20230109INT to Staff Attachment - Response to No. 28_2019-Annual-Report-10-K-2020-Proxy.pdf

MDU Resources Group, Inc.1
MDU Resources Group, Inc.2
Forward-looking statements: This Annual Report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking statements should be read with the cautionary statements and important factors included in “Part I, Forward-Looking Statements” and “Item 1A — Risk Factors” of the company’s “2019 Form 10-K.” Forward-looking statements are all statements other than statements of historic fact, including without limitation those statements that are identified by the words anticipates, estimates, expects, intends, plans, predicts and similar expressions.
Years ended December 31, 2019 2018
(In millions, where applicable)
Operating revenues $ 5,336.8 $4,531.6
Operating income $ 481.2 $ 401.7
Net Income $ 335.5 $ 272.3
Earnings per share $ 1.69 $ 1.39
Dividends declared per share $ .815 $ .795
Weighted average shares outstanding — diluted 198.6 196.1
Total assets $ 7,683 $ 6,988
Total equity $ 2,847 $ 2,567
Total debt $ 2,243 $ 2,109
Capitalization ratios:
Total equity 55.9% 54.9%
Total debt 44.1 45.1
100% 100%
Price/earnings from continuing operations ratio (12 months ended) 17.6x 17.3x
Book value per share $ 14.21 $ 13.09
Market value as a percent of book value 209.1% 182.1%
13,359 11,797
Highlights
MDU Resources Group, Inc.3
Regulated Energy Delivery
Electric and Natural Gas Utilities
MDU Resources Group’s utility companies serve approximately 1.1 million customers. Cascade Natural Gas Corporation distributes natural gas in Oregon and Washington. Great Plains Natural Gas Co. distributes natural gas in Minnesota and North Dakota. Intermountain Gas Company distributes natural gas in Idaho. Montana-Dakota Utilities Co. generates, transmits and distributes electricity and distributes natural gas in Montana, North Dakota, South Dakota and Wyoming. These operations also supply related value-added services.
Note: The revenues and earnings noted on this page exclude discontinued operations, the Other category and intercompany eliminations.
Regulated Energy Delivery
Pipeline and Midstream
WBI Energy 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 other energy-related services.
2019 Key Statistics
Revenues (millions) $140.4
Earnings (millions) $29.6
Pipeline (MMdk) Transportation 429.7 Gathering 13.9
SD
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ID
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ND MN
WA
Electric and natural gas utility areas
Electric generating stations
States of operations
SD
MT
WY
ND MN
Company storage fields
Midstream assets
States of operations
Pipeline systems
Interconnecting pipelines
NE
SD
MT
ID
HI
WY
UT
CA
OR
WA ND MN
IA
TX
AK States of operation
Market areas
NE
SD
MT
ID
HI
WY
COUTNV
CA
OR
WA
AZ NM
ND MN
IA
MO
AR
LA
TN
MS
NC
VAWVKY
IN
PA
AL GA
FL
SC
IL
MIWI
KS
OK
TX
AK
OH
Construction services offices
Authorized states of operation
2019 Key Statistics
Revenues (millions) Electric $351.7 Natural gas $865.2
Earnings (millions) Electric $54.8 Natural gas $39.5
Electric retail sales (million kWh) 3,314.3
Natural gas distribution (MMdk) Retail sales 123.7 Transportation sales 166.1
2019 Key Statistics
Revenues (millions) $2,190.7
Earnings (millions) $120.4
Construction materials sales (thousands)
Aggregates (tons) 32,314
Asphalt (tons) 6,707
Ready-mix concrete (cubic yards) 4,123
Construction materials aggregate
reserves (billion tons) 1.1
2019 Key Statistics
Revenues (millions) $1,849.3
Earnings (millions) $93.0
Construction Materials and Services
Construction Materials and Contracting
Knife River Corporation mines aggregates and markets crushed stone, sand, gravel and related construction materials, including ready-mix concrete, cement, asphalt, liquid asphalt and other value-added products. It also performs integrated contracting services.
