UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
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THE
SECURITIES EXCHANGE ACT OF 1934
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For
the fiscal year ended December 31, 2009
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OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
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THE
SECURITIES EXCHANGE ACT OF 1934
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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
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41-0423660
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(State
or other jurisdiction of incorporation
or organization)
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(I.R.S.
Employer Identification No.)
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1200 West
Century Avenue
P.O. Box
5650
Bismarck,
North Dakota 58506-5650
(Address
of principal executive offices)
(Zip
Code)
(701)
530-1000
(Registrant's
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each
class
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Name of each exchange
on which registered
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Common
Stock, par value $1.00
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New
York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act:
Preferred Stock, par value
$100
(Title of
Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes
x
No
o
.
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. Yes
o
No
x
.
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
o
.
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes
x
No
o
.
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act (Check
one):
Large accelerated filer
x
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Accelerated
filer
o
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Non-accelerated filer
o
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Smaller
reporting company
o
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(Do not check if a smaller reporting
company)
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes
o
No
x
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State the
aggregate market value of the voting common stock held by nonaffiliates of the
registrant as of June 30, 2009: $3,489,895,496.
Indicate
the number of shares outstanding of each of the registrant's classes of common
stock, as of February 2, 2010: 187,863,394 shares.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the registrant's 2010 Proxy Statement are incorporated by reference in
Part III, Items 10, 11, 12, 13 and 14 of this Report.
Contents
Part
I
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Forward-Looking
Statements
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8
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Items 1 and 2
Business
and Properties
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General
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8
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Electric
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10
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Natural Gas
Distribution
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14
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Construction
Services
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16
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Pipeline and Energy
Services
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18
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Natural Gas and Oil
Production
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20
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Construction Materials and
Contracting
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23
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Item 1A
Risk
Factors
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28
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Item 1B
Unresolved
Comments
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34
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Item 3
Legal
Proceedings
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34
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Item 4
Submission
of Matters to a Vote of Security Holders
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34
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Part
II
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Item 5
Market for
the Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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35
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Item 6
Selected
Financial Data
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36
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Item 7
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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39
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Item
7A
Quantitative and Qualitative Disclosures About Market
Risk
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66
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Item 8
Financial
Statements and Supplementary Data
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70
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Item 9
Changes in
and Disagreements With Accountants on Accounting and Financial
Disclosure
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135
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Item 9A
Controls
and Procedures
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135
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Item 9B
Other
Information
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135
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Part
III
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Item 10
Directors,
Executive Officers and Corporate Governance
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136
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Item 11
Executive
Compensation
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136
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Item 12
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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137
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Item 13
Certain
Relationships and Related Transactions, and Director
Independence
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139
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Item 14
Principal
Accountant Fees and Services
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139
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Part
IV
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Item 15
Exhibits
and Financial Statement Schedules
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140
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Signatures
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146
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Exhibits
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Definitions
The
following abbreviations and acronyms used in this Form 10-K are defined
below:
Abbreviation
or Acronym
AFUDC
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Allowance
for funds used during construction
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ALJ
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Administrative
Law Judge
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Alusa
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Tecnica
de Engenharia Electrica - Alusa
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Army
Corps
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U.S.
Army Corps of Engineers
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ASC
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FASB
Accounting Standards Codification
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Bbl
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Barrel
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Bcf
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Billion
cubic feet
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BER
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Montana
Board of Environmental Review
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Big
Stone Station
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450-MW
coal-fired electric generating facility near Big Stone City, South Dakota
(22.7 percent ownership)
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Big
Stone Station II
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Formerly
proposed coal-fired electric generating facility near Big Stone City,
South Dakota (the Company had anticipated ownership of at least 116
MW)
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Bitter
Creek
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Bitter
Creek Pipelines, LLC, an indirect wholly owned subsidiary of WBI
Holdings
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Black
Hills Power
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Black
Hills Power and Light Company
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Brazilian
Transmission Lines
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Company's
equity method investment in companies owning ECTE, ENTE and
ERTE
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Btu
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British
thermal unit
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Cascade
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Cascade
Natural Gas Corporation, an indirect wholly owned subsidiary of MDU Energy
Capital
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CBNG
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Coalbed
natural gas
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CELESC
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Centrais
Elétricas de Santa Catarina S.A.
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CEM
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Colorado
Energy Management, LLC, a former direct wholly owned subsidiary of
Centennial Resources (sold in the third quarter of
2007)
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CEMIG
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Companhia
Energética de Minas Gerais
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Centennial
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Centennial
Energy Holdings, Inc., a direct wholly owned subsidiary of the
Company
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Centennial
Capital
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Centennial
Holdings Capital LLC, a direct wholly owned subsidiary of
Centennial
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Centennial
International
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Centennial
Energy Resources International, Inc., a direct wholly owned subsidiary of
Centennial Resources
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Centennial
Power
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Centennial
Power, Inc., a former direct wholly owned subsidiary of Centennial
Resources (sold in the third quarter of 2007)
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Centennial
Resources
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Centennial
Energy Resources LLC, a direct wholly owned subsidiary of
Centennial
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CERCLA
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Comprehensive
Environmental Response, Compensation and Liability Act
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Clean
Air Act
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Federal
Clean Air Act
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Clean
Water Act
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Federal
Clean Water Act
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Company
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MDU
Resources Group, Inc.
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D.C.
Appeals Court
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U.S.
Court of Appeals for the District of Columbia Circuit
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dk
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Decatherm
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ECTE
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Empresa
Catarinense de Transmissão de Energia S.A.
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EIS
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Environmental
Impact Statement
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ENTE
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Empresa
Norte de Transmissão de Energia S.A.
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EPA
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U.S.
Environmental Protection Agency
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ERTE
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Empresa
Regional de Transmissão de Energia S.A.
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ESA
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Endangered
Species Act
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Exchange
Act
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Securities
Exchange Act of 1934, as amended
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FASB
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Financial
Accounting Standards Board
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FERC
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Federal
Energy Regulatory Commission
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Fidelity
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Fidelity
Exploration & Production Company, a direct wholly owned subsidiary of
WBI Holdings
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GAAP
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Accounting
principles generally accepted in the United States of
America
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GHG
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Greenhouse
gas
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Great
Plains
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Great
Plains Natural Gas Co., a public utility division of the
Company
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Hartwell
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Hartwell
Energy Limited Partnership, a former equity method investment of the
Company (sold in the third quarter of 2007)
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IBEW
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International
Brotherhood of Electrical Workers
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ICWU
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International
Chemical Workers Union
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Indenture
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Indenture
dated as of December 15, 2003, as supplemented, from the Company to The
Bank of New York as Trustee
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Innovatum
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Innovatum,
Inc., a former indirect wholly owned subsidiary of WBI Holdings (the stock
and Innovatum's assets have been sold)
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Intermountain
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Intermountain
Gas Company, an indirect wholly owned subsidiary of MDU Energy Capital
(acquired October 1, 2008)
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IPUC
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Idaho
Public Utilities Commission
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Item
8
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Financial
Statements and Supplementary Data
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Kennecott
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Kennecott
Coal Sales Company
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Knife
River
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Knife
River Corporation, a direct wholly owned subsidiary of
Centennial
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K-Plan
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Company's
401(k) Retirement Plan
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kW
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Kilowatts
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kWh
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Kilowatt-hour
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LTM
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LTM,
Inc., an indirect wholly owned subsidiary of Knife
River
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LPP
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Lea
Power Partners, LLC, a former indirect wholly owned subsidiary of
Centennial Resources (member interests were sold in October
2006)
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LWG
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Lower
Willamette Group
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MAPP
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Mid-Continent
Area Power Pool
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MBbls
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Thousands
of barrels
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MBI
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Morse
Bros., Inc., an indirect wholly owned subsidiary of Knife
River
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MBOGC
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Montana
Board of Oil and Gas Conservation
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Mcf
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Thousand
cubic feet
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MD&A
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Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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Mdk
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Thousand
decatherms
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MDU
Brasil
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MDU
Brasil Ltda., an indirect wholly owned subsidiary of Centennial
International
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MDU
Construction Services
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MDU
Construction Services Group, Inc., a direct wholly owned subsidiary of
Centennial
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MDU
Energy Capital
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MDU
Energy Capital, LLC, a direct wholly owned subsidiary of the
Company
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MEIC
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Montana
Environmental Information Center, Inc.
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Midwest
ISO
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Midwest
Independent Transmission System Operator, Inc.
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MMBtu
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Million
Btu
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MMcf
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Million
cubic feet
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MMcfe
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Million
cubic feet equivalent - natural gas equivalents are determined using the
ratio of six Mcf of natural gas to one Bbl of oil
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MMdk
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Million
decatherms
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MNPUC
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Minnesota
Public Utilities Commission
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Montana-Dakota
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Montana-Dakota
Utilities Co., a public utility division of the Company
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Montana
DEQ
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Montana
State Department of Environmental Quality
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Montana
First Judicial District Court
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Montana
First Judicial District Court, Lewis and Clark County
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Montana
Twenty-Second Judicial District Court
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Montana
Twenty-Second Judicial District Court, Big Horn County
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Mortgage
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Indenture
of Mortgage dated May 1, 1939, as supplemented, amended and restated, from
the Company to The Bank of New York and Douglas J. MacInnes, successor
trustees
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MPX
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MPX
Termoceara Ltda. (49 percent ownership, sold in June
2005)
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MTPSC
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Montana
Public Service Commission
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MW
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Megawatt
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NDPSC
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North
Dakota Public Service Commission
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NEPA
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National
Environmental Policy Act
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North
Dakota District Court
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North
Dakota South Central Judicial District Court for Burleigh
County
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NPRC
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Northern
Plains Resource Council
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NSPS
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New
Source Performance Standards
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Oil
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Includes
crude oil, condensate and natural gas liquids
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OPUC
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Oregon
Public Utilities Commission
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Order
on Rehearing
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Order
on Rehearing and Compliance and Remanding Certain Issues for
Hearing
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Oregon
DEQ
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Oregon
State Department of Environmental Quality
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PCBs
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Polychlorinated
biphenyls
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Prairielands
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Prairielands
Energy Marketing, Inc., an indirect wholly owned subsidiary of WBI
Holdings
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PRP
|
Potentially
Responsible Party
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Proxy
Statement
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Company's
2010 Proxy Statement
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PSD
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Prevention
of Significant Deterioration
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RCRA
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Resource
Conservation and Recovery Act
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ROD
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Record
of Decision
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SDPUC
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South
Dakota Public Utilities Commission
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SEC
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U.S.
Securities and Exchange Commission
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SEC
Defined Prices
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The
average price of natural gas and oil during the applicable 12-month
period, determined as an unweighted arithmetic average of the
first-day-of-the-month price for each month within such period, unless
prices are defined by contractual arrangements, excluding escalations
based upon future
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conditions
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Securities
Act
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Securities
Act of 1933, as amended
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Securities
Act Industry Guide 7
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Description
of Property by Issuers Engaged or to be Engaged in Significant Mining
Operations
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Sheridan
System
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A
separate electric system owned by Montana-Dakota
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SMCRA
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Surface
Mining Control and Reclamation Act
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South
Dakota Federal District Court
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U.S.
District Court for the District of South Dakota
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South
Dakota SIP
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South
Dakota State Implementation Plan
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Stock
Purchase Plan
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Company's
Dividend Reinvestment and Direct Stock Purchase Plan
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TRWUA
|
Tongue
River Water Users' Association
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UA
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United
Association of Journeyman and Apprentices of the Plumbing and Pipefitting
Industry of the United States and Canada
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WBI
Holdings
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WBI
Holdings, Inc., a direct wholly owned subsidiary of
Centennial
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Westmoreland
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Westmoreland
Coal Company
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Williston
Basin
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Williston
Basin Interstate Pipeline Company, an indirect wholly owned subsidiary of
WBI Holdings
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WUTC
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Washington
Utilities and Transportation Commission
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WYPSC
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Wyoming
Public Service Commission
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Part I
Forward-Looking
Statements
This
Form 10-K contains forward-looking statements within the meaning of
Section 21E of the Exchange Act. 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,
and 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 that 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, including
statements contained within Item 7 – MD&A – Prospective
Information.
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. Nonetheless, the Company's
expectations, beliefs or projections may not be achieved or
accomplished.
Any
forward-looking statement contained in this document speaks only as of the date
on which the 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 the 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 the factors, nor
can it assess the effect of each factor on the Company's business or the extent
to which any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking statement. All
forward-looking statements, whether written or oral and whether made by or on
behalf of the Company, are expressly qualified by the risk factors and
cautionary statements in this Form 10-K, including statements contained
within Item 1A – Risk Factors.
Items 1
and 2. Business and Properties
General
The
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 1200 West Century Avenue, P.O. Box 5650, Bismarck, North Dakota 58506-5650,
telephone (701) 530-1000.
Montana-Dakota,
through the electric and natural gas distribution segments, generates, transmits
and distributes electricity and distributes natural gas in Montana, North
Dakota, South Dakota and Wyoming. Cascade distributes natural gas in Oregon and
Washington. Intermountain distributes natural gas in Idaho. Great Plains
distributes natural gas in western Minnesota and southeastern North Dakota.
These operations also supply related value-added products and
services.
The
Company, through its wholly owned subsidiary, Centennial, owns WBI Holdings
(comprised of the pipeline and energy services and the natural gas and oil
production segments), Knife River (construction materials and contracting
segment), MDU Construction Services (construction
services
segment), Centennial Resources and Centennial Capital (both reflected in the
Other category).
The
Company's equity method investment in the Brazilian Transmission Lines, as
discussed in Item 8 – Note 4, is reflected in the Other
category.
As of
December 31, 2009, the Company had 8,081 employees with
158 employed at MDU Resources Group, Inc., 874 at Montana-Dakota,
31 at Great Plains, 329 at Cascade, 264 at Intermountain, 603 at WBI
Holdings, 2,879 at Knife River and 2,943 at MDU Construction Services. The
number of employees at certain Company operations fluctuates during the year
depending upon the number and size of construction projects. The Company
considers its relations with employees to be satisfactory.
At
Montana-Dakota and Williston Basin, 365 and 80 employees, respectively, are
represented by the IBEW. Labor contracts with such employees are in effect
through May 30, 2011, and March 31, 2011, for Montana-Dakota and
Williston Basin, respectively.
At
Cascade, 201 employees are represented by the ICWU. The labor contract with the
field operations group, consisting of 169 employees, is effective through April
1, 2012. Cascade has an agreement with the bargaining unit consisting of 32
customer service representatives and credit and collections clerks in effect
through March 19, 2011.
At
Intermountain, 114 employees are represented by the UA. Labor contracts with
such employees are in effect through September 30, 2010.
Knife
River has 43 labor contracts that represent approximately 440 of its
construction materials employees. Knife River is in negotiations on five of its
labor contracts.
MDU
Construction Services has 126 labor contracts representing the majority of
its employees. The majority of the labor contracts contain provisions that
prohibit work stoppages or strikes and provide for binding arbitration dispute
resolution in the event of an extended disagreement.
The
Company's principal properties, which are of varying ages and are of different
construction types, are generally in good condition, are well maintained and are
generally suitable and adequate for the purposes for which they are
used.
The
financial results and data applicable to each of the Company's business
segments, as well as their financing requirements, are set forth in Item 7
– MD&A and Item 8 – Note 15 and Supplementary Financial
Information.
The
operations of the Company and certain of its subsidiaries are subject to
federal, state and local laws and regulations providing for air, water and solid
waste pollution control; state facility-siting regulations; zoning and planning
regulations of certain state and local authorities; federal health and safety
regulations and state hazard communication standards. The Company believes that
it is in substantial compliance with these regulations, except as to what may be
ultimately determined with regard to items discussed in Environmental matters in
Item 8 – Note 19. There are no pending CERCLA actions for any of the
Company's properties, other than the Portland, Oregon, Harbor Superfund
Site.
The
Company produces GHG emissions primarily from its fossil fuel electric
generating facilities, as well as from natural gas pipeline and storage systems,
operations of equipment and fleet vehicles, and oil and natural gas exploration
and development activities. GHG emissions also result from customer use of
natural gas for heating and other uses. As concern for reductions in GHG
emissions and expansion of renewable energy resources has increased, the Company
has placed an increasing emphasis on developing renewable generation resources.
Governmental legislative and regulatory initiatives regarding environmental and
energy policy are continuously evolving and could negatively impact the
Company’s operations and financial results. Until legislation and regulation are
finalized, the impact of these measures cannot be accurately predicted. The
Company will continue to monitor legislative activity related to environmental
and energy policy initiatives. Disclosure regarding specific environmental
matters applicable to each of the Company's businesses is set forth under each
business description later.
This
annual report on Form 10-K, the Company's quarterly reports on
Form 10-Q, the Company's current reports on Form 8-K and any
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act are available free of charge through the Company's Web
site as soon as reasonably practicable after the Company has electronically
filed such reports with, or furnished such reports to, the SEC. The Company's
Web site address is www.mdu.com. The information available on the Company's Web
site is not part of this annual report on Form 10-K.
Electric
General
Montana-Dakota
provides electric service at retail, serving more than 122,000 residential,
commercial, industrial and municipal customers in 177 communities and adjacent
rural areas as of December 31, 2009. The principal properties owned by
Montana-Dakota for use in its electric operations include interests in nine
electric generating facilities, as further described under System Supply, System
Demand and Competition, and approximately 3,000 and 4,600 miles of transmission
and distribution lines, respectively. Montana-Dakota has obtained and holds, or
is in the process of renewing, valid and existing franchises authorizing it to
conduct its electric operations in all of the municipalities it serves where
such franchises are required. Montana-Dakota intends to protect its service area
and seek renewal of all expiring franchises. As of December 31, 2009,
Montana-Dakota's net electric plant investment approximated
$514.5 million.
The
percentage of Montana-Dakota's 2009 retail electric utility operating revenues
by jurisdiction is as follows: North Dakota – 58 percent; Montana –
24 percent; Wyoming – 11 percent; and South Dakota – 7 percent. Retail
electric rates, service, accounting and certain security issuances are subject
to regulation by the NDPSC, MTPSC, SDPUC and WYPSC. The interstate transmission
and wholesale electric power operations of Montana-Dakota also are subject to
regulation by the FERC under provisions of the Federal Power Act, as are
interconnections with other utilities and power generators, the issuance of
securities, accounting and other matters. Montana-Dakota participates in the
Midwest ISO wholesale energy and ancillary services market.
The
Midwest ISO is a regional transmission organization responsible for operational
control of the transmission systems of its members. The Midwest ISO provides
security center operations, tariff administration and operates day-ahead and
real-time energy markets and an ancillary services market. As a member of
Midwest ISO, Montana-Dakota's generation is sold into the Midwest ISO energy
market and its energy needs are purchased from that market.
System Supply, System Demand and
Competition
Through an
interconnected electric system, Montana-Dakota serves markets in portions of
western North Dakota, including Bismarck, Dickinson and Williston; eastern
Montana, including Glendive and Miles City; and northern South
Dakota,
including Mobridge. The interconnected system consists of nine electric
generating facilities, which have an aggregate nameplate rating attributable to
Montana-Dakota's interest of 463,055 kW and a total summer net capability
of 486,900 kW. Montana-Dakota's four principal generating stations are
steam-turbine generating units using coal for fuel. The nameplate rating for
Montana-Dakota's ownership interest in these four stations (including interests
in the Big Stone Station and the Coyote Station, aggregating 22.7 percent
and 25.0 percent, respectively) is 327,758 kW. Three combustion
turbine peaking stations, a wind electric generating facility and a heat
recovery electric generating facility supply the balance of Montana-Dakota's
interconnected system electric generating capability.
In
September 2005, Montana-Dakota entered into a contract for seasonal
capacity from a neighboring utility, starting at 85 MW in 2007, increasing
to 105 MW in 2011, with an option for capacity in 2012. In April 2007,
Montana-Dakota entered into a contract for seasonal capacity of 10 MW in
May through October of each year continuing through 2010. In August 2009,
Montana-Dakota entered into a contract for capacity of 110 MW, 115 MW
and 120 MW annually for the three-year period from June 1 to
May 31, 2013, 2014 and 2015, respectively. Energy also will be purchased as
needed from the Midwest ISO market. In 2009, Montana-Dakota purchased
approximately 17 percent of its net kWh needs for its interconnected system
through the Midwest ISO market.
The
following table sets forth details applicable to the Company's electric
generating stations:
|
|
|
|
|
|
|
|
|
2009
Net
|
|
|
|
|
Nameplate
|
|
|
Summer
|
|
|
Generation
|
|
|
|
|
Rating
|
|
|
Capability
|
|
|
(kWh
in
|
|
Generating
Station
|
Type
|
|
(kW)
|
|
|
(kW)
|
|
|
thousands)
|
|
North
Dakota:
|
|
|
|
|
|
|
|
|
|
|
Coyote*
|
Steam
|
|
|
103,647
|
|
|
|
106,750
|
|
|
|
625,979
|
|
Heskett
|
Steam
|
|
|
86,000
|
|
|
|
102,730
|
|
|
|
556,757
|
|
Williston
|
Combustion
Turbine
|
|
|
7,800
|
|
|
|
9,600
|
|
|
|
(81
|
)
**
|
Glen
Ullin
|
Heat
Recovery
|
|
|
7,500
|
|
|
|
***
|
|
|
|
10,271
|
|
South
Dakota:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Big
Stone*
|
Steam
|
|
|
94,111
|
|
|
|
107,500
|
|
|
|
624,595
|
|
Montana:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lewis
& Clark
|
Steam
|
|
|
44,000
|
|
|
|
52,300
|
|
|
|
316,532
|
|
Glendive
|
Combustion
Turbine
|
|
|
77,347
|
|
|
|
79,610
|
|
|
|
1,950
|
|
Miles
City
|
Combustion
Turbine
|
|
|
23,150
|
|
|
|
24,500
|
|
|
|
(28
|
)
**
|
Diamond
Willow
|
Wind
|
|
|
19,500
|
|
|
|
3,910
|
|
|
|
67,690
|
|
|
|
|
|
463,055
|
|
|
|
486,900
|
|
|
|
2,203,665
|
|
*
Reflects Montana-Dakota's ownership interest.
|
|
** Station use, to meet MAPP's accreditation requirements, exceeded
generation.
*** Pending
accreditation.
|
|
Virtually
all of the current fuel requirements of the Coyote, Heskett and Lewis &
Clark stations are met with coal supplied by subsidiaries of Westmoreland under
contracts that expire in May 2016, April 2011 and December 2012,
respectively. The Coyote coal supply agreement provides for the purchase of coal
necessary to supply the coal requirements of the Coyote Station or
30,000 tons per week, whichever may be the greater quantity at contracted
pricing. The maximum quantity of coal during the term of the agreement, and any
extension, is 75 million tons. The Heskett and Lewis & Clark coal
supply agreements provide for the purchase of coal necessary
to supply
the coal requirements of these stations at contracted pricing. Montana-Dakota
estimates the Heskett and Lewis & Clark coal requirement to be in the range
of 500,000 to 600,000 tons, and 250,000 to 350,000 tons per contract
year, respectively.
Montana-Dakota
has a coal supply agreement, which meets the majority of the Big Stone Station’s
fuel requirements, for the purchase of 1.0 million tons of coal in 2010
with Kennecott at contracted pricing.
The
average cost of coal purchased, including freight, at Montana-Dakota's electric
generating stations (including the Big Stone and Coyote stations) was as
follows:
Years
ended December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Average
cost of coal per MMBtu
|
|
$
|
1.52
|
|
|
$
|
1.49
|
|
|
$
|
1.29
|
|
Average
cost of coal per ton
|
|
$
|
22.05
|
|
|
$
|
21.45
|
|
|
$
|
18.71
|
|
The
maximum electric peak demand experienced to date attributable to sales to retail
customers on the interconnected system was 525,643 kW in July 2007.
Montana-Dakota's latest forecast for its interconnected system indicates that
its annual peak will continue to occur during the summer and the peak demand
growth rate through 2015 will approximate two percent annually.
Montana-Dakota
expects that it has secured adequate
capacity available through existing baseload generating stations, renewable
generation, turbine peaking stations, demand reduction programs and firm
contracts to meet the peak customer demand requirements of its customers through
mid-2015. Future capacity that is needed to replace contracts and meet system
growth requirements is expected to be met by constructing new generation
resources or acquiring additional capacity through power contracts. For
additional information regarding potential power generation projects, see
Item 7 – MD&A – Prospective Information – Electric.
Montana-Dakota
has major interconnections with its neighboring utilities and considers these
interconnections adequate for coordinated planning, emergency assistance,
exchange of capacity and energy and power supply reliability.
Through
the Sheridan System, Montana-Dakota serves Sheridan, Wyoming, and neighboring
communities. The maximum peak demand experienced to date attributable to
Montana-Dakota sales to retail customers on that system was approximately
60,600 kW in July 2007. Montana-Dakota has a power supply contract
with Black Hills Power to purchase up to 74,000 kW of capacity annually
through December 31, 2016. On April 9, 2009, Montana-Dakota exercised an
option to purchase a 25 percent interest in the Wygen III electric
generating facility under construction by Black Hills Power to serve a portion
of the needs of its Sheridan-area customers. The plant is expected to be
commercial in the second quarter of 2010, and will replace 25 MW of
capacity and energy purchased under the power supply contract. Montana-Dakota
received a Certificate of Public Convenience and Necessity from the WYPSC on
July 29, 2008, for ownership of Wygen III.
Montana-Dakota
is subject to competition in varying degrees, in certain areas, from rural
electric cooperatives, on-site generators, co-generators and municipally owned
systems. In addition, competition in varying degrees exists between electricity
and alternative forms of energy such as natural gas.
Regulatory Matters and Revenues
Subject to Refund
Fuel adjustment clauses
contained in North Dakota and South Dakota jurisdictional electric rate
schedules allow Montana-Dakota to reflect monthly increases or decreases in fuel
and purchased power costs (excluding demand charges). In North Dakota, the
Company is deferring electric fuel and purchased power costs (excluding demand
charges) that are greater or less than amounts presently being recovered through
its existing rate schedules. In Montana, a monthly Fuel and Purchased Power
Tracking Adjustment mechanism allows Montana-Dakota to reflect 90 percent
of the increases or decreases in fuel and purchased power costs (including
demand charges) and Montana-Dakota is deferring 90 percent of costs that
are greater or less than amounts presently being recovered through its existing
rate schedules. In Wyoming, an annual Electric Power Supply Cost Adjustment
mechanism allows Montana-Dakota to reflect increases or decreases in fuel and
purchased power costs (including demand charges) related to power supply and
Montana-Dakota is deferring costs that are greater or less than amounts
presently being recovered through its existing rate schedules. Such orders
generally provide that these amounts are recoverable or refundable through rate
adjustments within a period ranging from 14 to 25 months from the time such
costs are paid. For additional information, see Item 8 –
Note 6.
On
August 14, 2009, Montana-Dakota filed an application with the WYPSC for an
electric rate increase. For additional information, see Item 8 –
Note 18.
In
November 2009, a decision was made by the Big Stone Station II participants
not to proceed with the project. For additional information, see Item 8 –
Note 18.
Environmental Matters
Montana-Dakota's
electric operations are subject to federal, state and local laws and regulations
providing for air, water and solid waste pollution control; state
facility-siting regulations; zoning and planning regulations of certain state
and local authorities; federal health and safety regulations; and state hazard
communication standards. Montana-Dakota believes it is in substantial compliance
with these regulations.
Montana-Dakota's
electric generating facilities have Title V Operating Permits, under the Clean
Air Act, issued by the states in which they operate. Each of these permits has a
five-year life. Near the expiration of these permits, renewal applications are
submitted. Permits continue in force beyond the expiration date, provided the
application for renewal is submitted by the required date, usually six months
prior to expiration. Title V Operating Permits for the Big Stone Station and the
Lewis & Clark Station were renewed in 2009. In August 2009, an application
for renewal of the Heskett Station Title V Operating Permit was submitted. On
February 25, 2009, a Montana Air Quality Permit application was granted for the
Lewis & Clark Station to obtain a mercury emissions limit and approve its
proposed mercury emissions control strategy.
State
water discharge permits issued under the requirements of the Clean Water Act are
maintained for power production facilities on the Yellowstone and Missouri
rivers. These permits also have five-year lives. Montana-Dakota renews these
permits as necessary prior to expiration. Other permits held by these facilities
may include an initial siting permit, which is typically a one-time,
preconstruction permit issued by the state; state permits to dispose of
combustion by-products; state authorizations to withdraw water for operations;
and Army Corps permits to construct water intake structures. Montana-Dakota's
Army Corps permits grant one-time permission to construct and do not require
renewal. Other permit terms vary and the permits are renewed as
necessary.
Montana-Dakota's
electric operations are conditionally exempt small-quantity hazardous waste
generators and subject only to minimum regulation under the RCRA. Montana-Dakota
routinely handles PCBs from its electric operations in accordance with federal
requirements. PCB storage areas are registered with the EPA as
required.
In
June 2008, the Sierra Club filed a complaint in the South Dakota Federal
District Court against Montana-Dakota and the two other co-owners of the Big
Stone Station. For more information regarding this complaint, see Item 8 –
Note 19.
Montana-Dakota
incurred $5.9 million of environmental capital expenditures in 2009. Capital
expenditures are estimated to be $1.7 million, $5.0 million and
$6.5 million in 2010, 2011 and 2012, respectively, to maintain
environmental compliance as new emission controls are required. Projects will
include sulfur-dioxide, nitrogen oxide and mercury control equipment
installation at electric generating stations. Montana-Dakota’s capital and
operational expenditures could also be affected in a variety of ways by
potential new GHG legislation or regulation. In particular, such legislation or
regulation would likely increase capital expenditures for renewable energy
resources and operational costs associated with GHG emissions compliance until
carbon capture technology becomes economical, at which time capital expenditures
may be necessary to incorporate such technology into existing or new generating
facilities. Montana-Dakota expects that it will recover the operational and
capital expenditures for GHG regulatory compliance in its rates consistent with
the recovery of other reasonable costs of complying with environmental laws and
regulations.
Natural
Gas Distribution
General
The
Company's natural gas distribution operations consist of Montana-Dakota, Great
Plains, Cascade and Intermountain which sell natural gas at retail, serving over
829,000 residential, commercial and industrial customers in 333 communities and
adjacent rural areas across eight states as of December 31, 2009, and
provide natural gas transportation services to certain customers on their
systems. These services are provided through distribution systems aggregating
approximately 17,000 miles. The natural gas distribution operations have
obtained and hold, or are in the process of renewing, valid and existing
franchises authorizing them to conduct their natural gas operations in all of
the municipalities they serve where such franchises are required. These
operations intend to protect their service areas and seek renewal of all
expiring franchises. As of December 31, 2009, the natural gas distribution
operations' net natural gas distribution plant investment approximated
$909.9 million.
The
percentage of the natural gas distribution operations’ 2009 natural gas utility
operating sales revenues by jurisdiction is as follows: Idaho – 32 percent;
Washington – 30 percent; North Dakota – 11 percent; Oregon –
9 percent; Montana – 7 percent; South Dakota – 6 percent; Minnesota –
3 percent; and Wyoming – 2 percent. The natural gas distribution
operations are subject to regulation by the IPUC, MNPUC, MTPSC, NDPSC, OPUC,
SDPUC, WUTC and WYPSC regarding retail rates, service, accounting and certain
security issuances.
System Supply, System Demand and
Competition
The natural gas distribution operations serve retail natural
gas markets, consisting principally of residential and firm commercial space and
water heating users, in portions of Idaho, including Boise, Nampa, Twin Falls,
Pocatello and Idaho Falls; western Minnesota, including Fergus Falls, Marshall
and Crookston; eastern Montana, including Billings, Glendive and Miles City;
North Dakota, including Bismarck, Dickinson, Wahpeton, Williston, Minot and
Jamestown; central and eastern Oregon, including Bend and Pendleton; western and
north-central South Dakota, including Rapid City, Pierre, Spearfish and
Mobridge; western, southeastern and south-central Washington, including
Bellingham, Bremerton,
Longview,
Moses Lake, Mount Vernon, Tri-Cities, Walla Walla and Yakima; and northern
Wyoming, including Sheridan. These markets are highly seasonal and sales volumes
depend largely on the weather, the effects of which are mitigated in certain
jurisdictions by a weather normalization mechanism discussed in Regulatory
Matters.
Competition
in varying degrees exists between natural gas and other fuels and forms of
energy. The natural gas distribution operations have established various natural
gas transportation service rates for their distribution businesses to retain
interruptible commercial and industrial loads. Certain of these services include
transportation under flexible rate schedules whereby interruptible customers can
avail themselves of the advantages of open access transportation on regional
transmission pipelines, including the systems of Williston Basin, Northern
Border Pipeline Company, Northern Natural Gas Company, South Dakota Intrastate
Pipeline, Viking Gas Transmission Company, Northwest Pipeline GP and Gas
Transmission Northwest Corporation. These services have enhanced the natural gas
distribution operations' competitive posture with alternative fuels, although
certain customers have bypassed the distribution systems by directly accessing
transmission pipelines within close proximity. These bypasses did not have a
material effect on results of operations.
The
natural gas distribution operations obtain their system requirements directly
from producers, processors and marketers. Such natural gas is supplied by a
portfolio of contracts specifying market-based pricing and is transported under
transportation agreements by Williston Basin, South Dakota Intrastate Pipeline
Company, Northern Border Pipeline Company, Viking Gas Transmission Company,
Northern Natural Gas Company, Source Gas, TransCanada Foothills System,
TransCanada NOVA System, Northwestern Energy, Northwest Pipeline GP, TransCanada
Gas Transmission Northwest Corporation and Spectra Energy Transmission West. The
natural gas distribution operations have contracts for storage services to
provide gas supply during the winter heating season and to meet peak day demand
with Williston Basin, Northern Natural Gas Company, Questar Pipeline and
Northwest Pipeline GP. In addition, certain of the operations have entered into
natural gas supply management agreements with Sequent Energy Management, IGI
Resources Inc. and Tenaska Gas Storage. Demand for natural gas, which is a
widely traded commodity, has historically been sensitive to seasonal heating and
industrial load requirements as well as changes in market price. The natural gas
distribution operations believe that, based on current and projected domestic
and regional supplies of natural gas and the pipeline transmission network
currently available through their suppliers and pipeline service providers,
supplies are adequate to meet their system natural gas requirements for the next
decade.
Regulatory Matters
The natural gas
distribution operations' retail natural gas rate schedules contain clauses
permitting adjustments in rates based upon changes in natural gas commodity,
transportation and storage costs. Current tariffs allow for recovery or refunds
of under- or over-recovered gas costs within a period ranging from 12 to 28
months.
Montana-Dakota's
North Dakota and South Dakota natural gas tariffs contain weather normalization
mechanisms applicable to firm customers that adjust the distribution delivery
charge revenues to reflect weather fluctuations during the November 1
through May 1 billing periods.
Cascade
has received approval for decoupling its margins from weather and conservation
in Oregon, and has also received approval of a decoupling mechanism in
Washington that allows it to recover margin differences resulting from customer
conservation. Cascade also has an earnings sharing mechanism with respect to its
Oregon jurisdictional operations as required by the OPUC.
Environmental Matters
The natural gas
distribution operations are subject to federal, state and local environmental,
facility-siting, zoning and planning laws and regulations. The natural gas
distribution operations believe they are in substantial compliance with those
regulations.
Natural
gas distribution operations are conditionally exempt small-quantity hazardous
waste generators and subject only to minimum regulation under the RCRA. Certain
of the natural gas distribution operations routinely handle PCBs from their
natural gas operations in accordance with federal requirements. PCB storage
areas are registered with the EPA as required. Capital and operational
expenditures for natural gas distribution operations could be affected in a
variety of ways by potential new GHG legislation or regulation. In particular,
such legislation or regulation would likely increase capital expenditures for
energy efficiency and conservation programs and operational costs associated
with GHG emissions compliance. The natural gas distribution operations expect
they will recover the operational and capital expenditures for GHG regulatory
compliance in its rates consistent with the recovery of other reasonable costs
of complying with environmental laws and regulations.
The
natural gas distribution operations did not incur any material environmental
expenditures in 2009 and, except as to what may be ultimately determined with
regard to the issues described later, do not expect to incur any material
capital expenditures related to environmental compliance with current laws and
regulations in relation to the natural gas distribution operations through
2012.
Montana-Dakota
has had an economic interest in five historic manufactured gas plants within its
service territory, none of which are currently being actively investigated, and
for which any remediation expenses are not expected to be material. Cascade has
had an economic interest in nine former manufactured gas plants within its
service territory. Cascade has been involved with other PRPs in the
investigation of a manufactured gas plant site in Oregon, with remediation of
this site pending additional investigation. See Item 8 – Note 19 for a
further discussion of this site and for two additional sites for which Cascade
has received claim notice. To the extent these claims are not covered by
insurance, Cascade will seek recovery through the OPUC and WUTC of remediation
costs in its natural gas rates charged to customers.
Construction
Services
General
MDU Construction
Services specializes in constructing and maintaining electric and communication
lines, gas pipelines, fire suppression systems, and external lighting and
traffic signalization equipment. This segment also provides utility excavation
services and inside electrical wiring, cabling and mechanical services, sells
and distributes electrical materials, and manufactures and distributes specialty
equipment. These services are provided to utilities and large manufacturing,
commercial, industrial, institutional and government customers.
Construction
and maintenance crews are active year round. However, activity in certain
locations may be seasonal in nature due to the effects of weather.
MDU
Construction Services operates a fleet of owned and leased trucks and trailers,
support vehicles and specialty construction equipment, such as backhoes,
excavators, trenchers, generators, boring machines and cranes. In addition, as
of December 31, 2009, MDU Construction Services owned or leased facilities
in 17 states. This space is used for offices, equipment yards, warehousing,
storage and vehicle shops. At December 31, 2009, MDU Construction Services'
net plant investment was approximately $48.5 million.
MDU
Construction Services' backlog is comprised of the uncompleted portion of
services to be performed under job-specific contracts. The backlog at
December 31, 2009, was approximately $383 million compared to
$604 million at December 31, 2008. MDU Construction Services expects
to complete a significant amount of this backlog during the year ending
December 31, 2010. Due to the nature of its contractual arrangements, in
many instances MDU Construction Services' customers are not committed to the
specific volumes of services to be purchased under a contract, but rather MDU
Construction Services is committed to perform these services if and to the
extent requested by the customer. Therefore, there can be no assurance as to the
customer's requirements during a particular period or that such estimates at any
point in time are predictive of future revenues.
MDU
Construction Services works with the National Electrical Contractors
Association, the IBEW and other trade associations on hiring and recruiting a
qualified workforce.
Competition
MDU Construction
Services operates in a highly competitive business environment. Most of MDU
Construction Services' work is obtained on the basis of competitive bids or by
negotiation of either cost-plus or fixed-price contracts. The workforce and
equipment are highly mobile, providing greater flexibility in the size and
location of MDU Construction Services' market area. Competition is based
primarily on price and reputation for quality, safety and reliability. The size
and location of the services provided, as well as the state of the economy, will
be factors in the number of competitors that MDU Construction Services will
encounter on any particular project. MDU Construction Services believes that the
diversification of the services it provides, the markets it serves throughout
the United States and the management of its workforce will enable it to
effectively operate in this competitive environment.
Utilities
and independent contractors represent the largest customer base for this
segment. Accordingly, utility and subcontract work accounts for a significant
portion of the work performed by MDU Construction Services and the amount of
construction contracts is dependent to a certain extent on the level and timing
of maintenance and construction programs undertaken by customers. MDU
Construction Services relies on repeat customers and strives to maintain
successful long-term relationships with these customers.
Environmental Matters
MDU
Construction Services' operations are subject to regulation customary for the
industry, including federal, state and local environmental compliance. MDU
Construction Services believes it is in substantial compliance with these
regulations.
The
nature of MDU Construction Services' operations is such that few, if any,
environmental permits are required. Operational convenience supports the use of
petroleum storage tanks in several locations, which are permitted under state
programs authorized by the EPA. MDU Construction Services has no ongoing
remediation related to releases from petroleum storage tanks. MDU Construction
Services' operations are conditionally exempt small-quantity waste generators,
subject to minimal regulation under the RCRA. Federal permits for specific
construction and maintenance jobs that may require these permits are typically
obtained by the hiring entity, and not by MDU Construction
Services.
MDU
Construction Services did not incur any material environmental expenditures in
2009 and does not expect to incur any material capital expenditures related to
environmental compliance with current laws and regulations through
2012.
Pipeline
and Energy Services
General
Williston Basin, the
regulated business of WBI Holdings, owns and operates over 3,700 miles of
transmission, gathering and storage lines and owns or leases and operates
33 compressor stations in Montana, North Dakota, South Dakota and Wyoming.
Three underground storage fields in Montana and Wyoming provide storage services
to local distribution companies, producers, natural gas marketers and others,
and serve to enhance system deliverability. Williston Basin's system is
strategically located near five natural gas producing basins, making natural gas
supplies available to Williston Basin's transportation and storage customers.
The system has 11 interconnecting points with other pipeline facilities allowing
for the receipt and/or delivery of natural gas to and from other regions of the
country and from Canada. At December 31, 2009, Williston Basin's net plant
investment was approximately $287.3 million. Under the Natural Gas Act, as
amended, Williston Basin is subject to the jurisdiction of the FERC regarding
certificate, rate, service and accounting matters.
Bitter
Creek, the nonregulated pipeline business, owns and operates gathering
facilities in Colorado, Kansas, Montana and Wyoming. Bitter Creek also owns a
one-sixth interest in the assets of various offshore gathering pipelines, an
associated onshore pipeline and related processing facilities in Texas. In
total, these facilities include over 1,900 miles of field gathering lines
and 88 owned or leased compression stations, some of which interconnect with
Williston Basin's system. In 2009, the Company acquired the assets of a cathodic
protection company. This acquisition was not material to the Company. Bitter
Creek also provides a variety of energy-related services such as water hauling,
contract compression operations, measurement services and energy efficiency
product sales and installation services to large end-users.
WBI
Holdings, through its energy services business, provides natural gas purchase
and sales services to local distribution companies, producers, other marketers
and a limited number of large end-users, primarily using natural gas produced by
the Company's natural gas and oil production segment. Certain of the services
are provided based on contracts that call for a determinable quantity of natural
gas. WBI Holdings currently estimates that it can adequately meet the
requirements of these contracts. WBI Holdings transacts a majority of its
pipeline and energy services business in the northern Great Plains and Rocky
Mountain regions of the United States.
System Demand and Competition
Williston Basin competes with several pipelines for its customers'
transportation, storage and gathering business and at times may discount rates
in an effort to retain market share. However, the strategic location of
Williston Basin's system near five natural gas producing basins and the
availability of underground storage and gathering services provided by Williston
Basin and affiliates along with interconnections with other pipelines serve to
enhance Williston Basin's competitive position.
Although
certain of Williston Basin's firm customers, including its largest firm customer
Montana-Dakota, serve relatively secure residential and commercial end-users,
they generally all have some price-sensitive end-users that could switch to
alternate fuels.
Williston
Basin transports substantially all of Montana-Dakota's natural gas, primarily
utilizing firm transportation agreements, which for the year ended
December 31, 2009, represented 50 percent of Williston Basin's
subscribed firm transportation contract demand. Montana-Dakota has firm
transportation agreements with Williston Basin expiring November 2010 through
June 2012. In addition, Montana-Dakota has a contract with Williston Basin
to provide firm storage services to facilitate meeting Montana-Dakota's winter
peak requirements expiring in July 2015.
Bitter
Creek competes with several pipelines for existing customers and for the
expansion of its systems to gather natural gas in new areas. Bitter Creek's
strong position in the fields in which it operates, its focus on customer
service and the variety of services it offers, along with its interconnection
with various other pipelines, serve to enhance its competitive
position.
System Supply
Williston Basin's
underground natural gas storage facilities have a certificated storage capacity
of approximately 353 Bcf, including 193 Bcf of working gas capacity,
85 Bcf of cushion gas and 75 Bcf of native gas. The native gas
includes an estimated 29 Bcf of recoverable gas. Williston Basin's storage
facilities enable its customers to purchase natural gas at more uniform daily
volumes throughout the year and meet winter peak requirements.
Natural
gas supplies emanate from traditional and nontraditional production activities
in the region and from off-system supply sources. While certain traditional
regional supply sources are in various stages of decline, incremental supply
from nontraditional sources have been developed which have helped support
Williston Basin's supply needs. This includes new natural gas supply associated
with the continued development of the Bakken area in Montana and North Dakota.
The Powder River Basin, including the Company's CBNG assets, also provides a
nontraditional natural gas supply to the Williston Basin system. For additional
information regarding CBNG legal proceedings, see Item 1A – Risk Factors
and Item 8 – Note 19. In addition, off-system supply sources are
available through the Company's interconnections with other pipeline systems.
Williston Basin expects to facilitate the movement of these supplies by making
available its transportation and storage services. Williston Basin will continue
to look for opportunities to increase transportation, gathering and storage
services through system expansion and/or other pipeline interconnections or
enhancements that could provide substantial future benefits.
Regulatory Matters and Revenues
Subject to Refund
In December 1999, Williston Basin filed a general
natural gas rate change application with the FERC. For additional information,
see Item 8 – Note 18.
Environmental Matters
WBI
Holdings' pipeline and energy services operations are generally subject to
federal, state and local environmental, facility-siting, zoning and planning
laws and regulations. WBI Holdings believes it is in substantial compliance with
those regulations.
Ongoing
operations are subject to the Clean Air Act, the Clean Water Act, the NEPA and
other state and federal regulations. Administration of many provisions of these
laws has been delegated to the states where Williston Basin and Bitter Creek
operate. Permit terms vary and all permits carry operational compliance
conditions. Some permits require annual renewal, some have terms ranging from
one to five years and others have no expiration date. Permits are renewed and
modified, as necessary, based on defined permit expiration dates, operational
demand and/or regulatory changes.
Detailed
environmental assessments and/or environmental impact statements are included in
the FERC's permitting processes for both the construction and abandonment of
Williston Basin's natural gas transmission pipelines, compressor stations and
storage facilities.
WBI
Holdings' pipeline and energy services operations did not incur any material
environmental expenditures in 2009 and do not expect to incur any material
capital expenditures related to environmental compliance with current laws and
regulations through 2012.
Natural
Gas and Oil Production
General
Fidelity is involved in
the acquisition, exploration, development and production of natural gas and oil
resources. Fidelity's activities include the acquisition of producing properties
and leaseholds with potential development opportunities, exploratory drilling
and the operation and development of natural gas and oil production properties.
Fidelity continues to seek additional reserve and production growth
opportunities through these activities. Future growth is dependent upon its
success in these endeavors. Fidelity shares revenues and expenses from the
development of specified properties in proportion to its ownership
interests.
Fidelity's
business is focused primarily in two core regions: Rocky Mountain and
Mid-Continent/Gulf States.
Rocky
Mountain
Fidelity's
properties in this region are primarily in Colorado, Montana, North Dakota, Utah
and Wyoming. Fidelity owns in fee or holds natural gas and oil leases for the
properties it operates that are in the Bonny Field in eastern Colorado, the
Baker Field in southeastern Montana and southwestern North Dakota, the Bowdoin
area in north-central Montana, the Powder River Basin of Montana and Wyoming,
the Bakken area in North Dakota, the Paradox Basin of Utah, and the Big Horn
Basin of Wyoming. Fidelity also owns nonoperated natural gas and oil interests
and undeveloped acreage positions in this region.
Mid-Continent/Gulf
States
This
region includes properties in Alabama, Louisiana, New Mexico, Texas and the
Offshore Gulf of Mexico. The Offshore Gulf of Mexico interests are primarily
located in the shallow waters off the coasts of Texas and Louisiana. Fidelity
owns in fee or holds natural gas and oil leases for the properties it operates
that are in the Tabasco and Texan Gardens fields of Texas and natural gas
properties in Rusk County in eastern Texas. In addition, Fidelity owns several
nonoperated interests and undeveloped acreage positions in this
region.
Operating Information
Annual net production
by region for 2009 was as follows:
|
|
Natural
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas
|
|
|
Oil
|
|
|
Total
|
|
|
Percent
of
|
|
Region
|
|
(MMcf)
|
*
|
|
(MBbls)
|
|
|
(MMcfe)
|
|
|
Total
|
|
Rocky
Mountain
|
|
|
41,635
|
|
|
|
2,182
|
|
|
|
54,729
|
|
|
|
73
|
%
|
Mid-Continent/Gulf
States
|
|
|
14,997
|
|
|
|
929
|
|
|
|
20,570
|
|
|
|
27
|
|
Total
|
|
|
56,632
|
|
|
|
3,111
|
|
|
|
75,299
|
|
|
|
100
|
%
|
*
Baker field and Bowdoin field represent 28 percent and
19 percent, respectively, of total annual net natural gas
production.
|
|
Annual
net production by region for 2008 was as follows:
|
|
Natural
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas
|
|
|
Oil
|
|
|
Total
|
|
|
Percent
of
|
|
Region
|
|
(MMcf)
|
*
|
|
(MBbls)
|
|
|
(MMcfe)
|
|
|
Total
|
|
Rocky
Mountain
|
|
|
47,504
|
|
|
|
1,698
|
|
|
|
57,691
|
|
|
|
70
|
%
|
Mid-Continent/Gulf
States
|
|
|
17,953
|
|
|
|
1,110
|
|
|
|
24,612
|
|
|
|
30
|
|
Total
|
|
|
65,457
|
|
|
|
2,808
|
|
|
|
82,303
|
|
|
|
100
|
%
|
*
Baker field and Bowdoin field represent 28 percent and
18 percent, respectively, of total annual net natural gas
production.
|
|
Annual
net production by region for 2007 was as follows:
|
|
Natural
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas
|
|
|
Oil
|
|
|
Total
|
|
|
Percent
of
|
|
Region
|
|
(MMcf)
|
*
|
|
(MBbls)
|
|
|
(MMcfe)
|
|
|
Total
|
|
Rocky
Mountain
|
|
|
48,832
|
|
|
|
1,287
|
|
|
|
56,553
|
|
|
|
74
|
%
|
Mid-Continent/Gulf
States
|
|
|
13,966
|
|
|
|
1,078
|
|
|
|
20,435
|
|
|
|
26
|
|
Total
|
|
|
62,798
|
|
|
|
2,365
|
|
|
|
76,988
|
|
|
|
100
|
%
|
*
Baker field and Bowdoin field represent 31 percent and
19 percent, respectively, of total annual net natural gas
production.
|
|
Well and Acreage
Information
Gross and net
productive well counts and gross and net developed and undeveloped acreage
related to Fidelity's interests at December 31, 2009, were as
follows:
|
Gross
|
*
|
Net
|
**
|
Productive
wells:
|
|
|
|
|
Natural
gas
|
3,869
|
|
3,121
|
|
Oil
|
3,706
|
|
258
|
|
Total
|
7,575
|
|
3,379
|
|
Developed
acreage (000's)
|
720
|
|
400
|
|
Undeveloped
acreage (000's)
|
834
|
|
449
|
|
* Reflects well or
acreage in which an interest is owned.
|
|
** Reflects
Fidelity's percentage of ownership.
|
|
Exploratory and Development
Wells
The
following table reflects activities related to Fidelity's natural gas and oil
wells drilled and/or tested during 2009, 2008 and 2007:
|
|
Net
Exploratory
|
|
|
Net
Development
|
|
|
|
|
|
|
Productive
|
|
|
Dry
Holes
|
|
|
Total
|
|
|
Productive
|
|
|
Dry
Holes
|
|
|
Total
|
|
|
Total
|
|
2009
|
|
|
1
|
|
|
|
2
|
|
|
|
3
|
|
|
|
104
|
|
|
|
–
|
|
|
|
104
|
|
|
|
107
|
|
2008
|
|
|
11
|
|
|
|
4
|
|
|
|
15
|
|
|
|
251
|
|
|
|
9
|
|
|
|
260
|
|
|
|
275
|
|
2007
|
|
|
4
|
|
|
|
5
|
|
|
|
9
|
|
|
|
317
|
|
|
|
16
|
|
|
|
333
|
|
|
|
342
|
|
At
December 31, 2009, there were 74 gross (60 net) wells in the process of
drilling or under evaluation, 70 of which were development wells and 4 of which
were exploratory wells. These wells are not included in the previous table.
Fidelity expects to complete the drilling and testing of the majority of these
wells within the next 12 months.
The
information in the preceding table should not be considered indicative of future
performance nor should it be assumed that there is necessarily any correlation
between the number of productive wells drilled and quantities of reserves found
or economic value. Productive wells are those that produce commercial quantities
of hydrocarbons whether or not they produce a reasonable rate of
return.
Competition
The
natural gas and oil industry is highly competitive. Fidelity competes with a
substantial number of major and independent natural gas and oil companies in
acquiring producing properties and new leases for future exploration and
development, and in securing the equipment, services and expertise necessary to
explore, develop and operate its properties.
Environmental Matters
Fidelity's natural gas
and oil production operations are generally subject to federal, state and local
environmental and operational laws and regulations. Fidelity believes it is in
substantial compliance with these regulations.
The
ongoing operations of Fidelity are subject to the Clean Air Act, the Clean Water
Act, the NEPA and other state and federal regulations. Administration of many
provisions of these laws has been delegated to the states where Fidelity
operates. Permit terms vary and all permits carry operational compliance
conditions. Some permits require annual renewal, some have terms ranging from
one to five years and others have no expiration date. Permits are renewed and
modified, as necessary, based on defined permit expiration dates, operational
demand and/or regulatory changes.
Detailed
environmental assessments and/or environmental impact statements under federal
and state laws are required as part of the permitting process covering the
conduct of drilling and production operations as well as in the abandonment and
reclamation of facilities.
In
connection with production operations, Fidelity has incurred certain capital
expenditures related to water handling. For 2009, capital expenditures for water
handling in compliance with current laws and regulations were approximately
$222,000 and are estimated to be approximately $3.0 million,
$8.9 million and $9.2 million in 2010, 2011 and 2012, respectively. These
water handling costs are primarily related to the CBNG properties. For more
information regarding CBNG litigation, see Item 1A – Risk Factors and
Item 8 – Note 19.
Proved Reserve
Information
Estimates of proved
reserves were prepared in accordance with guidelines established by the industry
and the SEC. The estimates are arrived at using actual historical wellhead
production trends and/or standard reservoir engineering methods utilizing
available geological, geophysical, engineering and economic data. Other factors
used in the reserve estimates are prices, estimates of well operating and future
development costs, taxes, timing of operations, and the interests owned by the
Company in the properties. These estimates are refined as new information
becomes available.
The
reserve estimates are prepared by internal engineers assigned to an asset team
by geographic area and are reviewed and approved by management. The technical
person responsible for overseeing the preparation of the reserve estimates holds
a bachelor of science degree in geological engineering, has substantial
practical experience in petroleum engineering and reserve estimation, and is a
member of multiple professional organizations. In addition, the Company engages
an independent third party to audit its proved reserves. Ryder Scott Company,
L.P. reviewed the Company’s proved reserve quantity estimates as of
December 31, 2009. The technical person at Ryder Scott Company, L.P.
primarily responsible for overseeing the reserves
audit
holds a bachelor of science degree in mechanical engineering, has extensive
experience estimating and auditing reserves attributable to oil and gas
properties, and is a member of multiple professional organizations.
Fidelity's
recoverable proved reserves by region at December 31, 2009, are as
follows:
|
|
Natural
|
|
|
|
|
|
|
|
|
|
|
|
PV-10
|
|
|
|
Gas
|
|
|
Oil
|
|
|
Total
|
|
|
Percent
|
|
|
Value*
|
|
Region
|
|
(MMcf)
|
|
|
(MBbls)
|
|
|
(MMcfe)
|
|
|
of
Total
|
|
|
(in
millions)
|
|
Rocky
Mountain
|
|
|
309,359
|
|
|
|
24,354
|
|
|
|
455,482
|
|
|
|
70
|
%
|
|
$
|
563.9
|
|
Mid-Continent/Gulf
States
|
|
|
139,066
|
|
|
|
9,862
|
|
|
|
198,242
|
|
|
|
30
|
|
|
|
225.3
|
|
Total
reserves
|
|
|
448,425
|
|
|
|
34,216
|
|
|
|
653,724
|
|
|
|
100
|
%
|
|
|
789.2
|
|
Discounted
future income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130.4
|
|
Standardized
measure of discounted future net cash flows relating to proved
reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
658.8
|
|
*
|
Pre-tax
PV-10 value is a non-GAAP financial measure that is derived from the most
directly comparable GAAP financial measure which is the standardized
measure of discounted future net cash flows. The standardized measure of
discounted future net cash flows disclosed in Item 8 – Supplementary
Financial Information, is presented after deducting discounted future
income taxes, whereas the PV-10 value is presented before income taxes.
Pre-tax PV-10 value is commonly used by the Company to evaluate properties
that are acquired and sold and to assess the potential return on
investment in the Company's natural gas and oil properties. The Company
believes pre-tax PV-10 value is a useful supplemental disclosure to the
standardized measure as the Company believes readers may utilize this
value as a basis for comparison of the relative size and value of the
Company’s reserves to other companies because many factors that are unique
to each individual company impact the amount of future income taxes to be
paid. However, pre-tax PV-10 value is not a substitute for the
standardized measure of discounted future net cash flows. Neither the
Company's pre-tax PV-10 value nor the standardized measure of discounted
future net cash flows purports to represent the fair value of the
Company's natural gas and oil
properties.
|
For
additional information related to natural gas and oil interests, see Item 8
– Note 1 and Supplementary Financial Information.
Construction
Materials and Contracting
General
Knife
River operates construction materials and contracting businesses headquartered
in Alaska, California, Hawaii, Idaho, Iowa, Minnesota, Montana, North Dakota,
Oregon, Texas, Washington and Wyoming. These operations mine, process and sell
construction aggregates (crushed stone, sand and gravel); produce and sell
asphalt mix and supply liquid asphalt for various commercial and roadway
applications; and supply ready-mixed concrete for use in most types of
construction, including roads, freeways and bridges, as well as homes, schools,
shopping centers, office buildings and industrial parks. Although not common to
all locations, other products include the sale of cement, various finished
concrete products and other building materials and related contracting
services.
For
information regarding construction materials litigation, see Item 8 –
Note 19.
The
construction materials business had approximately $459 million in backlog at
December 31, 2009, compared to $453 million at December 31, 2008.
The Company anticipates that a significant amount of the current backlog will be
completed during the year ending December 31, 2010.
Competition
Knife River's
construction materials products are marketed under highly competitive
conditions. Price is the principal competitive force to which these products are
subject, with service, quality, delivery time and proximity to the customer also
being significant factors. The number and size of competitors varies in each of
Knife River's principal market areas and product lines.
The
demand for construction materials products is significantly influenced by the
cyclical nature of the construction industry in general. In addition,
construction materials activity in certain locations may be seasonal in nature
due to the effects of weather. The key economic factors affecting product demand
are changes in the level of local, state and federal governmental spending,
general economic conditions within the market area that influence both the
commercial and private sectors, and prevailing interest rates.
Knife
River is not dependent on any single customer or group of customers for sales of
its products and services, the loss of which would have a material adverse
effect on its construction materials businesses.
Reserve Information
Reserve
estimates are calculated based on the best available data. These data are
collected from drill holes and other subsurface investigations, as well as
investigations of surface features such as mine highwalls and other exposures of
the aggregate reserves. Mine plans, production history and geologic data also
are utilized to estimate reserve quantities. Most acquisitions are made of
mature businesses with established reserves, as distinguished from
exploratory-type properties.
Estimates
are based on analyses of the data described above by experienced internal mining
engineers, operating personnel and geologists. Property setbacks and other
regulatory restrictions and limitations are identified to determine the total
area available for mining. Data described above are used to calculate the
thickness of aggregate materials to be recovered. Topography associated with
alluvial sand and gravel deposits is typically flat and volumes of these
materials are calculated by applying the thickness of the resource over the
areas available for mining. Volumes are then converted to tons by using an
appropriate conversion factor. Typically, 1.5 tons per cubic yard in the
ground is used for sand and gravel deposits.
Topography
associated with the hard rock reserves is typically much more diverse.
Therefore, using available data, a final topography map is created and computer
software is utilized to compute the volumes between the existing and final
topographies. Volumes are then converted to tons by using an appropriate
conversion factor. Typically, 2 tons per cubic yard in the ground is used
for hard rock quarries.
Estimated
reserves are probable reserves as defined in Securities Act Industry Guide 7.
Remaining reserves are based on estimates of volumes that can be economically
extracted and sold to meet current market and product applications. The reserve
estimates include only salable tonnage and thus exclude waste materials that are
generated in the crushing and processing phases of the operation. Approximately
1.0 billion tons of the 1.1 billion tons of aggregate reserves are
permitted reserves. The remaining reserves are on properties that are expected
to be permitted for mining under current regulatory requirements. The data used
to calculate the remaining reserves
may
require revisions in the future to account for changes in customer requirements
and unknown geological occurrences. The years remaining were calculated by
dividing remaining reserves by the three-year average sales from 2007 through
2009. Actual useful lives of these reserves will be subject to, among other
things, fluctuations in customer demand, customer specifications, geological
conditions and changes in mining plans.
The
following table sets forth details applicable to the Company's aggregate
reserves under ownership or lease as of December 31, 2009, and sales for
the years ended December 31, 2009, 2008 and 2007:
|
Number
of Sites
|
|
Number
of Sites
|
|
|
|
Estimated
|
|
|
Reserve
|
|
(Crushed
Stone)
|
|
(Sand
& Gravel)
|
|
Tons
Sold (000's)
|
|
Reserves
|
|
Lease
|
Life
|
Production
Area
|
owned
|
leased
|
|
owned
|
leased
|
|
2009
|
2008
|
2007
|
|
(000's
tons)
|
|
Expiration
|
(years)
|
Anchorage, AK
|
-
|
-
|
|
1
|
-
|
|
891
|
1,267
|
1,118
|
|
17,554
|
|
N/A
|
16
|
Hawaii
|
-
|
6
|
|
-
|
-
|
|
1,940
|
2,467
|
3,081
|
|
63,622
|
|
2011-2064
|
25
|
Northern CA
|
-
|
-
|
|
9
|
1
|
|
1,215
|
2,054
|
2,534
|
|
49,393
|
|
2014
|
26
|
Southern CA
|
-
|
2
|
|
-
|
-
|
|
337
|
106
|
69
|
|
94,887
|
|
2035
|
Over
100
|
Portland,
OR
|
1
|
3
|
|
6
|
3
|
|
2,718
|
4,074
|
5,372
|
|
248,243
|
|
2010-2055
|
61
|
Eugene, OR
|
3
|
4
|
|
4
|
1
|
|
1,097
|
1,633
|
2,007
|
|
172,258
|
|
2010-2046
|
Over
100
|
Central OR/WA/Idaho
|
1
|
2
|
|
4
|
3
|
|
1,436
|
1,686
|
2,652
|
|
107,632
|
|
2010-2021
|
56
|
Southwest OR
|
5
|
4
|
|
12
|
7
|
|
1,871
|
2,248
|
3,686
|
|
102,561
|
|
2011-2048
|
39
|
Central
MT
|
-
|
-
|
|
3
|
2
|
|
1,220
|
2,086
|
2,424
|
|
27,136
|
|
2013-2027
|
14
|
Northwest MT
|
-
|
-
|
|
9
|
3
|
|
1,289
|
1,198
|
1,318
|
|
48,033
|
|
2010-2020
|
38
|
Wyoming
|
-
|
-
|
|
1
|
2
|
|
655
|
720
|
116
|
|
14,041
|
|
2013-2019
|
28
|
Central
MN
|
-
|
1
|
|
38
|
33
|
|
1,868
|
1,367
|
2,639
|
|
83,549
|
|
2010-2028
|
43
|
Northern MN
|
2
|
-
|
|
17
|
6
|
|
838
|
333
|
753
|
|
28,262
|
|
2010-2016
|
44
|
ND/SD
|
-
|
-
|
|
2
|
24
|
|
699
|
876
|
943
|
|
39,428
|
|
2010-2031
|
47
|
Iowa
|
-
|
2
|
|
1
|
14
|
|
545
|
1,405
|
1,592
|
|
10,544
|
|
2010-2018
|
9
|
Texas
|
1
|
2
|
|
-
|
2
|
|
1,080
|
1,619
|
1,290
|
|
18,348
|
|
2010-2025
|
14
|
Sales from other
sources
|
|
|
|
|
|
|
4,296
|
5,968
|
5,318
|
|
|
|
|
|
|
|
|
|
|
|
|
23,995
|
31,107
|
36,912
|
|
1,125,491
|
|
|
|
The
1.1 billion tons of estimated aggregate reserves at December 31, 2009,
is comprised of 472 million tons that are owned and 653 million tons that
are leased. Approximately 51 percent of the tons under lease have lease
expiration dates of 20 years or more. The weighted average years remaining
on all leases containing estimated probable aggregate reserves is approximately
22 years, including options for renewal that are at Knife River's
discretion. Based on a three-year average of sales from 2007 through 2009 of
leased reserves, the average time necessary to produce remaining aggregate
reserves from such leases is approximately 53 years. Some sites have leases
that expire prior to the exhaustion of the estimated reserves. The estimated
reserve life assumes, based on Knife River's experience, that leases will be
renewed to allow sufficient time to fully recover these
reserves.
The
following table summarizes Knife River's aggregate reserves at December 31,
2009, 2008 and 2007, and reconciles the changes between these
dates:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(000's
of tons)
|
|
Aggregate
reserves:
|
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
1,145,161
|
|
|
|
1,215,253
|
|
|
|
1,248,099
|
|
Acquisitions
|
|
|
21,400
|
|
|
|
27,650
|
|
|
|
29,740
|
|
Sales
volumes*
|
|
|
(19,699
|
)
|
|
|
(25,139
|
)
|
|
|
(31,594
|
)
|
Other**
|
|
|
(21,371
|
)
|
|
|
(72,603
|
)
|
|
|
(30,992
|
)
|
End
of year
|
|
|
1,125,491
|
|
|
|
1,145,161
|
|
|
|
1,215,253
|
|
*
Excludes sales from other sources.
|
|
** Includes
property sales and revisions of previous estimates.
|
|
Environmental Matters
Knife River's
construction materials and contracting operations are subject to regulation
customary for such operations, including federal, state and local environmental
compliance and reclamation regulations. Except as to what may be ultimately
determined with regard to the Portland, Oregon, Harbor Superfund Site issue
described later, Knife River believes it is in substantial compliance with these
regulations. Individual permits applicable to Knife River’s various operations
are managed largely by local operations, particularly as they relate to
application, modification, renewal, compliance, and reporting
procedures.
Knife
River's asphalt and ready-mixed concrete manufacturing plants and aggregate
processing plants are subject to Clean Air Act and Clean Water Act requirements
for controlling air emissions and water discharges. Some mining and construction
activities also are subject to these laws. In most of the states where Knife
River operates, these regulatory programs have been delegated to state and local
regulatory authorities. Knife River's facilities also are subject to RCRA as it
applies to the management of hazardous wastes and underground storage tank
systems. These programs also have generally been delegated to the state and
local authorities in the states where Knife River operates. Knife River's
facilities must comply with requirements for managing wastes and underground
storage tank systems.
Some
Knife River activities are directly regulated by federal agencies. For example,
certain in-water mining operations are subject to provisions of the Clean Water
Act that are administered by the Army Corps. Knife River operates several such
operations, including gravel bar skimming and dredging operations, and Knife
River has the associated permits as required. The expiration dates of these
permits vary, with five years generally being the longest term.
Knife
River's operations also are occasionally subject to the ESA. For example, land
use regulations often require environmental studies, including wildlife studies,
before a permit may be granted for a new or expanded mining facility or an
asphalt or concrete plant. If endangered species or their habitats are
identified, ESA requirements for protection, mitigation or avoidance apply.
Endangered species protection requirements are usually included as part of land
use permit conditions. Typical conditions include avoidance, setbacks,
restrictions on operations during certain times of the breeding or rearing
season, and construction or purchase of mitigation habitat. Knife River's
operations also are subject to state and federal cultural resources protection
laws when new areas are disturbed for mining operations or processing plants.
Land use permit applications generally require that areas proposed for mining or
other surface disturbances be
surveyed
for cultural resources. If any are identified, they must be protected or managed
in accordance with regulatory agency requirements.
The most
comprehensive environmental permit requirements are usually associated with new
mining operations, although requirements vary widely from state to state and
even within states. In some areas, land use regulations and associated
permitting requirements are minimal. However, some states and local
jurisdictions have very demanding requirements for permitting new mines.
Environmental impact reports are sometimes required before a mining permit
application can even be considered for approval. These reports can take up to
several years to complete. The report can include projected impacts of the
proposed project on air and water quality, wildlife, noise levels, traffic,
scenic vistas and other environmental factors. The reports generally include
suggested actions to mitigate the projected adverse impacts.
Provisions
for public hearings and public comments are usually included in land use permit
application review procedures in the counties where Knife River operates. After
taking into account environmental, mine plan and reclamation information
provided by the permittee as well as comments from the public and other
regulatory agencies, the local authority approves or denies the permit
application. Denial is rare, but land use permits often include conditions that
must be addressed by the permittee. Conditions may include property line
setbacks, reclamation requirements, environmental monitoring and reporting,
operating hour restrictions, financial guarantees for reclamation, and other
requirements intended to protect the environment or address concerns submitted
by the public or other regulatory agencies.
Knife
River has been successful in obtaining mining and other land use permit
approvals so that sufficient permitted reserves are available to support its
operations. For mining operations, this often requires considerable advanced
planning to ensure sufficient time is available to complete the permitting
process before the newly permitted aggregate reserve is needed to support Knife
River's operations.
Knife
River's Gascoyne surface coal mine last produced coal in 1995 but continues to
be subject to reclamation requirements of the SMCRA, as well as the North Dakota
Surface Mining Act. Portions of the Gascoyne Mine remain under reclamation bond
until the 10-year revegetation liability period has expired. A portion of the
original permit has been released from bond and additional areas are currently
in the process of having the bond released. Knife River's intention is to
request bond release as soon as it is deemed possible with all final bond
release applications being filed by 2013.
Knife
River did not incur any material environmental expenditures in 2009 and, except
as to what may be ultimately determined with regard to the issue described
below, Knife River does not expect to incur any material expenditures related to
environmental compliance with current laws and regulations through
2012.
In
December 2000, MBI was named by the EPA as a PRP in connection with the
cleanup of a commercial property site, acquired by MBI in 1999, and part of the
Portland, Oregon, Harbor Superfund Site. For additional information, see
Item 8 – Note 19.
Item
1A. Risk Factors
The
Company's business and financial results are subject to a number of risks and
uncertainties, including those set forth below and in other documents that it
files with the SEC. The factors and the other matters discussed herein are
important factors that could cause actual results or outcomes for the Company to
differ materially from those discussed in the forward-looking statements
included elsewhere in this document.
Economic
Risks
The
Company's natural gas and oil production and pipeline and energy services
businesses are dependent on factors, including commodity prices and commodity
price basis differentials, which are subject to various external influences that
cannot be controlled.
These
factors include: fluctuations in natural gas and oil prices; fluctuations in
commodity price basis differentials; availability of economic supplies of
natural gas; drilling successes in natural gas and oil operations; the timely
receipt of necessary permits and approvals; the ability to contract for or to
secure necessary drilling rig and service contracts and to retain employees to
drill for and develop reserves; the ability to acquire natural gas and oil
properties; and other risks incidental to the operations of natural gas and oil
wells. Volatility in natural gas and oil prices could negatively affect the
results of operations and cash flows of the Company's natural gas and oil
production and pipeline and energy services businesses.
The
regulatory approval, permitting, construction, startup and operation of power
generation facilities may involve unanticipated changes or delays that could
negatively impact the Company's business and its results of operations and cash
flows.
The
construction, startup and operation of power generation facilities involve many
risks, including: delays; breakdown or failure of equipment; competition;
inability to obtain required governmental permits and approvals; inability to
negotiate acceptable acquisition, construction, fuel supply, off-take,
transmission or other material agreements; changes in market price for power;
cost increases; as well as the risk of performance below expected levels of
output or efficiency. Such unanticipated events could negatively impact the
Company's business, its results of operations and cash flows.
Economic
volatility affects the Company's operations, as well as the demand for its
products and services and the value of its investments and investment returns
and, as a result, may have a negative impact on the Company's future revenues
and cash flows.
The
global demand for natural resources, interest rates, governmental budget
constraints and the ongoing threat of terrorism can create volatility in the
financial markets. The current economic slowdown has negatively affected the
level of public and private expenditures on projects and the timing of these
projects which, in turn, has negatively affected the demand for certain of the
Company's products and services. Continued economic volatility could adversely
impact the Company's results of operations and cash flows. Changing market
conditions could negatively affect the market value of assets held in the
Company’s pension and other postretirement benefit plans and may increase the
amount and accelerate the timing of required funding
contributions.
The
Company relies on financing sources and capital markets. Access to these markets
may be adversely affected by factors beyond the Company's control. If the
Company is unable to obtain economic financing in the future, the Company's
ability to execute its business plans, make capital expenditures or pursue
acquisitions that the Company may otherwise rely on for future growth could be
impaired. As a result, the market value of the Company's common stock may be
adversely affected. If the Company issues a substantial amount of common stock
it could have a dilutive effect on its existing shareholders.
The
Company relies on access to both short-term borrowings, including the issuance
of commercial paper, and long-term capital markets as sources of liquidity for
capital requirements not satisfied by its cash flow from operations. If the
Company is not able to access capital at competitive rates, the ability to
implement its business plans may be adversely affected. Market disruptions or a
further downgrade of the Company's credit ratings may increase the cost of
borrowing or adversely affect its ability to access one or more financial
markets. Such disruptions could include:
·
|
A
severe prolonged economic downturn
|
·
|
The
bankruptcy of unrelated industry leaders in the same line of
business
|
·
|
Further
deterioration in capital market
conditions
|
·
|
Turmoil
in the financial services industry
|
·
|
Volatility
in commodity prices
|
Economic
turmoil, market disruptions and volatility in the securities trading markets, as
well as other factors including changes in the Company's financial condition,
results of operations and prospects, may adversely affect the market price of
the Company's common stock.
The
Company currently has authorization to issue and sell up to $1.0 billion of
securities pursuant to a registration statement on file with the SEC. The
issuance of a substantial amount of the Company’s common stock, whether sold
pursuant to the registration statement, issued in connection with an acquisition
or otherwise issued, or the perception that such an issuance could occur, may
adversely affect the market price of the Company’s common stock.
The Company is
exposed to credit risk and the risk of loss resulting from the nonpayment and/or
nonperformance by the Company's customers and
counterparties
.
If any of
the Company's customers or counterparties were to experience financial
difficulties or file for bankruptcy, the Company could experience difficulty in
collecting receivables. The nonpayment and/or nonperformance by the Company's
customers and counterparties could have a negative impact on the Company's
results of operations and cash flows.
The
backlogs at the Company’s construction services and construction materials and
contracting businesses are subject to delay or cancellation and may not be
realized.
Backlog
consists of the uncompleted portion of services to be performed under
job-specific contracts. Contracts are subject to delay, default or cancellation
and the contracts in the Company’s backlog are subject to changes in the scope
of services to be provided as well as adjustments to the costs relating to the
applicable contracts. Backlog may also be affected by project delays or
cancellations resulting from weather conditions, external market factors
and
economic
factors beyond the Company’s control, including the current economic
slowdown. Accordingly, there is no assurance that backlog will be
realized.
Actual
quantities of recoverable natural gas and oil reserves and discounted future net
cash flows from those reserves may vary significantly from estimated
amounts.
The
process of estimating natural gas and oil reserves is complex. Reserve estimates
are based on assumptions relating to natural gas and oil pricing, drilling and
operating expenses, capital expenditures, taxes, timing of operations, and the
percentage of interest owned by the Company in the well. The reserve estimates
are prepared for each of the Company’s properties by internal engineers assigned
to an asset team by geographic area. The internal engineers analyze available
geological, geophysical, engineering and economic data for each geographic area.
The internal engineers make various assumptions regarding this data. The extent,
quality and reliability of this data can vary. Although the Company has prepared
its reserve estimates in accordance with guidelines established by the industry
and the SEC, significant changes to the reserve estimates may occur based on
actual results of production, drilling, costs and pricing.
The
Company bases the estimated discounted future net cash flows from proved
reserves on prices and current costs in accordance with SEC requirements. Actual
future prices and costs may be significantly different. Sustained downward
movements in natural gas and oil prices could result in future noncash
write-downs of the Company's natural gas and oil properties.
Environmental
and Regulatory Risks
Some
of the Company's operations are subject to extensive environmental laws and
regulations that may increase costs of operations, impact or limit business
plans, or expose the Company to environmental liabilities.
The
Company is subject to extensive environmental laws and regulations affecting
many aspects of its present and future operations including air quality, water
quality, waste management and other environmental considerations. These laws and
regulations can result in increased capital, operating and other costs, and
delays as a result of ongoing litigation and administrative proceedings and
compliance, remediation, containment and monitoring obligations, particularly
with regard to laws relating to power plant emissions and CBNG development.
These laws and regulations generally require the Company to obtain and comply
with a wide variety of environmental licenses, permits, inspections and other
approvals. Public officials and entities, as well as private individuals and
organizations, may seek injunctive relief or other remedies to enforce
applicable environmental laws and regulations. The Company cannot predict the
outcome (financial or operational) of any related litigation or administrative
proceedings that may arise.
Existing
environmental laws and regulations may be revised and new laws and regulations
seeking to protect the environment may be adopted or become applicable to the
Company. These laws and regulations could require the Company to limit the use
or output of certain facilities, restrict the use of certain fuels, require the
installation of pollution control equipment or the initiation of pollution
control technologies, remediate environmental contamination, remove or reduce
environmental hazards, or prevent or limit the development of resources. Revised
or additional laws and regulations, which result in increased compliance costs
or additional operating restrictions, particularly if those costs are not fully
recoverable from customers, could have a material adverse effect on the
Company's results of operations and cash flows.
The
Company's electric generation operations could be adversely impacted by global
climate change initiatives to reduce GHG emissions.
Concern
that GHG emissions are contributing to global climate change has led to
international, federal and state legislative and regulatory proposals to reduce
or mitigate the effects of GHG emissions including the EPA’s proposed
endangerment finding for GHGs which could lead to regulation of GHG under the
Clean Air Act. The primary GHG emitted from the Company's operations is carbon
dioxide from combustion of fossil fuels at Montana-Dakota's electric generating
facilities, particularly its coal-fired electric generating facilities which
comprise more than 70 percent of Montana-Dakota’s generating capacity. More
than 90 percent of the electricity generated by Montana-Dakota is from
coal-fired plants and Montana-Dakota has acquired a 25 MW ownership
interest in the Wygen III coal-fired generation facility which is under
construction near Gillette, Wyoming. Montana-Dakota also owns approximately
100 MW of natural gas- and oil-fired peaking plants. While there are many
uncertainties regarding the future of GHG regulation, Montana-Dakota’s electric
generating facilities may be subject to regulation under climate change laws or
regulations within the next few years. Implementation of treaties, legislation
or regulations to reduce GHG emissions could affect Montana-Dakota's electric
utility operations by requiring the expansion of energy conservation efforts
and/or the increased development of renewable energy sources, as well as
instituting other mandates that could significantly increase the capital
expenditures and operating costs at its fossil fuel-fired generating facilities.
The most prominent federal legislative proposals are based on “cap and trade”
programs which place a limit on GHG emissions from major emission sources such
as the electric generating industry. The impact of a cap and trade program on
Montana-Dakota would be determined by considerations such as the overall GHG
emissions cap level, the scope and timeframe by which the cap level is
decreased, the extent to which GHG offsets are allowed, whether allowances are
given to new and existing emission sources, and the indirect impact on natural
gas, coal and other fuel prices. Montana-Dakota’s ability to recover costs
incurred to comply with new regulations and programs will also be important in
determining the financial impact on the Company.
Due to
the uncertainty of technologies available to control GHG emissions and the
unknown nature of compliance obligations with potential GHG emission legislation
or regulations, the Company cannot determine the financial impact on its
operations. If Montana-Dakota does not receive timely and full recovery of the
costs of complying with GHG emission legislation and regulations from its
customers, then such requirements could have an adverse impact on the results of
its operations.
One
of the Company's subsidiaries is subject to ongoing litigation and
administrative proceedings in connection with its CBNG development activities.
These proceedings have caused delays in CBNG drilling activity, and the ultimate
outcome of the actions could have a material negative effect on existing CBNG
operations and/or the future development of its CBNG properties.
Fidelity’s
operations are and have been the subject of numerous lawsuits filed in
connection with its CBNG development in the Montana and Wyoming Powder River
Basin. If the plaintiffs are successful in the current lawsuits, the ultimate
outcome of the actions could have a material negative effect on Fidelity's
existing CBNG operations and/or the future development of its CBNG
properties.
The BER
in March 2006 issued a decision in a rulemaking proceeding, initiated by the
NPRC, that amends the non-degradation policy applicable to water discharged in
connection with CBNG operations. The amended policy includes additional
limitations on factors deemed harmful, thereby restricting water discharges even
further than under previous standards. Due in part to this amended policy, in
May 2006, the Northern Cheyenne Tribe commenced litigation in Montana state
court challenging two five-year water discharge permits that the Montana DEQ
granted to Fidelity in February 2006 and which are critical to Fidelity's
ability to manage water produced under present and future CBNG operations.
Although the Montana state court decided the case in favor of Fidelity and the
Montana DEQ in January 2009, the case was appealed to the Montana Supreme Court
in March 2009. In a separate proceeding in Montana state court, plaintiffs are
challenging the ROD adopted by the MBOGC in 2003 and alleging that various water
management tools, including Fidelity’s water discharge permits, allow for the
“wasting” of water in violation of the Montana State Constitution. If these
permits are set aside, Fidelity's CBNG operations in Montana could be
significantly and adversely affected.
The
Company is subject to extensive government regulations that may delay and/or
have a negative impact on its business and its results of operations and cash
flows. Statutory and regulatory requirements also may limit another party’s
ability to acquire the Company.
The
Company is subject to regulation by federal, state and local regulatory agencies
with respect to, among other things, allowed rates of return, financing,
industry rate structures, and recovery of purchased power and purchased gas
costs. These governmental regulations significantly influence the Company’s
operating environment and may affect its ability to recover costs from its
customers. The Company is unable to predict the impact on operating results from
the future regulatory activities of any of these agencies. Changes in
regulations or the imposition of additional regulations could have an adverse
impact on the Company’s results of operations and cash flows. Approval from a
number of federal and state regulatory agencies would need to be obtained by any
potential acquirer of the Company. The approval process could be lengthy and the
outcome uncertain.
Risks
Relating to Foreign Operations
The
value of the Company's investments in foreign operations may diminish due to
political, regulatory and economic conditions and changes in currency exchange
rates in countries where the Company does business.
The
Company is subject to political, regulatory and economic conditions and changes
in currency exchange rates in foreign countries where the Company does business.
Significant changes in the political, regulatory or economic environment in
these countries could negatively affect the value of the Company's investments
located in these countries. Also, since the Company is unable to predict the
fluctuations in the foreign currency exchange rates, these fluctuations may have
an adverse impact on the Company's results of operations and cash
flows.
Other
Risks
Weather
conditions can adversely affect the Company's operations and revenues and cash
flows.
The
Company's results of operations can be affected by changes in the weather.
Weather conditions directly influence the demand for electricity and natural
gas, affect the price of energy commodities, affect the ability to perform
services at the construction services and construction materials and contracting
businesses and affect ongoing operation and maintenance and construction and
drilling activities for the pipeline and energy services and natural gas and oil
production businesses. In addition, severe weather can be destructive, causing
outages, reduced natural gas and oil production, and/or property damage, which
could require additional costs to be incurred. Physical changes to the planet
could further change the intensity and frequency of severe weather conditions.
As a result, adverse weather conditions could negatively affect the Company's
results of operations, financial condition and cash flows.
Competition
is increasing in all of the Company's businesses.
All of
the Company's businesses are subject to increased competition. Construction
services' competition is based primarily on price and reputation for quality,
safety and reliability. The construction materials products are marketed under
highly competitive conditions and are subject to such competitive forces as
price, service, delivery time and proximity to the customer. The electric
utility and natural gas industries also are experiencing increased competitive
pressures as a result of consumer demands, technological advances, volatility in
natural gas prices and other factors. Pipeline and energy services competes with
several pipelines for access to natural gas supplies and gathering,
transportation and storage business. The natural gas and oil production business
is subject to competition in the acquisition and development of natural gas and
oil properties. The increase in competition could negatively affect the
Company's results of operations, financial condition and cash
flows.
The
Company could be subject to limitations on its ability to pay
dividends.
The
Company depends on earnings from its divisions and dividends from its
subsidiaries to pay dividends on its common stock. Regulatory, contractual and
legal limitations, as well as capital requirements and the Company’s financial
performance or cash flows, could limit the earnings of the Company’s divisions
and subsidiaries which, in turn, could restrict the Company’s ability to pay
dividends on its common stock and adversely affect the Company’s stock
price.
An
increase in costs related to obligations under multi-employer pension plans
could have a material negative effect on the Company’s results of operations and
cash flows.
The
Company participates in various multi-employer pension plans for employees
represented by certain unions. The Company is required to make contributions to
these plans in amounts established under collective bargaining agreements.
Pension expense for these plans is recognized as contributions are made. The
amount of any increase or decrease in the Company’s required contributions to
these multi-employer pension plans will depend upon many factors including the
outcome of collective bargaining, actions taken by trustees who manage the
plans, government regulations, the actual return on assets held in the plans and
the potential payment of a withdrawal liability upon withdrawal from a plan,
among other factors. Based on available information, the Company believes that
many of the multi-employer plans to which it contributes are underfunded. The
underfunded liabilities of these plans may result in increased future payments
by the
Company
and other participating employers. The Company’s risk of such increased payments
may be greater if any of the participating employers in these underfunded plans
withdraws from the plan due to insolvency and is not able to contribute an
amount sufficient to fund the unfunded liabilities associated with its
participants in the plan. The Company may experience increased operating
expenses as a result of required contributions to multi-employer pension plans,
which may have a material adverse effect on the Company’s results of operations
and cash flows.
Other
factors that could impact the Company's businesses.
The
following are other factors that should be considered for a better understanding
of the financial condition of the Company. These other factors may impact the
Company's financial results in future periods.
·
|
Acquisition,
disposal and impairments of assets or
facilities
|
·
|
Changes
in operation, performance and construction of plant facilities or other
assets
|
·
|
Changes
in present or prospective
generation
|
·
|
The
ability to obtain adequate and timely cost recovery for the Company’s
regulated operations through regulatory
proceedings
|
·
|
The
availability of economic expansion or development
opportunities
|
·
|
Population
growth rates and demographic
patterns
|
·
|
Market
demand for, and/or available supplies of, energy- and construction-related
products and services
|
·
|
The
cyclical nature of large construction projects at certain
operations
|
·
|
Changes
in tax rates or policies
|
·
|
Unanticipated
project delays or changes in project costs, including related energy
costs
|
·
|
Unanticipated
changes in operating expenses or capital
expenditures
|
·
|
Labor
negotiations or disputes
|
·
|
Inability
of the various contract counterparties to meet their contractual
obligations
|
·
|
Changes
in accounting principles and/or the application of such principles to the
Company
|
·
|
Changes
in legal or regulatory proceedings
|
·
|
The
ability to effectively integrate the operations and the internal controls
of acquired companies
|
·
|
The
ability to attract and retain skilled labor and key
personnel
|
·
|
Increases
in employee and retiree benefit costs and funding
requirements
|
Item
1B. Unresolved Comments
The
Company has no unresolved comments with the SEC.
Item
3. Legal Proceedings
For
information regarding legal proceedings of the Company, see Item 8 –
Note 19.
Item
4. Submission of Matters to a Vote of Security Holders
No
matters were submitted to a vote of security holders during the fourth quarter
of 2009.
Part II
Item
5.
|
Market
for the Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
The
Company's common stock is listed on the New York Stock Exchange under the symbol
"MDU." The price range of the Company's common stock as reported by The Wall
Street Journal composite tape during 2009 and 2008 and dividends declared
thereon were as follows:
|
|
|
|
|
|
|
|
Common
|
|
|
|
Common
|
|
|
Common
|
|
|
Stock
|
|
|
|
Stock
Price
|
|
|
Stock
Price
|
|
|
Dividends
|
|
|
|
(High)
|
|
|
(Low)
|
|
|
Per
Share
|
|
2009
|
|
|
|
|
|
|
|
|
|
First
quarter
|
|
$
|
22.89
|
|
|
$
|
12.79
|
|
|
$
|
.1550
|
|
Second
quarter
|
|
|
19.76
|
|
|
|
15.70
|
|
|
|
.1550
|
|
Third
quarter
|
|
|
21.16
|
|
|
|
17.44
|
|
|
|
.1550
|
|
Fourth
quarter
|
|
|
24.22
|
|
|
|
19.96
|
|
|
|
.1575
|
|
|
|
|
|
|
|
|
|
|
|
$
|
.6225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
First
quarter
|
|
$
|
27.83
|
|
|
$
|
23.08
|
|
|
$
|
.1450
|
|
Second
quarter
|
|
|
35.25
|
|
|
|
24.70
|
|
|
|
.1450
|
|
Third
quarter
|
|
|
35.34
|
|
|
|
26.03
|
|
|
|
.1550
|
|
Fourth
quarter
|
|
|
29.50
|
|
|
|
15.50
|
|
|
|
.1550
|
|
|
|
|
|
|
|
|
|
|
|
$
|
.6000
|
|
As of
December 31, 2009, the Company's common stock was held by approximately
15,500 stockholders of record.
Item
6. Selected Financial Data
|
|
|
|
2009
|
*
|
|
|
2008
|
**
|
|
|
2007
|
|
|
|
2006
|
|
|
|
2005
|
|
|
|
2004
|
|
Selected
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues (000's):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
|
|
$
|
196,171
|
|
|
$
|
208,326
|
|
|
$
|
193,367
|
|
|
$
|
187,301
|
|
|
$
|
181,238
|
|
|
$
|
178,803
|
|
Natural
gas distribution
|
|
|
1,072,776
|
|
|
|
1,036,109
|
|
|
|
532,997
|
|
|
|
351,988
|
|
|
|
384,199
|
|
|
|
316,120
|
|
Construction
services
|
|
|
819,064
|
|
|
|
1,257,319
|
|
|
|
1,103,215
|
|
|
|
987,582
|
|
|
|
687,125
|
|
|
|
426,821
|
|
Pipeline
and energy services
|
|
|
307,827
|
|
|
|
532,153
|
|
|
|
447,063
|
|
|
|
443,720
|
|
|
|
477,311
|
|
|
|
354,164
|
|
Natural
gas and oil production
|
|
|
439,655
|
|
|
|
712,279
|
|
|
|
514,854
|
|
|
|
483,952
|
|
|
|
439,367
|
|
|
|
342,840
|
|
Construction
materials and contracting
|
|
|
1,515,122
|
|
|
|
1,640,683
|
|
|
|
1,761,473
|
|
|
|
1,877,021
|
|
|
|
1,604,610
|
|
|
|
1,322,161
|
|
Other
|
|
|
9,487
|
|
|
|
10,501
|
|
|
|
10,061
|
|
|
|
8,117
|
|
|
|
6,038
|
|
|
|
4,423
|
|
Intersegment
eliminations
|
|
|
(183,601
|
)
|
|
|
(394,092
|
)
|
|
|
(315,134
|
)
|
|
|
(335,142
|
)
|
|
|
(375,965
|
)
|
|
|
(272,199
|
)
|
|
|
$
|
4,176,501
|
|
|
$
|
5,003,278
|
|
|
$
|
4,247,896
|
|
|
$
|
4,004,539
|
|
|
$
|
3,403,923
|
|
|
$
|
2,673,133
|
|
Operating
income (loss) (000's):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
|
|
$
|
36,709
|
|
|
$
|
35,415
|
|
|
$
|
31,652
|
|
|
$
|
27,716
|
|
|
$
|
29,038
|
|
|
$
|
26,776
|
|
Natural
gas distribution
|
|
|
76,899
|
|
|
|
76,887
|
|
|
|
32,903
|
|
|
|
8,744
|
|
|
|
7,404
|
|
|
|
1,820
|
|
Construction
services
|
|
|
44,255
|
|
|
|
81,485
|
|
|
|
75,511
|
|
|
|
50,651
|
|
|
|
28,171
|
|
|
|
(5,757
|
)
|
Pipeline
and energy services
|
|
|
69,388
|
|
|
|
49,560
|
|
|
|
58,026
|
|
|
|
57,133
|
|
|
|
43,507
|
|
|
|
29,570
|
|
Natural
gas and oil production
|
|
|
(473,399
|
)
|
|
|
202,954
|
|
|
|
227,728
|
|
|
|
231,802
|
|
|
|
230,383
|
|
|
|
178,897
|
|
Construction
materials and contracting
|
|
|
93,270
|
|
|
|
62,849
|
|
|
|
138,635
|
|
|
|
156,104
|
|
|
|
105,318
|
|
|
|
86,030
|
|
Other
|
|
|
(219
|
)
|
|
|
2,887
|
|
|
|
(7,335
|
)
|
|
|
(9,075
|
)
|
|
|
(5,298
|
)
|
|
|
(3,954
|
)
|
|
|
$
|
(153,097
|
)
|
|
$
|
512,037
|
|
|
$
|
557,120
|
|
|
$
|
523,075
|
|
|
$
|
438,523
|
|
|
$
|
313,382
|
|
Earnings
(loss) on common stock (000's):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
|
|
$
|
24,099
|
|
|
$
|
18,755
|
|
|
$
|
17,700
|
|
|
$
|
14,401
|
|
|
$
|
13,940
|
|
|
$
|
12,790
|
|
Natural
gas distribution
|
|
|
30,796
|
|
|
|
34,774
|
|
|
|
14,044
|
|
|
|
5,680
|
|
|
|
3,515
|
|
|
|
2,182
|
|
Construction
services
|
|
|
25,589
|
|
|
|
49,782
|
|
|
|
43,843
|
|
|
|
27,851
|
|
|
|
14,558
|
|
|
|
(5,650
|
)
|
Pipeline
and energy services
|
|
|
37,845
|
|
|
|
26,367
|
|
|
|
31,408
|
|
|
|
32,126
|
|
|
|
22,867
|
|
|
|
13,806
|
|
Natural
gas and oil production
|
|
|
(296,730
|
)
|
|
|
122,326
|
|
|
|
142,485
|
|
|
|
145,657
|
|
|
|
141,625
|
|
|
|
110,779
|
|
Construction
materials and contracting
|
|
|
47,085
|
|
|
|
30,172
|
|
|
|
77,001
|
|
|
|
85,702
|
|
|
|
55,040
|
|
|
|
50,707
|
|
Other
|
|
|
7,357
|
|
|
|
10,812
|
|
|
|
(4,380
|
)
|
|
|
(4,324
|
)
|
|
|
13,061
|
|
|
|
15,967
|
|
Earnings
(loss) on common stock before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
from discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
|
|
(123,959
|
)
|
|
|
292,988
|
|
|
|
322,101
|
|
|
|
307,093
|
|
|
|
264,606
|
|
|
|
200,581
|
|
Income
from discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations,
net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
109,334
|
|
|
|
7,979
|
|
|
|
9,792
|
|
|
|
5,801
|
|
|
|
$
|
(123,959
|
)
|
|
$
|
292,988
|
|
|
$
|
431,435
|
|
|
$
|
315,072
|
|
|
$
|
274,398
|
|
|
$
|
206,382
|
|
Earnings
(loss) per common share before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued
operations - diluted
|
|
$
|
(.67
|
)
|
|
$
|
1.59
|
|
|
$
|
1.76
|
|
|
$
|
1.69
|
|
|
$
|
1.47
|
|
|
$
|
1.14
|
|
Discontinued
operations, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
.60
|
|
|
|
.05
|
|
|
|
.06
|
|
|
|
.03
|
|
|
|
$
|
(.67
|
)
|
|
$
|
1.59
|
|
|
$
|
2.36
|
|
|
$
|
1.74
|
|
|
$
|
1.53
|
|
|
$
|
1.17
|
|
Common
Stock Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
- diluted (000's)
|
|
|
185,175
|
|
|
|
183,807
|
|
|
|
182,902
|
|
|
|
181,392
|
|
|
|
179,490
|
|
|
|
176,117
|
|
Dividends
per common share
|
|
$
|
.6225
|
|
|
$
|
.6000
|
|
|
$
|
.5600
|
|
|
$
|
.5234
|
|
|
$
|
.4934
|
|
|
$
|
.4667
|
|
Book
value per common share
|
|
$
|
13.61
|
|
|
$
|
14.95
|
|
|
$
|
13.80
|
|
|
$
|
11.88
|
|
|
$
|
10.43
|
|
|
$
|
9.39
|
|
Market
price per common share (year end)
|
|
$
|
23.60
|
|
|
$
|
21.58
|
|
|
$
|
27.61
|
|
|
$
|
25.64
|
|
|
$
|
21.83
|
|
|
$
|
17.79
|
|
Market
price ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
payout
|
|
|
N/A
|
|
|
|
38
|
%
|
|
|
24
|
%
|
|
|
30
|
%
|
|
|
32
|
%
|
|
|
40
|
%
|
Yield
|
|
|
2.7
|
%
|
|
|
2.9
|
%
|
|
|
2.1
|
%
|
|
|
2.1
|
%
|
|
|
2.3
|
%
|
|
|
2.7
|
%
|
Price/earnings
ratio
|
|
|
N/A
|
|
|
|
13.6
|
x
|
|
|
11.7
|
x
|
|
|
14.7
|
x
|
|
|
14.3
|
x
|
|
|
15.2
|
x
|
Market
value as a percent of book value
|
|
|
173.4
|
%
|
|
|
144.3
|
%
|
|
|
200.1
|
%
|
|
|
215.8
|
%
|
|
|
209.2
|
%
|
|
|
189.4
|
%
|
Profitability
Indicators
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average common equity
|
|
|
(4.9
|
)%
|
|
|
11.0
|
%
|
|
|
18.5
|
%
|
|
|
15.6
|
%
|
|
|
15.7
|
%
|
|
|
13.2
|
%
|
Return
on average invested capital
|
|
|
(1.7
|
)%
|
|
|
8.0
|
%
|
|
|
13.1
|
%
|
|
|
10.6
|
%
|
|
|
10.8
|
%
|
|
|
9.4
|
%
|
Fixed
charges coverage, including
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
preferred
dividends
|
|
|
—
|
***
|
|
|
5.3
|
x
|
|
|
6.4
|
x
|
|
|
6.4
|
x
|
|
|
6.6
|
x
|
|
|
4.8
|
x
|
General
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets (000's)
|
|
$
|
5,990,952
|
|
|
$
|
6,587,845
|
|
|
$
|
5,592,434
|
|
|
$
|
4,903,474
|
|
|
$
|
4,423,562
|
|
|
$
|
3,733,521
|
|
Total
debt (000's)
|
|
$
|
1,509,606
|
|
|
$
|
1,752,402
|
|
|
$
|
1,310,163
|
|
|
$
|
1,254,582
|
|
|
$
|
1,206,510
|
|
|
$
|
945,487
|
|
Capitalization
ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
equity
|
|
|
63
|
%
|
|
|
61
|
%
|
|
|
66
|
%
|
|
|
63
|
%
|
|
|
61
|
%
|
|
|
63
|
%
|
Preferred
stocks
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
Total
debt
|
|
|
37
|
|
|
|
39
|
|
|
|
34
|
|
|
|
37
|
|
|
|
39
|
|
|
|
36
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
*
Reflects a $384.4 million
after-tax noncash write-down of natural gas and oil properties.
