contributed to the earnings decrease. Partially offsetting
these results were higher volumes of natural gas transported at
the pipeline combined with higher average transportation rates.
Oil and Natural Gas Production
Earnings for the oil and natural gas production business
increased primarily as a result of increased operating revenues
resulting from realized oil and natural gas prices which were 74
percent and 36 percent higher than last year, respectively.
Higher oil and natural gas production and increased other
revenue, as previously discussed, also added to the earnings
increase. Partially offsetting the earnings improvement were
higher operation and maintenance expenses, largely higher lease
operating expenses and ncreased general and administrative
costs, as well as higher interest expense, all as previously
discussed. Increased depreciation, depletion, and amortization
expense, due to higher production, also partially offset the
earnings increase.
Construction Materials and Mining
Construction materials and mining earnings increased largely
resulting from the previously discussed 1999 $3.7 million after-
tax charge as well as increased earnings at the construction
materials business. Earnings at the construction materials
business increased as a result of businesses acquired since the
comparable period last year combined with higher aggregate sales
volumes and a gain of $1.2 million after-tax on the sale of
nonstrategic property. Higher selling, general and
administrative costs, as well as increased interest expense, as
previously discussed, partially offset the earnings increase.
Normal seasonal losses realized in the first quarter of 2000 by
construction materials businesses not owned during the full
first quarter last year also partially offset the earnings
improvement at the construction materials business.
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.
In addition to other factors and matters discussed elsewhere
herein, some important factors that could cause actual results or
outcomes for the company 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 and availability of economic supplies of natural gas.
Other important factors include the level of governmental
expenditures on public projects and project schedules, changes in
anticipated tourism levels, the effects of competition (including
but not limited to electric retail wheeling and transmission
costs and prices of alternate fuels and system deliverability
costs), 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.
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 to effectively integrate the operations of acquired
companies.
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.
In January 2000, the company announced an agreement to
acquire Great Plains Natural Gas Co. (Great Plains). Great
Plains is a natural gas distribution company serving 19
communities in western Minnesota and southeastern North Dakota.
The North Dakota Public Service Commission and the Minnesota
Public Utilities Commission both approved the acquisition, and in
July 2000, the transaction was completed.
Also in January 2000, the company announced that the Board of
Directors had approved the acquisition of Connolly-Pacific
Co., a southern California aggregate mining and marine
construction company. Thomas Everist, a member of the company's
Board of Directors, has an interest in L.G. Everist,
Incorporated, which has owned Connolly-Pacific Co. since 1977.
At the company's Annual Meeting of Stockholders held on April 25,
2000, in accordance with New York Stock Exchange rules, the
acquisition was approved by the stockholders of the company and
such acquisition was effected in May 2000.
In addition, from May 2000 through July 2000, the company
completed a number of other acquisitions, including construction
materials and mining acquisitions in Montana and Oregon and
utility services acquisitions in California, Colorado and Ohio.
The company also acquired certain natural gas gathering assets in
Colorado, Kansas, Montana and Nebraska. None of the above
acquisitions were individually material.
On May 9, 2000, Knife River Corporation (Knife River), an
indirect subsidiary of the company, and Westmoreland Coal
Company (Westmoreland) confirmed that they have entered into
negotiations on an exclusive basis for the sale of Knife River's
coal operations, including active coal mines in North Dakota and
Montana, coal sales agreements, reserves and mining equipment,
to Westmoreland. Completion of the transaction is subject to
due diligence and the execution of a definitive purchase
agreement, among other things.
Liquidity and Capital Commitments
Net capital expenditures for the year 2000 are estimated at
$508.3 million, including those for acquisitions to date, system
upgrades, routine replacements, service extensions, routine
equipment maintenance and replacements, pipeline expansion
projects, the building of construction materials handling and
transportation facilities, and the further enhancement of oil and
natural gas production and reserve growth. It is anticipated that
all of the funds required for capital expenditures will be met
from various sources. These sources include internally generated
funds, the company's $40 million revolving credit and term loan
agreement, a commercial paper credit facility at Centennial, as
described below, and through the issuance of long-term debt and
the company's equity securities. At June 30, 2000, $28 million
under the revolving credit and term loan agreement was
outstanding.