**
Reflects an $84.2 million after-tax
noncash write-down of natural gas and oil properties.
***
For more information on fixed charges coverage, including preferred dividends,
see Item 7 – MD&A.
Notes:
·
|
Common stock share amounts
reflect the Company's three-for-two common stock split effected in July
2006.
|
·
|
Cascade and Intermountain,
natural gas distribution businesses, were acquired on July 2, 2007,
and October 1, 2008, respectively. For further information, see
Item 8 –
Note 2.
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Electric
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
sales (thousand kWh)
|
|
|
2,663,560
|
|
|
|
2,663,452
|
|
|
|
2,601,649
|
|
|
|
2,483,248
|
|
|
|
2,413,704
|
|
|
|
2,303,460
|
|
Sales
for resale (thousand kWh)
|
|
|
90,789
|
|
|
|
223,778
|
|
|
|
165,639
|
|
|
|
483,944
|
|
|
|
615,220
|
|
|
|
821,516
|
|
Electric
system summer generating and firm purchase capability - kW (Interconnected
system)
|
|
|
594,700
|
|
|
|
597,250
|
|
|
|
571,160
|
|
|
|
547,485
|
|
|
|
546,085
|
|
|
|
544,220
|
|
Demand
peak – kW
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Interconnected
system)
|
|
|
525,643
|
|
|
|
525,643
|
|
|
|
525,643
|
|
|
|
485,456
|
|
|
|
470,470
|
|
|
|
470,470
|
|
Electricity
produced (thousand kWh)
|
|
|
2,203,665
|
|
|
|
2,538,439
|
|
|
|
2,253,851
|
|
|
|
2,218,059
|
|
|
|
2,327,228
|
|
|
|
2,552,873
|
|
Electricity
purchased (thousand kWh)
|
|
|
682,152
|
|
|
|
516,654
|
|
|
|
576,613
|
|
|
|
833,647
|
|
|
|
892,113
|
|
|
|
794,829
|
|
Average
cost of fuel and purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
power
per kWh
|
|
$
|
.023
|
|
|
$
|
.025
|
|
|
$
|
.025
|
|
|
$
|
.022
|
|
|
$
|
.020
|
|
|
$
|
.019
|
|
Natural
Gas Distribution*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
(Mdk)
|
|
|
102,670
|
|
|
|
87,924
|
|
|
|
52,977
|
|
|
|
34,553
|
|
|
|
36,231
|
|
|
|
36,607
|
|
Transportation
(Mdk)
|
|
|
132,689
|
|
|
|
103,504
|
|
|
|
54,698
|
|
|
|
14,058
|
|
|
|
14,565
|
|
|
|
13,856
|
|
Degree
days (% of normal)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Montana-Dakota
|
|
|
104
|
%
|
|
|
103
|
%
|
|
|
93
|
%
|
|
|
87
|
%
|
|
|
91
|
%
|
|
|
91
|
%
|
Cascade
|
|
|
105
|
%
|
|
|
108
|
%
|
|
|
102
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Intermountain
|
|
|
107
|
%
|
|
|
90
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Pipeline
and Energy Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation
(Mdk)
|
|
|
163,283
|
|
|
|
138,003
|
|
|
|
140,762
|
|
|
|
130,889
|
|
|
|
104,909
|
|
|
|
114,206
|
|
Gathering
(Mdk)
|
|
|
92,598
|
|
|
|
102,064
|
|
|
|
92,414
|
|
|
|
87,135
|
|
|
|
82,111
|
|
|
|
80,527
|
|
Natural
Gas and Oil Production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
gas (MMcf)
|
|
|
56,632
|
|
|
|
65,457
|
|
|
|
62,798
|
|
|
|
62,062
|
|
|
|
59,378
|
|
|
|
59,750
|
|
Oil
(MBbls)
|
|
|
3,111
|
|
|
|
2,808
|
|
|
|
2,365
|
|
|
|
2,041
|
|
|
|
1,707
|
|
|
|
1,747
|
|
Total
production (MMcfe)
|
|
|
75,299
|
|
|
|
82,303
|
|
|
|
76,988
|
|
|
|
74,307
|
|
|
|
69,622
|
|
|
|
70,234
|
|
Average
realized prices (including hedges):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
gas (per Mcf)
|
|
$
|
5.16
|
|
|
$
|
7.38
|
|
|
$
|
5.96
|
|
|
$
|
6.03
|
|
|
$
|
6.11
|
|
|
$
|
4.69
|
|
Oil
(per barrel)
|
|
$
|
47.38
|
|
|
$
|
81.68
|
|
|
$
|
59.26
|
|
|
$
|
50.64
|
|
|
$
|
42.59
|
|
|
$
|
34.16
|
|
Average
realized prices (excluding hedges):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
gas (per Mcf)
|
|
$
|
2.99
|
|
|
$
|
7.29
|
|
|
$
|
5.37
|
|
|
$
|
5.62
|
|
|
$
|
6.87
|
|
|
$
|
4.90
|
|
Oil
(per barrel)
|
|
$
|
49.76
|
|
|
$
|
82.28
|
|
|
$
|
59.53
|
|
|
$
|
51.73
|
|
|
$
|
48.73
|
|
|
$
|
37.75
|
|
Proved
reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
gas (MMcf)
|
|
|
448,425
|
|
|
|
604,282
|
|
|
|
523,737
|
|
|
|
538,100
|
|
|
|
489,100
|
|
|
|
453,200
|
|
Oil
(MBbls)
|
|
|
34,216
|
|
|
|
34,348
|
|
|
|
30,612
|
|
|
|
27,100
|
|
|
|
21,200
|
|
|
|
17,100
|
|
Total
reserves (MMcfe)
|
|
|
653,724
|
|
|
|
810,371
|
|
|
|
707,409
|
|
|
|
700,700
|
|
|
|
616,400
|
|
|
|
555,900
|
|
Construction
Materials and Contracting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
(000's):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregates
(tons)
|
|
|
23,995
|
|
|
|
31,107
|
|
|
|
36,912
|
|
|
|
45,600
|
|
|
|
47,204
|
|
|
|
43,444
|
|
Asphalt
(tons)
|
|
|
6,360
|
|
|
|
5,846
|
|
|
|
7,062
|
|
|
|
8,273
|
|
|
|
9,142
|
|
|
|
8,643
|
|
Ready-mixed
concrete (cubic yards)
|
|
|
3,042
|
|
|
|
3,729
|
|
|
|
4,085
|
|
|
|
4,588
|
|
|
|
4,448
|
|
|
|
4,292
|
|
Aggregate
reserves (000’s tons)
|
|
|
1,125,491
|
|
|
|
1,145,161
|
|
|
|
1,215,253
|
|
|
|
1,248,099
|
|
|
|
1,273,696
|
|
|
|
1,257,498
|
|
*
Cascade and Intermountain were acquired on July 2, 2007, and
October 1, 2008, respectively. For further information, see
Item 8 – Note 2.
|
|
Item
7.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
Overview
The
Company’s strategy is to apply its expertise in energy and transportation
infrastructure industries to increase market share, increase profitability and
enhance shareholder value through:
·
|
Organic
growth as well as a continued disciplined approach to the acquisition of
well-managed companies and
properties
|
·
|
The
elimination of system-wide cost redundancies through increased focus on
integration of operations and standardization and consolidation of various
support services and functions across companies within the
organization
|
·
|
The
development of projects that are accretive to earnings per share and
return on invested capital
|
The
Company has capabilities to fund its growth and operations through various
sources, including internally generated funds, commercial paper facilities and
the issuance from time to time of debt and equity securities. Due to recent
economic volatility, the Company in 2009 increased its focus on the use of
operating cash flows to substantially fund capital expenditures. In the event
that access to the commercial paper markets were to become unavailable, the
Company may need to borrow under its credit agreements. For more information on
the Company’s net capital expenditures, see Liquidity and Capital
Commitments.
The key
strategies for each of the Company’s business segments and certain related
business challenges are summarized below. For a summary of the Company's
business segments, see Item 8 – Note 15.
Key
Strategies and Challenges
Electric
and Natural Gas Distribution
Strategy
Provide
competitively priced energy to customers while working with them to ensure
efficient usage. Both the electric and natural gas distribution segments
continually seek opportunities for growth and expansion of their customer base
through extensions of existing operations, including electric generation and
transmission build-out, and through selected acquisitions of companies and
properties at prices that will provide stable cash flows and an opportunity for
the Company to earn a competitive return on investment.
Challenges
Both segments
are subject to extensive regulation in the state jurisdictions where they
conduct operations with respect to costs and permitted returns on investment as
well as subject to certain operational regulations at the federal level. The
ability of these segments to grow through acquisitions is subject to significant
competition from other energy providers. In addition, the ability of both
segments to grow service territory and customer base is affected by the economic
environment of the markets served and competition from other energy providers
and fuels. The construction of electric generating facilities and transmission
lines may be subject to increasing cost and lead time, extensive permitting
procedures, and federal and state legislative and regulatory initiatives, which
may necessitate increases in electric energy prices. Legislative and regulatory
initiatives to increase renewable energy resources and reduce GHG emissions
could increase the price and decrease the retail demand for electricity and
natural gas.
Construction
Services
Strategy
Provide a
competitive return on investment while operating in a competitive industry by:
building new and strengthening existing customer relationships; effectively
controlling costs; retaining, developing and recruiting talented employees;
focusing business development efforts on project areas that will permit higher
margins; and properly managing risk. This segment continuously seeks
opportunities to expand through strategic acquisitions.
Challenges
This segment
operates in highly competitive markets with many jobs subject to competitive
bidding. Maintenance of effective operational and cost controls, retention of
key personnel, managing through downturns in the economy and effective
management of working capital are ongoing challenges.
Pipeline
and Energy Services
Strategy
Utilize the
segment’s existing expertise in energy infrastructure and related services to
increase market share and profitability through optimization of existing
operations, internal growth, and acquisitions of energy-related assets and
companies. Incremental and new growth opportunities include: access to new
sources of natural gas for storage, gathering and transportation services;
expansion of existing gathering, transmission and storage facilities; expansion
of related energy services; and incremental expansion of pipeline capacity to
allow customers access to more liquid and higher-priced markets.
Challenges
Challenges for this
segment include: energy price volatility; natural gas basis differentials;
regulatory requirements; recruitment and retention of a skilled workforce; and
competition from other natural gas pipeline and gathering
companies.
Natural
Gas and Oil Production
Strategy
Apply technology
and utilize existing exploration and production expertise, with a focus on
operated properties, to increase production and reserves from existing
leaseholds, and to seek additional reserves and production opportunities in new
areas to further expand the segment’s asset base. By optimizing existing
operations and taking advantage of new and incremental growth opportunities,
this segment’s goal is to increase both production and reserves over the long
term so as to generate competitive returns on investment.
Challenges
Volatility in
natural gas and oil prices; ongoing environmental litigation and administrative
proceedings; timely receipt of necessary permits and approvals; recruitment and
retention of a skilled workforce; availability of drilling rigs, materials,
auxiliary equipment and industry-related field services, and inflationary
pressure on development and operating costs, all primarily in a higher price
environment; and competition from other natural gas and oil companies are
ongoing challenges for this segment.
Construction
Materials and Contracting
Strategy
Focus on
high-growth strategic markets located near major transportation corridors and
desirable mid-sized metropolitan areas; strengthen long-term, strategic
aggregate reserve position through purchase and/or lease opportunities; enhance
profitability through cost containment, margin discipline and vertical
integration of the segment’s operations; and continue growth through organic and
acquisition opportunities. Ongoing efforts to increase margin are being pursued
through the implementation of a variety of continuous improvement programs,
including corporate purchasing of equipment, parts and commodities (liquid
asphalt, diesel fuel, cement and other materials), and negotiation of contract
price escalation provisions. Vertical integration allows the segment to manage
operations from aggregate mining to final lay-down of concrete
and
asphalt,
with control of and access to adequate quantities of permitted aggregate
reserves being significant. A key element of the Company’s long-term strategy
for this business is to further expand its presence, through acquisition, in the
higher-margin materials business (rock, sand, gravel, liquid asphalt,
ready-mixed concrete and related products), complementing and expanding on the
Company’s expertise.
Challenges
The economic
downturn has adversely impacted operations, particularly in the private market.
This business unit expects to continue cost containment efforts and a greater
emphasis on industrial, energy and public works projects. Significant volatility
in the cost of raw materials such as diesel, gasoline, liquid asphalt, cement
and steel continue to be a concern. Increased competition in certain
construction markets has also lowered margins.
For
further information on the risks and challenges the Company faces as it pursues
its growth strategies and other factors that should be considered for a better
understanding of the Company's financial condition, see Item 1A – Risk Factors.
For further information on each segment's key growth strategies, projections and
certain assumptions, see Prospective Information.
For
information pertinent to various commitments and contingencies, see Item 8 –
Notes to Consolidated Financial Statements.
Earnings
Overview
The
following table summarizes the contribution to consolidated earnings
(loss) by each of the Company's businesses.
Years
ended December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in millions, where applicable)
|
|
Electric
|
|
$
|
24.1
|
|
|
$
|
18.7
|
|
|
$
|
17.7
|
|
Natural
gas distribution
|
|
|
30.8
|
|
|
|
34.8
|
|
|
|
14.0
|
|
Construction
services
|
|
|
25.6
|
|
|
|
49.8
|
|
|
|
43.8
|
|
Pipeline
and energy services
|
|
|
37.8
|
|
|
|
26.4
|
|
|
|
31.4
|
|
Natural
gas and oil production
|
|
|
(296.7
|
)
|
|
|
122.3
|
|
|
|
142.5
|
|
Construction
materials and contracting
|
|
|
47.1
|
|
|
|
30.2
|
|
|
|
77.0
|
|
Other
|
|
|
7.3
|
|
|
|
10.8
|
|
|
|
(4.3
|
)
|
Earnings
(loss) before discontinued operations
|
|
|
(124.0
|
)
|
|
|
293.0
|
|
|
|
322.1
|
|
Income
from discontinued operations, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
109.3
|
|
Earnings
(loss) on common stock
|
|
$
|
(124.0
|
)
|
|
$
|
293.0
|
|
|
$
|
431.4
|
|
Earnings
(loss) per common share – basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) before discontinued operations
|
|
$
|
(.67
|
)
|
|
$
|
1.60
|
|
|
$
|
1.77
|
|
Discontinued
operations, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
.60
|
|
Earnings
(loss) per common share – basic
|
|
$
|
(.67
|
)
|
|
$
|
1.60
|
|
|
$
|
2.37
|
|
Earnings
(loss) per common share – diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) before discontinued operations
|
|
$
|
(.67
|
)
|
|
$
|
1.59
|
|
|
$
|
1.76
|
|
Discontinued
operations, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
.60
|
|
Earnings
(loss) per common share – diluted
|
|
$
|
(.67
|
)
|
|
$
|
1.59
|
|
|
$
|
2.36
|
|
Return
on average common equity
|
|
|
(4.9
|
)%
|
|
|
11.0
|
%
|
|
|
18.5
|
%
|
2009 compared to
2008
Consolidated loss for 2009 was $124.0 million compared to earnings
of $293.0 million in 2008. This decrease was due to:
·
|
A
noncash write-down of natural gas and oil properties of $384.4 million
(after tax) as well as lower average realized natural gas and oil prices
of 30 percent and 42 percent, respectively and decreased natural gas
production of 13 percent, partially offset by the absence of the 2008
noncash write-down of natural gas and oil properties of $84.2 million
(after tax), lower depreciation, depletion and amortization expense and
lower production taxes at the natural gas and oil production
business
|
·
|
Lower
construction workloads, partially offset by lower general and
administrative expense at the construction services
business
|
Partially
offsetting these decreases were:
·
|
Increased
earnings from liquid asphalt oil and asphalt operations, as well as lower
selling, general and administrative expense at the construction materials
and contracting business
|
·
|
Increased
volumes transported to storage, higher storage services revenue and lower
operation and maintenance expense at the pipeline and energy services
business
|
2008 compared to
2007
Consolidated earnings for 2008 decreased $138.4 million from
the prior year due to:
·
|
The
absence in 2008 of income from discontinued operations, net of tax,
largely related to the gain on the sale of the Company's domestic
independent power production assets and earnings related to an electric
generating facility construction
project
|
·
|
An
$84.2 million after-tax noncash write-down of natural gas and oil
properties as well as higher depreciation, depletion and amortization
expense, production taxes and lease operating costs at the natural gas and
oil production business
|
·
|
Decreased
earnings at the construction materials and contracting business, primarily
construction workloads and margins, as well as product volumes from
existing operations, that were significantly lower as a result of the
economic downturn
|
Partially
offsetting these decreases were higher average natural gas and oil prices as
well as increased oil and natural gas production at the natural gas and oil
production business; increased earnings at the natural gas distribution
business, largely due to the July 2007 acquisition of Cascade and the October
2008 acquisition of Intermountain; and higher construction workloads at the
construction services business.
Financial
and Operating Data
Below are
key financial and operating data for each of the Company's
businesses.
Electric
Years
ended December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in millions, where applicable)
|
|
Operating
revenues
|
|
$
|
196.2
|
|
|
$
|
208.3
|
|
|
$
|
193.4
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel
and purchased power
|
|
|
65.7
|
|
|
|
75.4
|
|
|
|
69.6
|
|
Operation
and maintenance
|
|
|
60.7
|
|
|
|
64.8
|
|
|
|
61.7
|
|
Depreciation,
depletion and amortization
|
|
|
24.7
|
|
|
|
24.0
|
|
|
|
22.5
|
|
Taxes,
other than income
|
|
|
8.4
|
|
|
|
8.7
|
|
|
|
7.9
|
|
|
|
|
159.5
|
|
|
|
172.9
|
|
|
|
161.7
|
|
Operating
income
|
|
|
36.7
|
|
|
|
35.4
|
|
|
|
31.7
|
|
Earnings
|
|
$
|
24.1
|
|
|
$
|
18.7
|
|
|
$
|
17.7
|
|
Retail
sales (million kWh)
|
|
|
2,663.5
|
|
|
|
2,663.4
|
|
|
|
2,601.7
|
|
Sales
for resale (million kWh)
|
|
|
90.8
|
|
|
|
223.8
|
|
|
|
165.6
|
|
Average
cost of fuel and purchased power per kWh
|
|
$
|
.023
|
|
|
$
|
.025
|
|
|
$
|
.025
|
|
2009 compared to
2008
Electric earnings
increased $5.4 million (28 percent) compared to the prior year due
to:
·
|
Higher
other income, primarily allowance for funds used during construction of
$5.0 million (after tax)
|
·
|
Lower
operation and maintenance expense of $2.3 million (after tax), largely
payroll and benefit-related costs
|
Partially
offsetting these increases were decreased sales for resale margins due to lower
average rates of 31 percent and decreased volumes of 59 percent due to lower
market demand and decreased plant generation.
2008 compared to
2007
Electric earnings
increased $1.0 million (6 percent) compared to the prior year due
to:
·
|
Higher
retail sales margins, largely due to the implementation of higher rates in
Montana, and increased retail sales volumes of
2 percent
|
·
|
Increased
sales for resale volumes of 35 percent, primarily due to the addition
of the wind-powered electric generating station near Baker, Montana, and
higher plant availability
|
Partially
offsetting these increases were:
·
|
Higher
operation and maintenance expense of $1.7 million (after tax),
primarily higher payroll and benefit-related costs, as well as higher
scheduled maintenance outage costs at electric generating
facilities
|
·
|
Increased
interest expense of $1.2 million (after
tax)
|
·
|
Higher
depreciation, depletion and amortization expense of $900,000 (after tax),
largely due to higher property, plant and equipment
balances
|
Natural
Gas Distribution
Years
ended December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in millions, where applicable)
|
|
Operating
revenues
|
|
$
|
1,072.8
|
|
|
$
|
1,036.1
|
|
|
$
|
533.0
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
natural gas sold
|
|
|
757.6
|
|
|
|
757.6
|
|
|
|
372.2
|
|
Operation
and maintenance
|
|
|
140.5
|
|
|
|
123.6
|
|
|
|
88.5
|
|
Depreciation,
depletion and amortization
|
|
|
42.7
|
|
|
|
32.6
|
|
|
|
19.0
|
|
Taxes,
other than income
|
|
|
55.1
|
|
|
|
45.4
|
|
|
|
20.4
|
|
|
|
|
995.9
|
|
|
|
959.2
|
|
|
|
500.1
|
|
Operating
income
|
|
|
76.9
|
|
|
|
76.9
|
|
|
|
32.9
|
|
Earnings
|
|
$
|
30.8
|
|
|
$
|
34.8
|
|
|
$
|
14.0
|
|
Volumes
(MMdk):
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
102.7
|
|
|
|
87.9
|
|
|
|
53.0
|
|
Transportation
|
|
|
132.7
|
|
|
|
103.5
|
|
|
|
54.7
|
|
Total
throughput
|
|
|
235.4
|
|
|
|
191.4
|
|
|
|
107.7
|
|
Degree
days (% of normal)*
|
|
|
|
|
|
|
|
|
|
|
|
|
Montana-Dakota
|
|
|
104.4
|
%
|
|
|
102.7
|
%
|
|
|
92.9
|
%
|
Cascade
|
|
|
105.1
|
%
|
|
|
108.0
|
%
|
|
|
101.7
|
%
|
Intermountain
|
|
|
107.3
|
%
|
|
|
90.3
|
%
|
|
|
—
|
|
Average
cost of natural gas,
|
|
|
|
|
|
|
|
|
|
|
|
|
including
transportation, per dk**
|
|
$
|
7.38
|
|
|
$
|
8.14
|
|
|
$
|
6.53
|
|
*
Degree days are a measure of the
daily temperature-related demand for energy for heating.
|
|
**
Regulated natural gas sales only.
|
|
Note:
Cascade and Intermountain were acquired on July 2, 2007, and October 1,
2008, respectively. For further information, see Item 8 – Note
2.
|
|
2009 compared to
2008
The natural gas distribution business experienced a decrease in
earnings of $4.0 million (11 percent) compared to the prior year due
to:
·
|
Absence
of a $4.4 million (after tax) gain on the sale of Cascade’s natural gas
management service in June 2008
|
|
Lower earnings from energy-related services of $2.0 million (after
tax)
|
Partially
offsetting these decreases was lower operation and maintenance expense at
existing operations of $2.2 million (after tax), including lower payroll and
benefit-related costs.
2008 compared to
2007
The natural gas distribution business experienced an increase in
earnings of $20.8 million (148 percent) compared to the prior year due
to:
·
|
Earnings
of $18.4 million at Cascade and Intermountain, including a $4.4 million
(after tax) gain on the sale of Cascade's natural gas management service,
which were acquired on July 2, 2007, and October 1, 2008,
respectively
|
·
|
Increased
retail sales volumes from existing operations resulting from colder
weather than last year
|
Construction
Services
Years
ended December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
millions)
|
|
Operating
revenues
|
|
$
|
819.0
|
|
|
$
|
1,257.3
|
|
|
$
|
1,103.2
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operation
and maintenance
|
|
|
736.3
|
|
|
|
1,122.7
|
|
|
|
979.7
|
|
Depreciation,
depletion and amortization
|
|
|
12.8
|
|
|
|
13.4
|
|
|
|
14.3
|
|
Taxes,
other than income
|
|
|
25.7
|
|
|
|
39.7
|
|
|
|
33.7
|
|
|
|
|
774.8
|
|
|
|
1,175.8
|
|
|
|
1,027.7
|
|
Operating
income
|
|
|
44.2
|
|
|
|
81.5
|
|
|
|
75.5
|
|
Earnings
|
|
$
|
25.6
|
|
|
$
|
49.8
|
|
|
$
|
43.8
|
|
2009 compared to
2008
Construction services earnings decreased $24.2 million
(49 percent) compared to the prior year, primarily due to lower
construction workloads, largely in the Southwest region, partially offset by
lower general and administrative expense of $6.7 million (after tax), largely
payroll-related.
2008 compared to
2007
Construction services earnings increased $6.0 million
(14 percent) compared to the prior year, primarily due to higher
construction workloads, largely in the Southwest region. Partially offsetting
this increase were lower construction margins in certain
regions.
Pipeline
and Energy Services
Years
ended December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in millions)
|
|
Operating
revenues
|
|
$
|
307.8
|
|
|
$
|
532.2
|
|
|
$
|
447.1
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
natural gas sold
|
|
|
138.8
|
|
|
|
373.9
|
|
|
|
291.7
|
|
Operation
and maintenance
|
|
|
63.1
|
|
|
|
73.8
|
|
|
|
65.6
|
|
Depreciation,
depletion and amortization
|
|
|
25.5
|
|
|
|
23.6
|
|
|
|
21.7
|
|
Taxes,
other than income
|
|
|
11.0
|
|
|
|
11.3
|
|
|
|
10.1
|
|
|
|
|
238.4
|
|
|
|
482.6
|
|
|
|
389.1
|
|
Operating
income
|
|
|
69.4
|
|
|
|
49.6
|
|
|
|
58.0
|
|
Income
from continuing operations
|
|
|
37.8
|
|
|
|
26.4
|
|
|
|
31.4
|
|
Income
from discontinued operations, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
.1
|
|
Earnings
|
|
$
|
37.8
|
|
|
$
|
26.4
|
|
|
$
|
31.5
|
|
Transportation
volumes (MMdk):
|
|
|
|
|
|
|
|
|
|
|
|
|
Montana-Dakota
|
|
|
38.9
|
|
|
|
32.0
|
|
|
|
29.3
|
|
Other
|
|
|
124.4
|
|
|
|
106.0
|
|
|
|
111.5
|
|
|
|
|
163.3
|
|
|
|
138.0
|
|
|
|
140.8
|
|
Gathering
volumes (MMdk)
|
|
|
92.6
|
|
|
|
102.1
|
|
|
|
92.4
|
|
2009 compared to
2008
Pipeline and energy services earnings increased $11.4 million
(44 percent) largely due to:
·
|
Increased
transportation volumes of $4.9 million (after tax), largely volumes
transported to storage
|
·
|
Lower
operation and maintenance expense of $4.5 million (after tax), largely
associated with the natural gas storage litigation, which was settled in
July 2009
|
·
|
Higher
storage services revenues of $3.1 million (after
tax)
|
·
|
Higher
gathering rates of $2.2 million (after
tax)
|
Partially
offsetting the earnings improvement were decreased gathering volumes of 9
percent. Results also reflect lower operating revenues and lower purchased
natural gas sold, both related to lower natural gas prices. The above table also
reflects lower operation and maintenance expense and revenues related to
energy-related service projects.
2008 compared to
2007
Pipeline and energy services earnings decreased $5.1 million
(16 percent) largely due to:
·
|
Lower
storage services revenue of $3.1 million (after tax), largely related
to lower storage balances and decreased volumes transported to storage of
31 percent
|
·
|
Higher
operation and maintenance expense, largely related to natural gas storage
litigation, as previously discussed, as well as higher materials and
payroll-related costs
|
·
|
Higher
depreciation, depletion and amortization expense of $1.3 million
(after tax), largely due to higher property, plant and equipment
balances
|
Partially
offsetting these decreases were a 10 percent increase in off-system
transportation volumes and demand fees, related to an expansion of the
Grasslands system, and $3.0 million (after tax) of higher gathering volumes
and rates.
Natural
Gas and Oil Production
Years
ended December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in millions, where applicable)
|
|
Operating
revenues:
|
|
|
|
|
|
|
|
|
|
Natural
gas
|
|
$
|
292.3
|
|
|
$
|
482.8
|
|
|
$
|
374.1
|
|
Oil
|
|
|
147.4
|
|
|
|
229.3
|
|
|
|
140.1
|
|
Other
|
|
|
—
|
|
|
|
.2
|
|
|
|
.6
|
|
|
|
|
439.7
|
|
|
|
712.3
|
|
|
|
514.8
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
natural gas sold
|
|
|
—
|
|
|
|
.1
|
|
|
|
.3
|
|
Operation
and maintenance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
operating costs
|
|
|
70.1
|
|
|
|
82.0
|
|
|
|
66.9
|
|
Gathering
and transportation
|
|
|
24.0
|
|
|
|
24.8
|
|
|
|
20.4
|
|
Other
|
|
|
39.2
|
|
|
|
41.0
|
|
|
|
34.6
|
|
Depreciation,
depletion and amortization
|
|
|
129.9
|
|
|
|
170.2
|
|
|
|
127.4
|
|
Taxes,
other than income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
and property taxes
|
|
|
29.1
|
|
|
|
54.7
|
|
|
|
36.7
|
|
Other
|
|
|
.8
|
|
|
|
.8
|
|
|
|
.8
|
|
Write-down
of natural gas and oil properties
|
|
|
620.0
|
|
|
|
135.8
|
|
|
|
—
|
|
|
|
|
913.1
|
|
|
|
509.4
|
|
|
|
287.1
|
|
Operating
income (loss)
|
|
|
(473.4
|
)
|
|
|
202.9
|
|
|
|
227.7
|
|
Earnings
(loss)
|
|
$
|
(296.7
|
)
|
|
$
|
122.3
|
|
|
$
|
142.5
|
|
Production:
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
gas (MMcf)
|
|
|
56,632
|
|
|
|
65,457
|
|
|
|
62,798
|
|
Oil
(MBbls)
|
|
|
3,111
|
|
|
|
2,808
|
|
|
|
2,365
|
|
Total
Production (MMcfe)
|
|
|
75,299
|
|
|
|
82,303
|
|
|
|
76,988
|
|
Average
realized prices (including hedges):
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
gas (per Mcf)
|
|
$
|
5.16
|
|
|
$
|
7.38
|
|
|
$
|
5.96
|
|
Oil
(per Bbl)
|
|
$
|
47.38
|
|
|
$
|
81.68
|
|
|
$
|
59.26
|
|
Average
realized prices (excluding hedges):
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
gas (per Mcf)
|
|
$
|
2.99
|
|
|
$
|
7.29
|
|
|
$
|
5.37
|
|
Oil
(per Bbl)
|
|
$
|
49.76
|
|
|
$
|
82.28
|
|
|
$
|
59.53
|
|
Average
depreciation, depletion and amortization rate, per equivalent
Mcf
|
|
$
|
1.64
|
|
|
$
|
2.00
|
|
|
$
|
1.59
|
|
Production
costs, including taxes, per
|
|
|
|
|
|
|
|
|
|
|
|
|
equivalent
Mcf:
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
operating costs
|
|
$
|
.93
|
|
|
$
|
1.00
|
|
|
$
|
.87
|
|
Gathering
and transportation
|
|
|
.32
|
|
|
|
.30
|
|
|
|
.26
|
|
Production
and property taxes
|
|
|
.39
|
|
|
|
.66
|
|
|
|
.48
|
|
|
|
$
|
1.64
|
|
|
$
|
1.96
|
|
|
$
|
1.61
|
|
2009 compared to
2008
The natural gas and oil production business experienced a loss of
$296.7 million in 2009 compared to earnings of $122.3 million in 2008 due
to:
·
|
A
noncash write-down of natural gas and oil properties of $384.4 million
(after tax) in 2009, partially offset by the absence of the 2008 noncash
write-down of natural gas and oil properties of $84.2 million (after tax),
both discussed in Item 8 – Note 1
|
·
|
Lower
average realized natural gas and oil prices of 30 percent and 42 percent,
respectively
|
·
|
Decreased
natural gas production of 13 percent, largely related to normal production
declines at certain properties
|
Partially
offsetting these decreases were:
·
|
Lower
depreciation, depletion and amortization expense of $25.0 million (after
tax), due to lower depletion rates and decreased combined production. The
lower depletion rates are largely the result of the write-downs of natural
gas and oil properties in December 2008 and March
2009.
|
·
|
Lower
production taxes of $15.8 million (after tax) associated largely with
lower average prices
|
·
|
Increased
oil production of 11 percent, largely related to drilling activity in the
Bakken area, partially offset by normal production declines at certain
properties
|
·
|
Decreased
lease operating expenses of $7.3 million (after
tax)
|
2008 compared to
2007
The natural gas and oil production business experienced a decrease
in earnings of $20.2 million (14 percent) due to:
·
|
A noncash write-down of natural gas and oil properties of
$84.2 million (after tax), as previously
discussed
|
·
|
Higher depreciation, depletion and amortization expense of
$26.6 million (after tax), due to higher depletion rates and
increased production
|
·
|
Higher production taxes of $11.1 million (after tax), primarily
due to higher average prices and increased
production
|
·
|
Increased lease operating costs of $9.3 million (after tax),
including the East Texas properties acquired in early
2008
|
Partially
offsetting these decreases were:
·
|
Higher
average realized natural gas prices of
24 percent
|
·
|
Higher
average realized oil prices of
38 percent
|
·
|
Increased
oil production of 19 percent, largely related to drilling activity in
the Bakken area and Paradox Basin as well as production from the East
Texas properties
|
·
|
Increased
natural gas production of 4 percent, primarily related to the
acquisition of the East Texas properties, as previously
discussed
|
Construction
Materials and Contracting
Years
ended December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in millions)
|
|
Operating
revenues
|
|
$
|
1,515.1
|
|
|
$
|
1,640.7
|
|
|
$
|
1,761.5
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operation
and maintenance
|
|
|
1,292.0
|
|
|
|
1,437.9
|
|
|
|
1,483.5
|
|
Depreciation,
depletion and amortization
|
|
|
93.6
|
|
|
|
100.9
|
|
|
|
95.8
|
|
Taxes,
other than income
|
|
|
36.2
|
|
|
|
39.1
|
|
|
|
43.6
|
|
|
|
|
1,421.8
|
|
|
|
1,577.9
|
|
|
|
1,622.9
|
|
Operating
income
|
|
|
93.3
|
|
|
|
62.8
|
|
|
|
138.6
|
|
Earnings
|
|
$
|
47.1
|
|
|
$
|
30.2
|
|
|
$
|
77.0
|
|
Sales
(000's):
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregates
(tons)
|
|
|
23,995
|
|
|
|
31,107
|
|
|
|
36,912
|
|
Asphalt
(tons)
|
|
|
6,360
|
|
|
|
5,846
|
|
|
|
7,062
|
|
Ready-mixed
concrete (cubic yards)
|
|
|
3,042
|
|
|
|
3,729
|
|
|
|
4,085
|
|
2009 compared to
2008
Earnings at the construction materials and contracting business
increased $16.9 million (56 percent) due to:
·
|
Higher
earnings of $17.2 million (after tax) resulting from higher liquid asphalt
oil and asphalt volumes and margins
|
·
|
Lower
selling, general and administrative expense of $14.6 million (after tax),
largely the result of cost reduction
measures
|
·
|
Higher
aggregate margins of $8.3 million (after
tax)
|
Partially
offsetting the increases were:
·
|
Lower
aggregate and ready-mixed concrete sales volumes as a result of the
continuing economic downturn
|
·
|
Lower
gains on the sale of property, plant and equipment of $5.5 million (after
tax)
|
2008 compared to
2007
Earnings at the construction materials and contracting business
decreased $46.8 million (61 percent) due to decreased construction workloads,
margins and product volumes that were significantly lower as a result of the
economic downturn, primarily as it relates to the residential market, as well as
higher diesel fuel costs at existing operations, which had a combined negative
effect on earnings of $53.0 million (after tax). Partially offsetting this
decrease were earnings from companies acquired since the comparable prior
period, which contributed approximately 8 percent of earnings for
2008.
Other
and Intersegment Transactions
Amounts
presented in the preceding tables will not agree with the Consolidated
Statements of Income due to the Company's other operations and the elimination
of intersegment transactions. The amounts relating to these items are as
follows:
Years
ended December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
millions)
|
|
Other:
|
|
|
|
|
|
|
|
|
|
Operating
revenues
|
|
$
|
9.5
|
|
|
$
|
10.5
|
|
|
$
|
10.0
|
|
Operation
and maintenance
|
|
|
8.1
|
|
|
|
5.9
|
|
|
|
15.9
|
|
Depreciation,
depletion and amortization
|
|
|
1.3
|
|
|
|
1.3
|
|
|
|
1.2
|
|
Taxes,
other than income
|
|
|
.3
|
|
|
|
.4
|
|
|
|
.2
|
|
Intersegment
transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues
|
|
$
|
183.6
|
|
|
$
|
394.1
|
|
|
$
|
315.1
|
|
Purchased
natural gas sold
|
|
|
156.7
|
|
|
|
365.7
|
|
|
|
286.8
|
|
Operation
and maintenance
|
|
|
26.9
|
|
|
|
28.4
|
|
|
|
28.3
|
|
For
further information on intersegment eliminations, see Item 8 –
Note 15.
Prospective
Information
The
following information highlights the key growth strategies, projections and
certain assumptions for the Company and its subsidiaries and other matters for
certain of the Company’s businesses. Many of these highlighted points are
“forward-looking statements.” There is no assurance that the Company’s
projections, including estimates for growth and changes in earnings, will in
fact be achieved. Please refer to assumptions contained in this section, as well
as the various important factors listed in Item 1A – Risk Factors. Changes
in such assumptions and factors could cause actual future results to differ
materially from the Company’s growth and earnings projections.
MDU
Resources Group, Inc.
·
|
Earnings
per common share for 2010, diluted, are projected in the range of $1.10 to
$1.35.
|
·
|
The
Company expects the percentage of 2010 earnings per common share by
quarter to be in the following approximate
ranges:
|
–
|
First
quarter – 15 percent to 20 percent
|
–
|
Second
quarter – 20 percent to 25 percent
|
–
|
Third
quarter – 30 percent to 35 percent
|
–
|
Fourth
quarter – 25 percent to 30 percent
|
·
|
Long-term
compound annual growth goals on earnings per share from operations are in
the range of 7 percent to
10 percent.
|
·
|
The
Company continually seeks opportunities to expand through strategic
acquisitions and organic growth
opportunities.
|
Electric
·
|
The Company continues to realize efficiencies and enhanced service
levels through its efforts to standardize operations, share services and
consolidate back-office functions among its four utility
companies.
|
·
|
The
Company is pursuing expansion
opportunities.
|
–
|
In April 2009, the Company purchased a 25 MW ownership interest
in the Wygen III power generation facility which is under
construction near Gillette, Wyoming. This rate-based generation will
replace a portion of the purchased power for the Wyoming system. The plant
is expected to be online during the second quarter of 2010. In
August 2009, Montana-Dakota filed an application with the WYPSC for
an electric rate increase, as discussed in Item 8 –
Note 18.
|
–
|
The Company is developing additional wind generation, including a
19.5 MW wind generation facility in southwest North Dakota and a
10.5 MW expansion of the Diamond Willow wind facility near Baker,
Montana. Both projects are expected to be commercial midyear
2010.
|
–
|
The Company is analyzing potential projects for accommodating load
growth and replacing purchased power contracts with company-owned
generation. The Company is reviewing the construction of natural gas-fired
combustion and wind generation.
|
·
|
The
Company is reviewing opportunities associated with the potential
development of high voltage transmission lines targeted towards delivery
of renewable energy from the wind rich regions that lie within its
traditional electric service territory to major metropolitan
areas.
|
Natural
gas distribution
·
|
The
Company continues to realize efficiencies and enhanced service levels
through its efforts to standardize operations, share services and
consolidate back-office functions among its four utility
companies.
|
Construction
services
·
|
The
Company anticipates margins in 2010 to be lower than 2009
levels.
|
·
|
The
Company is aggressively pursuing expansion in high voltage transmission
construction, renewable resource construction and military installation
services. The Company was recently awarded the engineering, procurement
and construction contract to build the 214-mile Montana Alberta Tie Line
between Lethbridge, Alberta and Great Falls,
Montana.
|
·
|
The
Company continues to focus on costs and efficiencies to enhance margins.
With its highly skilled technical workforce, this group is prepared to
take advantage of government stimulus spending on transmission
infrastructure.
|
·
|
Work
backlog as of December 31, 2009, was approximately $383 million,
compared to $604 million at December 31, 2008. The
December 31, 2009, backlog includes the new Montana Alberta Tie Line
project, and excludes $182 million related to the Fontainebleau
project, which is proceeding through the bankruptcy
process.
|
Pipeline
and energy services
·
|
An
incremental expansion to the Grasslands Pipeline of 75,000 Mcf per
day went into service August 31, 2009. The firm capacity of the
Grasslands Pipeline is at its ultimate full capacity of 213,000 Mcf
per day.
|
·
|
The
Company continues to pursue expansion of facilities and services offered
to customers. Energy development within its geographic region, which
includes portions of Colorado, Wyoming, Montana and North Dakota, is
expanding, most notably the Bakken Shale of North Dakota and eastern
Montana. Ongoing energy development is expected to have many direct and
indirect benefits to its business.
|
·
|
The
Company has natural gas storage fields, including the largest storage
field in North America located near Baker, Montana. Total working gas
storage capacity is 193 Bcf for its three storage fields. The Company
is pursuing a project to increase its firm deliverability and related
transportation capacity from the Baker Storage field with a targeted
in-service date in 2012.
|
Natural
gas and oil production
·
|
The
Company expects to spend approximately $375 million in capital
expenditures for 2010 for further exploitation of its existing properties,
exploratory drilling and acquisitions of properties. This includes
approximately $150 million for new growth opportunities, including
acquisitions.
|
·
|
The
Company is also actively pursuing other potential exploratory and reserve
acquisitions, which are not included in the current
forecast.
|
·
|
With
the reduced 2009 capital expenditures and the forecasted 2010 capital
expenditures, the Company expects its 2010 combined natural gas and oil
production to be approximately equal to 2009 levels. The 2010 production
forecast includes 3.5 Bcfe to 4 Bcfe related to growth
opportunities.
|
·
|
Earnings
guidance reflects estimated natural gas prices for February through
December as follows:
|
Index*
|
Price
Per Mcf
|
Ventura
|
$5.00
to $5.50
|
NYMEX
|
$5.25
to $5.75
|
CIG
|
$4.75
to $5.25
|
*
Ventura is an index pricing point related to Northern Natural Gas Co.’s
system; CIG is an index pricing point related to Colorado Interstate Gas
Co.’s system.
|
·
|
Earnings
guidance reflects estimated NYMEX crude oil prices for February through
December in the range of $70 to $75 per
barrel.
|
·
|
For
2010, the Company has hedged 45 percent to 50 percent of both its
estimated natural gas and oil production. For 2011, the Company has hedged
10 percent to 15 percent of both its estimated natural gas and
oil production. For 2012, the Company has hedged 5 percent to 10 percent
of its estimated natural gas production. The hedges that are in place as
of January 29, 2010, are summarized in the following
chart:
|
Commodity
|
Type
|
Index
*
|
Period
Outstanding
|
Forward
Notional Volume
(MMBtu/Bbl)
|
Price
(Per
MMBtu/Bbl)
|
Natural
Gas
|
Swap
|
HSC
|
1/10
- 12/10
|
1,606,000
|
$8.08
|
Natural
Gas
|
Swap
|
NYMEX
|
1/10
- 12/10
|
3,650,000
|
$6.18
|
Natural
Gas
|
Swap
|
NYMEX
|
1/10
- 12/10
|
1,825,000
|
$6.40
|
Natural
Gas
|
Collar
|
NYMEX
|
1/10
- 12/10
|
1,825,000
|
$5.63-$6.00
|
Natural
Gas
|
Swap
|
NYMEX
|
1/10
- 12/10
|
1,825,000
|
$5.855
|
Natural
Gas
|
Swap
|
NYMEX
|
1/10
- 12/10
|
1,825,000
|
$6.045
|
Natural
Gas
|
Swap
|
NYMEX
|
1/10
- 12/10
|
1,825,000
|
$6.045
|
Natural
Gas
|
Swap
|
CIG
|
1/10
- 12/10
|
3,650,000
|
$5.03
|
Natural
Gas
|
Swap
|
HSC
|
1/10
- 10/10
|
608,000
|
$5.57
|
Natural
Gas
|
Swap
|
NYMEX
|
1/10
- 10/10
|
2,432,000
|
$5.645
|
Natural
Gas
|
Swap
|
Ventura
|
1/10
- 12/10
|
1,825,000
|
$5.95
|
Natural
Gas
|
Swap
|
NYMEX
|
4/10
- 12/10
|
3,025,000
|
$5.54
|
Natural
Gas
|
Collar
|
NYMEX
|
1/10
- 3/11
|
2,275,000
|
$5.62-$6.50
|
Natural
Gas
|
Swap
|
HSC
|
1/11
- 12/11
|
1,350,500
|
$8.00
|
Natural
Gas
|
Swap
|
NYMEX
|
1/11
- 12/11
|
4,015,000
|
$6.1027
|
Natural
Gas
|
Swap
|
NYMEX
|
1/12
- 12/12
|
3,477,000
|
$6.27
|
Crude
Oil
|
Collar
|
NYMEX
|
1/10
- 12/10
|
365,000
|
$60.00-$75.00
|
Crude
Oil
|
Swap
|
NYMEX
|
1/10
- 12/10
|
365,000
|
$73.20
|
Crude
Oil
|
Collar
|
NYMEX
|
1/10
- 12/10
|
365,000
|
$70.00-$86.00
|
Crude
Oil
|
Swap
|
NYMEX
|
1/10
- 12/10
|
365,000
|
$83.05
|
Crude
Oil
|
Collar
|
NYMEX
|
1/11
- 12/11
|
547,500
|
$80.00-$94.00
|
Natural
Gas
|
Basis
|
NYMEX
to Ventura
|
1/10
- 12/10
|
3,650,000
|
$0.25
|
Natural
Gas
|
Basis
|
NYMEX
to Ventura
|
1/10
- 12/10
|
912,500
|
$0.245
|
Natural
Gas
|
Basis
|
NYMEX
to Ventura
|
1/10
- 12/10
|
4,562,500
|
$0.25
|
Natural
Gas
|
Basis
|
NYMEX
to Ventura
|
1/10
- 12/10
|
1,825,000
|
$0.225
|
Natural
Gas
|
Basis
|
NYMEX
to Ventura
|
1/10
- 12/10
|
912,500
|
$0.23
|
Natural
Gas
|
Basis
|
NYMEX
to Ventura
|
1/10
- 12/10
|
2,737,500
|
$0.23
|
Natural
Gas
|
Basis
|
NYMEX
to Ventura
|
1/11
- 3/11
|
450,000
|
$0.135
|
*
Ventura is an index pricing point related to Northern Natural Gas Co.’s
system; CIG is an index pricing point related to Colorado Interstate Gas
Co.’s system; HSC is the Houston Ship Channel hub in southeast Texas which
connects to several pipelines.
|
Construction
materials and contracting
·
|
Most
of the markets served by construction materials are seeing positive
impacts related to the federal stimulus
spending.
|
·
|
The
Company is well positioned to take advantage of government stimulus
spending on transportation infrastructure particularly in the asphalt
paving and liquid asphalt oil product lines. Federal transportation
stimulus of $7.9 billion was directed to states where the
Company
|
operates.
Of that amount, 21 percent was spent in 2009, the remainder to be spent
over the next two years, with 82 percent already obligated to specific
projects by the various states.
·
|
The
Company continues to pursue work related to energy projects, such as wind
towers, transmission projects, geothermal and refineries. It is also
pursuing opportunities for expansion of its existing business lines
including initiatives aimed at capturing additional market share and
expansion into new markets. The Company has planned green field expansions
for its liquid asphalt oil
business.
|
·
|
The
Company has a strong emphasis on operational efficiencies and cost
reduction.
|
·
|
Liquid
asphalt margins are expected to be lower in 2010 than the record levels
experienced in 2009.
|
·
|
Work
backlog as of December 31, 2009, was approximately $459 million,
compared to $453 million at December 31, 2008. Although
public project margins tend to be somewhat lower than private
construction-related work, the Company anticipates significant
contributions to revenue from public works volume. Ninety-four percent of
its year-end backlog is related to public works projects compared to
80 percent at December 31,
2008.
|
·
|
As
the country’s 8th largest aggregate producer, the Company will continue to
strategically manage its 1.1 billion tons of aggregate reserves in
all its markets, as well as take further advantage of being vertically
integrated.
|
New
Accounting Standards
For
information regarding new accounting standards, see Item 8 – Note 1,
which is incorporated by reference.
Critical
Accounting Policies Involving Significant Estimates
The
Company has prepared its financial statements in conformity with GAAP. The
preparation of these financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. The Company's significant accounting policies are discussed in
Item 8 – Note 1.
Estimates
are used for items such as impairment testing of long-lived assets, goodwill and
natural gas and oil properties; fair values of acquired assets and liabilities
under the purchase method of accounting; natural gas and oil reserves; aggregate
reserves; property depreciable lives; tax provisions; uncollectible accounts;
environmental and other loss contingencies; accumulated provision for revenues
subject to refund; costs on construction contracts; unbilled revenues;
actuarially determined benefit costs; asset retirement obligations; the
valuation of stock-based compensation; and the fair value of derivative
instruments. The Company's critical accounting policies are subject to judgments
and uncertainties that affect the application of such policies. As discussed
below, the Company's financial position or results of operations may be
materially different when reported under different conditions or when using
different assumptions in the application of such policies.
As
additional information becomes available, or actual amounts are determinable,
the recorded estimates are revised. Consequently, operating results can be
affected by revisions to prior accounting estimates. The following critical
accounting policies involve significant judgments and
estimates.
Impairment
of long-lived assets and intangibles
The
Company reviews the carrying values of its long-lived assets and intangibles,
excluding natural gas and oil properties, whenever events or changes in
circumstances indicate that such carrying values may not be recoverable and
annually for goodwill. Unforeseen events and changes in circumstances and market
conditions and material differences in the value of long-lived assets and
intangibles due to changes in estimates of future cash flows could negatively
affect the fair value of the Company's assets and result in an impairment
charge. If an impairment indicator exists for tangible and intangible assets,
excluding goodwill, the asset group held and used is tested for recoverability
by comparing an estimate of undiscounted future cash flows attributable to the
assets compared to the carrying value of the assets. If impairment has occurred,
the amount of the impairment recognized is determined by estimating the fair
value of the assets and recording a loss if the carrying value is greater than
the fair value. In the case of goodwill, the first step, used to identify a
potential impairment, compares the fair value of the reporting unit using
discounted cash flows, with its carrying amount, including goodwill. The second
step, used to measure the amount of the impairment loss if step one indicates a
potential impairment, compares the implied fair value of the reporting unit
goodwill with the carrying amount of goodwill.
Fair
value is the amount at which the asset could be bought or sold in a current
transaction between market participants. The Company uses critical estimates and
assumptions when testing assets for impairment, including present value
techniques based on estimates of cash flows, quoted market prices or valuations
by third parties, or multiples of earnings or revenue performance measures. The
fair value of the asset could be different using different estimates and
assumptions in these valuation techniques.
There is
risk involved when determining the fair value of assets, tangible and
intangible, as there may be unforeseen events and changes in circumstances and
market conditions and changes in estimates of future cash flows.
The
Company believes its estimates used in calculating the fair value of long-lived
assets, including goodwill and identifiable intangibles, are reasonable based on
the information that is known when the estimates are made.
Natural
gas and oil properties
The
Company uses the full-cost method of accounting for its natural gas and oil
production activities. Capitalized costs are subject to a “ceiling test” that
limits such costs to the aggregate of the present value of future net cash flows
from proved reserves discounted at 10 percent, as mandated under the rules of
the SEC, plus the cost of unproved properties less applicable income taxes.
Future net revenue was estimated based on end-of-quarter spot market prices
adjusted for contracted price changes prior to the fourth quarter of 2009.
Effective December 31, 2009, the Modernization of Oil and Gas
Reporting rules issued by the SEC changed the pricing used to estimate reserves
and associated future cash flows to SEC Defined Prices. The Company hedges a
portion of its natural gas and oil production and the effects of the cash flow
hedges are used in determining the full-cost ceiling. Judgments and assumptions
are made when estimating and valuing reserves. There is risk that sustained
downward movements in natural gas and oil prices, changes in estimates of
reserve quantities and changes in operating and development costs could result
in future noncash write-downs of the Company's natural gas and oil
properties.
Estimates
of proved reserves were prepared in accordance with guidelines established by
the industry and the SEC. The estimates are arrived at using actual historical
wellhead production
trends
and/or standard reservoir engineering methods utilizing available geological,
geophysical, engineering and economic data. Other factors used in the reserve
estimates are prices, estimates of well operating and future development costs,
taxes, timing of operations, and the interests owned by the Company in the
properties. These estimates are refined as new information becomes
available.
Revenue
recognition
Revenue
is recognized when the earnings process is complete, as evidenced by an
agreement between the customer and the Company, when delivery has occurred or
services have been rendered, when the fee is fixed or determinable and when
collection is reasonably assured. The recognition of revenue in conformity with
GAAP requires the Company to make estimates and assumptions that affect the
reported amounts of revenue. Critical estimates related to the recognition of
revenue include the accumulated provision for revenues subject to refund and
costs on construction contracts under the percentage-of-completion
method.
Estimates
for revenues subject to refund are established initially for each regulatory
rate proceeding and are subject to change depending on the applicable regulatory
agency's (Agency) approval of final rates. These estimates are based on the
Company's analysis of its as-filed application compared to previous Agency
decisions in prior rate filings by the Company and other regulated companies.
The Company periodically reviews the status of its outstanding regulatory
proceedings and liability assumptions and may from time to time change its
liability estimates subject to known developments as the regulatory proceedings
move through the regulatory review process. The accuracy of the estimates is
ultimately determined when the Agency issues its final ruling on each regulatory
proceeding for which revenues were subject to refund. Estimates have changed
from time to time as additional information has become available as to what the
ultimate outcome may be and will likely continue to change in the future as new
information becomes available on each outstanding regulatory proceeding that is
subject to refund.
The
Company recognizes construction contract revenue from fixed-price and modified
fixed-price construction contracts at its construction businesses using the
percentage-of-completion method, measured by the percentage of costs incurred to
date to estimated total costs for each contract. This method depends largely on
the ability to make reasonably dependable estimates related to the extent of
progress toward completion of the contract, contract revenues and contract
costs. Inasmuch as contract prices are generally set before the work is
performed, the estimates pertaining to every project could contain significant
unknown risks such as volatile labor, material and fuel costs, weather delays,
adverse project site conditions, unforeseen actions by regulatory agencies,
performance by subcontractors, job management and relations with project
owners.
Several
factors are evaluated in determining the bid price for contract work. These
include, but are not limited to, the complexities of the job, past history
performing similar types of work, seasonal weather patterns, competition and
market conditions, job site conditions, work force safety, reputation of the
project owner, availability of labor, materials and fuel, project location and
project completion dates. As a project commences, estimates are continually
monitored and revised as information becomes available and actual costs and
conditions surrounding the job become known.
The
Company believes its estimates surrounding percentage-of-completion accounting
are reasonable based on the information that is known when the estimates are
made. The Company has contract administration, accounting and management control
systems in place that allow its estimates to be updated and monitored on a
regular basis. Because of the many factors that are
evaluated
in determining bid prices, it is inherent that the Company's estimates have
changed in the past and will continually change in the future as new information
becomes available for each job.
Purchase
accounting
The
Company accounts for its acquisitions under the purchase method of accounting
and, accordingly, the acquired assets and liabilities assumed are recorded at
their respective fair values. The excess of the purchase price over the fair
value of the assets acquired and liabilities assumed is recorded as goodwill.
The recorded values of assets and liabilities are based in part on third-party
estimates and valuations when available. The remaining values are based on
management's judgments and estimates, and, accordingly, the Company's financial
position or results of operations may be affected by changes in estimates and
judgments.
Acquired
assets and liabilities assumed by the Company that are subject to critical
estimates include property, plant and equipment and intangibles.
The fair
value of owned aggregate reserves is determined using qualified internal
personnel as well as geologists. Reserve estimates are calculated based on the
best available data. This data is collected from drill holes and other
subsurface investigations as well as investigations of surface features such as
mine highwalls and other exposures of the aggregate reserves. Mine plans,
production history and geologic data are also used to estimate reserve
quantities. Value is assigned to the aggregate reserves based on a review of
market royalty rates, expected cash flows and the number of years of aggregate
reserves at owned aggregate sites.
The fair
value of property, plant and equipment is based on a valuation performed either
by qualified internal personnel and/or outside appraisers. Fair values assigned
to plant and equipment are based on several factors, including the age and
condition of the equipment, maintenance records of the equipment and auction
values for equipment with similar characteristics at the time of
purchase.
The fair
value of leasehold rights is based on estimates including royalty rates, lease
terms and other discernible factors for acquired leasehold rights, and estimated
cash flows.
While the
allocation of the purchase price of an acquisition is subject to a considerable
degree of judgment and uncertainty, the Company does not expect the estimates to
vary significantly once an acquisition has been completed. The Company believes
its estimates have been reasonable in the past as there have been no significant
valuation adjustments subsequent to the final allocation of the purchase price
to the acquired assets and liabilities. In addition, goodwill impairment testing
is performed annually.
Asset
retirement obligations
Entities
are required to record the fair value of a liability for an asset retirement
obligation in the period in which it is incurred. The Company has recorded
obligations related to the plugging and abandonment of natural gas and oil
wells, decommissioning of certain electric generating facilities, reclamation of
certain aggregate properties, special handling and disposal of hazardous
materials at certain electric generating facilities, natural gas distribution
and transmission facilities and buildings, and certain other obligations
associated with leased properties.
The
liability for future asset retirement obligations bears the risk of change as
many factors go into the development of the estimate of these obligations and
the likelihood that over time these factors
can and
will change. Factors used in the estimation of future asset retirement
obligations include estimates of current retirement costs, future inflation
factors, life of the asset and discount rates. These factors determine both a
present value of the retirement liability and the accretion to the retirement
liability in subsequent years.
Long-lived
assets are reviewed to determine if a legal retirement obligation exists. If a
legal retirement obligation exists, a determination of the liability is made if
a reasonable estimate of the present value of the obligation can be made. The
present value of the retirement obligation is calculated by inflating current
estimated retirement costs of the long-lived asset over its expected life to
determine the expected future cost and then discounting the expected future cost
back to the present value using a discount rate equal to the credit-adjusted
risk-free interest rate in effect when the liability was initially
recognized.
These
estimates and assumptions are subject to a number of variables and are expected
to change in the future. Estimates and assumptions will change as the estimated
useful lives of the assets change, the current estimated retirement costs
change, new legal retirement obligations occur and/or as existing legal asset
retirement obligations, for which a reasonable estimate of fair value could not
initially be made because of the range of time over which the Company may settle
the obligation is unknown or cannot be estimated, become less uncertain and a
reasonable estimate of the future liability can be made.
Pension
and other postretirement benefits
The
Company has noncontributory defined benefit pension plans and other
postretirement benefit plans for certain eligible employees. Various actuarial
assumptions are used in calculating the benefit expense (income) and liability
(asset) related to these plans. Costs of providing pension and other
postretirement benefits bear the risk of change, as they are dependent upon
numerous factors based on assumptions of future conditions.
The
Company makes various assumptions when determining plan costs, including the
current discount rates and the expected long-term return on plan assets, the
rate of compensation increases and healthcare cost trend rates. In selecting the
expected long-term return on plan assets, which is considered to be one of the
key variables in determining benefit expense or income, the Company considers
historical returns, current market conditions and expected future market trends,
including changes in interest rates and equity and bond market performance.
Another key variable in determining benefit expense or income is the discount
rate. In selecting the discount rate, the Company matches forecasted future cash
flows of the pension and postretirement plans to a yield curve which consists of
a hypothetical portfolio of high-quality corporate bonds with varying maturity
dates, as well as other factors, as a basis. The Company's pension and other
postretirement benefit plan assets are primarily made up of equity and
fixed-income investments. Fluctuations in actual equity and bond market returns
as well as changes in general interest rates may result in increased or
decreased pension and other postretirement benefit costs in the future.
Management estimates the rate of compensation increase based on long-term
assumed wage increases and the healthcare cost trend rates are determined by
historical and future trends.
The
Company believes the estimates made for its pension and other postretirement
benefits are reasonable based on the information that is known when the
estimates are made. These estimates and assumptions are subject to a number of
variables and are expected to change in the future. Estimates and assumptions
will be affected by changes in the discount rate, the expected long-term return
on plan assets, the rate of compensation increase and healthcare cost trend
rates. The Company plans to continue to use its current methodologies to
determine plan costs.
Income
taxes
Income
taxes require significant judgments and estimates including the determination of
income tax expense, deferred tax assets and liabilities and, if necessary, any
valuation allowances that may be required for deferred tax assets and accruals
for uncertain tax positions. The effective income tax rate is subject to
variability from period to period as a result of changes in federal and state
income tax rates and/or changes in tax laws. In addition, the effective tax rate
may be affected by other changes including the allocation of property, payroll
and revenues between states.
The
Company provides deferred federal and state income taxes on all temporary
differences between the book and tax basis of the Company's assets and
liabilities. Excess deferred income tax balances associated with the Company's
rate-regulated activities have been recorded as a regulatory liability and are
included in other liabilities. These regulatory liabilities are expected to be
reflected as a reduction in future rates charged to customers in accordance with
applicable regulatory procedures.
The
Company uses the deferral method of accounting for investment tax credits and
amortizes the credits on regulated electric and natural gas distribution plant
over various periods that conform to the ratemaking treatment prescribed by the
applicable state public service commissions.
Tax
positions taken or expected to be taken in an income tax return are evaluated
for recognition using a more-likely-than-not threshold, and those tax positions
requiring recognition are measured as the largest amount of tax benefit that is
greater than 50 percent likely of being realized upon ultimate settlement with a
taxing authority. The Company recognizes interest and penalties accrued related
to unrecognized tax benefits in income taxes.
The
Company believes its estimates surrounding income taxes are reasonable based on
the information that is known when the estimates are made.
Liquidity
and Capital Commitments
Cash
flows
Operating
activities
The changes in cash flows from operating activities generally
follow the results of operations as discussed in Financial and Operating Data
and also are affected by changes in working capital.
Cash
flows provided by operating activities in 2009 increased $60.5 million from
the comparable prior period. Lower working capital requirements of $263.6
million were partially offset by lower income before depreciation, depletion and
amortization and before the after-tax noncash write-down of natural gas and oil
properties, largely the effects of lower commodity prices at the natural gas and
oil production business. The lower working capital requirements were largely the
result of lower receivables and lower net natural gas costs recoverable through
rate adjustments at the natural gas distribution business, as well as lower
working capital requirements at the other business segments.
Cash
flows provided by operating activities in 2008 increased $223.0 million from the
comparable prior period, due to:
·
|
Higher
income from continuing operations before depreciation, depletion and
amortization and before the after-tax noncash write-down of natural gas
and oil properties
|
·
|
Absence
of cash flows used related to discontinued operations in 2007 of $71.4
million
|
Investing
activities
Cash flows used in investing activities in 2009 decreased
$675.2 million from the comparable prior period due to:
·
|
Lower
cash used in connection with acquisitions, net of cash acquired, of $527.1
million, primarily due to the absence of the 2008 acquisitions of
Intermountain and natural gas and oil producing properties in East
Texas
|
·
|
Decreased
ongoing capital expenditures of $297.8 million, primarily at the natural
gas and oil production business
|
Partially
offsetting the decrease in cash flows used in investing activities were lower
proceeds from investments of $89.5 million and decreased net proceeds from the
sale or disposition of property of $60.2 million, largely at the construction
materials and contracting business.
Cash
flows used in investing activities in 2008 increased $765.1 million from
the comparable prior period due to:
·
|
Absence
of cash flows provided by discontinued operations in 2007 of $548.2
million, primarily the result of the sale of the domestic independent
power production assets in the third quarter of
2007
|
·
|
Increased
ongoing capital expenditures of $188.2 million, largely at the natural gas
and oil production business
|
·
|
Higher
cash used in connection with acquisitions, net of cash acquired, of $185.1
million, largely due to the acquisition of Intermountain and natural gas
and oil producing properties in East Texas in 2008, partially offset by
the absence of the 2007 acquisition of
Cascade
|
Partially
offsetting the increase in cash flows used in investing activities were higher
proceeds from investments of $85.8 million in 2008, as well as the absence of
cash used for investments of $67.1 million in 2007.
Financing
activities
Cash flows provided by
financing activities in 2009 decreased $559.6 million from the comparable
prior period, primarily due to lower issuance of long-term debt and short-term
borrowings, higher repayment of long-term debt, partially offset by increased
issuance of common stock. Lower cash flows provided by financing activities in
2009 reflects lower ongoing capital expenditures and acquisitions, as well as
increased cash provided by operating activities.
Cash
flows provided by financing activities in 2008 increased $456.2 million from the
comparable prior period, primarily due to higher issuance of long-term debt of
$333.7 million as well as higher net short-term borrowings of $101.7 million,
largely related to higher ongoing capital expenditures and
acquisitions.
Defined
benefit pension plans
The
Company has qualified noncontributory defined benefit pension plans (Pension
Plans) for certain employees. Plan assets consist of investments in equity and
fixed-income securities. Various actuarial assumptions are used in calculating
the benefit expense (income) and liability (asset) related to the Pension Plans.
Actuarial assumptions include assumptions about the discount rate, expected
return on plan assets and rate of future compensation increases as determined by
the Company within certain guidelines. At December 31, 2009, the Pension
Plans' accumulated benefit obligations exceeded these plans' assets by
approximately $85.0 million. Pretax pension expense reflected in the years
ended December 31, 2009, 2008 and 2007, was
$8.2 million,
$4.6 million
and $6.5 million, respectively. The Company's pension expense is currently
projected to be approximately $3.5 million to $4.5 million in 2010. Funding for
the Pension Plans is actuarially determined. The minimum required contributions
for 2009, 2008 and 2007 were approximately $7.3 million, $6.8 million
and $1.8 million, respectively. For further information on the Company's
Pension Plans, see Item 8 – Note 16.
Capital
expenditures
The
Company's capital expenditures for 2007 through 2009 and as anticipated for 2010
through 2012 are summarized in the following table, which also includes the
Company's capital needs for the retirement of maturing long-term
debt.
|
|
Actual
|
|
|
Estimated*
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
|
(In
millions)
|
|
Capital
expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
|
|
$
|
91
|
|
|
$
|
73
|
|
|
$
|
115
|
|
|
$
|
105
|
|
|
$
|
72
|
|
|
$
|
100
|
|
Natural
gas distribution
|
|
|
500
|
|
|
|
398
|
|
|
|
44
|
|
|
|
76
|
|
|
|
60
|
|
|
|
59
|
|
Construction
services
|
|
|
18
|
|
|
|
24
|
|
|
|
13
|
|
|
|
13
|
|
|
|
11
|
|
|
|
11
|
|
Pipeline
and energy services
|
|
|
39
|
|
|
|
43
|
|
|
|
70
|
|
|
|
15
|
|
|
|
28
|
|
|
|
149
|
|
Natural
gas and oil production
|
|
|
284
|
|
|
|
711
|
|
|
|
183
|
|
|
|
375
|
**
|
|
|
359
|
|
|
|
321
|
|
Construction
materials and contracting
|
|
|
190
|
|
|
|
128
|
|
|
|
27
|
|
|
|
37
|
|
|
|
52
|
|
|
|
62
|
|
Other
|
|
|
2
|
|
|
|
1
|
|
|
|
3
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Net
proceeds from sale or disposition of property
|
|
|
(25
|
)
|
|
|
(87
|
)
|
|
|
(27
|
)
|
|
|
(4
|
)
|
|
|
(7
|
)
|
|
|
(1
|
)
|
Net
capital expenditures before discontinued operations
|
|
|
1,099
|
|
|
|
1,291
|
|
|
|
428
|
|
|
|
618
|
|
|
|
576
|
|
|
|
702
|
|
Discontinued
operations
|
|
|
(548
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net
capital expenditures
|
|
|
551
|
|
|
|
1,291
|
|
|
|
428
|
|
|
|
618
|
|
|
|
576
|
|
|
|
702
|
|
Retirement
of long-term debt
|
|
|
232
|
|
|
|
201
|
|
|
|
293
|
|
|
|
13
|
|
|
|
72
|
|
|
|
136
|
|
|
|
$
|
783
|
|
|
$
|
1,492
|
|
|
$
|
721
|
|
|
$
|
631
|
|
|
$
|
648
|
|
|
$
|
838
|
|
*
The Company continues to
evaluate potential future acquisitions and other growth opportunities
which are dependent upon the availability of economic opportunities and,
as a result, capital expenditures may vary significantly from the above
estimates.
** Includes
approximately $150 million for new growth opportunities, including
potential acquisitions.
|
|
|
|
Capital
expenditures for 2009, 2008 and 2007 in the preceding table include noncash
transactions, including the issuance of the Company's equity securities, in
connection with acquisitions and the outstanding indebtedness related to the
2008 Intermountain acquisition and the 2007 Cascade acquisition. The net noncash
transactions were immaterial in 2009, $97.6 million in 2008 and
$217.3 million in 2007.
In 2009,
the Company acquired a pipeline and energy services business in Montana. The
total purchase consideration for this business and purchase price adjustments
with respect to certain other acquisitions made prior to 2009, consisting of the
Company's common stock and cash, was $22.0 million.
The 2009
capital expenditures, including those for the previously mentioned acquisitions
and retirements of long-term debt, were met from internal sources and the
issuance of long-term debt and the Company's equity securities. Estimated
capital expenditures for the years 2010 through 2012 include those
for:
·
|
Routine
equipment maintenance and
replacements
|
·
|
Buildings,
land and building improvements
|
·
|
Pipeline
and gathering projects
|
·
|
Further
development of existing properties, exploratory drilling and acquisitions
at the natural gas and oil production
segment
|
·
|
Power
generation opportunities, including certain costs for additional electric
generating capacity
|
·
|
Other
growth opportunities
|
The
Company continues to evaluate potential future acquisitions and other growth
opportunities; however, they are dependent upon the availability of economic
opportunities and, as a result, capital expenditures may vary significantly from
the estimates in the preceding table. It is anticipated that all of the funds
required for capital expenditures and retirement of long-term debt for the years
2010 through 2012 will be met from various sources, including internally
generated funds; the Company's credit facilities, as described below; and
through the issuance of long-term debt and the Company's equity
securities.
Capital
resources
Certain
debt instruments of the Company and its subsidiaries, including those discussed
below, contain restrictive covenants and cross-default provisions. In order to
borrow under the respective credit agreements, the Company and its subsidiaries
must be in compliance with the applicable covenants and certain other
conditions, all of which the Company and its subsidiaries, as applicable, were
in compliance with at December 31, 2009. In the event the Company and its
subsidiaries do not comply with the applicable covenants and other conditions,
alternative sources of funding may need to be pursued. For additional
information on the covenants, certain other conditions and cross-default
provisions, see Item 8 – Note 9.
The
following table summarizes the outstanding credit facilities of the Company and
its subsidiaries at December 31, 2009:
Company
|
Facility
|
|
|
Facility
Limit
|
|
|
|
Amount
Outstanding
|
|
|
|
Letters
of
Credit
|
|
|
Expiration
Date
|
|
(Dollars
in millions)
|
MDU
Resources
Group,
Inc.
|
Commercial
paper/Revolving
credit
agreement
|
(a)
|
|
$
|
125.0
|
|
|
|
$
|
—
|
|
(b)
|
|
$
|
—
|
|
|
6/21/11
|
|
MDU
Energy
Capital,
LLC
|
Master
shelf
agreement
|
|
|
$
|
175.0
|
|
|
|
$
|
165.0
|
|
|
|
$
|
—
|
|
|
8/14/10
|
(c)
|
Cascade
Natural
Gas Corporation
|
Revolving
credit
agreement
|
|
|
$
|
50.0
|
|
(d)
|
|
$
|
—
|
|
|
|
$
|
1.9
|
|
(e)
|
12/28/12
|
(f)
|
Intermountain
Gas
Company
|
Revolving
credit
agreement
|
|
|
$
|
65.0
|
|
(g)
|
|
$
|
10.3
|
|
|
|
$
|
—
|
|
|
8/31/10
|
|
Centennial
Energy
Holdings,
Inc.
|
Commercial
paper/Revolving
credit
agreement
|
(h)
|
|
$
|
400.0
|
|
|
|
$
|
—
|
|
(b)
|
|
$
|
26.4
|
|
(e)
|
12/13/12
|
|
Williston
Basin Interstate
Pipeline
Company
|
Uncommitted
long-term
private
shelf
agreement
|
|
|
$
|
125.0
|
|
|
|
$
|
87.5
|
|
|
|
$
|
—
|
|
|
12/23/10
|
(i)
|
(a)
|
The
$125 million commercial paper program is supported by a revolving credit
agreement with various banks totaling $125 million (provisions allow for
increased borrowings, at the option of the Company on stated conditions,
up to a maximum of $150 million). There were no amounts outstanding under
the credit agreement.
|
(b)
|
Amount
outstanding under commercial paper program.
|
(c)
|
Or
such time as the agreement is terminated by either of the parties
thereto.
|
(d)
|
Certain
provisions allow for increased borrowings, up to a maximum of $75
million.
|
(e)
|
The
outstanding letters of credit, as discussed in Item 8 – Note 19, reduce
amounts available under the credit agreement.
|
(f)
|
Provisions
allow for an extension of up to two years upon consent of the
banks.
|
(g)
|
Certain
provisions allow for increased borrowings, up to a maximum of
$70 million.
|
(h)
|
The
$400 million commercial paper program is supported by a revolving credit
agreement with various banks totaling $400 million (provisions allow for
increased borrowings, at the option of Centennial on stated conditions, up
to a maximum of $450 million). There were no amounts outstanding under the
credit agreement.
|
(i)
|
Certain
provisions allow for an extension to
December 23, 2011.
|
In order
to maintain the Company’s and Centennial’s respective commercial paper programs
in the amounts indicated above, both the Company and Centennial must have
revolving credit agreements in place at least equal to the amount of their
commercial paper programs. While the amount of commercial paper outstanding does
not reduce available capacity under the respective revolving credit agreements,
the Company and Centennial do not issue commercial paper in an aggregate amount
exceeding the available capacity under their credit agreements.
The
following includes information related to the above table.
MDU Resources
Group, Inc.
The Company’s revolving credit agreement supports its
commercial paper program. The commercial paper borrowings are classified as
long-term debt as they are intended to be refinanced on a long-term basis
through continued commercial paper borrowings. The Company’s objective is to
maintain acceptable credit ratings in order to access the capital markets
through the issuance of commercial paper. Downgrades in the Company’s credit
ratings have not limited, nor are currently expected to limit, the Company’s
ability to access the capital markets. If the Company were to experience a
further downgrade of its credit ratings, it may need to borrow under its credit
agreement and may experience an increase in overall interest rates with respect
to its cost of borrowings.
Prior to
the maturity of the credit agreement, the Company expects that it will negotiate
the extension or replacement of this agreement. If the Company is unable to
successfully negotiate an extension of, or replacement for, the credit
agreement, or if the fees on this facility become too expensive, which the
Company does not currently anticipate, the Company would seek alternative
funding.
In
November 2009, the Company completed a defeasance of its outstanding 8.60%
Secured Medium-Term Notes under the Mortgage and the Mortgage was discharged.
For more information, see Item 8 – Note 9.
The
Company's coverage of fixed charges including preferred stock dividends was
5.3 times for the 12 months ended December 31, 2008. Due to
the $384.4 million after-tax noncash write-down of natural gas and oil
properties in the first quarter of 2009, earnings were insufficient by $228.7
million to cover fixed charges for the 12 months ended December 31, 2009. If the
$384.4 million after-tax noncash write-down is excluded, the coverage of fixed
charges including preferred stock dividends would have been 4.6 times for
the 12 months ended December 31, 2009. Common stockholders' equity as a
percent of total capitalization was 63 percent and 61 percent at
December 31, 2009 and 2008, respectively.
The
coverage of fixed charges including preferred stock dividends, that excludes the
effect of the after-tax noncash write-down of natural gas and oil properties is
a non-GAAP financial measure. The Company believes that this non-GAAP financial
measure is useful because the write-down excluded is not indicative of the
Company’s cash flows available to meet its fixed charges obligations. The
presentation of this additional information is not meant to be considered a
substitute for financial measures prepared in accordance with GAAP.
In
September 2008, the Company entered into a Sales Agency Financing Agreement with
Wells Fargo Securities, LLC with respect to the issuance and sale of up to
5 million shares of the Company’s common stock. The common stock may be
offered for sale, from time to time, in accordance with the terms and conditions
of the agreement, which terminates on May 28, 2011. Proceeds from the sale
of shares of common stock under the agreement have been and are expected to be
used for corporate development purposes and other general corporate purposes.
The Company issued approximately 600,000 shares of stock during the fourth
quarter under the Sales Agency Financing Agreement, resulting in net proceeds of
$12.2 million, and has issued a total of approximately 3.2 million
shares of stock under the Sales Agency Financing Agreement through December 31,
2009, resulting in total net proceeds of $63.1 million.
The
Company currently has authorization to issue and sell up to $1.0 billion of
securities pursuant to a registration statement on file with the SEC. The
Company may sell all or a portion of such securities if warranted by market
conditions and the Company's capital requirements. Any offer
and sale
of such securities will be made only by means of a prospectus meeting the
requirements of the Securities Act and the rules and regulations
thereunder.
Centennial Energy
Holdings, Inc.
Centennial’s revolving credit agreement supports its
commercial paper program. The Centennial commercial paper borrowings are
classified as long-term debt as Centennial intends to refinance these borrowings
on a long-term basis through continued Centennial commercial paper borrowings.
Centennial’s objective is to maintain acceptable credit ratings in order to
access the capital markets through the issuance of commercial paper. Downgrades
in Centennial’s credit ratings have not limited, nor are currently expected to
limit, Centennial’s ability to access the capital markets. If Centennial
were to experience a further downgrade of its credit ratings, it may need to
borrow under its credit agreement and may experience an increase in overall
interest rates with respect to its cost of borrowings.
Prior to
the maturity of the Centennial credit agreement, Centennial expects that it will
negotiate the extension or replacement of this agreement, which provides credit
support to access the capital markets. In the event Centennial is unable to
successfully negotiate this agreement, or in the event the fees on this facility
become too expensive, which Centennial does not currently anticipate, it would
seek alternative funding.
Off
balance sheet arrangements
In
connection with the sale of MPX in June 2005 to Petrobras, an indirect wholly
owned subsidiary of the Company has agreed to indemnify Petrobras for
49 percent of any losses that Petrobras may incur from certain contingent
liabilities specified in the purchase agreement. For more information, see
Item 8 – Note 19.
Centennial
continues to guarantee CEM’s obligations under a construction contract for a
550-MW combined-cycle electric generating facility near Hobbs, New Mexico. For
more information, see Item 8 – Note 19.
Contractual
obligations and commercial commitments
For more
information on the Company's contractual obligations on long-term debt,
operating leases, purchase commitments and uncertain tax positions, see
Item 8 – Notes 9, 14 and 19. At December 31, 2009, the Company's
commitments under these obligations were as follows:
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(In
millions)
|
|
Long-term
debt
|
|
$
|
12.6
|
|
|
$
|
72.3
|
|
|
$
|
136.3
|
|
|
$
|
258.8
|
|
|
$
|
9.1
|
|
|
$
|
1,010.2
|
|
|
$
|
1,499.3
|
|
Estimated
interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
payments*
|
|
|
91.9
|
|
|
|
87.8
|
|
|
|
84.0
|
|
|
|
69.8
|
|
|
|
62.3
|
|
|
|
342.6
|
|
|
|
738.4
|
|
Operating
leases
|
|
|
25.2
|
|
|
|
20.3
|
|
|
|
15.3
|
|
|
|
12.6
|
|
|
|
6.7
|
|
|
|
43.9
|
|
|
|
124.0
|
|
Purchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
commitments
|
|
|
507.6
|
|
|
|
288.3
|
|
|
|
192.1
|
|
|
|
105.7
|
|
|
|
90.3
|
|
|
|
234.9
|
|
|
|
1,418.9
|
|
|
|
$
|
637.3
|
|
|
$
|
468.7
|
|
|
$
|
427.7
|
|
|
$
|
446.9
|
|
|
$
|
168.4
|
|
|
$
|
1,631.6
|
|
|
$
|
3,780.6
|
|
*
Estimated interest payments are calculated based on the applicable rates
and payment dates.
|
|
Not
reflected in the table above are $6.1 million in uncertain tax positions for
which the year of settlement is not reasonably possible to
determine.
Effects
of Inflation
Inflation
did not have a significant effect on the Company's operations in 2009, 2008 or
2007.
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk
|
The
Company is exposed to the impact of market fluctuations associated with
commodity prices, interest rates and foreign currency. The Company has policies
and procedures to assist in controlling these market risks and utilizes
derivatives to manage a portion of its risk.
For more
information on derivatives and the Company's derivative policies and procedures,
see Item 8 – Notes 1 and 7.
Commodity
price risk
Fidelity
utilizes derivative instruments to manage a portion of the market risk
associated with fluctuations in the price of natural gas and oil and basis
differentials on forecasted sales of natural gas and oil production. Cascade and
Intermountain utilize derivative instruments to manage a portion of their
regulated natural gas supply portfolio in order to manage fluctuations in the
price of natural gas.
The
following table summarizes derivative agreements entered into by Fidelity,
Cascade and Intermountain as of December 31, 2009. These agreements call
for Fidelity to receive fixed prices and pay variable prices, and for Cascade
and Intermountain to receive variable prices and pay fixed prices.
(Forward
notional volume and fair value in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Forward
|
|
|
|
|
|
|
Fixed
|
|
|
Notional
|
|
|
|
|
|
|
Price
(Per
|
|
|
Volume
|
|
|
|
|
|
|
MMBtu/Bbl)
|
|
|
(MMBtu/Bbl)
|
|
|
Fair
Value
|
|
Fidelity
|
|
|
|
|
|
|
|
|
|
Natural
gas swap agreements maturing in 2010
|
|
$
|
5.99
|
|
|
|
21,071
|
|
|
$
|
5,968
|
|
Natural
gas swap agreement maturing in 2011
|
|
$
|
8.00
|
|
|
|
1,351
|
|
|
$
|
2,377
|
|
Natural
gas basis swap agreements maturing in 2010
|
|
$
|
.24
|
|
|
|
14,600
|
|
|
$
|
(4,021
|
)
|
Natural
gas basis swap agreement maturing in 2011
|
|
$
|
.14
|
|
|
|
450
|
|
|
$
|
(108
|
)
|
Oil
swap agreements maturing in 2010
|
|
$
|
78.13
|
|
|
|
730
|
|
|
$
|
(3,043
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cascade
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
gas swap agreements maturing in 2010
|
|
$
|
8.03
|
|
|
|
8,922
|
|
|
$
|
(23,058
|
)
|
Natural
gas swap agreements maturing in 2011
|
|
$
|
8.10
|
|
|
|
2,270
|
|
|
$
|
(4,756
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermountain
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
gas swap agreements maturing in 2010
|
|
$
|
6.03
|
|
|
|
900
|
|
|
$
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Forward
|
|
|
|
|
|
|
|
Floor/Ceiling
|
|
|
Notional
|
|
|
|
|
|
|
|
Price
(Per
|
|
|
Volume
|
|
|
|
|
|
|
|
MMBtu/Bbl)
|
|
|
(MMBtu/Bbl)
|
|
|
Fair
Value
|
|
Fidelity
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
gas collar agreements maturing in 2010
|
|
|
$5.63/$6.25
|
|
|
|
3,650
|
|
|
$
|
(39
|
)
|
Natural
gas collar agreement maturing in 2011
|
|
|
$5.62/$6.50
|
|
|
|
450
|
|
|
$
|
(6
|
)
|
Oil
collar agreements maturing in 2010
|
|
|
$65.00/$80.50
|
|
|
|
730
|
|
|
$
|
(4,867
|
)
|
Oil
collar agreement maturing in 2011
|
|
|
$80.00/$94.00
|
|
|
|
548
|
|
|
$
|
357
|
|
The
following table summarizes derivative agreements entered into by Fidelity,
Cascade and Intermountain as of December 31, 2008. These agreements call
for Fidelity to receive fixed prices and pay variable prices, and for Cascade
and Intermountain to receive variable prices and pay fixed prices.
(Forward
notional volume and fair value in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Forward
|
|
|
|
|
|
|
Average
|
|
|
Notional
|
|
|
|
|
|
|
Fixed
Price
|
|
|
Volume
|
|
|
|
|
|
|
(Per
MMBtu)
|
|
|
(MMBtu)
|
|
|
Fair
Value
|
|
Fidelity
|
|
|
|
|
|
|
|
|
|
Natural
gas swap agreements maturing in 2009
|
|
$
|
8.73
|
|
|
|
10,920
|
|
|
$
|
33,059
|
|
Natural
gas swap agreements maturing in 2010
|
|
$
|
8.08
|
|
|
|
1,606
|
|
|
$
|
2,011
|
|
Natural
gas swap agreements maturing in 2011
|
|
$
|
8.00
|
|
|
|
1,351
|
|
|
$
|
1,211
|
|
Natural
gas basis swap agreement maturing in 2009
|
|
$
|
.61
|
|
|
|
3,650
|
|
|
$
|
(1,349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cascade
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
gas swap agreements maturing in 2009
|
|
$
|
8.26
|
|
|
|
19,350
|
|
|
$
|
(49,883
|
)
|
Natural
gas swap agreements maturing in 2010
|
|
$
|
8.03
|
|
|
|
8,922
|
|
|
$
|
(18,947
|
)
|
Natural
gas swap agreements maturing in 2011
|
|
$
|
8.10
|
|
|
|
2,270
|
|
|
$
|
(4,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermountain
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
gas swap agreements maturing in 2009
|
|
$
|
5.54
|
|
|
|
7,905
|
|
|
$
|
(5,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Forward
|
|
|
|
|
|
|
|
Floor/Ceiling
|
|
|
Notional
|
|
|
|
|
|
|
|
Price
(Per
|
|
|
Volume
|
|
|
|
|
|
|
|
MMBtu)
|
|
|
(MMBtu)
|
|
|
Fair
Value
|
|
Fidelity
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
gas collar agreements maturing in 2009
|
|
|
$8.52/$9.56
|
|
|
|
14,965
|
|
|
$
|
45,105
|
|
Note:
The fair value of Cascade’s
natural gas swap agreements is presented net of the collateral provided to
the counterparty of $11.1 million.
|
|
Interest
rate risk
The
Company uses fixed rate long-term debt and from time to time variable rate
long-term debt to partially finance capital expenditures and mandatory debt
retirements. These debt agreements expose the Company to market risk related to
changes in interest rates. The Company manages this risk by taking advantage of
market conditions when timing the placement of long-term or permanent financing.
The Company also has historically used interest rate swap agreements to manage a
portion of the Company's interest rate risk and may take advantage of such
agreements in the future to minimize such risk. At December 31, 2009 and 2008,
the Company had no outstanding interest rate hedges.
The
following table shows the amount of debt, including current portion, and related
weighted average interest rates, both by expected maturity dates, as of
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Total
|
|
|
Value
|
|
|
|
(Dollars
in millions)
|
|
Long-term
debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate
|
|
$
|
12.6
|
|
|
$
|
72.3
|
|
|
$
|
136.3
|
|
|
$
|
258.8
|
|
|
$
|
9.1
|
|
|
$
|
1,010.2
|
|
|
$
|
1,499.3
|
|
|
$
|
1,566.3
|
|
Weighted
average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
rate
|
|
|
6.9
|
%
|
|
|
7.1
|
%
|
|
|
5.9
|
%
|
|
|
6.0
|
%
|
|
|
6.9
|
%
|
|
|
6.1
|
%
|
|
|
6.1
|
%
|
|
|
—
|
|
Foreign
currency risk
MDU
Brasil's equity method investments in the Brazilian Transmission Lines are
exposed to market risks from changes in foreign currency exchange rates between
the U.S. dollar and the Brazilian Real. For further information, see Item 8
– Note 4. At December 31, 2009 and 2008, the Company had no
outstanding foreign currency hedges.
Item 8. Financial
Statements and Supplementary Data
|
Management's
Report on Internal Control Over Financial Reporting
The
management of MDU Resources Group, Inc. is responsible for establishing and
maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) under the Securities Exchange Act of 1934. The Company's
internal control system is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles.
All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
Management
assessed the effectiveness of the Company's internal control over financial
reporting as of December 31, 2009. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in
Internal Control–Integrated
Framework
.
Based on
our evaluation under the framework in
Internal Control
–
Integrated Framework
,
management concluded that the Company's internal control over financial
reporting was effective as of December 31, 2009.
The
effectiveness of the Company's internal control over financial reporting as of
December 31, 2009, has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their
report.
/s/ Terry D.
Hildestad
|
/s/ Doran N.
Schwartz
|
Terry
D. Hildestad
|
Doran
N. Schwartz
|
President
and Chief Executive Officer
|
Vice
President and Chief Financial Officer
|
|
|
Report of
Independent Registered Public Accounting Firm
To
the Board of Directors and Stockholders of MDU Resources Group,
Inc.:
We have
audited the accompanying consolidated balance sheets of MDU Resources Group,
Inc. and subsidiaries (the “Company”) as of December 31, 2009 and 2008, and
the related consolidated statements of income, common stockholders’ equity, and
cash flows for each of the three years in the period ended December 31,
2009. Our audits also included the financial statement schedule for each of the
three years in the period ended December 31, 2009, listed in the Index at
Item 15. These consolidated financial statements and financial statement
schedule are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of MDU Resources Group, Inc. and
subsidiaries as of December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2009, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, the financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
As
discussed in Note 1 to the consolidated financial statements, the Company
adopted the definitions and required pricing assumptions outlined in the
Modernization of Oil and Gas Reporting rules issued by the Securities and
Exchange Commission effective as of December 31, 2009.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company’s internal control over financial
reporting as of December 31, 2009, based on the criteria established in
Internal Control–Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 17, 2010, expressed an
unqualified opinion on the Company’s internal control over financial
reporting.
/s/
Deloitte & Touche LLP
Minneapolis,
Minnesota
February 17,
2010
Report of
Independent Registered Public Accounting Firm
To
the Board of Directors and Stockholders of MDU Resources Group,
Inc.:
We have
audited the internal control over financial reporting of MDU Resources
Group, Inc. and subsidiaries (the “Company”) as of December 31, 2009,
based on criteria established in
Internal Control–Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control Over Financial Reporting.
Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed by, or
under the supervision of, the company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company’s board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009, based on the
criteria established in
Internal Control–Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements and
financial statement
schedule
as of and for the year ended December 31, 2009 of the Company and our report
February 17, 2010 expressed an unqualified opinion on those consolidated
financial statements and financial statement schedule and included an
explanatory paragraph regarding the Company’s adoption of the definitions and
required pricing assumptions outlined in the Modernization of Oil and Gas
Reporting rules issued by the Securities and Exchange Commission effective as of
December 31, 2009.
/s/
Deloitte & Touche LLP
Minneapolis,
Minnesota
February 17,
2010
MDU
RESOURCES GROUP, INC.
Consolidated
Statements of Income
Years
ended December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands, except per share amounts)
|
|
Operating
revenues:
|
|
|
|
|
|
|
|
|
|
Electric,
natural gas distribution and pipeline and energy services
|
|
$
|
1,504,269
|
|
|
$
|
1,685,199
|
|
|
$
|
1,095,709
|
|
Construction
services, natural gas and oil production, construction materials and
contracting, and other
|
|
|
2,672,232
|
|
|
|
3,318,079
|
|
|
|
3,152,187
|
|
Total
operating revenues
|
|
|
4,176,501
|
|
|
|
5,003,278
|
|
|
|
4,247,896
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel
and purchased power
|
|
|
65,717
|
|
|
|
75,333
|
|
|
|
69,616
|
|
Purchased
natural gas sold
|
|
|
739,678
|
|
|
|
765,900
|
|
|
|
377,404
|
|
Operation
and maintenance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric,
natural gas distribution and pipeline and energy services
|
|
|
263,869
|
|
|
|
262,053
|
|
|
|
215,587
|
|
Construction
services, natural gas and oil production,
construction
materials and contracting, and other
|
|
|
2,143,195
|
|
|
|
2,686,055
|
|
|
|
2,572,864
|
|
Depreciation,
depletion and amortization
|
|
|
330,542
|
|
|
|
366,020
|
|
|
|
301,932
|
|
Taxes,
other than income
|
|
|
166,597
|
|
|
|
200,080
|
|
|
|
153,373
|
|
Write-down
of natural gas and oil properties (Note 1)
|
|
|
620,000
|
|
|
|
135,800
|
|
|
|
—
|
|
Total
operating expenses
|
|
|
4,329,598
|
|
|
|
4,491,241
|
|
|
|
3,690,776
|
|
Operating
income (loss)
|
|
|
(153,097
|
)
|
|
|
512,037
|
|
|
|
557,120
|
|
Earnings
from equity method investments
|
|
|
8,499
|
|
|
|
6,627
|
|
|
|
19,609
|
|
Other
income
|
|
|
9,331
|
|
|
|
4,012
|
|
|
|
8,318
|
|
Interest
expense
|
|
|
84,099
|
|
|
|
81,527
|
|
|
|
72,237
|
|
Income
(loss) before income taxes
|
|
|
(219,366
|
)
|
|
|
441,149
|
|
|
|
512,810
|
|
Income
taxes
|
|
|
(96,092
|
)
|
|
|
147,476
|
|
|
|
190,024
|
|
Income
(loss) from continuing operations
|
|
|
(123,274
|
)
|
|
|
293,673
|
|
|
|
322,786
|
|
Income
from discontinued operations, net of tax (Note 3)
|
|
|
—
|
|
|
|
—
|
|
|
|
109,334
|
|
Net
income (loss)
|
|
|
(123,274
|
)
|
|
|
293,673
|
|
|
|
432,120
|
|
Dividends
on preferred stocks
|
|
|
685
|
|
|
|
685
|
|
|
|
685
|
|
Earnings
(loss) on common stock
|
|
$
|
(123,959
|
)
|
|
$
|
292,988
|
|
|
$
|
431,435
|
|
Earnings
(loss) per common share – basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) before discontinued operations
|
|
$
|
(.67
|
)
|
|
$
|
1.60
|
|
|
$
|
1.77
|
|
Discontinued
operations, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
.60
|
|
Earnings (loss) per common share –
basic
|
|
$
|
(.67
|
)
|
|
$
|
1.60
|
|
|
$
|
2.37
|
|
Earnings
(loss) per common share – diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) before discontinued operations
|
|
$
|
(.67
|
)
|
|
$
|
1.59
|
|
|
$
|
1.76
|
|
Discontinued
operations, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
.60
|
|
Earnings (loss) per common share –
diluted
|
|
$
|
(.67
|
)
|
|
$
|
1.59
|
|
|
$
|
2.36
|
|
Dividends
per common share
|
|
$
|
.6225
|
|
|
$
|
.6000
|
|
|
$
|
.5600
|
|
Weighted
average common shares outstanding – basic
|
|
|
185,175
|
|
|
|
183,100
|
|
|
|
181,946
|
|
Weighted
average common shares outstanding – diluted
|
|
|
185,175
|
|
|
|
183,807
|
|
|
|
182,902
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
MDU
RESOURCES GROUP, INC.
Consolidated
Balance Sheets
December 31,
|
|
2009
|
|
|
2008
|
|
(In
thousands, except shares and per share amounts)
|
|
Assets
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
175,114
|
|
|
$
|
51,714
|
|
Receivables,
net
|
|
|
531,980
|
|
|
|
707,109
|
|
Inventories
|
|
|
249,804
|
|
|
|
261,524
|
|
Deferred
income taxes
|
|
|
28,145
|
|
|
|
—
|
|
Short-term
investments
|
|
|
2,833
|
|
|
|
2,467
|
|
Commodity
derivative instruments
|
|
|
7,761
|
|
|
|
78,164
|
|
Prepayments
and other current assets
|
|
|
66,021
|
|
|
|
171,314
|
|
Total
current assets
|
|
|
1,061,658
|
|
|
|
1,272,292
|
|
Investments
|
|
|
145,416
|
|
|
|
114,290
|
|
Property,
plant and equipment (Note 1)
|
|
|
6,766,582
|
|
|
|
7,062,237
|
|
Less
accumulated depreciation, depletion and amortization
|
|
|
2,872,465
|
|
|
|
2,761,319
|
|
Net
property, plant and equipment
|
|
|
3,894,117
|
|
|
|
4,300,918
|
|
Deferred
charges and other assets:
|
|
|
|
|
|
|
|
|
Goodwill
(Note 5)
|
|
|
629,463
|
|
|
|
615,735
|
|
Other
intangible assets, net (Note 5)
|
|
|
28,977
|
|
|
|
28,392
|
|
Other
|
|
|
231,321
|
|
|
|
256,218
|
|
Total
deferred charges and other assets
|
|
|
889,761
|
|
|
|
900,345
|
|
Total
assets
|
|
$
|
5,990,952
|
|
|
$
|
6,587,845
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Short-term
borrowings (Note 9)
|
|
$
|
10,300
|
|
|
$
|
105,100
|
|
Long-term
debt due within one year
|
|
|
12,629
|
|
|
|
78,666
|
|
Accounts
payable
|
|
|
281,906
|
|
|
|
432,358
|
|
Taxes
payable
|
|
|
55,540
|
|
|
|
49,784
|
|
Deferred
income taxes
|
|
|
—
|
|
|
|
20,344
|
|
Dividends
payable
|
|
|
29,749
|
|
|
|
28,640
|
|
Accrued
compensation
|
|
|
47,425
|
|
|
|
55,646
|
|
Commodity
derivative instruments
|
|
|
36,907
|
|
|
|
56,529
|
|
Other
accrued liabilities
|
|
|
192,729
|
|
|
|
140,408
|
|
Total
current liabilities
|
|
|
667,185
|
|
|
|
967,475
|
|
Long-term
debt (Note 9)
|
|
|
1,486,677
|
|
|
|
1,568,636
|
|
Deferred
credits and other liabilities:
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
590,968
|
|
|
|
727,857
|
|
Other
liabilities
|
|
|
674,475
|
|
|
|
562,801
|
|
Total
deferred credits and other liabilities
|
|
|
1,265,443
|
|
|
|
1,290,658
|
|
Commitments
and contingencies (Notes 16, 18 and 19)
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Preferred
stocks (Note 11)
|
|
|
15,000
|
|
|
|
15,000
|
|
Common
stockholders' equity:
|
|
|
|
|
|
|
|
|
Common
stock (Note 12)
|
|
|
|
|
|
|
|
|
Authorized
– 500,000,000 shares, $1.00 par value
|
|
|
|
|
|
|
|
|
Issued
– 188,389,265 shares in 2009 and 184,208,283 shares in
2008
|
|
|
188,389
|
|
|
|
184,208
|
|
Other
paid-in capital
|
|
|
1,015,678
|
|
|
|
938,299
|
|
Retained
earnings
|
|
|
1,377,039
|
|
|
|
1,616,830
|
|
Accumulated
other comprehensive income (loss)
|
|
|
(20,833
|
)
|
|
|
10,365
|
|
Treasury
stock at cost – 538,921 shares
|
|
|
(3,626
|
)
|
|
|
(3,626
|
)
|
Total
common stockholders' equity
|
|
|
2,556,647
|
|
|
|
2,746,076
|
|
Total stockholders'
equity
|
|
|
2,571,647
|
|
|
|
2,761,076
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
5,990,952
|
|
|
$
|
6,587,845
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
MDU
RESOURCES GROUP, INC.
Consolidated
Statements of Common Stockholders' Equity
Years
ended December 31, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury Stock
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
(Loss)
|
|
|
Shares
|
|
|
Amount
|
|
|
Total
|
|
|
|
(In
thousands, except shares)
|
|
Balance
at December 31, 2006
|
|
|
181,557,543
|
|
|
$
|
181,558
|
|
|
$
|
874,253
|
|
|
$
|
1,104,210
|
|
|
$
|
(6,482
|
)
|
|
|
(538,921
|
)
|
|
$
|
(3,626
|
)
|
|
$
|
2,149,913
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
432,120
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
432,120
|
|
Other
comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
(loss), net of tax -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
qualifying
as hedges
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(13,505
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(13,505
|
)
|
Postretirement
liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,012
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,012
|
|
Foreign
currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation
adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,177
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,177
|
|
Net
unrealized gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
405
|
|
|
|
—
|
|
|
|
—
|
|
|
|
405
|
|
Total
comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
429,209
|
|
Uncertain
tax positions transition adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31
|
|
Dividends
on preferred stocks
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(685
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(685
|
)
|
Dividends
on common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(102,091
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(102,091
|
)
|
Tax
benefit on stock-based
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
5,398
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,398
|
|
Issuance
of common stock
|
|
|
1,388,985
|
|
|
|
1,389
|
|
|
|
33,155
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
34,544
|
|
Balance
at December 31, 2007
|
|
|
182,946,528
|
|
|
|
182,947
|
|
|
|
912,806
|
|
|
|
1,433,585
|
|
|
|
(9,393
|
)
|
|
|
(538,921
|
)
|
|
|
(3,626
|
)
|
|
|
2,516,319
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
293,673
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
293,673
|
|
Other
comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
(loss), net of tax -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
qualifying
as hedges
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
43,448
|
|
|
|
—
|
|
|
|
—
|
|
|
|
43,448
|
|
Postretirement
liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(13,751
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(13,751
|
)
|
Foreign
currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation
adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,534
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,534
|
)
|
Total
comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
313,836
|
|
Fair
value option transition adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
405
|
|
|
|
(405
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Dividends
on preferred stocks
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(685
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(685
|
)
|
Dividends
on common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(110,148
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(110,148
|
)
|
Tax
benefit on stock-based
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
4,441
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,441
|
|
Issuance
of common stock
|
|
|
1,261,755
|
|
|
|
1,261
|
|
|
|
21,052
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22,313
|
|
Balance
at December 31, 2008
|
|
|
184,208,283
|
|
|
|
184,208
|
|
|
|
938,299
|
|
|
|
1,616,830
|
|
|
|
10,365
|
|
|
|
(538,921
|
)
|
|
|
(3,626
|
)
|
|
|
2,746,076
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(123,274
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(123,274
|
)
|
Other
comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
(loss), net of tax -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
qualifying
as hedges
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(51,684
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(51,684
|
)
|
Postretirement
liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,918
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,918
|
|
Foreign
currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation
adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,568
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,568
|
|
Total
comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(154,472
|
)
|
Dividends
on preferred stocks
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(685
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(685
|
)
|
Dividends
on common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(115,832
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(115,832
|
)
|
Tax
benefit on stock-based
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
(117
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(117
|
)
|
Issuance
of common stock
|
|
|
4,180,982
|
|
|
|
4,181
|
|
|
|
77,496
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
81,677
|
|
Balance
at December 31, 2009
|
|
|
188,389,265
|
|
|
$
|
188,389
|
|
|
$
|
1,015,678
|
|
|
$
|
1,377,039
|
|
|
$
|
(20,833
|
)
|
|
|
(538,921
|
)
|
|
$
|
(3,626
|
)
|
|
$
|
2,556,647
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
MDU
RESOURCES GROUP, INC.
Consolidated
Statements of Cash Flows
Years
ended December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
Operating
activities:
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(123,274
|
)
|
|
$
|
293,673
|
|
|
$
|
432,120
|
|
Income
from discontinued operations, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
109,334
|
|
Income
(loss) from continuing operations
|
|
|
(123,274
|
)
|
|
|
293,673
|
|
|
|
322,786
|
|
Adjustments
to reconcile net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
to
net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization
|
|
|
330,542
|
|
|
|
366,020
|
|
|
|
301,932
|
|
Earnings,
net of distributions, from equity
|
|
|
|
|
|
|
|
|
|
|
|
|
method
investments
|
|
|
(3,018
|
)
|
|
|
365
|
|
|
|
(14,031
|
)
|
Deferred
income taxes
|
|
|
(169,764
|
)
|
|
|
64,890
|
|
|
|
67,272
|
|
Write-down
of natural gas and oil properties (Note 1)
|
|
|
620,000
|
|
|
|
135,800
|
|
|
|
—
|
|
Changes
in current assets and liabilities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
132,939
|
|
|
|
27,165
|
|
|
|
(40,256
|
)
|
Inventories
|
|
|
13,969
|
|
|
|
(18,574
|
)
|
|
|
(7,130
|
)
|
Other
current assets
|
|
|
67,803
|
|
|
|
(64,771
|
)
|
|
|
(7,356
|
)
|
Accounts
payable
|
|
|
(61,867
|
)
|
|
|
28,205
|
|
|
|
24,702
|
|
Other
current liabilities
|
|
|
44,039
|
|
|
|
(38,738
|
)
|
|
|
(22,932
|
)
|
Other
noncurrent changes
|
|
|
(4,683
|
)
|
|
|
(7,848
|
)
|
|
|
9,594
|
|
Net
cash provided by continuing operations
|
|
|
846,686
|
|
|
|
786,187
|
|
|
|
634,581
|
|
Net
cash used in discontinued operations
|
|
|
—
|
|
|
|
—
|
|
|
|
(71,389
|
)
|
Net cash provided by operating activities
|
|
|
846,686
|
|
|
|
786,187
|
|
|
|
563,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(448,675
|
)
|
|
|
(746,478
|
)
|
|
|
(558,283
|
)
|
Acquisitions,
net of cash acquired
|
|
|
(6,410
|
)
|
|
|
(533,543
|
)
|
|
|
(348,490
|
)
|
Net
proceeds from sale or disposition of property
|
|
|
26,679
|
|
|
|
86,927
|
|
|
|
24,983
|
|
Investments
|
|
|
(3,740
|
)
|
|
|
85,773
|
|
|
|
(67,140
|
)
|
Proceeds
from sale of equity method investments
|
|
|
—
|
|
|
|
—
|
|
|
|
58,450
|
|
Net
cash used in continuing operations
|
|
|
(432,146
|
)
|
|
|
(1,107,321
|
)
|
|
|
(890,480
|
)
|
Net
cash provided by discontinued operations
|
|
|
—
|
|
|
|
—
|
|
|
|
548,216
|
|
Net
cash used in investing activities
|
|
|
(432,146
|
)
|
|
|
(1,107,321
|
)
|
|
|
(342,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of short-term borrowings
|
|
|
10,300
|
|
|
|
216,400
|
|
|
|
311,700
|
|
Repayment
of short-term borrowings
|
|
|
(105,100
|
)
|
|
|
(113,000
|
)
|
|
|
(310,000
|
)
|
Issuance
of long-term debt
|
|
|
145,000
|
|
|
|
453,929
|
|
|
|
120,250
|
|
Repayment
of long-term debt
|
|
|
(292,907
|
)
|
|
|
(200,527
|
)
|
|
|
(232,464
|
)
|
Proceeds
from issuance of common stock
|
|
|
65,207
|
|
|
|
15,011
|
|
|
|
17,263
|
|
Dividends
paid
|
|
|
(115,023
|
)
|
|
|
(108,591
|
)
|
|
|
(100,641
|
)
|
Tax
benefit on stock-based compensation
|
|
|
601
|
|
|
|
4,441
|
|
|
|
5,398
|
|
Net
cash provided by (used in) continuing operations
|
|
|
(291,922
|
)
|
|
|
267,663
|
|
|
|
(188,494
|
)
|
Net
cash provided by discontinued operations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net
cash provided by (used in) financing activities
|
|
|
(291,922
|
)
|
|
|
267,663
|
|
|
|
(188,494
|
)
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
782
|
|
|
|
(635
|
)
|
|
|
308
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
123,400
|
|
|
|
(54,106
|
)
|
|
|
32,742
|
|
Cash
and cash equivalents – beginning of year
|
|
|
51,714
|
|
|
|
105,820
|
|
|
|
73,078
|
|
Cash
and cash equivalents – end of year
|
|
$
|
175,114
|
|
|
$
|
51,714
|
|
|
$
|
105,820
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Notes to
Consolidated Financial Statements
Note 1
– Summary of Significant Accounting Policies
Basis
of presentation
The
consolidated financial statements of the Company include the accounts of the
following businesses: electric, natural gas distribution, construction services,
pipeline and energy services, natural gas and oil production, construction
materials and contracting, and other. The electric, natural gas distribution,
and pipeline and energy services businesses are substantially all regulated.
Construction services, natural gas and oil production, construction materials
and contracting, and other are nonregulated. For further descriptions of the
Company's businesses, see Note 15. The statements also include the
ownership interests in the assets, liabilities and expenses of jointly owned
electric generating facilities.
The
Company's regulated businesses are subject to various state and federal agency
regulations. The accounting policies followed by these businesses are generally
subject to the Uniform System of Accounts of the FERC. These accounting policies
differ in some respects from those used by the Company's nonregulated
businesses.
The
Company's regulated businesses account for certain income and expense items
under the provisions of regulatory accounting, which requires these businesses
to defer as regulatory assets or liabilities certain items that would have
otherwise been reflected as expense or income, respectively, based on the
expected regulatory treatment in future rates. The expected recovery or flowback
of these deferred items generally is based on specific ratemaking decisions or
precedent for each item. Regulatory assets and liabilities are being amortized
consistently with the regulatory treatment established by the FERC and the
applicable state public service commissions. See Note 6 for more
information regarding the nature and amounts of these regulatory
deferrals.
Depreciation,
depletion and amortization expense is reported separately on the Consolidated
Statements of Income and therefore is excluded from the other line items within
operating expenses.
Cash
and cash equivalents
The
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Allowance
for doubtful accounts
The
Company's allowance for doubtful accounts as of December 31, 2009 and 2008,
was $16.6 million and $13.7 million, respectively.
Natural
gas in storage
Natural
gas in storage for the Company's regulated operations is generally carried at
average cost, or cost using the last-in, first-out method. The portion of the
cost of natural gas in storage expected to be used within one year was included
in inventories and was $35.6 million and $27.6 million at
December 31, 2009 and 2008, respectively. The remainder of natural gas in
storage, which largely represents the cost of the gas required to maintain
pressure levels for normal operating purposes, was included in other assets and
was $59.6 million and $43.4 million at December 31, 2009 and
2008, respectively.
Inventories
Inventories,
other than natural gas in storage for the Company's regulated operations,
consisted primarily of aggregates held for resale of $80.1 million and
$89.1 million, materials and supplies of $58.1 million and
$70.3 million, asphalt oil of $23.0 million and $22.1 million,
and other inventories of $53.0 million and $52.4 million, as of
December 31, 2009 and 2008, respectively. These inventories were stated at
the lower of average cost or market value.
Investments
The
Company's investments include its equity method investments as discussed in
Note 4, the cash surrender value of life insurance policies, investments in
fixed-income and equity securities and auction rate securities. Under the equity
method, investments are initially recorded at cost and adjusted for dividends
and undistributed earnings and losses. On January 1, 2008, the Company
elected to measure its investments in certain fixed-income and equity securities
at fair value with any unrealized gains and losses recorded on the Consolidated
Statements of Income. These investments had previously been accounted for as
available-for-sale investments and were recorded at fair value with any
unrealized gains and losses, net of income taxes, recorded in accumulated other
comprehensive income (loss) on the Consolidated Balance Sheets until realized.
The Company accounts for auction rate securities as available-for-sale. For more
information, see Notes 8 and 16 and comprehensive income (loss) in this
note.
Property,
plant and equipment
Additions
to property, plant and equipment are recorded at cost. When regulated assets are
retired, or otherwise disposed of in the ordinary course of business, the
original cost of the asset is charged to accumulated depreciation. With respect
to the retirement or disposal of all other assets, except for natural gas and
oil production properties as described in natural gas and oil properties in this
note, the resulting gains or losses are recognized as a component of income. The
Company is permitted to capitalize AFUDC on regulated construction projects and
to include such amounts in rate base when the related facilities are placed in
service. In addition, the Company capitalizes interest, when applicable, on
certain construction projects associated with its other operations. The amount
of AFUDC and interest capitalized was $11.5 million, $9.0 million and
$7.1 million in 2009, 2008 and 2007, respectively. Generally, property,
plant and equipment are depreciated on a straight-line basis over the average
useful lives of the assets, except for depletable aggregate reserves, which are
depleted based on the units-of-production method, and natural gas and oil
production properties, which are amortized on the units-of-production method
based on total reserves. The Company collects removal costs for plant assets in
regulated utility rates. These amounts are recorded as regulatory liabilities,
which are included in other liabilities.
Property,
plant and equipment at December 31 was as follows:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Depreciable
|
|
|
|
2009
|
|
|
2008
|
|
|
Life
in Years
|
|
|
|
(Dollars
in thousands, where applicable)
|
|
Regulated:
|
|
|
|
|
|
|
|
|
|
Electric:
|
|
|
|
|
|
|
|
|
|
Generation
|
|
$
|
486,710
|
|
|
$
|
408,851
|
|
|
|
58
|
|
Distribution
|
|
|
230,795
|
|
|
|
219,501
|
|
|
|
36
|
|
Transmission
|
|
|
146,373
|
|
|
|
142,081
|
|
|
|
44
|
|
Other
|
|
|
77,913
|
|
|
|
78,292
|
|
|
|
12
|
|
Natural
gas distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
|
|
|
1,218,124
|
|
|
|
1,260,651
|
|
|
|
39
|
|
Other
|
|
|
238,084
|
|
|
|
168,836
|
|
|
|
21
|
|
Pipeline
and energy services:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transmission
|
|
|
351,019
|
|
|
|
322,276
|
|
|
|
52
|
|
Gathering
|
|
|
41,815
|
|
|
|
41,825
|
|
|
|
19
|
|
Storage
|
|
|
33,701
|
|
|
|
32,592
|
|
|
|
52
|
|
Other
|
|
|
33,283
|
|
|
|
31,925
|
|
|
|
27
|
|
Nonregulated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
services:
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
4,526
|
|
|
|
4,526
|
|
|
|
—
|
|
Buildings
and improvements
|
|
|
15,110
|
|
|
|
12,913
|
|
|
|
23
|
|
Machinery,
vehicles and equipment
|
|
|
87,462
|
|
|
|
84,042
|
|
|
|
7
|
|
Other
|
|
|
9,138
|
|
|
|
9,820
|
|
|
|
5
|
|
Pipeline
and energy services:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gathering
|
|
|
202,467
|
|
|
|
201,323
|
|
|
|
17
|
|
Other
|
|
|
12,914
|
|
|
|
10,980
|
|
|
|
10
|
|
Natural
gas and oil production:
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
gas and oil properties
|
|
|
1,993,594
|
|
|
|
2,443,946
|
|
|
|
*
|
|
Other
|
|
|
35,200
|
|
|
|
33,456
|
|
|
|
9
|
|
Construction
materials and contracting:
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
127,928
|
|
|
|
127,279
|
|
|
|
—
|
|
Buildings
and improvements
|
|
|
65,778
|
|
|
|
68,356
|
|
|
|
20
|
|
Machinery,
vehicles and equipment
|
|
|
925,747
|
|
|
|
932,545
|
|
|
|
12
|
|
Construction
in progress
|
|
|
3,733
|
|
|
|
11,488
|
|
|
|
—
|
|
Aggregate
reserves
|
|
|
391,803
|
|
|
|
384,361
|
|
|
|
**
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
2,942
|
|
|
|
2,942
|
|
|
|
—
|
|
Other
|
|
|
30,423
|
|
|
|
27,430
|
|
|
|
19
|
|
Less
accumulated depreciation, depletion and amortization
|
|
|
2,872,465
|
|
|
|
2,761,319
|
|
|
|
|
|
Net
property, plant and equipment
|
|
$
|
3,894,117
|
|
|
$
|
4,300,918
|
|
|
|
|
|
*
Amortized on the
units-of-production method based on total proved reserves at an Mcf
equivalent average rate of $1.64, $2.00 and $1.59 for the years ended
December 31, 2009, 2008 and 2007, respectively. Includes natural gas
and oil production properties accounted for under the full-cost method, of
which $178.2 million and $232.1 million were excluded from
amortization at December 31, 2009 and 2008,
respectively.
|
|
**
Depleted on the units-of-production method.
|
|
Impairment
of long-lived assets
The
Company reviews the carrying values of its long-lived assets, excluding goodwill
and natural gas and oil properties, whenever events or changes in circumstances
indicate that such carrying values may not be recoverable. The determination of
whether an impairment has occurred is based on an estimate of undiscounted
future cash flows attributable to the assets, compared to the carrying value of
the assets. If impairment has occurred, the amount of the impairment recognized
is determined by estimating the fair value of the assets and recording a loss if
the carrying value is greater than the fair value. No significant impairment
losses were recorded in 2009, 2008 and 2007. Unforeseen events and changes in
circumstances could require the recognition of other impairment losses at some
future date.
Goodwill
Goodwill
represents the excess of the purchase price over the fair value of identifiable
net tangible and intangible assets acquired in a business combination. Goodwill
is required to be tested for impairment annually, which is completed in the
fourth quarter, or more frequently if events or changes in circumstances
indicate that goodwill may be impaired. For more information on goodwill, see
Note 5.
Natural
gas and oil properties
The
Company uses the full-cost method of accounting for its natural gas and oil
production activities. Under this method, all costs incurred in the acquisition,
exploration and development of natural gas and oil properties are capitalized
and amortized on the units-of-production method based on total proved reserves.
Any conveyances of properties, including gains or losses on abandonments of
properties, are treated as adjustments to the cost of the properties with no
gain or loss recognized.
Capitalized
costs are subject to a “ceiling test” that limits such costs to the aggregate of
the present value of future net cash flows from proved reserves discounted at 10
percent, as mandated under the rules of the SEC, plus the cost of unproved
properties less applicable income taxes. Future net revenue was estimated based
on end-of-quarter spot market prices adjusted for contracted price changes prior
to the fourth quarter of 2009. Effective December 31, 2009, the Modernization of
Oil and Gas Reporting rules issued by the SEC changed the pricing used to
estimate reserves and associated future cash flows to SEC Defined Prices. Prior
to that date, if capitalized costs exceeded the full-cost ceiling at the end of
any quarter, a permanent noncash write-down was required to be charged to
earnings in that quarter unless subsequent price changes eliminated or reduced
an indicated write-down. Effective December 31, 2009, if capitalized costs
exceed the full-cost ceiling at the end of any quarter, a permanent noncash
write-down is required to be charged to earnings in that quarter regardless of
subsequent price changes.
Due to
low natural gas and oil prices that existed on March 31, 2009, and
December 31, 2008, the Company's capitalized costs under the full-cost
method of accounting exceeded the full-cost ceiling at March 31, 2009, and
December 31, 2008. Accordingly, the Company was required to write down its
natural gas and oil producing properties. The noncash write-downs amounted to
$620.0 million and $135.8 million ($384.4 million and
$84.2 million after tax) for the years ended December 31, 2009 and
2008, respectively.
The
Company hedges a portion of its natural gas and oil production and the effects
of the cash flow hedges were used in determining the full-cost ceiling. The
Company would have recognized additional write-downs of its natural gas and oil
properties of $107.9 million ($66.9 million after tax) at March 31, 2009, and
$79.2 million ($49.1 million after tax) at December 31, 2008, if
the
effects
of cash flow hedges had not been considered in calculating the full-cost
ceiling. For more information on the Company's cash flow hedges, see
Note 7.
At
December 31, 2009, the Company’s full-cost ceiling exceeded the Company’s
capitalized cost. However, sustained downward movements in natural gas and oil
prices subsequent to December 31, 2009, could result in a future write-down of
the Company’s natural gas and oil properties.
The
following table summarizes the Company's natural gas and oil properties not
subject to amortization at December 31, 2009, in total and by the year in
which such costs were incurred:
|
|
|
|
|
Year
Costs Incurred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
Total
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
and
prior
|
|
|
|
(In
thousands)
|
|
Acquisition
|
|
$
|
122,806
|
|
|
$
|
4,287
|
|
|
$
|
81,954
|
|
|
$
|
7,972
|
|
|
$
|
28,593
|
|
Development
|
|
|
20,377
|
|
|
|
9,997
|
|
|
|
7,149
|
|
|
|
3,231
|
|
|
|
—
|
|
Exploration
|
|
|
28,216
|
|
|
|
19,311
|
|
|
|
8,093
|
|
|
|
811
|
|
|
|
1
|
|
Capitalized
interest
|
|
|
6,815
|
|
|
|
1,336
|
|
|
|
3,865
|
|
|
|
478
|
|
|
|
1,136
|
|
Total
costs not subject
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
amortization
|
|
$
|
178,214
|
|
|
$
|
34,931
|
|
|
$
|
101,061
|
|
|
$
|
12,492
|
|
|
$
|
29,730
|
|
Costs not
subject to amortization as of December 31, 2009, consisted primarily of
unevaluated leaseholds, drilling costs, seismic costs and capitalized interest
associated primarily with natural gas and oil development in the Paradox Basin
in Utah; Big Horn Basin in Wyoming; east Texas properties; and CBNG in the
Powder River Basin of Wyoming and Montana. The Company expects that the majority
of these costs will be evaluated within the next five years and included in the
amortization base as the properties are evaluated and/or developed.
Revenue
recognition
Revenue
is recognized when the earnings process is complete, as evidenced by an
agreement between the customer and the Company, when delivery has occurred or
services have been rendered, when the fee is fixed or determinable and when
collection is reasonably assured. The Company recognizes utility revenue each
month based on the services provided to all utility customers during the month.
Accrued unbilled revenue which is included in receivables, net, represents
revenues recognized in excess of amounts billed. Accrued unbilled revenue at
Montana-Dakota, Cascade and Intermountain was $92.6 million and
$123.2 million at December 31, 2009 and 2008, respectively. The
Company recognizes construction contract revenue at its construction businesses
using the percentage-of-completion method as discussed later. The Company
recognizes revenue from natural gas and oil production properties only on that
portion of production sold and allocable to the Company's ownership interest in
the related well. The Company recognizes all other revenues when services are
rendered or goods are delivered. The Company presents revenues net of taxes
collected from customers at the time of sale to be remitted to governmental
authorities, including sales and use taxes.
Percentage-of-completion
method
The
Company recognizes construction contract revenue from fixed-price and modified
fixed-price construction contracts at its construction businesses using
the percentage-of-completion method, measured by the percentage of
costs incurred to date to estimated total costs for each contract. If a loss is
anticipated on a contract, the loss is immediately recognized. Costs and
estimated earnings in excess of billings on uncompleted contracts of
$28.8 million and $40.1 million at December 31, 2009 and 2008,
respectively, represent revenues recognized in excess of amounts billed and
were
included
in receivables, net. Billings in excess of costs and estimated earnings on
uncompleted contracts of $49.3 million and $106.9 million at
December 31, 2009 and 2008, respectively, represent billings in excess of
revenues recognized and were included in accounts payable. Amounts representing
balances billed but not paid by customers under retainage provisions in
contracts amounted to $45.4 million and $86.9 million at
December 31, 2009 and 2008, respectively. The amounts expected to be paid
within one year or less are included in receivables, net, and amounted to
$44.0 million and $67.7 million at December 31, 2009 and 2008,
respectively. The long-term retainage which was included in deferred charges and
other assets – other was $1.4 million and $19.2 million at
December 31, 2009 and 2008, respectively.
Derivative
instruments
The
Company's policy allows the use of derivative instruments as part of an overall
energy price, foreign currency and interest rate risk management program to
efficiently manage and minimize commodity price, foreign currency and interest
rate risk. The Company's policy prohibits the use of derivative instruments for
speculating to take advantage of market trends and conditions, and the Company
has procedures in place to monitor compliance with its policies. The Company is
exposed to credit-related losses in relation to derivative instruments in the
event of nonperformance by counterparties.
The
Company's policy generally allows the hedging of monthly forecasted natural gas
and oil production at Fidelity for a period up to 36 months from the time the
Company enters into the hedge. The Company's policy requires that interest rate
derivative instruments not exceed a period of 24 months and foreign currency
derivative instruments not exceed a 12-month period. The Company's policy allows
the hedging of monthly forecasted purchases of natural gas at Cascade and
Intermountain for a period up to three years.
The
Company’s policy requires that each month as physical natural gas and oil
production at Fidelity occurs and the commodity is sold, the related portion of
the derivative agreement for that month’s production must settle with its
counterparties. Settlements represent the exchange of cash between the Company
and its counterparties based on the notional quantities and prices for each
month’s physical delivery as specified within the agreements. The fair value of
the remaining notional amounts on the derivative agreements is recorded on the
balance sheet as an asset or liability measured at fair value, with the
unrealized gains or losses recognized as a component of accumulated other
comprehensive income (loss). The Company's policy also requires settlement of
natural gas derivative instruments at Cascade and Intermountain monthly and all
interest rate derivative transactions must be settled over a period that will
not exceed 90 days, and any foreign currency derivative transaction settlement
periods may not exceed a 12-month period. The Company has policies and
procedures that management believes minimize credit-risk exposure. Accordingly,
the Company does not anticipate any material effect on its financial position or
results of operations as a result of nonperformance by counterparties. For more
information on derivative instruments, see Note 7.
The
Company's swap and collar agreements are reflected at fair value, based upon
futures prices, volatility and time to maturity, among other
things.
Asset
retirement obligations
The
Company records the fair value of a liability for an asset retirement obligation
in the period in which it is incurred. When the liability is initially recorded,
the Company capitalizes a cost by increasing the carrying amount of the related
long-lived asset. Over time, the liability is accreted to its present value each
period, and the capitalized cost is depreciated over the useful life of the
related asset. Upon settlement of the liability, the Company either settles the
obligation for the
recorded
amount or incurs a gain or loss at its nonregulated operations or incurs a
regulatory asset or liability at its regulated operations. For more information
on asset retirement obligations, see Note 10.
Natural
gas costs recoverable or refundable through rate adjustments
Under the
terms of certain orders of the applicable state public service commissions, the
Company is deferring natural gas commodity, transportation and storage costs
that are greater or less than amounts presently being recovered through its
existing rate schedules. Such orders generally provide that these amounts are
recoverable or refundable through rate adjustments within a period ranging from
12 to 28 months from the time such costs are paid. Natural gas costs refundable
through rate adjustments were $37.4 million and $64,000 at December 31,
2009 and 2008, respectively, which is included in other accrued liabilities.
Natural gas costs recoverable through rate adjustments were $982,000 and
$51.7 million at December 31, 2009 and 2008, respectively, which is
included in prepayments and other current assets.
Insurance
Certain
subsidiaries of the Company are insured for workers' compensation losses,
subject to deductibles ranging up to $1 million per occurrence. Automobile
liability and general liability losses are insured, subject to deductibles
ranging up to $1 million per accident or occurrence. These subsidiaries
have excess coverage above the primary automobile and general liability policies
on a claims first-made and reported basis beyond the deductible levels. The
subsidiaries of the Company are retaining losses up to the deductible amounts
accrued on the basis of estimates of liability for claims incurred and for
claims incurred but not reported.
Income
taxes
The
Company provides deferred federal and state income taxes on all temporary
differences between the book and tax basis of the Company's assets and
liabilities. Excess deferred income tax balances associated with the Company's
rate-regulated activities have been recorded as a regulatory liability and are
included in other liabilities. These regulatory liabilities are expected to be
reflected as a reduction in future rates charged to customers in accordance with
applicable regulatory procedures.
The
Company uses the deferral method of accounting for investment tax credits and
amortizes the credits on regulated electric and natural gas distribution plant
over various periods that conform to the ratemaking treatment prescribed by the
applicable state public service commissions.
Tax
positions taken or expected to be taken in an income tax return are evaluated
for recognition using a more-likely-than-not threshold, and those tax positions
requiring recognition are measured as the largest amount of tax benefit that is
greater than 50 percent likely of being realized upon ultimate settlement with a
taxing authority. The Company recognizes interest and penalties accrued related
to unrecognized tax benefits in income taxes.
Foreign
currency translation adjustment
The
functional currency of the Company's investment in the Brazilian Transmission
Lines, as further discussed in Note 4, is the Brazilian Real. Translation
from the Brazilian Real to the U.S. dollar for assets and liabilities is
performed using the exchange rate in effect at the balance sheet date. Revenues
and expenses are translated on a year-to-date basis using weighted average daily
exchange rates. Adjustments resulting from such translations are reported as a
separate component of other comprehensive income (loss) in common stockholders'
equity.
Transaction
gains and losses resulting from the effect of exchange rate changes on
transactions denominated in a currency other than the functional currency of the
reporting entity would be recorded in income.
Earnings
(loss) per common share
Basic
earnings (loss) per common share were computed by dividing earnings (loss) on
common stock by the weighted average number of shares of common stock
outstanding during the year. Diluted earnings per common share were computed by
dividing earnings on common stock by the total of the weighted average number of
shares of common stock outstanding during the year, plus the effect of
outstanding stock options, restricted stock grants and performance share awards.
In 2008 and 2007, there were no shares excluded from the calculation of diluted
earnings per share. Diluted loss per common share for 2009 was computed by
dividing the loss on common stock by the weighted average number of shares of
common stock outstanding during the year. Due to the loss on common stock for
2009, the effect of outstanding stock options, restricted stock grants and
performance share awards was excluded from the computation of diluted loss per
common share as their effect was antidilutive. Common stock outstanding includes
issued shares less shares held in treasury.
Use
of estimates
The
preparation of financial statements in conformity with GAAP requires the Company
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Estimates are used for items such as
impairment testing of long-lived assets, goodwill and natural gas and oil
properties; fair values of acquired assets and liabilities under the purchase
method of accounting; natural gas and oil reserves; aggregate reserves; property
depreciable lives; tax provisions; uncollectible accounts; environmental and
other loss contingencies; accumulated provision for revenues subject to refund;
costs on construction contracts; unbilled revenues; actuarially determined
benefit costs; asset retirement obligations; the valuation of stock-based
compensation; and the fair value of derivative instruments. As additional
information becomes available, or actual amounts are determinable, the recorded
estimates are revised. Consequently, operating results can be affected by
revisions to prior accounting estimates.
Cash
flow information
Cash
expenditures for interest and income taxes were as follows:
Years
ended December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
Interest,
net of amount capitalized
|
|
$
|
81,267
|
|
|
$
|
77,152
|
|
|
$
|
74,404
|
|
Income
taxes
|
|
$
|
39,807
|
|
|
$
|
113,212
|
|
|
$
|
214,573
|
|
Income
taxes paid for the year ended December 31, 2007, were higher than the
amount paid for the years ended December 31, 2009 and 2008, primarily due
to higher estimated quarterly tax payments paid in 2007 due in large part to the
gain on the sale of the domestic independent power production assets as
discussed in Note 3.
New
accounting standards
Codification
In June 2009, the FASB established the ASC as the source of
authoritative generally accepted accounting principles recognized by the FASB.
The ASC is a reorganization of GAAP into a topical format. It was effective for
the Company in the third quarter of 2009. The adoption of the Codification
required the Company to revise its disclosures when referencing generally
accepted accounting principles.
Fair Value
Measurements and Disclosures
In September 2006, the FASB established
guidance that defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. The guidance
applies under other accounting pronouncements that require or permit fair value
measurements with certain exceptions and was effective for the Company on
January 1, 2008. In February 2008, this guidance was revised to delay the
effective date for certain nonfinancial assets and nonfinancial liabilities to
January 1, 2009. The types of assets and liabilities that are recognized at
fair value effective January 1, 2009, due to the delayed effective date,
include nonfinancial assets and nonfinancial liabilities initially measured at
fair value in a business combination or new basis event, certain fair value
measurements associated with goodwill impairment testing, indefinite-lived
intangible assets and nonfinancial long-lived assets measured at fair value for
impairment assessment, and asset retirement obligations initially measured at
fair value. The adoption of the fair value measurements and disclosure guidance,
including the application to certain nonfinancial assets and nonfinancial
liabilities with a delayed effective date of January 1, 2009, did not have
a material effect on the Company's financial position or results of
operations.
Business
Combinations
In December 2007,
the FASB issued guidance related to business combinations that requires an
acquirer to recognize and measure the assets acquired, liabilities assumed and
any noncontrolling interests in the acquiree at the acquisition date, measured
at their fair values as of that date, with limited exception. The business
combination guidance also requires that acquisition-related costs will be
generally expensed as incurred, and expands the disclosure requirements for
business combinations. In addition, the business combination guidance was
amended and clarified to address application issues raised in regard to initial
recognition and measurement, subsequent measurement and accounting, and
disclosure of assets and liabilities arising from contingencies in a business
combination. This guidance and its amendments were effective for the Company on
January 1, 2009. The adoption of the business combination guidance and its
amendments did not have a material effect on the Company’s financial position or
results of operations.
Noncontrolling
Interests
In December 2007, the FASB established accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. This guidance was effective for the Company on
January 1, 2009. The adoption of the noncontrolling interest guidance did
not have a material effect on the Company’s financial position or results of
operations.
Derivative
Instruments and Hedging Activities
In March 2008, the FASB released
guidance related to derivative instruments and hedging activities that requires
enhanced disclosures about an entity’s derivative and hedging activities
including how and why an entity uses derivative instruments, how derivative
instruments and related hedged items are accounted for, and how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance and cash flows. This guidance was effective for the
Company on January 1, 2009. The adoption of the derivative instruments and
hedging activities guidance requires additional disclosures regarding the
Company’s derivative instruments; however, it did not impact the Company’s
financial position or results of operations.
Pensions and
Other Postretirement Benefits
In December 2008, the FASB issued
guidance on an employer’s disclosures about plan assets of a defined benefit
pension or other postretirement plan to provide users of financial statements
with an understanding of how investment allocation decisions are made, the major
categories of plan assets, the inputs and valuation techniques used to measure
the fair value of plan assets, the effect of fair value measurements using
significant unobservable inputs on changes in plan assets for the period and
significant concentrations of risk within plan assets. This guidance was
effective for the Company on January 1, 2009. The adoption of the pension
and other postretirement benefits guidance required additional disclosures
regarding the Company's defined benefit pension and other postretirement plans
in the annual financial statements; however, it did not impact the Company's
financial position or results of operations.
Modernization of
Oil and Gas Reporting
In January 2009, the SEC adopted final rules
amending its oil and gas reporting requirements. The new rules include changes
to the pricing used to estimate reserves, the ability to include nontraditional
resources in reserves, the use of new technology for determining reserves and
permitting disclosure of probable and possible reserves. The final rules were
effective on December 31, 2009. For information on the impacts of adopting
the SEC’s final rules for oil and gas reporting, see Supplementary Financial
Information.
Financial
Instruments
In April 2009, the FASB issued guidance that requires
disclosures about the fair value of financial instruments for interim reporting
periods of publicly traded companies as well as in annual financial statements,
which was effective for the Company in the second quarter of 2009. The adoption
of the financial instruments guidance required additional disclosures regarding
the Company’s fair value of financial instruments; however, it did not impact
the Company’s financial position or results of operations.
Subsequent
Events
In May 2009, the FASB issued subsequent events guidance which
establishes standards of accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are issued or are
available to be issued. In addition it requires disclosure of the date through
which the Company has evaluated subsequent events and whether it represents the
date the financial statements were issued or were available to be issued. This
guidance was effective for the Company on June 30, 2009. The adoption of
the subsequent events guidance did not have a material effect on the Company’s
financial position or results of operations.
Variable Interest
Entities
In June 2009, the FASB issued guidance related to variable
interest entities which changes how a reporting entity determines when an entity
that is insufficiently capitalized or is not controlled through voting rights
should be consolidated and modifies the approach for determining the primary
beneficiary of a variable interest entity. This guidance will require a
reporting entity to provide additional disclosures about its involvement with
variable interest entities and any significant changes in risk exposure due to
that involvement. The guidance related to variable interest entities was
effective for the Company on January 1, 2010. The adoption of this guidance
did not have a material effect on the Company’s financial position or results of
operations.
Oil and Gas
Reserve Estimation and Disclosure
In January 2010, the FASB issued
guidance related to oil and gas reserve estimation and disclosure requirements,
which aligned the current oil and gas reserve estimation and disclosures with
those of the SEC’s final rule, Modernization of Oil and Gas Reporting, and
requires disclosure in the first annual period of the estimated effect of the
initial application of the guidance. The guidance related to oil and gas reserve
estimation and disclosure was effective for the Company on December 31,
2009. For more information on the
effects
of adopting the oil and gas reserve estimation and disclosure guidance, see
Supplementary Financial Information.
Improving
Disclosure About Fair Value Measurements
In January 2010, the FASB issued
guidance related to improving disclosures about fair value measurements. The
guidance requires separate disclosures of the amounts of transfers in and out of
Level 1 and Level 2 fair value measurements and a description of the reason for
such transfers. In the reconciliation for Level 3 fair value measurements using
significant unobservable inputs, information about purchases, sales, issuances
and settlements shall be presented separately. These disclosures are required
for interim and annual reporting periods and were effective for the Company on
January 1, 2010, except for the disclosures related to the purchases, sales,
issuances and settlements in the roll forward activity of Level 3 fair value
measurements, which are effective on January 1, 2011. The guidance will
require additional disclosures but will not impact the Company’s financial
position or results of operations.
Comprehensive
income (loss)
Comprehensive
income (loss) is the sum of net income (loss) as reported and other
comprehensive income (loss). The Company's other comprehensive income (loss)
resulted from gains (losses) on derivative instruments qualifying as hedges,
postretirement liability adjustments, foreign currency translation adjustments
and gains on available-for-sale investments. For more information on derivative
instruments, see Note 7.
The
components of other comprehensive income (loss), and their related tax effects
for the years ended December 31, 2009, 2008 and 2007, were as
follows:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Net
unrealized gain (loss) on derivative instruments
|
|
|
|
|
|
|
|
|
|
qualifying
as hedges:
|
|
|
|
|
|
|
|
|
|
Net
unrealized gain (loss) on derivative instruments
|
|
|
|
|
|
|
|
|
|
arising
during the period, net of tax of
|
|
|
|
|
|
|
|
|
|
$(2,509),
$30,414 and $3,989 in 2009,
|
|
|
|
|
|
|
|
|
|
2008
and 2007, respectively
|
|
$
|
(4,094
|
)
|
|
$
|
49,623
|
|
|
$
|
6,508
|
|
Less:
Reclassification adjustment for gain on
|
|
|
|
|
|
|
|
|
|
|
|
|
derivative
instruments included in net income,
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of tax of $29,170, $3,795 and $12,504 in
|
|
|
|
|
|
|
|
|
|
|
|
|
2009,
2008 and 2007, respectively
|
|
|
47,590
|
|
|
|
6,175
|
|
|
|
20,013
|
|
Net
unrealized gain (loss) on derivative
|
|
|
|
|
|
|
|
|
|
|
|
|
instruments
qualifying as hedges
|
|
|
(51,684
|
)
|
|
|
43,448
|
|
|
|
(13,505
|
)
|
Postretirement
liability adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
of
$6,291, $(8,750) and $1,835 in 2009,
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
and 2007, respectively
|
|
|
9,918
|
|
|
|
(13,751
|
)
|
|
|
3,012
|
|
Foreign
currency translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
of
$6,814, $(6,108) and $3,606 in 2009, 2008 and 2007,
respectively
|
|
|
10,568
|
|
|
|
(9,534
|
)
|
|
|
7,177
|
|
Net
unrealized gain on available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
investments,
net of tax of $270 in 2007
|
|
|
—
|
|
|
|
—
|
|
|
|
405
|
|
Total
other comprehensive income (loss)
|
|
$
|
(31,198
|
)
|
|
$
|
20,163
|
|
|
$
|
(2,911
|
)
|
The
after-tax components of accumulated other comprehensive income (loss) as of
December 31, 2009, 2008 and 2007, were as follows:
|
|
Net
Unrealized
Gain
(Loss) on
Derivative
Instruments
Qualifying
as
Hedges
|
|
|
Post-retirement
Liability
Adjustment
|
|
|
Foreign
Currency
Translation
Adjustment
|
|
|
Net
Unrealized
Gain
on
Available-for-sale Investments
|
|
|
Total
Accumulated
Other
Comprehensive
Income
(Loss)
|
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
$
|
5,938
|
|
|
$
|
(21,330
|
)
|
|
$
|
5,594
|
|
|
$
|
405
|
|
|
$
|
(9,393
|
)
|
Balance
at December 31, 2008
|
|
$
|
49,386
|
|
|
$
|
(35,081
|
)
|
|
$
|
(3,940
|
)
|
|
$
|
—
|
|
|
$
|
10,365
|
|
Balance
at December 31, 2009
|
|
$
|
(2,298
|
)
|
|
$
|
(25,163
|
)
|
|
$
|
6,628
|
|
|
$
|
—
|
|
|
$
|
(20,833
|
)
|
Note 2
– Acquisitions
In 2009,
the Company acquired a pipeline and energy services business in Montana which
was not material. The total purchase consideration for this business and
purchase price adjustments with respect to certain other acquisitions made prior
to 2009, consisting of the Company’s common stock and cash, was
$22.0 million.
In 2008,
the Company acquired a construction services business in Nevada; natural gas
properties in Texas; construction materials and contracting businesses in
Alaska, California, Idaho and Texas; and Intermountain, a natural gas
distribution business, as discussed below. The total purchase consideration for
these businesses and properties and purchase price adjustments with respect to
certain other acquisitions made prior to 2008, consisting of the Company’s
common stock and cash and the outstanding indebtedness of Intermountain, was
$624.5 million.
On
October 1, 2008, the acquisition of Intermountain was finalized and
Intermountain became an indirect wholly owned subsidiary of the Company.
Intermountain’s service area is in Idaho.
In 2007,
the Company acquired construction materials and contracting businesses in North
Dakota, Texas and Wyoming; a construction services business in Nevada; and
Cascade, a natural gas distribution business, as discussed below. The total
purchase consideration for these businesses and properties and purchase price
adjustments with respect to certain other acquisitions made prior to 2007,
consisting of the Company's common stock and cash and the outstanding
indebtedness of Cascade, was $526.3 million.
On
July 2, 2007, the acquisition of Cascade was finalized and Cascade became
an indirect wholly owned subsidiary of the Company. Cascade's natural gas
service areas are in Washington and Oregon.
The above
acquisitions were accounted for under the purchase method of accounting and,
accordingly, the acquired assets and liabilities assumed have been preliminarily
recorded at their respective fair values as of the date of acquisition. On the
above acquisition made in 2009, a final fair market value is pending the
completion of the review of the relevant assets and liabilities as of the
acquisition date. The results of operations of the acquired businesses and
properties are included in the financial statements since the date of each
acquisition. Pro forma financial amounts reflecting the effects of the above
acquisitions are not presented, as such acquisitions were not material to the
Company's financial position or results of operations.
Note 3
– Discontinued Operations
Innovatum,
a component of the pipeline and energy services segment, specialized in cable
and pipeline magnetization and location. During the third quarter of 2006, the
Company initiated a plan to sell Innovatum because the Company determined that
Innovatum is a non-strategic asset. During the fourth quarter of 2006, the stock
and a portion of the assets of Innovatum were sold and the Company sold the
remaining assets of Innovatum in January 2008. The loss on disposal of
Innovatum was not material.
During
the fourth quarter of 2006, the Company initiated a plan to sell certain of the
domestic assets of Centennial Resources. The plan to sell was based on the
increased market demand for independent power production assets, combined with
the Company's desire to efficiently fund future capital needs. The Company
subsequently committed to a plan to sell CEM due to strong interest in the
operations of CEM during the bidding process for the domestic independent power
production assets in the first quarter of 2007.
In July
2007, Centennial Resources sold its domestic independent power production
business consisting of Centennial Power and CEM to Bicent Power LLC (formerly
known as Montana Acquisition Company LLC). The transaction was valued at
$636 million, which included the assumption of approximately
$36 million of project-related debt. The gain on the sale of the assets,
excluding the gain on the sale of Hartwell as discussed in Note 4, was
approximately $85.4 million (after tax).
The
Company's consolidated financial statements and accompanying notes for prior
periods present the results of operations of Innovatum and the domestic
independent power production assets as discontinued operations. In addition, the
assets and liabilities of these operations were treated as held for sale, and as
a result, no depreciation, depletion and amortization expense was recorded from
the time each of the assets was classified as held for sale.
Operating
results related to Innovatum for the year ended December 31, 2007, were as
follows:
|
|
2007
|
|
(In
thousands)
|
|
Operating
revenues
|
|
$
|
1,748
|
|
Loss
from discontinued operations before income tax benefit
|
|
|
(210
|
)
|
Income
tax benefit
|
|
|
(316
|
)
|
Income
from discontinued operations, net of tax
|
|
$
|
106
|
|
Operating
results related to the domestic independent power production assets for the year
ended December 31, 2007, were as follows:
|
|
2007
|
|
(In
thousands)
|
|
Operating
revenues
|
|
$
|
125,867
|
|
Income
from discontinued operations (including gain on disposal in 2007 of
$142.4 million) before income tax expense
|
|
|
177,666
|
|
Income
tax expense
|
|
|
68,438
|
|
Income
from discontinued operations, net of tax
|
|
$
|
109,228
|
|
Revenues
at the former independent power production operations were recognized based on
electricity delivered and capacity provided, pursuant to contractual commitments
and, where applicable, revenues were recognized ratably over the terms of the
related contract. Arrangements
with
multiple revenue-generating activities were recognized with the multiple
deliverables divided into separate units of accounting based on specific
criteria and revenues of the arrangements allocated to the separate units based
on their relative fair values.
Note 4
– Equity Method Investments
Investments
in companies in which the Company has the ability to exercise significant
influence over operating and financial policies are accounted for using the
equity method. The Company's equity method investments at December 31, 2009
and 2008, include the Brazilian Transmission Lines.
In
August 2006, MDU Brasil acquired ownership interests in companies owning
the Brazilian Transmission Lines. The interests involve the ENTE (13.3-percent
ownership interest), ERTE (13.3-percent ownership interest) and ECTE (25-percent
ownership interest) electric transmission lines, which are primarily in
northeastern and southern Brazil. The transmission contracts provide for
revenues denominated in the Brazilian Real, annual inflation adjustments and
change in tax law adjustments and have between 21 and 23 years remaining under
the contracts. Alusa and CEMIG hold the remaining ownership interests, with
CELESC also having an ownership interest in ECTE. The functional currency for
the Brazilian Transmission Lines is the Brazilian Real.
In the
fourth quarter of 2009, multiple sales agreements were signed with three
separate parties for the Company to sell its ownership interests in the
Brazilian Transmission Lines. This sale is pending regulatory approvals. One of
the parties will purchase 15.6 percent of the Company’s ownership interests
over a four-year period. The other parties will purchase 84.4 percent of the
Company’s ownership interests at the financial close of the
transaction.
In
September 2004, Centennial Resources, through indirect wholly owned
subsidiaries, acquired a 50 percent ownership interest in Hartwell, which owns a
310-MW natural gas-fired electric generating facility near Hartwell, Georgia. In
July 2007, the Company sold its ownership interest in Hartwell, and realized a
gain of $10.1 million ($6.1 million after tax) from the sale which is
recorded in earnings from equity method investments on the Consolidated
Statements of Income.
At
December 31, 2009 and 2008, the investments in which the Company held an
equity method interest had total assets of $387.0 million and
$294.7 million, respectively, and long-term debt of $176.7 million and
$158.0 million, respectively. The Company's investment in its equity method
investments was approximately $62.4 million and $44.4 million,
including undistributed earnings of $9.3 million and $6.8 million, at
December 31, 2009 and 2008, respectively.
Note 5
– Goodwill and Other Intangible Assets
The
changes in the carrying amount of goodwill for the year ended December 31,
2009, were as follows:
|
|
Balance
|
|
|
Goodwill
|
|
|
Balance
|
|
|
|
as
of
|
|
|
Acquired
|
|
|
as
of
|
|
|
|
January 1,
|
|
|
During
|
|
|
December 31,
|
|
|
|
2009
|
|
|
the
Year*
|
|
|
2009
|
|
|
|
(In
thousands)
|
|
Electric
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Natural
gas distribution
|
|
|
344,952
|
|
|
|
784
|
|
|
|
345,736
|
|
Construction
services
|
|
|
95,619
|
|
|
|
4,508
|
|
|
|
100,127
|
|
Pipeline
and energy services
|
|
|
1,159
|
|
|
|
6,698
|
|
|
|
7,857
|
|
Natural
gas and oil production
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Construction
materials and contracting
|
|
|
174,005
|
|
|
|
1,738
|
|
|
|
175,743
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
615,735
|
|
|
$
|
13,728
|
|
|
$
|
629,463
|
|
*
Includes purchase price adjustments that were not material related to
acquisitions in a prior period.
|
|
The
changes in the carrying amount of goodwill for the year ended December 31,
2008, were as follows:
|
|
Balance
|
|
|
Goodwill
|
|
|
Balance
|
|
|
|
as
of
|
|
|
Acquired
|
|
|
as
of
|
|
|
|
January 1,
|
|
|
During
|
|
|
December 31,
|
|
|
|
2008
|
|
|
the
Year*
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Electric
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Natural
gas distribution
|
|
|
171,129
|
|
|
|
173,823
|
|
|
|
344,952
|
|
Construction
services
|
|
|
91,385
|
|
|
|
4,234
|
|
|
|
95,619
|
|
Pipeline
and energy services
|
|
|
1,159
|
|
|
|
—
|
|
|
|
1,159
|
|
Natural
gas and oil production
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Construction
materials and contracting
|
|
|
162,025
|
|
|
|
11,980
|
|
|
|
174,005
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
425,698
|
|
|
$
|
190,037
|
|
|
$
|
615,735
|
|
*
Includes purchase price adjustments that were not material related to
acquisitions in a prior period.
|
|
Other
amortizable intangible assets at December 31 were as follows:
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Customer
relationships
|
|
$
|
24,942
|
|
|
$
|
21,842
|
|
Accumulated
amortization
|
|
|
(9,500
|
)
|
|
|
(6,985
|
)
|
|
|
|
15,442
|
|
|
|
14,857
|
|
Noncompete
agreements
|
|
|
12,377
|
|
|
|
10,080
|
|
Accumulated
amortization
|
|
|
(6,675
|
)
|
|
|
(5,126
|
)
|
|
|
|
5,702
|
|
|
|
4,954
|
|
Other
|
|
|
10,859
|
|
|
|
10,949
|
|
Accumulated
amortization
|
|
|
(3,026
|
)
|
|
|
(2,368
|
)
|
|
|
|
7,833
|
|
|
|
8,581
|
|
Total
|
|
$
|
28,977
|
|
|
$
|
28,392
|
|
Amortization
expense for intangible assets for the years ended December 31, 2009, 2008
and 2007, was $5.0 million, $5.1 million and $4.4 million,
respectively. Estimated amortization expense for intangible assets is
$4.5 million in 2010, $4.0 million in 2011, $3.9 million in 2012,
$3.4 million in 2013, $3.0 million in 2014 and $10.2 million
thereafter.
Note 6
– Regulatory Assets and Liabilities
The
following table summarizes the individual components of unamortized regulatory
assets and liabilities as of December 31:
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Regulatory
assets:
|
|
|
|
|
|
|
Pension
and postretirement benefits (a)
|
|
$
|
91,078
|
|
|
$
|
119,868
|
|
Deferred
income taxes*
|
|
|
85,712
|
|
|
|
46,855
|
|
Natural
gas supply derivatives (a) (b)
|
|
|
27,900
|
|
|
|
89,813
|
|
Costs
related to potential generation development (a)
|
|
|
15,499
|
|
|
|
—
|
|
Long-term
debt refinancing costs (a)
|
|
|
12,089
|
|
|
|
9,991
|
|
Taxes
recoverable from customers (a)
|
|
|
10,102
|
|
|
|
4,824
|
|
Plant
costs (a)
|
|
|
7,775
|
|
|
|
8,534
|
|
Natural
gas cost recoverable through rate adjustments (b)
|
|
|
982
|
|
|
|
51,699
|
|
Other
(a) (b)
|
|
|
12,242
|
|
|
|
7,978
|
|
Total
regulatory assets
|
|
|
263,379
|
|
|
|
339,562
|
|
Regulatory
liabilities:
|
|
|
|
|
|
|
|
|
Plant
removal and decommissioning costs (c)
|
|
|
251,143
|
|
|
|
94,737
|
|
Deferred
income taxes*
|
|
|
53,835
|
|
|
|
65,909
|
|
Natural
gas costs refundable through rate adjustments (d)
|
|
|
37,356
|
|
|
|
64
|
|
Taxes
refundable to customers (c)
|
|
|
34,571
|
|
|
|
25,642
|
|
Natural
gas supply derivatives (c)
|
|
|
—
|
|
|
|
5,540
|
|
Other
(c) (d)
|
|
|
17,767
|
|
|
|
7,460
|
|
Total
regulatory liabilities
|
|
|
394,672
|
|
|
|
199,352
|
|
Net
regulatory position
|
|
$
|
(131,293
|
)
|
|
$
|
140,210
|
|
*
Represents deferred income taxes
related to regulatory assets and liabilities.
(a)
Included in deferred charges and other assets on the Consolidated Balance
Sheets.
(b)
Included in prepayments and other current assets on the Consolidated
Balance Sheets.
(c)
Included in other liabilities on the Consolidated Balance
Sheets.
(d)
Included in other accrued liabilities on the Consolidated Balance
Sheets.
|
|
The
regulatory assets are expected to be recovered in rates charged to customers. A
portion of the Company's regulatory assets are not earning a return; however,
these regulatory assets are expected to be recovered from customers in future
rates. In 2009, the Company determined that plant removal costs related to
recent acquisitions should be reclassified from accumulated depreciation to a
regulatory liability. This reclassification is reflected in the preceding
table.
If, for
any reason, the Company's regulated businesses cease to meet the criteria for
application of regulatory accounting for all or part of their operations, the
regulatory assets and liabilities relating to those portions ceasing to meet
such criteria would be removed from the balance sheet and included in the
statement of income as an extraordinary item in the period in which the
discontinuance of regulatory accounting occurs.
Note 7
– Derivative Instruments
Derivative
instruments, including certain derivative instruments embedded in other
contracts, are required to be recorded on the balance sheet as either an asset
or liability measured at fair value. The Company’s policy is to not offset fair
value amounts for derivative instruments, and as a result the Company’s
derivative assets and liabilities are presented gross on the Consolidated
Balance Sheets. Changes in the derivative instrument's fair value are recognized
currently in earnings unless specific hedge accounting criteria are met.
Accounting for qualifying hedges
allows
derivative 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 the
event a derivative instrument being accounted for as a cash flow hedge does not
qualify for hedge accounting because it is no longer highly effective in
offsetting changes in cash flows of a hedged item; if the derivative instrument
expires or is sold, terminated or exercised; or if management determines that
designation of the derivative instrument as a hedge instrument is no longer
appropriate, hedge accounting would be discontinued and the derivative
instrument would continue to be carried at fair value with changes in its fair
value recognized in earnings. In these circumstances, the net gain or loss at
the time of discontinuance of hedge accounting would remain in accumulated other
comprehensive income (loss) until the period or periods during which the hedged
forecasted transaction affects earnings, at which time the net gain or loss
would be reclassified into earnings. In the event a cash flow hedge is
discontinued because it is unlikely that a forecasted transaction will occur,
the derivative instrument would continue to be carried on the balance sheet at
its fair value, and gains and losses that had accumulated in other comprehensive
income (loss) would be recognized immediately in earnings. In the event of a
sale, termination or extinguishment of a foreign currency derivative, the
resulting gain or loss would be recognized immediately in earnings. The
Company's policy requires approval to terminate a derivative instrument prior to
its original maturity. As of December 31, 2009, the Company had no
outstanding foreign currency or interest rate hedges.
Cascade
and Intermountain
At
December 31, 2009, Cascade and Intermountain held natural gas swap
agreements, with total forward notional volumes of 12.1 million MMBtu,
which were not designated as hedges. Cascade and Intermountain utilize natural
gas swap agreements to manage a portion of their regulated natural gas supply
portfolios in order to manage fluctuations in the price of natural gas related
to core customers in accordance with authority granted by the IPUC, WUTC and
OPUC. Core customers consist of residential, commercial and smaller industrial
customers. The fair value of the derivative instrument must be estimated as of
the end of each reporting period and is recorded on the Consolidated Balance
Sheets as an asset or a liability. Cascade and Intermountain record periodic
changes in the fair market value of the derivative instruments on the
Consolidated Balance Sheets as a regulatory asset or a regulatory liability, and
settlements of these arrangements are expected to be recovered through the
purchased gas cost adjustment mechanism. Gains and losses on the settlements of
these derivative instruments are recorded as a component of purchased natural
gas sold on the Consolidated Statements of Income as they are recovered through
the purchased gas cost adjustment mechanism. Under the terms of these
arrangements, Cascade and Intermountain will either pay or receive settlement
payments based on the difference between the fixed strike price and the monthly
index price applicable to each contract. For the year ended December 31,
2009, Cascade and Intermountain recorded the decrease in the fair market value
of the derivative instruments of $61.9 million in regulatory
assets.
Certain
of Cascade's derivative instruments contain credit-risk-related contingent
features that permit the counterparties to require collateralization if
Cascade's derivative liability positions exceed certain dollar thresholds. The
dollar thresholds in certain of Cascade's agreements are determined and may
fluctuate based on Cascade's credit rating on its debt. In addition, Cascade's
and Intermountain's derivative instruments contain cross-default provisions that
state if the entity fails to make payment with respect to certain of its
indebtedness, in excess of specified amounts, the counterparties could require
early settlement or termination of such entity's derivative instruments in
liability positions. The aggregate fair value of Cascade and Intermountain's
derivative instruments with credit-risk-related contingent features that are in
a liability position at December 31, 2009, was $27.9 million. The
aggregate fair value of assets that would have been
needed to
settle the instruments immediately if the credit-risk-related contingent
features were triggered on December 31, 2009, was
$27.9 million.
Fidelity
At
December 31, 2009, Fidelity held natural gas swaps and collar agreements
with total forward notional volumes of 26.5 million MMBtu, natural gas
basis swaps with total forward notional volumes of 15.1 million MMBtu, and
oil swaps and collar agreements with total forward notional volumes of
2.0 million Bbl, all of which were designated as cash flow hedging
instruments. Fidelity utilizes these derivative instruments to manage a portion
of the market risk associated with fluctuations in the price of natural gas and
oil and basis differentials on its forecasted sales of natural gas and oil
production.
The fair
value of the derivative instruments must be estimated as of the end of each
reporting period and is recorded on the Consolidated Balance Sheets as an asset
or liability. Changes in the fair value attributable to the effective portion of
hedging instruments, net of tax, are recorded in stockholders' equity as a
component of accumulated other comprehensive income (loss). At the date the
natural gas and oil quantities are settled, the amounts accumulated in other
comprehensive income (loss) are reported in the Consolidated Statements of
Income. To the extent that the hedges are not effective, the ineffective portion
of the changes in fair market value is recorded directly in earnings. The
proceeds received for natural gas and oil production are generally based on
market prices.
For the
years ended December 31, 2009, 2008 and 2007, the amount of hedge
ineffectiveness was immaterial, and there were no components of the derivative
instruments’ gain or loss excluded from the assessment of hedge effectiveness.
Gains and losses must be reclassified into earnings as a result of the
discontinuance of cash flow hedges if it is probable that the original
forecasted transactions will not occur. There were no such reclassifications
into earnings as a result of the discontinuance of hedges.
Gains and
losses on derivative instruments that are reclassified from accumulated other
comprehensive income (loss) to current-period earnings are included in operating
revenues on the Consolidated Statements of Income. For further information
regarding the gains and losses on derivative instruments qualifying as cash flow
hedges that were recognized in other comprehensive income (loss) and the gains
and losses reclassified from accumulated other comprehensive income (loss) into
earnings, see Note 1.
As of
December 31, 2009, the maximum term of the swap and collar agreements, in
which the exposure to the variability in future cash flows for forecasted
transactions is being hedged, is 24 months. The Company estimates that over
the next 12 months net losses of approximately $3.8 million (after tax)
will be reclassified from accumulated other comprehensive loss into earnings,
subject to changes in natural gas and oil market prices, as the hedged
transactions affect earnings.
Certain
of Fidelity's derivative instruments contain cross-default provisions that state
if Fidelity fails to make payment with respect to certain indebtedness, in
excess of specified amounts, the counterparties could require early settlement
or termination of derivative instruments in liability positions. The aggregate
fair value of Fidelity's derivative instruments with credit-risk-related
contingent features that are in a liability position at December 31, 2009,
was $13.9 million. The aggregate fair value of assets that would have been
needed to settle the instruments immediately if the credit-risk-related
contingent features were triggered on December 31, 2009, was
$13.9 million.
The
location and fair value of all of the Company’s derivative instruments on the
Consolidated Balance Sheets as of December 31, 2009, were as
follows:
|
Asset
Derivatives
|
|
Liability
Derivatives
|
|
|
Location
on Consolidated
Balance
Sheets
|
|
Fair
Value
|
|
Location
on Consolidated
Balance
Sheets
|
|
Fair
Value
|
|
|
(In
thousands)
|
|
Commodity
derivatives
designated
as hedges:
|
|
|
Commodity
derivative instruments
|
|
$
|
7,761
|
|
Commodity
derivative instruments
|
|
$
|
13,763
|
|
|
Other
assets - noncurrent
|
|
|
2,734
|
|
Other
liabilities – noncurrent
|
|
|
114
|
|
Total
derivatives designated as hedges
|
|
|
|
10,495
|
|
|
|
|
13,877
|
|
|
|
Commodity
derivatives
not
designated as hedges:
|
|
|
Commodity
derivative instruments
|
|
|
—
|
|
Commodity
derivative instruments
|
|
|
23,144
|
|
|
Other
assets - noncurrent
|
|
|
—
|
|
Other
liabilities – noncurrent
|
|
|
4,756
|
|
Total
derivatives not designated as hedges
|
|
|
|
—
|
|
|
|
|
27,900
|
|
Total
derivatives
|
|
|
$
|
10,495
|
|
|
|
$
|
41,777
|
|
Note 8
– Fair Value Measurements
On
January 1, 2008, the Company elected to measure its investments in certain
fixed-income and equity securities at fair value with changes in fair value
recognized in income. These investments had previously been accounted for as
available-for-sale investments. The Company anticipates using these investments
to satisfy its obligations under its unfunded, nonqualified benefit plans for
executive officers and certain key management employees, and invests in these
fixed-income and equity securities for the purpose of earning investment returns
and capital appreciation. These investments, which totaled $34.8 million
and $27.7 million as of December 31, 2009 and 2008, respectively, are
classified as Investments on the Consolidated Balance Sheets. The increase in
the fair value of these investments for the year ended December 31, 2009,
was $7.1 million (before tax). The decrease in the fair value of these
investments for the year ended December 31, 2008, was $8.6 million (before
tax). The change in fair value, which is considered part of the cost of the
plan, is classified in operation and maintenance expense on the Consolidated
Statements of Income. The Company did not elect the fair value option for its
remaining available-for-sale securities, which are auction rate securities. The
Company’s auction rate securities, which totaled $11.4 million at
December 31, 2009 and 2008, are accounted for as available-for-sale and are
recorded at fair value. The fair value of the auction rate securities
approximate cost and, as a result, there are no accumulated unrealized gains or
losses recorded in accumulated other comprehensive income (loss) on the
Consolidated Balance Sheets related to these investments.
Fair
value is defined as the price that would be received to sell an asset or paid to
transfer a liability (an exit price) in an orderly transaction between market
participants at the measurement date. The statement establishes a hierarchy for
grouping assets and liabilities, based on the significance of inputs. The
Company’s assets and liabilities measured at fair value on a recurring basis are
as follows:
|
|
Fair
Value Measurements at
December 31,
2009, Using
|
|
|
|
|
|
|
|
|
|
Quoted
Prices in Active Markets for Identical Assets
(Level 1)
|
|
|
Significant
Other Observable Inputs (Level 2)
|
|
|
Significant
Unobservable Inputs (Level 3)
|
|
|
Collateral
Provided to Counterparties
|
|
|
Balance
at December 31, 2009
|
|
|
|
(In
thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds
|
|
$
|
9,124
|
|
|
$
|
151,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
160,124
|
|
Available-for-sale
securities
|
|
|
9,078
|
|
|
|
37,141
|
|
|
|
—
|
|
|
|
—
|
|
|
|
46,219
|
|
Commodity
derivative instruments - current
|
|
|
—
|
|
|
|
7,761
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,761
|
|
Commodity
derivative instruments - noncurrent
|
|
|
—
|
|
|
|
2,734
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,734
|
|
Total
assets measured at fair value
|
|
$
|
18,202
|
|
|
$
|
198,636
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
216,838
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity
derivative instruments - current
|
|
$
|
—
|
|
|
$
|
36,907
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
36,907
|
|
Commodity
derivative instruments - noncurrent
|
|
|
—
|
|
|
|
4,870
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,870
|
|
Total
liabilities measured at fair value
|
|
$
|
—
|
|
|
$
|
41,777
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
41,777
|
|
|
|
Fair
Value Measurements at
December 31,
2008, Using
|
|
|
|
|
|
|
|
|
|
Quoted
Prices in Active Markets for Identical Assets
(Level 1)
|
|
|
Significant
Other Observable Inputs (Level 2)
|
|
|
Significant
Unobservable Inputs (Level 3)
|
|
|
Collateral
Provided to Counterparties
|
|
|
Balance
at December 31, 2008
|
|
|
|
(In
thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$
|
27,725
|
|
|
$
|
11,400
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
39,125
|
|
Commodity
derivative instruments - current
|
|
|
—
|
|
|
|
78,164
|
|
|
|
—
|
|
|
|
—
|
|
|
|
78,164
|
|
Commodity
derivative instruments - noncurrent
|
|
|
—
|
|
|
|
3,222
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,222
|
|
Total
assets measured at fair value
|
|
$
|
27,725
|
|
|
$
|
92,786
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
120,511
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity
derivative instruments - current
|
|
$
|
—
|
|
|
$
|
67,629
|
|
|
$
|
—
|
|
|
$
|
11,100
|
|
|
$
|
56,529
|
|
Commodity
derivative instruments - noncurrent
|
|
|
—
|
|
|
|
23,534
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23,534
|
|
Total
liabilities measured at fair value
|
|
$
|
—
|
|
|
$
|
91,163
|
|
|
$
|
—
|
|
|
$
|
11,100
|
|
|
$
|
80,063
|
|
The
estimated fair value of the Company’s Level 1 money market funds is valued
at the net asset value of shares held by the Company, based on published market
quotations in active markets. The estimated fair value of the Company’s Level 1
available-for-sale securities is based on quoted market prices in active markets
for identical equity and fixed-income securities. The estimated fair value of
the Company’s Level 2 money market funds and available-for-sale securities
is based on comparable market transactions or underlying investments. The
estimated fair value of the Company’s Level 2 commodity
derivative
instruments is
based upon futures prices, volatility and time to maturity, among other
things.
The
Company’s long-term debt is not measured at fair value on the Consolidated
Balance Sheets and the fair value is being provided for disclosure purposes
only. The estimated fair value of the Company’s long-term debt was based on
quoted market prices of the same or similar issues. The estimated fair value of
the Company's long-term debt at December 31 was as follows:
|
|
2009
|
|
|
2008
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
(In
thousands)
|
|
Long-term
debt
|
|
$
|
1,499,306
|
|
|
$
|
1,566,331
|
|
|
$
|
1,647,302
|
|
|
$
|
1,577,907
|
|
The
carrying amounts of the Company's remaining financial instruments included in
current assets and current liabilities approximate their fair
values.
Note 9
– Debt
Certain
debt instruments of the Company and its subsidiaries, including those discussed
below, contain restrictive covenants and cross-default provisions. In order to
borrow under the respective credit agreements, the Company and its subsidiaries
must be in compliance with the applicable covenants and certain other
conditions, all of which the Company and its subsidiaries, as applicable, were
in compliance with at December 31, 2009. In the event the Company and its
subsidiaries do not comply with the applicable covenants and other conditions,
alternative sources of funding may need to be pursued.
The
following table summarizes the outstanding credit facilities of the Company and
its subsidiaries:
Company
|
Facility
|
|
|
Facility
Limit
|
|
|
|
Amount
Outstanding
at
December 31,
2009
|
|
|
|
Amount
Outstanding
at
December 31,
2008
|
|
|
|
Letters
of
Credit
at
December 31,
2009
|
|
|
Expiration
Date
|
|
(Dollars
in millions)
|
MDU
Resources Group, Inc.
|
Commercial
paper/Revolving
credit
agreement
|
(a)
|
|
$
|
125.0
|
|
|
|
$
|
—
|
|
(b)
|
|
$
|
22.5
|
|
(b)
|
|
$
|
—
|
|
|
6/21/11
|
|
MDU
Energy Capital, LLC
|
Master
shelf agreement
|
|
|
$
|
175.0
|
|
|
|
$
|
165.0
|
|
|
|
$
|
165.0
|
|
|
|
$
|
—
|
|
|
8/14/10
|
(c)
|
Cascade
Natural Gas Corporation
|
Revolving
credit agreement
|
|
|
$
|
50.0
|
|
(d)
|
|
$
|
—
|
|
|
|
$
|
48.1
|
|
|
|
$
|
1.9
|
|
(e)
|
12/28/12
|
(f)
|
Intermountain
Gas Company
|
Revolving
credit agreement
|
|
|
$
|
65.0
|
|
(g)
|
|
$
|
10.3
|
|
|
|
$
|
36.5
|
|
|
|
$
|
—
|
|
|
8/31/10
|
|
Centennial
Energy
Holdings,
Inc.
|
Commercial
paper/Revolving
credit
agreement
|
(h)
|
|
$
|
400.0
|
|
|
|
$
|
—
|
|
(b)
|
|
$
|
150.0
|
|
(b)
|
|
$
|
26.4
|
|
(e)
|
12/13/12
|
|
Williston
Basin Interstate Pipeline Company
|
Uncommitted
long-term private shelf agreement
|
|
|
$
|
125.0
|
|
|
|
$
|
87.5
|
|
|
|
$
|
72.5
|
|
|
|
$
|
—
|
|
|
12/23/10
|
(i)
|
(a)
|
The
$125 million commercial paper program is supported by a revolving credit
agreement with various banks totaling $125 million (provisions allow for
increased borrowings, at the option of the Company on stated conditions,
up to a maximum of $150 million). There were no amounts outstanding under
the credit agreement.
|
(b)
|
Amount
outstanding under commercial paper program.
|
(c)
|
Or
such time as the agreement is terminated by either of the parties
thereto.
|
(d)
|
Certain
provisions allow for increased borrowings, up to a maximum of $75
million.
|
(e)
|
The
outstanding letters of credit, as discussed in Note 19, reduce amounts
available under the credit agreement.
|
(f)
|
Provisions
allow for an extension of up to two years upon consent of the
banks.
|
(g)
|
Certain
provisions allow for increased borrowings, up to a maximum of
$70 million.
|
(h)
|
The
$400 million commercial paper program is supported by a revolving credit
agreement with various banks totaling $400 million (provisions allow for
increased borrowings, at the option of Centennial on stated conditions, up
to a maximum of $450 million). There were no amounts outstanding under the
credit agreement.
|
(i)
|
Certain
provisions allow for an extension to
December 23, 2011.
|
In order
to maintain the Company’s and Centennial’s respective commercial paper programs
in the amounts indicated above, both the Company and Centennial must have
revolving credit agreements in place at least equal to the amount of their
commercial paper programs. While the amount of commercial paper outstanding does
not reduce available capacity under the respective revolving credit agreements,
the Company and Centennial do not issue commercial paper in an aggregate amount
exceeding the available capacity under their credit agreements.
The
following includes information related to the preceding table.
Short-term
borrowings
MDU Resources
Group, Inc.
The Company had $57.0
million outstanding under a $175 million term loan agreement at December 31,
2008. This agreement expired on March 24, 2009.
Cascade Natural
Gas Corporation
Any borrowings under the $50 million revolving credit
agreement would be classified as short-term borrowings as Cascade intends to
repay the borrowings within one year.
Cascade’s
credit agreement contains customary covenants and provisions, including a
covenant of Cascade not to permit, at any time, the ratio of total debt to total
capitalization to be greater than 65 percent. Cascade's credit agreement
also contains cross-default provisions. These provisions state that if Cascade
fails to make any payment with respect to any indebtedness or
contingent
obligation,
in excess of a specified amount, under any agreement that causes such
indebtedness to be due prior to its stated maturity or the contingent obligation
to become payable, Cascade will be in default under the credit agreement.
Certain of Cascade's financing agreements and Cascade's practices limit the
amount of subsidiary indebtedness.
Intermountain Gas
Company
The weighted average interest rate for borrowings outstanding
under the credit agreement at December 31, 2009, was 3.25 percent. The credit
agreement contains customary covenants and provisions, including covenants of
Intermountain not to permit, as of the end of any fiscal quarter, (A) the
ratio of funded debt to total capitalization (determined on a consolidated
basis) to be greater than 65 percent, or (B) the ratio of
Intermountain’s earnings before interest, taxes, depreciation and amortization
to interest expense (determined on a consolidated basis), for the 12-month
period ended each fiscal quarter, to be less than 2 to 1. Other covenants
include limitations on the sale of certain assets and on the making of certain
loans and investments.
Intermountain's
credit agreement contains cross-default provisions. These provisions state that
if (i) Intermountain fails to make any payment with respect to any
indebtedness or guarantee in excess of $5 million, (ii) any other
event occurs that would permit the holders of indebtedness or the beneficiaries
of guarantees to become payable, or (iii) certain conditions result in an
early termination date under any swap contract, then Intermountain shall be in
default under the revolving credit agreement.
Long-term
debt
MDU Resources
Group, Inc.
The Company’s revolving credit agreement supports its
commercial paper program. The commercial paper borrowings are classified as
long-term debt as they are intended to be refinanced on a long-term basis
through continued commercial paper borrowings.
The
Company’s credit agreement contains customary covenants and provisions,
including covenants of the Company not to permit, as of the end of any fiscal
quarter, (A) the ratio of funded debt to total capitalization (determined
on a consolidated basis) to be greater than 65 percent or (B) the
ratio of funded debt to capitalization (determined with respect to the Company
alone, excluding its subsidiaries) to be greater than 65 percent. Also
included is a covenant that does not permit the ratio of the Company's earnings
before interest, taxes, depreciation and amortization to interest expense
(determined with respect to the Company alone, excluding its subsidiaries), for
the 12-month period ended each fiscal quarter, to be less than 2.5 to 1. Other
covenants include restrictions on the sale of certain assets and on the making
of certain investments.
There are
no credit facilities that contain cross-default provisions between the Company
and any of its subsidiaries.
In
November 2009, the Company completed a defeasance of its outstanding 8.60%
Secured Medium-Term Notes, Series A, due April 1, 2012 (8.60% Notes), by
depositing approximately $5.5 million with the Mortgage trustee. The $5.5
million deposit will be used solely to satisfy the principal and remaining
interest obligations on the 8.60% Notes. These securities are the only
remaining first mortgage bonds outstanding under the Mortgage, other than $30.0
million of first mortgage bonds which were held by the Indenture trustee for the
benefit of the senior note holders. In connection with the defeasance of
the 8.60% Notes, the Mortgage was discharged and the lien of the Indenture was
discharged so that the Company's 5.98% Senior Notes due 2033 are now
unsecured.
MDU Energy
Capital, LLC
The master shelf agreement contains customary covenants
and provisions, including covenants of MDU Energy Capital not to permit
(A) the ratio of its total debt (on a consolidated basis) to adjusted total
capitalization to be greater than 70 percent, or (B) the ratio of
subsidiary debt to subsidiary capitalization to be greater than 65 percent,
or (C) the ratio of Intermountain’s total debt (determined on a
consolidated basis) to total capitalization to be greater than 65 percent.
The agreement also includes a covenant requiring the ratio of MDU Energy Capital
earnings before interest and taxes to interest expense (on a consolidated
basis), for the 12-month period ended each fiscal quarter, to be greater than
1.5 to 1. In addition, payment obligations under the master shelf agreement
may be accelerated upon the occurrence of an event of default (as described in
the agreement).
Centennial Energy
Holdings, Inc.
Centennial’s revolving credit agreement supports its
commercial paper program. The Centennial commercial paper borrowings are
classified as long-term debt as Centennial intends to refinance these borrowings
on a long-term basis through continued Centennial commercial paper
borrowings.
Centennial’s
credit agreement and the Centennial uncommitted long-term master shelf agreement
contain customary covenants and provisions, including a covenant of Centennial
and certain of its subsidiaries, not to permit, as of the end of any fiscal
quarter, the ratio of total debt to total capitalization to be greater than
65 percent (for the $400 million credit agreement) and 60 percent
(for the master shelf agreement). The master shelf agreement also includes a
covenant that does not permit the ratio of Centennial's earnings before
interest, taxes, depreciation and amortization to interest expense, for the
12-month period ended each fiscal quarter, to be less than 1.75 to 1. Other
covenants include minimum consolidated net worth, limitation on priority debt
and restrictions on the sale of certain assets and on the making of certain
loans and investments.
Pursuant
to a covenant under the credit agreement, Centennial may only make distributions
to the Company in an amount up to 100 percent of Centennial’s consolidated
net income after taxes for the immediately preceding fiscal year. The write-down
of the natural gas and oil properties in 2009 would have negatively affected
Centennial’s ability to make distributions to the Company in 2010, however, in
November 2009, the lenders under the credit agreement consented to permit
Centennial to make distributions during 2010 in an aggregate amount up to
100 percent of its consolidated net income after taxes during fiscal year
2009 without giving effect to the write-down.
Certain
of Centennial’s financing agreements contain cross-default provisions. These
provisions state that if Centennial or any subsidiary of Centennial fails to
make any payment with respect to any indebtedness or contingent obligation, in
excess of a specified amount, under any agreement that causes such indebtedness
to be due prior to its stated maturity or the contingent obligation to become
payable, the applicable agreements will be in default. Certain of Centennial’s
financing agreements and Centennial’s practices limit the amount of subsidiary
indebtedness.
Williston Basin
Interstate Pipeline Company
The uncommitted
long-term private shelf agreement contains customary covenants and provisions,
including a covenant of Williston Basin not to permit, as of the end of any
fiscal quarter, the ratio of total debt to total capitalization to be greater
than 55 percent. Other covenants include limitation on priority debt and
some restrictions on the sale of certain assets and the making of certain
investments.
Long-term Debt Outstanding
Long-term
debt outstanding at December 31 was as follows:
|
|
2009
|
|
|
2008
|
|
|
|
|
(In
thousands)
|
|
|
First
mortgage bonds and notes:
|
|
|
|
|
|
|
|
Secured
Medium-Term Notes, Series A, 8.60%
|
|
$
|
—
|
|
|
$
|
5,500
|
|
|
Senior
Notes, 5.98%, due December 15, 2033
|
|
|
—
|
|
|
|
30,000
|
|
(a)
|
Total
first mortgage bonds and notes
|
|
|
—
|
|
|
|
35,500
|
|
|
Senior
Notes at a weighted average rate of 6.07%, due on dates ranging from
October 30, 2010 to March 8, 2037
|
|
|
1,370,455
|
|
|
|
1,271,227
|
|
|
Commercial
paper supported by revolving credit agreements
|
|
|
—
|
|
|
|
172,500
|
|
|
Medium-Term
Notes at a weighted average rate of 7.72%, due on dates ranging from
September 4, 2012 to March 16, 2029
|
|
|
81,000
|
|
|
|
81,000
|
|
|
Other
notes at a weighted average rate of 5.24%, due on dates ranging from
September 1, 2020 to February 1, 2035
|
|
|
42,070
|
|
|
|
42,971
|
|
|
Credit
agreements at a weighted average rate of 5.67%, due on dates ranging from
April 1, 2010 to November 30, 2038
|
|
|
5,781
|
|
|
|
44,205
|
|
|
Discount
|
|
|
—
|
|
|
|
(101
|
)
|
|
Total
long-term debt
|
|
|
1,499,306
|
|
|
|
1,647,302
|
|
|
Less
current maturities
|
|
|
12,629
|
|
|
|
78,666
|
|
|
Net
long-term debt
|
|
$
|
1,486,677
|
|
|
$
|
1,568,636
|
|
|
(a)
The $30.0 million of 5.98% Senior Notes became unsecured upon the
defeasance of the outstanding 8.60% Notes, as previously
discussed.
|
The
amounts of scheduled long-term debt maturities for the five years and thereafter
following December 31, 2009, aggregate $12.6 million in 2010; $72.3 million
in 2011; $136.3 million in 2012; $258.8 million in 2013;
$9.1 million in 2014 and $1,010.2 million thereafter.
Note 10
– Asset Retirement Obligations
The
Company records obligations related to the plugging and abandonment of natural
gas and oil wells, decommissioning of certain electric generating facilities,
reclamation of certain aggregate properties, special handling and disposal of
hazardous materials at certain electric generating facilities, natural gas
distribution and transmission facilities and buildings, and certain other
obligations associated with leased properties.
A
reconciliation of the Company's liability, which is included in other
liabilities, for the years ended December 31 was as follows:
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Balance
at beginning of year
|
|
$
|
70,147
|
|
|
$
|
64,453
|
|
Liabilities
incurred
|
|
|
2,418
|
|
|
|
2,943
|
|
Liabilities
acquired
|
|
|
—
|
|
|
|
2,369
|
|
Liabilities
settled
|
|
|
(9,319
|
)
|
|
|
(3,188
|
)
|
Accretion
expense
|
|
|
3,385
|
|
|
|
3,191
|
|
Revisions
in estimates
|
|
|
9,548
|
|
|
|
207
|
|
Other
|
|
|
180
|
|
|
|
172
|
|
Balance
at end of year
|
|
$
|
76,359
|
|
|
$
|
70,147
|
|
The
Company believes that any expenses related to asset retirement obligations at
the Company’s regulated operations will be recovered in rates over time and,
accordingly, defers such expenses as regulatory assets.
The fair
value of assets that are legally restricted for purposes of settling asset
retirement obligations at December 31, 2009 and 2008, was
$5.9 million.
Note 11
– Preferred Stocks
Preferred
stocks at December 31 were as follows:
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars
in thousands)
|
|
Authorized:
|
|
|
|
|
|
|
Preferred
–
|
|
|
|
|
|
|
500,000
shares, cumulative, par value $100, issuable in series
|
|
|
|
|
|
|
Preferred
stock A –
|
|
|
|
|
|
|
1,000,000
shares, cumulative, without par value, issuable in series
|
|
|
|
|
|
|
(none
outstanding)
|
|
|
|
|
|
|
Preference
–
|
|
|
|
|
|
|
500,000
shares, cumulative, without par value, issuable in series
|
|
|
|
|
|
|
(none
outstanding)
|
|
|
|
|
|
|
Outstanding:
|
|
|
|
|
|
|
4.50%
Series – 100,000 shares
|
|
$
|
10,000
|
|
|
$
|
10,000
|
|
4.70%
Series – 50,000 shares
|
|
|
5,000
|
|
|
|
5,000
|
|
Total
preferred stocks
|
|
$
|
15,000
|
|
|
$
|
15,000
|
|
The 4.50%
Series and 4.70% Series preferred stocks outstanding are subject to redemption,
in whole or in part, at the option of the Company with certain limitations on
30 days notice on any quarterly dividend date at a redemption price, plus
accrued dividends, of $105 per share and $102 per share,
respectively.
In the
event of a voluntary or involuntary liquidation, all preferred stock series
holders are entitled to $100 per share, plus accrued
dividends.
The
affirmative vote of two-thirds of a series of the Company's outstanding
preferred stock is necessary for amendments to the Company's charter or bylaws
that adversely affect that series;
creation
of or increase in the amount of authorized stock ranking senior to that series
(or an affirmative majority vote where the authorization relates to a new class
of stock that ranks on parity with such series); a voluntary liquidation or sale
of substantially all of the Company's assets; a merger or consolidation, with
certain exceptions; or the partial retirement of that series of preferred stock
when all dividends on that series of preferred stock have not been paid. The
consent of the holders of a particular series is not required for such corporate
actions if the equivalent vote of all outstanding series of preferred stock
voting together has consented to the given action and no particular series is
affected differently than any other series.
Subject
to the foregoing, the holders of common stock exclusively possess all voting
power. However, if cumulative dividends on preferred stock are in arrears, in
whole or in part, for one year, the holders of preferred stock would obtain the
right to one vote per share until all dividends in arrears have been paid and
current dividends have been declared and set aside.
Note 12
– Common Stock
The Stock
Purchase Plan provides interested investors the opportunity to make optional
cash investments and to reinvest all or a percentage of their cash
dividends in shares of the Company's common stock. The K-Plan is partially
funded with the Company's common stock. From January 2007 through March 2007 and
October 1, 2008 through October 21, 2008, the Stock Purchase Plan and
K-Plan, with respect to Company stock, were funded with shares of authorized but
unissued common stock. From April 2007 through September 30, 2008, and
October 22, 2008 through December 2009, purchases of shares of common
stock on the open market were used to fund the Stock Purchase Plan and K-Plan.
At December 31, 2009, there were 23.2 million shares of common stock
reserved for original issuance under the Stock Purchase Plan and
K-Plan.
The
Company depends on earnings from its divisions and dividends from its
subsidiaries to pay dividends on common stock. The declaration and payment of
dividends is at the sole discretion of the board of directors, subject to
limitations imposed by state laws, applicable regulatory limitations, and
compliance with the requirements of the Company’s credit agreements. These
requirements are not expected to affect the Company’s ability to pay dividends
in the near term.
Note 13
– Stock-Based Compensation
The
Company has several stock-based compensation plans and is authorized to grant
options, restricted stock and stock for up to 16.9 million shares of common
stock and has granted options, restricted stock and stock of 7.3 million
shares through December 31, 2009. The Company generally issues new shares
of common stock to satisfy stock option exercises, restricted stock, stock and
performance share awards.
Total
stock-based compensation expense was $3.4 million, net of income taxes of
$2.2 million in 2009; $3.7 million, net of income taxes of
$2.3 million in 2008; and $4.7 million, net of income taxes of
$3.1 million in 2007.
As of
December 31, 2009, total remaining unrecognized compensation expense
related to stock-based compensation was approximately $5.6 million (before
income taxes) which will be amortized over a weighted average period of 1.5
years.
Stock
options
The
Company has stock option plans for directors, key employees and employees. The
Company has not granted stock options since 2003. Options granted to key
employees automatically vest after nine years, but the plan provides for
accelerated vesting based on the attainment of certain performance goals or upon
a change in control of the Company, and expire 10 years after the
date
of grant.
Options granted to directors and employees vest at the date of grant and three
years after the date of grant, respectively, and expire 10 years after the
date of grant.
The fair
value of each option outstanding was estimated on the date of grant using the
Black-Scholes option-pricing model.
A summary
of the status of the stock option plans at December 31, 2009, and changes
during the year then ended was as follows:
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Balance
at beginning of year
|
|
|
1,003,824
|
|
|
$
|
13.39
|
|
Forfeited
|
|
|
(24,188
|
)
|
|
|
13.22
|
|
Exercised
|
|
|
(154,765
|
)
|
|
|
13.23
|
|
Balance
at end of year
|
|
|
824,871
|
|
|
|
13.42
|
|
Exercisable
at end of year
|
|
|
799,703
|
|
|
$
|
13.41
|
|
Summarized
information about stock options outstanding and exercisable as of
December 31, 2009, was as follows:
|
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
|
|
|
|
|
|
Remaining
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
Range
of
|
|
|
|
|
|
Contractual
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
|
|
Average
|
|
|
Intrinsic
|
|
Exercisable
|
|
|
Number
|
|
|
Life
|
|
|
Exercise
|
|
|
Value
|
|
|
Number
|
|
|
Exercise
|
|
|
Value
|
|
Prices
|
|
|
Outstanding
|
|
|
in
Years
|
|
|
Price
|
|
|
(000's)
|
|
|
Exercisable
|
|
|
Price
|
|
|
(000's)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9.61
– 12.00
|
|
|
|
12,131
|
|
|
|
.5
|
|
|
$
|
9.93
|
|
|
$
|
166
|
|
|
|
12,131
|
|
|
$
|
9.93
|
|
|
$
|
166
|
|
|
12.01
– 14.50
|
|
|
|
745,970
|
|
|
|
1.2
|
|
|
|
13.21
|
|
|
|
7,751
|
|
|
|
726,235
|
|
|
|
13.21
|
|
|
|
7,545
|
|
|
14.51
– 17.13
|
|
|
|
66,770
|
|
|
|
1.2
|
|
|
|
16.48
|
|
|
|
475
|
|
|
|
61,337
|
|
|
|
16.51
|
|
|
|
435
|
|
Balance
at end of year
|
|
|
|
824,871
|
|
|
|
1.2
|
|
|
$
|
13.42
|
|
|
$
|
8,392
|
|
|
|
799,703
|
|
|
$
|
13.41
|
|
|
$
|
8,146
|
|
The
aggregate intrinsic value in the preceding table represents the total intrinsic
value (before income taxes), based on the Company's stock price on
December 31, 2009, which would have been received by the option holders had
all option holders exercised their options as of that date.