Centennial, a direct wholly owned subsidiary of the company,
has a revolving credit agreement with various banks on behalf of
its subsidiaries that supports $250 million of Centennial's
commercial paper program. Under the commercial paper program,
$228.5 million was outstanding at June 30, 2000. The commercial
paper borrowings are classified as long term as the company
intends to refinance these borrowings on a long-term basis
through continued commercial paper borrowings supported by the
revolving credit agreement due September 1, 2002. The company
intends to renew this existing credit agreement on an annual
basis.
Centennial entered into an uncommitted long-term master
shelf agreement on behalf of its subsidiaries that allows for
borrowings of up to $200 million. Under the master shelf
agreement, $148.4 million was outstanding at June 30, 2000.
The estimated 2000 capital expenditures set forth above for
electric, natural gas distribution, utility services, pipeline
and energy services 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.
In January 2000, the company announced that its Board of
Directors approved a stock repurchase program, authorizing the
purchase of up to 1 million shares of the company's outstanding
common stock. The amount and timing of purchases will depend on
market conditions. It is anticipated that the funds required for
this program will be met from internally generated funds, the
issuance of long-term or short-term debt or other sources that
become available from time to time. Unless extended, the stock
repurchase program will be terminated on or prior to December 31,
2001. As of June 30, 2000, no shares have been repurchased under
the program.
On July 10, 2000, the company reported the sale of 221,778
shares of the company's Common Stock to Acqua Wellington North
American Equities Fund Ltd. (Acqua Wellington), pursuant to a
Purchase Agreement by and between the company and Acqua
Wellington. The company received proceeds from this sale of
$4.8 million. These proceeds were used for refunding of
outstanding debt obligations and for other general corporate
purposes.
The company's issuance of first mortgage debt is subject to
certain restrictions imposed under the terms and conditions of
its Indenture of Mortgage. Generally, those restrictions require
the company to pledge $1.43 of unfunded property to the Trustee
for each dollar of indebtedness incurred under the Indenture and
that annual earnings (pretax and before interest charges), as
defined in the Indenture, equal at least two times its annualized
first mortgage bond interest costs. Under the more restrictive
of the two tests, as of June 30, 2000, the company could have
issued approximately $287 million of additional first mortgage
bonds.
The company's coverage of fixed charges including preferred
dividends was 4.1 times and 4.3 times for the twelve months ended
June 30, 2000, and December 31, 1999, respectively.
Additionally, the company's first mortgage bond interest coverage
was 6.9 times and 7.1 times for the twelve months ended June 30,
2000, and December 31, 1999, respectively. Common stockholders'
equity as a percent of total capitalization was 51 percent and 54
percent at June 30, 2000, and December 31, 1999, respectively.
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, 1999. 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, 1999,
and Notes to Consolidated Financial Statements in this Form 10-Q.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Refer to the discussion of litigation relating to claims by
natural gas producers against Williston Basin and the company.
Motions for summary judgment to dismiss the claims were granted by
the North Dakota District Court on July 3, 2000.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Between April 1, 2000 and June 30, 2000, the company issued
4,223,581 shares of Common Stock, $1.00 par value, as part of the
consideration for all of the issued and outstanding capital stock
with respect to businesses acquired during this period. The
Common Stock issued by the company in these transactions was
issued in private sales exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933. The former owners of
the businesses acquired, and now shareholders of the company, are
accredited investors and have acknowledged that they would hold
the company's Common Stock as an investment and not with a view
to distribution.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10 (a) 1992 Key Employee Stock Option Plan, as amended to date
10 (b) Directors' Compensation Policy, as amended to date
10 (c) Deferred Compensation Plan for Directors, as
amended to date
10 (d) 1997 Non-Employee Director Long-Term Incentive
Plan, as amended to date
10 (e) 1997 Executive Long-Term Incentive 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
Form 8-K was filed on July 14, 2000. Under Item 5 -- Other
Events, the company reported the sale of 221,778 shares of
company Common Stock to Acqua Wellington North American
Equities Fund Ltd.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
MDU RESOURCES GROUP, INC.
DATE August 11, 2000 BY /s/ Warren L. Robinson
Warren L. Robinson
Executive 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.
10 (a) 1992 Key Employee Stock Option Plan, as amended to date
10 (b) Directors' Compensation Policy, as amended to date
10 (c) Deferred Compensation Plan for Directors, as amended to
date
10 (d) 1997 Non-Employee Director Long-Term Incentive Plan, as
amended to date
10 (e) 1997 Executive Long-Term Incentive 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