The
weighted average remaining contractual life of options exercisable was 1.2 years
at December 31, 2009.
The
Company received cash of $2.1 million, $5.9 million and
$10.2 million from the exercise of stock options for the years ended
December 31, 2009, 2008 and 2007, respectively. The aggregate intrinsic
value of options exercised during the years ended December 31, 2009, 2008
and 2007, was $1.3 million, $8.1 million and $11.2 million,
respectively.
Restricted
stock awards
Prior to
2002, the Company granted restricted stock awards under a long-term incentive
plan. The restricted stock awards granted vest at various times ranging from
one year to nine years from the date of issuance, but certain grants may
vest early based upon the attainment of certain performance goals or upon a
change in control of the Company. The grant-date fair value is the market price
of the Company's stock on the grant date.
A summary
of the status of the restricted stock awards for the year ended
December 31, 2009, was as follows:
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Average
|
|
|
|
of
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Fair
Value
|
|
Nonvested
at beginning of period
|
|
|
20,606
|
|
|
$
|
13.22
|
|
Vested
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(2,970
|
)
|
|
|
13.22
|
|
Nonvested
at end of period
|
|
|
17,636
|
|
|
$
|
13.22
|
|
Stock
awards
Nonemployee
directors may receive shares of common stock instead of cash in payment for
directors' fees under the nonemployee director stock compensation plan. There
were 49,649 shares with a fair value of $879,000, 45,675 shares with a
fair value of $1.2 million and 48,228 shares with a fair value of
$1.5 million issued under this plan during the years ended
December 31, 2009, 2008 and 2007, respectively.
Performance
share awards
Since
2003, key employees of the Company have been awarded performance share awards
each year. Entitlement to performance shares is based on the Company's total
shareholder return over designated performance periods as measured against a
selected peer group.
Target
grants of performance shares outstanding at December 31, 2009, were as
follows:
|
|
Target
Grant
|
Grant
Date
|
Performance
Period
|
of
Shares
|
February
2007
|
2007-2009
|
175,596
|
February
2008
|
2008-2010
|
183,102
|
February
2009
|
2009-2011
|
275,807
|
Participants
may earn from zero to 200 percent of the target grant of shares based on
the Company's total shareholder return relative to that of the selected peer
group. Compensation expense is based on the grant-date fair value. The
grant-date fair value of performance share awards granted during the years ended
December 31, 2009, 2008 and 2007, was $20.39, $30.71 and $23.55, per share,
respectively. The grant-date fair value for the performance shares was
determined by Monte Carlo simulation using a blended volatility term structure
in the range of 40.40 percent to 50.98 percent in 2009,
21.54 percent to 22.97 percent in 2008 and 18.17 percent to
18.73 percent in 2007 comprised of 50 percent historical volatility
and 50 percent implied volatility and a risk-free interest rate term
structure in the range of .30 percent to 1.36 percent in 2009,
1.87 percent to 2.23 percent in 2008 and 4.75 percent to
5.21 percent in 2007 based on U.S. Treasury security rates in effect as of
the grant date. In addition, the mean over all simulation paths of the
discounted dividends expected to be earned in the performance period used in the
valuation was $1.79, $1.64 and $1.25 per target share for the 2009, 2008 and
2007 awards, respectively. The fair value of performance share awards that
vested during the years ended December 31, 2009, 2008 and 2007, was
$2.8 million, $8.5 million and $6.0 million,
respectively.
A summary
of the status of the performance share awards for the year ended
December 31, 2009, was as follows:
|
|
Weighted
|
|
Number
|
Average
|
|
of
|
Grant-Date
|
|
Shares
|
Fair
Value
|
Nonvested
at beginning of period
|
546,867
|
$26.55
|
Granted
|
278,178
|
20.39
|
Vested
|
(151,848)
|
25.22
|
Forfeited
|
(38,692)
|
25.35
|
Nonvested
at end of period
|
634,505
|
$24.24
|
Note 14
– Income Taxes
The
components of income (loss) before income taxes for each of the years ended
December 31 were as follows:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
United
States
|
|
$
|
(227,021
|
)
|
|
$
|
436,029
|
|
|
$
|
508,210
|
|
Foreign
|
|
|
7,655
|
|
|
|
5,120
|
|
|
|
4,600
|
|
Income
(loss) before income taxes
|
|
$
|
(219,366
|
)
|
|
$
|
441,149
|
|
|
$
|
512,810
|
|
Income
tax expense (benefit) for the years ended December 31 was as
follows:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
64,389
|
|
|
$
|
82,279
|
|
|
$
|
106,399
|
|
State
|
|
|
8,284
|
|
|
|
(184
|
)
|
|
|
15,135
|
|
Foreign
|
|
|
254
|
|
|
|
(104
|
)
|
|
|
235
|
|
|
|
|
72,927
|
|
|
|
81,991
|
|
|
|
121,769
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes –
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(147,607
|
)
|
|
|
59,963
|
|
|
|
58,030
|
|
State
|
|
|
(22,370
|
)
|
|
|
5,332
|
|
|
|
9,656
|
|
Investment
tax credit – net
|
|
|
213
|
|
|
|
(405
|
)
|
|
|
(414
|
)
|
|
|
|
(169,764
|
)
|
|
|
64,890
|
|
|
|
67,272
|
|
Change
in uncertain tax benefits
|
|
|
562
|
|
|
|
422
|
|
|
|
869
|
|
Change
in accrued interest
|
|
|
183
|
|
|
|
173
|
|
|
|
114
|
|
Total
income tax expense (benefit)
|
|
$
|
(96,092
|
)
|
|
$
|
147,476
|
|
|
$
|
190,024
|
|
Components
of deferred tax assets and deferred tax liabilities recognized at
December 31 were as follows:
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
Regulatory
matters
|
|
$
|
85,712
|
|
|
$
|
46,855
|
|
Accrued
pension costs
|
|
|
79,052
|
|
|
|
93,371
|
|
Asset
retirement obligations
|
|
|
24,091
|
|
|
|
22,707
|
|
Deferred
compensation
|
|
|
11,411
|
|
|
|
12,015
|
|
Other
|
|
|
59,763
|
|
|
|
62,456
|
|
Total
deferred tax assets
|
|
|
260,029
|
|
|
|
237,404
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
and basis differences on property,
|
|
|
|
|
|
|
|
|
plant
and equipment
|
|
|
601,426
|
|
|
|
562,326
|
|
Basis
differences on natural gas and oil producing
|
|
|
|
|
|
|
|
|
properties
|
|
|
116,521
|
|
|
|
284,231
|
|
Regulatory
matters
|
|
|
53,835
|
|
|
|
65,909
|
|
Natural
gas and oil price swap and collar agreements
|
|
|
—
|
|
|
|
30,414
|
|
Other
|
|
|
51,070
|
|
|
|
42,725
|
|
Total
deferred tax liabilities
|
|
|
822,852
|
|
|
|
985,605
|
|
Net
deferred income tax liability
|
|
$
|
(562,823
|
)
|
|
$
|
(748,201
|
)
|
As of
December 31, 2009 and 2008, no valuation allowance has been recorded
associated with the above deferred tax assets.
The
following table reconciles the change in the net deferred income tax liability
from December 31, 2008, to December 31, 2009, to deferred income
tax benefit:
|
|
2009
|
|
(In
thousands)
|
|
Change
in net deferred income tax liability from the preceding
table
|
|
$
|
(185,378
|
)
|
Deferred
taxes associated with other comprehensive loss
|
|
|
18,574
|
|
Deferred
taxes associated with acquisitions
|
|
|
762
|
|
Other
|
|
|
(3,722
|
)
|
Deferred
income tax benefit for the period
|
|
$
|
(169,764
|
)
|
Total
income tax expense (benefit) differs from the amount computed by applying the
statutory federal income tax rate to income (loss) before taxes. The reasons for
this difference were as follows:
Years
ended December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
(Dollars in
thousands
)
|
|
Computed
tax at federal statutory rate
|
|
$
|
(76,778
|
)
|
|
|
35.0
|
|
|
$
|
154,402
|
|
|
|
35.0
|
|
|
$
|
179,484
|
|
|
|
35.0
|
|
Increases
(reductions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
resulting
from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
income taxes,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of federal income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
tax
benefit (expense)
|
|
|
(7,280
|
)
|
|
|
3.3
|
|
|
|
10,709
|
|
|
|
2.4
|
|
|
|
17,121
|
|
|
|
3.3
|
|
Deductible
K-Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
dividends
|
|
|
(2,369
|
)
|
|
|
1.1
|
|
|
|
(2,144
|
)
|
|
|
(.5
|
)
|
|
|
(2,134
|
)
|
|
|
(.4
|
)
|
Depletion
allowance
|
|
|
(2,320
|
)
|
|
|
1.0
|
|
|
|
(2,932
|
)
|
|
|
(.7
|
)
|
|
|
(4,073
|
)
|
|
|
(.8
|
)
|
Federal
renewable energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
credit
|
|
|
(1,452
|
)
|
|
|
.7
|
|
|
|
(1,235
|
)
|
|
|
(.3
|
)
|
|
|
—
|
|
|
|
—
|
|
Foreign
operations
|
|
|
(1,148
|
)
|
|
|
.5
|
|
|
|
423
|
|
|
|
.1
|
|
|
|
9,603
|
|
|
|
1.8
|
|
Domestic
production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
activities
deduction
|
|
|
(856
|
)
|
|
|
.4
|
|
|
|
(3,031
|
)
|
|
|
(.7
|
)
|
|
|
(4,787
|
)
|
|
|
(.9
|
)
|
Resolution
of tax matters
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
uncertain tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
positions
|
|
|
881
|
|
|
|
(.4
|
)
|
|
|
595
|
|
|
|
.1
|
|
|
|
208
|
|
|
|
—
|
|
Other
|
|
|
(4,770
|
)
|
|
|
2.2
|
|
|
|
(9,311
|
)
|
|
|
(2.0
|
)
|
|
|
(5,398
|
)
|
|
|
(.9
|
)
|
Total
income tax expense (benefit)
|
|
$
|
(96,092
|
)
|
|
|
43.8
|
|
|
$
|
147,476
|
|
|
|
33.4
|
|
|
$
|
190,024
|
|
|
|
37.1
|
|
The
income tax benefit in 2009 resulted largely from the Company’s write-down of
natural gas and oil properties, as discussed in Note 1.
Pr
ior to the sale of the
domestic independent power production assets on July 10, 2007, as discussed
in Note 3, t
he Company considered earnings (including the gain from
the sale of its foreign equity method investment in a natural gas-fired electric
generating facility in Brazil in 2005) to be reinvested indefinitely outside of
the United States and, accordingly, no U.S. deferred income taxes were recorded
with respect to such earnings. Following the sale of these assets, the Company
reconsidered its
long-term plans for future development and expansion of its foreign investment
and has determined that it has no immediate plans to explore or invest in
additional foreign investments at this time. Therefore in the third quarter of
2007, deferred income taxes were accrued with respect to the temporary
differences which had not been previously recorded. The amount of
cumulative undistributed earnings for which there are temporary differences is
approximately $36.8 million at December 31, 2009. The amount of deferred
tax liability, net of allowable foreign tax credits, associated with the
undistributed earnings at December 31, 2009, was approximately
$10.5 million, which was largely recognized in 2007.
Future e
arnings
will also be subject to additional U.S. taxes, net of allowable foreign tax
credits.
The
Company and its subsidiaries file income tax returns in the U.S. federal
jurisdiction, and various state, local and foreign jurisdictions. With few
exceptions, the Company is no longer subject to U.S. federal, state and local,
or non-U.S. income tax examinations by tax authorities for years ending prior to
2004.
On
January 1, 2007, upon the adoption of accounting guidance related to
uncertain tax positions, the Company recognized a decrease in the liability for
unrecognized tax benefits, which was not
material
and was accounted for as an increase to the January 1, 2007, balance of
retained earnings. At the date of adoption, the amount of unrecognized tax
benefits was $4.5 million, including interest.
A
reconciliation of the unrecognized tax benefits (excluding interest) for the
years ended December 31, was as follows:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
Balance
at beginning of year
|
|
$
|
5,586
|
|
|
$
|
3,735
|
|
|
$
|
4,241
|
|
Additions
based on tax positions related to the current year
|
|
|
—
|
|
|
|
1,102
|
|
|
|
373
|
|
Additions
for tax positions of prior years
|
|
|
562
|
|
|
|
1,811
|
|
|
|
588
|
|
Reductions
for tax positions of prior years
|
|
|
—
|
|
|
|
(1,062
|
)
|
|
|
—
|
|
Lapse
of statute of limitations
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,467
|
)
|
Balance
at end of year
|
|
$
|
6,148
|
|
|
$
|
5,586
|
|
|
$
|
3,735
|
|
Included
in the balance of unrecognized tax benefits at December 31, 2009, were
$540,000 of tax positions for which the ultimate deductibility is highly certain
but for which there is uncertainty about the timing of such deductibility.
Because of the impact of deferred tax accounting, other than interest and
penalties, the disallowance of the shorter deductibility period would not affect
the annual effective tax rate but would accelerate the payment of cash to the
taxing authority to an earlier period. The amount of unrecognized tax benefits
that, if recognized, would affect the effective tax rate at December 31,
2009, was $6.4 million, including approximately $804,000 for the payment of
interest and penalties.
The
Company does not anticipate the amount of unrecognized tax benefits to
significantly increase or decrease within the next 12 months.
For the
years ended December 31, 2009, 2008 and 2007, the Company recognized
approximately $190,000, $819,000 and $680,000, respectively, in interest
expense. Penalties were not material in 2009, 2008 and 2007. The Company
recognized interest income of approximately $165,000, $223,000 and $480,000 for
the years ended December 31, 2009, 2008 and 2007, respectively. The Company
had accrued liabilities of approximately $1.6 million, $1.4 million
and $718,000 at December 31, 2009, 2008 and 2007, respectively, for the
payment of interest.
Note 15
– 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. The vast majority of
the Company’s operations are located within the United States. The Company also
has investments in foreign countries, which largely consist of Centennial
Resources’ equity method investment in the Brazilian Transmission
Lines.
The
electric segment generates, transmits and distributes electricity in Montana,
North Dakota, South Dakota and Wyoming. The natural gas distribution segment
distributes natural gas in those states as well as in Idaho, Minnesota, Oregon
and Washington. These operations also supply related value-added products and
services.
The
construction services segment specializes in constructing and maintaining
electric and communication lines, gas pipelines, fire suppression systems, and
external lighting and traffic signalization equipment. This segment also
provides utility excavation services and inside
electrical
wiring, cabling and mechanical services, sells and distributes electrical
materials, and manufactures and distributes specialty equipment.
The
pipeline and energy services segment provides natural gas transportation,
underground storage and gathering services through regulated and nonregulated
pipeline systems primarily in the Rocky Mountain and northern Great Plains
regions of the United States. This segment also provides cathodic protection and
energy-related services.
The
natural gas and oil production segment is engaged in natural gas and oil
acquisition, exploration, development and production activities in the Rocky
Mountain and Mid-Continent regions of the United States and in and around the
Gulf of Mexico.
The
construction materials and contracting segment mines aggregates and markets
crushed stone, sand, gravel and related construction materials, including
ready-mixed concrete, cement, asphalt, liquid asphalt and other value-added
products. It also performs integrated contracting services. This segment
operates in the central, southern and western United States and Alaska and
Hawaii.
The Other
category includes the activities of Centennial Capital, which insures various
types of risks as a captive insurer for certain of the Company’s subsidiaries.
The function of the captive insurer is to fund the deductible layers of the
insured companies’ general liability and automobile liability coverages.
Centennial Capital also owns certain real and personal property. The Other
category also includes Centennial Resources' equity method investment in the
Brazilian Transmission Lines.
The
information below follows the same accounting policies as described in the
Summary of Significant Accounting Policies. Information on the Company's
businesses as of December 31 and for the years then ended was as
follows:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
External
operating revenues:
|
|
|
|
|
|
|
|
|
|
Electric
|
|
$
|
196,171
|
|
|
$
|
208,326
|
|
|
$
|
193,367
|
|
Natural
gas distribution
|
|
|
1,072,776
|
|
|
|
1,036,109
|
|
|
|
532,997
|
|
Pipeline
and energy services
|
|
|
235,322
|
|
|
|
440,764
|
|
|
|
369,345
|
|
|
|
|
1,504,269
|
|
|
|
1,685,199
|
|
|
|
1,095,709
|
|
Construction
services
|
|
|
818,685
|
|
|
|
1,256,759
|
|
|
|
1,102,566
|
|
Natural
gas and oil production
|
|
|
338,425
|
|
|
|
420,637
|
|
|
|
288,148
|
|
Construction
materials and contracting
|
|
|
1,515,122
|
|
|
|
1,640,683
|
|
|
|
1,761,473
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
2,672,232
|
|
|
|
3,318,079
|
|
|
|
3,152,187
|
|
Total
external operating revenues
|
|
$
|
4,176,501
|
|
|
$
|
5,003,278
|
|
|
$
|
4,247,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment
operating revenues:
|
|
|
|
|
|
|
|
|
|
Electric
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Natural
gas distribution
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Construction
services
|
|
|
379
|
|
|
|
560
|
|
|
|
649
|
|
Pipeline
and energy services
|
|
|
72,505
|
|
|
|
91,389
|
|
|
|
77,718
|
|
Natural
gas and oil production
|
|
|
101,230
|
|
|
|
291,642
|
|
|
|
226,706
|
|
Construction
materials and contracting
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other
|
|
|
9,487
|
|
|
|
10,501
|
|
|
|
10,061
|
|
Intersegment
eliminations
|
|
|
(183,601
|
)
|
|
|
(394,092
|
)
|
|
|
(315,134
|
)
|
Total
intersegment operating revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
|
|
$
|
24,637
|
|
|
$
|
24,030
|
|
|
$
|
22,549
|
|
Natural
gas distribution
|
|
|
42,723
|
|
|
|
32,566
|
|
|
|
19,054
|
|
Construction
services
|
|
|
12,760
|
|
|
|
13,398
|
|
|
|
14,314
|
|
Pipeline
and energy services
|
|
|
25,581
|
|
|
|
23,654
|
|
|
|
21,631
|
|
Natural
gas and oil production
|
|
|
129,922
|
|
|
|
170,236
|
|
|
|
127,408
|
|
Construction
materials and contracting
|
|
|
93,615
|
|
|
|
100,853
|
|
|
|
95,732
|
|
Other
|
|
|
1,304
|
|
|
|
1,283
|
|
|
|
1,244
|
|
Total
depreciation, depletion and amortization
|
|
$
|
330,542
|
|
|
$
|
366,020
|
|
|
$
|
301,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
|
|
$
|
9,577
|
|
|
$
|
8,674
|
|
|
$
|
6,737
|
|
Natural
gas distribution
|
|
|
30,656
|
|
|
|
24,004
|
|
|
|
13,566
|
|
Construction
services
|
|
|
4,490
|
|
|
|
4,893
|
|
|
|
4,878
|
|
Pipeline
and energy services
|
|
|
8,896
|
|
|
|
8,314
|
|
|
|
8,769
|
|
Natural
gas and oil production
|
|
|
10,621
|
|
|
|
12,428
|
|
|
|
8,394
|
|
Construction
materials and contracting
|
|
|
20,495
|
|
|
|
24,291
|
|
|
|
23,997
|
|
Other
|
|
|
43
|
|
|
|
374
|
|
|
|
10,717
|
|
Intersegment
eliminations
|
|
|
(679
|
)
|
|
|
(1,451
|
)
|
|
|
(4,821
|
)
|
Total
interest expense
|
|
$
|
84,099
|
|
|
$
|
81,527
|
|
|
$
|
72,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
|
|
$
|
8,205
|
|
|
$
|
8,225
|
|
|
$
|
8,528
|
|
Natural
gas distribution
|
|
|
16,331
|
|
|
|
18,827
|
|
|
|
6,477
|
|
Construction
services
|
|
|
15,189
|
|
|
|
26,952
|
|
|
|
26,829
|
|
Pipeline
and energy services
|
|
|
22,982
|
|
|
|
15,427
|
|
|
|
18,524
|
|
Natural
gas and oil production
|
|
|
(187,000
|
)
|
|
|
68,701
|
|
|
|
78,348
|
|
Construction
materials and contracting
|
|
|
25,940
|
|
|
|
8,947
|
|
|
|
39,045
|
|
Other
|
|
|
2,261
|
|
|
|
397
|
|
|
|
12,273
|
|
Total
income taxes
|
|
$
|
(96,092
|
)
|
|
$
|
147,476
|
|
|
$
|
190,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) on common stock:
|
|
|
|
|
|
|
|
|
|
Electric
|
|
$
|
24,099
|
|
|
$
|
18,755
|
|
|
$
|
17,700
|
|
Natural
gas distribution
|
|
|
30,796
|
|
|
|
34,774
|
|
|
|
14,044
|
|
Construction
services
|
|
|
25,589
|
|
|
|
49,782
|
|
|
|
43,843
|
|
Pipeline
and energy services
|
|
|
37,845
|
|
|
|
26,367
|
|
|
|
31,408
|
|
Natural
gas and oil production
|
|
|
(296,730
|
)
|
|
|
122,326
|
|
|
|
142,485
|
|
Construction
materials and contracting
|
|
|
47,085
|
|
|
|
30,172
|
|
|
|
77,001
|
|
Other
|
|
|
7,357
|
|
|
|
10,812
|
|
|
|
(4,380
|
)
|
Earnings
(loss) on common stock before income from discontinued
operations
|
|
|
(123,959
|
)
|
|
|
292,988
|
|
|
|
322,101
|
|
Income
from discontinued operations, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
109,334
|
|
Total
earnings (loss) on common stock
|
|
$
|
(123,959
|
)
|
|
$
|
292,988
|
|
|
$
|
431,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
|
|
$
|
115,240
|
|
|
$
|
72,989
|
|
|
$
|
91,548
|
|
Natural
gas distribution
|
|
|
43,820
|
|
|
|
398,116
|
|
|
|
500,178
|
|
Construction
services
|
|
|
12,814
|
|
|
|
24,506
|
|
|
|
18,241
|
|
Pipeline
and energy services
|
|
|
70,168
|
|
|
|
42,960
|
|
|
|
39,162
|
|
Natural
gas and oil production
|
|
|
183,140
|
|
|
|
710,742
|
|
|
|
283,589
|
|
Construction
materials and contracting
|
|
|
26,313
|
|
|
|
127,578
|
|
|
|
189,727
|
|
Other
|
|
|
3,196
|
|
|
|
774
|
|
|
|
1,621
|
|
Net
proceeds from sale or disposition of property
|
|
|
(26,679
|
)
|
|
|
(86,927
|
)
|
|
|
(24,983
|
)
|
Net
capital expenditures before discontinued operations
|
|
|
428,012
|
|
|
|
1,290,738
|
|
|
|
1,099,083
|
|
Discontinued
operations
|
|
|
—
|
|
|
|
—
|
|
|
|
(548,216
|
)
|
Total
net capital expenditures
|
|
$
|
428,012
|
|
|
$
|
1,290,738
|
|
|
$
|
550,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric*
|
|
$
|
569,666
|
|
|
$
|
479,639
|
|
|
$
|
428,200
|
|
Natural
gas distribution*
|
|
|
1,588,144
|
|
|
|
1,548,005
|
|
|
|
942,454
|
|
Construction
services
|
|
|
328,895
|
|
|
|
476,092
|
|
|
|
456,564
|
|
Pipeline
and energy services
|
|
|
538,230
|
|
|
|
506,872
|
|
|
|
500,755
|
|
Natural
gas and oil production
|
|
|
1,137,628
|
|
|
|
1,792,792
|
|
|
|
1,299,406
|
|
Construction
materials and contracting
|
|
|
1,449,469
|
|
|
|
1,552,296
|
|
|
|
1,642,729
|
|
Other**
|
|
|
378,920
|
|
|
|
232,149
|
|
|
|
322,326
|
|
Total
assets
|
|
$
|
5,990,952
|
|
|
$
|
6,587,845
|
|
|
$
|
5,592,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment:
|
|
|
|
|
|
|
|
|
|
Electric*
|
|
$
|
941,791
|
|
|
$
|
848,725
|
|
|
$
|
784,705
|
|
Natural
gas distribution*
|
|
|
1,456,208
|
|
|
|
1,429,487
|
|
|
|
948,446
|
|
Construction
services
|
|
|
116,236
|
|
|
|
111,301
|
|
|
|
101,935
|
|
Pipeline
and energy services
|
|
|
675,199
|
|
|
|
640,921
|
|
|
|
600,712
|
|
Natural
gas and oil production
|
|
|
2,028,794
|
|
|
|
2,477,402
|
|
|
|
1,923,899
|
|
Construction
materials and contracting
|
|
|
1,514,989
|
|
|
|
1,524,029
|
|
|
|
1,538,716
|
|
Other
|
|
|
33,365
|
|
|
|
30,372
|
|
|
|
31,833
|
|
Less
accumulated depreciation, depletion and
|
|
|
|
|
|
|
|
|
|
|
|
|
amortization
|
|
|
2,872,465
|
|
|
|
2,761,319
|
|
|
|
2,270,691
|
|
Net
property, plant and equipment
|
|
$
|
3,894,117
|
|
|
$
|
4,300,918
|
|
|
$
|
3,659,555
|
|
*
Includes allocations of common
utility property.
|
|
**
Includes assets not
directly assignable to a business (i.e. cash and cash equivalents, certain
accounts receivable, certain investments and other miscellaneous
current and deferred assets).
|
|
Note: The
results reflect a $620.0 million ($384.4 million after tax) and
$135.8 million ($84.2 million after tax) noncash write-down of
natural gas and oil properties in 2009 and 2008,
respectively.
|
|
The
pipeline and energy services segment and the Other category recognized income
from discontinued operations, net of tax, of $106,000 and $109.2 million,
respectively for the year ended December 31, 2007.
Excluding
income from discontinued operations at pipeline and energy services, earnings
from electric, natural gas distribution and pipeline and energy services are
substantially all from regulated operations. Earnings from construction
services, natural gas and oil production, construction materials and
contracting, and other are all from nonregulated operations.
Capital
expenditures for 2009, 2008 and 2007 include noncash transactions, including the
issuance of the Company's equity securities, in connection with acquisitions and
the outstanding indebtedness related to the 2008 Intermountain acquisition and
the 2007 Cascade acquisition. The net noncash transactions were immaterial in
2009, $97.6 million in 2008 and $217.3 million in 2007.
Note 16
– Employee Benefit Plans
The
Company has noncontributory defined benefit pension plans and other
postretirement benefit plans for certain eligible employees. The Company uses a
measurement date of December 31 for all of its pension and postretirement
benefit plans.
Effective
January 1, 2006, the Company discontinued defined pension plan benefits to
all nonunion and certain union employees hired after December 31, 2005.
These employees that would have been eligible for defined pension plan benefits
are eligible to receive additional defined contribution plan benefits. In 2009,
the Company evaluated several provisions of its employee defined benefit plans
for nonunion and certain union employees. As a result of this evaluation, the
Company determined that, effective January 1, 2010, all benefit and service
accruals of these plans were frozen. These employees will be eligible to receive
additional defined contribution plan benefits.
Effective
January 1, 2010, eligibility to receive retiree medical benefits was modified at
certain of the Company’s businesses. Current employees who attain age 55 with 10
years of continuous service by December 31, 2010, will be provided the current
retiree medical insurance benefits or
can elect
the new benefit, if desired, regardless of when they retire. All other current
employees must meet the new eligibility criteria of age 60 and 10 years of
continuous service at the time they retire. These employees will be eligible for
a specified company funded Retiree Reimbursement Account. Employees hired after
December 31, 2009, will not be eligible for retiree medical
benefits.
Changes
in benefit obligation and plan assets for the year ended December 31, 2009
and 2008, and amounts recognized in the Consolidated Balance Sheets at
December 31, 2009 and 2008, were as follows:
|
|
Pension
Benefits
|
|
|
Other
Postretirement Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Change
in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at beginning of year
|
|
$
|
358,525
|
|
|
$
|
359,923
|
|
|
$
|
94,325
|
|
|
$
|
81,581
|
|
Service
cost
|
|
|
8,127
|
|
|
|
8,812
|
|
|
|
2,206
|
|
|
|
1,977
|
|
Interest
cost
|
|
|
21,919
|
|
|
|
21,264
|
|
|
|
5,465
|
|
|
|
5,079
|
|
Plan
participants' contributions
|
|
|
—
|
|
|
|
—
|
|
|
|
2,369
|
|
|
|
2,120
|
|
Amendments
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,319
|
)
|
|
|
(382
|
)
|
Actuarial
(gain) loss
|
|
|
26,188
|
|
|
|
(8,336
|
)
|
|
|
813
|
|
|
|
763
|
|
Curtailment
gain
|
|
|
(38,166
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Acquisition
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,872
|
|
Benefits
paid
|
|
|
(23,678
|
)
|
|
|
(23,138
|
)
|
|
|
(7,708
|
)
|
|
|
(6,685
|
)
|
Benefit
obligation at end of year
|
|
|
352,915
|
|
|
|
358,525
|
|
|
|
88,151
|
|
|
|
94,325
|
|
Change
in net plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at beginning of year
|
|
|
226,214
|
|
|
|
330,966
|
|
|
|
60,085
|
|
|
|
73,684
|
|
Actual
gain (loss) on plan assets
|
|
|
42,084
|
|
|
|
(83,960
|
)
|
|
|
8,600
|
|
|
|
(20,058
|
)
|
Employer
contribution
|
|
|
10,707
|
|
|
|
2,346
|
|
|
|
3,638
|
|
|
|
3,212
|
|
Plan
participants' contributions
|
|
|
—
|
|
|
|
—
|
|
|
|
2,369
|
|
|
|
2,120
|
|
Acquisition
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,812
|
|
Benefits
paid
|
|
|
(23,678
|
)
|
|
|
(23,138
|
)
|
|
|
(7,708
|
)
|
|
|
(6,685
|
)
|
Fair
value of net plan assets at end of year
|
|
|
255,327
|
|
|
|
226,214
|
|
|
|
66,984
|
|
|
|
60,085
|
|
Funded
status – under
|
|
$
|
(97,588
|
)
|
|
$
|
(132,311
|
)
|
|
$
|
(21,167
|
)
|
|
$
|
(34,240
|
)
|
Amounts
recognized in the Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheets at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
accrued liabilities (current)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(459
|
)
|
|
$
|
(407
|
)
|
Other
liabilities (noncurrent)
|
|
|
(97,588
|
)
|
|
|
(132,311
|
)
|
|
|
(20,708
|
)
|
|
|
(33,833
|
)
|
Net
amount recognized
|
|
$
|
(97,588
|
)
|
|
$
|
(132,311
|
)
|
|
$
|
(21,167
|
)
|
|
$
|
(34,240
|
)
|
Amounts
recognized in accumulated other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive
(income) loss consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial
loss
|
|
$
|
99,985
|
|
|
$
|
131,081
|
|
|
$
|
20,134
|
|
|
$
|
23,418
|
|
Prior
service cost (credit)
|
|
|
430
|
|
|
|
2,685
|
|
|
|
(14,716
|
)
|
|
|
(8,151
|
)
|
Transition
obligation
|
|
|
—
|
|
|
|
—
|
|
|
|
6,378
|
|
|
|
8,503
|
|
Total
|
|
$
|
100,415
|
|
|
$
|
133,766
|
|
|
$
|
11,796
|
|
|
$
|
23,770
|
|
Employer
contributions and benefits paid in the preceding table include only those
amounts contributed directly to, or paid directly from, plan assets. Accumulated
other comprehensive (income) loss in the above table includes amounts related to
regulated operations, which are recorded as regulatory assets (liabilities) and
are expected to be reflected in rates charged to customers over
time.
Unrecognized
pension actuarial losses in excess of 10 percent of the greater of the
projected benefit obligation or the market-related value of assets is amortized
on a straight-line basis over the expected average remaining service lives of
active participants. The market-related value of assets is determined using a
five-year average of assets. Unrecognized postretirement net transition
obligation is amortized over a 20-year period ending 2012.
The
accumulated benefit obligation for the defined benefit pension plans reflected
above was $340.3 million and $312.1 million at December 31, 2009
and 2008, respectively.
The
projected benefit obligation, accumulated benefit obligation and fair value of
plan assets for the pension plans with accumulated benefit obligations in excess
of plan assets at December 31 were as follows:
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Projected
benefit obligation
|
|
$
|
352,915
|
|
|
$
|
358,525
|
|
Accumulated
benefit obligation
|
|
$
|
340,341
|
|
|
$
|
312,110
|
|
Fair
value of plan assets
|
|
$
|
255,327
|
|
|
$
|
226,214
|
|
Components
of net periodic benefit cost for the Company's pension and other postretirement
benefit plans for the years ended December 31 were as follows:
|
|
Pension
Benefits
|
|
|
Other
Postretirement Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
Components
of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
8,127
|
|
|
$
|
8,812
|
|
|
$
|
9,098
|
|
|
$
|
2,206
|
|
|
$
|
1,977
|
|
|
$
|
1,865
|
|
Interest
cost
|
|
|
21,919
|
|
|
|
21,264
|
|
|
|
18,591
|
|
|
|
5,465
|
|
|
|
5,079
|
|
|
|
4,212
|
|
Expected
return on assets
|
|
|
(25,062
|
)
|
|
|
(26,501
|
)
|
|
|
(22,524
|
)
|
|
|
(5,471
|
)
|
|
|
(5,657
|
)
|
|
|
(4,776
|
)
|
Amortization
of prior service cost (credit)
|
|
|
605
|
|
|
|
665
|
|
|
|
756
|
|
|
|
(2,756
|
)
|
|
|
(2,755
|
)
|
|
|
(1,300
|
)
|
Recognized
net actuarial loss
|
|
|
2,096
|
|
|
|
1,050
|
|
|
|
1,605
|
|
|
|
970
|
|
|
|
594
|
|
|
|
73
|
|
Curtailment
loss
|
|
|
1,650
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Amortization
of net transition obligation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,125
|
|
|
|
2,125
|
|
|
|
2,125
|
|
Net
periodic benefit cost, including amount capitalized
|
|
|
9,335
|
|
|
|
5,290
|
|
|
|
7,526
|
|
|
|
2,539
|
|
|
|
1,363
|
|
|
|
2,199
|
|
Less
amount capitalized
|
|
|
1,127
|
|
|
|
642
|
|
|
|
991
|
|
|
|
330
|
|
|
|
307
|
|
|
|
373
|
|
Net
periodic benefit cost
|
|
|
8,208
|
|
|
|
4,648
|
|
|
|
6,535
|
|
|
|
2,209
|
|
|
|
1,056
|
|
|
|
1,826
|
|
Other
changes in plan assets and benefit obligations recognized in accumulated
other comprehensive (income) loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(gain) loss
|
|
|
(29,000
|
)
|
|
|
102,125
|
|
|
|
(11,095
|
)
|
|
|
(2,314
|
)
|
|
|
26,478
|
|
|
|
1,507
|
|
Acquisition-related
actuarial loss
|
|
|
—
|
|
|
|
—
|
|
|
|
12,291
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,818
|
|
Prior
service credit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,321
|
)
|
|
|
(382
|
)
|
|
|
—
|
|
Acquisition-related
prior service credit
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,842
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,472
|
)
|
Amortization
of actuarial loss
|
|
|
(2,096
|
)
|
|
|
(1,050
|
)
|
|
|
(1,605
|
)
|
|
|
(970
|
)
|
|
|
(594
|
)
|
|
|
(73
|
)
|
Amortization
of prior service (cost) credit
|
|
|
(2,255
|
)
|
|
|
(665
|
)
|
|
|
(756
|
)
|
|
|
2,756
|
|
|
|
2,755
|
|
|
|
1,300
|
|
Amortization
of net transition obligation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,125
|
)
|
|
|
(2,125
|
)
|
|
|
(2,125
|
)
|
Total
recognized in accumulated other comprehensive (income)
loss
|
|
|
(33,351
|
)
|
|
|
100,410
|
|
|
|
(3,007
|
)
|
|
|
(11,974
|
)
|
|
|
26,132
|
|
|
|
(2,045
|
)
|
Total
recognized in net periodic benefit cost and accumulated other
comprehensive (income) loss
|
|
$
|
(25,143
|
)
|
|
$
|
105,058
|
|
|
$
|
3,528
|
|
|
$
|
(9,765
|
)
|
|
$
|
27,188
|
|
|
$
|
(219
|
)
|
The
estimated net loss and prior service cost for the defined benefit pension plans
that will be amortized from accumulated other comprehensive loss into net
periodic benefit cost in 2010 are $2.4 million and $152,000, respectively.
The estimated net loss, prior service credit and transition obligation for the
other postretirement benefit plans that will be amortized from accumulated other
comprehensive loss into net periodic benefit cost in 2010 are $1.0 million,
$3.5 million and $2.1 million, respectively.
Weighted
average assumptions used to determine benefit obligations at December 31
were as follows:
|
|
|
|
|
Other
|
|
|
|
Pension
Benefits
|
|
|
Postretirement
Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
5.75
|
%
|
|
|
6.25
|
%
|
|
|
5.75
|
%
|
|
|
6.25
|
%
|
Rate
of compensation increase
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
Weighted
average assumptions used to determine net periodic benefit cost for the years
ended December 31 were as follows:
|
|
|
|
|
Other
|
|
|
|
Pension
Benefits
|
|
|
Postretirement
Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
6.25
|
%
|
|
|
6.00
|
%
|
|
|
6.25
|
%
|
|
|
6.00
|
%
|
Expected
return on plan assets
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
|
|
7.50
|
%
|
|
|
7.50
|
%
|
Rate
of compensation increase
|
|
|
4.00
|
%
|
|
|
4.20
|
%
|
|
|
4.00
|
%
|
|
|
4.50
|
%
|
The
expected rate of return on plan assets is based on the targeted asset allocation
of 70 percent equity securities and 30 percent fixed-income securities
and the expected rate of return from these asset categories. The expected return
on plan assets for other postretirement benefits reflects insurance-related
investment costs.
Health
care rate assumptions for the Company's other postretirement benefit plans as of
December 31 were as follows:
|
|
2009
|
|
|
2008
|
|
Health
care trend rate assumed for next year
|
|
|
6.0%-9.0
|
%
|
|
|
6.0%-9.0
|
%
|
Health
care cost trend rate – ultimate
|
|
|
5.0%-6.0
|
%
|
|
|
5.0%-6.0
|
%
|
Year
in which ultimate trend rate achieved
|
|
|
1999-2017
|
|
|
|
1999-2017
|
|
The
Company's other postretirement benefit plans include health care and life
insurance benefits for certain employees. The plans underlying these benefits
may require contributions by the employee depending on such employee's age and
years of service at retirement or the date of retirement. The accounting for the
health care plans anticipates future cost-sharing changes that are consistent
with the Company's expressed intent to generally increase retiree contributions
each year by the excess of the expected health care cost trend rate over
6 percent.
Assumed
health care cost trend rates may have a significant effect on the amounts
reported for the health care plans. A one percentage point change in the
assumed health care cost trend rates would have had the following effects at
December 31, 2009:
|
|
1 Percentage
|
|
|
1 Percentage
|
|
|
|
Point
Increase
|
|
|
Point
Decrease
|
|
|
|
(In
thousands)
|
|
Effect
on total of service
|
|
|
|
|
|
|
and
interest cost components
|
|
$
|
91
|
|
|
$
|
(922
|
)
|
Effect
on postretirement
|
|
|
|
|
|
|
|
|
benefit
obligation
|
|
$
|
2,435
|
|
|
$
|
(9,679
|
)
|
The
Company's pension assets are managed by 12 outside investment managers. The
Company's other postretirement assets are managed by one outside investment
manager. The Company's investment policy with respect to pension and other
postretirement assets is to make investments solely in the interest of the
participants and beneficiaries of the plans and for the exclusive purpose of
providing benefits accrued and defraying the reasonable expenses of
administration. The Company strives to maintain investment diversification to
assist in minimizing the risk of large losses. The Company's policy guidelines
allow for investment of funds in cash equivalents, fixed-income securities and
equity securities. The guidelines prohibit investment in commodities and future
contracts, equity private placement, employer securities, leveraged or
derivative securities, options, direct real estate investments, precious metals,
venture capital and limited partnerships. The guidelines also prohibit short
selling and margin transactions. The Company's practice is to periodically
review and rebalance asset categories based on its targeted asset
allocation percentage policy.
The fair
value of the Company’s pension net plan assets by category is as
follows:
|
Fair
Value Measurements at
December 31, 2009,
Using
|
|
|
|
Quoted
Prices
in
Active
Markets
for Identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable Inputs
|
|
|
Balance
at December 31,
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2009
|
|
|
|
(In
thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stocks (a)
|
|
$
|
133,989
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
133,989
|
|
Collective
and mutual funds (b)
|
|
|
39,234
|
|
|
|
10,379
|
|
|
|
—
|
|
|
|
49,613
|
|
U.S.
government and U.S. government-sponsored securities (c)
|
|
|
—
|
|
|
|
28,091
|
|
|
|
—
|
|
|
|
28,091
|
|
Corporate
and municipal bonds (d)
|
|
|
—
|
|
|
|
27,968
|
|
|
|
—
|
|
|
|
27,968
|
|
Collateral
held on loaned securities (e)
|
|
|
—
|
|
|
|
21,597
|
|
|
|
937
|
|
|
|
22,534
|
|
Cash
and cash equivalents
|
|
|
17,958
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,958
|
|
Total
assets measured at fair value
|
|
|
191,181
|
|
|
|
88,035
|
|
|
|
937
|
|
|
|
280,153
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
for collateral received
|
|
|
24,826
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24,826
|
|
Net
assets measured at fair value
|
|
$
|
166,355
|
|
|
$
|
88,035
|
|
|
$
|
937
|
|
|
$
|
255,327
|
|
(a)
|
This
category includes approximately 75 percent U.S. common stocks and 25
percent non-U.S. common stocks.
|
(b)
|
Collective
and mutual funds invest approximately 43 percent in common stock of
large-cap U.S. companies, 21 percent in asset-backed securities, 17
percent in cash and cash equivalents, 8 percent in small-cap U.S.
companies and 11 percent in other investments.
|
(c)
|
This
category includes approximately 69 percent U.S. government-sponsored
securities (asset-backed securities) and 31 percent U.S. government
securities.
|
(d)
|
This
category includes approximately 78 percent corporate bonds and 22 percent
municipal bonds.
|
(e)
|
This
category includes collateral held at December 31, 2009, as a result of
participation in a securities lending program. Cash collateral is invested
by the trustee primarily in repurchase agreements, money market funds,
corporate bonds, commercial paper, asset-backed securities and
certificates of deposit.
|
The
following table sets forth a summary of changes in the fair value of the pension
plan’s Level 3 assets for the year ended December 31, 2009:
|
Fair
Value Measurements Using Significant
Unobservable
Inputs (Level 3)
|
|
|
|
Collateral
Held on Loaned Securities
|
|
|
(In
thousands)
|
|
Balance
at beginning of year
|
|
$
|
573
|
|
Total
realized/unrealized losses
|
|
|
80
|
|
Purchases,
issuances and settlements (net)
|
|
|
284
|
|
Balance
at end of year
|
|
$
|
937
|
|
The fair
value of the Company’s other postretirement benefit plan assets by asset
category is as follows:
|
|
Fair
Value Measurements
at
December 31, 2009, Using
|
|
|
|
|
|
|
Quoted
Prices
in
Active
Markets
for Identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable Inputs
|
|
|
Balance
at December 31,
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2009
|
|
|
|
(In
thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds
|
|
$
|
1,469
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,469
|
|
Common
stock
|
|
|
2,897
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,897
|
|
Insurance
investment contract*
|
|
|
—
|
|
|
|
62,618
|
|
|
|
—
|
|
|
|
62,618
|
|
Total
assets measured at fair value
|
|
$
|
4,366
|
|
|
$
|
62,618
|
|
|
$
|
—
|
|
|
$
|
66,984
|
|
*
Invested in mutual funds.
|
|
The
Company expects to contribute approximately $10.2 million to its defined
benefit pension plans and approximately $4.1 million to its postretirement
benefit plans in 2010.
The
following benefit payments, which reflect future service, as appropriate, are
expected to be paid:
|
|
|
|
|
Other
|
|
|
|
Pension
|
|
|
Postretirement
|
|
Years
|
|
Benefits
|
|
|
Benefits
|
|
|
|
(In
thousands)
|
|
2010
|
|
$
|
20,431
|
|
|
$
|
6,027
|
|
2011
|
|
|
20,744
|
|
|
|
6,244
|
|
2012
|
|
|
21,496
|
|
|
|
6,431
|
|
2013
|
|
|
22,151
|
|
|
|
6,686
|
|
2014
|
|
|
22,640
|
|
|
|
6,905
|
|
2015
- 2019
|
|
|
122,347
|
|
|
|
37,504
|
|
The
following Medicare Part D subsidies are expected: $637,000 in 2010; $675,000 in
2011; $725,000 in 2012; $765,000 in 2013; $807,000 in 2014; and
$4.7 million during the years 2015 through 2019.
In
addition to company-sponsored plans, certain employees are covered under
multi-employer pension plans administered by a union. Amounts contributed in
2009 to defined benefit and defined contribution multi-employer plans were
$32.5 million and $16.4 million, respectively. Amounts contributed to
the multi-employer plans were $73.1 million and $51.5 million in 2008
and 2007, respectively.
In
addition to the qualified plan defined pension benefits reflected in the table
at the beginning of this note, the Company also has unfunded, nonqualified
benefit plans for executive officers and certain key management employees that
generally provide for defined benefit payments at age 65 following the
employee's retirement or to their beneficiaries upon death for a 15-year period.
The Company had investments of $67.9 million at December 31, 2009,
consisting of equity securities of $32.1 million, life insurance carried on
plan participants (payable upon the employee's death) of $29.8 million,
fixed-income securities of $2.7 million and other investments of $3.3
million, which the Company anticipates using to satisfy obligations under these
plans. The Company's net periodic benefit cost for these plans was
$8.8 million, $9.0 million and $7.6 million in 2009, 2008 and
2007, respectively. The total projected benefit obligation for these plans was
$93.0 million and $87.2 million at December 31, 2009 and 2008,
respectively. The accumulated benefit obligation for these plans was
$84.8 million and $77.3 million at December 31, 2009 and 2008,
respectively. A discount rate of 5.75 percent and 6.25 percent at
December 31, 2009 and 2008, respectively, and a rate of compensation
increase of 4.00 percent at December 31, 2009 and 2008, were used to
determine benefit obligations. A discount rate of 6.25 percent and
6.00 percent at December 31, 2009 and 2008, respectively, and a rate
of compensation increase of 4.00 percent and 4.25 percent at
December 31, 2009 and 2008, respectively, were used to determine net
periodic benefit cost.
The
amount of benefit payments for the unfunded, nonqualified benefit plans, as
appropriate, are expected to aggregate $4.6 million in 2010;
$5.0 million in 2011; $5.3 million in 2012; $5.9 million in 2013;
$5.9 million in 2014; and $36.3 million for the years 2015 through
2019.
The
Company sponsors various defined contribution plans for eligible employees.
Costs incurred by the Company under these plans were $20.5 million in 2009,
$23.8 million in 2008 and $21.1 million in 2007.
Note 17
– Jointly Owned Facilities
The
consolidated financial statements include the Company's 22.7 percent and
25.0 percent ownership interests in the assets, liabilities and expenses of
the Big Stone Station and the Coyote Station, respectively. Each owner of the
Big Stone and Coyote stations is responsible for financing its investment in the
jointly owned facilities.
The
Company's share of the Big Stone Station and Coyote Station operating expenses
was reflected in the appropriate categories of operating expenses in the
Consolidated Statements of Income.
At
December 31, the Company's share of the cost of utility plant in service
and related accumulated depreciation for the stations was as
follows:
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Big
Stone Station:
|
|
|
|
|
|
|
Utility
plant in service
|
|
$
|
60,220
|
|
|
$
|
61,030
|
|
Less
accumulated depreciation
|
|
|
39,940
|
|
|
|
39,473
|
|
|
|
$
|
20,280
|
|
|
$
|
21,557
|
|
Coyote
Station:
|
|
|
|
|
|
|
|
|
Utility
plant in service
|
|
$
|
131,042
|
|
|
$
|
127,151
|
|
Less
accumulated depreciation
|
|
|
82,402
|
|
|
|
82,018
|
|
|
|
$
|
48,640
|
|
|
$
|
45,133
|
|
In April
2009, the Company purchased a 25 MW ownership interest in the Wygen III electric
generation facility, which is under construction near Gillette, Wyoming, and is
expected to be online in the second quarter of 2010. The Company’s balance of
construction work in progress related to this facility that is included in
property, plant and equipment on the Consolidated Balance Sheets at December 31,
2009, is $56.1 million.
Note 18
– Regulatory Matters and Revenues Subject to Refund
In
November 2006, Montana-Dakota filed an application with the NDPSC requesting an
advance determination of prudence of Montana-Dakota's ownership interest in Big
Stone Station II. In August 2008, the NDPSC approved Montana-Dakota’s
request for advance determination of prudence for ownership in the proposed Big
Stone Station II for a minimum of 121.8 MW up to a maximum of 133 MW
and a proportionate ownership share of the associated transmission electric
resources. The intervenors in the proceeding appealed the NDPSC order to the
North Dakota District Court which affirmed the order of the NDPSC. The
intervenors then appealed the North Dakota District Court order to the North
Dakota Supreme Court. The Big Stone Station II participants subsequently decided
not to proceed with the project and on December 2, 2009, Montana-Dakota
filed an application with the NDPSC for a determination that Montana-Dakota’s
continued participation in the Big Stone Station II is no longer prudent. The
parties have stipulated that the intervenors will move to dismiss their appeal
to the North Dakota Supreme Court if the NDPSC grants Montana-Dakota’s pending
application for a determination that its participation in the Big Stone Station
II is no longer prudent. On December 4, 17, and 23, 2009, Montana-Dakota
filed an application with the NDPSC, SDPUC, and MTPSC, respectively, for
authority to defer the costs incurred for securing new electric generation,
primarily Big Stone Station II, until the next general rate case.
On
August 14, 2009, Montana-Dakota filed an application with the WYPSC for an
electric rate increase. Montana-Dakota requested a total increase of
$6.2 million annually or approximately 31 percent above current rates.
The rate increase request was necessitated by the Company’s 25 MW ownership
interest in the Wygen III power generation facility currently under construction
near Gillette, Wyoming. The generation will replace a portion of the purchased
power currently used to serve its Wyoming system. On January 14, 2010,
Montana-Dakota filed a supplement to the application to reflect the inclusion of
bonus tax depreciation on the Wygen III plant, reducing its request to a
$5.1 million annual increase or approximately 25 percent above current
rates. A hearing has been set for February 23, 2010.
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. There had been one remaining issue
outstanding related to this rate change application regarding certain service
restrictions. After various steps in this proceeding, including a Williston
Basin Request for Rehearing, an appeal to the D.C. Appeals Court, and a remand
to FERC, the FERC, on October 30, 2009, issued its Order on Remand in which
it upheld its previous decision. No party requested rehearing of the order,
which is now final, and no issue is outstanding in this
application.
Note 19
– Commitments and Contingencies
Litigation
Coalbed Natural
Gas Operations
Fidelity’s CBNG operations are and have been the subject
of numerous lawsuits in Montana and Wyoming. The current cases involve the
permitting and use of water produced in connection with Fidelity’s CBNG
development in the Powder River Basin. Some of these cases challenge the
issuance of discharge permits by the Montana DEQ and approval of other water
management tools by the MBOGC.
In April
2006, the Northern Cheyenne Tribe filed a complaint in Montana Twenty-Second
Judicial District Court against the Montana DEQ seeking to set aside Fidelity’s
renewed direct discharge and treatment permits. The Northern Cheyenne Tribe
claimed the Montana DEQ violated the Clean Water Act and the Montana Water
Quality Act by failing to include in the permits conditions requiring
application of the best practicable control technology currently available and
by failing to impose a nondegradation policy like the one the BER adopted soon
after the permit was issued. In addition, the Northern Cheyenne Tribe claimed
that the actions of the Montana DEQ violated the Montana State Constitution’s
guarantee of a clean and healthful environment, that the Montana DEQ’s related
environmental assessment was invalid, that the Montana DEQ was required, but
failed, to prepare an EIS and that the Montana DEQ failed to consider other
alternatives to the issuance of the permits. Fidelity, the NPRC, and the TRWUA
were granted leave to intervene in this proceeding. On January 12, 2009,
the Montana Twenty-Second Judicial District Court decided the case in favor of
Fidelity and the Montana DEQ in all respects, denying the motions of the
Northern Cheyenne Tribe, TRWUA, and NPRC, and granting the cross-motions of the
Montana DEQ and Fidelity in their entirety. As a result, Fidelity may continue
to utilize its direct discharge and treatment permits. The NPRC, the TRWUA and
the Northern Cheyenne Tribe appealed the decision to the Montana Supreme Court
on March 9, 11, and 13, 2009, respectively.
Fidelity’s
discharge of water pursuant to its two permits is its primary means for managing
CBNG-produced water. Fidelity believes that its discharge permits should,
assuming normal operating conditions, allow Fidelity to continue its existing
CBNG operations through the expiration of the permits in March 2011. If its
permits are set aside, Fidelity’s CBNG operations in Montana could be
significantly and adversely affected.
In
October 2003, Tongue & Yellowstone Irrigation District, NPRC and MEIC filed
a lawsuit in Montana First Judicial District Court challenging the MBOGC’s ROD
adopting the 2003 Final EIS which analyzed CBNG development in the State of
Montana. Through the amendment of the plaintiffs’ pleadings and as a result of
discovery, the defendants have now determined that the primary legal issue
before the Court is whether the ROD authorizes the “wasting” of ground water in
violation of the Montana State Constitution and the public trust doctrine.
Specifically, the plaintiffs contend that various water management tools,
including Fidelity’s direct discharge permits, allow for the waste of water.
Should the Montana First Judicial District Court determine that Fidelity’s
direct discharge permits violate the Montana State Constitution, Fidelity’s
Montana CBNG operations could be significantly and adversely
affected.
Fidelity
will continue to vigorously defend its interests in all CBNG-related litigation
in which it is involved. If the plaintiffs are successful in these lawsuits, the
ultimate outcome of the actions could adversely impact Fidelity’s existing CBNG
operations and/or the future development of this resource in the affected
regions.
Electric
Operations
In June 2008, the Sierra Club filed a complaint in the South
Dakota Federal District Court against Montana-Dakota and the two other co-owners
of the Big Stone Station. The complaint alleged certain violations of the PSD
and NSPS provisions of the Clean Air Act and certain violation of the South
Dakota SIP. The action further alleged that the Big Stone Station was modified
and operated without obtaining the appropriate permits, without meeting certain
emissions limits and NSPS requirements and without installing appropriate
emission control technology, all allegedly in violation of the Clean Air Act and
the South Dakota SIP. The Sierra Club alleged that these actions contributed to
air pollution and visibility impairment and have increased the risk of adverse
health effects and environmental damage. The Sierra Club sought declaratory and
injunctive relief to bring the co-owners of the Big Stone Station into
compliance with the Clean Air Act and the South Dakota SIP and to require them
to remedy the alleged violations. The Sierra Club also sought unspecified civil
penalties, including a beneficial mitigation project. The Company believes the
claims are without merit and that Big Stone Station has been and is being
operated in compliance with the Clean Air Act and the South Dakota SIP. On
March 31, 2009, the District Court granted the motion of the co-owners to
dismiss the complaint. The Sierra Club filed a motion requesting the District
Court to reconsider its ruling on a portion of the order dismissing the
complaint which was denied on July 22, 2009.
On
July 30, 2009, the Sierra Club appealed from the orders dismissing the case
and denying the motion for reconsideration to the United States Court of Appeals
for the Eighth Circuit. The United States has filed a brief as amicus curiae
supporting the Sierra Club’s position in the appeal and the State of South
Dakota filed a brief as amicus curiae supporting the Big Stone Station owners’
position in the appeal.
Construction
Materials
LTM is a third-party
defendant in litigation pending in Oregon Circuit Court regarding the concrete
floors in an industrial food processing facility located in Jackson County,
Oregon. The complaint against the facility construction contractor alleges the
concrete floors of the facility are defective and must be removed and replaced
for suitable repair. Damages, including disruption of the food processing
operations, have been estimated by the plaintiff to be in excess of
$32 million. The construction contractor’s answer and third-party complaint
alleges the owner and third-party defendants, including LTM which supplied
the concrete, are primarily responsible for any defects in the concrete
surfaces. Discovery is currently being conducted by the parties. A trial date
has not been set.
The
Company also is involved in other legal actions in the ordinary course of its
business. Although the outcomes of any such legal actions cannot be predicted,
management believes that the outcomes with respect to these other legal
proceedings will not have a material adverse effect upon the Company’s financial
position or results of operations.
Environmental
matters
Portland Harbor
Site
In December 2000, MBI was named by the EPA as a PRP in connection
with the cleanup of a riverbed site adjacent to a commercial property site
acquired by MBI from Georgia-Pacific West, Inc. in 1999. The riverbed site is
part of the Portland, Oregon, Harbor Superfund Site. The EPA wants responsible
parties to share in the cleanup of sediment contamination in the Willamette
River. To date, costs of the overall remedial investigation and feasibility
study of the harbor site are being recorded, and initially paid, through an
administrative consent order by the LWG, a group of several entities, which does
not include MBI or Georgia-Pacific West, Inc. Investigative costs are indicated
to be in excess of $70 million. It is not possible to estimate the cost of
a corrective action plan until the remedial investigation and feasibility study
have been completed, the EPA has decided on a strategy and a ROD has been
published. Corrective action will be taken after the development of a proposed
plan and ROD on the harbor site is issued. MBI also received notice in January
2008 that the Portland Harbor Natural Resource Trustee Council intends to
perform an injury assessment to natural resources resulting from the release of
hazardous substances at the Harbor Superfund Site. The Trustee Council indicates
the injury determination is appropriate to facilitate early settlement of
damages and restoration for natural resource injuries. It is not possible to
estimate the costs of natural resource damages until an assessment is completed
and allocations are undertaken.
Based
upon a review of the Portland Harbor sediment contamination evaluation by the
Oregon DEQ and other information available, MBI does not believe it is a
Responsible Party. In addition, MBI has notified Georgia-Pacific West, Inc.,
that it intends to seek indemnity for liabilities incurred in relation to the
above matters pursuant to the terms of their sale agreement. MBI has entered
into an agreement tolling the statute of limitations in connection with the
LWG’s potential claim for contribution to the costs of the remedial
investigation and feasibility study. By letter of March 2, 2009, LWG stated
its intent to file suit against MBI and others to recover LWG’s investigation
costs to the extent MBI cannot demonstrate its non-liability for the
contamination or is unwilling to participate in an alternative dispute
resolution process that has been established to address the matter. At this
time, MBI has agreed to participate in the alternative dispute resolution
process.
The
Company believes it is not probable that it will incur any material
environmental remediation costs or damages in relation to the above referenced
administrative action.
Manufactured Gas
Plant Sites
There are three claims against Cascade for cleanup of
environmental contamination at manufactured gas plant sites operated by
Cascade’s predecessors.
The first
claim is for soil and groundwater contamination at a site in Oregon and was
received in 1995. There are PRPs in addition to Cascade that may be liable for
cleanup of the contamination. Some of these PRPs have shared in the
investigation costs. It is expected that these and other PRPs will share in the
cleanup costs. Several alternatives for cleanup have been identified, with
preliminary cost estimates ranging from approximately $500,000 to
$11.0 million. An ecological risk assessment draft report was submitted to
the Oregon DEQ in June 2009. The assessment showed no unacceptable risk to the
aquatic ecological receptors present in the shoreline along the site and
concluded that no further ecological investigation is necessary. The report is
being reviewed by the Oregon DEQ. It is anticipated the Oregon DEQ will
recommend a cleanup
alternative
for the site after it completes its review of the report. It is not known at
this time what share of the cleanup costs will actually be borne by
Cascade.
The
second claim is for contamination at a site in Washington and was received in
1997. A preliminary investigation has found soil and groundwater at the site
contain contaminants requiring further investigation and cleanup. EPA conducted
a Targeted Brownfields Assessment of the site and released a report summarizing
the results of that assessment in August 2009. The assessment confirms that
contaminants have affected soil and groundwater at the site, as well as
sediments in the adjacent Port Washington Narrows. Alternative remediation
options have been identified with preliminary cost estimates ranging from
$340,000 to $6.4 million. Data developed through the assessment and
previous investigations indicates the contamination likely derived from
multiple, different sources and multiple current and former owners of properties
and businesses in the vicinity of the site may be responsible for the
contamination. There is currently not enough information to estimate the
potential liability to Cascade associated with this claim.
The third
claim is also for contamination at a site in Washington. Cascade received notice
from a party in May 2008 that Cascade may be a PRP, along with other parties,
for contamination from a manufactured gas plant owned by Cascade’s predecessor
from about 1946 to 1962. The notice indicates that current estimates to complete
investigation and cleanup of the site exceed $8.0 million. There is
currently not enough information available to estimate the potential liability
to Cascade associated with this claim.
To the
extent these claims are not covered by insurance, Cascade will seek recovery
through the OPUC and WUTC of remediation costs in its natural gas rates charged
to customers.
Operating
leases
The
Company leases certain equipment, facilities and land under operating lease
agreements. The amounts of annual minimum lease payments due under these leases
as of December 31, 2009, were $25.2 million in 2010,
$20.3 million in 2011, $15.3 million in 2012, $12.6 million in
2013, $6.7 million in 2014 and $43.9 million thereafter. Rent expense was
$43.4 million, $35.3 million and $35.6 million for the years
ended December 31, 2009, 2008 and 2007, respectively.
Purchase
commitments
The
Company has entered into various commitments, largely natural gas and coal
supply, purchased power, natural gas transportation and storage and construction
materials supply contracts. These commitments range from 1 to 51 years. The
commitments under these contracts as of December 31, 2009, were
$507.6 million in 2010, $288.3 million in 2011, $192.1 million in
2012, $105.7 million in 2013, $90.3 million in 2014 and $234.9 million
thereafter. These commitments were not reflected in the Company's consolidated
financial statements. Amounts purchased under various commitments for the years
ended December 31, 2009, 2008 and 2007, were $723.1 million,
approximately $1.0 billion (including the acquisition of Intermountain as
discussed in Note 2) and $857.0 million (including the acquisition of
Cascade as discussed in Note 2), respectively.
Guarantees
In
connection with the sale of MPX in June 2005 to Petrobras, an indirect wholly
owned subsidiary of the Company has agreed to indemnify Petrobras for
49 percent of any losses that Petrobras may incur from certain contingent
liabilities specified in the purchase agreement. Centennial has agreed to
unconditionally guarantee payment of the indemnity obligations to Petrobras for
periods ranging up to five and a half years from the date of sale. The guarantee
was required by Petrobras as a condition to closing the sale of
MPX.
Centennial
guaranteed CEM's obligations under a construction contract with LPP for a 550-MW
combined-cycle electric generating facility near Hobbs, New Mexico. Centennial
Resources sold CEM in July 2007 to Bicent Power LLC, which provided a
$10 million bank letter of credit to Centennial in support of the guarantee
obligation. On February 27, 2009, Centennial received a Notice and Demand
from LPP under the guaranty agreement alleging that CEM did not meet certain of
its obligations under the construction contract and demanding that Centennial
indemnify LPP against all losses, damages, claims, costs, charges and expenses
arising from CEM’s alleged failures. On December 4, 2009, LPP submitted a
demand for arbitration of its dispute with CEM to the American Arbitration
Association. The demand seeks compensatory damages of $146 million plus damages
for increased operating, capital and construction costs related to a water
treatment facility for the generating facility. LPP’s notice of demand for
arbitration also demanded performance of the guarantee by Centennial. The
Company believes the indemnification claims against Centennial are without merit
and intends to vigorously defend against such claims.
In
connection with the pending sale of the Brazilian Transmission Lines, as
discussed in Note 4, Centennial has agreed to guarantee the performance of
certain of the Company’s indirect wholly owned subsidiaries in three purchase
and sale agreements. Centennial has agreed to unconditionally guarantee payment
of the indemnity obligations of the wholly owned subsidiary sellers for periods
ranging up to 10 years from the date of sale. The guarantees were required
by the buyers as a condition to the sale of the Brazilian Transmission
Lines.
In
addition, WBI Holdings has guaranteed certain of Fidelity’s natural gas swap and
collar agreement obligations. There is no fixed maximum amount guaranteed in
relation to the natural gas swap and collar agreements as the amount of the
obligation is dependent upon natural gas commodity prices. The amount of hedging
activity entered into by the subsidiary is limited by corporate policy. The
guarantees of the natural gas swap and collar agreements at December 31,
2009, expire in 2010 and 2011; however, Fidelity continues to enter into
additional hedging activities and, as a result, WBI Holdings from time to time
may issue additional guarantees on these hedging obligations. There were no
amounts outstanding by Fidelity at December 31, 2009. In the event Fidelity
defaults under its obligations, WBI Holdings would be required to make payments
under its guarantees.
Certain
subsidiaries of the Company have outstanding guarantees to third parties that
guarantee the performance of other subsidiaries of the Company. These guarantees
are related to construction contracts, natural gas transportation and sales
agreements, gathering contracts, a conditional purchase agreement and certain
other guarantees. At December 31, 2009, the fixed maximum amounts
guaranteed under these agreements aggregated $234.4 million. The amounts of
scheduled expiration of the maximum amounts guaranteed under these agreements
aggregate $65.3 million in 2010; $141.8 million in 2011;
$16.7 million in 2012; $1.8 million in 2013; $200,000 in 2014;
$1.0 million in 2018; $300,000 in 2019; $3.3 million, which is subject
to expiration on a specified number of days after the receipt of written notice;
and $4.0 million, which has no scheduled maturity date. The amount
outstanding by subsidiaries of the Company under the above guarantees was
$570,000 and was reflected on the Consolidated Balance Sheet at
December 31,
2009. In the event of default under these guarantee obligations, the subsidiary
issuing the guarantee for that particular obligation would be required to make
payments under its guarantee.
Certain
subsidiaries have outstanding letters of credit to third parties related to
insurance policies, materials obligations, natural gas transportation agreements
and other agreements that guarantee the performance of other subsidiaries of the
Company. At December 31, 2009, the fixed maximum amounts guaranteed under
these letters of credit, aggregated $37.1 million, which are scheduled to
expire in 2010. There were no amounts outstanding under the above letters of
credit at December 31, 2009.
WBI
Holdings has an outstanding guarantee to Williston Basin. This guarantee is
related to a natural gas transportation and storage agreement that guarantees
the performance of Prairielands. At December 31, 2009, the fixed maximum
amount guaranteed under this agreement was $5.0 million and is scheduled to
expire in 2011. In the event of Prairielands’ default in its payment
obligations, WBI Holdings would be required to make payment under its guarantee.
The amount outstanding by Prairielands under the above guarantee was $870,000.
Prairielands also had $650,000 outstanding under a guarantee with Fidelity that
will expire when paid. The amounts outstanding under these guarantees were not
reflected on the Consolidated Balance Sheet at December 31, 2009, because
these intercompany transactions are eliminated in consolidation.
In
addition, Centennial and Knife River have issued guarantees to third parties
related to the Company’s routine purchase of maintenance items, materials and
lease obligations for which no fixed maximum amounts have been specified. These
guarantees have no scheduled maturity date. In the event a subsidiary of the
Company defaults under its obligation in relation to the purchase of certain
maintenance items, materials or lease obligations, Centennial or Knife River
would be required to make payments under these guarantees. Any amounts
outstanding by subsidiaries of the Company for these maintenance items and
materials were reflected on the Consolidated Balance Sheet at December 31,
2009.
In the
normal course of business, Centennial has purchased surety bonds related to
construction contracts and reclamation obligations of its subsidiaries. In the
event a subsidiary of Centennial does not fulfill a bonded obligation,
Centennial would be responsible to the surety bond company for completion of the
bonded contract or obligation. A large portion of the surety bonds is expected
to expire within the next 12 months; however, Centennial will likely
continue to enter into surety bonds for its subsidiaries in the future. As of
December 31, 2009, approximately $532 million of surety bonds were
outstanding, which were not reflected on the Consolidated Balance
Sheet.
Note 20
– Subsequent Events
The
Company evaluated for events or transactions between the balance sheet date and
February 17, 2010, the date of the issuance of the financial statements,
that would require recognition or disclosure in the financial
statements.
Supplementary
Financial Information
Quarterly
Data (Unaudited)
The
following unaudited information shows selected items by quarter for the years
2009 and 2008:
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter*
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
**
|
|
|
|
(In
thousands, except per share amounts)
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues
|
|
$
|
1,094,005
|
|
|
$
|
958,040
|
|
|
$
|
1,107,927
|
|
|
$
|
1,016,529
|
|
Operating
expenses
|
|
|
1,634,924
|
|
|
|
857,975
|
|
|
|
947,654
|
|
|
|
889,045
|
|
Operating
income (loss)
|
|
|
(540,919
|
)
|
|
|
100,065
|
|
|
|
160,273
|
|
|
|
127,484
|
|
Net
income (loss)
|
|
|
(343,803
|
)
|
|
|
55,311
|
|
|
|
92,584
|
|
|
|
72,634
|
|
Earnings
(loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(1.87
|
)
|
|
|
.30
|
|
|
|
.50
|
|
|
|
.39
|
|
Diluted
|
|
|
(1.87
|
)
|
|
|
.30
|
|
|
|
.50
|
|
|
|
.38
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
183,787
|
|
|
|
183,964
|
|
|
|
185,160
|
|
|
|
187,748
|
|
Diluted
|
|
|
183,787
|
|
|
|
184,398
|
|
|
|
185,425
|
|
|
|
188,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues
|
|
$
|
1,121,907
|
|
|
$
|
1,251,772
|
|
|
$
|
1,333,834
|
|
|
$
|
1,295,765
|
|
Operating
expenses
|
|
|
994,335
|
|
|
|
1,053,281
|
|
|
|
1,130,537
|
|
|
|
1,313,088
|
|
Operating
income (loss)
|
|
|
127,572
|
|
|
|
198,491
|
|
|
|
203,297
|
|
|
|
(17,323
|
)
|
Net
income (loss)
|
|
|
71,051
|
|
|
|
115,507
|
|
|
|
118,382
|
|
|
|
(11,267
|
)
|
Earnings
(loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
.39
|
|
|
|
.63
|
|
|
|
.65
|
|
|
|
(.06
|
)
|
Diluted
|
|
|
.39
|
|
|
|
.63
|
|
|
|
.64
|
|
|
|
(.06
|
)
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
182,599
|
|
|
|
182,972
|
|
|
|
183,219
|
|
|
|
183,603
|
|
Diluted
|
|
|
183,130
|
|
|
|
183,727
|
|
|
|
184,081
|
|
|
|
183,603
|
|
* 2009 reflects a $384.4 million after-tax noncash write-down
of natural gas and oil properties.
**
2008 reflects an $84.2 million after-tax noncash write-down of
natural gas and oil properties.
|
|
Certain
Company operations are highly seasonal and revenues from and certain expenses
for such operations may fluctuate significantly among quarterly periods.
Accordingly, quarterly financial information may not be indicative of results
for a full year.
Natural
Gas and Oil Activities (Unaudited)
Fidelity
is involved in the acquisition, exploration, development and production of
natural gas and oil resources. Fidelity's activities include the acquisition of
producing properties with potential development opportunities, exploratory
drilling and the operation and development of production properties. Fidelity
shares revenues and expenses from the development of specified properties in the
Rocky Mountain and Mid-Continent regions of the United States and in and around
the Gulf of Mexico in proportion to its ownership interests.
Fidelity
owns in fee or holds natural gas leases for the properties it operates in
Colorado, Montana, North Dakota, Texas, Utah and Wyoming. These rights are in
the Bonny Field in eastern Colorado, the Baker Field in southeastern Montana and
southwestern North Dakota, the Bowdoin area in north-central Montana, the Powder
River Basin of Montana and Wyoming, the Bakken area in North Dakota, the Paradox
Basin of Utah, the Tabasco and Texan Gardens fields of Texas
and the
Big Horn Basin in Wyoming. In 2008, Fidelity acquired and became the operator of
natural gas properties in Rusk County in eastern Texas.
The
information that follows includes Fidelity's proportionate share of all its
natural gas and oil interests.
The
following table sets forth capitalized costs and accumulated depreciation,
depletion and amortization related to natural gas and oil producing activities
at December 31:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
Subject
to amortization
|
|
$
|
1,815,380
|
|
|
$
|
2,211,865
|
|
|
$
|
1,750,233
|
|
Not
subject to amortization
|
|
|
178,214
|
|
|
|
232,081
|
|
|
|
142,524
|
|
Total
capitalized costs
|
|
|
1,993,594
|
|
|
|
2,443,946
|
|
|
|
1,892,757
|
|
Less
accumulated depreciation,
|
|
|
|
|
|
|
|
|
|
|
|
|
depletion
and amortization
|
|
|
969,630
|
|
|
|
846,074
|
|
|
|
681,101
|
|
Net
capitalized costs
|
|
$
|
1,023,964
|
|
|
$
|
1,597,872
|
|
|
$
|
1,211,656
|
|
Note:
Net capitalized costs as of December 31, 2009 and 2008, reflect noncash
write-downs of the Company’s natural gas and oil properties, as discussed in
Note 1.
Capital
expenditures, including those not subject to amortization, related to natural
gas and oil producing activities were as follows:
Years
ended December 31,
|
|
|
2009
|
*
|
|
|
2008
|
*
|
|
|
2007
|
*
|
|
|
(In
thousands)
|
|
Acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved
properties
|
|
$
|
3,879
|
|
|
$
|
225,610
|
|
|
$
|
426
|
|
Unproved
properties
|
|
|
8,771
|
|
|
|
107,419
|
|
|
|
17,731
|
|
Exploration
|
|
|
33,123
|
|
|
|
109,828
|
|
|
|
48,744
|
|
Development
*
*
|
|
|
135,202
|
|
|
|
260,098
|
|
|
|
214,433
|
|
Total
capital expenditures
|
|
$
|
180,975
|
|
|
$
|
702,955
|
|
|
$
|
281,334
|
|
*
Excludes net additions to
property, plant and equipment related to the recognition of future
liabilities for asset retirement obligations associated with the plugging
and abandonment of natural gas and oil wells, as discussed in Note 10, of
$2.0 million, $3.0 million and $5.4 million for the years
ended December 31, 2009, 2008 and 2007, respectively.
**
Includes expenditures for proved undeveloped reserves of
$32.5 million, $46.7 million and $74.6 million for the
years ended December 31, 2009, 2008 and 2007,
respectively.
|
|
The
following summary reflects income resulting from the Company's operations of
natural gas and oil producing activities, excluding corporate overhead and
financing costs:
Years
ended December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Sales
to affiliates
|
|
$
|
101,230
|
|
|
$
|
291,642
|
|
|
$
|
226,706
|
|
Sales
to external customers
|
|
|
338,425
|
|
|
|
420,488
|
|
|
|
287,557
|
|
Production
costs
|
|
|
123,148
|
|
|
|
161,401
|
|
|
|
123,924
|
|
Depreciation,
depletion and
|
|
|
|
|
|
|
|
|
|
|
|
|
amortization*
|
|
|
126,278
|
|
|
|
167,427
|
|
|
|
124,599
|
|
Write-down
of natural gas and oil properties
|
|
|
620,000
|
|
|
|
135,800
|
|
|
|
—
|
|
Pretax
income
|
|
|
(429,771
|
)
|
|
|
247,502
|
|
|
|
265,740
|
|
Income
tax expense
|
|
|
(164,216
|
)
|
|
|
91,593
|
|
|
|
98,729
|
|
Results
of operations for
|
|
|
|
|
|
|
|
|
|
|
|
|
producing
activities
|
|
$
|
(265,555
|
)
|
|
$
|
155,909
|
|
|
$
|
167,011
|
|
*
Includes accretion of discount for asset retirement obligations of
$2.7 million, $2.5 million and $2.5 million for the years
ended December 31, 2009, 2008 and 2007, respectively, as discussed in
Note 10.
|
|
The
following table summarizes the Company's estimated quantities of proved natural
gas and oil reserves at December 31, 2009, 2008 and 2007, and reconciles
the changes between these dates. Estimates of proved reserves were prepared in
accordance with guidelines established by the industry and the SEC. The
estimates are arrived at using actual historical wellhead production trends
and/or standard reservoir engineering methods utilizing available geological,
geophysical, engineering and economic data. Other factors used in the reserve
estimates are natural gas and oil prices, current estimates of well operating
and future development costs, taxes, timing of operations, and the interests
owned by the Company in the properties. These estimates are refined as new
information becomes available.
The
reserve estimates as of December 31, 2009, were calculated using SEC Defined
Prices and prior to that time, reserve estimates were calculated using spot
market prices that existed at the end of the applicable period. SEC Defined
Prices used for the December 31, 2009, reserve estimates for natural gas were
significantly lower than December 31, 2008, spot market prices. As a result, the
Company had significant negative revisions of previous estimates to its
reserves. Because SEC rules require proved reserves to be economically
producible, the price used is inherent in that determination. If the rules
regarding the prices used to calculate reserves had not been changed, the
Company believes it would not have had significant negative revisions to its
reserves due to pricing, as spot market prices on December 31, 2009, were higher
than December 31, 2008, spot market prices.
The
reserve estimates are prepared by internal engineers assigned to an asset team
by geographic area and are reviewed and approved by management. In addition, the
Company engages an independent third party to audit its proved reserves. Ryder
Scott Company, L.P. reviewed the Company’s proved reserve quantity estimates as
of December 31, 2009.
Estimates
of economically recoverable natural gas and oil reserves and future net revenues
therefrom are based upon a number of variable factors and assumptions. For these
reasons, estimates of economically recoverable reserves and future net revenues
may vary from actual results.
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Natural
|
|
|
|
|
|
Natural
|
|
|
|
|
|
Natural
|
|
|
|
|
|
|
Gas
|
|
|
Oil
|
|
|
Gas
|
|
|
Oil
|
|
|
Gas
|
|
|
Oil
|
|
|
|
(MMcf/MBbls)
|
|
Proved
developed and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
undeveloped
reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
604,282
|
|
|
|
34,348
|
|
|
|
523,737
|
|
|
|
30,612
|
|
|
|
538,100
|
|
|
|
27,100
|
|
Production
|
|
|
(56,632
|
)
|
|
|
(3,111
|
)
|
|
|
(65,457
|
)
|
|
|
(2,808
|
)
|
|
|
(62,798
|
)
|
|
|
(2,365
|
)
|
Extensions
and discoveries
|
|
|
26,882
|
|
|
|
2,569
|
|
|
|
78,338
|
|
|
|
4,941
|
|
|
|
77,701
|
|
|
|
3,772
|
|
Improved
recovery
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
444
|
|
|
|
1,614
|
|
Purchases
of proved reserves
|
|
|
—
|
|
|
|
—
|
|
|
|
92,564
|
|
|
|
834
|
|
|
|
2
|
|
|
|
6
|
|
Sales
of reserves in place
|
|
|
(22
|
)
|
|
|
(248
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(6
|
)
|
|
|
(42
|
)
|
Revisions
of previous
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
estimates
|
|
|
(126,085
|
)
|
|
|
658
|
|
|
|
(24,900
|
)
|
|
|
769
|
|
|
|
(29,706
|
)
|
|
|
527
|
|
Balance
at end of year
|
|
|
448,425
|
|
|
|
34,216
|
|
|
|
604,282
|
|
|
|
34,348
|
|
|
|
523,737
|
|
|
|
30,612
|
|
Proved
reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed
|
|
|
321,561
|
|
|
|
26,794
|
|
|
|
431,180
|
|
|
|
26,862
|
|
|
|
420,137
|
|
|
|
25,658
|
|
Undeveloped
|
|
|
126,864
|
|
|
|
7,422
|
|
|
|
173,102
|
|
|
|
7,486
|
|
|
|
103,600
|
|
|
|
4,954
|
|
Balance
at end of year
|
|
|
448,425
|
|
|
|
34,216
|
|
|
|
604,282
|
|
|
|
34,348
|
|
|
|
523,737
|
|
|
|
30,612
|
|
The level
of proved undeveloped reserves converted to developed in 2009 was less than
anticipated as the Company’s drilling plans were modified due to the lower price
environment experienced in 2009 and the Company’s focus to preserve capital. The
Company did not have any material proved undeveloped locations that remained
undeveloped for five years or more as of December 31, 2009.
The
Company's interests in natural gas and oil reserves are located in the United
States and in and around the Gulf of Mexico.
The
standardized measure of the Company's estimated discounted future net cash flows
of total proved reserves associated with its various natural gas and oil
interests at December 31 was as follows:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
Future
cash inflows
|
|
$
|
2,991,200
|
|
|
$
|
3,970,000
|
|
|
$
|
5,302,300
|
|
Future
production costs
|
|
|
1,095,600
|
|
|
|
1,325,600
|
|
|
|
1,415,700
|
|
Future
development costs
|
|
|
315,000
|
|
|
|
377,300
|
|
|
|
237,600
|
|
Future
net cash flows before income taxes
|
|
|
1,580,600
|
|
|
|
2,267,100
|
|
|
|
3,649,000
|
|
Future
income tax expense
|
|
|
291,000
|
|
|
|
501,200
|
|
|
|
1,179,900
|
|
Future
net cash flows
|
|
|
1,289,600
|
|
|
|
1,765,900
|
|
|
|
2,469,100
|
|
10%
annual discount for estimated timing of
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
flows
|
|
|
630,800
|
|
|
|
796,100
|
|
|
|
1,107,200
|
|
Discounted
future net cash flows relating to
|
|
|
|
|
|
|
|
|
|
|
|
|
proved
natural gas and oil reserves
|
|
$
|
658,800
|
|
|
$
|
969,800
|
|
|
$
|
1,361,900
|
|
The
following are the sources of change in the standardized measure of discounted
future net cash flows by year:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
Beginning
of year
|
|
$
|
969,800
|
|
|
$
|
1,361,900
|
|
|
$
|
1,003,500
|
|
Net
revenues from production
|
|
|
(200,900
|
)
|
|
|
(547,000
|
)
|
|
|
(354,100
|
)
|
Change
in net realization
|
|
|
(364,800
|
)
|
|
|
(687,100
|
)
|
|
|
527,900
|
|
Extensions
and discoveries, net of future
|
|
|
|
|
|
|
|
|
|
|
|
|
production-related
costs
|
|
|
70,500
|
|
|
|
209,600
|
|
|
|
310,300
|
|
Improved
recovery, net of future production-related costs
|
|
|
—
|
|
|
|
—
|
|
|
|
38,100
|
|
Purchases
of proved reserves, net of future production-related costs
|
|
|
—
|
|
|
|
138,100
|
|
|
|
200
|
|
Sales
of reserves in place
|
|
|
(1,100
|
)
|
|
|
—
|
|
|
|
(1,300
|
)
|
Changes
in estimated future development costs
|
|
|
43,600
|
|
|
|
11,000
|
|
|
|
(22,600
|
)
|
Development
costs incurred during the current year
|
|
|
46,400
|
|
|
|
66,300
|
|
|
|
103,000
|
|
Accretion
of discount
|
|
|
115,900
|
|
|
|
183,800
|
|
|
|
133,700
|
|
Net
change in income taxes
|
|
|
142,800
|
|
|
|
372,300
|
|
|
|
(212,500
|
)
|
Revisions
of previous estimates
|
|
|
(155,500
|
)
|
|
|
(132,200
|
)
|
|
|
(163,700
|
)
|
Other
|
|
|
(7,900
|
)
|
|
|
(6,900
|
)
|
|
|
(600
|
)
|
Net
change
|
|
|
(311,000
|
)
|
|
|
(392,100
|
)
|
|
|
358,400
|
|
End
of year
|
|
$
|
658,800
|
|
|
$
|
969,800
|
|
|
$
|
1,361,900
|
|
The
estimated discounted future cash inflows from estimated future production of
proved reserves were computed using prices as previously discussed. Future
development and production costs attributable to proved reserves were computed
by applying year-end costs to be incurred in producing and further developing
the proved reserves. Future development costs estimated to be spent in each of
the next three years to develop proved undeveloped reserves as of
December 31, 2009, are $88.9 million in 2010, $69.1 million in
2011 and $41.8 million in 2012. Future income tax expenses were computed by
applying statutory tax rates, adjusted for permanent differences and tax
credits, to estimated net future pretax cash flows.
The
standardized measure of discounted future net cash flows does not purport to
represent the fair market value of natural gas and oil properties. There are
significant uncertainties inherent in estimating quantities of proved reserves
and in projecting rates of production and the timing and amount of future costs.
In addition, future realization of natural gas and oil prices over the remaining
reserve lives may vary significantly from SEC Defined Prices.
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
|
None.
Item 9A.
Controls and Procedures
The
following information includes the evaluation of disclosure controls and
procedures by the Company’s chief executive officer and the chief financial
officer, along with any significant changes in internal controls of the
Company.
Evaluation
of Disclosure Controls and Procedures
The term
"disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e)
of the Exchange Act. The Company’s controls and other procedures are designed to
provide reasonable assurance that information required to be disclosed in the
reports that the Company files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms. The Company’s disclosure controls and procedures include
controls and procedures designed to provide reasonable assurance that
information required to be disclosed is accumulated and communicated to
management, including the Company’s chief executive officer and chief financial
officer, to allow timely decisions regarding required disclosure. The Company’s
chief executive officer and chief financial officer have evaluated the
effectiveness of the Company’s disclosure controls and procedures and they have
concluded that, as of the end of the period covered by this report, such
controls and procedures were effective at a reasonable assurance
level.
Changes
in Internal Controls
The
Company maintains a system of internal accounting controls that is designed to
provide reasonable assurance that the Company’s transactions are properly
authorized, the Company’s assets are safeguarded against unauthorized or
improper use, and the Company’s transactions are properly recorded and reported
to permit preparation of the Company’s financial statements in conformity with
generally accepted accounting principles in the United States of America. There
were no changes in the Company’s internal control over financial reporting that
occurred during the quarter ended December 31, 2009, that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
Management's
Annual Report on Internal Control Over Financial Reporting
The
information required by this item is included in this Form 10-K at
Item 8 – Management's Report on Internal Control Over Financial
Reporting.
Attestation
Report of the Registered Public Accounting Firm
The
information required by this item is included in this Form 10-K at
Item 8 – Report of Independent Registered Public Accounting
Firm.
Item 9B.
Other Information
None.
Part III
Item 10. Directors,
Executive Officers and Corporate
Governance
|
The
information required by this item is included in the last sentence of the third
paragraph under the caption "Item 1. Election of Directors" and under the
captions "Item 1. Election of Directors – Director Nominees," "Information
Concerning Executive Officers," the first paragraph and the second, third and
fourth sentences of the second paragraph under "Corporate Governance – Audit
Committee," "Corporate Governance – Code of Conduct," the second sentence of the
last paragraph under "Corporate Governance – Board Meetings and Committees" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy
Statement, which information is incorporated herein by reference.
Item 11.
Executive Compensation
The
information required by this item is included under the caption "Executive
Compensation" in the Proxy Statement, which information is incorporated herein
by reference.
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
Equity
Compensation Plan Information
The
following table includes information as of December 31, 2009, with respect
to the Company's equity compensation plans:
Plan
Category
|
|
(a)
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
|
|
|
(b)
Weighted
average exercise price of outstanding options, warrants and
rights
|
|
|
(c)
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in
column (a))
|
|
Equity
compensation plans approved by stockholders (1)
|
|
|
1,087,973
|
(2)
|
|
$
|
19.80
|
|
|
|
7,262,380
|
(3)(4)
|
Equity
compensation plans
not approved by
stockholders (5)
|
|
|
371,403
|
|
|
|
13.22
|
|
|
|
2,361,073
|
(6)
|
Total
|
|
|
1,459,376
|
|
|
$
|
18.13
|
|
|
|
9,623,453
|
|
(1)
|
Consists
of the 1992 Key Employee Stock Option Plan, the Non-Employee Director
Long-Term Incentive Compensation Plan, the Long-Term Performance-Based
Incentive Plan and the Non-Employee Director Stock Compensation
Plan.
|
(2)
|
Includes
634,505 performance shares.
|
(3)
|
In
addition to being available for future issuance upon exercise of options,
357,757 shares under the Non-Employee Director Long-Term Incentive
Compensation Plan may instead be issued in connection with stock
appreciation rights, restricted stock, performance units, performance
shares or other equity-based awards, and 5,861,739 shares under the
Long-Term Performance-Based Incentive Plan may instead be issued in
connection with stock appreciation rights, restricted stock, performance
units, performance shares or other equity-based awards.
|
(4)
|
This
amount also includes 364,628 shares available for issuance under the
Non-Employee Director Stock Compensation Plan. Under this plan, in
addition to a cash retainer, nonemployee Directors are awarded
4,050 shares following the Company's annual meeting of stockholders.
Prior to January 1, 2009, the Company's Chairman of the Board of
Directors received an additional $50,000 in stock under the plan each
December as part of his retainer. A non-employee Director may acquire
additional shares under the plan in lieu of receiving the cash portion of
the Director's retainer or fees.
|
(5)
|
Consists
of the 1998 Option Award Program and the Group Genius Innovation
Plan.
|
(6)
|
In
addition to being available for future issuance upon exercise of options,
219,050 shares under the Group Genius Innovation Plan may instead be
issued in connection with stock appreciation rights, restricted stock,
restricted stock units, performance units, performance stock or other
equity-based awards.
|
The
following equity compensation plans have not been approved by the Company's
stockholders.
The
1998 Option Award Program
The 1998
Option Award Program is a broad-based plan adopted by the Board of Directors,
effective February 12, 1998. The plan permits the grant of nonqualified
stock options to employees of the Company and its subsidiaries. The maximum
number of shares that may be issued under the plan is 3,795,330. Shares granted
may be authorized but unissued shares, treasury
shares,
or shares purchased on the open market. Option exercise prices are equal to the
market value of the Company's shares on the date of the option grant. Optionees
receive dividend equivalents on their options, with any credited dividends paid
in cash to the optionee if the option vests, or forfeited if the option is
forfeited. Vested options remain exercisable for one year following termination
of employment due to death or disability and for three months following
termination of employment for any other reason.
Unvested
options are forfeited upon termination of employment. Subject to the terms and
conditions of the plan, the plan's administrative committee determines the
number of shares subject to options granted to each participant and the other
terms and conditions pertaining to such options, including vesting provisions.
All options become immediately exercisable in the event of a change in control
of the Company.
In 2001,
450 options (adjusted for the three-for-two stock splits in October 2003 and
July 2006) were granted to each of approximately 5,900 employees. No officers
received grants. These options vested on February 13, 2004. As of
December 31, 2009, options covering 371,403 shares of common stock were
outstanding under the plan and 2,142,023 shares remained available for future
grant. Options covering 1,281,904 shares had been exercised.
The
Group Genius Innovation Plan
The Group
Genius Innovation Plan was adopted by the Board of Directors, effective
May 17, 2001, to encourage employees to share ideas for new business
directions for the Company and to reward them when the idea becomes profitable.
Employees of the Company and its subsidiaries who are selected by the plan's
administrative committee are eligible to participate in the plan. Officers and
Directors are not eligible to participate. The plan permits the granting of
nonqualified stock options, stock appreciation rights, restricted stock,
restricted stock units, performance units, performance stock and other awards.
The maximum number of shares that may be issued under the plan is 223,150.
Shares granted under the plan may be authorized but unissued shares, treasury
shares or shares purchased on the open market. Restricted stockholders have
voting rights and, unless determined otherwise by the plan's administrative
committee, receive dividends paid on the restricted stock. Dividend equivalents
payable in cash may be granted with respect to options and performance shares.
The plan's administrative committee determines the number of shares or units
subject to awards, and the other terms and conditions of the awards, including
vesting provisions and the effect of employment termination. Upon a change in
control of the Company, all options and stock appreciation rights become
immediately vested and exercisable, all restricted stock becomes immediately
vested, all restricted stock units become immediately vested and are paid out in
cash, and target payout opportunities under all performance units, performance
stock, and other awards are deemed to be fully earned, with awards denominated
in stock paid out in shares and awards denominated in units paid out in cash. As
of December 31, 2009, 4,100 shares of stock had been granted to 73
employees.
The
remaining information required by this item is included under the caption
"Security Ownership" in the Proxy Statement, which information is incorporated
herein by reference.
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The
information required by this item is included under the captions "Related Person
Transaction Disclosure," "Corporate Governance – Director Independence" and the
second sentence of the third paragraph under "Corporate Governance – Board
Meetings and Committees" in the Proxy Statement, which information is
incorporated herein by reference.
Item 14.
Principal Accountant Fees and Services
The
information required by this item is included under the caption "Accounting and
Auditing Matters" in the Proxy Statement, which information is incorporated
herein by reference.
Part IV
Item 15.
Exhibits and Financial Statement Schedules
(a) Financial
Statements, Financial Statement Schedules and
Exhibits
|
Index
to Financial Statements and Financial Statement Schedules
1.
Financial Statements
The
following consolidated financial statements required under this item are
included under Item 8 – Financial Statements and Supplementary
Data.
|
Page
|
|
|
Consolidated
Statements of Income for each of the three years in the period ended
December 31, 2009
|
74
|
|
|
Consolidated
Balance Sheets at December 31, 2009 and 2008
|
75
|
|
|
Consolidated
Statements of Common Stockholders' Equity for each of the three years in
the period ended December 31, 2009
|
76
|
|
|
Consolidated
Statements of Cash Flows for each of the three years in the period ended
December 31, 2009
|
77
|
|
|
Notes
to Consolidated Financial Statements
|
78
|
2.
Financial Statement Schedules
MDU
Resources Group, Inc.
|
Schedule II
- Consolidated Valuation and Qualifying Accounts
|
Years
Ended December 31, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
Balance
at
|
|
Charged
to
|
|
|
|
|
|
Balance
|
|
|
Beginning
|
|
Costs
and
|
|
|
|
|
|
at
End
|
Description
|
|
of
Year
|
|
Expenses
|
|
Other*
|
|
Deductions**
|
|
of
Year
|
|
|
(In
thousands)
|
Allowance
for doubtful accounts:
|
|
|
|
|
|
|
|
|
2009
|
|
$13,691
|
|
$12,152
|
|
$1,412
|
|
$10,606
|
|
$16,649
|
2008
|
|
14,635
|
|
12,191
|
|
2,115
|
|
15,250
|
|
13,691
|
2007
|
|
7,725
|
|
8,799
|
|
5,533
|
|
7,422
|
|
14,635
|
*
Allowance for doubtful accounts
for companies acquired and recoveries.
|
** Uncollectible
accounts written off.
|
All other
schedules are omitted because of the absence of the conditions under which they
are required, or because the information required is included in the Company's
Consolidated Financial Statements and Notes thereto.
3.
Exhibits
3(a)
|
Restated
Certificate of Incorporation of the Company, as amended, dated
May 17, 2007, filed as Exhibit 3.1 to Form 8-A/A, filed on
June 27, 2007, in File No. 1-3480*
|
|
|
3(b)
|
Company
Bylaws, as amended and restated, on November 12,
2009**
|
|
|
4(a)
|
Indenture
of Mortgage, dated as of May 1, 1939, as restated in the Forty-Fifth
Supplemental Indenture, dated as of April 21, 1992, and the
Forty-Sixth through Fiftieth Supplements thereto between the Company and
the New York Trust Company (The Bank of New York, successor Corporate
Trustee) and A. C. Downing (Douglas J. MacInnes, successor
Co-Trustee), filed as Exhibit 4(a) to Form S-3, in Registration
No. 33-66682; and Exhibits 4(e), 4(f) and 4(g) to Form S-8, in
Registration No. 33-53896; and Exhibit 4(c)(i) to Form S-3,
in Registration No. 333-49472; and Exhibit 4(e) to
Form S-8, in Registration No. 333-112035*
|
|
|
4(b)
|
Indenture,
dated as of December 15, 2003, between the Company and The Bank of
New York, as trustee, filed as Exhibit 4(f) to Form S-8 on
January 21, 2004, in Registration
No. 333-112035*
|
|
|
4(c)
|
First
Supplemental Indenture, dated as of November 17, 2009, between the Company
and The Bank of New York Mellon, as trustee**
|
|
|
4(d)
|
Centennial
Energy Holdings, Inc. Master Shelf Agreement, dated April 29, 2005,
among Centennial Energy Holdings, Inc. and the Prudential Insurance
Company of America, filed as Exhibit 4(a) to Form 10-Q for the
quarter ended June 30, 2005, filed on August 3, 2005, in File
No. 1-3480*
|
|
|
4(e)
|
Letter
Amendment No. 1 to Amended and Restated Master Shelf Agreement, dated
May 17, 2006, among Centennial Energy Holdings, Inc., The Prudential
Insurance Company of America, and certain investors described in the
Letter Amendment filed as Exhibit 4(a) to Form 10-Q for the
quarter ended June 30, 2006, filed on August 4, 2006, in File
No. 1-3480*
|
|
|
4(f)
|
MDU
Resources Group, Inc. Credit Agreement, dated June 21, 2005, among
MDU Resources Group, Inc., Wells Fargo Bank, National Association, as
Administrative Agent, and The Other Financial Institutions Party thereto,
filed as Exhibit 4(b) to Form 10-Q for the quarter ended
June 30, 2005, filed on August 3, 2005, in File
No. 1-3480*
|
|
|
4(g)
|
First
Amendment, dated June 30, 2006, to Credit Agreement, dated
June 21, 2005, among MDU Resources Group, Inc., Wells Fargo Bank,
National Association, as administrative agent, and certain lenders
described in the credit agreement, filed as Exhibit 4(b) to
Form 10-Q for the quarter ended June 30, 2006, filed on
August 4, 2006, in File
No. 1-3480*
|
4(h)
|
Centennial
Energy Holdings, Inc. Credit Agreement, dated December 13, 2007,
among Centennial Energy Holdings, Inc., U.S. Bank National Association, as
Administrative Agent, and The Other Financial Institutions party thereto,
filed as Exhibit 4(j) to Form 10-K for the year ended
December 31, 2007, filed on February 20, 2008, in File
No. 1-3480*
|
|
|
4(i)
|
Consent
dated November 9, 2009, under Centennial Energy Holdings, Inc. Credit
Agreement, among Centennial Energy Holdings, Inc., U.S. Bank National
Association, as Administrative Agent, and The Other Financial Institutions
party thereto**
|
|
|
4(j)
|
MDU
Energy Capital, LLC Master Shelf Agreement, dated as of August 9,
2007, among MDU Energy Capital, LLC and the Prudential Insurance Company
of America, filed as Exhibit 4 to Form 8-K dated August 16,
2007, filed on August 16, 2007, in File
No. 1-3480*
|
|
|
4(k)
|
Indenture
dated as of August 1, 1992, between Cascade Natural Gas Corporation
and The Bank of New York relating to Medium-Term Notes, filed by Cascade
Natural Gas Corporation as Exhibit 4 to Form 8-K dated
August 12, 1992, in File No. 1-7196*
|
|
|
4(l)
|
First
Supplemental Indenture dated as of October 25, 1993, between Cascade
Natural Gas Corporation and The Bank of New York relating to Medium-Term
Notes and the 7.5% Notes due November 15, 2031, filed by Cascade
Natural Gas Corporation as Exhibit 4 to Form 10-Q for the
quarter ended June 30, 1993, in File
No. 1-7196*
|
|
|
4(m)
|
Second
Supplemental Indenture, dated January 25, 2005, between Cascade
Natural Gas Corporation and The Bank of New York, as trustee, filed by
Cascade Natural Gas Corporation as Exhibit 4.1 to Form 8-K dated
January 25, 2005, filed on January 26, 2005, in File
No. 1-7196*
|
|
|
4(n)
|
Third
Supplemental Indenture dated as of March 8, 2007, between Cascade
Natural Gas Corporation and The Bank of New York Trust Company, N.A., as
Successor Trustee, filed by Cascade Natural Gas Corporation as
Exhibit 4.1 to Form 8-K dated March 8, 2007, filed on
March 8, 2007, in File No. 1-7196*
|
|
|
4(o)
|
Amendment
No. 1 to Master Shelf Agreement, dated October 1, 2008, among
MDU Energy Capital, LLC, Prudential Investment Management, Inc., The
Prudential Insurance Company of America, and the holders of the notes
thereunder, filed as Exhibit 4(b) to Form 10-Q for the quarter
ended September 30, 2008, filed on November 5, 2008, in File
No. 1-3480*
|
|
|
+10(a)
|
1992
Key Employee Stock Option Plan, as revised, filed as Exhibit 10(a) to
Form 10-K for the year ended December 31, 2006, filed on
February 21, 2007, in File No. 1-3480*
|
|
|
+10(b)
|
Supplemental
Income Security Plan, as amended and restated November 12,
2009**
|
|
|
+10(c)
|
Directors'
Compensation Policy, as amended May 14, 2009, filed as
Exhibit 10(a) to Form 10-Q for the quarter ended June 30,
2009, filed on August 7, 2009, in File
No. 1-3480*
|
+10(d)
|
Deferred
Compensation Plan for Directors, as amended May 15, 2008, filed as
Exhibit 10(a) to Form 10-Q for the quarter ended June 30,
2008, filed on August 7, 2008, in File
No. 1-3480*
|
|
|
+10(e)
|
Non-Employee
Director Stock Compensation Plan, as amended May 15, 2008, filed as
Exhibit 10(d) to Form 10-Q for the quarter ended June 30,
2008, filed on August 7, 2008, in File
No. 1-3480*
|
|
|
+10(f)
|
Non-Employee
Director Long-Term Incentive Compensation Plan, as amended
November 12, 2009**
|
|
|
+10(g)
|
1998
Option Award Program, as amended November 12,
2009**
|
|
|
+10(h)
|
Group
Genius Innovation Plan, as amended November 12,
2009**
|
|
|
+10(i)
|
WBI
Holdings, Inc. Executive Incentive Compensation Plan, as amended
January 31, 2008, and Rules and Regulations, as amended
November 11, 2009**
|
|
|
+10(j)
|
Knife
River Corporation Executive Incentive Compensation Plan, as amended
January 31, 2008, and Rules and Regulations, as amended
November 16, 2009**
|
|
|
+10(k)
|
Long-Term
Performance-Based Incentive Plan, as amended November 12,
2009**
|
|
|
+10(l)
|
MDU
Resources Group, Inc. Executive Incentive Compensation Plan, as amended
November 15, 2007, and Rules and Regulations, as amended
November 11, 2009**
|
|
|
+10(m)
|
Montana-Dakota
Utilities Co. Executive Incentive Compensation Plan, as amended
November 15, 2007, and Rules and Regulations, as amended
November 11, 2009**
|
|
|
+10(n)
|
Form
of Change of Control Employment Agreement, as amended May 15, 2008,
filed as Exhibit 10.1 to Form 8-K dated May 15, 2008, filed
on May 20, 2008, in File No. 1-3480*
|
|
|
+10(o)
|
MDU
Resources Group, Inc. Executive Officers with Change of Control Employment
Agreements Chart, as of December 31, 2008, filed as Exhibit 10(p) to
Form 10-K for the year ended December 31, 2008, filed on
February 13, 2009, in File No. 1-3480*
|
|
|
+10(p)
|
Supplemental
Executive Retirement Plan for John G. Harp, dated December 4, 2006,
filed as Exhibit 10(ag) to Form 10-K for the year ended
December 31, 2006, filed on February 21, 2007, in File
No. 1-3480*
|
|
|
+10(q)
|
Employment
Letter for John G. Harp, dated July 20, 2005, filed as
Exhibit 10(ah) to Form 10-K for the year ended December 31,
2006, filed on February 21, 2007, in File
No. 1-3480*
|
|
|
+10(r)
|
Form
of Performance Share Award Agreement under the Long-Term Performance-Based
Incentive Plan, as amended August 13, 2008, filed as
Exhibit 10.1 to Form 8-K dated August 13, 2008, filed on
August 19, 2008, in File
No. 1-3480*
|
+10(s)
|
MDU
Construction Services Group, Inc. Executive Incentive Compensation Plan,
as amended January 31, 2008, and Rules and Regulations, as amended
February 16, 2009, filed as Exhibit 10(c) to Form 10-Q for
the quarter ended March 31, 2009, filed on May 6, 2009, in File
No. 1-3480*
|
|
|
+10(t)
|
John
G. Harp 2009 additional incentive opportunity, filed as Exhibit 10(f)
to Form 10-Q for the quarter ended March 31, 2009, filed on
May 6, 2009, in File No. 1-3480*
|
|
|
+10(u)
|
Form
of 2009 Annual Incentive Award Agreement under the Long-Term
Performance-Based Incentive Plan, filed as Exhibit 10(g) to
Form 10-Q for the quarter ended March 31, 2009, filed on
May 6, 2009, in File No. 1-3480*
|
|
|
+10(v)
|
MDU
Resources Group, Inc. 401(k) Retirement Plan, as restated June 1, 2009,
filed as Exhibit 10(b) to Form 10-Q for the quarter ended
June 30, 2009, filed on August 7, 2009, in File
No. 1-3480*
|
|
|
+10(w)
|
Instrument
of Amendment to the MDU Resources Group, Inc. 401(k) Retirement Plan,
dated December 2, 2009**
|
|
|
+10(x)
|
Instrument of Amendment to the MDU
Resources Group, Inc. 401(k) Retirement Plan, dated December 30,
2009**
|
|
|
12
|
Computation
of Ratio of Earnings to Fixed Charges and Combined Fixed Charges and
Preferred Stock Dividends**
|
|
|
21
|
Subsidiaries
of MDU Resources Group, Inc.**
|
|
|
23(a)
|
Consent
of Independent Registered Public Accounting Firm**
|
|
|
23(b)
|
Consent
of Ryder Scott Company, L.P.**
|
|
|
31(a)
|
Certification
of Chief Executive Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002**
|
|
|
31(b)
|
Certification
of Chief Financial Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002**
|
|
|
32
|
Certification
of Chief Executive Officer and Chief Financial Officer furnished pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002**
|
|
|
99(a)
|
Sales
Agency Financing Agreement entered into between MDU Resources Group, Inc.
and Wells Fargo Securities, LLC, filed as Exhibit 1 to Form 8-K
dated September 5, 2008, filed on September 5, 2008, in File
No. 1-3480*
|
|
|
99(b)
|
Ryder
Scott Company, L.P. report dated January 22, 2010
**
|
101
|
The
following materials from MDU Resources Group, Inc.’s Annual Report on Form
10-K for the year ended December 31, 2009, formatted in XBRL (eXtensible
Business Reporting Language): (i) the Consolidated Statements of Income,
(ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of
Common Stockholders’ Equity, (iv) the Consolidated Statements of Cash
Flows, (v) the Notes to Consolidated Financial Statements, tagged as
blocks of text and (vi) Schedule II – Consolidated Valuation and
Qualifying Accounts, tagged as a block of
text
|
————————————————————————
*
Incorporated herein by reference as
indicated.
** Filed herewith.
+ Management contract, compensatory plan or
arrangement.
MDU
Resources Group, Inc. agrees to furnish to the SEC upon request any instrument
with respect to long-term debt that MDU Resources Group, Inc. has not filed as
an exhibit pursuant to the exemption provided by Item 601(b)(4)(iii)(A) of
Regulation S-K.
Signatures
Pursuant
to the requirements of Section 13 or 15(d) 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:
|
February
17, 2010
|
By:
|
/s/
Terry D. Hildestad
|
|
|
|
Terry
D. Hildestad
(President
and Chief Executive Officer)
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant in the
capacities and on the date indicated.
Signature
|
Title
|
Date
|
|
|
|
/s/
Terry D. Hildestad
|
Chief
Executive Officer and Director
|
February
17, 2010
|
Terry
D. Hildestad
(President
and Chief Executive Officer)
|
|
|
|
|
|
/s/
Doran N. Schwartz
|
Chief
Financial Officer
|
February
17, 2010
|
Doran
N. Schwartz
(Vice
President and Chief Financial Officer)
|
|
|
|
|
|
/s/
Nicole A. Kivisto
|
Chief
Accounting Officer
|
February
17, 2010
|
Nicole
A. Kivisto
(Vice
President, Controller and Chief Accounting Officer)
|
|
|
|
|
|
/s/
Harry J. Pearce
|
Director
|
February
17, 2010
|
Harry
J. Pearce
|
|
|
(Chairman
of the Board)
|
|
|
|
|
|
/s/
Thomas Everist
|
Director
|
February
17, 2010
|
Thomas
Everist
|
|
|
|
|
|
/s/
Karen B. Fagg
|
Director
|
February
17, 2010
|
Karen
B. Fagg
|
|
|
|
|
|
/s/
A. Bart Holaday
|
Director
|
February
17, 2010
|
A.
Bart Holaday
|
|
|
|
|
|
/s/
Dennis W. Johnson
|
Director
|
February
17, 2010
|
Dennis
W. Johnson
|
|
|
|
|
|
/s/
Thomas C. Knudson
|
Director
|
February
17, 2010
|
Thomas
C. Knudson
|
|
|
|
|
|
/s/
Richard H. Lewis
|
Director
|
February
17, 2010
|
Richard
H. Lewis
|
|
|
|
|
|
/s/
Patricia L. Moss
|
Director
|
February
17, 2010
|
Patricia
L. Moss
|
|
|
|
|
|
/s/
Sister Thomas Welder
|
Director
|
February
17, 2010
|
Sister
Thomas Welder
|
|
|
|
|
|
/s/
John K. Wilson
|
Director
|
February
17, 2010
|
John
K. Wilson
|
|
|
Bylaws of
MDU Resources
GROUP, INC.
11/09
TABLE
OF CONTENTS
TO
BYLAWS
|
Page
No.
|
OFFICES
|
1
|
|
1.01
Registered Office
|
1
|
|
1.02
Other Offices
|
1
|
MEETINGS
OF STOCKHOLDERS
|
1
|
|
2.01
Place of Meetings
|
1
|
|
2.02
Annual Meetings
|
1
|
|
2.03
Notice of Annual Meeting
|
2
|
|
2.04
Stockholders List
|
2
|
|
2.05
Notice of Special Meeting
|
2
|
|
2.06
Quorum
|
2
|
|
2.07
Voting Rights
|
3
|
|
2.08
Nominations for Director
|
3
|
|
2.09
Business at Meetings of Stockholders
|
6
|
DIRECTORS
|
8
|
|
3.01
Authority of Directors
|
8
|
|
3.02
Qualifications
|
8
|
|
3.03
Place of Meetings
|
9
|
|
3.04
Annual Meetings
|
9
|
|
3.05
Regular Meetings
|
9
|
|
3.06
Special Meetings
|
9
|
|
3.07
Quorum
|
9
|
|
3.08
Participation of Directors by Conference Telephone
|
9
|
|
3.09
Written Action of Directors
|
9
|
|
3.10
Committees
|
9
|
|
3.11
Reports of Committees
|
10
|
|
3.12
Compensation of Directors
|
10
|
|
3.13
Chairman of the Board
|
10
|
|
3.14
Lead Director
|
10
|
NOTICES
|
11
|
|
4.01
Notices
|
11
|
|
4.02
Waiver
|
11
|
OFFICERS
|
11
|
|
5.01
Election, Qualifications
|
11
|
|
5.02
Additional Officers
|
11
|
|
5.03
Salaries
|
11
|
|
5.04
Term
|
11
|
|
5.05
Chief Executive Officer
|
11
|
|
5.06
The President
|
12
|
|
5.07
The Vice Presidents
|
12
|
|
5.08
The Secretary and Assistant Secretaries
|
12
|
|
5.09
Treasurer and Assistant Treasurers
|
12
|
|
5.10
General Counsel
|
13
|
|
5.11
Authority and Duties
|
13
|
|
5.12
Execution of Instruments
|
13
|
|
5.13
Execution of Proxies
|
13
|
CERTIFICATES
OF STOCK
|
14
|
|
6.01
Certificates
|
14
|
|
6.02
Signatures
|
14
|
|
6.03
Special Designation on Certificates
|
14
|
|
6.04
Lost Certificates
|
14
|
|
6.05
Transfers of Stock
|
15
|
|
6.06
Record Date
|
15
|
|
6.07
Registered Stockholders
|
15
|
GENERAL
PROVISIONS
|
15
|
|
7.01
Dividends
|
15
|
|
7.02
Checks
|
15
|
|
7.03
Fiscal Year
|
15
|
|
7.04
Seal
|
15
|
|
7.05
Inspection of Books and Records
|
16
|
|
7.06
Amendments
|
16
|
|
7.07
Indemnification of Officers, Directors, Employees and Agents;
Insurance
|
16
|
|
7.08
Severability
|
18
|
BYLAWS
OF
MDU
RESOURCES GROUP, INC.
OFFICES
1.01
Registered
Office
. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
1.02
Other
Offices
. The Corporation may also have offices at such other
places, both within and without the State of Delaware, as the Board of Directors
may from time to time determine or the business of the Corporation may
require.
MEETINGS
OF STOCKHOLDERS
2.01
Place
of Meetings
. All meetings of the stockholders for the election
of Directors shall be held in the City of Bismarck, State of North Dakota, at
such place as may be fixed from time to time by the Board of Directors, or at
such other place, either within or without the State of Delaware, as shall be
designated from time to time by the Board of Directors, or, in the sole
discretion of the Board of Directors, by means of remote communication as
authorized by the laws of Delaware, as shall be stated in the notice of the
meeting. Meetings of stockholders for any other purpose may be held
at such time and place, within or without the State of Delaware, or, in the sole
discretion of the Board of Directors, by means of remote communication as
authorized by the laws of Delaware as shall be stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
2.02
Annual
Meetings.
Annual meetings of stockholders shall be held on the
fourth Tuesday of April in each year, if not a legal holiday, and if a legal
holiday, then on the next secular day following, at 11:00 A.M., or at such other
date and time as shall be designated from time to time by the Board of Directors
and stated in the notice of the meeting, at which they shall elect a Board of
Directors and transact such other business as may properly be brought before the
meeting. The election of directors shall be by written ballot
including, if authorized by the Board of Directors, by ballot submitted by
electronic transmission in compliance with the laws of Delaware.
Except as otherwise provided in the
Certificate of Incorporation or these Bylaws, each director shall be elected by
the vote of the majority of the votes cast with respect to the director at any
meeting for the election of directors at which a quorum is present, provided
that if, as of the day next preceding the date the Corporation first gives its
notice of meeting for such meeting of stockholders, the number of nominees
(including any nominees stockholders have proposed to nominate by giving notice
pursuant to Section 2.08 hereof) exceeds the number of directors to be elected,
the directors shall be elected by a plurality of the votes of the shares present
in person or represented by proxy at any such meeting and entitled to vote on
the election of directors. For purposes of this Section, a majority
of the votes cast means that the number of votes cast “for” a director’s
election must exceed the number of votes cast “against” that director’s election
(with “abstentions” and “broker nonvotes” not counted as a vote cast either
“for” or
“against”
that director’s election). If directors are to be elected by a
plurality of the votes of the shares present in person or represented by proxy
at any such meeting and entitled to vote on the election of directors,
stockholders shall not be permitted to vote “against” a nominee.
2.03
Notice of Annual Meeting.
Notice, in
writing or by a form of electronic transmission in compliance with the laws of
Delaware, of the annual meeting, stating the place, if any, date and hour of the
meeting, and the means of remote communications, if any, by which stockholders
and proxy holders may be deemed to be present in person and vote at such
meeting, shall be given to each stockholder entitled to vote at such meeting not
less than ten nor more than sixty days before the date of the
meeting.
2.04
Stockholders List.
The officer who
has charge of the stock ledger of the Corporation shall prepare and make, at
least ten days before every meeting of the stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, for a
period of at least ten days prior to the meeting: (i)
on a reasonably
accessible electronic network, provided that the information required to gain
access to such list is provided with the notice of the meeting or (ii)
during ordinary
business hours, at the principal place of business of the
Corporation. If the meeting is to be held at a place, then the list
shall also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is
present. If the meeting is to be held solely by means of remote
communication, then the list shall also be open to the examination of any
stockholder during the meeting on a reasonably accessible electronic network,
and the information required to access the electronic list shall be provided
with the notice of the meeting.
2.05
Notice of Special Meeting.
Notice of
a special meeting, in writing or by a form of electronic transmission as
determined solely by the Board of Directors in compliance with the laws of
Delaware, stating the place, date and hour of the meeting, the means of remote
communications, if any, by which the stockholders and proxy holders may be
deemed to be present in person and vote at such meeting, and the purpose or
purposes for which the meeting is called, shall be given not less than ten (10)
nor more than sixty (60) days before the date of the meeting, to each
stockholder entitled to vote at such meeting. Business transacted at
a special meeting of stockholders shall be confined to the purpose or purposes
of the meeting specified in the notice of meeting (or supplement thereto) given
by or at the direction of the Board of Directors. Stockholders may
not make nominations for directors or bring any business before a special
meeting of stockholders.
2.06
Quorum.
The holders of a
majority of the stock issued and outstanding and entitled to vote in person or
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as provided herein and except as otherwise
provided by statute or by the Certificate of Incorporation. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice of the adjourned meeting, if the time, place, thereof, and the
means of remote communications, if any, by which stockholders and proxy
holders
may be
deemed to be present in person and vote at such adjourned meeting are announced
at the meeting at which the adjournment is taken. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if,
after the adjournment, a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
2.07
Voting
Rights
. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power, present in person or
represented by proxy, shall decide any question brought before such meeting,
unless the question is one upon which, by express provision of the statutes, the
Certificate of Incorporation or these Bylaws, a different vote is required, in
which case such express provision shall govern and control the decision of such
question. Unless otherwise provided in the Certificate of
Incorporation, each stockholder shall, at every meeting of the stockholders, be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer
period.
2.08
Nominations
for Director.
Nominations of persons for election to the Board of
Directors of the Corporation may be made only (i) by the Board of Directors at
any meeting of stockholders and (ii) at an annual meeting of stockholders, by
any stockholder of the Corporation who is entitled to vote for the election of
directors and who has complied with the procedures established by this Section
2.08. For a nomination to be properly brought before an annual
meeting by a stockholder, the stockholder intending to make the nomination (the
“Proponent”) must have given timely and proper notice thereof in writing to the
Secretary of the Corporation, in accordance with, and containing all information
and the completed questionnaire provided for in, this Section 2.08.
To be timely, a Proponent’s notice must
be delivered to or mailed to the Secretary of the Corporation and received at
the principal executive offices of the Corporation not later than the close of
business 90 days prior to the first anniversary of the preceding year’s annual
meeting of stockholders; provided, however, in the event the date of the annual
meeting is advanced more than 30 days prior to such anniversary date or delayed
more than 60 days after such anniversary date then to be timely such notice must
be received by the Corporation not later than the close of business on the later
of the 90th day prior to the date of the meeting or the 10th day following the
date of Public Disclosure (defined below) of the date of the annual
meeting. In no event shall any adjournment or postponement of an
annual meeting of stockholders or announcement thereof commence a new time
period or extend any time period for the giving of a Proponent’s notice as
required by this Section 2.08.
A Proponent’s notice to the Secretary
shall set forth: (a) as to each person the Proponent proposes to
nominate for election as a director at the annual meeting, (i) the name, age,
business address, residence address and telephone number of such nominee and the
name, business address and residence address of any Nominee Associated Persons
(defined below), (ii) the principal occupation or employment of such nominee,
(iii) the class and number of shares of stock of the Corporation that are owned
(beneficially and
of
record) by or on behalf of such nominee and by or on behalf of any Nominee
Associated Person, as of the date of the Proponent’s notice, (iv) a description
of such nominee’s qualifications to be a director and (v) a statement as to
whether such nominee would be an independent director, and the basis therefor,
under the listing standards of the New York Stock Exchange and the Corporate
Governance Guidelines and (b) as to the Proponent and any Stockholder Associated
Person (defined below) on whose behalf the nomination is being made, (i) the
name and address of the Proponent, and any holder of record of the Proponent’s
shares of stock, as they appear on the Corporation’s books, and of any
Stockholder Associated Person, (ii) the class and number of shares of stock of
the Corporation that are owned (beneficially and of record) by or on behalf of
the Proponent and by or on behalf of any Stockholder Associated Person, as of
the date of the Proponent’s notice, the date such shares were acquired and the
investment intent with respect thereto, (iii) a representation and agreement
that the Proponent will notify the Corporation in writing of the class and
number of shares of stock of the Corporation that are owned (beneficially and of
record) by or on behalf of the Proponent and by or on behalf of any Stockholder
Associated Person, as of the record date for the meeting, not later than the
close of business on the third business day following the later of the record
date or the date of Public Disclosure of the record date, (iv) a description of
all purchases and sales of, or other transactions involving in any way, shares
of stock of the Corporation by or on behalf of the Proponent and by or on behalf
of any Stockholder Associated Person during the twenty-four month period prior
to the date of the Proponent’s notice, including the date of the transactions,
the class and number of shares and the consideration (without regard to whether
such shares were or were not owned by the Proponent or any such person), (v) a
description of any agreement, arrangement or understanding, including any
Derivative Instrument (defined below), that has been entered into or is in
effect as of the date of the Proponent’s notice, by or on behalf of the
Proponent, any Stockholder Associated Person, any nominee or any Nominee
Associated Person, the effect or intent of which is to mitigate loss to, manage
risk or benefit of stock price changes for, or increase or decrease the voting
power of, the Proponent, any Stockholder Associated Person, any nominee or any
Nominee Associated Person with respect to the Corporation’s securities, (vi) a
representation and agreement that the Proponent will notify the Corporation in
writing of any such agreement, arrangement or understanding, including any
Derivative Instrument, that has been entered into or is in effect as of the
record date for the meeting, not later than the close of business on the third
business day following the later of the record date or the date of Public
Disclosure of the record date, (vii) a description of any other agreement,
arrangement or understanding that has been entered into or is in effect as of
the date of the Proponent’s notice, between or among the Proponent, any
Stockholder Associated Person, any nominee, any Nominee Associated Person or any
other person, and that relates to such nomination or such nominee’s service as a
director of the Corporation, (viii) a representation and agreement that the
Proponent will notify the Corporation in writing of any such agreement,
arrangement or understanding that has been entered into or is in effect as of
the record date for the meeting, not later than the close of business on the
third business day following the later of the record date or the date of Public
Disclosure of the record date, (ix) a representation that the Proponent is the
holder of record or beneficial owner of shares of stock of the Corporation
entitled to vote for the election of directors at the annual meeting and intends
to appear in person or by proxy at the meeting to nominate any such nominee and
(x) a representation as to whether the Proponent intends to deliver a proxy
statement and/or form of proxy to stockholders and/or otherwise to solicit
proxies from stockholders in support of such nomination.
The Proponent’s notice shall also
include a completed questionnaire (in the form provided by the Secretary of the
Corporation upon request by the Proponent) signed by such nominee with respect
to information of the type required by the Corporation’s Questionnaires for
Directors and Officers of the Corporation in connection with the Annual Meeting
of Stockholders and Various Reports to the Securities and Exchange
Commission. The completed questionnaire shall include a statement
that such nominee, if elected, before such nominee is nominated to serve on the
Board of Directors at the next meeting of stockholders at which such nominee
would face election, will tender to the Board of Directors his or her
irrevocable resignation that will be effective in an uncontested election of
Directors only, upon (i) such nominee’s receipt of a greater number of votes
“against” election than votes “for” election at the Corporation’s meeting of
stockholders and (ii) acceptance of such resignation by the Board of Directors,
in accordance with the Corporation’s Corporate Governance Guidelines and Policy
on Majority Voting for Directors. The questionnaire shall also
include a representation and agreement that such nominee (i) is not and will not
become a party to (A) any agreement, arrangement or understanding with, and has
not given any commitment or assurance to, any person or entity as to how such
nominee, if elected as a director of the Corporation, will act or vote on any
issue or question (a “Voting Commitment”) that has not been, or will not be
within three business days thereafter, disclosed to the Corporation or (B) any
Voting Commitment that could limit or interfere with the nominee’s ability to
comply, if elected as a director of the Corporation, with such nominee’s
fiduciary duties under applicable law, (ii) is not and will not become a party
to any agreement, arrangement or understanding with any person or entity other
than the Corporation with respect to any direct or indirect compensation,
reimbursement or indemnification in connection with service or action as a
director of the Corporation that has not been, or will not be within three
business days thereafter, disclosed to the Corporation and (iii) in such
nominee’s individual capacity and on behalf of any person or entity on whose
behalf the nomination is being made, would be in compliance, if elected as a
director of the Corporation, and will comply, with applicable law and all
applicable corporate governance, code of conduct and ethics, conflict of
interest, corporate opportunities, confidentiality and stock ownership and
trading policies and guidelines of the Corporation.
No person proposed to be nominated by a
stockholder shall be eligible for election as a director of the Corporation
unless such person is nominated in accordance with the procedures set forth in
this Section 2.08. If the Proponent intending to nominate a person
for election as a director of the Corporation at an annual meeting pursuant to
this Section 2.08 does not give timely and proper notice thereof in writing to
the Secretary of the Corporation, in accordance with, and containing all
information and the completed questionnaire provided for in, this Section 2.08,
or if the Proponent (or a qualified representative of the Proponent) does not
appear at the meeting to nominate such person for election as a director of the
Corporation, then, in any such case, such proposed nomination shall not be made,
notwithstanding the fact that proxies in respect of such nomination may have
been solicited or obtained. The chairman of the meeting shall, if the
facts warrant, determine that the nomination was not properly made in accordance
with the provisions of this Section 2.08, and, if the chairman should so
determine, he or she shall declare to the meeting that such nomination was not
properly made and shall be disregarded.
The requirements of this Section 2.08
shall apply to the nomination by a stockholder of a person for election as a
director without regard to whether such nomination also is intended to be
included in the
Corporation’s
proxy statement pursuant to Rule 14a-8 of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), or whether such nomination is presented to
stockholders by means of a proxy solicitation by any person other than by or on
behalf of the Board of Directors.
For
purposes of the Bylaws:
"Derivative
Instrument"
means any option, warrant, convertible security, stock
appreciation right, swap or similar right with an exercise or conversion
privilege or a settlement payment or mechanism at a price related to any class
or series of shares of stock of the Corporation or with a value derived in whole
or in part from the value of any class or series of shares of stock of the
Corporation, whether or not such instrument or right shall be subject to
settlement in the underlying class or series of shares of stock of the
Corporation or otherwise directly or indirectly owned and any other direct or
indirect opportunity to profit or share in any profit derived from any increase
or decrease in the value of shares of stock of the Corporation.
"Nominee
Associated Person"
of any nominee for election as a director means (i)
any affiliate or associate (as such terms are defined for purposes of the
Exchange Act) of the nominee and any other person acting in concert with any of
the foregoing, (ii) any beneficial owner of shares of stock of the Corporation
owned of record or beneficially by such nominee and (iii) any person
controlling, controlled by or under common control with such Nominee Associated
Person.
"Public
Disclosure"
means disclosure made in a press release reported by Dow
Jones News Service, Associated Press or a comparable national news service or in
a document filed by the Corporation pursuant to Section 13, 14 or 15(d) of the
Exchange Act.
"Stockholder
Associated Person"
of any stockholder means (i) any affiliate or
associate (as such terms are defined for purposes of the Exchange Act) of the
stockholder and any other person acting in concert with any of the foregoing,
(ii) any beneficial owner of shares of stock of the Corporation owned of record
or beneficially by such stockholder and (iii) any person controlling, controlled
by or under common control with such Stockholder Associated Person.
2.09
Business
at Meetings of Stockholders.
At any meeting of stockholders,
only such business shall be transacted as shall have been properly brought
before the meeting. To be properly brought before a meeting of
stockholders, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors or (c) in the case of an annual meeting of stockholders,
properly brought before the meeting by a stockholder who is entitled to vote and
who has complied with the procedures established by this Section
2.09. For business to be properly brought before an annual meeting by
a stockholder (other than the nomination of a person for election as a director,
which is governed by Section 2.08 of these Bylaws), the Proponent (defined in
Section 2.08) must have given timely and proper notice thereof in writing to the
Secretary of the Corporation, in accordance with, and containing all information
provided for, in this Section 2.09, and such business must be a proper matter
for stockholder action under the General Corporation Law of
Delaware.
To be timely, a Proponent’s notice must
be delivered to or mailed to the Secretary of the Corporation and received at
the principal executive offices of the Corporation not later than the close of
business
90 days
prior to the first anniversary of the preceding year’s annual meeting of
stockholders; provided, however, in the event the date of the annual meeting is
advanced more than 30 days prior to such anniversary date or delayed more than
60 days after such anniversary date, then to be timely such notice must be
received by the Corporation not later than the close of business on the later of
the 90th day prior to the date of the meeting or the 10th day following the date
of Public Disclosure (defined in Section 2.08) of the date of the annual
meeting. In no event shall any adjournment or postponement of an
annual meeting of stockholders or announcement thereof commence a new time
period or extend any time period for the giving of a Proponent’s notice as
required by this Section 2.09.
A Proponent’s notice to the Secretary
shall set forth: (a) as to each matter the Proponent proposes to
bring before the annual meeting, a description of the business desired to be
brought before the annual meeting, the reasons for transacting such business at
the meeting and the text of any resolutions to be proposed, and whether the
Proponent has communicated with any other stockholder or beneficial owner of
shares of stock of the Corporation regarding such business and (b) as to the
Proponent and any Stockholder Associated Person (defined in Section 2.08) on
whose behalf the proposal is being made, (i) the name and address of the
Proponent, and any holder of record of the Proponent’s shares of stock, as they
appear on the Corporation’s books, and of any Stockholder Associated Person,
(ii) the class and number of shares of stock of the Corporation that are owned
(beneficially and of record) by or on behalf of the Proponent and by or on
behalf of any Stockholder Associated Person, as of the date of the Proponent’s
notice, the date such shares were acquired and the investment intent with
respect thereto, (iii) a representation and agreement that the Proponent will
notify the Corporation in writing of the class and number of shares of stock of
the Corporation that are owned (beneficially and of record) by or on behalf of
the Proponent and by or on behalf of any Stockholder Associated Person, as of
the record date for the meeting, not later than the close of business on the
third business day following the later of the record date or the date of Public
Disclosure of the record date, (iv) a description of all purchases and sales of,
or other transactions involving in any way, shares of stock of the Corporation
by or on behalf of the Proponent and by or on behalf of any Stockholder
Associated Person during the twenty-four month period prior to the date of the
Proponent’s notice, including the date of the transactions, the class and number
of shares and the consideration (without regard to whether such shares involved
were or were not owned by the Proponent or any such person), (v) a description
of any agreement, arrangement or understanding, including any Derivative
Instrument (defined in Section 2.08), that has been entered into or is in effect
as of the date of the Proponent’s notice, by or on behalf of the Proponent or
any Stockholder Associated Person, the effect or intent of which is to mitigate
loss to, manage risk or benefit of stock price changes for, or increase or
decrease the voting power of, the Proponent or any Stockholder Associated Person
with respect to the Corporation’s securities, (vi) a representation and
agreement that the Proponent will notify the Corporation in writing of any such
agreement, arrangement or understanding, including any Derivative Instrument,
that has been entered into or is in effect as of the record date for the
meeting, not later than the close of business on the third business day
following the later of the record date or the date of Public Disclosure of the
record date, (vii) any material interest of the Proponent or any Stockholder
Associated Person in such business, (viii) a description of any other agreement,
arrangement or understanding that has been entered into or is in effect as of
the date of the Proponent’s notice, between or among the Proponent, any
Stockholder Associated Person or any other person, and that relates to such
business,
(ix) a
representation and agreement that the Proponent will notify the Corporation in
writing of any such agreement, arrangement or understanding that has been
entered into or is in effect as of the record date for the meeting, not later
than the close of business on the third business day following the later of the
record date or the date of Public Disclosure of the record date, (x) a
representation that the Proponent is the holder of record or beneficial owner of
shares of stock of the Corporation entitled to vote for the election of
directors at the annual meeting and intends to appear in person or by proxy at
the meeting to propose such business and (xi) a representation as to whether the
Proponent intends to deliver a proxy statement and/or form of proxy to
stockholders and/or otherwise to solicit proxies from stockholders in support of
such proposal.
No business proposed by a stockholder
shall be transacted at an annual meeting of stockholders except in accordance
with the procedures set forth in this Section 2.09. If the Proponent
intending to propose business at an annual meeting pursuant to this Section 2.09
does not give timely and proper notice thereof in writing to the Secretary of
the Corporation, in accordance with, and containing all information provided for
in, this Section 2.09, or if the Proponent (or a qualified representative of the
Proponent) does not appear at the meeting to present the proposed business,
then, in any such case, such business shall not be transacted, notwithstanding
the fact that proxies in respect of such business may have been solicited or
obtained. The chairman of the meeting shall, if the facts warrant,
determine that the business was not properly brought before the meeting in
accordance with the provisions of this Section 2.09, and, if the chairman should
so determine, he or she shall declare to the meeting that such business was not
properly brought before the meeting and shall not be transacted.
The requirements of this Section 2.09
shall apply to any business to be brought before an annual meeting of
stockholders by a stockholder (other than the nomination by a stockholder of a
person for election as a director, which is governed by Section 2.08 of these
Bylaws) without regard to whether such business also is intended to be included
in the Corporation’s proxy statement pursuant to Rule 14a-8 of the Exchange Act
or whether such business is presented to stockholders by means of a proxy
solicitation by any person other than by or on behalf of the Board of
Directors.
DIRECTORS
3.01
Authority
of Directors
. The business of the Corporation shall be managed
by its Board of Directors which may exercise all such powers of the Corporation
and do all such lawful acts and things as are not by statute or by the
Certificate of Incorporation or by these Bylaws directed or required to be
exercised or done by the stockholders.
3.02
Qualifications.
A
person who is not an officer of the Corporation shall be ineligible to serve as
a Director beyond the first regular meeting of the Board of Directors after the
date he shall have attained the age of seventy (70). A person who is
a “high ranking executive” (as defined in Section 5.01) of the Corporation shall
be ineligible to serve as a Director beyond the first regular meeting of the
Board of Directors after the date he shall have attained the age of sixty-five
(65). A person shall be ineligible as a Director if, at the time he
would otherwise be eligible for election, he is a former officer of the
Corporation. Other restrictions and qualifications for Directors may
be fixed from time to time by resolution passed by a majority of the whole Board
of Directors.
3.03
Place
of Meetings
. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State of
Delaware.
3.04
Annual
Meetings
. The first meeting of each newly elected Board of
Directors shall be held at such time and place as shall be specified in a notice
given as herein provided for regular meetings of the Board of Directors, or as
shall be specified in a duly executed waiver of notice thereof.
3.05
Regular
Meetings.
Regular meetings of the Board of Directors may be
held at the office of the Corporation in Bismarck, North Dakota, on the second
Thursday following the first Monday of February, May, August and November of
each year; provided, however, that if a legal holiday, then on the next
preceding day that is not a legal holiday. Regular meetings of the
Board of Directors may be held at other times and other places within or without
the State of North Dakota on at least five days’ notice to each Director, either
personally or by mail, telephone or another form of electronic transmission in
compliance with the laws of Delaware.
3.06
Special
Meetings.
Special meetings of the Board may be called by the
Chairman of the Board, Chief Executive Officer or President on three days’
notice to each Director, either personally or by mail, telephone or another form
of electronic transmission in compliance with the laws of Delaware; special
meetings shall be called by the Chairman, Chief Executive Officer, President or
Secretary in like manner and on like notice on the written request of a majority
of the Board of Directors.
3.07
Quorum
. At
all meetings of the Board, a majority of the Directors shall constitute a quorum
for the transaction of business and the act of a majority of the Directors
present at any such meeting at which there is a quorum shall be the act of the
Board of Directors, except as may be otherwise specifically provided by statute,
the Certificate of Incorporation or by these Bylaws. If a quorum
shall not be present at any meeting of the Board of Directors, the Directors
present may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
3.08
Participation
of Directors by Conference Telephone
. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, any member of
the Board, or of any committee designated by the Board, may participate in any
meeting of such Board or committee by means of conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in any meeting by means of
conference telephone or other communications equipment shall constitute presence
in person at such meeting.
3.09
Written
Action of Directors
. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing or by electronic transmission, and the
writing or writings or electronic transmission or transmissions are filed with
the minutes of proceedings of the Board or committee.
3.10
Committees.
The
Board of Directors may by resolution passed by a majority of the whole Board
designate one or more committees, each committee to consist of two or more
Directors of the Corporation.
The Board
may designate one or more Directors as alternate members of any committee who
may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. The
Chairman of the Board shall appoint another member of the Board of Directors to
fill any committee vacancy which may occur. At all meetings of any
such committee, fifty percent of the total number of committee members shall
constitute a quorum for the transaction of business and the act of a majority of
the committee members present at any such meeting at which there is a quorum
shall be the act of any such committee, except as may be otherwise specifically
provided by statute, the Certificate of Incorporation or by these
Bylaws. Any such committee shall have, and may exercise, the power
and authority specifically granted by the Board to the committee, but no such
committee shall have the power or authority to amend the Certificate of
Incorporation, adopt an agreement of merger or consolidation, recommend to the
stockholders the sale, lease or exchange of the Corporation’s property and
assets, recommend to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amend the Bylaws of the
Corporation. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the Board
of Directors.
3.11
Reports
of Committees
. Each committee shall keep regular minutes of
its meetings and report the same to the Board of Directors when
required.
3.12
Compensation
of Directors
. Unless otherwise restricted by the Certificate
of Incorporation, the Board of Directors shall have the authority to fix the
compensation of Directors. The Directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as Director. No such payment shall preclude any Director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed
compensation for attending committee meetings.
3.13
Chairman
of the Board
. The Chairman of the Board of Directors shall be
chosen by the Board of Directors at its first meeting after the annual meeting
of the stockholders of the Corporation. The Chairman shall preside at
all meetings of the Board of Directors and stockholders of the Corporation, and
shall, subject to the direction and control of the Board, be its representative
and medium of communication, and shall perform such duties as may from time to
time be assigned to the Chairman by the Board.
3.14
Lead
Director.
At the first meeting of the Board of Directors after
the annual meeting of the stockholders, those Directors who are not employees of
the Corporation (“Non-employee Directors”) shall, by a resolution adopted by a
majority of the Non-employee Directors present at the meeting, choose a Lead
Director whenever an employee Director is serving as Chairman of the Board of
Directors. During the period of time a Non-employee Director serves
as Chairman of the Board, no Lead Director will be chosen. The Lead
Director shall have such duties and responsibilities as shall be fixed from time
to time by resolution adopted by a majority of the whole Board of
Directors.
NOTICES
4.01
Notices
. Whenever,
under the provisions of the statutes or of the Certificate of Incorporation or
of these Bylaws, notice is required to be given to any Director or stockholder,
it shall not be construed to mean personal notice, but such notice may be given
in writing, by mail, addressed to such Director or stockholder, at his address
as it appears on the records of the Corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice to Directors may also be
given by telephone or another form of electronic transmission in compliance with
the laws of Delaware. Notice to the stockholders may also be given by
a form of electronic transmission consented to by the stockholder to whom the
notice is given, as provided by the laws of Delaware.
4.02
Waiver
. Whenever
notice is required to be given under any provision of the statutes or the
Certificate of Incorporation or these Bylaws, a written waiver, signed by the
person entitled to notice, or a waiver by electronic transmission by the person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to notice.
OFFICERS
5.01
Election, Qualifications.
The officers of the Corporation shall be chosen
by the Board of Directors at its first meeting after each annual meeting of the
stockholders and shall include a President, a Chief Executive Officer, a Vice
President, a Secretary, a Treasurer and a General Counsel. The Board
of Directors may also choose additional Vice Presidents, and one or more
Assistant Vice Presidents, Assistant Secretaries and Assistant
Treasurers. Any number of offices may be held by the same person,
unless the Certificate of Incorporation or these Bylaws otherwise
provide. Except for an officer serving as a Director who may serve
through the first regular meeting of the Board of Directors after he has
attained the age of sixty-five (65), no “high ranking executive” of the
Corporation may serve in that capacity beyond the date he shall have attained
the age of sixty-five (65); “high ranking executive” shall mean the President,
the Chief Executive Officer, any Vice President, the Secretary, the Treasurer,
the General Counsel, the chief executive officers of the Corporation’s public
utility divisions, and any other officer of the Corporation so designated by the
Board of Directors.
5.02
Additional
Officers
. The Board of Directors may appoint such other
officers and agents as it shall deem necessary, who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board.
5.03
Salaries
. The
salaries of all principal officers of the Corporation shall be fixed by the
Board of Directors.
5.04
Term
. The
officers of the Corporation shall hold office until their successors are chosen
and qualify. Any officer elected or appointed by the Board of
Directors may be removed at any time by the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
5.05
Chief
Executive Officer
. The Chief Executive Officer shall, subject to the
authority of the Board of Directors, determine the general policies of the
Corporation. The Chief Executive Officer shall
submit
a report
of the operations of the Company for the fiscal year to the stockholders at
their annual meeting and from time to time shall report to the Board of
Directors all matters within his knowledge which the interests of the
Corporation may require be brought to the Board’s notice.
5.06
The
President
. The President shall have general and active
management of the business of the Corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect.
5.07
The
Vice Presidents
. In the absence of the President or in the
event of his inability or refusal to act, the Vice President (or in the event
there be more than one Vice President, the Vice Presidents in the order
designated, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
5.08
The
Secretary and Assistant Secretaries
. The Secretary shall
record all the proceedings of the meetings of the stockholders and Directors in
a book to be kept for that purpose. He shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed by
the Board of Directors or Chief Executive Officer, under whose supervision he
shall be. He shall have custody of the corporate seal of the
Corporation and he, or an assistant secretary, shall have authority to affix the
same to any instrument requiring it. The Board of Directors may give
general authority to any other officer to affix the seal of the
Corporation.
The Assistant Secretary, or if there be
more than one, the Assistant Secretaries in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
5.09
Treasurer
and Assistant Treasurers
. The Treasurer shall have the custody
of the corporate funds and securities and shall keep full and accurate accounts
of receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors.
He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the President and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his transactions as Treasurer and of the financial condition
of the Corporation.
If required by the Board of Directors,
he shall give the Corporation a bond (which shall be renewed every six years) in
such sum and with such surety or sureties as shall be satisfactory to the Board
of Directors for the faithful performance of the duties of his office and for
the restoration to the Corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the Corporation.
The Assistant Treasurer, or if there
shall be more than one, the Assistant Treasurers in the order determined by the
Board of Directors (or if there be no such determination, then in the order of
their election), shall, in the absence of the Treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
5.10.
General
Counsel.
The General Counsel shall be the legal advisor to the
Corporation, the Chairman of the Board, the Chief Executive Officer, the Board
of Directors and committees of the Board of Directors and provide legal counsel
to all business segments of the Corporation. The General Counsel
shall be responsible for the management of all legal matters involving the
Corporation.
The General Counsel shall be
responsible for the review of the adequacy of the Corporation’s corporate
governance procedures and for reporting to senior management, the Board of
Directors and committees of the Board of Directors on recommended changes,
except in those instances in which such duties have been delegated by the Board
of Directors to another officer or agent of the Corporation. The
General Counsel shall have responsibility for monitoring and assessing
developments in corporate governance including, but not limited to, stock
exchange listing standards, legislative enactments, administrative agency
regulations and judicial decisions. The General Counsel shall report
to senior management, the Board of Directors and committees of the Board of
Directors regarding matters of significant importance and make recommendations
regarding corporate governance guidelines, policies and procedures.
5.11
Authority
and Duties
. In addition to the foregoing authority and duties,
all officers of the Corporation shall respectively have such authority and
perform such duties in the management of the business of the Corporation as may
be designated from time to time by the Board of Directors.
5.12
Execution
of Instruments.
All deeds, bonds, mortgages, notes, contracts and other
instruments shall be executed on behalf of the Corporation by the Chief
Executive Officer, the President, any Vice President or Assistant Vice
President, the General Counsel or such other officer or agent of the Corporation
as shall be duly authorized by the Board of Directors. Any officer or
agent executing any such documents on behalf of the Corporation may do so
(except as otherwise required by applicable law) either under or without the
seal of the Corporation and either individually or with an attestation,
according to the requirements of the form of the instrument. If an
attestation is required, the document shall be attested by the Secretary or an
Assistant Secretary or by the Treasurer or an Assistant Treasurer or any other
officer or agent authorized by the Board of Directors. When
authorized by the Board of Directors, the signature of any officer or agent of
the Corporation may be a facsimile.
5.13
Execution
of Proxies
. All capital stocks in other corporations owned by
the Corporation shall be voted at the meetings, regular and/or special, of
stockholders of said other corporations by the Chief Executive Officer or
President of the Corporation, or, in the absence of any of them, by a Vice
President, and in the event of the presence of more than one Vice President of
the Corporation, then by a majority of said Vice Presidents present at such
stockholder meetings, and the Chief Executive Officer or President and Secretary
of the Corporation are hereby authorized to execute in the name and under the
seal of the
Corporation
proxies in such form as may be required by the corporations whose stock may be
owned by the Corporation, naming as the attorney authorized to act in said proxy
such individual or individuals as said Chief Executive Officer or President and
Secretary shall deem advisable, and the attorney or attorneys so named in said
proxy shall, until the revocation or expiration thereof, vote said stock at such
stockholder meetings only in the event that none of the officers of the
Corporation authorized to execute said proxy shall be present
thereat.
CERTIFICATES
OF STOCK
6.01
Certificates
. Shares
of the Corporation’s stock may be certificated or uncertificated, as provided
under Delaware law. All certificates of stock of the Corporation
shall be numbered and shall be entered in the books of the Corporation as they
are issued. They shall exhibit the holder’s name and number of shares
and shall be signed by the Chairman of the Board of Directors, or the Chief
Executive Officer, the President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary.
6.02
Signatures
. Any
of or all the signatures on the certificates may be facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
6.03
Special
Designation on Certificates
. If the Corporation shall be
authorized to issue more than one class of stock or more than one series of any
class, the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations, or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock, provided, that, except as otherwise provided in Section 202 of the
General Corporation Law of Delaware in lieu of the foregoing requirements, there
may be set forth on the face or back of the certificate which the Corporation
shall issue to represent such class or series of stock, a statement that the
Corporation will furnish, without charge to each stockholder who so requests,
the powers, designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or
rights.
6.04
Lost
Certificates
. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
6.05
Transfers
of Stock
. Transfers of stock shall be made on the books of the
Corporation only by the record holder of such stock, or by attorney lawfully
constituted in writing, and, in the case of stock represented by a certificate,
upon surrender of the certificate.
6.06
Record
Date
. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty days nor less than ten days before the date
of such meeting, nor more than sixty days prior to any other
action. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
6.07
Registered
Stockholders.
The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of shares
to receive dividends, and to vote as such owner, and to hold liable for calls
and assessments a person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Delaware.
GENERAL
PROVISIONS
7.01
Dividends
. Dividends
upon the capital stock of the Corporation, subject to the provisions of the
Certificate of Incorporation, if any, may be declared by the Board of Directors
at any regular or special meeting, pursuant to law. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation.
Before payment of any dividend, there
may be set aside out of the funds of the Corporation available for dividends
such sum or sums as the Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves for meeting contingencies, or
for equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Directors shall think conducive to
the interest of the Corporation, and the Directors may modify or abolish any
such reserve in the manner in which it was created.
7.02
Checks
. All
checks or demands for money and notes of the Corporation shall be signed by such
officer or officers or such other person or persons as the Board of Directors
may from time to time designate or as designated by an officer of the company if
so authorized by the Board of Directors.
7.03
Fiscal
year
. The fiscal year of the Corporation shall be the calendar
year.
7.04
Seal
. The
corporate seal shall have inscribed thereon the name of the Corporation, the
year of its organization and the words “Corporate Seal,
Delaware.” The seal may be used by causing it or a facsimile thereof
to be impressed or affixed or imprinted, or otherwise.
7.05
Inspection
of Books and Records
. Any stockholder of record, in person or
by attorney or other agent, shall, upon written demand under oath stating the
purpose thereof, have the right, during the usual hours of business, to inspect
for any proper purpose the Corporation’s stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean a purpose reasonably related
to such person’s interest as a stockholder. In every instance where
an attorney or other agent shall be the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing which authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to
the Corporation at its registered office in the State of Delaware or at its
principal place of business in Bismarck, North Dakota.
7.06
Amendments
. These
Bylaws may be altered, amended or repealed or new Bylaws may be adopted by the
stockholders or by the Board of Directors, when such power is conferred upon the
Board of
Directors by the Certificate of Incorporation, at any regular meeting of the
stockholders
or of the
Board of Directors or at any special meeting of the stockholders or of the Board
of Directors if notice of such alteration, amendment, repeal or adoption of new
Bylaws be contained in the notice of such special meeting.
7.07
Indemnification of Officers,
Directors, Employees and Agents; Insurance
.
(a) The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation) by reason of the fact that such
person is or was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys’ fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe such person’s conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which such person reasonably believed to
be in or not opposed to the best interest of the Corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that such
person’s conduct was unlawful.
(b) The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that such person is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys’ fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted in good faith and in a
manner such
person
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation, unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought, shall determine
upon application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To
the extent that a present or former director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b), or in defense
of any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys’ fees) actually and reasonably incurred by such
person in connection therewith.
(d) Any
indemnification under subsections (a) and (b) of this Section (unless ordered by
a court) shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the present or former
director, officer, employee or agent is proper in the circumstances because such
person has met the applicable standard of conduct as set forth in subsections
(a) and (b) of this Section. Such determination shall be made
(1)
by a
majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2)
by a committee of
such directors designated by majority vote of such directors, even though less
than a quorum, or (3)
if there are no
such directors, or if such directors so direct, by independent legal counsel in
a written opinion, or (4)
by the
stockholders.
(e) Expenses
(including attorneys’ fees) incurred by a present or former officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director or officer to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by
the Corporation as authorized in this Section. Once the Corporation
has received the undertaking, the Corporation shall pay the officer or director
within 30 days of receipt by the Corporation of a written application from the
officer or director for the expenses incurred by that officer or
director. In the event the Corporation fails to pay within the 30-day
period, the applicant shall have the right to sue for recovery of the expenses
contained in the written application and, in addition, shall recover all
attorneys’ fees and expenses incurred in the action to enforce the application
and the rights granted in this Section
7.07. Expenses
(including attorneys’ fees) incurred by other employees and agents shall be paid
upon such terms and conditions, if any, as the Board of Directors deems
appropriate.
(f) The
indemnification and advancement of expenses provided by, or granted pursuant to,
the other subsections of this Section shall not be deemed exclusive of any other
rights to which those seeking indemnity or advancement of expenses may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in such person’s official capacity and
as to action in another capacity while holding such office.
(g) The
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against such person and incurred by
such person in any such capacity, or arising out of such person’s status as
such, whether or not the Corporation would have the power to indemnify such
person against such liability under the provisions of this Section.
(h) For
the purposes of this Section, references to “the Corporation” include all
constituent corporations absorbed in a consolidation or merger, as well as the
resulting or surviving corporation, so that any person who is or was a director,
officer, employee or agent of such a constituent corporation or is or was
serving at the request of such constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, shall stand in the same position under the provisions of this
Section with respect to the resulting or surviving corporation as such person
would if such person had served the resulting or surviving corporation in the
same capacity.
(i) For
purposes of this Section, references to “other enterprises” shall include
employee benefit plans; references to “fines” shall include any excise taxes
assessed on a person with respect to any employee benefit plan; and references
to “serving at the request of the Corporation” shall include any service as a
director, officer, employee or agent of the Corporation which imposes duties on,
or involves services by, such director, officer, employee or agent with respect
to an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner such person reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner “not opposed to the best interests of the
Corporation” as referred to in this Section.
(j) The
indemnification and advancement of expenses provided by, or granted pursuant to,
this Section shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
7.08
Severability.
If any provision of these Bylaws (or any portion, including words or
phrases, thereof) or the application of any provision (or any portion, including
words or phrases, thereof) to any person or circumstance shall be held invalid,
illegal or unenforceable in any respect under applicable law by a court of
competent jurisdiction, such invalidity, illegality or unenforceability shall
not affect any other provisions hereof (or the remaining portion thereof) or the
application of such provision to any other persons or circumstances, which
unaffected provisions (or portions thereof) shall remain valid, legal and
enforceable to the fullest extent permitted by law.
MDU
RESOURCES GROUP, INC.
TO
THE
BANK OF NEW YORK MELLON
(formerly
known as The Bank of New York),
Trustee
_____________________________
First
Supplemental Indenture
Dated
as of November 17, 2009
_____________________________
Supplemental
to the Indenture
dated
as of December 15, 2003
_____________________________
Amending
and Supplementing the Indenture
FIRST
SUPPLEMENTAL INDENTURE
FIRST
SUPPLEMENTAL INDENTURE, dated as of November 17, 2009 (this “Supplemental
Indenture”) between MDU RESOURCES GROUP, INC., a corporation of the State of
Delaware, whose address is 1200 West Century Avenue, Bismarck, North Dakota
58503 (the "Company"), and THE BANK OF NEW YORK MELLON (formerly known as The
Bank of New York), a New York banking corporation, whose principal corporate
trust address is 101 Barclay Street, New York, New York 10268 as Trustee (the
"Trustee"), under the Indenture, dated as of December 15, 2003 (the "Original
Indenture"), between the Company and the Trustee, this Supplemental Indenture
being supplemental thereto. The Original Indenture and any and all indentures
and instruments supplemental thereto are hereinafter collectively called the
"Indenture."
RECITALS
OF THE COMPANY
The
Original Indenture was authorized, executed and delivered by the Company to
provide for the issuance from time to time of its Securities (such term and all
other capitalized terms used herein without definition having the meanings
assigned to them in the Original Indenture), to be issued in one or more series
as contemplated therein, and to provide security for the payment of the
principal of and premium, if any, and interest, if any, on the
Securities.
Pursuant
to Section 1811 of the Original Indenture, the Company has delivered to the
Trustee a Company Order dated November 17, 2009 whereby the Company elected and
specified November 17, 2009 as the Release Date (the “Release Date”), and
requested, among other things, that the Trustee execute and deliver this
Supplemental Indenture pursuant to Sections 1301(m) and 1811(a) of the Original
Indenture in order to satisfy and discharge the Lien of the Indenture and to
make other amendments permitted by Section 1301(m).
The
Company has furnished to the Trustee an Officer’s Certificate and an Opinion of
Counsel pursuant to Sections 1303 and 1811 of the Indenture and a certificate of
an independent expert pursuant to Section 314(d)(1) of the Trust Indenture Act
of 1939, as amended (“TIA”).
The
Company has duly authorized the execution and delivery of this Supplemental
Indenture to amend the Original Indenture, as heretofore supplemented; and all
acts necessary to make this Supplemental Indenture a valid agreement of the
Company have been performed.
NOW,
THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH, that, for and in
consideration of the premises and for other good and valuable consideration, the
receipt of which is hereby acknowledged, it is mutually covenanted and agreed,
for the equal and proportionate benefit of the Holders of the Securities, as
follows:
ARTICLE
ONE.
AMENDMENT
OF THE INDENTURE
SECTION 1.
The
Original Indenture, as heretofore supplemented, is hereby amended to eliminate
the Granting Clauses, the text between the Granting Clauses and Article One of
the Original Indenture, Articles Sixteen, Seventeen and Eighteen of the Original
Indenture, and any other provision related to the Lien of the Indenture, the
Mortgaged Property or the Class A Bonds, which, as a consequence of the
occurrence of the Release Date and the resulting release of the Lien of the
Indenture, are no longer applicable.
ARTICLE
ONE.
MISCELLANEOUS
PROVISIONS
SECTION 1.
This Supplemental
Indenture is a supplement to the Original Indenture. As supplemented and amended
by this Supplemental Indenture, the Indenture is in all respects ratified,
approved and confirmed, and the Original Indenture, the Officer’s Certificate
dated as December 23, 2003 creating the Securities of the First Series, and this
Supplemental Indenture shall together constitute the
Indenture. Pursuant to Section 1304 of the Original Indenture, the
Lien of the Indenture shall be deemed to have been satisfied and discharged upon
the execution and delivery of this Supplemental Indenture.
SECTION 2.
The recitals
contained in this Supplemental Indenture shall be taken as the statements of the
Company, and the Trustee assumes no responsibility for their correctness and
makes no representations as to the validity or sufficiency of this Supplemental
Indenture.
SECTION 3.
Except as expressly
amended and supplemented hereby, the Indenture shall continue in full force and
effect in accordance with the provisions thereof and is in all respects hereby
ratified and confirmed. This Supplemental Indenture shall be deemed a
part of the Indenture in the manner and to the extent herein and therein
provided. This Supplemental Indenture shall be governed by, and
construed in accordance with, the laws of the State of New York (including
without limitation Section 5-1401 of the New York General Obligations Law or any
successor statute), except to the extent that the TIA shall be
applicable.
This
instrument may be executed in any number of counterparts, each of which so
executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.
IN
WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first written above.
MDU
RESOURCES GROUP, INC.
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Title: Executive
Vice President, Treasurer
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and
Chief Financial Officer
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And:
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/s/ Douglass A.
Mahowald
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Name: Douglass
A. Mahowald
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Title: Assistant
Treasurer and Assistant
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[SEAL]
ATTEST:
Executed
by MDU Resources
Group,
Inc., in the presence of:
/s/ Daniel S.
Kuntz
Daniel S.
Kuntz
/s/ Kirsti B.
Hourigan
Kirsti B.
Hourigan
THE BANK
OF NEW YORK MELLON,
as
Trustee
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By:
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/s/ Christopher
Greene
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[SEAL]
ATTEST:
Executed
by the Bank of New York Mellon,
as
Trustee, in the presence of:
/s/ Laurence J.
O’Brien
/s/ Latoya S.
Elvin
STATE OF
NORTH
DAKOTA )
) ss.:
COUNTY OF
BURLEIGH )
On this
17th day of November, 2009, before me, a Notary Public within and for said
County, personally appeared Vernon A. Raile and Douglass A. Mahowald, to me
personally known to be respectively an Executive Vice President, Treasurer, and
Chief Financial Officer and an Assistant Treasurer and Assistant Secretary of
MDU RESOURCES GROUP, INC. the corporation which executed the within instrument,
and who, being each by me duly sworn, did say that they reside respectively at
4105 Montreal Street, #205, Bismarck, North Dakota 58503 and 1410 Territory
Drive, Bismarck, North Dakota 58504; that they are respectively an Executive
Vice President, Treasurer, and Chief Financial Officer and an Assistant
Treasurer and Assistant Secretary of MDU RESOURCES GROUP, INC., the corporation
named in the foregoing instrument; that the seal affixed to said instrument is
the corporate seal of said corporation; that said instrument was signed and
sealed in behalf of said corporation by authority of its Board of Directors; and
said Daniel S. Kuntz and Kirsti B. Hourigan acknowledged to me said instrument
to be the free act and deed of said corporation, and that said corporation
executed the same.
STATE OF
NEW
YORK )
) ss.:
COUNTY OF
NEW
YORK )
On this
17
th day of
November, 2009, before me, a notary public, the undersigned officer, personally
appeared Christopher Greene and Cheryl Clarke, who each acknowledged
himself/herself to be a Vice President and a Vice President, respectively, of
THE BANK OF NEW YORK MELLON, a New York banking corporation, and that he/she, as
such officer, respectively, being authorized to do so, executed the foregoing
instrument for the purposes therein contained, by signing the name of the
corporation by himself/herself as such officer.
In
witness whereof, I hereunto set my hand and official seal.
November
9, 2009
Centennial
Energy Holdings, Inc.
PO Box
5650
1200 West
Century Avenue
Bismarck,
ND 58506-5650
Attention: Vernon
A. Raile
Executive Vice President, Treasurer and
Chief Financial Officer
Re:
Consent under Credit
Agreement
Ladies/Gentlemen:
Please refer to the Amended and
Restated Credit Agreement dated as of December 13, 2007 (the “
Credit Agreement
”)
among Centennial Energy Holdings, Inc. (the “
Company
”), various
financial institutions (the “
Banks
”) and U.S. Bank
National Association, as administrative agent (in such capacity, the “
Administrative
Agent
”). Capitalized terms used but not otherwise defined
herein have the respective meanings given to them in the Credit
Agreement.
The Company has notified the
Administrative Agent and the Banks that the write-off of certain capitalized
costs by the Company pursuant to Rule 4-10 of Regulation S-X of the SEC (the
“SEC Rule”) with respect to the fiscal quarter ended March 31, 2009 would
negatively affect the ability of the Company and its Subsidiaries to pay
dividends and make other distributions to their respective
equityholders.
The Majority Banks agree that,
notwithstanding Section 7.08(b)(iii) of the Credit Agreement, the Company or any
Subsidiary may, during fiscal year 2010, declare or pay cash dividends or other
distributions to its equity holders and purchase, redeem or otherwise acquire
shares of its capital stock or other equity interests or warrants, rights or
options to acquire any such shares or other equity interests for cash, in an
aggregate amount for the Company and its Subsidiaries not to exceed 100% of the
consolidated net income after taxes of the Company and its Subsidiaries arising
during fiscal year 2009 (computed on a consolidated basis but without giving
effect to any write-off of capitalized costs pursuant to the SEC Rule with
respect to the fiscal quarter ended March 31, 2009);
provided
that in each
case immediately after giving effect to such proposed action, no Default or
Event of Default would exist.
This letter agreement shall become
effective when the Administrative Agent shall have received (a) counterparts of
this letter agreement executed by the Company and the Majority Banks and (b) a
consent fee for each Bank that delivers its executed signature page to this
letter agreement to the Administrative Agent prior to 5:00 p.m. (Chicago time)
on November 24, 2009, such fee to be in an amount equal to 0.10% of such Bank’s
Commitment.
This letter agreement may be executed
in any number of counterparts and by the different parties on separate
counterparts, and each such counterpart shall be deemed to be an original but
all such counterparts shall together constitute one and the same letter
agreement. Delivery of an executed counterpart hereby by facsimile or
in .pdf or similar format shall constitute delivery of an original executed
counterpart hereof.
This letter agreement shall be governed
by, and construed in accordance with, the internal law of the State of New York
without regard to principles of conflicts of law (other than Title 14 of Article
5 of the New York General Obligations Law);
provided
that the
Administrative Agent and the Banks shall retain all rights arising under Federal
law.
U.S.
BANK NATIONAL ASSOCIATION,
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as
Administrative Agent, as an Issuer and as a Bank
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By:
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/s/
Paul Vastola
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Name:
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Paul
Vastola
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Title:
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Vice
President
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UNION
BANK , N.A. (formerly known as Union
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Bank
of California, N.A.),
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as
Co-Syndication Agent and as a Bank
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By:
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/s/
Bryan Read
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Name:
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Bryan
Read
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Title:
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Vice
President
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ABN
AMRO BANK N.V., as Co-Syndication
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Agent
and as a Bank
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By:
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/s/
Michiel van Schaardenburg
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Name:
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Michiel
van Schaardenburg
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Title:
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Managing
Director
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By:
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/s/
Michele Costello
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Name:
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Michele
Costello
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Title:
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Director
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BANK
OF AMERICA, NATIONAL
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ASSOCIATION
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By:
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/s/
Shelley A. McGregor
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Name:
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Shelley
A. McGregor
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Title:
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Senior
Vice President
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KEYBANK
NATIONAL ASSOCIATION
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By:
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/s/
Keven D. Smith
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Name:
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Keven
D. Smith
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Title:
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Senior
Vice President
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JPMORGAN
CHASE BANK, NATIONAL
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ASSOCIATION
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By:
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/s/
Jennifer Fitzgerald
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Name:
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Jennifer
Fitzgerald
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Title:
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Associate
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THE
BANK OF TOKYO-MITSUBISHI UFJ,
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LTD.,
NEW YORK BRANCH
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By:
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/s/
CHI-CHENG CHEN
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Name:
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CHI-CHENG
CHEN
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Title:
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AUTHORIZED
SIGNATORY
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WELLS
FARGO BANK, NATIONAL
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ASSOCIATION
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By:
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/s/
Keith Luettel
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Name:
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Keith
Luettel
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Title:
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Assistant
Vice President
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CIBC
INC.
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By:
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/s/
Robert W Casey Jr
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Name:
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Robert
W Casey Jr
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Title:
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Executive
Director
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FIRST
INTERSTATE BANK
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By:
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/s/
Susan M. Riplett
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Name:
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Susan
M. Riplett
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Title:
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Vice
President
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UBS
LOAN FINANCE LLC
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By:
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/s/
Marie A. Haddad
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Name:
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Marie
A. Haddad
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Title:
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Associate
Director
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TORONTO
DOMINION (TEXAS) LLC
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By:
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/s/
DEBBI L. BRITO
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Name:
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DEBBI
L. BRITO
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Title:
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AUTHORIZED
SIGNATORY
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WILLIAM
STREET LLC
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By:
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/s/
Mark Walton
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Name:
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Mark
Walton
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Title:
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Authorized
Signatory
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ACKNOWLEDGED
AND AGREED:
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CENTENNIAL
ENERGY HOLDINGS, INC.
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By:
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/s/
Vernon A. Raile
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Name:
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Vernon
A. Raile
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Title:
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Executive
Vice President,
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Treasurer
and Chief Financial Officer
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MDU
RESOURCES GROUP, INC.
SUPPLEMENTAL
INCOME SECURITY PLAN
(As
Amended and Restated Effective as of November 12, 2009)
TABLE OF
CONTENTS
Page
INTRODUCTION
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1
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ARTICLE
I – DEFINITIONS
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1
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ARTICLE
II -- ELIGIBILITY
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5
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ARTICLE
III -- SUPPLEMENTAL DEATH AND RETIREMENT BENEFITS
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7
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ARTICLE
IV -- REPLACEMENT RETIREMENT BENEFITS
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17
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ARTICLE
V -- DISABILITY BENEFITS
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21
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ARTICLE
VI -- MISCELLANEOUS
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21
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ARTICLE
VII -- ADDITIONAL AFFILIATE COMPANIES
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30
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APPENDIX
A AND A-1 –
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SCHEDULE
OF RETIREMENT AND SURVIVORS BENEFITS
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32-33
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APPENDIX
B-1 AND B-2 –
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CURRENT
PARTICIPANTS ELIGIBLE FOR ARTICLE IV BENEFITS
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34
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APPENDIX
C – MDU RESOURCES GROUP, INC. SPECIFIED EMPLOYEE POLICY
REGARDING
COMPENSATION
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35
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INTRODUCTION
The objective of the MDU Resources
Group, Inc. Supplemental Income Security Plan (the "Plan") is to provide certain
levels of death benefits and retirement income for a select group of management
or highly compensated employees and their families. Eligibility for
participation in this Plan shall be limited to management or highly compensated
employees who are selected by the MDU Resources Group, Inc. ("Company") Board of
Director’s Compensation Committee (“Compensation Committee”) upon recommendation
of the Chief Executive Officer of the Company (“CEO”). This Plan
became effective January 1, 1982, has been amended from time to time thereafter,
and most recently has been amended and restated effective as of November 13,
2008.
The Plan is intended to constitute an
unfunded deferred compensation plan maintained by the Company primarily for the
purpose of providing non-elective deferred compensation for a select group of
management or highly compensated employees.
ARTICLE I --
DEFINITIONS
Unless a different meaning is plainly
implied by the context, the following terms as used in this Plan shall have the
following meanings:
1.1 "
Administrator
" means
the Compensation Committee or any other person to whom the Compensation
Committee has delegated the authority to administer the Plan. The
Vice President - Human Resources of the Company is initially delegated the
authority to perform the administrative responsibilities required under the
Plan.
1.2 "
Affiliated Company
"
means any current or future corporation which (a) is in a controlled group of
corporations (within the meaning of Section 414(b) of the Code) of which the
Company is a member and (b) has been approved by the Compensation
Committee
upon
recommendation of the Chief Executive Officer to adopt the Plan for the benefit
of its Employees.
1.3 "
Beneficiary
" means an
individual or individuals, any entity or entities (including corporations,
partnerships, estates, or trusts) that shall be entitled to receive benefits
payable pursuant to the provisions of this Plan by virtue of a Participant's
death; provided, however, that if more than one such person is designated as a
Beneficiary hereunder, each such person's proportionate share of the death
benefit hereunder must clearly be set forth in a written statement of the
Participant received by and filed with the Administrator prior to the
Participant's death. If such proportionate share for each Beneficiary
is not set forth in the designation, each Beneficiary shall receive an equal
share of the death benefits provided hereunder.
1.4 "
Company
" means MDU
Resources Group, Inc., and its successors, if any.
1.5 "
Effective Date
" of
the Plan means January 1, 1982. The Effective Date of this amendment and
restatement of the Plan is November 12, 2009.
1.6 "
Eligible Retirement
Date
" means the First Eligible Retirement Date and the last day of each
subsequent calendar month.
1.7 "
Employee
" means each
person actively employed by an Employer, as determined by such Employer in
accordance with its practices and procedures.
1.8 "
Employer
" means the
Company and any Affiliated Company which shall adopt this Plan with respect to
its Employees with the prior approval of the Company as set forth in Article 7
of the Plan.
1.9 “
ERISA
” means the
Employee Retirement Income Security Act of 1974, as amended.
1.10 "
First Eligible Retirement
Date
" for a Participant means the last day of the month during which such
Participant is both no longer actively employed by the Employer and has attained
at least age 65. For a Key Employee whose employment ceases (for
reasons other than death) within six months of becoming age 65 or any time
thereafter, the First Eligible Retirement Date that applies to the Monthly
Post-Jobs Act Benefit will be six months after the last day of the month during
which such Key Employee is both no longer actively employed by the Employer and
has attained at least age 65.
1.11 “
Frozen
” in
conjunction with the Pension Plan means that benefit accruals ceased for all
participants in these plans as of December 31, 2009.
1.12 “
Key Employee
” is a
Participant determined to be a Specified Employee under the Company’s
Specified Employee Policy Regarding
Compensation
which was previously adopted by the Company and is attached
as Appendix C.
1.13 "
Limitation on
Benefits
" shall mean the statutory limitation on the maximum benefit that
may be payable to participants under a Pension Plan due to the application of
certain provisions contained in the Code.
1.14 “
Monthly Post-Jobs Act
Benefit
” is the Participant’s total monthly benefit specified in 3.1,
minus the Monthly Pre-Jobs Act Benefit.
1.15 “
Monthly Pre-Jobs Act
Benefit
” is the Participant’s total monthly vested benefit specified in
3.3(a), 3.3(b) or 3.3(c), if any, as of December 31, 2004.
1.16 "
Participant
" means a
present or former management or highly compensated Employee selected by the
Compensation Committee upon recommendation of the Chief Executive Officer of the
Company to receive benefits under this Plan. An Employee
will
become a
Participant at the time such Employee commences participation hereunder pursuant
to the provisions of Section 2.1 hereof.
1.17 "
Pension Plan
" means
the MDU Resources Group, Inc. Pension Plan for Non-Bargaining Unit Employees,
the Williston Basin Interstate Pipeline Company Pension Plan, or the Knife River
Corporation Salaried Employees' Pension Plan, as in effect on the Effective
Date, amended from time to time, and Frozen as of December 31,
2009.
1.18 "
Plan
" means the MDU
Resources Group, Inc. Supplemental Income Security Plan, as embodied herein, and
any amendments thereto.
1.19 "
Plan Year
" means the
calendar year. The first Plan Year for this Plan shall be the 1982
calendar year.
1.20 "
Salary
" means annual
base salary payable by an Employer to a Participant excluding (a) bonuses, (b)
incentive compensation, and (c) any other form of supplemental
income.
1.21 "
Standard Actuarial
Factors
" means, with respect to a Participant, the actuarial factors and
assumptions commonly used for the calculation of actuarial equivalents for
retirement plans as determined by the Administrator.
1.22 "
Standard Life
Insurance
" means life insurance that could be purchased from a commercial
life insurance company at standard rates without a surcharge assessed, based on
an individual's general good health.
1.23 "
Standard Underwriting
Factors
" means life insurance rating factors utilized by a commercial
life insurance company selected by the Administrator which are based on the risk
assessment classifications utilized by such insurer to determine if an applicant
qualifies for insurance at standard rates or if health or other factors might
require a surcharge.
1.24 "
Year of
Participation
" means each 12 consecutive months of participation in the
Plan by a Participant while actively employed by one or more of the Employers
(including while such Participant is qualified as totally disabled as defined in
Article V), as determined at the sole discretion of the
Administrator.
ARTICLE II --
ELIGIBILITY
2.1
Eligibility for
Participation
. The Compensation Committee, upon recommendation of the
Chief Executive Officer, shall determine which management or highly compensated
Employees may be eligible to participate in the Plan. The general criteria for
initial consideration of an Employee include, but are not limited to, the
following: (a) either an officer or a management employee of an
Employer earning an annual base salary of $165,000; (b) an executive
who makes a significant contribution to the Company's success and profitability;
and (c) an executive in a business unit where benefits of this nature are a
common practice, or there is a specific need to recruit and retain key
executives. Each Employee who is selected as eligible to participate
hereunder and who meets the requirements for participation set forth under
Section 2.2 hereof shall commence participation on the first day of the
month coincident with or next following the date of such Employee's selection.
The annual base salary threshold is $165,000 as of January 1,
2008. The Administrator will, from time to time, compare and possibly
adjust the annual base salary threshold to competitive practice and recommend
adjustments accordingly to the Compensation Committee.
2.2
Requirements for
Participation
. In order to be eligible to participate in the
Plan, an Employee selected by the Compensation Committee must (a) be actively at
work for one or more of the Employers; (b) have a current state of health and
physical condition that would satisfy customary requirements for insurability
under Standard Life Insurance; provided,
however,
that no provision of this Plan shall be construed or interpreted to limit
participation in the Plan in contravention of the Americans With Disabilities
Act and related federal and state laws; and (c) consent to supply information or
to otherwise cooperate as necessary to allow the Company to obtain life
insurance on behalf of such Employee (as set forth under Section 6.3 of the
Plan).
2.3
Eligibility for
Benefits
. Subject to the provisions of Article III, Plan
benefits may commence as of the earlier to occur of (a) the first day of the
month following the date of the Participant's death or (b) the Participant's
First Eligible Retirement Date if the Participant elects to receive
retirement benefits under Article III hereof.
2.4
Relationship to Other
Plans
. Participation in the Plan shall not preclude or limit
the participation of the Participant in any other benefit plan sponsored by one
or more of the Employers for which such Participant otherwise would be
eligible. However, any benefits payable under this Plan shall not be
deemed salary or compensation to the Participant for purposes of determining
benefits under any other employee benefit plan maintained by one or more of the
Employers.
2.5
Forfeiture of
Benefits
. Notwithstanding any provision of this Plan to the
contrary, if any Participant is discharged from employment by one or more of the
Employers for cause due to willful misconduct, dishonesty, or conviction of a
crime or felony, all as determined at the sole discretion of the Compensation
Committee, the rights of such Participant (or any Beneficiary of such
Participant) to any present or future benefit under this Plan shall be forfeited
to the extent not prohibited by applicable law.
ARTICLE III -- SUPPLEMENTAL
DEATH AND RETIREMENT BENEFITS
3.1
Amount of
Benefit
.
(a) Subject
to the vesting requirements of Section 3.2 and provisions of Section 3.3 and 3.4
of the Plan, the monthly supplemental death and/or retirement benefits payable
on behalf of (or to) a Participant as of such Participant's date of death (or
First Eligible Retirement Date) will be an amount determined by the Compensation
Committee upon recommendation of the Chief Executive Officer at the time of the
Participant's commencement of participation in the Plan, and may
be increased from time to time thereafter by the Compensation
Committee upon recommendation of the Chief Executive Officer. Subject to the
discretion of the Compensation Committee upon recommendation of the Chief
Executive Officer, a Participant shall generally be entitled to have a monthly
supplemental death benefit paid on such Participant's behalf (or be entitled to
receive a monthly supplemental retirement benefit) equal to the monthly death
benefit or monthly retirement benefit (as applicable) corresponding to the
Participant's Salary in effect at the date such initial or revised benefit
determination is to be effective, all as set forth herein
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(i)
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Appendix
A for Participants in the Plan before January 1, 2010, and who have not
received a benefit level increase after December 31, 2009,
or
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(ii)
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Appendix
A-1 for Participants in the Plan before January 1, 2010, and who have
received a benefit level increase on or after January 1, 2010,
or
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(iii)
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Appendix
A-1 for Participants who join the Plan on or after January 1,
2010.
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No
Participant shall receive a benefit level increase that results in a
reduced benefit.
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Increases
in Salary do not automatically result in increases to a Participant's level of
benefits. Without limiting the scope of the immediately preceding sentence, it
is intended that increases to a Participant’s benefit level after commencement
of participation in the Plan will be made only to the extent the Participant’s
current compensation exceeds the then current annual base salary threshold
determined pursuant to Section 2.1 as a general criterion for
eligibility.
(b) Participants
who died, terminated employment with, or retired from, the Employers prior to
January 1, 2002, will receive benefits hereunder in accordance with the terms of
the Plan as in effect at the time of the Participant's death, termination of
employment or retirement from the Employers.
(c) The
benefit amounts determined by the Compensation Committee upon recommendation of
the Chief Executive Officer pursuant to Section 3.1(a) above are based on the
assumption that each Participant's health and physical condition at the time of
such Participant's commencement of participation in the Plan meets customary
requirements for Standard Life Insurance. Benefits under the Plan may be reduced
by the Compensation Committee upon recommendation of the Chief Executive Officer
within a reasonable period following the establishment of such benefit level in
accordance with Standard Underwriting Factors, but only with respect to that
portion of the monthly death or retirement benefit for which the criteria for
health and physical condition are not met. Participants will be
notified of any such reduction within a reasonable period following
participation in the Plan. Once benefits have been reduced under this
Section 3.1, such benefits shall not be further reduced for the remainder of the
Participant's participation in the Plan.
(d) Participants
who die while actively employed will be considered to be 100% vested for the
death benefit, and not subject to the vesting schedule. However, once
the participant is no longer actively employed (e.g. resignation, termination,
disability, etc.) Section 3.2 applies.
3.2
Vesting
.
(a) If
a Participant retires or terminates employment with an Employer before the
Participant completes at least 10 Years of Participation, the monthly death
and/or retirement benefits to which such Participant otherwise would be entitled
under the terms of Section 3.1 hereof shall vest as follows:
|
Vesting
Schedule
|
|
|
|
|
|
Years
of Participation
|
|
Percent
of Section
|
|
Completed by the
Participant
|
|
3.1 Benefits
Payable
|
|
|
|
|
|
1
|
|
0%
|
|
2
|
|
0%
|
|
3
|
|
20%
|
|
4
|
|
40%
|
|
5
|
|
50%
|
|
6
|
|
60%
|
|
7
|
|
70%
|
|
8
|
|
80%
|
|
9
|
|
90%
|
|
10
|
|
100%
|
(b) Participants
receiving a benefit increase on or after January 1, 2010, will be subject to an
additional vesting period with respect to the benefit level increase. The
additional vesting period will be the longer of:
|
(i)
|
Three
Years of Participation, or
|
|
(ii)
|
Ten
Years of Participation minus the Participant’s number of Years of
Participation at the time the benefit level increase is granted to the
Participant.
|
If, after
receiving a benefit level increase, a Participant’s employment terminates, for
reasons other than death or being an officer of the Employer who attains age 65
and is required to retire, prior to the end of the additional vesting period
associated with the benefit level increase, the benefit level increase will be
forfeited. In this case, the Participant’s benefit level will revert to the
benefit level in effect immediately prior to the benefit level
increase.
If, after
receiving a benefit level increase, a Participant’s employment is terminated due
to death, then the additional vesting period is waived and the survivor’s
benefits will reflect the benefit level increase.
If, after
receiving a benefit level increase, the Participant is a) an officer of the
Employer, b) attains age 65, and c) is required to retire prior to the end of
the additional vesting period associated with the benefit level increase, he or
she will vest in the benefit level increase as follows:
|
“Years
of Participation” After
|
|
Vesting
Percentage of
|
|
Benefit Level
Increase
|
|
Benefit Level
Increase
|
|
|
|
|
|
Less
than 1
|
|
0%
|
|
Between
1 and 2
|
|
33%
|
|
Between
2 and 3
|
|
66%
|
|
3
or More
|
|
100%
|
The above
vesting schedule under Section 3.2(b) applies only to Participants who are
officers of the Employer, attain age 65, are required to retire, and who have
satisfied the vesting requirements under Section 3.2(a).
The
Compensation Committee, upon recommendation of the Chief Executive Officer, may
waive any or all of the additional vesting requirement associated with a benefit
level increase.
3.3
Participant’s Election of
Monthly Pre-Jobs Act Benefit
. Upon attainment of age 65 or,
as of such Participant's First Eligible Retirement Date (if later), a
Participant will be entitled to determine the form of benefit payable under
subsection (a) hereof, and the date of commencement of such benefits, subject to
the approval of the Administrator, in accordance with the terms of the
Plan. The Participant may elect:
(a) to
defer any payments and retain a future
monthly death benefit
in amounts determined pursuant to Section 3.1 hereof, multiplied by the
appropriate percentage amount set forth in section 3.2, or
(b) in
lieu of any death benefits under this Plan,
a monthly retirement
benefit
determined in accordance with Section 3.1, multiplied by the
appropriate percentage amount set forth in Section 3.2, with no death benefit,
or
(c)
a percentage of each
benefit
described in subsections (a and b) above. The
percentage of each benefit must be in even increments of ten percent
(10%).
|
(i)
|
If
a Participant has elected to receive less than one hundred percent (100%)
of such Participant's monthly retirement benefit (e.g. 50%), the
Participant may subsequently elect to begin receiving an additional
percentage retirement benefit (e.g. another 20%.) There may be no more
than two (2) such additions during the Participant's lifetime, and no more
than one (1) such addition during any calendar
year.
|
|
(ii)
|
Any
such addition in retirement benefit payments will result in an equal
percentage reduction in death benefits, to the percentage change in
retirement benefit.
|
|
(iii)
|
Once
retirement benefit payments have started, Participants shall not be
entitled to subsequently decrease retirement benefit
payments.
|
(d) Elections
under this Section 3.3 must be communicated in writing to the Administrator and
will be effective as of the first day of the first month following the
Administrator's receipt and the approval of such request by the Chief Executive
Officer.
3.4
Participant’s Election of
Monthly Post-Jobs Act Benefit.
Upon attainment of age 65, or
as of such Participant’s First Eligible Retirement Date (if later), the
Participant’s Monthly Post-Jobs Act Benefit will automatically be designated as
a retirement benefit. A Participant may, however, make a one-time
written election to avoid the automatic designation of the Monthly Post-Jobs Act
Benefit as a retirement benefit, and instead designate such benefit as a death
benefit (or a combination of retirement and death benefit). The
written election must be made by the Participant on or before the Participant
reaches age 64, and once the written election is made it may not be
changed. Should a Participant elect a retirement benefit and
subsequently die before attaining age 65, the Monthly Post-Jobs Act Benefit will
revert to a death benefit. Should a Participant who is a Key Employee
elect a retirement benefit and subsequently die before their First Eligible
Retirement Date, the Monthly Post-Jobs Act Benefit will revert to a death
benefit.
3.5
Payment of Monthly
Benefits
.
(a)
Death
Benefits
. Any death benefits payable with respect to a
Participant
pursuant
to Sections 3.3(a)(b) or (c) or Section 3.4 shall commence on the first day of
the calendar month following the date of the Participant's death and shall be
payable in monthly installments for a period of 180 months.
(b)
Retirement Benefit for the
Monthly Pre-Jobs Act Benefit
. The Monthly Pre-Jobs Act Benefit
elected as retirement benefits payable under this Plan shall commence on the
Eligible Retirement Date selected by the Participant (upon 30 day's written
notice to the Administrator) and will be payable to such Participant in monthly
installments for a period of 180 months. In the event the Participant
dies prior to the completion of such 180-month period, the balance of such
retirement benefits shall be paid to the Participant's Beneficiary at such times
and in such amounts as if the Participant had not died, such payment being made
in addition to any death benefits payable under Section 3.3(c)
hereof. To the extent a Participant elects to commence receiving
increased retirement benefits pursuant to Section 3.3(c) (i), the amount of
increase of retirement benefits shall be in the form of a monthly benefit
payable for a separate 180-month period.
(c)
Retirement Benefit for the
Monthly Post-Jobs Act Benefit
. Unless the Participant elects
in writing to receive the Monthly Post-Jobs Act Benefit in the form of a monthly
death benefit (as specified in 3.4), the Monthly Post-Jobs Act Benefit will take
the form of a retirement payment and will be payable as follows:
|
(i)
|
to
a Key Employee, payments will begin the later of (I) the First Eligible
Retirement Date, or (II) six months after the last day of the month during
which such Key Employee is both no longer actively employed by the
Employer and has attained at least age 65. If such payments
begin on (c) (i) (II), the first monthly payment to the Key Employee will
include a total
|
of seven
months’ payments. Also, such first monthly payment will include an
interest credit on the first six months’ payments equivalent to one-half of the
annual prime interest rate contained in the
Wall Street Journal
on the
Key Employee’s last day of employment (or the first business day after the Key
Employee’s last day of employment should the last day of employment be a
non-business day). Payments to the Key Employee will last 173
months. Should the Key Employee die prior to the completion of the
173 month period, the balance of such retirement benefits shall be paid to the
Participant's Beneficiary at such times and in such amounts as if the
Participant had not died, such payment being made in addition to any death
benefits payable under Sections 3.3(a) hereof.
|
(ii)
|
to
a Participant who is not a Key Employee, payments will begin on the First
Eligible Retirement Date and be payable to such Participant in monthly
installments for a period of 180 months. In the event the
Participant dies prior to the completion of such 180-month period, the
balance of such retirement benefits shall be paid to the Participant's
Beneficiary at such times and in such amounts as if the Participant had
not died, such payment being made in addition to any death benefits
payable under Sections 3.3(a).
|
(d)
Actuarial Equivalent
Alternative Forms for the Monthly Pre-Jobs Act Benefit.
The
normal form of retirement benefit for the Monthly Pre-Jobs Act Benefit to which
a Participant shall be entitled shall be determined under paragraph 3.4(b).
Alternatively, a participant may elect to receive their Monthly Pre-Jobs Act
Benefit in the form of a retirement
benefit
in one of the following actuarially equivalent forms (as determined by the
Administrator), provided, however, that each alternative form shall also be
payable for a certain period of 180 months: (i) the lifetime of the
Participant; (ii) the lifetime of the Participant with the same amount payable
to the Participant continued thereafter for the lifetime of the Participant’s
spouse; or (iii) the lifetime of the Participant with 67% of the amount payable
to the Participant continued thereafter for the lifetime of the Participant’s
spouse. However, in no event will the Company incur more costs in
providing the actuarial equivalent alternative form to the Participant than it
would otherwise incur in providing the normal form of retirement
benefit. Applying the discount rate used by the Company to calculate
the FAS 87 expense, the present value of the Participant’s retirement benefit
will be calculated by the Administrator. The Administrator will then
purchase an annuity at a cost no greater than the present value of the
retirement benefit.
(e)
Actuarial Equivalent
Alternative Forms for the Monthly Post-Jobs Act Benefit
. There
are no Actuarial Equivalent Alternative Forms relating to the Monthly Post-Jobs
Act Benefit.
(f)
Single Sum
Payment
. Notwithstanding the provisions of subsections
(a), (b), and (c) of this Section 3.5, the Administrator reserves the
right to pay the Monthly Pre-Jobs Act Benefit in the form of an actuarially
equivalent single sum (as determined by the Administrator) when retirement or
death benefits are payable due to termination of employment, excluding
disability, or death prior to the Participant's attainment of age 55, or upon
the death of the Participant and the primary beneficiary(ies). The
Single Sum Payment will not apply to the Monthly Post-Jobs Act
Benefits.
3.6
Exclusions and
Limitations
.
(a) No
death benefits will be payable with respect to a Participant in the event of
such Participant's death by suicide within two (2) years after commencement of
participation in the Plan, and no benefit increase will apply in the event of
any such Participant's death by suicide within two (2) years after such
Participant becomes eligible for an increase in death benefits.
(b) In
the event that a Participant misrepresents any health or physical condition at
the time of commencement of participation in the Plan or at the time of a
retirement or death benefit increase, no retirement or death benefit or
retirement or death benefit increase will be payable under the Plan within two
(2) years of such misrepresentation.
3.7
Death of a
Beneficiary
.
(a) In
the event any Beneficiary predeceases the Participant, is not in existence, is
not ascertainable, or is not locatable (see Section 6.11) as of the date
benefits under the Plan become payable to such Beneficiary, Plan benefits shall
be paid to such contingent Beneficiary or Beneficiaries as shall have been named
by the Participant on the Participant's most recent Beneficiary election form
that has been received and filed with the Administrator prior to the
Participant's death. If no contingent Beneficiary has been named, the
contingent Beneficiary shall be the Participant's estate.
(b) In
the event any Beneficiary dies after commencing to receive monthly benefits
under the Plan but prior to the payment of all monthly benefits to which such
Beneficiary is entitled, remaining benefits shall be paid to a beneficiary
designated by the deceased Beneficiary (the "Secondary Beneficiary"), provided
such designation has been received and filed with the Administrator prior to the
death of the Beneficiary. If no such person
has been
designated by the deceased Beneficiary, the Secondary Beneficiary shall be the
estate of the Beneficiary. In the event the Secondary Beneficiary
shall die prior to the payment of all benefits to which such Secondary
Beneficiary is entitled, the remainder of such payments shall be made to such
Secondary Beneficiary's estate. If the Administrator is in doubt as
to the right of any person to receive benefits under the Plan, the Administrator
may retain such amount, without liability for any interest thereon, until the
rights thereto are determined, or the Administrator may pay a single sum amount
in accordance with Section 3.5 (f) into any court of competent jurisdiction and
such payment shall be a complete discharge of the liability of the Plan and the
Employer.
3.8
Discretion As To Benefit
Amount
. Notwithstanding the foregoing, the Compensation
Committee upon recommendation of the Chief Executive Officer of the Company may,
with full and complete discretion, disregard Standard Underwriting Factors and
customary requirements for Standard Life Insurance in establishing and/or
increasing the amount of any Participant's retirement or death benefit under the
Plan.
3.9
Suspension of Benefits Upon
Reemployment
. Employment with any Employer subsequent to the
commencement of Pre-Jobs Act benefits under this Article III may, at the sole
discretion of the Compensation Committee upon recommendation of the Chief
Executive Officer of the Company, result in the suspension of Pre-Jobs Act
benefits for the period of such employment or reemployment.
ARTICLE IV
-- REPLACEMENT RETIREMENT BENEFITS
4.1
Participation
. Benefits
under this Article IV shall be payable only to those Participants listed on
Appendix B-1 and B-2. These Participants whose benefits, under a Pension Plan
under which they otherwise participate, are reduced or limited by reason of the
Limitation
on
Benefits as of December 31, 2009. Participants listed on Appendix B-1
shall be eligible to receive benefits under Article IV if their employment is
terminated for reasons other than death at any time prior to attaining age 65.
Additionally, Participants listed on Appendix B-2 may receive benefits under
Article IV if they remain continuously employed until attaining age
60. Benefits under this Article IV (a) shall be payable only
for such period that the benefits under the Pension Plan are actually reduced or
limited and (b) shall terminate as of the last day of the month immediately
preceding the month during which the Participant attains age sixty-five (65).
Should the Participant die before his sixty-fifth (65
th
)
birthday, and he had elected a joint and survivor form of payment
(specified in Section 4.2 (c)), the Participant’s surviving spouse will receive
Article IV benefit payments until the date the Participant would have attained
age 65. Furthermore, benefits under this Article IV also shall be
payable only to those Participants who are active Employees on or after January
1, 1997. Except for Participants listed on Appendix B-1 or
Appendix B-2, no current or future Participant will be eligible for benefits
under this Article IV.
4.2
Amount and Method of
Payment
.
(a)
Amount of
Benefit
. The amount, if any, of the monthly benefit payable to
or on account of a Participant pursuant to this Article IV shall equal the
difference of (i) minus (ii) where:
|
(i)
|
equals
the amount of monthly retirement benefits which would be provided to the
Participant under the Pension Plan as of December 31, 2009, without
regard to the Limitation of Benefits in effect on December 31, 2009;
and
|
|
(ii)
|
equals
the amount of monthly retirement benefits payable to such Participant
under the Pension Plan as of December 31, 2009, due to the application of
the Limitation on Benefits in effect on December 31,
2009.
|
provided,
however, that no benefits shall be payable to a Participant under this Article
IV unless the amount of such monthly benefit is at least fifty dollars
($50). The benefit amount provided under this Section 4.2(a) shall be
determined with reference to the form of benefit determined under section 4.2(c)
hereof and shall be calculated in accordance with the Standard Actuarial Factors
utilized under the Pension Plan as of December 31, 2009.
(b)
Vesting
. A
Participant shall be vested in benefits under this Article IV to the same extent
as such Participant is vested in benefits under the applicable Pension
Plan. Although the Pension Plan was Frozen as of December 31, 2009,
vesting will continue for Participants listed on Appendix B-2.
(c)
Payment of
Benefit
. The benefits provided under this Article IV shall be
paid to each such Participant, surviving spouse (as defined under the applicable
Pension Plan) or joint annuitant (as defined under the applicable Pension
Plan). Benefits due the Participant under Article IV will commence
automatically upon separation of employment from the Employer regardless of the
Participant’s timing of payment under the applicable Pension Plan, unless the
Participant is a Key Employee, in which case Article IV payments will commence
seven months after separation of employment from the Employer. If the
Participant is a Key Employee, the payments otherwise due them in months one
through six will be paid cumulatively on the seventh month after separation of
employment. Also, the payment on the seventh month will include an
interest credit on the first six months’ payments equivalent to one-half of the
annual
prime
interest rate contained in the
Wall Street Journal
on the
Key Employee’s last day of employment (or the first business day after the Key
Employee’s last day of employment should the last day of employment be a
non-business day). A Participant is limited to receiving
Article IV as either a single life annuity (i.e., the lifetime of the
Participant) or a qualified joint and survivor annuity (i.e., the lifetime of
the Participant with the same amount payable to the Participant continued
thereafter for the lifetime of the Participant’s
spouse). Notwithstanding the ability for the Participant to receive a
lump-sum payment for their pension benefit under the applicable Pension Plan,
there is no lump-sum payment available to Article IV
benefits. Payments shall be made in accordance with, and subject to,
the terms and conditions of the applicable Pension Plan; provided, however, that
no spousal consent shall be required to commence any form of payment under this
Article IV.
(d)
Commencement and Duration of
Payments
. Subject to Section 4.2(c), benefits provided under
this Article IV shall commence automatically when the Participant becomes
eligible for Article IV benefits, without regard to payment under any Pension
Plan, and shall continue to age 65 or the death of the Participant, if prior to
age 65, and, if applicable, in reduced amount until the death of the
Participant's spouse or joint annuitant, whichever is applicable.
(e)
Necessity of Actual
Reduction
. Notwithstanding any other provision of this Plan,
no amount shall be payable under this Article IV unless the Participant's
monthly benefit paid under the applicable Pension Plan is actually reduced
because of application of the Limitation on Benefits. Benefits
payable to a Participant under this Article IV shall not duplicate benefits
payable to such Participant from any other plan or arrangement of the
Company. In the event a change in law or regulation liberalizes the
limitations applicable to determining the
Limitation
on Benefits such that a Participant may receive additional benefits under the
applicable Pension Plan, and the applicable Pension Plan provides for the
payment of such additional benefits to the Participant, the amount payable under
this Article IV shall be reduced by a corresponding amount.
ARTICLE V -- DISABILITY
BENEFITS
5.1
Monthly Disability
Benefit
.
(a) If
a Participant becomes totally disabled following commencement of participation
in the Plan, the Participant shall continue to receive credit for up to two (2)
years of Participation under the Plan for so long as the Participant is totally
disabled. Following termination of the participant's employment with
the Employer, the Participant's monthly retirement benefits under Article III of
the Plan shall commence beginning on or after the Participant's First Eligible
Retirement Date.
(b) A
Participant is "totally disabled" if such Participant is disabled within the
meaning of the applicable long-term disability plan sponsored by such
Participant's Employer, or as determined by Social Security.
(c) If
a Participant who is totally disabled dies before attaining age 65, any death
benefit payable to the Participant's Beneficiary will be determined and paid in
accordance with the vesting schedule terms of Article III.
ARTICLE VI -
MISCELLANEOUS
6.1
Amendment and
Termination
. Any action to amend, modify, suspend or terminate
the Plan may be taken at any time, and from time to time, by resolution of the
Board of Directors of the Company (or any person or persons duly authorized by
resolution of the Board of Directors of the Company to take such action) in its
sole discretion and without the consent of
any
Participant or Beneficiary, but no such action shall retroactively reduce any
benefits accrued by any Participant under this Plan prior to the time of such
action.
6.2
No Guarantee of
Employment
. Nothing contained herein shall be construed as a
contract of employment between a Participant and any Employer or shall be deemed
to give any Participant the right to be retained in the employ of any
Employer.
6.3
Funding of Plan and Benefit
Payments
. This Plan is unfunded within the meaning of
ERISA. Each Employer will make Plan benefit payments from its general
assets. Each Employer may purchase policies of life insurance on the
lives of Plan Participants and to refuse participation in the Plan to any
Employee who, if requested to do so, declines to supply information or to
otherwise cooperate so that the Employer may obtain life insurance on behalf of
such Participant. The Employer will be the owner and the beneficiary
of any such policy, and Plan benefits will be neither limited to nor secured by
any such policy or its proceeds. Participants and their Beneficiaries
shall have no right, title or interest in any such life insurance policies, in
any other assets of any Employer or in any investments any Employer may make to
assist it in meeting its obligations under the Plan. All such assets
shall be solely the property of such Employer and shall be subject to the claims
of such Employer's general creditors. There are no assets of any
Employer that are identified or segregated for purposes of the payment of any
benefits under this Plan. To the extent a Participant or any other
person acquires a right to receive payments from an Employer under the Plan,
such right shall be no greater than the right of any unsecured general creditor
of such Employer and such person shall have only the unsecured promise of the
Employer that such payments shall be made.
6.4
Payment Not
Assignable
. Except in the case of a Qualified Domestic
Relations Order described under Code Section 414(p), Participants and their
Beneficiaries shall
not have
the right to alienate, anticipate, commute, sell, assign, transfer, pledge,
encumber or otherwise convey the right to receive any payments under the Plan,
and any payments under the Plan or rights thereto shall not be subject to the
debts, liabilities, contracts, engagements or torts of Participants or their
Beneficiaries nor to attachment, garnishment or execution, nor shall they be
transferable by operation of law in the event of bankruptcy or
insolvency. Any attempt, whether voluntary or involuntary, to effect
any such action shall be null, void and of no effect.
6.5
Applicable
Law
. The Plan and all rights hereunder shall be governed by
and construed according to the laws of the State of Delaware, except to the
extent such laws are preempted by the laws of the United States of
America.
6.6
Claims
Procedure
.
(a)
Right to File a
Claim
. Participants and Beneficiaries are entitled to file a
claim with respect to benefits or other aspects of the operation of the
Plan. The claim is required to be in writing and must be made to the
Administrator.
(b)
Denial of
Claim
. If the claim is denied by the Administrator, the
claimant shall be notified in writing within ninety (90) days after receipt of
the claim or within one hundred eighty (180) days after such receipt if special
circumstances require an extension of time. If special circumstances
require an extension of time in order to review the claim, the claimant will be
furnished with a written notice of the extension of time within the initial
ninety (90) day period. The notice will include an explanation of the
special circumstances that require an extension and the date by which the
Administrator expects to make its determination. In no event,
however, will the extension of time exceed 180 days from the date of the receipt
of the claim by the Administrator. A written notice of denial of the
claim shall contain the following information:
(i) Specific
reason or reasons for the denial;
(ii) Specific
reference to the pertinent provisions of the Plan on which the denial is
based;
(iii) A
description of any additional material or information necessary for the claimant
to perfect the claim and an explanation of why the material or information is
necessary; and
(iv) A
description of the Plan’s review procedures and the time limits applicable to
the procedures, including a statement of the claimant’s right to bring a civil
action under Section 502(a) of ERISA following a denial upon review of the
claim.
(c)
Claims Review
Procedure
.
(i) Participants
or Beneficiaries may request that the Administrator review the denial of the
claim. Such request must be made within sixty (60) days following the
date the claimant received written notice of the denial of the
claim. The Administrator shall afford the claimant a full and fair
review of the decision denying the claim and shall:
(A) Provide,
upon request and free of charge, reasonable access to and copies of all
documents, records, and other information relevant to the claim;
and
(B) Permit
the claimant to submit written comments, documents, records, and other
information relating to the claim.
(ii) The
decision on review by the Administrator shall be in writing and shall be issued
within sixty (60) days following receipt of the request for
review. The period for decision may be extended to a date not later
than one-hundred and twenty (120) days after such receipt if the Administrator
determines that special circumstances require extension. If special
circumstances require an extension of time, the claimant shall be furnished
written notice prior to the termination of the initial sixty (60) day
period which explains the special circumstances requiring an extension of time
and the date by which the Administrator expects to render its decision on
review. The decision on review shall include:
(A) Specific
reason or reasons for the adverse determination;
(B) References
to the specific provisions in the Plan on which the determination is
based;
(C) A
statement that the claimant is entitled to receive, upon request and free of
charge, reasonable access to and copies of all documents, records, and other
information relevant to the claimant’s claim; and
(D) A
statement of the claimant’s right to bring an action under Section 502(c) of
ERISA.
(iii) Any
action required or authorized to be taken by the claimant pursuant to this
Section may be taken by a representative authorized in writing by the claimant
to represent the claimant.
6.7
Plan
Administration
.
(a) The
Plan shall be administered by the Administrator. The Administrator
shall serve as the final review under the Plan and shall have sole and complete
discretionary authority to determine conclusively for all persons, and in
accordance with the terms of the documents or instruments governing the Plan,
any and all questions arising from the administration of the Plan and
interpretation of all Plan provisions. The Administrator shall make
the final determination of all questions relating to participation of employees
and eligibility for benefits, and the amount and type of benefits payable to any
Participant or Beneficiary. In no way limiting the foregoing, the
Administrator shall have the following specific duties and obligations in
connection with the administration of the Plan:
|
(i)
|
to
promulgate and enforce such rules, regulations and procedures as may be
proper for the efficient administration of the
Plan;
|
|
(ii)
|
to
determine all questions arising in the administration, interpretation and
application of the Plan, including questions of eligibility and of the
status and rights of Participants and any other persons
hereunder;
|
|
(iii)
|
to
decide any dispute arising hereunder; provided, however, that the
Administrator shall not participate in any matter involving any questions
relating solely to the Administrator's own participation or benefit under
this Plan;
|
|
(iv)
|
to
advise the Boards of Directors of the Employers regarding the known future
need for funds to be available for
distribution;
|
|
(v)
|
to
compute the amount of benefits and other payments which shall be payable
to any Participant or Beneficiary in accordance with the provisions of the
Plan and to determine the person or persons to whom such benefits shall be
paid;
|
|
(vi)
|
to
make recommendations to the Board of Directors of the Company with respect
to proposed amendments to the Plan;
|
|
(vii)
|
to
file all reports with government agencies, Participants and other parties
as may be required by law, whether such reports are initially the
obligation of the Employers, or the
Plan;
|
|
(viii)
|
to
engage an actuary to the Plan, if necessary, and to cause the liabilities
of the Plan to be evaluated by such actuary;
and
|
|
(ix)
|
to
have all such other powers as may be necessary to discharge its duties
hereunder.
|
(b) Decisions
by the Administrator shall be final, conclusive and binding on all parties and
not subject to further review.
(c) The
Administrator may employ attorneys, consultants, accountants or other persons
(who may be attorneys, consultants, actuaries, accountants or persons performing
other services for, or are employed by, any Employer or any affiliate of any
Employer), and the Administrator, the Employers and their other officers and
directors shall be entitled to rely upon the advice, opinions or valuations of
any such persons. No member of the Board of Directors of any
Employer, the Chief Executive Officer , the Administrator, nor any
other officer, director or
employee
of the Company or of any Employer acting on behalf of the Board of Directors of
any Employer or the Chief Executive Officer or the Administrator,
shall be personally liable for any action, determination or interpretation taken
or made in good faith with respect to the Plan, and all members of the Boards of
Directors of the Employers, the Chief Executive Officer and the
Administrator and each officer or employee of the Company or of an Employer
acting on their behalf shall be fully indemnified and protected by the Company
for all costs, liabilities and expenses (including, but not limited to,
reasonable attorneys' fees and court costs) relating to any such action,
determination or interpretation.
6.8
Binding
Nature
. This Plan shall be binding upon and inure to the
benefit of the Employers and their successors and assigns and to the
Participants, their Beneficiaries and their estates. Nothing in this
Plan shall preclude any Employer from consolidating or merging into or with, or
transferring all or substantially all of its assets to another company or
corporation, whether or not such company or corporation assumes this Plan and
any obligation of the Employer hereunder.
6.9
Withholding
Taxes
. The Employers may withhold from any benefits payable
under this Plan all federal, state, city or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
6.10
Action Affecting Chief
Executive Officer
. To the extent any action required to be
taken by the Chief Executive Officer of the Company would decrease, increase,
accelerate, delay or otherwise materially impact such individual's benefits
under the Plan, such action shall be taken instead by the Compensation Committee
of the Board of Directors of the Company.
6.11
Payments Due Missing
Persons
. The Administrator shall make a reasonable effort to
locate all persons entitled to benefits (including retirement benefits and death
benefits for Beneficiaries) under the Plan; however, notwithstanding any
provisions of this Plan to the contrary, if, after a period of five years from
the date such benefits first become due, any such persons entitled to benefits
have not been located, their rights under the Plan shall stand
suspended. Before this provision becomes operative, the Administrator
shall send a certified letter to all such persons at their last known address
advising them that their benefits under the Plan shall be
suspended. Any such suspended amounts shall be held by the Employer
for a period of three additional years (or a total of eight years from the time
the benefits first became payable) and thereafter such amounts shall be
forfeited and non-payable.
6.12
Liability
Limited
. Neither the Employers, the Administrator, nor any
agents, employees, officers, directors or shareholders of any of them, nor any
other person shall have any liability or responsibility with respect to this
Plan, except as expressly provided herein.
6.13
Incapacity
. If
the Administrator shall receive evidence satisfactory to it that a Participant
or Beneficiary entitled to receive any benefit under the Plan is, at the time
when such benefit becomes payable, a minor or is physically or mentally
incompetent to receive such benefit and to give a valid release therefore, and
that another person or an institution is then maintaining or has custody of such
Participant or Beneficiary and that no guardian, committee or other
representative of the estate of such Participant or Beneficiary shall have been
duly appointed, the Administrator may make payment of such benefit otherwise
payable to such Participant or Beneficiary (or to such guardian, committee or
other representative of such person's estate) to such other person or
institution, and the release of such other person or institution shall be a
valid and complete discharge for the payment of such benefit.
6.14
Plurals
. Where
appearing in the Plan, this singular shall include the plural, and vice versa,
unless the context clearly indicates a different meaning.
6.15
Headings
. The
headings and sub-headings in this Plan are inserted for the convenience of
reference only and are to be ignored in any construction of the provisions
hereof.
6.16
Severability
. In
case any provision of this Plan shall be held illegal or void, such illegality
or invalidity shall not affect the remaining provisions of this Plan, but shall
be fully severable, and the Plan shall be construed and enforced as if said
illegal or invalid provisions had never been inserted herein.
6.17
Payment of
Benefits
. All amounts payable hereunder may be paid directly
by the Employer or pursuant to the terms of the grantor trust, if any,
established as a funding vehicle for benefits provided hereunder.
ARTICLE VII -- ADDITIONAL
AFFILIATED COMPANIES
7.1
Participation in the
Plan
.
(a) Any
Affiliated Company may become an Employer with respect to this Plan with the
consent of the Compensation Committee upon recommendation of the Chief Executive
Officer, upon the following conditions:
|
(i)
|
such
Employer shall make, execute and deliver such instruments as the Company
requires; and
|
|
(ii)
|
such
Employer shall designate the Company, the Chief Executive Officer of the
Company and the Administrator, as its agents for purposes of this
Plan.
|
(b) Any
such Employer may by action of its Board of Directors withdraw from
participation, subject to approval by the Compensation Committee upon
recommendation of the Chief Executive Officer.
7.2
Effect of
Participation
. Each Employer which with the consent of the
Compensation Committee upon recommendation of the Chief Executive Officer of the
Company complies with Section 7.1(a) shall be deemed to have adopted this Plan
for the benefit of its Employees who participate in this Plan.
APPENDIX A
SCHEDULE
OF RETIREMENT AND SURVIVORS BENEFITS
For
Participants in the Plan prior to January 1, 2010
AND
Who have
not received a benefit level increase after December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
|
|
|
Monthly
|
|
|
Level
|
|
Salary
|
|
|
|
Retirement
Benefit
|
|
|
Death
Benefit
|
|
|
50
|
|
$50,000
|
-
|
$59,999
|
|
$1,330
|
|
|
$2,660
|
|
|
51
|
|
|
|
|
|
$1,728
|
|
|
$3,456
|
|
|
52
|
|
$60,000
|
-
|
$74,999
|
|
$1,800
|
|
|
$3,600
|
|
|
53
|
|
|
|
|
|
$2,160
|
|
|
$4,320
|
|
|
54
|
|
$75,000
|
-
|
$99,999
|
|
$2,580
|
|
|
$5,160
|
|
|
55
|
|
|
|
|
|
$2,880
|
|
|
$5,760
|
|
|
56
|
|
$100,000
|
-
|
$124,999
|
|
$3,600
|
|
|
$7,200
|
|
|
57
|
|
$125,000
|
-
|
$149,999
|
|
$4,470
|
|
|
$8,940
|
|
|
58
|
|
$150,000
|
-
|
$174,999
|
|
$5,360
|
|
|
$10,720
|
|
|
59
|
|
$175,000
|
-
|
$199,999
|
|
$6,250
|
|
|
$12,500
|
|
|
60
|
|
$200,000
|
-
|
$224,999
|
|
$7,300
|
|
|
$14,600
|
|
|
61
|
|
$225,000
|
-
|
$249,999
|
|
$8,215
|
|
|
$16,430
|
|
|
62
|
|
$250,000
|
-
|
$274,999
|
|
$9,125
|
|
|
$18,250
|
|
|
63
|
|
$275,000
|
-
|
$299,999
|
|
$10,475
|
|
|
$20,950
|
|
|
64
|
|
$300,000
|
-
|
$324,999
|
|
$12,145
|
|
|
$24,290
|
|
|
65
|
|
$325,000
|
-
|
$349,999
|
|
$13,670
|
|
|
$27,340
|
|
|
66
|
|
$350,000
|
-
|
$399,999
|
|
$16,110
|
|
|
$32,220
|
|
|
67
|
|
$400,000
|
-
|
$449,999
|
|
$19,525
|
|
|
$39,050
|
|
|
68
|
|
$450,000
|
-
|
$499,999
|
|
$22,850
|
|
|
$45,700
|
|
|
69
|
|
$500,000
|
-
|
$599,999
|
|
$28,800
|
|
|
$57,600
|
|
|
70
|
|
$600,000
|
-
|
$699,999
|
|
$36,500
|
|
|
$73,000
|
|
|
71
|
|
$700,000
|
-
|
$799,999
|
|
$42,710
|
|
|
$85,420
|
|
|
72
|
|
$800,000
|
-
|
$899,999
|
|
$49,220
|
|
|
$98,440
|
|
|
73
|
|
$900,000
|
-
|
$999,999
|
|
$55,310
|
|
|
$110,620
|
|
|
74
|
|
$1,000,000
|
-
|
$1,099,999
|
|
$60,200
|
|
|
$120,400
|
|
|
SCHEDULE
OF RETIREMENT AND SURVIVORS
BENEFITS
|
For
Participants in the Plan prior to January 1, 2010, and who have received
a
|
benefit
level increase on or after January 1, 2010
|
|
|
|
|
|
|
|
|
|
OR
|
|
|
|
|
|
|
|
|
|
For
Participants who join the Plan on or after January 1,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
|
|
Monthly
|
|
|
|
|
|
|
Retirement
|
|
Death
|
Level
|
|
Salary
Range
|
|
Benefit
|
|
Benefit
|
58
|
|
$165,000
|
-
|
$174,999
|
|
$4,288
|
|
$8,576
|
59
|
|
$175,000
|
-
|
$199,999
|
|
$5,000
|
|
$10,000
|
60
|
|
$200,000
|
-
|
$224,999
|
|
$5,840
|
|
$11,680
|
61
|
|
$225,000
|
-
|
$249,999
|
|
$6,572
|
|
$13,144
|
62
|
|
$250,000
|
-
|
$274,999
|
|
$7,300
|
|
$14,600
|
63
|
|
$275,000
|
-
|
$299,999
|
|
$8,380
|
|
$16,760
|
64
|
|
$300,000
|
-
|
$324,999
|
|
$9,716
|
|
$19,432
|
65
|
|
$325,000
|
-
|
$349,999
|
|
$10,936
|
|
$21,872
|
66
|
|
$350,000
|
-
|
$399,999
|
|
$12,888
|
|
$25,776
|
67
|
|
$400,000
|
-
|
$449,999
|
|
$15,620
|
|
$31,240
|
68
|
|
$450,000
|
-
|
$499,999
|
|
$18,280
|
|
$36,560
|
69
|
|
$500,000
|
-
|
$599,999
|
|
$23,040
|
|
$46,080
|
70
|
|
$600,000
|
-
|
$699,999
|
|
$29,200
|
|
$58,400
|
71
|
|
$700,000
|
-
|
$799,999
|
|
$34,168
|
|
$68,336
|
72
|
|
$800,000
|
-
|
$899,999
|
|
$39,376
|
|
$78,752
|
73
|
|
$900,000
|
-
|
$999,999
|
|
$44,248
|
|
$88,496
|
74
|
|
$1,000,000
|
-
|
$1,099,999
|
|
$48,160
|
|
$96,320
|
APPENDIX
B-1
PARTICIPANTS
ELIGIBLE FOR EARLY RETIREMENT BENEFITS UNDER ARTICLE IV
Steven L.
Bietz
John K.
Castleberry
Terry D.
Hildestad
Bruce T.
Imsdahl
Vernon A.
Raile
Warren L.
Robinson
Paul K.
Sandness
William
E. Schneider
APPENDIX
B-2
PARTICIPANTS
ELIGIBLE FOR AGE 60 RETIREMENT BENEFITS UNDER ARTICLE IV
David L.
Goodin
John G.
Harp
APPENDIX
C
MDU RESOURCES GROUP,
INC.
Specified Employee Policy
Regarding Compensation
Effective
November 14, 2007, for purposes of all plans, agreements and other arrangements
of MDU Resources Group, Inc. (the “Company”) and its affiliates that are subject
to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”),
the determination of individuals who are “specified employees,” as that term is
defined in Code Section 409A, shall be determined under this policy, as may be
amended from time to time pursuant to paragraph 4 (“Policy”).
1.
|
Establishment of Specified
Employee List.
Between January 1
st
and April 1
st
of each calendar year, the Company shall establish a “Specified Employee
List.” The Specified Employee List shall become effective on
April 1
st
of the calendar year in which the Specified Employee List is established
and shall cease to be effective on March 31
st
of the following calendar year. Any individual who, as of his
or her “separation from service” (within the meaning of Code Section
409A(a)(2)(A)(i)), is on the Specified Employee List then in effect shall
be considered a “specified employee” for purposes of Section
409A.
|
2.
|
Inclusion on the Specified
Employee List.
The Specified Employee List shall include
all individuals who, at any time during the Determination Year, met the
requirements of Code Section 416(i)(l)(A)(i), (ii) or (iii) and the
related regulations (but without regard to Code Section
415(i)(5)). For this purpose, “Determination Year” shall mean
the calendar year ending on the December 31
st
prior to the April 1
st
when the Specified Employee List becomes effective. For
purposes of determining which individuals meet the requirements of Code
Section 416(i)(l)(A)(i), (ii) or (iii) and the related regulations (but
without regard to Code Section 415(i)(5)), the term gross compensation
shall have the meaning set forth in the MDU Resources Group, Inc. 401(k)
Retirement Plan, as may be amended from time to time (the “Retirement
Plan”).
|
3.
|
Delayed
Payments.
If any employee is determined to be a
specified employee under this Policy, any compensation to be provided to
such specified employee that is required to be delayed to comply with Code
Section 409A(a)(2)(B)(i) shall not be provided before the date that is six
months after the date of such separation from service (or, if earlier than
the end of such six-month period, the date of death of the specified
employee). This Policy shall not apply to any payment that is
not treated as deferred compensation under, or is otherwise excluded from,
the requirements of Code Section 409A and the regulations promulgated
thereunder.
|
4.
|
Changes to
Policy.
The Company may amend or modify this Policy at
any time; provided, however, that any changes made to the period during
which the Specified Employee List is effective or the Determination Year
shall not take effect for a period of at least 12 months and any changes
made to the definition of compensation (either in
the
|
Policy or
in the Retirement Plan) shall not be used to identify specified employees until
the next Specified Employee List is established.
MDU
RESOURCES GROUP, INC.
NON-EMPLOYEE
DIRECTOR LONG-TERM INCENTIVE COMPENSATION PLAN
Article
1. Establishment, Purpose and Duration
1.1
Establishment of the
Plan.
MDU Resources Group, Inc., a Delaware corporation
(hereinafter referred to as the "Company"), hereby establishes an incentive plan
to be known as the "MDU Resources Group, Inc. Non-Employee Director Long-Term
Incentive Compensation Plan" (hereinafter referred to as the "Plan"), as set
forth in this document. The Plan permits the grant of Nonqualified
Stock Options (NQSO), Stock Appreciation Rights (SAR), Restricted Stock,
Performance Units, Performance Shares and other awards.
The Plan shall become effective when
approved by the stockholders at the annual meeting on April 22, 1997, (the
"Effective Date"), and shall remain in effect as provided in Section 1.3
herein.
1.2
Purpose of the
Plan.
The purpose of the Plan is to promote the success and
enhance the value of the Company by linking the personal interests of
Participants to those of Company stockholders and customers. The Plan
is further intended to assist the Company in its ability to motivate, attract
and retain highly qualified individuals to serve as directors of the
Company.
1.3
Duration of the
Plan.
The Plan shall commence on the Effective Date, as
described in Section 1.1 herein, and shall remain in effect, subject to the
right of the Board of Directors to terminate the Plan at any time pursuant to
Article 14 herein, until all Shares subject to it shall have been purchased or
acquired according to the Plan's provisions.
Article
2. Definitions
Whenever used in the Plan, the
following terms shall have the meanings set forth below and, when such meaning
is intended, the initial letter of the word is capitalized:
2.1
"Award"
means, individually
or collectively, a grant under the Plan of NQSOs, SARs, Restricted Stock,
Performance Units, Performance Shares or any other type of award permitted under
Article 10 of the Plan.
2.2
"Award Agreement"
means an
agreement entered into by each Participant and the Company, setting forth the
terms and provisions applicable to an Award granted to a Participant under the
Plan.
2.3
"Base Value"
of an SAR shall
have the meaning set forth in Section 7.1 herein.
2.4
"Board" or "Board of
Directors"
means the Board of Directors of the Company.
2.5 A
“Change in Control”
shall mean:
|
(a)
|
The
acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (i) the then outstanding shares of common stock of the
Company (the “Outstanding Company Common Stock”) or (ii) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the “Outstanding
Company Voting Securities”); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a Change
in Control: (i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i),
(ii) and (iii) of subsection (c) of this Section 2.5;
or
|
|
(b)
|
Individuals
who, as of April 22, 1997, which is the effective date of the Plan,
constitute the Board (the “Incumbent Board”) cease for any reason to
constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company’s shareholders, was
approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board;
or
|
|
(c)
|
Consummation
of a reorganization, merger or consolidation or sale or other disposition
of all or
|
substantially
all of the assets of the Company (a “Business Combination”), in each case,
unless, following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company’s assets either directly or
through one or more subsidiaries) in substantially the same proportions as their
ownership immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, (ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination; or
|
(d)
|
Approval
by the shareholders of the Company of a complete liquidation or
dissolution of the Company.
|
For avoidance of doubt, unless
otherwise determined by the Board, the sale of a subsidiary, operating entity or
business unit of the Company shall not constitute a Change in Control for
purposes of this Agreement.
2.6
"Code
" means the Internal
Revenue Code of 1986, as amended from time to time.
2.7
"Committee"
means the
Committee, as specified in Article 3, appointed by the Board to administer the
Plan with respect to Awards.
2.8
"Company"
means MDU Resources
Group, Inc., a Delaware corporation, or any successor thereto as provided in
Article 15 herein.
2.9
"Director"
means any
individual who is a member of the Board of Directors of the
Company.
2.10
"Dividend Equivalent"
means,
with respect to Shares subject to an Award, a right to be paid an amount equal
to dividends declared on an equal number of outstanding Shares.
2.11
"Employee"
means any
full-time or regularly-scheduled part-time employee of the Company or of the
Company's Subsidiaries, who is not covered by any collective bargaining
agreement to which the Company or any of its Subsidiaries is a
party.
2.12
"Exchange Act"
means the
Securities Exchange Act of 1934, as amended from time to time, or any successor
act thereto.
2.13
"Exercise Period"
means the
period during which an SAR or Option is exercisable, as set forth in the related
Award Agreement.
2.14
"Fair Market Value"
shall
mean the average of the high and low sale prices as reported in the
consolidated transaction reporting system or, if there is no such sale on
the relevant date, then on the last previous day on which a sale was
reported.
2.15
"Freestanding SAR
" means an
SAR that is granted independently of any Option.
2.16
"Non-Employee Director"
means
any person who is elected or appointed to the Board and who is not an
Employee.
2.17
"Nonqualified Stock Option" or
"NQSO"
means an option to purchase Shares, granted under Article 6
herein, which is not intended to be an Incentive Stock Option under Section 422
of the Code.
2.18
"Option"
means a Nonqualified
Stock Option.
2.19
"Option Price"
means the
price at which a Share may be purchased by a Participant pursuant to an Option,
as determined by the Committee and set forth in the Option Award
Agreement.
2.20
"Participant"
means a
Non-Employee Director who has an outstanding Award granted under the
Plan.
2.21
"Performance Unit"
means an
Award granted to a Participant, as described in Article 9 herein.
2.22
"Performance Share"
means an
Award granted to a Participant, as described in Article 9 herein.
2.23
"Period of Restriction"
means
the period during which the transfer of Restricted Stock is limited in some way,
as provided in Article 8 herein.
2.24
"Person"
shall have the
meaning ascribed to such term in Section 3(a)(9) of the Exchange Act, as used in
Sections 13(d) and 14(d) thereof, including usage in the definition of a "group"
in Section 13(d) thereof.
2.25
"Restricted Stock"
means an
Award of Shares granted to a Participant pursuant to Article 8
herein.
2.26
"Shares"
means the shares of
common stock of the Company.
2.27
"Stock Appreciation Right" or
"SAR"
means a right, granted alone or in connection with a related
Option, designated as an SAR, to receive a payment on the day the right is
exercised, pursuant to the terms of Article 7 herein. Each SAR shall
be denominated in terms of one Share.
2.28
"Subsidiary"
means any
corporation that is a "subsidiary corporation" of the Company as that term is
defined in Section 424(f) of the Code.
2.29
"Tandem SAR"
means an SAR
that is granted in connection with a related Option, the exercise of which shall
require forfeiture of the right to purchase a Share under the related Option
(and when a Share is purchased under the Option, the Tandem SAR shall be
similarly canceled).
Article
3. Administration
3.1
The Committee.
The
Plan shall be administered by any committee appointed by the Board or by the
Board of Directors (the "Committee").
3.2
Authority of the
Committee.
The Committee shall have full power except as
limited by law, the Articles of Incorporation and the Bylaws of the Company,
subject to such other restricting limitations or directions as may be imposed by
the Board and subject to the provisions herein, to determine
the
size and
types of Awards; to determine the terms and conditions of such Awards in a
manner consistent with the Plan; to construe and interpret the Plan and any
agreement or instrument entered into under the Plan; to establish, amend or
waive rules and regulations for the Plan's administration; and (subject to the
provisions of Article 14 herein) to amend the terms and conditions of any
outstanding Award. Further, the Committee shall make all other
determinations which may be necessary or advisable for the administration of the
Plan. As permitted by law, the Committee may delegate its authorities
as identified hereunder.
3.3
Restrictions on Share
Transferability.
The Committee may impose such restrictions on
any Shares acquired pursuant to Awards under the Plan as it may deem advisable,
including, without limitation, restrictions to comply with applicable Federal
securities laws, with the requirements of any stock exchange or market upon
which such Shares are then listed and/or traded and with any blue sky or state
securities laws applicable to such Shares.
3.4
Approval.
The
Committee or the Board shall approve all Awards made under the Plan and all
elections made by Participants, prior to their effective date, to the extent
necessary to comply with Rule 16b-3 under the Exchange Act.
3.5
Decisions
Binding.
All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, its stockholders, Participants and their estates and
beneficiaries.
3.6
Costs.
The Company
shall pay all costs of administration of the Plan.
Article
4. Shares Subject to the Plan
4.1
Number of
Shares.
Subject to Section 4.2 herein, the maximum number of
Shares that may be issued pursuant to Awards under the Plan shall be
595,125. Shares underlying lapsed or forfeited Awards of Restricted
Stock shall not be treated as having been issued pursuant to an Award under the
Plan. Shares that are potentially deliverable under an Award that
expires or is canceled, forfeited, settled in cash or otherwise settled without
the delivery of Shares shall not be treated as having been issued under the
Plan. Shares that are withheld to satisfy the Option Price related to
an Option, SAR or other Award pursuant to which the Shares withheld have not yet
been issued shall not be deemed to be Shares issued under the
Plan.
Shares issued pursuant to the Plan may
be (i) authorized but unissued Shares of Common Stock, (ii) treasury shares, or
(iii) shares purchased on the open market.
4.2
Adjustments in Authorized
Shares.
In the event of any equity restructuring (within the
meaning of Financial Accounting Standards No. 123(R)), such as a stock dividend,
stock split, spinoff, rights offering or recapitalization through a large,
nonrecurring cash dividend, the Committee shall cause an equitable adjustment to
be made (i) in the number and kind of Shares that may be delivered under the
Plan and (ii) with respect to outstanding Awards, in the number and kind of
Shares subject to outstanding Awards, the Option Exercise Price, Base Value or
other price of Shares subject to outstanding Awards, any performance conditions
relating to Shares, the market price of Shares, or per-Share results, and other
terms and conditions of outstanding Awards, in the case of (i) and (ii) to
prevent dilution or enlargement of rights. In the event of any other change in
corporate capitalization, such as a merger, consolidation or liquidation, the
Committee may, in its sole discretion, cause an equitable adjustment as
described in the foregoing sentence to be made to prevent dilution or
enlargement of rights. The number of Shares subject to any Award shall always be
rounded down to a whole number when adjustments are made pursuant to this
Section 4.2. Adjustments made by the Committee pursuant to this
Section 4.2 shall be final, binding and conclusive.
Article
5. Eligibility and Participation
5.1
Eligibility.
Persons
eligible to participate in the Plan are any persons elected or appointed to the
Board who are not Employees.
5.2
Actual
Participation.
Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Non-Employee
Directors those to whom Awards shall be granted and shall determine the nature
and amount of each Award.
Article
6. Stock Options
6.1
Grant of
Options.
Subject to the terms and conditions of the Plan,
Options may be granted to a Non-Employee Director at any time and from time to
time, as shall be determined by the Committee.
The Committee shall have complete
discretion in determining the number of Shares subject to Options granted to
each Participant (subject to Article 4 herein) and, consistent with the
provisions of the Plan, in determining the terms and conditions pertaining to
such Options.
6.2
Option Award
Agreement.
Each Option grant shall be evidenced by an Option
Award Agreement that shall specify the Option Price, the term of the Option, the
number of Shares to which the Option pertains, the Exercise Period and such
other provisions as the Committee shall determine, including but not limited to
any rights to Dividend Equivalents.
6.3
Exercise of and Payment for
Options.
Options granted under the Plan shall be exercisable
at such times and be subject to such restrictions and conditions as the
Committee shall in each instance approve.
A Participant may exercise an Option at
any time during the Exercise Period. Options shall be exercised by
the delivery of a written notice of exercise to the Company or its designee,
setting forth the number of Shares with respect to which the Option is to be
exercised, accompanied by provisions for full payment for the
Shares.
The Option Price upon exercise of any
Option shall be payable either: (a) in cash or its equivalent, (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to the total Option Price (provided that Shares which are
tendered must have been held by the Participant for at least six (6) months
prior to their tender to satisfy the Option Price), (c) by Share withholding,
(d) by cashless exercise or (e) by a combination of (a),(b),(c), and/or
(d).
As soon as practicable after receipt of
a written notification of exercise of an Option and provisions for full payment
therefor, the Company shall (i) deliver to the Participant, in the Participant's
name or the name of the Participant's designee, a Share certificate or
certificates in an appropriate aggregate amount based upon the number of Shares
purchased under the Option, or (ii) cause to be issued in the Participant's name
or the name of the Participant's designee, in book-entry form, an appropriate
number of Shares based upon the number of Shares purchased under the
Option.
6.4
Termination of Director
Status.
Each Option Award Agreement shall set forth the extent
to which the Participant shall have the right to exercise the Option following
termination of the Participant's position on the Board of the
Company. Such provisions shall be determined in the sole discretion
of the Committee, shall be included in the Option Award Agreement entered into
with Participants, need not be uniform among all Options granted pursuant to the
Plan or among Participants and may reflect distinctions based on the reasons for
termination of director status.
6.5
Transferability of
Options.
Except as otherwise determined by the Committee and
set forth in the Option Award Agreement, no Option granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution, and all Options
granted to a Participant under the Plan shall be exercisable during his or her
lifetime only by such Participant or his or her legal
representative.
Article
7. Stock Appreciation Rights
7.1
Grant of
SARs.
Subject to the terms and conditions of the Plan, an SAR
may be granted to a Non-Employee Director at any time and from time to time as
shall be determined by the Committee. The Committee may grant
Freestanding SARs, Tandem SARs or any combination of these forms of
SAR.
The Committee shall have complete
discretion in determining the number of SARs granted to each Participant
(subject to Article 4 herein) and, consistent with the provisions of the
Plan, in determining the terms and conditions pertaining to such
SARs.
The Base Value of a Freestanding SAR
shall equal the Fair Market Value of a Share on the date of grant of the
SAR. The Base Value of Tandem SARs shall equal the Option Price of
the related Option.
7.2
SAR Award
Agreement.
Each SAR grant shall be evidenced by an SAR Award
Agreement that shall specify the number of SARs granted, the Base Value, the
term of the SAR, the Exercise Period and such other provisions as the Committee
shall determine.
7.3
Exercise and Payment of
SARs.
Tandem SARs may be exercised for all or part of the
Shares subject to the related Option upon the surrender of the right to exercise
the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable.
Freestanding SARs may be exercised upon
whatever terms and conditions the Committee, in its sole discretion, imposes
upon them.
A Participant may exercise an SAR at
any time during the Exercise Period. SARs shall be exercised by the
delivery of a written notice of exercise to the Company, setting forth the
number of SARs being exercised. Upon exercise of an SAR, a
Participant shall be entitled to receive payment from the Company in an amount
equal to the product of:
|
(a)
|
the
excess of (i) the Fair Market Value of a Share on the date of exercise
over (ii) the Base Value multiplied
by
|
|
(b)
|
the
number of Shares with respect to which the SAR is
exercised.
|
At the sole discretion of the
Committee, the payment to the Participant upon SAR exercise may be in cash, in
Shares of equivalent value, or in some combination thereof.
7.4
Termination of Director
Status.
Each SAR Award Agreement shall set forth the extent to
which the Participant shall have the right to exercise the SAR following
termination of the Participant's position on the Board of the
Company. Such provisions shall be determined in the sole discretion
of the Committee, shall be included in the SAR Award Agreement entered into with
Participants, need not be uniform among all SARs granted pursuant to the Plan or
among Participants and may reflect distinctions based on the reasons for
termination of director status.
7.5
Transferability of
SARs.
Except as otherwise determined by the Committee and set
forth in the SAR Award Agreement, no SAR granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution, and all SARs granted to
a Participant under the Plan shall be exercisable during his or her lifetime
only by such Participant or his or her legal representative.
Article
8. Restricted Stock
8.1
Grant of Restricted
Stock.
Subject to the terms and conditions of the Plan,
Restricted Stock may be granted to a Non-Employee Director at any time and from
time to time, as shall be determined by the Committee.
The Committee shall have complete
discretion in determining the number of shares of Restricted Stock granted to
each Participant (subject to Article 4 herein) and, consistent with the
provisions of the Plan, in determining the terms and conditions pertaining to
such Restricted Stock.
8.2
Restricted Stock Award
Agreement.
Each Restricted Stock grant shall be evidenced by a
Restricted Stock Award Agreement that shall specify the Period or Periods of
Restriction, the number of Restricted Stock Shares granted and such other
provisions as the Committee shall determine.
8.3
Transferability.
Restricted
Stock granted hereunder may not be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated until the end of the applicable Period of
Restriction established by the Committee and specified in the Restricted Stock
Award Agreement. All rights with respect to the Restricted Stock
granted to a Participant under the Plan shall be available during his or her
lifetime only to such Participant or his or her legal
representative.
8.4
Certificate
Legend.
Each certificate representing Restricted Stock granted
pursuant to the Plan may bear
a legend
substantially as follows:
|
"The
sale or other transfer of the shares of stock represented by this
certificate, whether voluntary, involuntary or by operation of law, is
subject to certain restrictions on transfer as set forth in MDU Resources
Group, Inc. Non-Employee Director Long-Term Incentive Compensation Plan,
and in a Restricted Stock Award Agreement. A copy of such Plan
and such Agreement may be obtained from MDU Resources Group,
Inc."
|
The Company shall have the right to
retain the certificates representing Restricted Stock in the Company's
possession until such time as all restrictions applicable to such Shares have
been satisfied.
8.5
Removal of
Restrictions.
Restricted Stock shall become freely
transferable by the Participant after the last day of the Period of Restriction
applicable thereto. Once Restricted Stock is released from the
restrictions, the Participant shall be entitled to have the legend referred to
in Section 8.4 removed from his or her stock certificate.
8.6
Voting
Rights.
During the Period of Restriction, Participants holding
Restricted Stock may exercise full voting rights with respect to those
Shares.
8.7
Dividends and Other
Distributions.
Subject to the Committee's right to determine
otherwise at the time of grant, during the Period of Restriction, Participants
holding Restricted Stock shall receive all regular cash dividends paid with
respect to all Shares while they are so held. All other distributions
paid with respect to such Restricted Stock shall be credited to Participants
subject to the same restrictions on transferability and forfeitability as the
Restricted Stock with respect to which they were paid and shall be paid to the
Participant within forty-five (45) days following the full vesting of the
Restricted Stock with respect to which such distributions were
made.
8.8
Termination of Director
Status.
Each Restricted Stock Award Agreement shall set forth
the extent to which the Participant shall have the right to receive unvested
Restricted Stock following termination of the Participant's position on the
Board of the Company. Such provisions shall be determined in the sole
discretion of the Committee, shall be included in the Restricted Stock Award
Agreement entered into with Participants, need not be uniform among all grants
of Restricted Stock or among Participants and may reflect distinctions based on
the reasons for termination of director status.
Article
9. Performance Units and Performance Shares
9.1
Grant of Performance Units and
Performance Shares.
Subject to the terms and conditions of the
Plan, Performance Units and/or Performance Shares may be granted to a
Non-Employee Director at any time and from time to time, as shall be determined
by the Committee.
The Committee shall have complete
discretion in determining the number of Performance Units and/or Performance
Shares granted to each Participant (subject to Article 4 herein) and, consistent
with the provisions of the Plan, in determining the terms and conditions
pertaining to such Awards.
9.2
Performance Unit/Performance Share
Award Agreement.
Each grant of Performance Units and/or
Performance Shares shall be evidenced by a Performance Unit and/or Performance
Share Award Agreement that shall specify the number of Performance Units and/or
Performance Shares granted, the initial value (if applicable), the Performance
Period, the performance goals and such other provisions as the Committee shall
determine, including but not limited to any rights to Dividend
Equivalents.
9.3
Value of Performance
Units/Performance Shares.
Each Performance Unit shall have an
initial value that is established by the Committee at the time of
grant. The value of a Performance Share shall be equal to the Fair
Market Value of a Share. The Committee shall set performance goals in
its discretion which, depending on the extent to which they are met, will
determine the number and/or value of Performance Units/Performance Shares that
will be paid out to the Participants. The time period during which
the performance goals must be met shall be called a "Performance
Period."
9.4
Earning of Performance
Units/Performance Shares.
After the applicable Performance
Period has ended, the holder of Performance Units/Performance Shares shall be
entitled to receive a payout with respect to the Performance
Units/Performance Shares earned by the Participant over the Performance Period,
to be
determined
as a function of the extent to which the corresponding performance goals have
been achieved.
9.5
Form and Timing of Payment of
Performance Units/Performance Shares.
Payment of earned
Performance Units/Performance Shares shall be made following the close of
the applicable Performance Period. The Committee, in its sole
discretion, may pay earned Performance Units/Performance Shares in cash or in
Shares (or in a combination thereof), which have an aggregate Fair Market Value
equal to the value of the earned Performance Units/Performance Shares at the
close of the applicable Performance Period. Such Shares may be
granted subject to any restrictions deemed appropriate by the
Committee.
9.6
Termination of Director
Status.
Each Performance Unit/Performance Share Award
Agreement shall set forth the extent to which the Participant shall have the
right to receive a Performance Unit/Performance Share payment following
termination of the Participant's position on the Board of the Company during a
Performance Period. Such provisions shall be determined in the sole
discretion of the Committee, shall be included in the Award Agreement entered
into with Participants, need not be uniform among all grants of Performance
Units/Performance Shares or among Participants and may reflect distinctions
based on reasons for termination of director status.
9.7
Transferability.
Except
as otherwise determined by the Committee and set forth in the Performance
Unit/Performance Share Award Agreement, Performance Units/Performance Shares may
not be sold, transferred, pledged, assigned or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution, and
a Participant's rights with respect to Performance Units/Performance Shares
granted under the Plan shall be available during the Participant's lifetime only
to such Participant or the Participant's legal representative.
Article
10. Other Awards
The Committee shall have the right to
grant other Awards which may include, without limitation, the grant of Shares
based on certain conditions, the payment of Shares in lieu of cash, or the
payment of cash based on performance criteria established by the
Committee. Payment under or settlement of any such Awards shall be
made in such manner and at such times as the Committee may
determine.
Article
11. Beneficiary Designation
Each Participant under the Plan may,
from time to time, name any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be paid
in case of his or her death before he or she receives any or all of such
benefit. Each such designation shall revoke all prior designations by
the same Participant, shall be in a form prescribed by the Company, and will be
effective only when filed by the Participant in writing with the Company during
the Participant's lifetime. In the absence of any such designation,
benefits remaining unpaid at the Participant's death shall be paid to the
Participant's estate.
The spouse of a married Participant
domiciled in a community property jurisdiction shall join in any designation of
beneficiary or beneficiaries other than the spouse.
Article
12. Deferrals
The Committee may permit a Participant
to defer the Participant's receipt of the payment of cash or the delivery of
Shares that would otherwise be due to such Participant under the
Plan. If any such deferral election is permitted, the Committee
shall, in its sole discretion, establish rules and procedures for such payment
deferrals.
Article
13. Change in Control
The terms of this Article 13 shall
immediately become operative, without further action or consent by any person or
entity, upon a Change in Control, and once operative shall supersede and take
control over any other provisions of this Plan.
Upon a Change in Control
|
(a)
|
Any
and all Options and SARs granted hereunder shall become immediately
exercisable;
|
|
(b)
|
Any
restriction periods and restrictions imposed on Restricted Stock or Awards
granted pursuant to Article 10 (if not performance-based) shall be deemed
to have expired and such Restricted Stock or Awards shall become
immediately vested in full; and
|
|
(c)
|
The
target payout opportunity attainable under all outstanding Awards of
Performance Units, Performance Shares and Awards granted pursuant to
Article 10 (if performance-based) shall be deemed to have been fully
earned for the entire Performance Period(s) as of
the
|
effective
date of the Change in Control, and shall be paid out promptly in Shares or cash
pursuant to the terms of the Award Agreement, or in the absence of such
designation, as the Committee shall determine.
Article
14. Amendment, Modification and Termination
14.1
Amendment, Modification and
Termination.
The Board may, at any time and from time to time,
alter, amend, suspend or terminate the Plan in whole or in part.
14.2
Awards Previously
Granted.
No termination, amendment or modification of the Plan
shall adversely affect in any material way any Award previously granted under
the Plan, without the written consent of the Participant holding such Award,
unless such termination, modification or amendment is required by applicable
law.
Article
15. Successors
All obligations of the Company under
the Plan, with respect to Awards granted hereunder, shall be binding on any
successor to the Company, whether the existence of such successor is the result
of a direct or indirect purchase, merger, consolidation or otherwise, of all or
substantially all of the business and/or assets of the Company.
Article
16. Legal Construction
16.1
Gender and
Number.
Except where otherwise indicated by the context, any
masculine term used herein also shall
include the feminine, the
plural shall include the singular and the singular shall include the
plural.
16.2
Severability.
In
the event any provision of the Plan shall be held illegal or invalid for any
reason, the illegality or invalidity shall not affect the remaining parts of the
Plan, and the Plan shall be construed and enforced as if the illegal or invalid
provision had not been included.
16.3
Requirements of
Law.
The granting of Awards and the issuance of Shares under
the Plan shall be subject to all applicable laws, rules and regulations, and to
such approvals by any governmental agencies or national securities exchanges as
may be required.
16.4
Governing Law.
To
the extent not preempted by Federal law, the Plan, and all agreements hereunder,
shall be construed in accordance with, and governed by, the laws of the State of
Delaware.
Article
17. Code Section 409A Compliance
To the extent applicable, it is
intended that this Plan and any Awards granted hereunder comply with the
requirements of Section 409A of the Code and any related regulations or other
guidance promulgated with respect to such Section by the U.S. Department of the
Treasury or the Internal Revenue Service, and the terms of the Plan and any
Awards shall be interpreted accordingly.
MDU
Resources Group, Inc.
1998
Option
Award
Program
PLAN
DOCUMENT
This
document constitutes part of a Prospectus covering securities that have been
registered under the Securities Act of 1933.
MDU
RESOURCES GROUP, INC.
1998
OPTION AWARD PROGRAM
Article
1. Establishment,
Purpose and Duration
1.1
Establishment of the
Plan
. MDU Resources Group, Inc., a Delaware corporation
(hereinafter referred to as the “Company”), hereby establishes the “MDU
Resources Group, Inc., 1998 Option Award Program” (hereinafter referred to as
the “Plan”), as set forth in this document. The Plan permits the
grant of Nonqualified Stock Options.
The Plan
shall become effective as of February 12, 1998 (the “Effective Date”), and shall
remain in effect as provided in Section 1.3 herein.
1.2
Purpose of the
Plan
. The purpose of the Plan is to promote the success and
enhance the value of the Company by linking the personal interests of
Participants to those of Company stockholders.
1.3
Duration of the
Plan
. The Plan shall commence on the Effective Date, as
described in Section 1.1 herein, and shall remain in effect until terminated by
the Board of Directors pursuant to Article 9 herein.
Article
2. Definitions
Whenever
used in the Plan, the following terms shall have the meanings set forth below
and, when such meaning is intended, the initial letter of the word is
capitalized:
2.1 “
Award
” means,
individually or collectively, a grant under the Plan of NQSOs.
2.2 “
Award Agreement
” or
“
Option Award
Agreement
” means an agreement entered into by each Participant and the
Company, setting forth the terms and provisions applicable to an Award granted
to a Participant under the Plan.
2.3 “
Board
” or “
Board of Directors
”
means the Board of Directors of the Company.
2.4
A “
Change in Control
”
shall mean:
(a) The
acquisition by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the
then outstanding shares of common stock of the Company (the “Outstanding Company
Common Stock”) or (ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the “Outstanding Company Voting Securities”); provided, however, that
for purposes of this subsection (a), the following acquisitions shall not
constitute a Change in Control: (i) any acquisition directly from the Company,
(ii) any acquisition by the Company, (iii) any acquisition by
any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i), (ii) and
(iii) of subsection (c) of this Section 2.4; or
(b) Individuals
who, as of February 12, 1998, which is the effective date of the Plan,
constitute the Board (the “Incumbent Board”) cease for any reason to constitute
at least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company’s shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) Consummation
of a reorganization, merger or consolidation or sale or other disposition of all
or substantially all of the assets of the Company (a “Business Combination”), in
each case, unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company’s
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval
by the shareholders of the Company of a complete liquidation or dissolution of
the Company.
For
avoidance of doubt, unless otherwise determined by the Board, the sale of a
subsidiary, operating entity or business unit of the Company shall not
constitute a Change in Control for purposes of this Agreement.
2.5 “
Code
” means the
Internal Revenue Code of 1986, as amended from time to time.
2.6 “
Committee
” means the
committee, as specified in Article 3, appointed by the Board to administer the
Plan with respect to Awards.
2.7 “
Company
” means MDU
Resources Group, Inc., a Delaware corporation (including its business units), or
any successor thereto as provided in Article 11 herein.
2.8 “
Director
” means any
individual who is a member of the Board of Directors of the
Company.
2.9 “
Disability
” means
“permanent and total disability” as defined under Section 22(e)(3) of the
Code.
2.10 “
Dividend Account
” is
defined in Section 6.3 herein.
2.11 “
Eligible Employee
”
means an Employee who is eligible to participate in the Plan, as set forth in
Section 5.1 herein.
2.12 “
Employee
” means (i)
any full-time or regularly-scheduled part-time employee of the Company or a
Subsidiary or (ii) any bargaining unit employee covered by a collective
bargaining agreement to which the Company or any of its Subsidiaries is a
party. Directors who are not otherwise employed by the Company or a
Subsidiary shall not be considered Employees for purposes of the
Plan.
2.13 “
Exchange Act
” means
the Securities Exchange Act of 1934, as amended from time to time, or any
successor act thereto.
2.14 “
Exercise Period
”
means the period during which an Option is exercisable, as set forth in the
related Award Agreement.
2.15 “
Fair Market Value
”
shall mean the average of the high and low sale prices as reported in the
consolidated transaction reporting system or, if there is no such sale on the
relevant date, then on the last previous day on which a sale was
reported.
2.16 “
Nonqualified Stock
Option
” or “
NQSO
” means an option
to purchase Shares, granted under Article 6 herein, which is not intended to be
an Incentive Stock Option under Section 422 of the Code.
2.17 “
Option
” means a
Nonqualified Stock Option.
2.18 “
Option Exercise
Price
” means the price at which a Share may be purchased by a Participant
pursuant to an Option, as determined by the Committee and set forth in the
Option Award Agreement.
2.19 “
Participant
” means an
Employee who has an outstanding Award granted under the Plan.
2.20 “
Person
” shall have
the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act, as
used in Sections 13(d) and 14(d) thereof, including usage in the definition of a
“group” in Section 13(d) thereof.
2.21 “
Shares
” means the
shares of common stock, $1.00 par value, of the Company.
2.22 “
Subsidiary
” means any
corporation that is a “subsidiary corporation” of the Company as that term is
defined in Section 424(f) of the Code.
2.23 “
Termination of
Service
” means leaving the employ of the Company or any Subsidiary for
any reason. For purposes of the Plan, transfer of employment of
a Participant among the Company and any Subsidiaries shall not be deemed a
termination of employment.
Article
3. Administration
3.1
The Committee
. The
Plan shall be administered by a committee (the “Committee”); the
members of the Committee shall be appointed from time to time by, and shall
serve at the discretion of, the Board of Directors.
3.2
Authority of the
Committee
. The Committee shall have full power except as
limited by law, the Articles of Incorporation and the Bylaws of the Company,
subject to such other restricting limitations or directions as may be imposed by
the Board and subject to the provisions herein, to determine the Employees to
receive Awards; to determine the size of Awards and the terms and conditions
thereof; to construe and interpret the Plan and any agreement or instrument
entered into under the Plan; to establish, amend or waive rules and regulations
for the Plan’s administration; and (subject to the provisions of Article 9
herein) to amend the terms and conditions of any outstanding
Award. Further, the Committee shall make all other determinations
which may be necessary or advisable for the administration of the
Plan. As permitted by law, the Committee may delegate its authorities
as identified hereunder.
3.3
Restrictions on Distribution
of Shares and Share Transferability
. Notwithstanding any other
provision of the Plan, the Company shall have no liability to deliver any Shares
under the Plan unless such delivery would comply with all applicable laws
(including, without limitation, the Securities Act of 1933) and applicable
requirements of any securities exchange or similar entity and unless the
participant’s tax obligations have been satisfied as set forth in Article
10. The Committee may impose such restrictions on any Shares acquired
pursuant to Awards under the Plan as it may deem advisable, including, without
limitation, restrictions to comply with applicable Federal securities laws, with
the requirements of any stock exchange or market upon which such Shares are then
listed and/or traded and with any blue sky or state securities laws applicable
to such Shares.
3.4
Decisions
Binding
. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, its stockholders, Employees, Participants and their
estates and beneficiaries.
3.5
Costs
. The Company
shall pay all costs of administration of the Plan.
Article
4. Shares
Subject to the Plan
4.1
Number of
Shares
. Subject to Section 4.2 herein, the maximum number of
Shares available for grant under the Plan shall be three million seven hundred
ninety-five thousand three hundred thirty (3,795,330). Shares
underlying lapsed or forfeited Awards may be reused for other
Awards. Shares granted pursuant to the Plan may be
(i) authorized but unissued Shares of Common Stock, (ii) Treasury
Shares or (iii) Shares purchased on the open market.
4.2
Adjustments in Authorized
Shares
. In the event of any equity restructuring such as a
stock dividend, stock split, spinoff, rights offering or recapitalization
through a large, nonrecurring cash dividend, the Committee shall cause an
equitable adjustment to be made (i) in the number and kind of Shares that may be
delivered under the Plan and (ii) with respect to outstanding Awards, in the
number and kind of Shares subject to outstanding Awards, the Option Exercise
Price and other terms and conditions of outstanding Awards, in the case of (i)
and (ii) to prevent dilution or enlargement of rights. In the event
of any other change in corporate capitalization, such as a merger, consolidation
or liquidation, the Committee may, in its sole discretion, cause an equitable
adjustment as described in the foregoing sentence to be made to prevent dilution
or enlargement of rights. The number of Shares subject to any Award
shall always be rounded down to a whole number when adjustments are made
pursuant to this Section 4.2. Adjustments made by the Committee
pursuant to this Section 4.2 shall be final, binding and
conclusive.
Article
5. Eligibility
and Participation
5.1
Eligibility
. Persons
eligible to participate in the Plan (“Eligible Employees”) include all
Employees, as determined by the Committee.
5.2
Actual Participation
.
Subject to the provisions of the Plan, the Committee may, from time to time,
select from all Eligible Employees those to whom Awards shall be
granted.
Article
6. Stock
Options
6.1
Grant of
Options
. Subject to the terms and conditions of the Plan,
Options may be granted to Eligible Employees, at any time and from time to time,
as shall be determined by the Committee. The Committee shall have complete
discretion in determining the number of Shares subject to Options granted to
each Participant (subject to Article 4 herein) and, consistent with the
provisions of the Plan, in determining the terms and conditions pertaining to
such Options.
6.2
Option Award
Agreement
. Each Option grant shall be evidenced by an Option
Award Agreement that shall specify the Option Exercise Price, which shall be the
Fair Market Value of a Share on the date of grant, the term of the Option, the
number of Shares to which the Option pertains, the Exercise Period and such
other provisions as the Committee shall determine.
6.3
Dividend
Account
. At the time of the Award, 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. When the Award vests, all amounts in the Dividend
Account shall be paid in cash to the Participant. If the Award is
forfeited, all amounts in the Dividend Account shall also be
forfeited.
6.4
Exercise of and Payment for
Options
. Options granted under the Plan shall be exercisable
at such times and be subject to such restrictions and conditions as the
Committee shall in each instance approve.
A
Participant may exercise an Option, in whole but not in part (subject to the
Committee’s right to determine otherwise), at any time during the Exercise
Period. Options shall be exercised by the delivery of a written notice of
exercise to the Company or its designee, setting forth the number of Shares with
respect to which the Option is to be exercised, accompanied by provision for
full payment for the Shares; provided, however, that the Committee shall have
the right in its sole discretion to establish other procedures for the exercise
of Options.
The
Committee shall have the authority to establish procedures for payment upon the
exercise of Options which may include, in the Committee’s sole discretion,
payment (a) in cash or its equivalent, (b) by tendering previously acquired
Shares having an aggregate Fair Market Value at the time of exercise equal to
the total Option Exercise Price (provided that the Shares which are tendered
must have been held by the Participant for at least six (6) months prior to
their tender to satisfy the Option Exercise Price), (c) by broker-assisted
cashless exercise or (d) by a combination of (a), (b) and/or (c).
As soon
as practicable after receipt of a notification of exercise of an Option and
provision for full payment therefor, there shall be delivered to the
Participant, in the Participant’s name, Share certificates in an appropriate
amount based upon the number of Shares purchased under the
Option(s).
6.5
Termination of
Service
.
(a) Upon
any Termination of Service, unvested Options and any amounts accrued in a
Participant’s Dividend Account shall be forfeited.
(b) Death
If the
Participant dies while still employed, any vested Options, to the extent that
they are then exercisable, may be 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, any vested Options, to the extent that they are
then exercisable, may be exercised at any time within one (1) year (even if this
extends the term of the Options) after the date of Disability by the Participant
or by a person qualified or authorized to act on behalf of the
Participant.
(d) Other
Termination of Service
If the
Participant’s Termination of Service is for any reason other than Death or
Disability, any vested Options, to the extent that they are then exercisable,
may be exercised at any time within the three (3) months (even if this extends
the term of the Options) following the date of Termination of
Service.
6.6
Transferability of
Options
. All Options granted to a Participant under the Plan
shall be exercisable during the Participant’s lifetime only by such Participant,
and no Option granted under the Plan may be sold, transferred, pledged, assigned
or otherwise alienated or hypothecated, other than by will or by the laws of
descent and distribution.
Article
7. Rights
of Employees
7.1
Employment
. Nothing
in the Plan shall interfere with or limit in any way the right of the Company to
terminate any Participant’s employment at any time, for any reason or no reason
in the Company’s sole discretion, nor confer upon any Participant any right to
continue in the employ of the Company.
7.2
Participation
. No
Employee shall have the right to be selected to receive an Award.
7.3
Limitation of Implied
Rights
. Neither a Participant nor any other Person shall, by
reason of the Plan, acquire any right in or title to any assets, funds or
property of the Company or any Subsidiary whatsoever, including, without
limitation, any specific funds, assets or other property which the Company or
any Subsidiary, in their sole discretion, may set aside in anticipation of a
liability under the Plan. A Participant shall have only a contractual
right to the Shares or amounts, if any, payable under the Plan, unsecured by any
assets of the Company or any Subsidiary. Nothing contained in the
Plan shall constitute a guarantee that the assets of such companies shall be
sufficient to pay any benefits to any Person.
Except as
otherwise provided in the Plan, no Award under the Plan shall confer upon the
holder thereof any right as a stockholder of the Company prior to the date on
which the individual fulfills all conditions for receipt of such
rights.
Article
8. Change
in Control
The terms
of this Article 8 shall immediately become operative, without further action or
consent by any person or entity, upon a Change in Control, and once operative
shall supersede and take control over any other provisions of this
Plan.
Upon a
Change in Control, any and all Options granted hereunder shall become
immediately exercisable.
Article
9. Amendment,
Modification and Termination
9.1
Amendment, Modification and
Termination
. The Board may, at any time and from time to time,
alter, amend, suspend or terminate the Plan in whole or in part.
9.2
Awards Previously
Granted
. No termination, amendment or modification of the Plan
shall adversely affect in any material way any Award previously granted under
the Plan without the written consent of the Participant holding such Award,
unless such termination, modification or amendment is required by applicable law
and except as otherwise provided herein.
Article
10. Tax
Withholding
10.1
Tax
Withholding
. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy Federal, state and local taxes (including the
Participant’s FICA obligation) required by law to be withheld with respect to an
Award made under the Plan.
10.2
Share
Withholding
. The Committee shall have the authority to
establish procedures with respect to tax withholding required upon the exercise
of Options, which may include payment by Participants (a) by tendering
previously owned Shares held by the Participant at least six (6) months prior to
their tender or (b) by having the Company withhold Shares having a Fair Market
Value on the date the tax is to be determined equal to the minimum statutory
total tax which could be imposed on the transaction.
Article
11. Successors
All
obligations of the Company under the Plan, with respect to Awards granted
hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation or otherwise, of all or substantially all of the business
and/or assets of the Company.
Article
12. Legal
Construction
12.1
Gender and
Number
. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular and the singular shall include the plural.
12.2
Severability
. In
the event any provision of the Plan shall be held illegal or invalid for any
reason, the illegality or invalidity shall not affect the remaining parts of the
Plan, and the Plan shall be construed and enforced as if the illegal or invalid
provision had not been included.
12.3
Requirements of
Law
. The granting of Awards and the issuance of Shares under
the Plan shall be subject to all applicable laws, rules and regulations, and to
such approvals by any governmental agencies or national securities exchanges as
may be required.
12.4
Governing
Law
. To the extent not preempted by Federal law, the Plan, and
all agreements hereunder, shall be construed in accordance with, and governed
by, the laws of the State of Delaware.
MDU
RESOURCES GROUP, INC.
GROUP
GENIUS INNOVATION PLAN
Article
1. Establishment,
Purpose and Duration
1.1
Establishment of the
Plan
. MDU Resources Group, Inc., a Delaware corporation
(hereinafter referred to as the "Company"), hereby establishes an incentive plan
for employees, to be known as the "MDU Resources Group, Inc. Group
Genius Innovation Plan" (hereinafter referred to as the "Plan"), as set forth in
this document. The Plan permits the grant of nonqualified stock
options (NQSOs), stock appreciation rights (SARs), restricted stock, restricted
stock units, performance units, performance stock and other awards.
The Plan
shall become effective on May 17, 2001 (the "Effective Date") and shall remain
in effect as provided in Section 1.3 herein.
1.2
Purpose of the
Plan
. The purpose of the Plan is to encourage employees to
share ideas for new business directions for the Company and to reward them when
the idea becomes profitable.
1.3
Duration of the
Plan
. The Plan shall commence on the Effective Date, as
described in Section 1.1 herein, and shall remain in effect, subject to the
right of the Board of Directors to terminate the Plan at any time pursuant to
Article 13 herein, until all Stock subject to it shall have been purchased or
acquired according to the Plan's provisions.
Article
2. Definitions
Whenever
used in the Plan, the following terms shall have the meanings set forth below
and, when such meaning is intended, the initial letter of the word is
capitalized:
2.1 “
Award
” means,
individually or collectively, a grant under the Plan of NQSOs, SARs, Restricted
Stock, Restricted Stock Units, Performance Units, Performance Stock or any other
type of award permitted under Article 10 of the Plan.
2.2 “
Award Agreement
”
means an agreement entered into by each Participant and the Company, setting
forth the terms and provisions applicable to an Award granted to a Participant
under the Plan.
2.3 “
Base Value
” of an SAR
shall have the meaning set forth in Section 7.1 herein.
2.4 “
Board
” or “
Board of Directors
”
means the Board of Directors of the Company.
2.5 A
“
Change in
Control
” shall mean:
(a) The
acquisition by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the
then outstanding shares of common stock of the Company (the “Outstanding Company
Common Stock”) or (ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the “Outstanding Company Voting Securities”); provided, however, that
for purposes of this subsection (a), the following acquisitions shall not
constitute a Change in Control: (i) any acquisition directly from the Company,
(ii) any acquisition by the Company, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (iv) any acquisition by any corporation
pursuant to a transaction which complies with clauses (i), (ii) and (iii) of
subsection (c) of this Section 2.5; or
(b) Individuals
who, as of May 17, 2001, which is the effective date of the Plan, constitute the
Board (the “Incumbent Board”) cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company’s shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) Consummation
of a reorganization, merger or consolidation or sale or other disposition of all
or substantially all of the assets of the Company (a “Business Combination”), in
each case, unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company’s
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no
Person
(excluding any corporation resulting from such Business Combination or any
employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) Approval
by the shareholders of the Company of a complete liquidation or dissolution of
the Company.
For
avoidance of doubt, unless otherwise determined by the Board, the sale of a
subsidiary, operating entity or business unit of the Company shall not
constitute a Change in Control for purposes of this Agreement.
2.6 “
Code
” means the
Internal Revenue Code of 1986, as amended from time to time.
2.7 “
Committee
“ means the
committee, as specified in Article 3, appointed by the Board to administer the
Plan with respect to Awards.
2.8 “
Company
” means MDU
Resources Group, Inc., a Delaware corporation, or any successor thereto as
provided in Article 15 herein.
2.9 “
Director
” means any
individual who is a member of the Board of Directors of the
Company.
2.10 “
Disability
” means
"permanent and total disability" as defined under Section 22(e)(3) of the
Code.
2.11 “
Dividend Equivalent
”
means, with respect to Stock subject to an Award, a right to be paid an amount
equal to dividends declared on an equal number of outstanding shares of
Stock.
2.12 “
Eligible Employee
”
means an Employee who is eligible to participate in the Plan, as set forth in
Section 5.1 herein.
2.13 “
Employee
” means (i)
any full-time or regularly-scheduled part-time employee of the Company or a
Subsidiary or (ii) any bargaining unit employee covered by a collective
bargaining agreement to which the Company or any of its Subsidiaries is a
party. Directors who are not otherwise employed by the Company or a
Subsidiary shall not be considered Employees for purposes of the
Plan. For purposes of the Plan, transfer of employment of a
Participant between the Company
and any
one of its Subsidiaries (or between Subsidiaries) shall not be deemed a
termination of employment.
2.14 “
Exchange Act
” means
the Securities Exchange Act of 1934, as amended from time to time, or any
successor act thereto.
2.15 “
Exercise Period
”
means the period during which an SAR or Option is exercisable, as set forth in
the related Award Agreement.
2.16 “
Fair Market Value
”
means the average of the high and low sale prices as reported in the
consolidated transaction reporting system, or, if there was no such sale on the
relevant date, then on the last previous day on which a sale was
reported.
2.17 “
Freestanding SAR
”
means an SAR that is granted independently of any Option.
2.18 “
Nonqualified Stock
Option
” or “
NQSO
” means an option
to purchase Stock, granted under Article 6 herein, which is not intended to be
an incentive stock option under Section 422 of the Code.
2.19 “
Option
” means a
Nonqualified Stock Option.
2.20 “
Option Exercise
Price
” means the price at which Stock may be purchased by a Participant
pursuant to an Option, as determined by the Committee and set forth in the
Option Award Agreement.
2.21 “
Participant
” means an
Eligible Employee who has outstanding an Award granted under the
Plan.
2.22 “
Performance Period
”
means the time period during which Performance Unit/Performance Stock
performance goals must be met.
2.23 “
Performance Stock
”
means an Award described in Article 9 herein.
2.24 “
Performance Unit
”
means an Award described in Article 9 herein.
2.25 “
Period of
Restriction
” means the period during which the transfer of Restricted
Stock or Restricted Stock Units is limited in some way, as provided in Article 8
herein.
2.26 “
Person
” shall have
the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act, as
used in Sections 13(d) and 14(d) thereof, including usage in the definition of a
"group" in Section 13(d) thereof.
2.27 “
Plan
” means the MDU
Resources Group, Inc. Group Genius Innovation Plan.
2.28 “
Restricted Stock
”
means an Award described in Article 8 herein.
2.29 “
Restricted Stock
Unit
” means an Award described in Article 8 herein.
2.30 “
Securities Act
” means
the Securities Act of 1933, as amended.
2.31 “
Stock
” means the
common stock, $1.00 par value, of the Company.
2.32 “
Stock Appreciation
Right
” or “
SAR
” means a right,
granted alone or in connection with a related Option, designated as an SAR, to
receive a payment on the day the right is exercised, pursuant to the terms of
Article 7 herein. Each SAR shall be denominated in terms of one share of
Stock.
2.33 “
Subsidiary
” means any
corporation (other than the Company) in an unbroken chain of corporations ending
with the Company if each of the corporations other than the last corporation in
the chain owns stock possessing 50 percent or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
2.34 “
Tandem SAR
” means an
SAR that is granted in connection with a related Option, the exercise of which
shall require forfeiture of the right to purchase a share of Stock under the
related Option (and when a share of Stock is purchased under the Option, the
Tandem SAR shall be similarly canceled).
Article
3. Administration
3.1
The
Committee
. The Plan shall be administered by the Compensation
Committee or by any other committee (the "Committee") appointed from time to
time by, and shall serve at the discretion of, the Board of
Directors.
3.2
Authority of the
Committee
. The Committee shall have full power except as
limited by law, the Articles of Incorporation or the Bylaws of the Company,
subject to such other restricting limitations or directions as may be imposed by
the Board and subject to the provisions herein, to determine the Eligible
Employees to receive Awards; to determine the size and types of Awards; to
determine the terms and conditions of such Awards; to construe and interpret the
Plan and any agreement or instrument entered into under the Plan; to establish,
amend or waive rules and regulations for the Plan's administration; and (subject
to the provisions of Article 13 herein) to amend the terms and conditions of any
outstanding Award. Further, the Committee shall make all other
determinations which may be necessary or advisable for the administration of the
Plan. As permitted by law, the Committee may delegate its authorities
as identified hereunder.
3.3
Restrictions on Distribution
of Stock and Stock Transferability
. Notwithstanding any other
provision of the Plan, the Company shall have no liability to deliver any Stock
or benefits under the Plan unless such delivery would comply with all applicable
laws (including, without limitation, the Securities Act) and applicable
requirements of any securities exchange or similar entity and unless the
Participant’s tax obligations have been satisfied as set forth in Article
14. The Committee may impose such restrictions on any Stock acquired
pursuant to Awards under the Plan as it may deem advisable, including, without
limitation, restrictions to comply with applicable Federal securities laws, with
the requirements of any stock exchange or market upon which such Stock is then
listed and/or traded and with any blue sky or state securities laws applicable
to such Stock.
3.4
Decisions
Binding
. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, its stockholders, Employees, Participants and their
estates and beneficiaries.
3.5
Costs
. The
Company shall pay all costs of administration of the Plan.
Article
4. Stock
Subject to the Plan
4.1
Number of Shares of
Stock
. Subject to Section 4.2 herein, the maximum number
shares of Stock available for grant under the Plan shall be
223,150. Stock underlying lapsed or forfeited Awards, or Awards that
are not paid in Stock, may be reused for other Awards. Stock granted
pursuant to the Plan may be (i) authorized but unissued shares of Stock,
(ii) treasury Stock or (iii) Stock purchased on the open
market.
4.2
Adjustments in Authorized
Stock and Awards
. In the event of any equity restructuring
such as a stock dividend, stock split, spinoff, rights offering or
recapitalization through a large, nonrecurring cash dividend, the Committee
shall cause an equitable adjustment to be made (i) in the number and kind of
shares of Stock that may be delivered under the Plan and (ii) with respect to
outstanding Awards, in the number and kind of shares of Stock subject to
outstanding Awards, the Option Exercise Price, Base Value or other price of
shares of Stock subject to outstanding Awards, any performance goals relating to
shares of Stock, the market price of Shares, or per-Share results, and other
terms and conditions of outstanding Awards, in the case of (i) and (ii) to
prevent dilution or enlargement of rights. In the event of any other
change in corporate capitalization, such as a merger, consolidation or
liquidation, the Committee may, in its sole discretion, cause an equitable
adjustment as described in the foregoing sentence to be made to prevent dilution
or enlargement of rights. The number of shares of Stock subject to
any Award shall always be rounded down to a whole number when adjustments are
made pursuant to this Section 4.2. Adjustments made by the Committee
pursuant to this Section 4.2 shall be final, binding and
conclusive.
Article
5. Eligibility
and Participation
5.1
Eligibility
. Persons
eligible to participate in the Plan ("Eligible Employees") include all Employees
except officers and directors, as determined by the Committee.
5.2
Actual
Participation
. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all Eligible Employees those to
whom Awards shall be granted.
Article
6. Stock
Options
6.1
Grant of
Options
. Subject to the terms and conditions of the Plan,
Options may be granted to an Eligible Employee at any time and from time to
time, as shall be determined by the Committee.
The
Committee shall have complete discretion in determining the number of shares of
Stock subject to Options granted to each Eligible Employee (subject to Article 4
herein) and, consistent with the provisions of the Plan, in determining the
terms and conditions pertaining to such Options.
6.2
Option Award
Agreement
. Each Option grant shall be evidenced by an Option
Award Agreement that shall specify the Option Exercise Price, the term of the
Option, the number of shares of Stock to which the Option pertains, the Exercise
Period and such other provisions as the Committee shall determine, including but
not limited to any rights to Dividend Equivalents.
6.3
Exercise of and Payment for
Options
. Options granted under the Plan shall be exercisable
at such times and shall be subject to such restrictions and conditions as the
Committee shall in each instance approve.
A
Participant may exercise an Option at any time during the Exercise Period.
Options shall be exercised by the delivery of a written notice of exercise to
the Company, setting forth the number of shares of Stock with respect to which
the Option is to be exercised, accompanied by provision for full payment for the
Stock.
The
Committee shall have the authority to establish procedures for payment upon the
exercise of Options, which may include, in the Committee's sole discretion,
payment (a) in cash or its equivalent, (b) by tendering
previously acquired shares of Stock having an aggregate Fair Market Value at the
time of exercise equal to the total Option Exercise Price (provided that the
Stock that is tendered must have been held by the Participant for at least six
(6) months prior to its tender), (c) by broker-assisted cashless exercise or
(d) by a combination of (a), (b) and/or (c).
6.4
Termination
. Each
Option Award Agreement shall set forth the extent to which the Participant shall
have the right to exercise the Option following termination of the Participant's
employment with the Company and its Subsidiaries. Such provisions
shall be determined in the sole discretion of the Committee (subject to
applicable law), shall be included in the Option Award Agreement entered into
with Participants, need not be uniform among all Options granted pursuant to the
Plan or among Participants and may reflect distinctions based on the reasons for
termination.
6.5
Transferability of
Options
. Except as otherwise determined by the Committee, all
Options granted to a Participant under the Plan shall be exercisable during his
or her lifetime only by such Participant, and no Option granted under the Plan
may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution.
Article
7. Stock
Appreciation Rights
7.1
Grant of
SARs
. Subject to the terms and conditions of the Plan, an SAR
may be granted to an Eligible Employee at any time and from time to time as
shall be determined by the Committee. The Committee may grant
Freestanding SARs, Tandem SARs or any combination of these forms of
SARs.
The
Committee shall have complete discretion in determining the number of SARs
granted to each Eligible Employee (subject to Article 4 herein) and, consistent
with the provisions of the Plan, in determining the terms and conditions
pertaining to such SARs.
The Base
Value of a Freestanding SAR shall equal the Fair Market Value of a share of
Stock on the date of grant of the SAR. The Base Value of Tandem SARs shall equal
the Option Exercise Price of the related Option.
7.2
SAR Award
Agreement
. Each SAR grant shall be evidenced by an SAR Award
Agreement that shall specify the number of SARs granted, the Base Value, the
term of the SAR, the Exercise Period and such other provisions as the Committee
shall determine.
7.3
Exercise and Payment of
SARs
. Tandem SARs may be exercised for all or part of the
Stock subject to the related Option upon the surrender of the right to exercise
the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Stock for which its related Option is then
exercisable.
Freestanding
SARs may be exercised upon whatever terms and conditions the Committee, in its
sole discretion, imposes upon them.
A
Participant may exercise an SAR at any time during the Exercise
Period. SARs shall be exercised by the delivery of a written notice
of exercise to the Company, setting forth the number of
SARs
being exercised. Upon exercise of an SAR, a Participant shall be
entitled to receive payment from the Company in an amount equal to the product
of:
|
(a)
|
the
excess of (i) the Fair Market Value of a share of Stock on the date of
exercise over (ii) the Base Value multiplied
by
|
|
(b)
|
the
number of shares of Stock with respect to which the SAR is
exercised.
|
At the
sole discretion of the Committee, the payment to the Participant upon SAR
exercise may be in cash, in Stock of equivalent value or in some combination
thereof.
7.4
Termination
. Each
SAR Award Agreement shall set forth the extent to which the Participant shall
have the right to exercise the SAR following termination of the Participant's
employment with the Company and its Subsidiaries. Such provisions
shall be determined in the sole discretion of the Committee, shall be included
in the SAR Award Agreement entered into with Participants, need not be uniform
among all SARs granted pursuant to the Plan or among Participants and may
reflect distinctions based on the reasons for termination.
7.5
Transferability of
SARs
. Except as otherwise determined by the Committee, all
SARs granted to a Participant under the Plan shall be exercisable during his or
her lifetime only by such Participant or his or her legal representative, and no
SAR granted under the Plan may be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, other than by will or by the laws of
descent and distribution.
Article
8. Restricted
Stock and Restricted Stock Units
8.1
Grant of Restricted Stock
and Restricted Stock Units
. Subject to the terms and
conditions of the Plan, Restricted Stock and/or Restricted Stock Units may be
granted to an Eligible Employee at any time and from time to time, as shall be
determined by the Committee.
The
Committee shall have complete discretion in determining the number of shares of
Restricted Stock and/or Restricted Stock Units granted to each Eligible Employee
(subject to Article 4 herein) and, consistent with the provisions of the Plan,
in determining the terms and conditions pertaining to such Awards.
8.2
Restricted Stock/Restricted
Stock Unit Award Agreement
. Each grant of Restricted Stock
and/or Restricted Stock Units grant shall be evidenced by a Restricted Stock
and/or Restricted Stock Unit Award Agreement that shall specify the number of
shares of Restricted Stock and/or Restricted Stock Units granted, the initial
value (if applicable), the Period or Periods of Restriction, and such other
provisions as the Committee shall determine.
8.3
Transferability
. Except
as otherwise determined by the Committee, during the applicable Period of
Restriction, a Participant's rights with respect to the Restricted Stock and
Restricted Stock Units granted under the Plan shall be available during the
Participant's lifetime only to such Participant or the Participant's
legal representative, and Restricted Stock and Restricted Stock Units may not be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated
other than by will or by the laws of descent and distribution.
8.4
Certificates
. No
certificates representing Stock shall be issued to a Participant until such time
as all restrictions applicable to such Stock have been satisfied.
8.5
Removal of
Restrictions
. Restricted Stock shall become freely
transferable by the Participant after the last day of the Period of Restriction
applicable thereto. Once Restricted Stock is released from the
restrictions, the Participant shall be entitled to receive a
certificate. Payment of Restricted Stock Units shall be made after
the last day of the Period of Restriction applicable thereto. The
Committee, in its sole discretion, may pay Restricted Stock Units in cash or in
Stock (or in a combination thereof), which has an aggregate Fair Market Value
equal to the value of the Restricted Stock Units.
8.6
Voting
Rights
. During the Period of Restriction, Participants may
exercise full voting rights with respect to the Restricted Stock.
8.7
Dividends and Other
Distributions
. Subject to the Committee's right to determine
otherwise at the time of grant, during the Period of Restriction, Participants
shall receive all regular cash dividends paid with respect to the Restricted
Stock while it is so held. All other distributions paid with respect
to such Restricted Stock shall be credited to Participants subject to the same
restrictions on transferability and forfeitability as the Restricted Stock with
respect to which they were paid and shall be paid to the Participant promptly
after the full vesting of the Restricted Stock with respect to which such
distributions were made.
Rights,
if any, to Dividend Equivalents on Restricted Stock Units shall be established
by the Committee at the time of grant and set forth in the Award
Agreement.
8.8
Termination
. Each
Restricted Stock/Restricted Stock Unit Award Agreement shall set forth the
extent to which the Participant shall have the right to receive Restricted Stock
and/or a Restricted Stock Unit payment following termination of the
Participant's employment with the Company and its Subsidiaries. Such
provisions shall be determined in the sole discretion of the Committee, shall be
included in the Award Agreement entered into with Participants, need not be
uniform among all grants of Restricted Stock/Restricted Stock Units or among
Participants and may reflect distinctions based on the reasons for
termination.
Article
9. Performance
Units and Performance Stock
9.1
Grant of Performance Units
and Performance Stock
. Subject to the terms and conditions of
the Plan, Performance Units and/or Performance Stock may be granted to an
Eligible Employee at any time and from time to time, as shall be determined by
the Committee.
The
Committee shall have complete discretion in determining the number of
Performance Units and/or shares of Performance Stock granted to each Eligible
Employee (subject to Article 4 herein) and, consistent with the provisions of
the Plan, in determining the terms and conditions pertaining to such
Awards.
9.2
Performance Unit/Performance
Stock Award Agreement
. Each grant of Performance Units and/or
Performance Stock shall be evidenced by a Performance Unit and/or Performance
Stock Award Agreement that shall specify the number of Performance Units and/or
shares of Performance Stock granted, the initial value (if applicable), the
Performance Period, the performance goals and such other provisions as the
Committee shall determine, including but not limited to any rights to Dividend
Equivalents.
9.3
Value of Performance
Units/Performance Stock
. Each Performance Unit shall have an
initial value that is established by the Committee at the time of
grant. The value of a share of Performance Stock shall be equal to
the Fair Market Value of a share of Stock. The Committee shall set
performance goals in its discretion which, depending on the extent to which they
are met, will determine the number and/or value of Performance Units/Performance
Stock that will be paid out to the Participants.
9.4
Earning of Performance
Units/Performance Stock
. After the applicable Performance
Period has ended, the Participant shall be entitled to receive a payout with
respect to the Performance Units/Performance Stock earned by the Participant
over the Performance Period, to be determined as a function of the extent to
which the corresponding performance goals have been achieved.
9.5
Form and Timing of Payment
of Performance Units/Performance Stock
. Payment of earned
Performance Units/Performance Stock shall be made following the close of the
applicable Performance Period. The Committee, in its sole discretion,
may pay earned Performance Units/Performance Stock in cash or in Stock (or in a
combination thereof), which has an aggregate Fair Market Value equal to the
value of the earned Performance Units/Performance Stock at the close of the
applicable Performance Period. Such Stock may be granted subject to
any restrictions deemed appropriate by the Committee.
9.6
Termination
. Each
Performance Unit/Performance Stock Award Agreement shall set forth the extent to
which the Participant shall have the right to receive a Performance
Unit/Performance Stock payment following termination of the Participant's
employment with the Company and its Subsidiaries during a Performance
Period. Such provisions shall be determined in the sole discretion of
the Committee, shall be included in the Award Agreement entered into
with
Participants,
need not be uniform among all grants of Performance Units/Performance Stock or
among Participants and may reflect distinctions based on reasons for
termination.
9.7
Transferability
. Except
as otherwise determined by the Committee, a Participant's rights with respect to
Performance Units/Performance Stock granted under the Plan shall be available
during the Participant's lifetime only to such Participant or the Participant's
legal representative and Performance Units/Performance Stock may not be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution.
Article
10. Other
Awards
The
Committee shall have the right to grant other Awards which may include, without
limitation, the grant of Stock based on attainment of performance goals
established by the Committee, the payment of Stock in lieu of cash or cash based
on attainment of performance goals established by the Committee and the payment
of Stock in lieu of cash under other Company incentive or bonus
programs. Payment under or settlement of any such Awards shall be
made in such manner and at such times as the Committee may
determine.
Article
11. Rights
of Participants
11.1
Termination
. Nothing
in the Plan shall interfere with or limit in any way the right of the Company or
any Subsidiary to terminate any Participant's employment or other relationship
with the Company or any Subsidiary at any time, for any reason or no reason in
the Company's or the Subsidiary's sole discretion, nor confer upon any
Participant any right to continue in the employ of, or otherwise in any
relationship with, the Company or any Subsidiary.
11.2
Participation
. No
Eligible Person shall have the right to be selected to receive an Award under
the Plan, or, having been so selected, to be selected to receive a future
Award.
11.3
Limitation of Implied
Rights
. Neither a Participant nor any other Person shall, by
reason of the Plan, acquire any right in or title to any assets, funds or
property of the Company or any Subsidiary whatsoever, including, without
limitation, any specific funds, assets or other property which the Company or
any Subsidiary, in their sole discretion, may set aside in anticipation of a
liability under the Plan. A Participant shall have only a contractual
right to the Stock or amounts, if any, payable under the Plan, unsecured by any
assets of the Company or any Subsidiary. Nothing contained in the
Plan shall constitute a guarantee that the assets of such companies shall be
sufficient to pay any benefits to any Person.
Except as
otherwise provided in the Plan, no Award under the Plan shall confer upon the
holder thereof any right as a stockholder of the Company prior to the date on
which the individual fulfills all conditions for receipt of such
rights.
Article
12. Change
in Control
The terms
of this Article 12 shall immediately become operative, without further action or
consent by any person or entity, upon a Change in Control, and once operative
shall supersede and take control over any other provisions of this
Plan.
Upon a
Change in Control
|
(a)
|
Any
and all Options and SARs granted hereunder shall become immediately vested
and exercisable;
|
|
(b)
|
Any
restriction periods and restrictions imposed on Restricted Stock or
Restricted Stock Units shall be deemed to have expired; such Restricted
Stock shall become immediately vested in full and Stock certificates shall
be delivered to Participants, and such Restricted Stock Units shall be
paid out in cash; and
|
|
(c)
|
The
target payout opportunity attainable under all outstanding Awards of
Performance Units and Performance Stock and any other Awards shall be
deemed to have been fully earned for the entire Performance Period(s) as
of the effective date of the Change in Control. All Awards
shall become immediately vested. All Performance Stock and
other Awards denominated in Stock shall be paid out in Stock, and all
Performance Units and other Awards shall be paid out in
cash.
|
Article
13. Amendment,
Modification and Termination
13.1
Amendment, Modification and
Termination
. The Board may, at any time and from time to time,
alter, amend, suspend or terminate the Plan in whole or in part.
13.2
Awards Previously
Granted
. No termination, amendment or modification of the Plan
shall adversely affect in any material way any Award previously granted under
the Plan without the written consent of the Participant holding such Award,
unless such termination, modification or amendment is required by applicable law
and except as otherwise provided herein.
Article
14. Withholding
14.1
Tax
Withholding
. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
(including any Stock withheld as provided below) sufficient to satisfy Federal,
state and local taxes (including the Participant's FICA obligation) required by
law to be withheld with respect to an Award made under the
Plan.
14.2
Stock
Withholding
. With respect to tax withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock,
or upon any other taxable event arising out of or as a result of Awards granted
hereunder, Participants may elect to satisfy the withholding requirement, in
whole or in part, by tendering Stock held by the Participant or by having the
Company withhold Stock having a Fair Market Value equal to the minimum statutory
total tax which could be imposed on the transaction. All elections
shall be irrevocable, made in writing and signed by the
Participant.
Article
15. Successors
All
obligations of the Company under the Plan, with respect to Awards granted
hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation or otherwise of all or substantially all of the business
and/or assets of the Company.
Article
16. Legal
Construction
16.1
Gender and
Number
. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine, the plural shall
include the singular and the singular shall include the plural.
16.2
Severability
. In
the event any provision of the Plan shall be held illegal or invalid for any
reason, the illegality or invalidity shall not affect the remaining parts of the
Plan, and the Plan shall be construed and enforced as if the illegal or invalid
provision had not been included.
16.3
Requirements of
Law
. The granting of Awards and the issuance of Stock under
the Plan shall be subject to all applicable laws, rules and regulations, and to
such approvals by any governmental agencies or national securities exchanges as
may be required.
16.4
Governing
Law
. To the extent not preempted by Federal law, the Plan, and
all agreements hereunder, shall be construed in accordance with, and governed
by, the laws of the State of Delaware, without regard to conflicts of law
provisions.
WBI
HOLDINGS, INC.
EXECUTIVE
INCENTIVE COMPENSATION PLAN
____________________________________________________________
I.
PURPOSE
The purpose of the Executive Incentive
Compensation Plan (the "Plan") is to provide an incentive for key executives of
WBI Holdings, Inc. (the "Company") and any subsidiaries participating in the
Plan (each a "Subsidiary", and together, the "Subsidiaries") to focus their
efforts on the achievement of challenging and demanding corporate
objectives. The Plan is designed to reward successful corporate
performance calculated from January 1 to December 31 of each Plan Year, as
measured against specified performance goals as well as exceptional individual
performance. When corporate or subsidiary performance reaches or
exceeds the performance targets and individual performance is exemplary,
incentive compensation awards, in conjunction with salaries, will provide a
level of compensation which recognizes the skills and efforts of the key
executives.
II.
DEFINITIONS
Capitalized terms not otherwise defined
herein shall have the meanings given them in the Company’s Executive Incentive
Compensation Plan Rules and Regulations.
III.
BASIC PLAN
CONCEPT
The Plan provides an opportunity to
earn annual incentive compensation based on the achievement of specified annual
performance objectives. A target incentive award for each individual
within the Plan is established based on the position level and actual base
salary, provided, however, that the Compensation Committee of the Board of
Directors (the "Committee") of the Company in its sole discretion may, instead
of actual base
salary,
use the assigned salary grade market value (midpoint) ("Salary"). The
target incentive award represents the amount to be paid, subject to the
achievement of the performance objective targets established each
year. Larger incentive awards than target may be authorized when
performance exceeds targets; lesser or no amounts may be paid when performance
is below target.
It is recognized that during a Plan
Year major unforeseen changes in economic and environmental conditions or other
significant factors beyond the control of management may substantially affect
the ability of the Plan Participants to achieve the specified performance
goals. Therefore, in its review of corporate performance the
Committee, in consultation with the Chief Executive Officer of MDU Resources
Group, Inc., may modify the performance targets. However, it is
contemplated that such target modifications will be necessary only in years of
unusually adverse or favorable external conditions.
IV.
ADMINISTRATION
The Plan shall be administered by the
Committee with the assistance of the President of the Company. The
Committee shall approve annually, prior to the beginning of each Plan Year, the
list of eligible Participants, and the target incentive award level for each
position within the Plan. The Plan's performance targets for the year
shall be approved by the Committee no later than its regularly scheduled
February meeting during that Plan Year. The Committee shall have
final discretion to determine actual award payment levels, method of payment,
and whether or not payments shall be made for any Plan Year.
The Board of Directors of the Company
may, at any time and from time to time, alter, amend, supersede or terminate the
Plan in whole or in part, provided that no termination, amendment or
modification of the Plan shall adversely affect in any material way an award
that has met all requirements for payment without
the
written consent of the Participant holding such award, unless such termination,
modification or amendment is required by applicable law.
V.
ELIGIBILITY
Key executives of the Company or the
Subsidiaries who are determined by the Committee to have a key role in both the
establishment and achievement of Company and/or Subsidiary objectives shall be
eligible to participate in the Plan.
Nothing in the Plan shall interfere
with or limit in any way the right of the Company or any Subsidiary to terminate
any Participant's employment at any time, for any reason or no reason in the
Company's or a Subsidiary's sole discretion, or confer upon any Participant any
right to continue in the employment of the Company or any
Subsidiary. No executive shall have the right to be selected to
receive an award under the Plan, or, having been so selected, to be selected to
receive a future award.
VI.
PLAN PERFORMANCE
MEASURES
Performance measures shall be
established that consider shareholder and customer interests. These
measures shall be evaluated annually based on achievement of specified
goals.
The performance measure reflective of
shareholders' interest will be the percentage attainment of corporate goals, as
determined each year by the Committee. This measure may be applied at
the Company level for some individuals, such as the President, whose major or
sole impact is Company-wide, or at the Subsidiary level for individuals whose
major or sole impact is on Subsidiary results.
Individual performance will be assessed
based on the achievement of annually established individual
objectives.
Threshold, target and maximum award
levels will be established annually for each performance measure. The
Committee
will
retain the right to make all interpretations as to the actual attainment of the
desired results and will determine whether any circumstances beyond the control
of management need to be considered.
VII.
TARGET INCENTIVE
AWARDS
Target
incentive awards will be expressed as a percentage of each Participant's
Salary. These percentages shall vary by position and reflect larger
reward opportunity for positions having greater effect on the establishment and
accomplishment of the Company's or a Subsidiary's objectives. A
schedule showing the target awards as a percentage of Salary for eligible
positions will be prepared by the Committee for each Plan Year.
VIII.
INCENTIVE FUND
DETERMINATION
The target incentive fund is the sum of
the individual target incentive awards for all eligible
Participants. Once the incentive targets have been determined by the
Committee, a target incentive fund shall be established and accrued ratably by
the Company. The incentive fund and accruals may be adjusted during
the year.
After the close of each Plan Year, the
Company will prepare an analysis showing the Company's and each Subsidiary's
performance in relation to each of the performance measures
employed. This will be provided to the Committee for review and
comparison to threshold, target and maximum performance levels. In
addition, any recommendations of the President will be presented at this
time. The Committee will then determine the amount of the target
incentive fund earned.
IX.
INDIVIDUAL AWARD
DETERMINATION
Each individual Participant's award
will be based first upon the level of performance achieved by the Company and/or
the
Subsidiary
and secondly based upon the individual's performance. The criteria
applicable for assessing individual performance will be approved by the
Committee no later than its regularly scheduled February meeting during the Plan
Year. The assessment by the Committee, after consultation with the
President, of achievement relative to the established criteria, as determined by
a percentage from 0 percent to 200 percent, will be applied to the
Participant's target incentive award which has been first adjusted for Company
or Subsidiary performance.
X.
PAYMENT OF
AWARDS
Except as provided below or as
otherwise determined by the Committee, in order to receive an award under the
Plan, the Participant must remain in the employment of the Company or the
Subsidiary for the entire Service Year. If a Participant terminates
employment with the Company pursuant to Section 5.01 of the Company's Bylaws
which provides for mandatory retirement for certain officers on their 65th
birthday (or terminates employment with a Subsidiary pursuant to a similar
Subsidiary Bylaw provision) and if the Participant's 65th birthday occurs during
the Service Year, determination of whether the performance measures have been
met will be made at the end of the Service Year, and to the extent met, payment
of the award will be made to the Participant, prorated. Proration of
awards shall be based upon the number of full months elapsed from and including
January to and including the month in which the Participant's 65th birthday
occurs. The prorated award shall be paid as soon as practicable in
the year following the Service Year, but in all events between January 1 and
March 10.
A Participant who transfers between the
Company or a Subsidiary and another company in the MDU Resources Group, Inc.
system may receive a prorated award at the discretion of the
Committee.
Payments made under this Plan will not
be considered part of compensation for pension purposes. Payments
will be made in cash as soon as practicable in the year following the Service
Year, but in all events between January 1 and March 10. Incentive
awards may be deferred if the appropriate elections have been executed prior to
the beginning of the Service Year. A deferral election will be
effective only for the incentive award earned in the Service Year following the
Plan Year in which the election is made. Deferral elections may not
be changed or revoked after the Service Year begins. Deferred amounts
shall be subject to the terms of the Plan and the Rules and Regulations, as
amended, and, to the extent not inconsistent therewith, the deferral election
forms pursuant to which the amounts were deferred. Deferred amounts
will accrue interest at a rate determined annually by the Committee and
specified in the Rules and Regulations.
In the event of a "Change in Control"
(as defined by the Committee in its Rules and Regulations), any award deferred
by a Participant shall become immediately payable to the Participant in cash,
together with accrued interest thereon to the date of payment. In the
event the Participant files suit to collect the Participant's deferred award,
all of the court costs, other expenses of litigation, and attorneys' fees shall
be paid by the Company in the event the Participant prevails upon any of the
Participant's claims for payment of a deferred award.
XI.
ACCOUNTING
RESTATEMENTS
This
Section XI shall apply only to incentive awards granted to Participants in the
Plan who are employees of the Company. Notwithstanding anything in
the Plan or the Plan's Rules and Regulations to the contrary, if the Company's
audited financial statements are restated, the Committee may, in accordance with
the Company's
Guidelines for
Repayment of Incentives Due to
Accounting Restatements
, take
such actions as it deems appropriate (in its sole discretion) with respect
to
(a) unpaid
incentive awards under the Plan (including incentive awards relating to
completed Plan Years, but with respect to which payments have not yet been made
or deferred) ("Outstanding Awards") and
(b) prior
incentive awards that were paid (or deferred) within the 3 year period preceding
the restatement ("Prior Awards"), provided such Prior Awards were not paid prior
to the date the Plan was amended to add this Section XI,
if the
calculation of the amounts payable, paid or deferred under such awards are, or
would have been, directly impacted by the restatement, including, without
limitation, (i) securing (or causing to be secured) repayment of some or all
payments made pursuant to (or deferrals relating to) Prior Awards, (ii) making
(or causing to be made) additional payments (or crediting additional deferrals),
(iii) reducing or otherwise adjusting the amount payable pursuant to Outstanding
Awards and/or (iv) causing the forfeiture of Outstanding Awards. The
Committee may, in its sole discretion, take different actions pursuant to this
Section XI with respect to different awards, different Participants (or
beneficiaries) and/or different classes of awards or Participants (or
beneficiaries). The Committee has no obligation to take any action
permitted by this Section XI. The Committee may consider any factors
it chooses in taking (or determining whether to take) any action permitted by
this Section XI, including, without limitation, the following:
(A) The
reason for the restatement of the financial statements;
(B) The
amount of time between the initial publication and subsequent restatement of the
financial statements; and
(C) The
Participant's current employment status, and the viability of successfully
obtaining repayment.
If the Committee requires repayment of
all or part of a Prior Award, the amount of repayment may be based on, among
other things, the difference between the amount paid to the individual and the
amount that the Committee determines in its sole discretion should have been
paid based on the restated results. The Committee shall determine
whether repayment shall be effected (i) by seeking repayment from the
Participant, (ii) by reducing (subject to applicable law and the terms and
conditions of the applicable plan, program or arrangement) the amount that would
otherwise be provided to the Participant under any compensatory plan, program or
arrangement maintained by the Company or any of its affiliates, (iii) by
withholding payment of future increases in compensation (including the payment
of any discretionary bonus amount) or grants of compensatory awards that would
otherwise have been made in accordance with the Company's otherwise applicable
compensation practices, or (iv) by any combination of the
foregoing. Additionally, by accepting an incentive award under the
Plan, Participants acknowledge and agree that the Committee may take any actions
permitted by this Section XI with respect to Outstanding Awards to the extent
repayment is to be made pursuant to another plan, program or arrangement
maintained by the Company or any of its affiliates.
WBI
HOLDINGS, INC.
EXECUTIVE
INCENTIVE COMPENSATION PLAN
RULES AND
REGULATIONS
The Compensation Committee of the Board
of Directors of WBI Holdings, Inc. (formerly known as Williston Basin Interstate
Pipeline Company) (the "Company") hereby adopts the following Rules and
Regulations for the administration of the Executive Incentive Compensation Plan
(the "Plan").
I.
DEFINITIONS
The following definitions shall be used
for purposes of
these
Rules and Regulations and for the purpose of administering the
Plan:
|
1.
|
The
"Committee" shall be the Compensation Committee of the Board of Directors
of the Company.
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|
2.
|
The
"Company" shall refer to WBI Holdings,
Inc.
|
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3.
|
"Participants"
for any Plan Year shall be those key executives of the Company or
Subsidiaries who have been approved by the Committee as eligible for
participation in the Plan for such Plan
Year.
|
|
4.
|
"Payment
Date" shall be the date set by the Committee for payment of awards, other
than those awards deferred pursuant to Section X of the Plan and Section
VII of these Rules and Regulations.
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5.
|
The
"Plan" shall refer to the Company Executive Incentive Compensation
Plan.
|
6. The
"Plan Year" shall be January 1 through December 31.
|
7.
|
"Change
in Control" shall mean the occurrence of any of the following transactions
or events: (a) 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") or group (as that term is
defined in Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), acquires (or
has acquired during the 12-month period ending on the date of the most
recent acquisition by such Person or Persons) ownership of stock of the
Company possessing
|
30% or
more of the total voting power of the stock of the Company; (b) any Person or
group (as that term is defined in Treasury Regulation Section
1.409A-3(i)(5)(v)(B)), acquires ownership of the stock of the Company that,
together with stock held by such Person or group, constitutes more than 50% of
the total fair market value or total voting power of the stock of the Company
(this part (b) applies only when there is a transfer of stock of the Company and
the Company's stock remains outstanding after the transaction); (c) a majority
of the members of the Board of Directors of the Company is replaced during any
12-month period by directors whose appointment or election is not endorsed by a
majority of the members of the Board of Directors of the Company; or (d) any
Person or group (as that term is defined in Treasury Regulation Section
1.409A-3(i)(5)(v)(B)), acquires (or has acquired during the 12-month period
ending on the date of the most recent acquisition by such Person or Persons)
assets from the Company that have a gross fair market value equal to or more
than 40% of the total gross fair market value of all of the assets of the
Company immediately before such acquisition or acquisitions.
Notwithstanding
anything contained herein to the contrary, no transaction or event shall
constitute a Change in Control for purposes of the Plan unless the transaction
or event constitutes a change in the ownership of a corporation (as defined in
Treasury Regulation Section 1.409A-3(i)(5)(v)), a change in effective control of
a corporation (as defined in Treasury Regulation Section 1.409A-3(i)(5)(vi)) or
a change in the ownership of a substantial portion of the assets of a
corporation (as defined in Treasury Regulation Section 1.409A-3(i)(5)(vii)) and
the term Change in Control shall be interpreted in a manner consistent with the
proper interpretation of the similar provisions in the Section 409A Treasury
Regulations.
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8.
|
The
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
|
|
9.
|
The
“Moody’s Rate” is defined as the average of (i) the number that results
from adding the daily Moody’s U.S. Long-Term Corporate Bond Yield Average
for “A” rated companies as of the last day of each month for the 12-month
period ending October 31 and dividing by 12 and (ii) the number that
results from adding the daily Moody’s U.S. Long-Term Corporate Bond Yield
Average for “BBB” rated companies as of the last day of each
month
|
for the
12-month period ending October 31 and dividing by 12.
|
10.
|
"Retirement"
means the later of the day the Participant attains age 55 or the day the
Participant ceases to be an employee of the Company, MDU Resources Group,
Inc. or any subsidiary of MDU Resources Group,
Inc.
|
|
11.
|
"Service
Year" means the Plan Year during which the services giving rise to the
incentive award are performed.
|
|
12.
|
"Subsidiary"
means any subsidiary of the Company participating in the
Plan.
|
|
13.
|
"Specified
Employee" means an employee who, as of the date the employee separates
from service, is a “specified employee” (as that term is used in Section
409A(a)(2)(B) of the Code), as determined under the Company's policy for
determining specified employees.
|
II.
ADMINISTRATION
|
1.
|
The
Committee shall have the full power to construe and interpret the Plan and
to establish and to amend these Rules and Regulations for its
administration.
|
|
2.
|
No
member of the Committee shall participate in a decision as to that
member's own eligibility for, or award of, an incentive award
payment.
|
|
3.
|
Prior
to the beginning of each Plan Year, the Committee shall approve a list of
eligible key executives and notify those so approved that they are
eligible to participate in the Plan for such Plan
Year.
|
|
4.
|
No
later than its regularly scheduled February meeting during the Plan Year,
the Committee shall approve an Annual Operating Plan. The
Annual Operating Plan shall include the Plan’s performance measures and
target incentive award levels for each salary grade covered by the Plan
for the Plan Year. The Plan’s performance targets for the year
shall be approved by the Committee no later than its regularly scheduled
February meeting during the Plan Year. The Annual Operating
Plan, insofar as it is relevant to each individual Participant, shall be
made available by the Committee to each Participant in the
Plan.
|
|
5.
|
The
Committee shall have final discretion to determine actual award payment
levels and whether or not payments shall be made for any Plan
Year. However, unless
the
|
Plan's
performance objectives are met for the Plan Year, no award shall be made for
that Plan Year. Performance targets modified pursuant to Section III
of the Plan will be deemed performance targets for purposes of determining
whether or not these targets have been met.
III.
PLAN PERFORMANCE
MEASURES
|
1.
|
The
Committee shall establish the percentage attainment of corporate
performance measure and the percentage attainment of individual goals
measure. The Committee may establish more or fewer performance
measures as it deems necessary.
|
|
2.
|
The
corporate performance measure may be set by reference to earnings, return
on invested capital or any other measure or combination of measures deemed
appropriate by the Committee. It may be established for the
Company or for a Subsidiary.
|
|
3.
|
Individual
performance will be assessed based on the achievement of annually
established individual objectives.
|
|
4.
|
Plan
performance measures may be applied at the Company level for individuals
such as the President whose major or sole impact is Company-wide, or at
the Subsidiary level for individuals whose major or sole impact is on
Subsidiary results. The Annual Operating Plan shall contain a
list of individuals to whom the Plan performance measures will be applied
at the Company level and a list of those individuals for whom the Plan
performance measures will be applied at the Subsidiary
level. The relevant Subsidiary for each individual will be
identified.
|
|
5.
|
The
Committee shall set threshold, target and maximum award levels for the
performance measures for each Subsidiary and for the
Company. Those levels shall be included in the Annual Operating
Plan.
|
|
6.
|
The
Committee will retain the authority to determine whether or not the actual
attainment of these measures has been
made.
|
IV.
TARGET INCENTIVE
AWARDS
|
1.
|
Target
incentive awards will be a percentage of each Participant's Salary, as
defined in the Plan.
|
|
2.
|
Target
incentive awards shall be set by the
Committee
|
annually
and will be included in the Annual Operating Plan.
V.
INCENTIVE FUND
DETERMINATION
|
1.
|
The
target incentive fund is the sum of the individual target incentive awards
for all eligible Participants.
|
|
2.
|
Once
individual incentive targets have been determined, a target incentive fund
shall be established and accrued ratably by the Company. The
incentive fund and accruals may be adjusted during the
year.
|
|
3.
|
As
soon as practicable following the close of each Plan Year, the President
will provide the Committee with an analysis showing the Company's and each
Subsidiary's performance in relation to the performance
measures. The Committee will review the analysis and determine,
in its sole discretion, the amount of the actual incentive
fund.
|
|
4.
|
In
determining the actual incentive fund, the Committee may consider any
recommendations of the President.
|
VI.
INDIVIDUAL AWARD
DETERMINATION
|
1.
|
The
Committee shall have the sole discretion to determine each individual
Participant's award. The Committee's decision will be based
first upon the level of performance achieved by the Company and/or the
Subsidiary and secondly upon the individual's
performance.
|
|
2.
|
The
Committee, after consultation with the President, shall set the award as a
percentage from 0 percent to 200 percent of the Participant's target
incentive award, adjusted for Company or Subsidiary
performance.
|
VII.
PAYMENT OF
AWARDS
|
1.
|
On
the date the Committee determines the awards to be made to individual
Participants, it shall also establish the Payment
Date.
|
|
2.
|
Except
as provided below or as the Committee otherwise determines, in order to
receive an award under the Plan, a Participant must remain in the
employment of the Company or the Subsidiary for the entire Service
Year.
|
|
3.
|
A
Participant who transfers between the Company or a Subsidiary and another
company in the MDU Resources
|
Group,
Inc. system may receive a prorated award at the discretion of the
Committee.
|
4.
|
If
a Participant terminates employment with the Company pursuant to Section
5.01 of the Company's Bylaws which provides for mandatory retirement for
certain officers on their 65
th
birthday (or terminates
employment with a Subsidiary pursuant to a similar Subsidiary Bylaw
provision) and if the Participant's 65
th
birthday occurs during
the Service Year, determination of whether the performance measures have
been met will be made at the end of the Service Year, and to the extent
met, payment of the award will be made to the Participant,
prorated. Proration of awards shall be based upon the number of
full months elapsed from and including January to and including the month
in which the Participant's 65
th
birthday
occurs.
|
|
5.
|
Payment
of the award shall be made in cash. Payments shall be made on
the Payment Date unless the Participant has deferred, in whole or in part,
the receipt of the award by making an election on the deferral form
attached hereto,
prior to the beginning of the Service Year. Deferral elections
may not be changed or revoked after the Service Year
begins.
|
|
6.
|
In
the event a Participant has elected to defer receipt of all or a portion
of the award, the Company shall set up an account in the Participant's
name. The amount of the Participant's award to the extent
deferred will be credited to the Participant's account on the Payment
Date.
|
|
7.
|
The
balance credited to an account of a Participant who has elected to defer
receipt of an award will be an unsecured, unfunded obligation of the
Company.
|
|
8.
|
Interest
shall accrue on the balance credited to a Participant's account from the
date the balance is credited. Effective January 1, 2009, the
rate of interest for each Plan Year shall be the Moody’s
Rate.
|
|
9.
|
Interest
shall be compounded and credited to the account
monthly.
|
|
10.
|
A
Participant may elect to defer any percentage, not to exceed l00, of an
annual award.
|
|
11.
|
A
Participant electing to defer any part of an award must elect one of the
following dates on which (a) payment will be made, if payment will be made
in a lump
|
sum or
(b) payments will commence, if payment will be made in monthly
installments:
|
(a)
|
Between
January 1 and March 10 next following termination of employment with the
Company or an affiliated company;
or
|
|
(b)
|
Between
January 1 and March 10 of the fifth year following the year in which the
award would have been paid had it not been
deferred.
|
For
Participants who previously elected to have payments made or commence on the
Payment Date next following termination of employment, their payments will be
made or commence between January 1 and March 10 next following their termination
of employment with the Company or an affiliated company. For
Participants who elected to have payments made or commence on the Payment Date
of the fifth year following the year in which the award may be made, their
payments will be made or commence between January 1 and March 10 of the fifth
year following the year in which the award would have been paid had it not been
deferred.
|
12.
|
At
the same time a Participant makes a deferral election, a Participant may
elect to receive the deferred amounts accumulated in the Participant's
account in monthly installments, not to exceed 120. In the
event the Participant elects to receive the amounts in the Participant's
account in more than one installment, interest shall continue to accrue on
the balance remaining in their account at the applicable rate or rates
determined annually by the
Committee.
|
|
13.
|
Notwithstanding
anything contained in the Plan or these Rules and Regulations to the
contrary, if a Specified Employee's employment terminates, to the extent
required by Section 409A(a)(2)(B) of the Code, except as otherwise
provided in paragraph 14 below of this Section VII of these Rules and
Regulations, payment of any deferred amounts under the Plan that are to be
paid during the 6-month period following the Specified Employee's
termination of employment shall not be paid or provided until the first
business day after the date that is 6 months following the Specified
Employee's termination of employment. Any payment that is made
pursuant to the prior sentence shall include the cumulative amount of any
amounts that could not be paid during the 6-month period following the
Specified Employee's termination of employment. To the extent
payments are deferred pursuant to the prior sentence, such deferred
amounts shall continue to accrue
interest
|
pursuant
to Section VII of these Rules and Regulations until payment occurs.
For all
purposes under the Plan and these Rules and Regulations, references to
termination of employment and similar terms shall be interpreted to mean
"separation from service," as that term is used in Section 409A of the Code, and
the Participant's employment shall not be deemed to have terminated for purposes
of the Plan or these Rules and Regulations unless and until a separation from
service shall have occurred for purposes of Section 409A of the
Code.
|
14.
|
In
the event of the death of a Participant in whose name a deferred account
has been set up, the Company shall, within 90 days thereafter, pay to the
Participant's estate or the designated beneficiary the entire amount in
the deferred account.
|
|
15.
|
In
the event of a Change in Control any award deferred by a Participant shall
become immediately payable to the Participant. In the event the
Participant files suit to collect a deferred award, all of the
Participant's court costs, other expenses of litigation, and attorneys'
fees shall be paid by the Company in the event the Participant prevails
upon any of the claims for payment.
|
PAYROLL ELECTION
FORM
Election
for Deferred Compensation
and Beneficiary
Designation
Pursuant to the
WBI
Holdings, Inc.
Executive Incentive
Compensation
Plan (the "Plan"), I elect to defer
receipt
of
____________________
percent of the
cash
(not to exceed 100)
portion
of any award which may be payable to me in
2011
for Plan
Year
incentive earned in
2010
, until
the event specified below:
Check
one:
Between
January 1 and March 10 of the year
following
the year
I cease
to be an employee
of
WBI
Holdings, Inc.
or an
affiliated
_______ company.
_______ Between
January 1 and March 10 of 2016.
I elect to receive any amounts
deferred pursuant to the
designation
above and accumulated in my account in
monthly installments.
(not to
exceed 120)
In the event of my death prior to
receipt of the balance of
such
accumulated amounts, I designate
whose address is
as my beneficiary
to
receive such balance.
I understand that this election shall
become irrevocable on December 31, 2009. I further understand that
(1) if I am a “specified employee” (as that term is used in Section 409A of the
Internal Revenue Code of 1986, as amended (the “Code”)) when my employment
terminates, to the extent required by Section 409A(a)(2)(B), payment of any
deferred amounts under the Plan that are subject to Section 409A of the Code and
that are to be paid during the 6 month period following my termination of
employment shall not be paid or provided until the first business day after the
date that is 6 months following termination of my employment or, if earlier,
within 90 days after my death and (2) for purposes of this election form, I
shall not be deemed to have terminated employment with WBI Holdings, Inc. or an
affiliated company unless and until a "separation from service" (as that term is
used in Section 409A of the Code) shall have occurred.
____________________
____________________
(Print
Name) (Signature)
____________________
(Date)
KNIFE
RIVER CORPORATION
EXECUTIVE
INCENTIVE COMPENSATION PLAN
_________________________________________________________
I.
PURPOSE
The purpose of the Executive Incentive
Compensation Plan (the "Plan") is to provide an incentive for key executives of
Knife River Corporation (the "Company") and any subsidiaries participating in
the Plan (each a "Subsidiary", and together, the "Subsidiaries") to focus their
efforts on the achievement of challenging and demanding corporate
objectives. The Plan is designed to reward successful corporate
performance calculated from January 1 to December 31 of each Plan Year, as
measured against specified performance goals as well as exceptional individual
performance. When corporate or subsidiary performance reaches or
exceeds the performance targets and individual performance is exemplary,
incentive compensation awards, in conjunction with salaries, will provide a
level of compensation which recognizes the skills and efforts of the key
executives.
II.
DEFINITIONS
Capitalized terms not otherwise defined
herein shall have the meanings given them in the Company’s Executive Incentive
Compensation Plan Rules and Regulations.
III.
BASIC PLAN
CONCEPT
The Plan provides an opportunity to
earn annual incentive compensation based on the achievement of specified annual
performance objectives. A target incentive award for
each
individual
within the Plan is established based on the position level and actual base
salary, provided, however, that the Compensation Committee of the Board of
Directors (the "Committee") of the Company in its sole discretion may, instead
of actual base salary, use the assigned salary grade market value (midpoint)
("Salary"). The target incentive award represents the amount to be
paid, subject to the achievement of the performance objective targets
established each year. Larger incentive awards than target may be
authorized when performance exceeds targets; lesser or no amounts may be paid
when performance is below target.
It is recognized that during a Plan
Year major unforeseen changes in economic and environmental conditions or other
significant factors beyond the control of management may substantially affect
the ability of the Plan Participants to achieve the specified performance
goals. Therefore, in its review of corporate performance the
Committee, in consultation with the Chief Executive Officer of MDU Resources
Group, Inc., may modify the performance targets. However, it is
contemplated that such target modifications will be necessary only in years of
unusually adverse or favorable external conditions.
IV.
ADMINISTRATION
The Plan shall be administered by the
Committee with the assistance of the President of the Company. The
Committee shall approve annually, prior to the beginning of each Plan Year, the
list of eligible Participants, and the target incentive award level for each
position within the Plan. The Plan's performance targets for the year
shall be approved by the Committee no later than its regularly scheduled
February meeting during that Plan
Year. The
Committee shall have final discretion to determine actual award payment levels,
method of payment, and whether or not payments shall be made for any Plan
Year.
The Board of Directors of the Company
may, at any time and from time to time, alter, amend, supersede or terminate the
Plan in whole or in part, provided that no termination, amendment or
modification of the Plan shall adversely affect in any material way an award
that has met all requirements for payment without the written consent of the
Participant holding such award, unless such termination, modification or
amendment is required by applicable law.
V.
ELIGIBILITY
Key executives of the Company or the
Subsidiaries who are determined by the Committee to have a key role in both the
establishment and achievement of Company and/or Subsidiary objectives shall be
eligible to participate in the Plan.
Nothing in the Plan shall interfere
with or limit in any way the right of the Company or any Subsidiary to terminate
any Participant's employment at any time, for any reason or no reason in the
Company's or a Subsidiary's sole discretion, or confer upon any Participant any
right to continue in the employment of the Company or any
Subsidiary. No executive shall have the right to be selected to
receive an award under the Plan, or, having been so selected, to be selected to
receive a future award.
VI.
PLAN PERFORMANCE
MEASURES
Performance measures shall be
established that consider shareholder and customer interests. These
measures shall be evaluated annually based on achievement of specified
goals.
The performance measure reflective of
shareholders' interest will be the percentage attainment of corporate goals, as
determined each year by the Committee. This measure may be applied at
the Company level for some individuals, such as the President, whose major or
sole impact is Company-wide, or at the Subsidiary level for individuals whose
major or sole impact is on Subsidiary results.
Individual performance will be assessed
based on the achievement of annually established individual
objectives.
Threshold, target and maximum award
levels will be established annually for each performance measure. The
Committee will retain the right to make all interpretations as to the actual
attainment of the desired results and will determine whether any circumstances
beyond the control of management need to be considered.
VII.
TARGET INCENTIVE
AWARDS
Target
incentive awards will be expressed as a percentage of each Participant's
Salary. These percentages shall vary by position and reflect larger
reward opportunity for positions having greater effect on the establishment and
accomplishment of the Company's or a Subsidiary's objectives. A
schedule showing the target awards as a percentage of Salary for eligible
positions will be prepared by the Committee for each Plan Year.
VIII.
INCENTIVE FUND
DETERMINATION
The target incentive fund is the sum of
the individual target incentive awards for all eligible
Participants. Once the incentive targets have been determined by the
Committee, a target incentive fund shall be established and accrued ratably by
the Company. The incentive fund and accruals may be adjusted during
the year.
After the close of each Plan Year, the
Company will prepare an analysis showing the Company's and each Subsidiary's
performance in relation to each of the performance measures
employed. This will be provided to the Committee for review and
comparison to threshold, target and maximum performance levels. In
addition, any recommendations of the President will be presented at this
time. The Committee will then determine the amount of the target
incentive fund earned.
IX.
INDIVIDUAL AWARD
DETERMINATION
Each individual Participant's award
will be based first upon the level of performance achieved by the Company and/or
the Subsidiary and secondly based upon the individual's
performance. The criteria applicable for assessing individual
performance will be approved by the Committee no later than its regularly
scheduled February meeting during the Plan Year. The assessment by
the Committee, after consultation with the President, of achievement relative to
the established criteria, as determined by a percentage from 0 percent to 200
percent, will be applied to the Participant's target incentive award which has
been first adjusted for Company or Subsidiary performance.
X.
PAYMENT OF
AWARDS
Except as
provided below or as otherwise determined by the Committee, in order to receive
an award under the Plan, the Participant must remain in the employment of the
Company or the Subsidiary for the entire Service Year. If a
Participant terminates employment with the Company pursuant to Section 5.01 of
the Company's Bylaws which provides for mandatory retirement for certain
officers on their 65th birthday (or terminates employment with a Subsidiary
pursuant to a similar Subsidiary Bylaw provision) and if the Participant's 65th
birthday occurs during the Service Year, determination of whether the
performance measures have been met will be made at the end of the Service Year,
and to the extent met, payment of the award will be made to the Participant,
prorated. Proration of awards shall be based upon the number of full
months elapsed from and including January to and including the month in which
the Participant's 65th birthday occurs. The prorated award shall be
paid as soon as practicable in the year following the Service Year, but in all
events between January 1 and March 10.
A
Participant who transfers between the Company or a Subsidiary and another
company in the MDU Resources Group, Inc. system may receive a prorated award at
the discretion of the Committee.
Payments
made under this Plan will not be considered part of compensation for pension
purposes. Payments will be made in cash as soon as practicable in the
year following the Service Year, but in all events between January 1 and March
10. Incentive awards may be deferred if the appropriate elections
have been executed prior to the beginning of the Service Year. A
deferral election will be effective only for the incentive
award
earned in the Service Year following the Plan Year in which the election is
made. Deferral elections may not be changed or revoked after the
Service Year begins. Deferred amounts shall be subject to the terms
of the Plan and the Rules and Regulations, as amended, and, to the extent not
inconsistent therewith, the deferral election forms pursuant to which the
amounts were deferred. Deferred amounts will accrue interest at a
rate determined annually by the Committee and specified in the Rules and
Regulations.
In the event of a "Change in Control"
(as defined by the Committee in its Rules and Regulations), any award deferred
by a Participant shall become immediately payable to the Participant in cash,
together with accrued interest thereon to the date of payment. In the
event the Participant files suit to collect the Participant's deferred award,
all of the court costs, other expenses of litigation, and attorneys' fees shall
be paid by the Company in the event the Participant prevails upon any of the
Participant's claims for payment of a deferred award.
XI.
ACCOUNTING
RESTATEMENTS
This
Section XI shall apply only to incentive awards granted to Participants in the
Plan who are employees of the Company. Notwithstanding anything in
the Plan or the Plan's Rules and Regulations to the contrary, if the Company's
audited financial statements are restated, the Committee may, in accordance with
the Company's
Guidelines for
Repayment of Incentives Due to Accounting Restatements
, take such actions
as it deems appropriate (in its sole discretion) with respect to
(a) unpaid
incentive awards under the Plan (including incentive awards relating to
completed Plan Years, but with
respect
to which payments have not yet been made or deferred) ("Outstanding Awards")
and
(b) prior
incentive awards that were paid (or deferred) within the 3 year period preceding
the restatement ("Prior Awards"), provided such Prior Awards were not paid prior
to the date the Plan was amended to add this Section XI,
if the
calculation of the amounts payable, paid or deferred under such awards are, or
would have been, directly impacted by the restatement, including, without
limitation, (i) securing (or causing to be secured) repayment of some or all
payments made pursuant to (or deferrals relating to) Prior Awards, (ii) making
(or causing to be made) additional payments (or crediting additional deferrals),
(iii) reducing or otherwise adjusting the amount payable pursuant to Outstanding
Awards and/or (iv) causing the forfeiture of Outstanding Awards. The
Committee may, in its sole discretion, take different actions pursuant to this
Section XI with respect to different awards, different Participants (or
beneficiaries) and/or different classes of awards or Participants (or
beneficiaries). The Committee has no obligation to take any action
permitted by this Section XI. The Committee may consider any factors
it chooses in taking (or determining whether to take) any action permitted by
this Section XI, including, without limitation, the following:
(A) The
reason for the restatement of the financial statements;
(B) The
amount of time between the initial publication and subsequent restatement of the
financial statements; and
(C) The
Participant's current employment status, and the viability of successfully
obtaining repayment.
If the Committee requires repayment of
all or part of a Prior Award, the amount of repayment may be based on, among
other things, the difference between the amount paid to the individual and the
amount that the Committee determines in its sole discretion should have been
paid based on the restated results. The Committee shall determine
whether repayment shall be effected (i) by seeking repayment from the
Participant, (ii) by reducing (subject to applicable law and the terms and
conditions of the applicable plan, program or arrangement) the amount that would
otherwise be provided to the Participant under any compensatory plan, program or
arrangement maintained by the Company or any of its affiliates, (iii) by
withholding payment of future increases in compensation (including the payment
of any discretionary bonus amount) or grants of compensatory awards that would
otherwise have been made in accordance with the Company's otherwise applicable
compensation practices, or (iv) by any combination of the
foregoing. Additionally, by accepting an incentive award under the
Plan, Participants acknowledge and agree that the Committee may take any actions
permitted by this Section XI with respect to Outstanding Awards to the extent
repayment is to be made pursuant to another plan, program or arrangement
maintained by the Company or any of its affiliates.
KNIFE
RIVER CORPORATION
EXECUTIVE
INCENTIVE COMPENSATION PLAN
RULES
AND REGULATIONS
__________________________________________________
The Compensation Committee of the Board
of Directors of Knife River Corporation (formerly known as Knife River Coal
Mining Company) (the "Company") hereby adopts the following Rules and
Regulations for the administration of the Executive Incentive Compensation Plan
(the "Plan").
The following definitions shall be used
for purposes of these Rules and Regulations and for the purpose of administering
the Plan:
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1.
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The
"Committee" shall be the Compensation Committee of the Board of Directors
of the Company.
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2.
|
The
"Company" shall refer to Knife River
Corporation.
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3.
|
"Participants"
for any Plan Year shall be those key executives of the Company or
Subsidiaries who have been approved by the Committee as eligible for
participation in the Plan for such Plan
Year.
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4.
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"Payment
Date" shall be the date set by the Committee for payment of awards
pursuant to Section X of the Plan, other than those awards deferred
pursuant to Section X of the Plan and Section VII of these Rules and
Regulations.
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5.
|
The
"Plan" shall refer to the Knife River Corporation Executive Incentive
Compensation Plan.
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6.
|
The
"Plan Year" shall be January 1 through December
31.
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7.
|
"Change
in Control" shall mean the occurrence of any of the following transactions
or events: (a) 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")
or
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group (as
that term is defined in Treasury Regulation Section 1.409A-3(i)(5)(v)(B)),
acquires (or has acquired during the 12-month period ending on the date of the
most recent acquisition by such Person or Persons) ownership of stock of the
Company possessing 30% or more of the total voting power of the stock of the
Company; (b) any Person or group (as that term is defined in Treasury Regulation
Section 1.409A-3(i)(5)(v)(B)), acquires ownership of the stock of the Company
that, together with stock held by such Person or group, constitutes more than
50% of the total fair market value or total voting power of the stock of the
Company (this part (b) applies only when there is a transfer of stock of the
Company and the Company's stock remains outstanding after the transaction); (c)
a majority of the members of the Board of Directors of the Company is replaced
during any 12-month period by directors whose appointment or election is not
endorsed by a majority of the members of the Board of Directors of the Company;
or (d) any Person or group (as that term is defined in Treasury Regulation
Section 1.409A-3(i)(5)(v)(B)), acquires (or has acquired during the 12-month
period ending on the date of the most recent acquisition by such Person or
Persons) assets from the Company that have a gross fair market value equal to or
more than 40% of the total gross fair market value of all of the assets of the
Company immediately before such acquisition or acquisitions.
Notwithstanding
anything contained herein to the contrary, no transaction or event shall
constitute a Change in Control for purposes of the Plan unless the transaction
or event constitutes a change in the ownership of a corporation (as defined in
Treasury Regulation Section 1.409A-3(i)(5)(v)), a change in effective control of
a corporation (as defined in Treasury Regulation Section 1.409A-3(i)(5)(vi)) or
a change in the ownership of a substantial portion of the assets of a
corporation (as defined in Treasury Regulation Section 1.409A-3(i)(5)(vii)) and
the term Change in Control shall be interpreted in a manner consistent with the
proper interpretation of the similar provisions in the Section 409A Treasury
Regulations.
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8.
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The
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
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9.
|
The
“Moody’s Rate” is defined as the average of (i) the number that results
from adding the daily Moody’s U.S. Long-Term Corporate Bond Yield Average
for “A” rated
|
companies
as of the last day of each month for the 12-month period ending October 31 and
dividing by 12 and (ii) the number that results from adding the daily Moody’s
U.S. Long-Term Corporate Bond Yield Average for “BBB” rated companies as of the
last day of each month for the 12-month period ending October 31 and dividing by
12.
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10.
|
"
Retirement
"
means the
later of the day the Participant attains age 55 or the day the Participant
ceases to be an employee of the Company, MDU Resources Group, Inc. or any
Subsidiary of MDU Resources Group,
Inc.
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11.
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"Service
Year" means the Plan Year during which the services giving rise to the
incentive award are performed.
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12.
|
“Specified
Employee” means an employee who, as of the date the employee separates
from service, is a "specified employee" (as that term is used in Section
409A(a)(2)(B) of the Code), as determined under the Company's policy for
determining specified employees.
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13.
|
"
Subsidiary
"
means any
Subsidiary of the Company participating in the
Plan.
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1.
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The
Committee shall have the full power to construe and interpret the Plan and
to establish and to amend these Rules and Regulations for its
administration.
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2.
|
No
member of the Committee shall participate in a decision as to that
member's own eligibility for, or award of, an incentive award
payment.
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3.
|
Prior
to the beginning of each Plan Year, the Committee shall approve a list of
eligible key executives and notify those so approved that they are
eligible to participate in the Plan for such Plan
Year.
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4.
|
No
later than its regularly scheduled February meeting during the Plan Year,
the Committee shall approve an Annual Operating Plan. The
Annual Operating Plan shall include the Plan’s performance measures and
target incentive award levels for each salary grade covered by the Plan
for the Plan Year. The Plan’s performance targets for the year
shall be approved by the Committee no later than its regularly scheduled
February meeting
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during
the Plan Year. The Annual Operating Plan, insofar as it is relevant
to each individual Participant, shall be made available by the Committee to each
Participant in the Plan.
|
5.
|
The
Committee shall have final discretion to determine actual award payment
levels and whether or not payments shall be made for any Plan
Year. However, unless the Plan's performance objectives are met
for the Plan Year, no award shall be made for that Plan
Year. Performance targets modified pursuant to Section III of
the Plan will be deemed performance targets for purposes of determining
whether or not these targets have been
met.
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III.
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PLAN
PERFORMANCE
MEASURES
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|
1.
|
The
Committee shall establish the percentage attainment of corporate
performance measure and the percentage attainment of individual goals
measure. The Committee may establish more or fewer performance
measures as it deems necessary.
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2.
|
The
corporate performance measure may be set by reference to earnings, return
on invested capital or any other measure or combination of measures deemed
appropriate by the Committee. It may be established for the
Company or for a Subsidiary.
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3.
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Individual
performance will be assessed based on the achievement of annually
established individual objectives.
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4.
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Plan
performance measures may be applied at the Company level for individuals
such as the President whose major or sole impact is Company-wide, or at
the Subsidiary level for individuals whose major or sole impact is on
Subsidiary results. The Annual Operating Plan shall contain a
list of individuals to whom the Plan performance measures will be applied
at the Company level and a list of those individuals for whom the Plan
performance measures will be applied at the Subsidiary
level. The relevant Subsidiary for each individual will be
identified.
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5.
|
The
Committee shall set threshold, target and maximum award levels for the
performance measures, for each Subsidiary and for the
Company. Those levels shall be included in the Annual Operating
Plan.
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6.
|
The
Committee will retain the authority to determine whether or not the actual
attainment of these measures has been
made.
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IV.
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TARGET INCENTIVE
AWARDS
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1.
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Target
incentive awards will be a percentage of each Participant's Salary, as
defined in the Plan.
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2.
|
Target
incentive awards shall be set by the Committee annually and will be
included in the Annual Operating
Plan.
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V.
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INCENTIVE FUND
DETERMINATION
|
|
1.
|
The
target incentive fund is the sum of the individual target incentive awards
for all eligible Participants.
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2.
|
Once
individual incentive targets have been determined, a target incentive fund
shall be established and accrued ratably by the Company. The
incentive fund and accruals may be adjusted during the
year.
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3.
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As
soon as practicable following the close of each Plan Year, the President
will provide the Committee with an analysis showing the Company's and each
Subsidiary's performance in relation to the performance
measures. The Committee will review the analysis and determine,
in its sole discretion, the amount of the actual incentive
fund.
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4.
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In
determining the actual incentive fund, the Committee may consider any
recommendations of the President.
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VI.
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INDIVIDUAL AWARD
DETERMINATION
|
|
1.
|
The
Committee shall have the sole discretion to determine each individual
Participant's award. The Committee's decision will be based
first upon the level of performance achieved by the Company and/or the
Subsidiary and secondly upon the individual's
performance.
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2.
|
The
Committee, after consultation with the President, shall set the award as a
percentage from 0 percent to 200 percent of the Participant's target
incentive award, adjusted for Company or Subsidiary
performance.
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1.
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On
the date the Committee determines the awards to be made to individual
Participants, it shall also establish the Payment
Date.
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2.
|
Except
as provided below or as the Committee otherwise determines, in order to
receive an award under the Plan, a Participant must remain in the
employment of the Company or the Subsidiary for the entire Service
Year.
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3.
|
A
Participant who transfers between the Company or a Subsidiary and another
company in the MDU Resources Group, Inc. system may receive a prorated
award at the discretion of the
Committee.
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4.
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If
a Participant terminates employment with the Company pursuant to Section
5.01 of the Company's Bylaws which provides for mandatory retirement for
certain officers on their 65
th
birthday (or terminates employment with a Subsidiary pursuant to a similar
Subsidiary Bylaw provision) and if the Participant's 65
th
birthday occurs during the Service Year, determination of whether the
performance measures have been met will be made at the end of the Service
Year, and to the extent met, payment of the award will be made to the
Participant, prorated. Proration of awards shall be based upon
the number of full months elapsed from and including January to and
including the month in which the Participant's 65
th
birthday occurs.
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5.
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Payment
of the award shall be made in cash. Payments shall be made on
the Payment Date unless the Participant has deferred, in whole or in part,
the receipt of the award by making an election on the deferral form
attached hereto, prior to the beginning of the Service
Year. Deferral elections may not be changed or revoked after
the Service Year begins.
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6.
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In
the event a Participant has elected to defer receipt of all or a portion
of the award, the Company shall set up an account in the Participant's
name. The amount of the Participant's award to the extent
deferred will be credited to the Participant's account on the Payment
Date.
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7.
|
The
balance credited to an account of a Participant who has elected to defer
receipt of an award will be an unsecured, unfunded obligation of the
Company.
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8.
|
Interest
shall accrue on the balance credited to a Participant's account from the
date the balance is credited. Effective January 1, 2009, the
rate of interest for each Plan Year shall be the Moody’s
Rate.
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9.
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Interest
shall be compounded and credited to the account
monthly.
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10.
|
A
Participant may elect to defer any percentage, not to exceed 100, of an
annual award.
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11.
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A
Participant electing to defer any part of an award must elect one of the
following dates on which (a) payment will be made, if payment will be in a
lump sum or (b) payments will commence, if payment will be made in monthly
installments:
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(a)
|
Between
January 1 and March 10 next following termination of employment with the
Company or an affiliated company;
or
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(b)
|
Between
January 1 and March 10 of the fifth year following the year in which the
award would have been paid had it not been
deferred.
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For
Participants who previously elected to have payments made or commence on the
Payment Date next following termination of employment, their payments will be
made or commence between January 1 and March 10 next following their termination
of employment with the Company or an affiliated company. For
Participants who elected to have payments made or commence on the Payment Date
of the fifth year following the year in which the award may be made, their
payments will be made or commence between January 1 and March 10 of the fifth
year following the year in which the award would have been paid had it not been
deferred.
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12.
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At
the same time a Participant makes a deferral election, a Participant may
elect to receive the deferred amounts accumulated in the Participant's
account in monthly installments, not to exceed 120. In the
event the Participant elects to receive the amounts in the Participant's
account in more than one installment, interest shall continue to accrue on
the balance remaining in their account at the applicable rate or rates
determined annually by the
Committee.
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13.
|
Notwithstanding
anything contained in the Plan or these Rules and Regulations to the
contrary, if a Specified Employee's employment terminates, to the
extent
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required
by Section 409A(a)(2)(B) of the Code, except as otherwise provided in paragraph
14 below of this Section VII of these Rules and Regulations, payment of any
deferred amounts under the Plan that are to be paid during the 6 month period
following the Specified Employee's termination of employment shall not be paid
or provided until the first business day after the date that is 6 months
following the Specified Employee's termination of employment. Any
payment that is made pursuant to the prior sentence shall include the cumulative
amount of any amounts that could not be paid during the 6 month period following
the Specified Employee's termination of employment. To the extent
payments are deferred pursuant to the prior sentence, such deferred amounts
shall continue to accrue interest pursuant to Section VII of these Rules and
Regulations until payment occurs.
For all
purposes under the Plan and these Rules and Regulations, references to
termination of employment and similar terms shall be interpreted to mean
"separation from service," as that term is used in Section 409A of the Code, and
the Participant's employment shall not be deemed to have terminated for purposes
of the Plan or these Rules and Regulations unless and until a separation from
service shall have occurred for purposes of Section 409A of the
Code.
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14.
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In
the event of the death of a Participant in whose name a deferred account
has been set up, the Company shall, within 90 days thereafter, pay to the
Participant's estate or the designated beneficiary the entire amount in
the deferred account.
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15.
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In
the event of a Change in Control any award deferred by a Participant shall
become immediately payable to the Participant. In the event the
Participant files suit to collect a deferred award, all of the
Participant's court costs, other expenses of litigation, and attorneys'
fees shall be paid by the Company in the event the Participant prevails
upon any of the claims for
payment.
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PAYROLL ELECTION
FORM
Election
for Deferred Compensation
and Beneficiary
Designation
Pursuant to the
Knife
River Corporation
Executive Incentive
Compensation
Plan (the "Plan"), I elect to defer
receipt
of
____________________
percent of the
cash
(not to exceed 100)
portion
of any award which may be payable to me in
2011
for Plan
Year
incentive earned in
2010
, until
the event specified below:
Check
one:
Between
January 1 and March 10 of the year
following
the year
I cease
to be an employee
of Knife River Corporation
or an
affiliated
_______ company.
_______ Between
January 1 and March 10 of 2016.
I elect to receive any amounts
deferred pursuant to the
designation
above and accumulated in my account in
monthly installments.
(not to
exceed 120)
In the event of my death prior to
receipt of the balance of
such
accumulated amounts, I designate
whose address is
as my beneficiary
to
receive such balance.
I understand that this election shall
become irrevocable on December 31, 2009. I further understand that
(1) if I am a “specified employee” (as that term is used in Section 409A of the
Internal Revenue Code of 1986, as amended (the “Code”)) when my employment
terminates, to the extent required by Section 409A(a)(2)(B), payment of any
deferred amounts under the Plan that are subject to Section 409A of the Code and
that are to be paid during the 6 month period following my termination of
employment shall not be paid or provided until the first business day after the
date that is 6 months following termination of my employment or, if earlier,
within 90 days after my death and (2) for purposes of this election form, I
shall not be deemed to have terminated employment with Knife River Corporation
or an affiliated company unless and until a "separation from service" (as that
term is used in Section 409A of the Code) shall have occurred.
____________________
____________________
(Print
Name) (Signature)
____________________
(Date)
MDU
RESOURCES GROUP, INC.
LONG-TERM
PERFORMANCE-BASED INCENTIVE PLAN
Article
1. Establishment, Purpose and Duration
1.1
Establishment of the
Plan.
MDU Resources Group, Inc., a Delaware corporation
(hereinafter referred to as the "Company"), hereby establishes an incentive
compensation plan to be known as the "MDU Resources Group, Inc. Long-Term
Performance-Based Incentive Plan" (hereinafter referred to as the "Plan"), as
set forth in this document. The Plan permits the grant of
Nonqualified Stock Options (NQSO), Incentive Stock Options (ISO), Stock
Appreciation Rights (SAR), Restricted Stock, Performance Units, Performance
Shares and other awards.
The Plan first became effective when
approved by the stockholders at the annual meeting on April 22,
1997. The Plan, as amended, will become effective on April 25, 2006
if it is approved by the stockholders at the 2006 annual meeting. The
Plan shall remain in effect as provided in Section 1.3 herein.
1.2
Purpose of the
Plan.
The purpose of the Plan is to promote the success and
enhance the value of the Company by linking the personal interests of
Participants to those of Company stockholders and customers.
The Plan is further intended to provide
flexibility to the Company in its ability to motivate, attract and retain the
services of Participants upon whose judgment, interest and special effort the
successful conduct of its operations is largely dependent.
1.3
Duration of the
Plan.
The Plan shall remain in effect, subject to the right of
the Board of Directors to terminate the Plan at any time pursuant to Article 15
herein, until all Shares subject to it shall have been purchased or acquired
according to the Plan's provisions.
Article
2. Definitions
Whenever used in the Plan, the
following terms shall have the meanings set forth below and, when such meaning
is intended, the initial letter of the word is capitalized:
2.1
"Award"
means, individually
or collectively, a grant under the Plan of NQSOs, ISOs, SARs, Restricted Stock,
Performance Units, Performance Shares or any other type of award permitted under
Article 10 of the Plan.
2.2
"Award Agreement"
means an
agreement entered into by each Participant and the Company, setting forth the
terms and
provisions
applicable to an Award granted to a Participant under the Plan.
2.3
"Base Value"
of an SAR shall
have the meaning set forth in Section 7.1 herein.
2.4
"Board"
or
"Board of Directors"
means
the Board of Directors of the Company.
2.5 A
“Change in Control”
shall mean:
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(a)
|
The
acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (i) the then outstanding shares of common stock of the
Company (the “Outstanding Company Common Stock”) or (ii) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the “Outstanding
Company Voting Securities”); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a Change
in Control: (i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i),
(ii) and (iii) of subsection (c) of this Section 2.5;
or
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|
(b)
|
Individuals
who, as of April 22, 1997, which is the effective date of the Plan,
constitute the Board (the “Incumbent Board”) cease for any reason to
constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company’s shareholders, was
approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board;
or
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|
(c)
|
Consummation
of a reorganization, merger or consolidation or sale or other disposition
of all or substantially all of the assets of the Company (a “Business
Combination”), in each case, unless, following such Business Combination,
(i) all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than
60% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled
to vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company’s assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (ii) no Person (excluding
any corporation resulting from such Business Combination or any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such Business Combination
or the combined voting power of the then outstanding voting securities of
such corporation except to the extent that such ownership existed prior to
the Business Combination and (iii) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination;
or
|
|
(d)
|
Approval
by the shareholders of the Company of a complete liquidation or
dissolution of the Company.
|
For
avoidance of doubt, unless otherwise determined by the Board, the sale of a
subsidiary, operating entity or business unit of the Company shall not
constitute a Change in Control for purposes of this Agreement.
2.6
"Code"
means the Internal
Revenue Code of 1986, as amended from time to time.
2.7
"Committee"
means the
Committee, as specified in Article 3, appointed by the Board to administer
the Plan with respect to Awards.
2.8
"Company"
means MDU Resources
Group, Inc., a Delaware corporation, or any successor thereto as provided in
Article 18 herein.
2.9
"Covered Employee"
means any
Participant who would be considered a "Covered Employee" for purposes of Section
162(m) of the Code.
2.10
"
Director"
means any
individual who is a member of the Board of Directors of the
Company.
2.11
"Disability"
means "permanent
and total disability" as defined under Section 22(e)(3)of the Code.
2.12
"Dividend Equivalent"
means,
with respect to Shares subject to an Award, a right to be paid an amount equal
to dividends declared on an equal number of outstanding Shares.
2.13
"Eligible Employee"
means an
Employee who is eligible to participate in the Plan, as set forth in Section 5.1
herein.
2.14
"Employee"
means any
full-time or regularly-scheduled part-time employee of the Company or of the
Company's Subsidiaries, who is not covered by any collective bargaining
agreement to which the Company or any of its Subsidiaries is a
party. Directors who are not otherwise employed by the Company shall
not be considered Employees for purposes of the Plan. For purposes of
the Plan, transfer of employment of a Participant between the Company and any
one of its Subsidiaries (or between Subsidiaries) shall not be deemed a
termination of employment.
2.15
"Exchange Act"
means the
Securities Exchange Act of 1934, as amended from time to time, or any successor
act thereto.
2.16
"Exercise Period"
means the
period during which an SAR or Option is exercisable, as set forth in the related
Award Agreement.
2.17
"Fair Market Value"
shall
mean the average of the high and low sale prices as reported in the consolidated
transaction reporting system or, if there is no such sale on the relevant date,
then on the last previous day on which a sale was reported.
2.18
"Freestanding SAR"
means an
SAR that is granted independently of any Option.
2.19
"Full Value Award"
means an
Award pursuant to which Shares may be issued, other than an Option or an
SAR.
2.20
"Incentive Stock Option"
or
"ISO
" means an option
to purchase Shares, granted under Article 6 herein, which is designated as an
Incentive Stock Option and satisfies the requirements of Section 422 of the
Code.
2.21
"Nonqualified Stock Option" or
"NQSO"
means an option to purchase Shares, granted under Article 6
herein, which is not intended to be an Incentive Stock Option under Section 422
of the Code.
2.22
"Option"
means an Incentive
Stock Option or a Nonqualified Stock Option.
2.23
"Option Price"
means the
price at which a Share may be purchased by a Participant pursuant to an Option,
as determined by the Committee and set forth in the Option Award
Agreement.
2.24
"Participant"
means an
Employee of the Company who has outstanding an Award granted under the
Plan.
2.25
"Performance Goals"
means the
performance goals established by the Committee, which shall be based on one or
more of the following measures: sales or revenues, earnings per
share, shareholder return and/or value, funds from operations, operating income,
gross income, net income, cash flow, return on equity, return on capital,
earnings before interest, operating ratios, stock price, customer satisfaction,
accomplishment of mergers, acquisitions, dispositions or similar extraordinary
business transactions, profit returns and margins, financial return ratios
and/or market performance. Performance goals may be measured solely
on a corporate, subsidiary or business unit basis, or a combination
thereof. Performance goals may reflect absolute entity performance or
a relative comparison of entity performance to the performance of a peer group
of entities or other external measure.
2.26
"Performance Unit"
means an
Award granted to an Employee, as described in Article 9 herein.
2.27
"Performance Share"
means an
Award granted to an Employee, as described in Article 9 herein.
2.28
"Period of Restriction"
means
the period during which the transfer of Restricted Stock is limited in some way,
as provided in Article 8 herein.
2.29
"Person"
shall have the
meaning ascribed to such term in Section 3(a)(9) of the Exchange Act, as used in
Sections 13(d)
and 14(d)
thereof, including usage in the definition of a "group" in Section 13(d)
thereof.
2.30
"
Qualified Restricted
Stock
"
means an Award
of Restricted Stock designated as Qualified Restricted Stock by the Committee at
the time of grant and intended to qualify for the exemption from the limitation
on deductibility imposed by Section 162(m) of the Code that is set forth in
Section 162(m)(4)(C).
2.31
"Restricted Stock"
means an
Award of Shares granted to a Participant pursuant to Article 8
herein.
2.32
"Shares"
means the shares of
common stock of the Company.
2.33
"Stock Appreciation Right" or
"SAR" means a right, granted alone or in connection with a related
Option, designated as an SAR, to receive a payment on the day the right is
exercised, pursuant to the terms of Article 7 herein. Each SAR shall
be denominated in terms of one Share.
2.34
"Subsidiary"
means any
corporation that is a "subsidiary corporation" of the Company as that term is
defined in Section 424(f) of the Code.
2.35
"Tandem SAR
" means an SAR
that is granted in connection with a related Option, the exercise of which shall
require forfeiture of the right to purchase a Share under the related Option
(and when a Share is purchased under the Option, the Tandem SAR shall be
similarly canceled).
Article
3. Administration
3.1
The Committee.
The
Plan shall be administered by the Compensation Committee of the Board, or by any
other Committee appointed by the Board. The members of the Committee
shall be appointed from time to time by, and shall serve at the discretion of,
the Board of Directors.
3.2
Authority of the
Committee.
The Committee shall have full power except as
limited by law, the Articles of Incorporation and the Bylaws of the Company,
subject to such other restricting limitations or directions as may be imposed by
the Board and subject to the provisions herein, to determine the size and types
of Awards; to determine the terms and conditions of such Awards in a manner
consistent with the Plan; to construe and interpret the Plan and any agreement
or instrument entered into under the Plan; to establish, amend or waive rules
and regulations for the Plan's administration; and (subject to the provisions of
Article 15 herein) to amend the terms and conditions of any outstanding
Award. Further, the Committee shall make all other
determinations
which may
be necessary or advisable for the administration of the Plan. As
permitted by law, the Committee may delegate its authorities as identified
hereunder.
3.3
Restrictions on Share
Transferability.
The Committee may impose such restrictions on
any Shares acquired pursuant to Awards under the Plan as it may deem advisable,
including, without limitation, restrictions to comply with applicable Federal
securities laws, with the requirements of any stock exchange or market upon
which such Shares are then listed and/or traded and with any blue sky or state
securities laws applicable to such Shares.
3.4
Approval.
The
Board or the Committee shall approve all Awards made under the Plan and all
elections made by Participants, prior to their effective date, to the extent
necessary to comply with Rule 16b-3 under the Exchange Act.
3.5
Decisions
Binding.
All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, its stockholders, Employees, Participants and their
estates and beneficiaries.
3.6
Costs.
The Company
shall pay all costs of administration of the Plan.
Article
4. Shares Subject to the Plan
4.1
Number of
Shares.
Subject to Section 4.2 herein, the maximum number of
Shares that may be issued pursuant to Awards under the Plan shall be
9,242,806. Shares underlying lapsed or forfeited Awards of Restricted
Stock shall not be treated as having been issued pursuant to an Award under the
Plan. Shares withheld from an Award of Restricted Stock to satisfy
tax withholding obligations shall be counted as Shares issued pursuant to an
Award under the Plan. Shares that are potentially deliverable under
an Award that expires or is canceled, forfeited, settled in cash or otherwise
settled without the delivery of Shares shall not be treated as having been
issued under the Plan. Shares that are withheld to satisfy the Option
Price or tax withholding obligations related to an Option, SAR or other Award
pursuant to which the Shares withheld have not yet been issued shall not be
deemed to be Shares issued under the Plan.
Shares
issued pursuant to the Plan may be (i) authorized but unissued Shares of Common
Stock, (ii) treasury shares, or (iii) shares purchased on the open
market.
4.2
Adjustments in Authorized
Shares.
In the event of any equity restructuring such as a
stock dividend, stock split, spinoff, rights offering or recapitalization
through a large, nonrecurring cash dividend, the Committee shall cause an
equitable adjustment to be made (i) in the number and kind of Shares that may be
delivered under the Plan, (ii) in the individual limitations set forth in
Section 4.3 and (iii) with respect to outstanding Awards, in the number and kind
of Shares subject to outstanding Awards, the Option Price, Base Value or other
price of Shares subject to outstanding Awards, any Performance Goals relating to
Shares, the market price of Shares, or per-Share results, and other terms and
conditions of outstanding Awards, in the case of (i), (ii) and (iii) to prevent
dilution or enlargement of rights. In the event of any other change
in corporate capitalization, such as a merger, consolidation or liquidation, the
Committee may, in its sole discretion, cause an equitable adjustment as
described in the foregoing sentence to be made to prevent dilution or
enlargement of rights. The number of Shares subject to any Award
shall always be rounded down to a whole number when adjustments are made
pursuant to this Section 4.2. Adjustments made by the Committee
pursuant to this Section 4.2 shall be final, binding and
conclusive.
4.3
Individual
Limitations.
Subject to Section 4.2 herein, (i) the total
number of Shares with respect to which Options or SARs may be granted in any
calendar year to any Covered Employee shall not exceed 2,250,000 Shares; (ii)
the total number of shares of Qualified Restricted Stock that may be granted in
any calendar year to any Covered Employee shall not exceed 2,250,000 Shares;
(iii) the total number of Performance Shares or Performance Units that may be
granted in any calendar year to any Covered Employee shall not exceed 2,250,000
Performance Shares or Performance Units, as the case may be; (iv) the total
number of Shares that are intended to qualify for deduction under Section 162(m)
of the Code granted pursuant to Article 10 herein in any calendar year to any
Covered Employee shall not exceed 2,250,000 Shares; (v) the total cash Award
that is intended to qualify for deduction under Section 162(m) of the Code that
may be paid pursuant to Article 10 herein in any calendar year to any Covered
Employee shall not exceed $6,000,000; and (vi) the aggregate number of Dividend
Equivalents that are intended to qualify for deduction under Section 162(m) of
the Code that a Covered Employee may receive in any calendar year shall not
exceed $6,000,000.
Article
5. Eligibility and Participation
5.1
Eligibility.
Persons
eligible to participate in the Plan include all officers and key employees of
the Company and its Subsidiaries, as determined by the Committee, including
Employees
who are
members of the Board, but excluding Directors who are not
Employees.
5.2
Actual
Participation.
Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees those to
whom Awards shall be granted and shall determine the nature and amount of each
Award.
Article
6. Stock Options
6.1
Grant of
Options.
Subject to the terms and conditions of the Plan,
Options may be granted to an Eligible Employee at any time and from time to
time, as shall be determined by the Committee.
The Committee shall have complete
discretion in determining the number of Shares subject to Options granted to
each Participant (subject to Article 4 herein) and, consistent with the
provisions of the Plan, in determining the terms and conditions pertaining to
such Options. The Committee may grant ISOs, NQSOs, or a combination
thereof.
6.2
Option Award
Agreement.
Each Option grant shall be evidenced by an Option
Award Agreement that shall specify the Option Price, the term of the Option, the
number of Shares to which the Option pertains, the Exercise Period and such
other provisions as the Committee shall determine, including but not limited to
any rights to Dividend Equivalents. The Option Award Agreement shall
also specify whether the Option is intended to be an ISO or an
NQSO.
The Option Price for each Share
purchasable under any Incentive Stock Option granted hereunder shall be not less
than one hundred percent (100%) of the Fair Market Value per Share at the date
the Option is granted; and provided, further, that in the case of an Incentive
Stock Option granted to a person who, at the time such Incentive Stock Option is
granted, owns shares of stock of the Company or of any Subsidiary which possess
more than ten percent (10%) of the total combined voting power of all classes of
shares of stock of the Company or of any Subsidiary, the Option Price for each
Share shall be not less than one hundred ten percent (110%) of the Fair Market
Value per Share at the date the Option is granted. The Option Price
will be subject to adjustment in accordance with the provisions of Section 4.2
of the Plan.
No Incentive Stock Option by its terms
shall be exercisable after the expiration of ten (10) years from the date of
grant of the Option; provided, however, in the case of an Incentive Stock Option
granted to a person who, at the time such Option is granted, owns shares of
stock of the Company or of any Subsidiary possessing more than ten percent (10%)
of the total combined voting power of all classes of shares of stock of the
Company or
of any
Subsidiary, such Option shall not be exercisable after the expiration of five
(5) years from the date such Option is granted.
6.3
Exercise of and Payment for
Options.
Options granted under the Plan shall be exercisable
at such times and be subject to such restrictions and conditions as the
Committee shall in each instance approve.
A Participant may exercise an Option at
any time during the Exercise Period. Options shall be exercised by
the delivery of a written notice of exercise to the Company or its designee,
setting forth the number of Shares with respect to which the Option is to be
exercised, accompanied by provisions for full payment for the
Shares.
The Option Price upon exercise of any
Option shall be payable either: (a) in cash or its equivalent, (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to the total Option Price (provided that Shares which are
tendered must have been held by the Participant for at least six (6) months
prior to their tender to satisfy the Option Price), (c) by share withholding,
(d) by cashless exercise or (e) by a combination of (a),(b),(c), and/or
(d).
As soon as practicable after receipt of
a written notification of exercise of an Option, provisions for full payment
therefor and satisfaction or provision for satisfaction of any tax withholding
or other obligations, the Company shall (i) deliver to the Participant, in the
Participant's name or the name of the Participant's designee, a Share
certificate or certificates in an appropriate aggregate amount based upon the
number of Shares purchased under the Option, or (ii) cause to be issued in the
Participant's name or the name of the Participant's designee, in book-entry
form, an appropriate number of Shares based upon the number of Shares purchased
under the Option.
6.4
Termination of
Employment.
Each Option Award Agreement shall set forth the
extent to which the Participant shall have the right to exercise the Option
following termination of the Participant's employment with the Company and its
Subsidiaries. Such provisions shall be determined in the sole
discretion of the Committee (subject to applicable law), shall be included in
the Option Award Agreement entered into with Participants, need not be uniform
among all Options granted pursuant to the Plan or among Participants and may
reflect distinctions based on the reasons for termination of
employment. If the employment of a Participant by the Company or by
any Subsidiary is terminated for any reason other than death, any Incentive
Stock Option granted to such Participant may not be exercised later than three
(3) months (one (1) year in the case of termination due to Disability) after the
date of such termination of employment.
6.5
Transferability of
Options.
Except as otherwise determined by the Committee and
set forth in the Option Award Agreement, no Option granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution, and all Incentive
Stock Options granted to a Participant under the Plan shall be exercisable
during his or her lifetime only by such Participant.
Article
7. Stock Appreciation Rights
7.1
Grant of
SARs.
Subject to the terms and conditions of the Plan, an SAR
may be granted to an Eligible Employee at any time and from time to time as
shall be determined by the Committee. The Committee may grant
Freestanding SARs, Tandem SARs or any combination of these forms of
SAR.
The Committee shall have complete
discretion in determining the number of SARs granted to each Participant
(subject to Article 4 herein) and, consistent with the provisions of the
Plan, in determining the terms and conditions pertaining to such
SARs.
The Base Value of a Freestanding SAR
shall equal the Fair Market Value of a Share on the date of grant of the
SAR. The Base Value of Tandem SARs shall equal the Option Price of
the related Option.
7.2
SAR Award
Agreement.
Each SAR grant shall be evidenced by an SAR Award
Agreement that shall specify the number of SARs granted, the Base Value, the
term of the SAR, the Exercise Period and such other provisions as the Committee
shall determine.
7.3
Exercise and Payment of
SARs.
Tandem SARs may be exercised for all or part of the
Shares subject to the related Option upon the surrender of the right to exercise
the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable.
Notwithstanding any other provision of
the Plan to the contrary, with respect to a Tandem SAR granted in connection
with an ISO: (i) the Tandem SAR will expire no later than the expiration of the
underlying ISO; (ii) the value of the payout with respect to the Tandem SAR may
be for no more than one hundred percent (100%) of the difference between the
Option Price of the underlying ISO and the Fair Market Value of the Shares
subject to the underlying ISO at the time the Tandem SAR is exercised; and (iii)
the Tandem SAR may be exercised only when the Fair Market Value of the Shares
subject to the ISO exceeds the Option Price of the ISO.
Freestanding SARs may be exercised upon
whatever terms and conditions the Committee, in its sole discretion, imposes
upon them.
A Participant may exercise an SAR at
any time during the Exercise Period. SARs shall be exercised by the
delivery of a written notice of exercise to the Company, setting forth the
number of SARs being exercised. Upon exercise of an SAR, a
Participant shall be entitled to receive payment from the Company in an amount
equal to the product of:
|
(a)
|
the
excess of (i) the Fair Market Value of a Share on the date of exercise
over (ii) the Base Value multiplied
by
|
|
(b)
|
the
number of Shares with respect to which the SAR is
exercised.
|
At the sole discretion of the
Committee, the payment to the Participant upon SAR exercise may be in cash, in
Shares of equivalent value, or in some combination thereof.
7.4
Termination of
Employment.
Each SAR Award Agreement shall set forth the
extent to which the Participant shall have the right to exercise the SAR
following termination of the Participant's employment with the Company and its
Subsidiaries. Such provisions shall be determined in the sole
discretion of the Committee, shall be included in the SAR Award Agreement
entered into with Participants, need not be uniform among all SARs granted
pursuant to the Plan or among Participants and may reflect distinctions based on
the reasons for termination of employment.
7.5
Transferability of
SARs.
Except as otherwise determined by the Committee and set
forth in the SAR Award Agreement, no SAR granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution, and all SARs granted to
a Participant under the Plan shall be exercisable during his or her lifetime
only by such Participant or his or her legal representative.
Article
8. Restricted Stock
8.1
Grant of Restricted
Stock.
Subject to the terms and conditions of the Plan,
Restricted Stock may be granted to
Eligible
Employees at any time and from time to time, as shall be determined by the
Committee.
The Committee shall have complete
discretion in determining the number of shares of Restricted Stock granted to
each Participant (subject to Article 4 herein) and, consistent with
the
provisions
of the Plan, in determining the terms and conditions pertaining to such
Restricted Stock.
In addition, the Committee may, prior
to or at the time of grant, designate an Award of Restricted Stock as Qualified
Restricted Stock, in which event it will condition the grant or vesting, as
applicable, of such Qualified Restricted Stock upon the attainment of the
Performance Goals selected by the Committee.
8.2
Restricted Stock Award
Agreement.
Each Restricted Stock grant shall be evidenced by a
Restricted Stock Award Agreement that shall specify the Period or Periods of
Restriction, the number of Restricted Stock Shares granted and such other
provisions as the Committee shall determine.
8.3
Transferability.
Restricted
Stock granted hereunder may not be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated until the end of the applicable Period of
Restriction established by the Committee and specified in the Restricted Stock
Award Agreement. All rights with respect to the Restricted Stock
granted to a Participant under the Plan shall be available during his or her
lifetime only to such Participant or his or her legal
representative.
8.4
Certificate
Legend.
Each certificate representing Restricted Stock granted
pursuant to the Plan may bear a legend substantially as follows:
|
"The
sale or other transfer of the shares of stock represented by this
certificate, whether voluntary, involuntary or by operation of law, is
subject to certain restrictions on transfer as set forth in MDU Resources
Group, Inc. Long-Term Performance-Based Incentive Plan and in a Restricted
Stock Award Agreement. A copy of such Plan and such Agreement
may be obtained from MDU Resources Group,
Inc."
|
The Company shall have the right to
retain the certificates representing Restricted Stock in the Company's
possession until such time as all restrictions applicable to such Shares have
been satisfied.
8.5
Removal of
Restrictions.
Restricted Stock shall become freely
transferable by the Participant after the last day of the Period of Restriction
applicable thereto. Once Restricted Stock is released from the
restrictions, the Participant shall be entitled to have the legend referred to
in Section 8.4 removed from his or her stock certificate.
8.6
Voting
Rights.
During the Period of Restriction, Participants holding
Restricted Stock may exercise full voting rights with respect to those
Shares.
8.7
Dividends and Other
Distributions.
Subject to the Committee's right to determine
otherwise at the time of grant, during the Period of Restriction, Participants
holding Restricted Stock shall receive all regular cash dividends paid with
respect to all Shares while they are so held. All other distributions
paid with respect to such Restricted Stock shall be credited to Participants
subject to the same restrictions on transferability and forfeitability as the
Restricted Stock with respect to which they were paid and shall be paid to the
Participant within forty-five (45) days following the full vesting of the
Restricted Stock with respect to which such distributions were
made.
8.8
Termination of
Employment.
Each Restricted Stock Award Agreement shall set
forth the extent to which the Participant shall have the right to receive
unvested Restricted Stock following termination of the Participant's employment
with the Company and its Subsidiaries. Such provisions shall be
determined in the sole discretion of the Committee, shall be included in the
Restricted Stock Award Agreement entered into with Participants, need not be
uniform among all grants of Restricted Stock or among Participants and may
reflect distinctions based on the reasons for termination of
employment.
Article
9. Performance Units and Performance Shares
9.1
Grant of Performance Units and
Performance Shares.
Subject to the terms and conditions of the Plan,
Performance Units and/or Performance Shares may be granted to an Eligible
Employee at any time and from time to time, as shall be determined by the
Committee.
The Committee shall have complete
discretion in determining the number of Performance Units and/or Performance
Shares granted to each Participant (subject to Article 4 herein) and, consistent
with the provisions of the Plan, in determining the terms and conditions
pertaining to such Awards.
9.2
Performance Unit/Performance Share
Award Agreement.
Each grant of Performance Units and/or Performance
Shares shall be evidenced by a Performance Unit and/or Performance Share Award
Agreement that shall specify the number of Performance Units and/or Performance
Shares granted, the initial value (if applicable), the Performance Period, the
Performance Goals and such other provisions as the Committee shall determine,
including but not limited to any rights to Dividend Equivalents.
9.3
Value of Performance
Units/Performance Shares.
Each Performance Unit shall have an
initial value that is established by the Committee at the time of
grant. The value of a Performance Share shall be equal to the Fair
Market Value of a Share. The Committee shall set Performance Goals in
its discretion which,
depending
on the extent to which they are met, will determine the number and/or value of
Performance Units/Performance Shares that will be paid out to the
Participants. The time period during which the Performance Goals must
be met shall be called a "Performance Period."
9.4
Earning of Performance
Units/Performance Shares.
After the applicable Performance
Period has ended, the holder of Performance Units/Performance Shares shall be
entitled to receive a payout with respect to the Performance Units/Performance
Shares earned by the Participant over the Performance Period, to be determined
as a function of the extent to which the corresponding Performance Goals have
been achieved.
9.5
Form and Timing of Payment of
Performance Units/Performance Shares.
Payment of earned
Performance Units/Performance Shares shall be made following the close of the
applicable Performance Period. The Committee, in its sole discretion,
may pay earned Performance Units/Performance Shares in cash or in Shares (or in
a combination thereof), which have an aggregate Fair Market Value equal to the
value of the earned Performance Units/Performance Shares at the close of the
applicable Performance Period. Such Shares may be granted subject to
any restrictions deemed appropriate by the Committee.
9.6
Termination of
Employment.
Each Performance Unit/Performance Share Award
Agreement shall set forth the extent to which the Participant shall have the
right to receive a Performance Unit/Performance Share payment following
termination of the Participant's employment with the Company and its
Subsidiaries during a Performance Period. Such provisions shall be
determined in the sole discretion of the Committee, shall be included in the
Award Agreement entered into with Participants, need not be uniform among all
grants of Performance Units/Performance Shares or among Participants and may
reflect distinctions based on reasons for termination of
employment.
9.7
Transferability.
Except
as otherwise determined by the Committee and set forth in the Performance
Unit/Performance Share Award Agreement, Performance Units/Performance Shares may
not be sold, transferred, pledged, assigned or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution, and
a Participant's rights with respect to Performance Units/Performance Shares
granted under the Plan shall be available during the Participant's lifetime only
to such Participant or the Participant's legal representative.
Article
10. Other Awards
The Committee shall have the right to
grant other Awards which may include, without limitation, the grant of Shares
based on attainment of Performance Goals established by the Committee, the
payment of Shares in lieu of cash, the payment of cash based on attainment of
Performance Goals established by the Committee, and the payment of Shares in
lieu of cash under other Company incentive or bonus programs. Payment
under or settlement of any such Awards shall be made in such manner and at such
times as the Committee may determine.
Article
11. Beneficiary Designation
Each Participant under the Plan may,
from time to time, name any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be paid
in case of his or her death before he or she receives any or all of such
benefit. Each such designation shall revoke all prior designations by
the same Participant, shall be in a form prescribed by the Company, and will be
effective only when filed by the Participant in writing with the Company during
the Participant's lifetime. In the absence of any such designation,
benefits remaining unpaid at the Participant's death shall be paid to the
Participant's estate.
The spouse of a married Participant
domiciled in a community property jurisdiction shall join in any designation of
beneficiary or beneficiaries other than the spouse.
Article
12. Deferrals
The Committee may permit a Participant
to defer the Participant's receipt of the payment of cash or the delivery of
Shares that would otherwise be due to such Participant under the
Plan. If any such deferral election is permitted, the Committee
shall, in its sole discretion, establish rules and procedures for such payment
deferrals.
Article
13. Rights of Employees
13.1
Employment.
Nothing
in the Plan shall interfere with or limit in any way the right of the Company to
terminate any Participant's employment at any time, for any reason or no reason
in the Company's sole discretion, nor confer upon any Participant any right to
continue in the employ of the Company.
13.2
Participation.
No
Employee shall have the right to be selected to receive an Award under the Plan,
or, having been so selected, to be selected to receive a future
Award.
Article
14. Change in Control
The terms of this Article 14 shall
immediately become operative, without further action or consent by any person or
entity, upon a Change in Control, and once operative shall supersede and take
control over any other provisions of this Plan.
Upon a Change in Control
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(a)
|
Any
and all Options and SARs granted hereunder shall become immediately
exercisable;
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(b)
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Any
restriction periods and restrictions imposed on Restricted Stock,
Qualified Restricted Stock or Awards granted pursuant to Article 10 (if
not performance-based) shall be deemed to have expired and such Restricted
Stock, Qualified Restricted Stock or Awards shall become immediately
vested in full; and
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(c)
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The
target payout opportunity attainable under all outstanding Awards of
Performance Units, Performance Shares and Awards granted pursuant to
Article 10 (if performance-based) shall be deemed to have been fully
earned for the entire Performance Period(s) as of the effective date of
the Change in Control, and shall be paid out promptly in Shares or cash
pursuant to the terms of the Award Agreement, or in the absence of such
designation, as the Committee shall
determine.
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Article
15. Amendment, Modification and Termination
15.1
Amendment, Modification and
Termination.
The Board may, at any time and from time to time,
alter, amend, suspend or terminate the Plan, in whole or in part, provided that
no amendment shall be made which shall increase the total number of Shares that
may be issued under the Plan, materially modify the requirements for
participation in the Plan, or materially increase the benefits accruing to
Participants under the Plan, in each case unless such amendment is approved by
the stockholders. The Board of Directors of the Company is also
authorized to amend the Plan and the Options granted hereunder to maintain
qualification as "incentive stock options" within the meaning of Section 422 of
the Code, if applicable.
15.2
Awards Previously
Granted.
No termination, amendment or modification of the Plan
shall adversely affect in any material way any Award previously granted under
the Plan, without the written consent of the Participant holding such Award,
unless such termination, modification or amendment is required by applicable law
and except as otherwise provided herein.
Article
16. Withholding
16.1
Tax
Withholding.
The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy Federal, state and local taxes (including the
Participant's FICA obligation) required by law to be withheld with respect to an
Award made under the Plan.
16.2
Share
Withholding.
With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock,
or upon any other taxable event arising out of or as a result of Awards granted
hereunder, Participants may elect to satisfy the withholding requirement, in
whole or in part, by tendering previously-owned Shares or by having the Company
withhold Shares having a Fair Market Value on the date the tax is to be
determined equal to the statutory total tax which could be imposed on the
transaction. All elections shall be irrevocable, made in writing and
signed by the Participant.
Article
17. Minimum Vesting
Notwithstanding any other provision of
the Plan to the contrary, (a) the minimum vesting period for Full Value Awards
with no performance-based vesting characteristics must be at least three years
(vesting may occur ratably each month, quarter or anniversary of the grant date
over such vesting period); (b) the minimum vesting period for Full Value Awards
with performance-based vesting characteristics must be at least one year; and
(c) the Committee shall not have discretion to accelerate vesting of Full Value
Awards except in the event of a Change in Control or similar transaction, or the
death, disability, or termination of employment of a Participant; provided,
however, that the Committee may grant a "de minimis" number of Full Value Awards
that do not comply with the foregoing minimum vesting standards. For
this purpose "de minimis" means 331,279 Shares available for issuance as Full
Value Awards under the Plan, subject to adjustment under Section 4.2
herein.
Article
18. Successors
All obligations of the Company under
the Plan, with respect to Awards granted hereunder, shall be binding on any
successor to the Company, whether the existence of such successor is the result
of a direct or indirect purchase, merger, consolidation or otherwise, of all or
substantially all of the business and/or assets of the Company.
Article
19. Legal Construction
19.1
Gender and
Number.
Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine, the plural shall
include the singular and the singular shall include the plural.
19.2
Severability.
In
the event any provision of the Plan shall be held illegal or invalid for any
reason, the illegality or invalidity shall not affect the remaining parts of the
Plan, and the Plan shall be construed and enforced as if the illegal or invalid
provision had not been included.
19.3
Requirements of
Law.
The granting of Awards and the issuance of Shares under
the Plan shall be subject to all applicable laws, rules and regulations, and to
such approvals by any governmental agencies or national securities exchanges as
may be required.
19.4
Governing Law.
To
the extent not preempted by Federal law, the Plan, and all agreements hereunder,
shall be construed in accordance with, and governed by, the laws of the State of
Delaware.
Article
20. Accounting Restatements
This Article 20 shall apply to Awards
granted to all Participants in the Plan. Notwithstanding anything in
the Plan or in any Award Agreement to the contrary, if the Company's audited
financial statements are restated, the Committee may, in accordance with the
Company's
Guidelines for
Repayment of Incentives Due to Accounting Restatements
, take such actions
as it deems appropriate (in its sole discretion) with respect to
(a) Awards
then outstanding (including Awards that have vested or otherwise been earned but
with respect to which payment of cash or distribution of Shares, as the case may
be, has not been made or deferred and also including unvested or unpaid Dividend
Equivalents attributable to such outstanding Awards) ("Outstanding Awards")
and
(b) vested,
earned and/or exercised Awards and any cash or Shares received with respect to
Awards (including, without limitation, dividends and Dividend Equivalents), in
each case to the extent payment of cash or distribution of Shares, as the case
may be, was received or deferred within the 3 year period preceding the
restatement ("Prior Awards"), provided such Prior Awards were not vested,
earned, exercised or paid prior to the date the Plan was amended to add this
Article 20,
if the
terms of any such Outstanding Awards or Prior Awards or the benefits received by
a Participant with respect to any such
Outstanding
Awards or Prior Awards (including, without limitation, dividends or Dividend
Equivalents credited or distributed to a Participant and/or consideration
received upon the sale of Shares that were acquired pursuant to the vesting,
settlement or exercise of a Prior Award) are, or would have been, directly
impacted by the restatement, including, without limitation, (i) securing (or
causing to be secured) repayment of all or a portion of any amounts paid,
distributed or deferred (including, without limitation, dividends or Dividend
Equivalents and/or consideration received upon the sale of Shares that were
acquired pursuant to the vesting, settlement or exercise of a Prior Award), (ii)
granting additional Awards or making (or causing to be made) additional payments
or distributions (or crediting additional deferrals) with respect to Prior
Awards, (iii) rescinding vesting (including accelerated vesting) of Outstanding
Awards and/or (iv) causing the forfeiture of Outstanding Awards. The
Committee may, in its sole discretion, take different actions pursuant to this
Article 20 with respect to different Awards, different Participants (or
beneficiaries) and/or different classes of Awards or Participants (or
beneficiaries). The Committee has no obligation to take any action
permitted by this Article 20. The Committee may consider any factors
it chooses in taking (or determining whether to take) any action permitted by
this Article 20, including, without limitation, the following:
(A) The
reason for the restatement of the financial statements;
(B) The
amount of time between the initial publication and subsequent restatement of the
financial statements; and
(C) The
Participant's current employment status, and the viability of successfully
obtaining repayment.
If the Committee requires repayment of
all or part of a Prior Award, the amount of repayment shall be determined by the
Committee based on the circumstances giving rise to the
restatement. The Committee shall determine whether repayment shall be
effected (i) by seeking repayment from the Participant, (ii) by reducing
(subject to applicable law and the terms and conditions of the applicable plan,
program or arrangement) the amount that would otherwise be provided to the
Participant under any compensatory plan, program or arrangement maintained by
the Company or any of its affiliates, (iii) by withholding payment of future
increases in compensation (including the payment of any discretionary bonus
amount) or grants of compensatory awards that would otherwise have been made in
accordance with the Company's otherwise applicable compensation practices, or
(iv) by any combination of the foregoing. Additionally, by accepting
an Award under the Plan, Participants acknowledge and agree that the Committee
may take any actions permitted by this Article 20 with
respect
to Outstanding Awards to the extent repayment is to be made pursuant to another
plan, program or arrangement maintained by the Company or any of its
affiliates.
Article 21. Code Section
409A Compliance
To the extent applicable, it is
intended that this Plan and any Awards granted hereunder comply with the
requirements of Section 409A of the Code and any related regulations or other
guidance promulgated with respect to such Section by the U.S. Department of the
Treasury or the Internal Revenue Service ("Section 409A"). Any
provision that would cause the Plan or any Award granted hereunder to fail to
satisfy Section 409A shall have no force or effect until amended to comply with
Section 409A, which amendment may be retroactive to the extent permitted by
Section 409A.
MDU
RESOURCES GROUP, INC.
EXECUTIVE
INCENTIVE COMPENSATION PLAN
____________________________________________________________
I.
PURPOSE
The
purpose of the Executive Incentive Compensation Plan (the "Plan") is to provide
an incentive for key executives of MDU Resources Group, Inc. (the "Company") to
focus their efforts on the achievement of challenging and demanding corporate
objectives. The Plan is designed to reward successful corporate
performance as measured against specified performance goals as well as
exceptional individual performance. When corporate performance
reaches or exceeds the performance targets and individual performance is
exemplary, incentive compensation awards, in conjunction with salaries, will
provide a level of compensation which recognizes the skills and efforts of the
key executives.
II.
DEFINITIONS
Capitalized
terms not otherwise defined herein shall have the meanings given them in the
Company’s Executive Incentive Compensation Plan Rules and
Regulations.
III.
BASIC PLAN
CONCEPT
The
Plan provides an opportunity to earn annual incentive compensation based on the
achievement of specified annual performance objectives. A target
incentive award for each individual within the Plan is established based on the
position level and actual base salary, provided, however, that the Compensation
Committee of the Board of Directors (the “Committee”) in its sole discretion,
may, instead of actual base salary, use the assigned salary grade market value
(midpoint) (“Salary”). The target incentive award represents the
amount to be paid, subject to the achievement of the performance objective
targets established each year. Larger incentive awards
than
target
may be authorized when performance exceeds targets; lesser or no amounts may be
paid when performance is below target.
It
is recognized that during a Plan Year major unforeseen changes in economic and
environmental conditions or other significant factors beyond the control of
management may substantially affect the ability of the Plan Participants to
achieve the specified performance goals. Therefore, in its review of
corporate performance the Committee, in consultation with the Chief Executive
Officer of the Company, may modify the performance targets. However,
it is contemplated that such target modifications will be necessary only in
years of unusually adverse or favorable external conditions.
IV.
ADMINISTRATION
The
Plan shall be administered by the Committee with the
assistance
of the Chief Executive Officer of the Company. The Committee shall
approve annually, prior to the beginning of each Plan Year, the list of eligible
Participants, and the target incentive award level for each position within the
Plan. The Plan’s performance targets for the year shall be approved
by the Committee no later than its regularly scheduled February meeting during
that Plan Year. The Committee shall have final discretion to
determine actual award payment levels, method of payment, and whether or not
payments shall be made for any Plan Year.
The
Board of Directors of the Company may, at any time and from time to time, alter,
amend, supersede or terminate the Plan in whole or in part, provided that no
termination, amendment or modification of the Plan shall adversely affect in any
material way an award that has met all requirements for payment without the
written consent of the Participant holding such award, unless such termination,
modification or amendment is required by applicable law.
V.
ELIGIBILITY
Executives
who are determined by the Committee to have a key role in both the establishment
and achievement of Company objectives shall be eligible to participate in the
Plan.
Nothing
in the Plan shall interfere with or limit in any way the right of the Company to
terminate any Participant’s employment at any time, for any reason or no reason
in the Company’s sole discretion, or confer upon any Participant any right to
continue in the employment of the Company. No executive shall have
the right to be selected to receive an award under the Plan, or, having been so
selected, to be selected to receive a future award.
VI.
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PLAN PERFORMANCE
MEASURES
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Performance
measures shall be established that consider shareholder and customer
interests. These measures shall be evaluated annually based on
achievement of specified goals.
The
performance measure reflective of shareholder’s interest will be the percentage
attainment of corporate goals, as determined each year by the
Committee. This measure may be applied at the corporate level for
individuals, such as the Chief Executive Officer, or at the business unit level
for individuals whose major or sole impact is on business unit
results.
Individual
performance will be assessed based on the achievement of annually established
individual objectives.
Threshold,
target and maximum award levels will be established annually for each
performance measure and business unit. The Committee will retain the
right to make all interpretations as to the actual attainment of the desired
results and will determine whether any circumstances beyond the control of
management need to be considered.
VII.
TARGET INCENTIVE
AWARDS
Target
incentive awards will be expressed as a percentage of each Participant’s
Salary. These percentages shall vary by position and reflect larger
reward opportunity for positions having greater effect on the establishment and
accomplishment of the Company’s or business unit’s objectives. An
exhibit showing the target awards as a percentage of Salary for eligible
positions will be attached to this Plan at the beginning of each Plan
Year.
VIII.
INCENTIVE FUND
DETERMINATION
The
target incentive fund is the sum of the individual
target
incentive awards for all eligible Participants. Once the incentive
targets have been determined by the Committee, a target incentive fund shall be
established and accrued ratably by the Company. The incentive fund
and accruals may be adjusted during the year.
At
the close of each Plan Year, the Chief Executive
Officer
of the Company will prepare an analysis showing the Company's or business unit's
performance in relation to each of the performance measures
employed. This will be provided to the Committee for review and
comparison to threshold, target and maximum performance levels. In
addition, any recommendations of the Chief Executive Officer will be presented
at this time. The Committee will then determine the amount of the
target incentive fund earned.
IX.
INDIVIDUAL AWARD
DETERMINATION
Each
individual Participant's award will be based first upon the level of performance
achieved by the Company or business unit and secondly based upon the
individual's performance. The performance measures applicable for
assessing individual performance will be established at the beginning of each
Plan
Year. The
assessment by the Committee, after consultation with the Chief Executive
Officer, of achievement relative to the established performance measures, as
determined by a percentage from 0 percent to 200 percent, will be applied to the
Participant's target incentive award which has been first adjusted for Company
or business unit performance.
X.
PAYMENT OF
AWARDS
Except
as provided below or as otherwise determined by the Committee, in order to
receive an award under the Plan, the Participant must remain in the employment
of the Company or business unit for the entire Service Year. If a
Participant terminates employment with the Company pursuant to Section 5.01 of
the Company’s Bylaws which provides for mandatory retirement for certain
officers on their 65
th
birthday (or terminates employment with a subsidiary of the Company pursuant to
a similar subsidiary Bylaw provision) and if the Participant’s 65
th
birthday occurs during the
Service Year, determination of whether the performance measures have been met
will be made at the end of the Service Year, and to the extent met, payment of
the award will be made to the Participant, prorated. Proration of
awards shall be based upon the number of full months elapsed from and including
January to and including the month in which the Participant’s 65
th
birthday
occurs. The prorated award shall be paid as soon as practicable in
the year following the Service Year, but in all events between January 1 and
March 10.
An
individual Participant who transfers between the Company and business units may
receive a prorated award at the discretion of the Committee. Payments
made under this Plan will not be considered part of compensation for pension
purposes. Payments will be made in cash as soon as practicable in the
year following the Service Year, but in all events between January 1 and
March 10.
Incentive
awards may be deferred if the appropriate elections have been executed prior to
the beginning of the Service Year. A deferral election will be
effective only for the incentive award earned in the Service Year following the
Plan Year in which the election is made. Deferral elections may not
be changed or revoked after the Service Year begins. Deferred amounts
shall be subject to the terms of the Plan and the Rules and Regulations as
amended, and, to the extent not inconsistent therewith, the deferral election
forms pursuant to which the amounts were deferred. Deferred amounts
will accrue interest at a rate determined annually by the Committee and
specified in the Rules and Regulations.
In
the event of a "Change in Control" (as defined by the Committee in its Rules and
Regulations) then any award deferred by each Participant shall become
immediately payable to the Participant in cash, together with accrued interest
thereon to the date of payment. In the event the Participant files
suit to collect the Participant's deferred award then all of the court costs,
other expenses of litigation, and attorneys' fees shall be paid by the Company
in the event the Participant prevails upon any of the Participant's claims for
payment of a deferred award.
XI.
ACCOUNTING
RESTATEMENTS
This
Section XI shall apply to incentive awards granted to all Participants in the
Plan. Notwithstanding anything in the Plan or the Plan's Rules and
Regulations to the contrary, if the Company's audited financial statements are
restated, the Committee may, in accordance with the Company's
Guidelines for Repayment of
Incentives Due to Accounting Restatements
, take such actions as it deems
appropriate (in its sole discretion) with respect to
(a) unpaid
incentive awards under the Plan (including incentive awards relating to
completed Plan Years, but with
respect
to which payments have not yet been made or deferred) ("Outstanding Awards")
and
(b) prior
incentive awards that were paid (or deferred) within the three-year period
preceding the restatement ("Prior Awards"), provided such Prior Awards were not
paid prior to the date the Plan was amended to add this
Section XI,
if the
calculation of the amounts payable, paid or deferred under such awards are, or
would have been, directly impacted by the restatement, including, without
limitation, (i) securing (or causing to be secured) repayment of some or all
payments made pursuant to (or deferrals relating to) Prior Awards, (ii) making
(or causing to be made) additional payments (or crediting additional deferrals),
(iii) reducing or otherwise adjusting the amount payable pursuant to Outstanding
Awards and/or (iv) causing the forfeiture of Outstanding Awards. The
Committee may, in its sole discretion, take different actions pursuant to this
Section XI with respect to different awards, different Participants (or
beneficiaries) and/or different classes of awards or Participants (or
beneficiaries). The Committee has no obligation to take any action
permitted by this Section XI. The Committee may consider any factors
it chooses in taking (or determining whether to take) any action permitted by
this Section XI, including, without limitation, the following:
(A) The
reason for the restatement of the financial statements;
(B) The
amount of time between the initial publication and subsequent restatement of the
financial statements; and
(C) The
Participant's current employment status, and the viability of successfully
obtaining repayment.
If
the Committee requires repayment of all or part of a Prior Award, the amount of
repayment may be based on, among other things, the difference between the amount
paid to the individual
and the
amount that the Committee determines in its sole discretion should have been
paid based on the restated results. The Committee shall determine
whether repayment shall be effected (i) by seeking repayment from the
Participant, (ii) by reducing (subject to applicable law and the terms and
conditions of the applicable plan, program or arrangement) the amount that would
otherwise be provided to the Participant under any compensatory plan, program or
arrangement maintained by the Company or any of its affiliates, (iii) by
withholding payment of future increases in compensation (including the payment
of any discretionary bonus amount) or grants of compensatory awards that would
otherwise have been made in accordance with the Company's otherwise applicable
compensation practices, or (iv) by any combination of the
foregoing. Additionally, by accepting an incentive award under the
Plan, Participants acknowledge and agree that the Committee may take any actions
permitted by this Section XI with respect to Outstanding Awards to the extent
repayment is to be made pursuant to another plan, program or arrangement
maintained by the Company or any of its affiliates.
MDU
RESOURCES GROUP, INC.
EXECUTIVE
INCENTIVE COMPENSATION PLAN
RULES AND
REGULATIONS
The Compensation Committee of the Board
of Directors of MDU Resources Group, Inc. (the "Company") adopted Rules and
Regulations for the administration of the Executive Incentive Compensation Plan
(the "Plan") on February 9, 1983, following adoption of the Plan by the Board of
Directors of the Company on November 4, l982.
The following definitions shall be used
for purposes of these Rules and Regulations and for the purposes of
administering the Plan:
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1.
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The
"Committee" shall be the Compensation Committee of the Board of Directors
of the Company.
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2.
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The
"Company" shall refer to MDU Resources Group, Inc. alone and shall not
refer to its utility division or to any of its subsidiary
corporations.
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3.
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"Participants"
for any Plan Year shall be those executives who have been approved by the
Committee as eligible for participation in the Plan for such Plan
Year.
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4.
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"Payment
Date" shall be the date set by the Committee for payment of awards
pursuant to Section X of the Plan, other than those awards deferred
pursuant to Section X of the Plan and Section VII of these Rules and
Regulations.
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5.
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The
"Plan" shall refer to the Executive Incentive Compensation
Plan.
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6.
The "Plan Year" shall be the calendar year.
|
7.
|
"Change
in Control" shall mean the occurrence of any of the following transactions
or events: (a) 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") or group (as that
term is defined in Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), acquires
(or has acquired during the 12-month period ending on the date of the most
recent acquisition by such Person or Persons) ownership of stock of the Company
possessing 30% or more of the total voting power of the stock of the Company;
(b) any Person or group (as that term is defined in Treasury Regulation Section
1.409A-3(i)(5)(v)(B)), acquires ownership of the stock of the Company that,
together with stock held by such Person or group, constitutes more than 50% of
the total fair market value or total voting power of the stock of the Company
(this part (b) applies only when there is a transfer of stock of the Company and
the Company's stock remains outstanding after the transaction); (c) a majority
of the members of the Board of Directors of the Company is replaced during any
12-month period by directors whose appointment or election is not endorsed by a
majority of the members of the Board of Directors of the Company; or (d) any
Person or group (as that term is defined in Treasury Regulation Section
1.409A-3(i)(5)(v)(B)), acquires (or has acquired during the 12-month period
ending on the date of the most recent acquisition by such Person or Persons)
assets from the Company that have a gross fair market value equal to or more
than 40% of the total gross fair market value of all of the assets of the
Company immediately before such acquisition or acquisitions.
Notwithstanding
anything contained herein to the contrary, no transaction or event shall
constitute a Change in Control for purposes of the Plan unless the transaction
or event constitutes a change in the ownership of a corporation (as defined in
Treasury Regulation Section 1.409A-3(i)(5)(v)), a change in effective control of
a corporation (as defined in Treasury Regulation Section 1.409A-3(i)(5)(vi)) or
a change in the ownership of a substantial portion of the assets of a
corporation (as defined in Treasury Regulation Section 1.409A-3(i)(5)(vi)) and
the term Change in Control shall be interpreted in a manner consistent with the
proper interpretation of the similar provisions in the Section 409A Treasury
Regulations.
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8.
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The
“Code” shall mean the Internal Revenue Code of 1986, as
amended.
|
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9.
|
The
"Moody's Rate" is defined as the average of (i) the number that results
from adding the daily Moody’s U.S. Long-Term Corporate Bond Yield Average
for “A” rated companies as of the last day of each month for the 12-month
period ending October 31 and dividing by 12 and (ii) the number that
results from adding the daily Moody’s U.S. Long-Term Corporate Bond Yield
Average for “BBB” rated companies as of the last day of each month for the
12-month period ending October 31 and dividing by
12.
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10.
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“Retirement”
means the later of the day the Participant attains age 55 or the day the
Participant ceases to be an employee of the Company, its utility division
or any of its subsidiary
corporations.
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11.
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“Service
Year” means the Plan Year during which the services giving rise to the
incentive award are performed.
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12.
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“Specified
Employee” means an employee who, as of the date the employee separates
from service, is a “specified employee” (as that term is used in Section
409A(a)(2)(B) of the Code), as determined under the Company's policy for
determining specified employees.
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1.
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The
Committee shall have the full power to construe and interpret the Plan and
to establish and to amend these Rules and Regulations for its
administration.
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2.
|
No
member of the Committee shall participate in a decision as to their own
eligibility for, or award of, an incentive award
payment.
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3.
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Prior
to the beginning of each Plan Year, the Committee shall approve a list of
eligible executives and notify those so approved that they are eligible to
participate in the Plan for such Plan
Year.
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4.
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No
later than its regularly scheduled February meeting during the Plan Year,
the Committee shall
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approve
an Annual Operating Plan. The Annual Operating Plan shall include the
Plan’s performance measures and target incentive award levels for each salary
grade covered by the Plan for the Plan Year. The Plan’s performance
targets for the year shall be approved by the Committee no later than its
regularly scheduled February meeting during the Plan Year. The Annual
Operating Plan, insofar as it is relevant to each individual Participant, shall
be made available by the Committee to each Participant in the Plan.
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5.
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The
Committee shall have final discretion to determine actual award payment
levels, method of payment, and whether or not payments shall be made for
any Plan Year. However, unless the Plan's performance
objectives are met for the Plan Year, no award shall be made for that Plan
Year. Performance targets modified pursuant to Section III of
the Plan will be deemed performance targets for purposes of determining
whether or not these targets have been
met.
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III.
PLAN PERFORMANCE
MEASURES
|
1.
|
The
Committee shall establish the percentage attainment of corporate
performance measure and the percentage attainment of individual goals
measure. The Committee may establish more or fewer performance
measures as it deems necessary.
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2.
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The
corporate performance measure may be set by reference to earnings, return
on invested capital or any other measure or combination of measures deemed
appropriate by the Committee. It may be established for the
Company or for the individual business
unit.
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3.
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Individual
performance will be assessed based on the achievement of annually
established individual objectives.
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4.
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Plan
performance measures may be applied at the corporate level for individuals
such as the Chief Executive Officer whose major or sole impact is
Company-wide, or at the business unit level for individuals whose major or
sole impact is on the business unit results. The Annual
Operating Plan shall contain a list of individuals to whom the
Plan
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performance
measures will be applied at the corporate level and a list of those individuals
for whom the Plan performance measures will be applied at the business unit
level. The relevant business unit for each individual will be
identified.
|
5.
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The
Committee shall set threshold, target and maximum award levels for the
performance measures, for each business unit, and for the
Company. Those levels shall be included in the Annual Operating
Plan.
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6.
|
The
Committee will retain the authority to determine whether or not the actual
attainment of these measures has been
made.
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IV.
TARGET INCENTIVE
AWARDS
|
1.
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Target
incentive awards will be a percentage of each Participant’s Salary, as
defined in the Plan.
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2.
|
Target
incentive awards shall be set by the Committee annually and will be
included in the Annual Operating
Plan.
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V.
INCENTIVE FUND
DETERMINATION
|
1.
|
The
target incentive fund is the sum of the individual target incentive awards
for all eligible Participants.
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2.
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Once
individual incentive targets have been determined, a target incentive fund
shall be established and accrued ratably by the Company. The
incentive fund and accruals may be adjusted during the
year.
|
|
3.
|
As
soon as practicable following the close of each Plan Year, the Chief
Executive Officer will provide the Committee with an analysis showing the
Company's and each relevant business unit's performance in relation to the
performance measures. The Committee will review the analysis
and determine, in its sole discretion, the amount of the actual incentive
fund.
|
|
4.
|
In
determining the actual incentive fund, the Committee may consider any
recommendations of the Chief Executive
Officer.
|
VI.
INDIVIDUAL AWARD
DETERMINATION
|
1.
|
The
Committee shall have the sole discretion to determine each individual
Participant's award. The Committee's decision will be based first upon the
level of performance achieved by the Company or business unit and second
upon the individual's performance.
|
|
2.
|
The
Committee, after consultation with the Chief Executive Officer, shall set
the award as a percentage from 0 percent to 200 percent of the
Participant's target incentive award, adjusted for Company or business
unit performance.
|
VII.
PAYMENT OF
AWARDS
|
1.
|
On
the date the Committee determines the awards to be made to individual
Participants, it shall also establish the Payment
Date.
|
|
2.
|
Except
as provided below or as the Committee otherwise determines, in order to
receive an award under the Plan, a Participant must remain in the
employment of the Company for the entire Service
Year.
|
|
3.
|
If
a Participant terminates employment with the Company pursuant to Section
5.01 of the Company’s Bylaws, which provides for mandatory retirement for
certain officers on their 65
th
birthday (or terminates employment with a subsidiary of the Company
pursuant to a similar subsidiary Bylaw provision), and if the
Participant’s 65
th
birthday occurs during the Service Year, determination of whether the
performance measures have been met will be made at the end of the Service
Year, and to the extent met, payment of the award will be made to the
Participant, prorated. Proration of awards shall be based upon
the number of full months elapsed from and including January to and
including the month in which the Participant’s 65
th
birthday occurs.
|
|
4.
|
Payment
of the awards shall be made in cash. Payments shall be made on
the Payment Date unless the Participant has deferred, in whole or in part,
the receipt of the award by making an election on the deferral form
attached hereto, prior to the
|
beginning
of the Service Year. Deferral elections may not be changed or revoked
after the Service Year begins.
|
5.
|
In
the event a Participant has elected to defer receipt of all or a portion
of the award, the Company shall set up an account in the Participant's
name. The amount of the Participant's award to the extent deferred will be
credited to the Participant's account on the Payment
Date.
|
|
6.
|
The
balance credited to an account of a Participant who has elected to defer
receipt of an award will be an unsecured, unfunded obligation of the
Company.
|
|
7.
|
Interest
shall accrue on the balance credited to a Participant's account from the
date the balance is credited. Effective January 1, 2009, the
rate of interest for each Plan Year shall be the Moody’s
Rate.
|
|
8.
|
Interest
shall be compounded and credited to the account
monthly.
|
|
9.
|
A
Participant may elect to defer any percentage, not to exceed l00, of an
annual award.
|
|
10.
|
A
Participant electing to defer any part of an award must elect one of the
following dates on which (a) payment will be made, if payment will be made
in a lump sum or (b) payments will commence, if payment will be made in
monthly installments:
|
|
(1)
|
Between
January 1 and March 10 next following termination of employment with the
Company or an affiliated company;
or
|
|
(2)
|
Between
January 1 and March 10 of the fifth year following the year in which the
award would have been paid had it not been
deferred.
|
For
Participants who previously elected to have payments made or commence on the
Payment Date next following termination of employment, their payments will be
made or commence between January 1 and March 10 next following their termination
of employment with the Company or an affiliated company. For
Participants who elected to have payments made or
commence
on the Payment Date of the fifth year following the year in which the award may
be made, their payments will be made or commence between January 1 and March 10
of the fifth year following the year in which the award would have been paid had
it not been deferred.
|
11.
|
A
Participant may elect to receive the deferred amounts accumulated in the
Participant's account in monthly installments, not to exceed
120. In the event the Participant elects to receive the amounts
in the Participant's account in more than one installment, interest shall
continue to accrue on the balance remaining in their account at the
applicable rate or rates determined annually by the
Committee.
|
|
12.
|
Notwithstanding
anything contained in the Plan or these Rules and Regulations to the
contrary, if a Specified Employee's employment terminates, to the extent
required by Section 409A(a)(2)(B) of the Code, except as otherwise
provided in paragraph 13 below of this Section VII of these Rules and
Regulations, payment of any deferred amounts under the Plan that are to be
paid during the 6-month period following the Specified Employee's
termination of employment shall not be paid or provided until the first
business day after the date that is 6 months following the Specified
Employee's termination of employment. Any payment that is made
pursuant to the prior sentence shall include the cumulative amount of any
amounts that could not be paid during the 6-month period following the
Specified Employee's termination of employment. To the extent
payments are deferred pursuant to the prior sentence, such deferred
amounts shall continue to accrue interest pursuant to Section VII of these
Rules and Regulations until payment
occurs.
|
For all
purposes under the Plan and these Rules and Regulations, references to
termination of employment and similar terms shall be interpreted to mean
“separation from service,” as that term is used in Section 409A of the Code, and
the Participant's employment shall not be deemed to have terminated for purposes
of the Plan or these Rules and Regulations unless and until a separation from
service shall have occurred for purposes of Section 409A of the
Code.
|
13.
|
In
the event of the death of a Participant in whose name a deferred account
has been set up, the Company shall, within 90 days thereafter, pay to the
Participant's estate or the designated beneficiary the entire amount in
the deferred account.
|
|
14.
|
In
the event of a "Change in Control" then any award deferred by each
Participant shall become immediately payable to the
Participant. In the event the Participant files suit to collect
a deferred award then all of the Participant's court costs, other expenses
of litigation, and attorneys' fees shall be paid by the Company in the
event the Participant prevails upon any of the Participant's claims for
payment.
|
PAYROLL ELECTION
FORM
Election
for Deferred Compensation
and Beneficiary
Designation
Pursuant to the MDU Resources Group,
Inc. Executive
Incentive
Compensation Plan (the "Plan"), I elect to defer
receipt
of
____________________
percent of the
cash
(not to exceed 100)
portion
of any award which may be payable to me in
2011
for Plan
Year
incentive earned in
2010
, until
the event specified below:
Check
one:
Between
January 1 and March 10 of the year
following
the year I cease to be an employee
of MDU Resources Group,
Inc.
_______ or
an affiliated company.
_______ Between
January 1 and March 10 of 2016.
I elect to receive any amounts
deferred pursuant to the
designation
above and accumulated in my account in
monthly installments.
(not to
exceed 120)
In the event of my death prior to
receipt of the balance of
such
accumulated amounts, I designate
whose address is
as my beneficiary
to
receive such balance.
I understand that this election shall
become irrevocable on December 31, 2009. I further understand that
(1) if I am a “specified employee” (as that term is used in Section 409A of the
Internal Revenue Code of 1986, as amended (the “Code”)) when my employment
terminates, to the extent required by Section 409A(a)(2)(B), payment of any
deferred amounts under the Plan that are subject to Section 409A of the Code and
that are to be paid during the 6 month period following my termination of
employment shall not be paid or provided until the first business day after the
date that is 6 months following termination of my employment or, if earlier,
within 90 days after my death and (2) for purposes of this election form, I
shall not be deemed to have terminated employment with MDU Resources Group, Inc.
or an affiliated company unless and until a "separation from service" (as that
term is used in Section 409A of the Code) shall have occurred.
____________________
____________________
(Print
Name) (Signature)
____________________
(Date)
MONTANA-DAKOTA
UTILITIES CO.
EXECUTIVE
INCENTIVE COMPENSATION PLAN
____________________________________________________________
I.
PURPOSE
The
purpose of the Executive Incentive Compensation Plan (the "Plan") is to provide
an incentive for key executives of Montana-Dakota Utilities Co. to focus their
efforts on the achievement of challenging and demanding corporate
objectives. The Plan is designed to reward successful corporate
performance as measured against specified performance goals as well as
exceptional individual performance. When utility performance reaches
or exceeds the performance targets and individual performance is exemplary,
incentive compensation awards, in conjunction with salaries, will provide a
level of compensation which recognizes the skills and efforts of the key
executives. In this Plan, MDU Resources Group, Inc. is defined as the
“Company” while Montana-Dakota Utilities Co. is defined as the “Utility
Company.”
II.
DEFINITIONS
Capitalized
terms not otherwise defined herein shall have the meanings given them in the
Utility Company’s Executive Incentive Compensation Plan Rules and
Regulations.
III.
BASIC PLAN
CONCEPT
The
Plan provides an opportunity to earn annual incentive compensation based on the
achievement of specified annual performance objectives. A target
incentive award for each individual within the Plan is established based on the
position level and actual base salary, provided, however, that the Compensation
Committee of the Board of Directors of the Company (the “Committee”) in its sole
discretion, may, instead of actual base salary, use the assigned salary grade
market value (midpoint) (“Salary”). The target incentive award
represents the amount to be paid, subject to the achievement of the
performance
objective
targets established each year. Larger incentive awards than target
may be authorized when performance exceeds targets; lesser or no amounts may be
paid when performance is below target.
It
is recognized that during a Plan Year major unforeseen changes in economic and
environmental conditions or other significant factors beyond the control of
management may substantially affect the ability of the Plan Participants to
achieve the specified performance goals. Therefore, in its review of
corporate performance the Committee, in consultation with the Chief Executive
Officer of the Company, may modify the performance targets. However,
it is contemplated that such target modifications will be necessary only in
years of unusually adverse or favorable external conditions.
IV.
ADMINISTRATION
The
Plan shall be administered by the Committee with the
assistance
of the Chief Executive Officer of the Company. The Committee shall
approve annually, prior to the beginning of each Plan Year, the list of eligible
Participants, and the target incentive award level for each position within the
Plan. The Plan’s performance targets for the year shall be approved
by the Committee no later than its regularly scheduled February meeting during
that Plan Year. The Committee shall have final discretion to
determine actual award payment levels, method of payment, and whether or not
payments shall be made for any Plan Year.
The
Board of Directors of the Company may, at any time and from time to time, alter,
amend, supersede or terminate the Plan in whole or in part, provided that no
termination, amendment or modification of the Plan shall adversely affect in any
material way an award that has met all requirements for payment without the
written consent of the Participant holding such award, unless
such
termination, modification or amendment is required by applicable
law.
V.
ELIGIBILITY
Executives
who are determined by the Committee to have a key role in both the establishment
and achievement of Utility Company objectives shall be eligible to participate
in the Plan.
Nothing
in the Plan shall interfere with or limit in any way the right of the Utility
Company to terminate any Participant’s employment at any time, for any reason or
no reason in the Utility Company’s sole discretion, or confer upon any
Participant any right to continue in the employment of the Utility
Company. No executive shall have the right to be selected to receive
an award under the Plan, or, having been so selected, to be selected to receive
a future award.
VI.
|
PLAN PERFORMANCE
MEASURES
|
Performance
measures shall be established that consider shareholder and customer
interests. These measures shall be evaluated annually based on
achievement of specified goals.
The
performance measure reflective of shareholder’s interest will be the percentage
attainment of corporate goals, as determined each year by the
Committee. This measure may be applied at the corporate level for
individuals whose major or sole impact is Utility Company-wide, or at the
business unit level for individuals whose major or sole impact is on business
unit results.
Individual
performance will be assessed based on the achievement of annually established
individual objectives.
Threshold,
target and maximum award levels will be established annually for each
performance measure and business unit. The Committee will retain the
right to make all interpretations as to the actual attainment of the
desired
results
and will determine whether any circumstances beyond the control of management
need to be considered.
VII.
TARGET INCENTIVE
AWARDS
Target
incentive awards will be expressed as a percentage of each Participant’s
Salary. These percentages shall vary by position and reflect larger
reward opportunity for positions having greater effect on the establishment and
accomplishment of the Utility Company’s or business unit’s
objectives. An exhibit showing the target awards as a percentage of
Salary for eligible positions will be attached to this Plan at the beginning of
each Plan Year.
VIII.
INCENTIVE FUND
DETERMINATION
The
target incentive fund is the sum of the individual target incentive awards for
all eligible Participants. Once the incentive targets have been
determined by the Committee, a target incentive fund shall be established and
accrued ratably by the Utility Company. The incentive fund and
accruals may be adjusted during the year.
At
the close of each Plan Year, the Chief Executive
Officer
of the Company will prepare an analysis showing the Utility Company's and
business unit's performance in relation to each of the performance measures
employed. This will be provided to the Committee for review and
comparison to threshold, target and maximum performance levels. In
addition, any recommendations of the Chief Executive Officer will be presented
at this time. The Committee will then determine the amount of the
target incentive fund earned.
IX.
INDIVIDUAL AWARD
DETERMINATION
Each
individual Participant's award will be based first upon the level of performance
achieved by the Utility Company or business unit and secondly based upon the
individual's performance. The performance measures applicable for
assessing individual performance will be established at the beginning of each
Plan Year. The assessment by the Committee, after consultation with
the Chief Executive Officer, of achievement relative to the established
performance measures, as determined by a percentage from 0 percent to 200
percent, will be applied to the Participant's target incentive award which has
been first adjusted for Utility Company or business unit
performance.
X.
PAYMENT OF
AWARDS
Except
as provided below or as otherwise determined by the Committee, in order to
receive an award under the Plan, the Participant must remain in the employment
of the Utility Company or business unit for the entire Service
Year. If a Participant terminates employment with the Utility Company
pursuant to a mandatory retirement provision in the Utility Company’s Bylaws
that provides for mandatory retirement of certain officers on their 65
th
birthday (or terminates
employment with a subsidiary of the Company pursuant to a similar subsidiary
Bylaw provision), and if the Participant’s 65
th
birthday occurs during the
Service Year, determination of whether the performance measures have been met
will be made at the end of the Service Year, and to the extent met, payment of
the award will be made to the Participant, prorated. Proration of
awards shall be based upon the number of full months elapsed from and including
January to and including the month in which the Participant’s 65
th
birthday
occurs. The prorated award shall be paid as soon as practicable in
the year following the Service Year, but in all events between January 1
and March 10.
An
individual Participant who transfers between the Utility Company and the Company
or any business unit of the Company may receive a prorated award at the
discretion of the Committee. Payments made under this Plan will not
be considered part of compensation for pension purposes. Payments
will be made in cash as soon as practicable in the year following the Service
Year, but in all events between January 1 and March 10.
Incentive
awards may be deferred if the appropriate elections have been executed prior to
the beginning of the Service Year. A deferral election will be
effective only for the incentive award earned in the Service Year following the
Plan Year in which the election is made. Deferral elections may not
be changed or revoked after the Service Year begins. Deferred amounts
shall be subject to the terms of the Plan and the Rules and Regulations, as
amended, and, to the extent not inconsistent therewith, the deferral election
forms pursuant to which the amounts were deferred. Deferred amounts
will accrue interest at a rate determined annually by the Committee and
specified in the Rules and Regulations.
In
the event of a "Change in Control" (as defined by the Committee in its Rules and
Regulations) then any award deferred by each Participant shall become
immediately payable to the Participant in cash, together with accrued interest
thereon to the date of payment. In the event the Participant files
suit to collect the Participant's deferred award then all of the court costs,
other expenses of litigation, and attorneys' fees shall be paid by the Utility
Company in the event the Participant prevails upon any of the Participant's
claims for payment of a deferred award.
XI.
ACCOUNTING
RESTATEMENTS
This
Section XI shall apply to incentive awards granted to all Participants in the
Plan. Notwithstanding anything in the
Plan or
the Plan's Rules and Regulations to the contrary, if the Utility Company's
audited financial statements are restated, the Committee may, in accordance with
the Company's
Guidelines for
Repayment of Incentives Due to Accounting Restatements
, take such actions
as it deems appropriate (in its sole discretion) with respect to
(a) unpaid
incentive awards under the Plan (including incentive awards relating to
completed Plan Years, but with respect to which payments have not yet been made
or deferred) ("Outstanding Awards") and
(b) prior
incentive awards that were paid (or deferred) within the three-year period
preceding the restatement ("Prior Awards"), provided such Prior Awards were not
paid prior to the date the Plan was amended to add this
Section XI,
if the
calculation of the amounts payable, paid or deferred under such awards are, or
would have been, directly impacted by the restatement, including, without
limitation, (i) securing (or causing to be secured) repayment of some or all
payments made pursuant to (or deferrals relating to) Prior Awards, (ii) making
(or causing to be made) additional payments (or crediting additional deferrals),
(iii) reducing or otherwise adjusting the amount payable pursuant to Outstanding
Awards and/or (iv) causing the forfeiture of Outstanding Awards. The
Committee may, in its sole discretion, take different actions pursuant to this
Section XI with respect to different awards, different Participants (or
beneficiaries) and/or different classes of awards or Participants (or
beneficiaries). The Committee has no obligation to take any action
permitted by this Section XI. The Committee may consider any factors
it chooses in taking (or determining whether to take) any action permitted by
this Section XI, including, without limitation, the following:
(A) The
reason for the restatement of the financial statements;
(B) The
amount of time between the initial publication and subsequent restatement of the
financial statements; and
(C) The
Participant's current employment status, and the viability of successfully
obtaining repayment.
If
the Committee requires repayment of all or part of a Prior Award, the amount of
repayment may be based on, among other things, the difference between the amount
paid to the individual and the amount that the Committee determines in its sole
discretion should have been paid based on the restated results. The
Committee shall determine whether repayment shall be effected (i) by seeking
repayment from the Participant, (ii) by reducing (subject to applicable law and
the terms and conditions of the applicable plan, program or arrangement) the
amount that would otherwise be provided to the Participant under any
compensatory plan, program or arrangement maintained by the Company or any of
its affiliates, (iii) by withholding payment of future increases in compensation
(including the payment of any discretionary bonus amount) or grants of
compensatory awards that would otherwise have been made in accordance with the
Company's otherwise applicable compensation practices, or (iv) by any
combination of the foregoing. Additionally, by accepting an incentive
award under the Plan, Participants acknowledge and agree that the Committee may
take any actions permitted by this Section XI with respect to Outstanding Awards
to the extent repayment is to be made pursuant to another plan, program or
arrangement maintained by the Company or any of its
affiliates.
MONTANA-DAKOTA
UTILITIES CO.
EXECUTIVE
INCENTIVE COMPENSATION PLAN
RULES AND
REGULATIONS
The
Compensation Committee of the Board of Directors of MDU Resources Group, Inc.
(the "Company") adopted Rules and Regulations for the administration of the
Executive Incentive Compensation Plan (the "Plan") on February 9, 1983,
following adoption of the Plan by the Board of Directors of the Company on
November 4, l982.
The following definitions shall be used
for purposes of these Rules and Regulations and for the purposes of
administering the Plan:
|
1.
|
The
"Committee" shall be the Compensation Committee of the Board of Directors
of the Company.
|
|
2.
|
The
"Utility Company" shall refer to Montana-Dakota Utilities Co., a Division
of MDU Resources Group, Inc.
|
|
3.
|
"Participants"
for any Plan Year shall be those executives who have been approved by the
Committee as eligible for participation in the Plan for such Plan
Year.
|
|
4.
|
"Payment
Date" shall be the date set by the Committee for payment of awards
pursuant to Section X of the Plan, other than those awards deferred
pursuant to Section X of the Plan and Section VII of these Rules and
Regulations.
|
|
5.
|
The
"Plan" shall refer to the Executive Incentive Compensation
Plan.
|
6.
The "Plan Year" shall be the calendar year.
|
7.
|
“Change
in Control” shall mean the occurrence of any of the following transactions
or events: (a) 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") or group (as that term is defined in Treasury Regulation Section
1.409A-3(i)(5)(v)(B)), acquires (or has acquired during the 12-month period
ending on the date of the most recent acquisition by such Person or Persons)
ownership of stock of the Company possessing 30% or more of the total voting
power of the stock of the Company; (b) any Person or group (as that term is
defined in Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), acquires ownership
of the stock of the Company that, together with stock held by such Person or
group, constitutes more than 50% of the total fair market value or total voting
power of the stock of the Company (this part (b) applies only when there is a
transfer of stock of the Company and the Company's stock remains outstanding
after the transaction); (c) a majority of the members of the Board of Directors
of the Company is replaced during any 12-month period by directors whose
appointment or election is not endorsed by a majority of the members of the
Board of Directors of the Company; or (d) any Person or group (as that term is
defined in Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), acquires (or has
acquired during the 12-month period ending on the date of the most recent
acquisition by such Person or Persons) assets from the Company that have a gross
fair market value equal to or more than 40% of the total gross fair market value
of all of the assets of the Company immediately before such acquisition or
acquisitions.
Notwithstanding
anything contained herein to the contrary, no transaction or event shall
constitute a Change in Control for purposes of the Plan unless the transaction
or event constitutes a change in the ownership of a corporation (as defined in
Treasury Regulation Section 1.409A-3(i)(5)(v)), a change in effective control of
a corporation (as defined in Treasury Regulation Section 1.409A-3(i)(5)(vi)) or
a change in the ownership of a substantial portion of the assets of a
corporation (as defined in Treasury Regulation Section 1.409A-3(i)(5)(vi)) and
the term Change in Control shall be interpreted in a manner consistent with the
proper interpretation of the similar provisions in the Section 409A Treasury
Regulations.
|
8.
|
The
“Code” shall mean the Internal Revenue Code of 1986, as
amended.
|
|
9.
|
The
“Moody’s Rate” is defined as the average of (i) the number that results
from adding the daily Moody’s U.S. Long-Term Corporate Bond Yield Average
for “A” rated companies as of the last day of each month for the 12-month
period ending October 31 and dividing by 12 and (ii) the number that
results from adding the daily Moody’s U.S. Long-Term Corporate Bond Yield
Average for “BBB” rated companies as of the last day of each month for the
12-month period ending October 31 and dividing by
12.
|
|
10.
|
“Retirement”
means the later of the day the Participant attains age 55 or the day the
Participant ceases to be an employee of the Company, its utility division
or any of its subsidiary
corporations.
|
|
11.
|
“Service
Year” means the Plan Year during which the services giving rise to the
incentive award are performed.
|
|
12.
|
“Specified
Employee” means an employee who, as of the date the employee separates
from service, is a “specified employee” (as that term is used in Section
409A(a)(2)(B) of the Code), as determined under the Company's policy for
determining specified employees.
|
|
1.
|
The
Committee shall have the full power to construe and interpret the Plan and
to establish and to amend these Rules and Regulations for its
administration.
|
|
2.
|
No
member of the Committee shall participate in a decision as to their own
eligibility for, or award of, an incentive award
payment.
|
|
3.
|
Prior
to the beginning of each Plan Year, the Committee shall approve a list of
eligible executives and notify those so approved that they are eligible to
participate in the Plan for such Plan
Year.
|
|
4.
|
No
later than its regularly scheduled February meeting during the Plan Year,
the Committee shall approve an Annual Operating Plan. The
Annual Operating Plan shall include the Plan’s performance measures and
target incentive award levels for each salary grade covered by the Plan
for the Plan Year.
|
The
Plan’s performance targets for the year shall be approved by the Committee no
later than its regularly scheduled February meeting during the Plan
Year. The Annual Operating Plan, insofar as it is relevant to each
individual Participant, shall be made available by the Committee to each
Participant in the Plan.
|
5.
|
The
Committee shall have final discretion to determine actual award payment
levels, method of payment, and whether or not payments shall be made for
any Plan Year. However, unless the Plan's performance
objectives are met for the Plan Year, no award shall be made for that Plan
Year. Performance targets modified pursuant to Section III of
the Plan will be deemed performance targets for purposes of determining
whether or not these targets have been
met.
|
III.
|
PLAN PERFORMANCE
MEASURES
|
|
1.
|
The
Committee shall establish the percentage attainment of corporate
performance measure and the percentage attainment of individual goals
measure. The Committee may establish more or fewer performance
measures as it deems necessary.
|
|
2.
|
The
corporate performance measure may be set by reference to earnings, return
on invested capital or any other measure or combination of measures deemed
appropriate by the Committee. It may be established for the
Utility Company or for the individual business
unit.
|
|
3.
|
Individual
performance will be assessed based on the achievement of annually
established individual objectives.
|
|
4.
|
Plan
performance measures may be applied at the corporate level for individuals
whose major or sole impact is Utility Company-wide, or at the business
unit level for individuals whose major or sole impact is on the business
unit results. The Annual Operating Plan shall contain a list of
individuals to whom the Plan performance measures will be applied at the
corporate level and a list of those individuals for whom the Plan
performance measures will be applied at the business unit
level. The relevant business unit for each individual will be
identified.
|
|
5.
|
The
Committee shall set threshold, target and maximum award levels for the
performance measures, for each business unit, and for the Utility
Company. Those levels shall be included in the Annual Operating
Plan.
|
|
6.
|
The
Committee will retain the authority to determine whether or not the actual
attainment of these measures has been
made.
|
IV.
|
TARGET INCENTIVE
AWARDS
|
|
1.
|
Target
incentive awards will be a percentage of each Participant’s Salary, as
defined in the Plan.
|
|
2.
|
Target
incentive awards shall be set by the Committee annually and will be
included in the Annual Operating
Plan.
|
V.
|
INCENTIVE FUND
DETERMINATION
|
|
1.
|
The
target incentive fund is the sum of the individual target incentive awards
for all eligible Participants.
|
|
2.
|
Once
individual incentive targets have been determined, a target incentive fund
shall be established and accrued ratably by the Utility
Company. The incentive fund and accruals may be adjusted during
the year.
|
|
3.
|
As
soon as practicable following the close of each Plan Year, the Chief
Executive Officer will provide the Committee with an analysis showing the
Utility Company's and each relevant business unit's performance in
relation to the performance measures. The Committee will review
the analysis and determine, in its sole discretion, the amount of the
actual incentive fund.
|
|
4.
|
In
determining the actual incentive fund, the Committee may consider any
recommendations of the Chief Executive
Officer.
|
VI.
|
INDIVIDUAL AWARD
DETERMINATION
|
|
1.
|
The
Committee shall have the sole discretion to determine each individual
Participant's award. The Committee's decision will be based first upon
the
|
level of
performance achieved by the Utility Company or business unit and second upon the
individual's performance.
|
2.
|
The
Committee, after consultation with the Chief Executive Officer, shall set
the award as a percentage from 0 percent to 200 percent of the
Participant's target incentive award, adjusted for Utility Company or
business unit performance.
|
|
1.
|
On
the date the Committee determines the awards to be made to individual
Participants, it shall also establish the Payment
Date.
|
|
2.
|
Except
as provided below or as the Committee otherwise determines, in order to
receive an award under the Plan, a Participant must remain employed by the
Utility Company or one of its business units for the entire Service
Year.
|
|
3.
|
If
a Participant terminates employment with the Utility Company pursuant to a
mandatory retirement provision in the Utility Company's Bylaws that
provides for mandatory retirement of certain officers on their 65
th
birthday (or terminates employment with a subsidiary of the Company
pursuant to a similar subsidiary Bylaw provision), and if the
Participant’s 65
th
birthday occurs during the Service Year, determination of whether the
performance measures have been met will be made at the end of the Service
Year, and to the extent met, payment of the award will be made to the
Participant, prorated. Proration of awards shall be based upon
the number of full months elapsed from and including January to and
including the month in which the Participant’s 65
th
birthday occurs.
|
|
4.
|
Payment
of the awards shall be made in cash. Payments shall be made on
the Payment Date unless the Participant has deferred, in whole or in part,
the receipt of the award by making an election on the deferral form
attached hereto, prior to the beginning of the Service
Year. Deferral elections may not be changed or revoked after
the Service Year begins.
|
|
5.
|
In
the event a Participant has elected to defer receipt of all or a portion
of the award, the
|
Utility
Company shall set up an account in the Participant's name. The amount of the
Participant's award to the extent deferred will be credited to the Participant's
account on the Payment Date.
|
6.
|
The
balance credited to an account of a Participant who has elected to defer
receipt of an award will be an unsecured, unfunded obligation of the
Utility Company.
|
|
7.
|
Interest
shall accrue on the balance credited to a Participant's account from the
date the balance is credited. Effective January 1, 2009, the
rate of interest for each Plan Year shall be the Moody’s
Rate.
|
|
8.
|
Interest
shall be compounded and credited to the account
monthly.
|
|
9.
|
A
Participant may elect to defer any percentage, not to exceed l00, of an
annual award.
|
|
10.
|
A
Participant electing to defer any part of an award must elect one of the
following dates on which (a) payment will be made, if payment will be made
in a lump sum or (b) payments will commence, if payment will be made in
monthly installments:
|
|
(1)
|
Between
January 1 and March 10 next following termination of employment with the
Utility Company or an affiliated company;
or
|
|
(2)
|
Between
January 1 and March 10 of the fifth year following the year in which the
award would have been paid had it not been
deferred.
|
For
Participants who previously elected to have payments made or commence on the
Payment Date next following termination of employment, their payments will be
made or commence between January 1 and March 10 next following their
termination of employment with the Utility Company. For Participants
who elected to have payments made or commence on the Payment Date of the fifth
year following the year in which the award may be made, their payments will be
made or commence between January 1 and March 10 of the fifth year following the
year in which the award would have been paid had it not been
deferred.
|
11.
|
A
Participant may elect to receive the deferred amounts accumulated in the
Participant's account in monthly installments, not to exceed
120. In the event the Participant elects to receive the amounts
in the Participant's account in more than one installment, interest shall
continue to accrue on the balance remaining in their account at the
applicable rate or rates determined annually by the
Committee.
|
|
12.
|
Notwithstanding
anything contained in the Plan or these Rules and Regulations to the
contrary, if a Specified Employee's employment terminates, to the extent
required by Section 409A(a)(2)(B) of the Code, except as otherwise
provided in paragraph 13 below of this Section VII of these Rules and
Regulations, payment of any deferred amounts under the Plan that are to be
paid during the 6-month period following the Specified Employee's
termination of employment shall not be paid or provided until the first
business day after the date that is 6 months following the Specified
Employee's termination of employment. Any payment that is made
pursuant to the prior sentence shall include the cumulative amount of any
amounts that could not be paid during the 6-month period following the
Specified Employee's termination of employment. To the extent
payments are deferred pursuant to the prior sentence, such deferred
amounts shall continue to accrue interest pursuant to Section VII of these
Rules and Regulations until payment
occurs.
|
For all
purposes under the Plan and these Rules and Regulations, references to
termination of employment and similar terms shall be interpreted to mean
“separation from service,” as that term is used in Section 409A of the Code, and
the Participant's employment shall not be deemed to have terminated for purposes
of the Plan or these Rules and Regulations unless and until a separation from
service shall have occurred for purposes of Section 409A of the
Code.
|
13.
|
In
the event of the death of a Participant in whose name a deferred account
has been set up, the Utility Company shall, within 90 days thereafter, pay
to the Participant's estate or the designated beneficiary the entire
amount in the deferred account.
|
|
14.
|
In
the event of a "Change in Control" then any award deferred by each
Participant shall become immediately payable to the
Participant. In the event the Participant files suit to collect
a deferred award then all of the Participant's court costs, other expenses
of litigation, and attorneys' fees shall be paid by the Utility Company in
the event the Participant prevails upon any of the Participant's claims
for payment.
|
PAYROLL ELECTION
FORM
Election
for Deferred Compensation
and Beneficiary
Designation
Pursuant to the
Montana-Dakota
Utilities Co.
Executive
Incentive
Compensation Plan (the "Plan"), I elect to defer
receipt
of
____________________
percent of the
cash
(not to exceed 100)
portion
of any award which may be payable to me in
2011
for Plan
Year
incentive earned in
2010
, until
the event specified below:
Check
one:
Between
January 1 and March 10 of the year
following
the year
I cease
to be an employee
of
Montana-Dakota
Utilities Co. or an affiliated
_______ company.
_______
Between January 1 and March 10 of 2016.
I elect to receive any amounts
deferred pursuant to the
designation
above and accumulated in my account in
monthly installments.
(not to
exceed 120)
In the event of my death prior to
receipt of the balance of
such
accumulated amounts, I designate
whose address is
as my beneficiary
to
receive such balance.
I understand that this election shall
become irrevocable on December 31, 2009. I further understand that
(1) if I am a “specified employee” (as that term is used in Section 409A of the
Internal Revenue Code of 1986, as amended (the “Code”)) when my employment
terminates, to the extent required by Section 409A(a)(2)(B), payment of any
deferred amounts under the Plan that are subject to Section 409A of the Code and
that are to be paid during the 6 month period following my termination of
employment shall not be paid or provided until the first business day after the
date that is 6 months following termination of my employment or, if earlier,
within 90 days after my death and (2) for purposes of this election form, I
shall not be deemed to have terminated employment with Montana-Dakota Utilities
Co. or an affiliated company unless and until a "separation from service" (as
that term is used in Section 409A of the Code) shall have occurred.
____________________ ____________________
(Print
Name) (Signature)
____________________
(Date)
INSTRUMENT
OF
AMENDMENT
TO THE
MDU
RESOURCES GROUP, INC.
401(k)
RETIREMENT PLAN
The MDU
Resources Group, Inc. 401(k) Retirement Plan, (as restated June 1, 2009) (the
“Plan”), is hereby further amended, effective January 1, 2010, unless otherwise
indicated, as follows:
1.
|
By
adding the following sentence to the end of the
“Introduction:”
|
Effective
January 1, 2010, the Plan was amended to provide Retirement Contributions to
those employees who were Participants in the MDU Resources Group, Inc. Pension
Plan for Non-Bargaining Unit Employees, the Knife River Corporation Salaried
Employees’ Pension Plan, and the Williston Basin Interstate Pipeline Company
Pension Plan, for which future benefits accruals ended as of December 31,
2009.
Explanation: This
amendment adds to the historical provision to the K-Plan that the Pension Plans
named in the amendment are being frozen effective December 31, 2009, and a
Retirement Contribution will be provided as a replacement contribution to
impacted Participants.
2.
|
By
adding the definition of “Gross Compensation” to Article I of
the Plan, as follows:
|
Gross Compensation
–
All taxable Compensation paid to an Eligible Employee by the Employer, including
but not limited to wages, salary, bonuses, and incentive
compensation.
Explanation: This
amendment defines the term “Gross Compensation” as used for testing
purposes.
3.
|
By
adding the definition of “Spouse” to Article I of the Plan, as
follows:
|
Spouse
– A
“Spouse” means a person of the opposite gender who is legally married or legally
separated from the Participant.
Explanation: This
amendment clarifies the definition of spouse to be consistent with other MDU
Resources Group, Inc. benefit plans.
4.
|
By
adding the definition of “Company Pension Plan” to Article I of the Plan,
as follows:
|
Company Pension
Plan.
Any one or more of the following pension plans: MDU
Resources Group, Inc. Pension Plan for Non-Bargaining Unit Employees, Knife
River Corporation Salaried Employees’ Pension Plan,
and
Williston Basin Interstate Pipeline Company Pension Plan.
Explanation: This amendment
adds the definition of “Company Pension Plan” for purposes of the new Retirement
Contribution being made on behalf of Participants whose Pension Plan accruals
are frozen, effective December 31, 2009.
5.
|
By
replacing “Special Contribution” with “Retirement Contribution” throughout
the Plan.
|
Explanation: This
amendment changes phrases for consistency when identifying additional employer
contributions other than profit sharing contributions.
6.
|
Effective
as of January 1, 2009, by adding the following new Section
4A.6
Election to Receive
Required Minimum Distributions for 2009
to the Plan immediately
following Section 4A.5 thereof:
|
4A.6
Election to Receive Required
Minimum Distributions for 2009.
Notwithstanding any other
provision of this Section 4A of the Plan, a Participant or Beneficiary
who would have been required to receive a required minimum distributions
for 2009 but for the enactment of section 401(a)(9)(H) of the Code (“2009
RMDs”), and who would have satisfied that requirement by receiving distributions
that are: (i) equal to the 2009 RMDs; or (ii) one or more payments in a series
of substantially equal distributions (that include the 2009 RMDs) made at least
annually and expected to last for the life (or life expectancy) of the
Participant, the joint lives (or joint life expectancy) of the Participant and
the Participant’s designated Beneficiary, or for a period of at least 10 years
(“Extended 2009 RMDs”), will not receive those distributions for 2009 unless the
Participant or Beneficiary chooses to receive such distributions. Participants
and Beneficiaries described in the preceding sentence will be given the
opportunity to elect to receive the distributions described in the preceding
sentence. In addition, notwithstanding Section 4.7 of the Plan, and solely for
purposes of applying the direct rollover provisions of the Plan, 2009 RMDs and
Extended 2009 RMDs will be treated as eligible rollover
distributions.
Explanation: This
amendment incorporates the required temporary waiver of the Required Minimum
Distribution rules under the Worker, Retiree and Employer Recovery Act of 2008
(“WRERA”), and allows amounts distributed as 2009 Required Minimum Distributions
to be rolled over into an IRA or other retirement plan.
7.
|
By
replacing footnote 5 to Supplement D-2 of the Plan, in its entirety, as
follows:
|
5
Requirement
to be an Active Employee on the last day of the Plan Year does not apply to
Bitter Creek Pipelines, LLC, Fidelity Exploration & Production Company,
Great Plains Natural Gas, Intermountain Gas
Company,
and Rocky Mountain Contractors, Inc. (union). In addition, completion
of 1,000 Hours of Service does not apply to Rocky Mountain Contractors, Inc.
(union).
Explanation: This
amendment clarifies the Affiliates whose employees are not required to be an
Active Employee on the last day of the Plan Year or required to complete 1,000
Hours of Service in order to share in the Supplement D-2 Retirement
Contribution.
8.
|
Effective
January 1, 2006, by adding MDU Construction Services Group, Inc. and
Hawaiian Cement as Participating Affiliates to Section D-6-2
Eligibility to Share
in the Special Contribution
of Supplement D-6 of the
Plan.
|
Explanation: This
amendment clarifies that MDU Construction Services Group, Inc. and Hawaiian
Cement are Participating Affiliates in the Retirement Contribution Feature of
the Plan.
9.
|
By
adding a new Supplement D-6A to the Plan, as
follows:
|
Supplement
D-6A
Provisions Relating to
the
Retirement Contribution
Feature
|
D-6A-1
|
Introduction.
Effective
January 1, 2010, certain Participating Affiliates in the Plan hereby
establish a Retirement Contribution Feature as described in this
Supplement D-6A. This Retirement Contribution Feature shall be
in addition to all other contributions provided pursuant to the
Plan.
|
|
D-6A-2
|
Eligibility to Share
in the Retirement Contribution.
Participation in the
Retirement Contribution for any Plan Year is limited to individuals who
were active Participants in a Company Pension Plan as of December 31,
2009.
|
|
In
order to share in the allocation of the Retirement Contribution for any
Plan Year, Eligible Employees must complete 1,000 Hours of Service in that
Plan Year; provided, however, that if the Participant’s failure to
complete 1,000 Hours of Service in the Plan Year is due to the
Participant’s Disability, Death, or Retirement on attaining age 60 during
such Plan Year, such Participant shall nevertheless be entitled to a
Retirement Contribution for such Plan Year. Individuals who
satisfy the preceding requirements for Retirement Contributions are
referred to herein as “Supplement D-6A
Participants.”
|
|
D-6A-3
|
Amount of Retirement
Contribution.
For each Plan Year, Supplement D-6A
Participants will be credited with the following static contribution based
upon their age as of December 31, 2009, and their eligible Compensation,
excluding bonuses, for the Plan
Year:
|
Age
as of
December
31, 2009
|
Retirement
Contribution
Percentage
|
Less
than 30
|
5.0%
|
30
but less than 35
|
7.0%
|
35
but less than 40
|
9.0%
|
40
but less than 45
|
10.5%
|
45
and over
|
11.5%
|
Notwithstanding
the foregoing, if the Retirement Contribution Percentage above for Participants
who are Highly Compensated Employees is more than the amount permitted under
Section 415 of the Code, the Participant’s Retirement Contributions shall be
reduced to the extent necessary to comply with Section 415 of the Code. The
Retirement Contribution Percentage above may also be reduced for Participants
who are Highly Compensated Employees, as necessary, to pass nondiscrimination
testing.
|
D-6A-4
|
Vesting.
Notwithstanding
anything in Section 4.2 to the contrary, Supplement D-6A Participants
shall be vested in their Retirement Contribution upon completing three (3)
years of Vesting Service as defined
below.
|
|
A
“Year of Vesting Service” means a Plan Year in which the Supplement D-6A
Participant completes at least 1,000 Hours of Service. In addition,
service with any Affiliate that occurred prior to the effective date of
Supplement D-6A shall be recognized for purposes of this
paragraph. Notwithstanding the foregoing, a Participant shall
be fully vested in his or her Retirement Contribution Account upon Death,
Disability, or attaining age 60.
|
|
D-6A-5
|
Use of
Terms.
Terms used in this Supplement D-6A shall, unless
defined in this Supplement D-6A or elsewhere noted, have the meaning given
to those terms in the Plan.
|
|
D-6A-6
|
Inconsistencies with
the Plan.
The terms of this Supplement D-6A are a part
of the Plan and supersede the provisions of the Plan to the extent
necessary to eliminate inconsistencies between the Plan and Supplement
D-6A.
|
Explanation: This
amendment adds a new Supplement to the Plan to provide for Retirement
Contributions to the Plan accounts of those Participants who were Participants
of one of the Company’s Pension Plans as of December 31,
2009.
IN
WITNESS WHEREOF, MDU Resources Group, Inc., as Sponsoring Employer of the Plan,
has caused this Supplement to be duly executed by a member of the MDU Resources
Group, Inc. Employee Benefits Committee (“EBC”) on this
2nd
day of December,
2009.
|
|
MDU
RESOURCES GROUP, INC.
|
|
|
EMPLOYEE BENEFITS COMMITTEE
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Vernon A Raile
|
|
|
Vernon
A. Raile,
Chairman
|
INSTRUMENT
OF AMENDMENT TO THE
MDU
RESOURCES GROUP, INC.
401(k)
RETIREMENT PLAN
The MDU
Resources Group, Inc. 401(k) Retirement Plan as restated June 1, 2009 (the
“Plan”), is hereby further amended, effective January 1, 2010, as
follows:
1.
|
By
removing the definition of “Retirement” in Article I of the Plan and
replacing it with a definition for “Normal Retirement Age” as
follows:
|
Normal Retirement Age
– The time a Participant attains age 60.
Explanation: This
amendment removes the reference to termination of employment after age 55, since
it does not have any relevance. This clarifies eligibility to share
in Retirement Contributions and Profit Sharing Contributions, and for vesting
purposes.
2.
|
By
replacing Section D-4-2
Eligibility to Share
in the Retirement Contribution, Special Transition Contribution, and
Profit Sharing Feature
of Supplement D-4
Provisions Relating to
the Cascade Natural Gas Corporation Retirement Contribution, Special
Transition Contribution, and Profit Sharing Contribution,
in its
entirety, with the following:
|
|
D-4-2
|
Eligibility to Share
in the Retirement Contribution, Special Transition Contribution, and
Profit Sharing Feature
. In order to share in the allocation of any
Retirement Contribution, Special Transition Contribution, or Profit
Sharing Contribution made by Cascade pursuant to Paragraph 3 or 4 for a
given Plan Year, a Participant must be an Eligible Employee of Cascade,
complete 1,000 Hours of Service in that Plan Year, and be (a) a
non-bargaining unit employee, (b) a part of the CSR Bargaining Unit
(“CBU”), or (c) a part of the Field Operations Bargaining Unit
(“FOBU”). Effective as of January 1, 2008, a Participant must
also be employed by Cascade on the last day of the Plan Year in order to
be eligible to share in the allocation of a Profit Sharing Contribution
for such Plan Year. However, any Participant who died or became disabled
during the Plan Year, or terminated employment on or after attaining age
60 is eligible to share in the Retirement Contribution or Profit Sharing
Contribution, if any, for such Plan Year. Participants who meet
the preceding requirements are referred to herein as “Supplement D-4
Participants.”
|
Notwithstanding
the foregoing, certain identified Cascade employees who transfer to
Montana-Dakota Utilities Co. effective December 21, 2009 and remain employed on
December 31, 2009 shall be entitled to an allocation of the Profit Sharing
Contribution for the 2009 Plan Year.
Explanation: This
amendment clarifies that employees who die, become disabled, or terminate
employment on or after age 60 (reduced from age 65) are not required to complete
1,000 hours of service in the Plan Year to receive the Retirement Contribution
or Profit Sharing Contribution. This amendment also allows employees
who transfer from Cascade to Montana-Dakota Utilities on December 21, 2009 as a
result of reorganization, to receive a Profit Sharing Contribution
from Cascade as long as they complete 1,000 hours of service and they are
employed by Montana-Dakota Utilities on December 31, 2009.
3.
|
By
replacing “age 65” with “age 60” throughout the
Plan.
|
Explanation:
This amendment
reduces the age at which Participants who terminate employment are eligible to
share in Retirement and Profit Sharing Contributions for that Plan Year without
completing the 1,000 hours of service or end of year employment requirements. It
also reduces the age at which Participants become fully vested regardless of the
number of years of service.
IN
WITNESS WHEREOF, MDU Resources Group, Inc., as Sponsoring Employer of the Plan,
has caused this Supplement to be duly executed by a member of the MDU Resources
Group, Inc. Employee Benefits Committee (“EBC”) on this
30th
day of December,
2009.
|
MDU
RESOURCES GROUP, INC.
|
|
EMPLOYEE
BENEFITS COMMITTEE
|
|
|
|
|
|
|
|
By:
|
/s/ Vernon A.
Raile
|
|
|
Vernon
A. Raile, Chairman
|
MDU
RESOURCES GROUP, INC.
COMPUTATION
OF RATIO OF EARNINGS TO FIXED CHARGES
AND
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
|
|
Years
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
Available for
Fixed Charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (a)
|
|
$
|
(126,653
|
)
|
|
$
|
293,826
|
|
|
$
|
308,288
|
|
|
$
|
303,396
|
|
|
$
|
250,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Taxes
|
|
|
(96,092
|
)
|
|
|
147,475
|
|
|
|
190,024
|
|
|
|
166,110
|
|
|
|
146,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(222,745
|
)
|
|
|
441,301
|
|
|
|
498,312
|
|
|
|
469,506
|
|
|
|
397,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rents
(b)
|
|
|
14,475
|
|
|
|
11,781
|
|
|
|
11,947
|
|
|
|
7,688
|
|
|
|
11,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
(c)
|
|
|
89,943
|
|
|
|
86,320
|
|
|
|
76,248
|
|
|
|
74,531
|
|
|
|
56,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Earnings Available
for Fixed
Charges
|
|
$
|
(118,327
|
)
|
|
$
|
539,402
|
|
|
$
|
586,507
|
|
|
$
|
551,725
|
|
|
$
|
464,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Dividend
Requirements
|
|
$
|
685
|
|
|
$
|
685
|
|
|
$
|
685
|
|
|
$
|
685
|
|
|
$
|
685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of Income
Before Income
Taxes to Net
Income
|
|
|
176
|
%
|
|
|
150
|
%
|
|
|
159
|
%
|
|
|
154
|
%
|
|
|
155
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Dividend
Factor on Pretax
Basis
|
|
|
1,206
|
|
|
|
1,028
|
|
|
|
1,089
|
|
|
|
1,055
|
|
|
|
1,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Charges (d)
|
|
|
109,117
|
|
|
|
101,452
|
|
|
|
90,545
|
|
|
|
84,898
|
|
|
|
68,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
Fixed
Charges and
Preferred Stock
Dividends
|
|
$
|
110,323
|
|
|
$
|
102,480
|
|
|
$
|
91,634
|
|
|
$
|
85,953
|
|
|
$
|
69,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of Earnings
to Fixed Charges
|
|
|
—
|
(e)
|
|
|
5.3x
|
|
|
|
6.5x
|
|
|
|
6.5x
|
|
|
|
6.7x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of Earnings
to Combined
Fixed Charges
and Preferred
Stock Dividends
|
|
|
—
|
(e)
|
|
|
5.3x
|
|
|
|
6.4x
|
|
|
|
6.4x
|
|
|
|
6.6x
|
|
(a)
|
Net
income excludes undistributed income for equity
investees.
|
(b)
|
Represents
interest portion of rents estimated at 33
1/3%.
|
(c)
|
Represents
interest, amortization of debt discount and expense on all indebtedness
and amortization of interest capitalized, and excludes amortization of
gains or losses on reacquired debt (which, under the Federal Energy
Regulatory Commission Uniform System of Accounts, is classified as a
reduction of, or increase in, interest expense in the Consolidated
Statements of Income) and interest
capitalized.
|
(d)
|
Represents
rents (as defined above), interest, amortization of debt discount and
expense on all indebtedness, and excludes amortization of gains or losses
on reacquired debt (which, under the Federal Energy Regulatory Commission
Uniform System of Accounts, is classified as a reduction of, or increase
in, interest expense in the Consolidated Statements of
Income).
|
(e)
|
Due
to the $384.4 million after-tax noncash write-down of natural gas and oil
properties in the first quarter of 2009, earnings were insufficient by
$228.7 million to cover combined fixed charges and preferred stock
dividends for the twelve months ended December 31, 2009. If the $384.4
million after-tax noncash write-down is excluded, the ratio of earnings to
fixed charges and the ratio of earnings to combined fixed charges and
preferred stock dividends would both have been 4.6 times for the twelve
months ended December 31, 2009.
|
The above ratios related to fixed charges and
combined fixed charges and preferred stock dividends that exclude the effect of
the after-tax noncash write-down of natural gas and oil properties are non-GAAP
financial measures. The Company believes that these non-GAAP financial measures
are useful because the write-down excluded is not indicative of the Company’s
cash flows available to meet its fixed charges obligations. The presentation of
this additional information is not meant to be considered a substitute for
financial measures prepared in accordance with GAAP.
MDU
RESOURCES GROUP, INC.
List
of Subsidiaries
(effective
January 1, 2010)
Subsidiaries
|
Jurisdiction
of
Formation
|
Alaska
Basic Industries, Inc.
|
Alaska
|
Ames
Sand & Gravel, Inc.
|
North
Dakota
|
Anchorage
Sand and Gravel Company, Inc.
|
Alaska
|
Baldwin
Contracting Company, Inc.
|
California
|
BEH
Electric Holdings, LLC
|
Nevada
|
Bell
Electrical Contractors, Inc.
|
Missouri
|
Bitter
Creek Pipelines, LLC
|
Colorado
|
BMH
Mechanical Holdings, LLC
|
Nevada
|
Bombard
Electric, LLC
|
Nevada
|
Bombard
Mechanical, LLC
|
Nevada
|
Capital
Electric Construction Company, Inc.
|
Kansas
|
Capital
Electric Line Builders, Inc.
|
Kansas
|
Cascade
Natural Gas Corporation
|
Washington
|
Centennial
Energy Holdings, Inc.
|
Delaware
|
Centennial
Energy Resources International, Inc.
|
Delaware
|
Centennial
Energy Resources LLC
|
Delaware
|
Centennial
Holdings Capital LLC
|
Delaware
|
Central
Oregon Redi-Mix, LLC
|
Oregon
|
CGC
Resources, Inc.
|
Washington
|
ClearFlame,
LLC
|
Colorado
|
Concrete,
Inc.
|
California
|
Connolly-Pacific
Co.
|
California
|
Continental
Line Builders, Inc.
|
Delaware
|
Coordinating
and Planning Services, Inc.
|
Delaware
|
Desert
Fire Holdings, Inc.
|
Nevada
|
Desert
Fire Protection, a Nevada Limited Partnership
|
Nevada
|
Desert
Fire Protection, Inc.
|
Nevada
|
Desert
Fire Protection, LLC
|
Nevada
|
D S
S Company
|
California
|
E.S.I.,
Inc.
|
Ohio
|
Fairbanks
Materials, Inc.
|
Alaska
|
Fidelity
Exploration & Production Company
|
Delaware
|
Fidelity
Oil Co.
|
Delaware
|
Frebco,
Inc.
|
Ohio
|
FutureSource
Capital Corp.
|
Delaware
|
Granite
City Ready Mix, Inc.
|
Minnesota
|
Hamlin
Electric Company
|
Colorado
|
Harp
Engineering, Inc.
|
Montana
|
Hawaiian
Cement, a partnership
|
Hawaii
|
ILB
Hawaii, Inc.
|
Hawaii
|
Independent
Fire Fabricators, LLC
|
Nevada
|
Intermountain
Gas Company
|
Idaho
|
International
Line Builders, Inc.
|
Delaware
|
InterSource
Insurance Company
|
Vermont
|
Jebro
Incorporated
|
Iowa
|
JTL
Group, Inc., a Montana corporation
|
Montana
|
JTL
Group, Inc., a Wyoming corporation
|
Wyoming
|
Kent's
Oil Service
|
California
|
Knife
River Corporation
|
Delaware
|
Knife
River Corporation – North Central
|
Minnesota
|
Knife
River Corporation – Northwest (f/k/a Morse Bros., Inc.)
|
Oregon
|
Knife
River Corporation – South
|
Texas
|
Knife
River Dakota, Inc.
|
Delaware
|
Knife
River Hawaii, Inc.
|
Delaware
|
Knife
River Marine, Inc.
|
Delaware
|
Knife
River Midwest, LLC
|
Delaware
|
KRC
Aggregate, Inc.
|
Delaware
|
KRC
Holdings, Inc.
|
Delaware
|
LME&U
Holdings, LLC
|
Nevada
|
Lone
Mountain Excavation & Utilities, LLC
|
Nevada
|
Loy
Clark Pipeline Co.
|
Oregon
|
LTM,
Incorporated
|
Oregon
|
MDU
Brasil Ltda.
|
Brazil
|
MDU
Chile Inversiones Ltda.
|
Chile
|
MDU
Construction Services Group, Inc.
|
Delaware
|
MDU
Energy Capital, LLC
|
Delaware
|
MDU
Industrial Services, Inc.
|
Delaware
|
MDU
Norte Transmissão de Energia Ltda.
|
Brazil
|
MDU
Resources International LLC
|
Delaware
|
MDU
Resources Luxembourg I LLC S.a.r.l.
|
Luxembourg
|
MDU
Resources Luxembourg II LLC S.a.r.l.
|
Luxembourg
|
MDU
Sul Transmissão de Energia Ltda.
|
Brazil
|
Midland
Technical Crafts, Inc.
|
Delaware
|
Netricity
LLC
|
Alaska
|
Northstar
Materials, Inc.
|
Minnesota
|
Oregon
Electric Construction, Inc.
|
Oregon
|
Pouk
& Steinle, Inc.
|
California
|
Prairie
Cascade Energy Holdings, LLC
|
Delaware
|
Prairie
Intermountain Energy Holdings, LLC
|
Delaware
|
Prairielands
Energy Marketing, Inc.
|
Delaware
|
Prairielands
Magnetics Limited
|
Scotland
|
Rocky
Mountain Contractors, Inc.
|
Montana
|
USI
Industrial Services, Inc.
|
Delaware
|
Wagner
Group, Inc., The
|
Delaware
|
Wagner
Industrial Electric, Inc.
|
Delaware
|
Wagner-Smith
Company, The
|
Ohio
|
Wagner-Smith
Equipment Co.
|
Delaware
|
Wagner-Smith
Pumps & Systems, Inc.
|
Ohio
|
Warner
Enterprises, Inc.
|
Nevada
|
WBI
Canadian Pipeline, Ltd.
|
Canada
|
WBI
Energy Services, Inc.
|
Delaware
|
WBI
Holdings, Inc.
|
Delaware
|
WBI
Pipeline & Storage Group, Inc.
|
Delaware
|
WHC,
Ltd.
|
Hawaii
|
Williston
Basin Interstate Pipeline Company
|
Delaware
|
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the incorporation by reference in Registration Statement No.
333-155550 and No. 333-151215 on Form S-3, and No. 33-54486,
No. 333-27877, No. 333-84844, No. 333-112035,
No. 333-118622, No. 333-114488, No. 333-139156, and
No. 333-158572 on Form S-8, of our reports dated February 17,
2010, relating to the consolidated financial statements and financial statement
schedule of MDU Resources Group, Inc. and subsidiaries (the “Company”)
(which report expresses an unqualified opinion and includes an explanatory
paragraph relating to the Company’s adoption of the definitions and required
pricing assumptions outlined in the Modernization of Oil and Gas Reporting rules
issued by the Securities and Exchange Commission effective as of December 31,
2009), and the effectiveness of internal control over financial reporting,
appearing in this Annual Report on Form 10-K of the Company for the year
ended December 31, 2009.
/s/
DELOITTE & TOUCHE LLP
Minneapolis,
Minnesota
February
17, 2010
CONSENT
OF RYDER SCOTT COMPANY, L.P.
As independent oil and gas consultants, Ryder Scott Company, L.P.
hereby consents to the incorporation by reference in Registration Statement No.
333-155550 and No. 333-151215 on Form S-3, and No. 33-54486,
No. 333-27877, No. 333-84844, No. 333-112035,
No. 333-118622, No. 333-114488, No. 333-139156, and
No. 333-158572 on Form S-8, of all references to our firm’s name and
audit of portions of Fidelity Exploration & Production Company’s
(“Fidelity”) proved natural gas and oil reserves estimates as of
December 31, 2009, as described in our letter to Fidelity dated
January 22, 2010, included in or made a part of MDU Resources Group, Inc.’s
Annual Report on Form 10-K for the year ended December 31, 2009.
/s/ RYDER SCOTT COMPANY,
L.P.
RYDER SCOTT COMPANY, L.P.
TBPE Firm License No.
F-1580
Houston,
Texas
February
17, 2010
CERTIFICATION
I, Terry
D. Hildestad, certify that:
|
1.
|
I
have reviewed this annual report on Form 10-K of MDU Resources Group,
Inc.;
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|
4.
|
The
registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and
internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
(a)
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
|
(b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
|
|
(c)
Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation;
and
|
|
(d)
Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
|
|
5.
|
The
registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent
functions):
|
|
(a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
|
|
(b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
|
Date: February
17, 2010
/s/ Terry D.
Hildestad
Terry D.
Hildestad
President
and Chief Executive Officer
CERTIFICATION
I, Doran
N. Schwartz, certify that:
|
1.
|
I
have reviewed this annual report on Form 10-K of MDU Resources Group,
Inc.;
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|
4.
|
The
registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and
internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
(a)
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
|
(b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
|
|
(c)
Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation;
and
|
|
(d)
Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
|
|
5.
|
The
registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent
functions):
|
|
(a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
|
|
(b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
|
Date: February
17, 2010
/s/ Doran N.
Schwartz
Doran N.
Schwartz
Vice
President and Chief Financial Officer
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 906
OF
THE SARBANES-OXLEY ACT OF 2002
Each of the undersigned, Terry D.
Hildestad, the President and Chief Executive Officer, and Doran N. Schwartz, the
Vice President and Chief Financial Officer of MDU Resources Group, Inc. (the
"Company"), DOES HEREBY CERTIFY that:
1. The Company's Annual
Report on Form 10-K for the year ended December 31, 2009 (the "Report"), fully
complies with the requirements of Section 13(a) of the Securities Exchange Act
of 1934; and
2. Information contained in
the Report fairly presents, in all material respects, the financial condition
and results of operation of the Company.
IN WITNESS WHEREOF, each of the
undersigned has executed this statement this 17
th
day
of February, 2010.
/s/ Terry D.
Hildestad
Terry D. Hildestad
President and Chief Executive
Officer
/s/ Doran N.
Schwartz
Doran N. Schwartz
Vice
President and Chief Financial Officer
A signed
original of this written statement required by Section 906 has been provided to
MDU Resources Group, Inc. and will be retained by MDU Resources Group, Inc. and
furnished to the Securities and Exchange Commission or its staff upon
request.
FIDELITY
EXPLORATION & PRODUCTION COMPANY
Estimated
Future
Reserves
Attributable
to Certain
Leasehold
and Royalty Interests
SEC
Parameters
As
of
December
31, 2009
|
|
/s/
Joseph E. Blankenship, P.E.
|
|
|
Joseph
E. Blankenship, P.E.
|
|
|
TBPE
License No. 62093
|
|
|
Senior
Vice President
|
RYDER
SCOTT COMPANY, L.P.
TBPE Firm
Registration No. F-1580
RYDER
SCOTT COMPANY PETROLEUM CONSULTANTS
RYDER
SCOTT COMPANY
|
|
|
PETROLEUM CONSULTANTS
|
|
TBPE
REGISTERED ENGINEERING FIRM F-1580
|
|
|
FAX (713)
651-0849
|
1100 LOUISIANA SUITE 3800
|
HOUSTON,
TEXAS 77002-5218
|
TELEPHONE (713)
651-9191
|
January 22, 2010
Fidelity
Exploration & Production Company
1700
Lincoln, Suite 2800
Denver,
Colorado 80203
Gentlemen:
At the
request of Fidelity Exploration & Production Company (Fidelity), Ryder Scott
Company (Ryder Scott) has conducted a reserves audit of the estimates of the
proved reserves as prepared by Fidelity’s engineering and geological staff based
on the definitions and disclosure guidelines contained in the United States
Securities and Exchange Commission Title 17, Code of Federal Regulations,
Modernization of Oil and Gas Reporting, Final Rule released January 14, 2009 in
the Federal Register (SEC regulations).
The
reserves audit conducted by Ryder Scott was completed on January 15,
2010. This third party letter report presents the results of our
reserves audit based on the guidelines set forth under Section 229.1202(a)(7)
and (8) of the SEC regulations. The estimated reserves shown herein
represent Fidelity’s estimated net reserves attributable to the leasehold and
royalty interests in certain properties owned by Fidelity and the portion of
those reserves reviewed by Ryder Scott, as of December 31, 2009.
The
properties reviewed by Ryder Scott incorporate 3326 reserve determinations and
are located in the states of Alabama, Colorado, Louisiana, Montana, North
Dakota, New Mexico, Oklahoma, Texas, Utah, Wyoming, and in federal waters
offshore Louisiana and Texas.
The
proved net reserves attributable to the properties that we reviewed account for
100 percent of the total proved net reserves based on estimates prepared by
Fidelity as of December 31, 2009.
As
prescribed by the Society of Petroleum Engineers in Paragraph 2.2(f) of the
Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves
Information (SPE auditing standards), a reserves audit is defined as “the
process of reviewing certain of the pertinent facts interpreted and assumptions
made that have resulted in an estimate of reserves prepared by others and the
rendering of an opinion about (1) the appropriateness of the methodologies
employed; (2) the adequacy and quality of the data relied upon; (3) the depth
and thoroughness of the reserves estimation process; (4) the classification of
reserves appropriate to the relevant definitions used; and (5) the
reasonableness of the estimated reserve quantities.”
Based on
our review, including the data, technical processes and interpretations
presented by Fidelity, it is our opinion that the overall procedures and
methodologies utilized by Fidelity in determining the proved reserves comply
with the current SEC regulations and the overall proved reserves for the
reviewed properties as estimated by Fidelity are, in the aggregate, reasonable
within the established audit tolerance guidelines set forth in the SPE auditing
standards.
|
1200, 530 8TH
AVENUE, S.W.
|
CALGARY,
ALBERTA T2P 3S8
|
TEL (403)
262-2799
|
FAX (403)
262-2790
|
|
|
621 17TH
STREET, SUITE 1550
|
DENVER,
COLORADO 80293-1501
|
TEL (303)
623-9147
|
FAX (303)
623-4258
|
|
Fidelity
Exploration & Production Company
January
22, 2010
Page
2
The
estimated reserves presented in this report are related to hydrocarbon
prices. Fidelity has informed us that in the preparation of their
reserve and income projections, as of December 31, 2009, they used average
prices during the 12-month period prior to the ending date of the period covered
in this report, determined as unweighted arithmetic averages of the prices in
effect on the first-day-of-the-month for each month within such period, unless
prices were defined by contractual arrangements as required by the SEC
regulations. Actual future prices may vary significantly from the
prices required by SEC regulations; therefore, volumes of reserves actually
recovered and the amounts of income actually received may differ significantly
from the estimated quantities presented in this report. The net
reserves as estimated by Fidelity attributable to Fidelity's interest in
properties that we reviewed are summarized as follows:
SEC
PARAMETERS
Estimated
Net Reserves
Attributable
to Certain Properties of
Fidelity
Exploration & Production Company
|
|
Proved
|
|
|
Developed
|
|
|
|
Total
|
|
|
Producing
|
|
Non-Producing
|
|
Undeveloped
|
|
Proved
|
Total
Net Reserves
All Audited by Ryder
Scott
|
|
|
|
|
|
|
|
|
Oil/Condensate
- Barrels
|
|
20,225,402
|
|
1,323,542
|
|
4,381,279
|
|
25,930,223
|
Plant
Products - Barrels
|
|
2,551,391
|
|
2,694,256
|
|
3,040,563
|
|
8,286,210
|
Gas
– MMCF
|
|
271,030
|
|
50,531
|
|
126,864
|
|
448,425
|
Liquid
hydrocarbons are expressed in standard 42 gallon barrels. All gas
volumes are reported on an “as-sold” basis expressed in millions of cubic feet
(MMCF) at the official temperature and pressure bases of the areas in which the
gas reserves are located.
Reserves
Included in This Report
In our
opinion, the proved reserves presented in this report comply with the
definitions, guidelines and disclosure requirements as required by the SEC
regulations.
Proved
oil and gas reserves are those quantities of oil and gas, which, by analysis of
geoscience and engineering data, can be estimated with reasonable certainty to
be economically producible from a given date forward. Moreover,
estimates of reserves may increase or decrease as a result of future operations,
effects of regulation by governmental agencies or geopolitical
risks. As a result, the estimates of oil and gas reserves have an
intrinsic uncertainty. The reserves included in this report are
therefore estimates only and should not be construed as being exact
quantities. They may or may not be actually recovered, and if
recovered, could be more or less than the estimated amounts.
An
abridged version of the SEC reserves definitions from 210.4-10(a) entitled
“Petroleum Reserves Definitions” is included as an attachment to this
report.
RYDER
SCOTT COMPANY PETROLEUM CONSULTANTS
Fidelity
Exploration & Production Company
January
22, 2010
Page
3
Audit
Data, Methodology, Procedure and Assumptions
The
reserves for the properties that we reviewed were estimated by performance
methods or the volumetric method. In general, reserves attributable
to producing wells and/or reservoirs were estimated by performance methods such
as decline curve analysis, material balance and/or reservoir simulation which
utilized extrapolations of historical production and pressure data available
through August, 2009 in those cases where such data were considered to be
definitive. In certain cases, producing reserves were estimated by
the volumetric method where there were inadequate historical performance data to
establish a definitive trend and where the use of production performance data as
a basis for the reserve estimates was considered to be
inappropriate. Reserves attributable to non-producing and undeveloped
reserves included herein were estimated by the volumetric method and analogy,
which utilized all pertinent well and seismic data available through August,
2009.
Fidelity’s reserves are in conventional
formations, coal seams and shales. Although most of Fidelity’s
reserves are based on primary recovery, some of Fidelity’s reserves are based on
secondary recovery; examples would include some of Fidelity’s properties
operated by Encore Operating, LP in Montana and North
Dakota. Although most of Fidelity’s reserves will be produced through
vertical wellbores, some of Fideliy’s reserves will be produced through
horizontal wellbores; examples would include Fidelity’s wells producing the
Bakken Shale and Barnett Shale.
To
estimate economically recoverable oil and gas reserves, we consider many factors
and assumptions including, but not limited to, the use of reservoir parameters
derived from geological, geophysical and engineering data which cannot be
measured directly, economic criteria based on current costs and SEC pricing
requirements, and forecasts of future production rates. Under the SEC
regulations 210.4-10(a)(22)(v) and (26), proved reserves must be demonstrated to
be economically producible based on existing economic conditions including the
prices and costs at which economic producibility from a reservoir is to be
determined as of the effective date of the report. Fidelity has informed us that
they have furnished us all of the accounts, records, geological and engineering
data, and reports and other data required for this investigation. In
performing our audit of Fidelity’s forecast of future production and income, we
have relied upon data furnished by Fidelity with respect to property interests
owned, production and well tests from examined wells, normal direct costs of
operating the wells or leases, other costs such as transportation and/or
processing fees, ad valorem and production taxes, recompletion and development
costs, abandonment costs after salvage, product prices based on the SEC
regulations, geological structural and isochore maps, well logs, core analyses,
and pressure measurements. Ryder Scott reviewed such factual data for
its reasonableness; however, we have not conducted an independent verification
of the data supplied by Fidelity.
As
previously stated, the hydrocarbon prices used by Fidelity are based on the
average prices during the 12-month period prior to the ending date of the period
covered in this report, determined as the unweighted arithmetic averages of the
prices in effect on the first-day-of-the-month for each month within such
period, unless prices were defined by contractual arrangements. For
hydrocarbon products sold under contract, the contract prices, including fixed
and determinable escalations exclusive of inflation adjustments, were used until
expiration of the contract. Upon contract expiration, the prices were
adjusted to the 12-month unweighted arithmetic average as previously
described.
The
effects of derivative instruments designated as price hedges of oil and gas
quantities are not reflected in Fidelity’s individual property
evaluations.
RYDER
SCOTT COMPANY PETROLEUM CONSULTANTS
Fidelity
Exploration & Production Company
January
22, 2010
Page
4
While it
may reasonably be anticipated that the future prices received for the sale of
production and the operating costs and other costs relating to such production
may also increase or decrease from existing levels, such changes were, in
accordance with rules adopted by the SEC, omitted from consideration in making
this evaluation.
Gas
imbalances, if any, were not taken into account in the gas reserve estimates
reviewed. The gas volumes included herein do not attribute gas
consumed in operations as reserves.
Operating
costs used by Fidelity are based on the operating expense reports of Fidelity
and include only those costs directly applicable to the leases or wells. The
operating costs include a portion of general and administrative costs allocated
directly to the leases and wells. When applicable for operated
properties, the operating costs include an appropriate level of corporate
general administrative and overhead costs. The operating costs for
non-operated properties include the COPAS overhead costs that are allocated
directly to the leases and wells under terms of operating
agreements. No deduction was made for loan repayments, interest
expenses, or exploration and development prepayments that were not charged
directly to the leases or wells.
Development
costs used by Fidelity are based on authorizations for expenditure for the
proposed work or actual costs for similar projects. The estimated net
cost of abandonment after salvage was included for properties where abandonment
costs net of salvage were significant. The estimates of the net
abandonment costs furnished by Fidelity were accepted without independent
verification.
Because
of the direct relationship between volumes of proved undeveloped reserves and
development plans, we include in the proved undeveloped category only reserves
assigned to undeveloped locations that we have been assured will definitely be
drilled. Fidelity has assured us of their intent and ability to
proceed with the development activities included in this report, and that they
are not aware of any legal, regulatory or political obstacles that would
significantly alter their plans.
Current
costs used by Fidelity were held constant throughout the life of the
properties.
Fidelity’s
forecasts of future production rates are based on historical performance from
wells now on production or estimated initial production rates based on test data
and other related information for those wells or locations that are not
currently producing. Forecasts of future production rates may be more
or less than estimated because of changes in market demand or allowables set by
regulatory bodies. Wells or locations that are not currently
producing may start producing earlier or later than anticipated in the forecasts
prepared by Fidelity.
Fidelity’s
operations may be subject to various levels of governmental controls and
regulations. These controls and regulations may include matters
relating to land tenure, drilling, production practices, environmental
protection, marketing and pricing policies, royalties, various taxes and levies
including income tax, and are subject to change from time to
time. Such changes in governmental regulations and policies may cause
volumes of reserves actually recovered and amounts of income actually received
to differ significantly from the estimated quantities.
The
estimates of reserves presented herein were based upon a detailed study of the
properties in which Fidelity owns an interest; however, we have not made any
field examination of the properties. No consideration was given in
this report to potential environmental liabilities that may exist nor were any
costs included for potential liability to restore and clean up damages, if any,
caused by past operating practices.
RYDER
SCOTT COMPANY PETROLEUM CONSULTANTS
Fidelity
Exploration & Production Company
January
22, 2010
Page
5
Certain
technical personnel of Fidelity are responsible for the preparation of reserve
estimates on new properties and for the preparation of revised estimates, when
necessary, on old properties. These personnel assembled the necessary
data and maintained the data and workpapers in an orderly manner. We
consulted with these technical personnel and had access to their workpapers and
supporting data in the course of our audit.
The data
described herein were accepted as authentic and sufficient for determining the
reserves unless, during the course of our examination, a matter of question came
to our attention in which case the data were not accepted until all questions
were satisfactorily resolved. Our audit included such tests and
procedures as we considered necessary under the circumstances to render the
conclusions set forth herein.
Audit
Opinion
In our
opinion, Fidelity's estimates of future reserves for the reviewed properties
were prepared in accordance with generally accepted petroleum engineering and
evaluation principles for the estimation of future reserves as set forth in the
Society of Petroleum Engineers’ Standards Pertaining to the Estimating and
Auditing of Oil and Gas Reserves Information, and we found no bias in the
utilization and analysis of data in estimates for these properties.
The
overall proved reserves for the reviewed properties as estimated by Fidelity
are, in the aggregate, reasonable within the established audit tolerance
guidelines of 10 percent as set forth in the Standards Pertaining to the
Estimating and Auditing of Oil and Gas Reserves Information promulgated by the
Society of Petroleum Engineers.
In
general, and in aggregrate, we were in reasonable agreement with Fidelity's
estimates of proved reserves for the properties which we reviewed. As
a consequence, it is our opinion that the data presented herein for the
properties that we reviewed fairly reflect the estimated net reserves owned by
Fidelity.
Standards
of Independence and Professional Qualification
Ryder
Scott is an independent petroleum engineering consulting firm that has been
providing petroleum consulting services throughout the world for over seventy
years. Ryder Scott is employee-owned and maintains offices in
Houston, Texas; Denver, Colorado; and Calgary, Alberta, Canada. We
have over eighty engineers and geoscientists on our permanent
staff. By virtue of the size of our firm and the large number of
clients for which we provide services, no single client or job represents a
material portion of our annual revenue. We do not serve as officers
or directors of any publicly traded oil and gas company and are separate and
independent from the operating and investment decision-making process of our
clients. This allows us to bring the highest level of independence
and objectivity to each engagement for our services.
Ryder
Scott actively participates in industry related professional societies and
organizes an annual public forum focused on the subject of reserves evaluations
and SEC regulations. Many of our staff have authored or co-authored
technical papers on the subject of reserves related topics. We
encourage our staff to maintain and enhance their professional skills by
actively participating in ongoing continuing education.
RYDER
SCOTT COMPANY PETROLEUM CONSULTANTS
Fidelity
Exploration & Production Company
January
22, 2010
Page
6
Prior to
becoming an officer of the Company, Ryder Scott requires that staff engineers
and geoscientists have received professional accreditation in the form of a
registered or certified professional engineer’s license or a registered or
certified professional geoscientist’s license, or the equivalent thereof, from
an appropriate governmental authority or a recognized self-regulating
professional organization.
We are
independent petroleum engineers with respect to Fidelity. Neither we
nor any of our employees have any interest in the subject properties, and
neither the employment to do this work nor the compensation is contingent on our
estimates of reserves for the properties which were reviewed.
The
professional qualifications of the undersigned, the technical person primarily
responsible for auditing the reserves information discussed in this report, are
included as an attachment to this letter.
Terms
of Usage
This
report was prepared for the exclusive use of Fidelity Exploration &
Production Company and may not be put to other use without our prior written
consent for such use. The data and work papers used in the
preparation of this report are available for examination by authorized parties
in our offices. Please contact us if we can be of further
service.
Very truly yours,
RYDER SCOTT COMPANY, L.P.
TBPE Firm Registration No.
F-1580
/s/ Joseph E. Blankenship,
P.E.
Joseph E. Blankenship,
P.E.
TBPE License No. 62093
Senior Vice President
JEB/sm
RYDER
SCOTT COMPANY PETROLEUM CONSULTANTS
Professional
Qualifications of Primary Technical Person
Mr.
Joseph E. Blankenship is the technical person designated to be in responsible
charge on behalf of Ryder Scott Company L.P. for the audit of the
reserves. Mr. Blankenship has either been personally responsible or
has overseen and approved the estimation and evaluation process with respect to
the preparation of this report.
Mr.
Blankenship, an employee of Ryder Scott Company L.P. (Ryder Scott) since 1982,
is a Senior Vice President and also serves as chief technical advisor for
unconventional reserves evaluation. Mr. Blankenship is responsible
for coordinating and supervising staff and consulting engineers of the company
in ongoing reservoir evaluation studies worldwide. Before joining
Ryder Scott, Mr. Blankenship served in a number of engineering positions with
Exxon Company USA. For more information regarding Mr. Blankenship’s
geographic and job specific experience, please refer to the Ryder Scott Company
website at www.ryderscott.com/Experience/Employees.
Mr.
Blankenship earned a Bachelor of Science degree in Mechanical Engineering from
the University of Alabama in 1977. He is a member of the Honorary
Engineering Society Pi Tau Sigma and is a registered Professional Engineer in
the State of Texas. He is also a member of the Society of Petroleum
Engineers (SPE) and the Society of Petroleum Evaluation Engineers
(SPEE). He has served as Chairman of the SPE Newsletter Committee and
has been invited by the SPEE to lecture on the subject of Coal Seam
evaluation.
In
addition to gaining experience and competency through prior work experience, the
Texas Board of Professional Engineers requires a minimum of fifteen hours of
continuing education annually, including at least one hour in the area of
professional ethics, which Mr. Blankenship fulfills. As part of his
2009 continuing education hours, Mr. Blankenship attended an internally
presented 17
hours
of formalized training as well as Ryder Scott’s day long 2009 Reserves
Conference, and a presentation by Dr. John Lee, on the new SEC regulations
relating to the definitions and disclosure guidelines contained in the United
States Securities and Exchange Commission Title 17, Code of Federal Regulations,
Modernization of Oil and Gas Reporting, Final Rule released January 14, 2009 in
the Federal Register. Mr. Blankenship attended an additional 2 hours
of formalized in-house training as well as 15 hours of formalized external
training during 2009 covering such topics as the SPE/WPC/AAPG/SPEE Petroleum
Resources Management System, reservoir engineering, geoscience and petroleum
economics evaluation methods, procedures and software and ethics for
consultants. Mr. Blankenship was class instructor in Ryder Scott’s
2009 in-house course on unconventional reserves evaluation.
Based on
his educational background, professional training and more than 32 years of
practical experience in the estimation and evaluation of petroleum reserves, Mr.
Blankenship has attained the professional qualifications as a Reserves Estimator
and Reserves Auditor set forth in Article III of the “Standards Pertaining to
the Estimating and Auditing of Oil and Gas Reserves Information” promulgated by
the Society of Petroleum Engineers as of February 19, 2007.
RYDER
SCOTT COMPANY PETROLEUM CONSULTANTS
PETROLEUM
RESERVES DEFINITIONS
As
Adapted From:
RULE
4-10(a) of REGULATION S-X PART 210
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION (SEC)
PREAMBLE
On January 14, 2009, the United States
Securities and Exchange Commission (“the Commission”) published the
“Modernization of Oil and Gas Reporting; Final Rule” in the Federal Register of
National Archives and Records Administration (NARA). The
“Modernization of Oil and Gas Reporting; Final Rule” includes revisions and
additions to the definition section in Rule 4-10 of Regulation S-X, revisions
and additions to the oil and gas reporting requirements in Regulation S-K, and
amends and codifies Industry Guide 2 in Regulation S-K. The
“Modernization of Oil and Gas Reporting; Final Rule”, including all references
to Regulation S-X and Regulation S-K, shall be referred to herein collectively
as the “SEC Regulations”. The SEC Regulations take effect with all
filings made with the United States Securities and Exchange Commission as of
December 31, 2009, or after January 1, 2010. Reference should be made
to the full text under Title 17, Code of Federal Regulations, Regulation S-X
Part 210, Rule 4-10 (a) for the complete definitions, as the following
definitions, descriptions and explanations rely wholly or in part on excerpts
from the original document (direct passages excerpted from the aforementioned
SEC document are denoted in italics herein).
Reserves are those quantities of
petroleum which are anticipated to be commercially recovered from known
accumulations from a given date forward under defined conditions. All
reserve estimates involve some degree of uncertainty. The uncertainty
depends chiefly on the amount of reliable geologic and engineering data
available at the time of the estimate and the interpretation of these
data. The relative degree of uncertainty may be conveyed by placing
reserves into one of two principal classifications, either proved or
unproved. Unproved reserves are less certain to be recovered than
proved reserves and may be further sub-classified as probable and possible
reserves to denote progressively increasing uncertainty in their
recoverability. Under the SEC Regulations as of December 31,
2009, or after January 1, 2010, a company may optionally disclose estimated
quantities of probable or possible oil and gas reserves in documents publicly
filed with the Commission. The SEC Regulations continue to prohibit
disclosure of estimates of oil and gas resources other than reserves and any
estimated values of such resources in any document publicly filed with the
Commission unless such information is required to be disclosed in the document
by foreign or state law as noted in §229.102 (5).
Reserves estimates will generally be
revised as additional geologic or engineering data become available or as
economic conditions change.
Reserves may be attributed to either
natural energy or improved recovery methods. Improved recovery
methods include all methods for supplementing natural energy or altering natural
forces in the reservoir to increase ultimate recovery. Examples of
such methods are pressure maintenance, cycling, waterflooding, thermal methods,
chemical flooding, and the use of miscible and immiscible displacement
fluids. Other improved recovery methods may be developed in the
future as petroleum technology continues to evolve.
RYDER
SCOTT COMPANY PETROLEUM CONSULTANTS
PETROLEUM
RESERVES DEFINITIONS
Page
2
RESERVES (SEC
DEFINITIONS)
Securities and Exchange Commission
Regulation S-X §229.4-10(a) (26) defines reserves as follows:
Reserves.
Reserves
are estimated remaining quantities of oil and gas and related substances
anticipated to be economically producible, as of a given date, by application of
development projects to known accumulations. In addition, there must
exist, or there must be a reasonable expectation that there will exist, the
legal right to produce or a revenue interest in the production, installed means
of delivering oil and gas or related substances to market, and all permits and
financing required to implement the project.
Note to paragraph
(a)(26):
Reserves should not be assigned to adjacent reservoirs isolated
by major, potentially sealing, faults until those reservoirs are penetrated and
evaluated as economically producible. Reserves should not be assigned
to areas that are clearly separated from a known accumulation by a
non-productive reservoir (
i.e.
, absence of
reservoir, structurally low reservoir, or negative test
results). Such areas may contain prospective resources (
i.e.
, potentially
recoverable resources from undiscovered accumulations).
PROVED RESERVES (SEC
DEFINITIONS)
Securities and Exchange Commission
Regulation S-X §229.4-10(a) (22) defines proved oil and gas reserves as
follows:
Proved oil and gas
reserves.
Proved oil and gas reserves are those quantities of
oil and gas, which, by analysis of geoscience and engineering data, can be
estimated with reasonable certainty to be economically producible—from a given
date forward, from known reservoirs, and under existing economic conditions,
operating methods, and government regulations—prior to the time at which
contracts providing the right to operate expire, unless evidence indicates that
renewal is reasonably certain, regardless of whether deterministic or
probabilistic methods are used for the estimation. The project to extract the
hydrocarbons must have commenced or the operator must be reasonably certain that
it will commence the project within a reasonable time.
(i)
The area of the reservoir considered as proved includes:
(A)
The area identified by drilling and limited by fluid contacts, if any,
and
(B)
Adjacent undrilled portions of the reservoir that can, with reasonable
certainty, be judged to be continuous with it and to contain economically
producible oil or gas on the basis of available geoscience and engineering
data.
(ii)
In the absence of data on fluid contacts, proved quantities in a reservoir are
limited by the lowest known hydrocarbons (LKH) as seen in a well penetration
unless geoscience, engineering, or performance data and reliable technology
establishes a lower contact with reasonable certainty.
(iii)
Where direct observation from well penetrations has defined a highest known oil
(HKO) elevation and the potential exists for an associated gas cap, proved oil
reserves may be assigned in the structurally higher portions of the reservoir
only if geoscience, engineering, or performance data and reliable technology
establish the higher contact with reasonable certainty.
RYDER
SCOTT COMPANY PETROLEUM CONSULTANTS
RESERVES
DEFINITIONS
Page
3
(iv)
Reserves which can be produced economically through application of improved
recovery techniques (including, but not limited to, fluid injection) are
included in the proved classification when:
(A)
Successful testing by a pilot project in an area of the reservoir with
properties no more favorable than in the reservoir as a whole, the operation of
an installed program in the reservoir or an analogous reservoir, or other
evidence using reliable technology establishes the reasonable certainty of the
engineering analysis on which the project or program was based; and
(B)
The project has been approved for development by all necessary parties and
entities, including governmental entities.
(v)
Existing economic conditions include prices and costs at which economic
producibility from a reservoir is to be determined. The price shall be the
average price during the 12-month period prior to the ending date of the period
covered by the report, determined as an unweighted arithmetic average of the
first-day-of-the-month price for each month within such period, unless prices
are defined by contractual arrangements, excluding escalations based upon future
conditions.
[Remainder
of this page is left blank intentionally]
RYDER
SCOTT COMPANY PETROLEUM CONSULTANTS
RESERVES
STATUS DEFINITIONS AND GUIDELINES
As
Adapted From:
RULE
4-10(a) of REGULATION S-X PART 210
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION (SEC)
and
PETROLEUM
RESOURCES MANAGEMENT SYSTEM (SPE-PRMS)
Sponsored
and Approved by:
SOCIETY
OF PETROLEUM ENGINEERS (SPE),
WORLD
PETROLEUM COUNCIL (WPC)
AMERICAN
ASSOCIATION OF PETROLEUM GEOLOGISTS (AAPG)
SOCIETY
OF PETROLEUM EVALUATION ENGINEERS (SPEE)
Reserves status categories define the
development and producing status of wells and reservoirs.
DEVELOPED RESERVES (SEC
DEFINITIONS)
Securities and Exchange Commission
Regulation S-X §229.4-10(a) (6) defines developed oil and gas reserves as
follows:
Developed
oil and gas reserves are reserves of any category that can be expected to be
recovered:
(i)
Through existing wells with existing equipment and operating methods or in which
the cost of the required equipment is relatively minor compared to the cost of a
new well; and
(ii)
Through installed extraction equipment and infrastructure operational at the
time of the reserves estimate if the extraction is by means not involving a
well.
Developed Producing
(SPE-PRMS Definitions)
While not a requirement for disclosure
under the SEC regulations, developed oil and gas reserves may be further
sub-classified according to the guidance contained in the SPE-PRMS as Producing
or Non-Producing.
Developed
Producing Reserves
Developed
Producing Reserves are expected to be recovered from completion intervals that
are open and producing at the time of the estimate.
Improved
recovery reserves are considered producing only after the improved recovery
project is in operation.
Developed
Non-Producing
Developed
Non-Producing Reserves include shut-in and behind-pipe
reserves.
RYDER
SCOTT COMPANY PETROLEUM CONSULTANTS
RESERVES
STATUS DEFINITIONS AND GUIDELINES
Page
2
Shut-In
Shut-in
Reserves are expected to be recovered from:
(1)
|
completion
intervals which are open at the time of the estimate but which have not
yet started producing;
|
(2)
|
wells
which were shut-in for market conditions or pipeline connections;
or
|
(3)
|
wells
not capable of production for mechanical
reasons.
|
Behind-Pipe
Behind-pipe
Reserves are expected to be recovered from zones in existing wells which will
require additional completion work or future re-completion prior to start of
production.
In
all cases, production can be initiated or restored with relatively low
expenditure compared to the cost of drilling a new well.
UNDEVELOPED RESERVES (SEC
DEFINITIONS)
Securities and Exchange Commission
Regulation S-X §229.4-10(a) (31) defines undeveloped oil and gas reserves as
follows:
Undeveloped
oil and gas reserves are reserves of any category that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion.
(i)
Reserves on undrilled acreage shall be limited to those directly offsetting
development spacing areas that are reasonably certain of production when
drilled, unless evidence using reliable technology exists that establishes
reasonable certainty of economic producibility at greater
distances.
(ii)
Undrilled locations can be classified as having undeveloped reserves only if a
development plan has been adopted indicating that they are scheduled to be
drilled within five years, unless the specific circumstances, justify a longer
time.
(iii)
Under no circumstances shall estimates for undeveloped reserves be attributable
to any acreage for which an application of fluid injection or other improved
recovery technique is contemplated, unless such techniques have been proved
effective by actual projects in the same reservoir or an analogous reservoir, as
defined in paragraph (a)(2) of this section, or by other evidence using reliable
technology establishing reasonable certainty.
RYDER
SCOTT COMPANY PETROLEUM CONSULTANTS