Construction Materials and Services
Construction Services
MDU Construction Services Group provides inside and outside specialty contracting services, including constructing and maintaining electric and communication lines, gas pipelines, fire suppression systems, and external lighting and traffic signalization. It also provides utility excavation and inside electrical and mechanical services, and manufactures and distributes transmission line construction equipment and supplies.
Our Businesses
MDU Resources Group, Inc.4
Our team of employees safely and
successfully continues our
efforts toward Building a Strong
America® by providing electricity and
natural gas to homes and businesses, while
building the infrastructure to make that
possible and constructing the roads and
runways for our country’s transportation
system.
MDU Resources Group increased earnings
23% in 2019, with outstanding
performance from both our construction
operations and our regulated energy
delivery businesses. Earnings in 2019 were
$335.5 million, or $1.69 per share,
compared to 2018 earnings of $272.3
million, or $1.39 per share.
During 2019, we provided you with a 28%
total return on your investment in MDU
Resources stock. This included increasing
our dividend for the 29th consecutive year.
These results emphasize the success of our
two-pillar approach of expanding both
our regulated energy delivery businesses
and construction materials and services
businesses that are strategically located in
growing markets across the country.
We anticipate 2020 will be another strong
year, with record combined project
backlog at the start of the year at our
construction businesses, significant
growth projects at our natural gas pipeline
company and infrastructure upgrades and
replacements at our utility operations to
serve a growing customer base. With $650
million in expected capital projects this
year as part of approximately $2.9 billion
in planned investments over the next five
years, we believe MDU Resources will
continue to provide you with the long-
term returns you expect.
Construction services continues breaking records
For the second consecutive year, MDU
Construction Services Group had record
revenues, earnings and backlog. Earnings
were $93.0 million, a 45% increase over
2018 earnings of $64.3 million, while
year-over-year revenues were 35% higher.
We saw higher workloads and margins in
2019 from our outside specialty electrical
contracting operations, with an increase
in work for utility customers, and we
continued to see strong demand for sales
and rentals of the utility construction
equipment we manufacture.
There also continues to be high demand
for the inside specialty electrical and
mechanical contracting work we perform,
particularly in the hospitality, high-tech
and manufacturing industries, and we
have strong relationships with the
customers for whom we provide top-
quality services.
Our team of employees consistently
delivers successful design and build
projects across the country, and our
footprint is growing as we acquired two
operations in the past year. In mid-2019,
we acquired the assets of Pride Electric,
Inc., a leading electrical construction
company in Redmond, Washington. In
early 2020, we acquired PerLectric, Inc., a
leading electrical construction company in
Fairfax, Virginia. We continue to explore
opportunities for further growth through
acquisitions that are a good strategic fit
with our existing operations.
MDU Construction Services Group is the
12th largest specialty contractor in the
U.S., according to Engineering News
Record’s “2019 Top 600 Specialty
Contractors” list, and we have more than
7,000 skilled employees at peak
construction season working across 42
states for this business. With a record
work backlog of $1.14 billion at the end of
2019, which was a 22% increase over $939
million at December 31, 2018, we expect
strong results from this business again in
2020.
Acquisitions help grow construction materials
Knife River Corporation earned $120.4
million in 2019, a 30% increase compared
to $92.6 million in 2018.
Like our construction services operations,
we saw higher workloads at this business
unit in 2019. Strong economic conditions
in most of the states where we operate
resulted in an increase in materials sales as
well as higher contracting workloads and
margins. We also benefited from an
increase in asset sales gains that were
approximately $5.6 million higher, after
tax, than in 2018.
We completed a platform acquisition and a
number of bolt-on acquisitions in 2018
and 2019 that have contributed to earnings
growth. We continue our acquisition
strategy in this business, and just
announced on February 14 that we
acquired an operation in Spokane,
Washington, that produces precast and
prestressed concrete components for
projects throughout Washington, Idaho
and Oregon. This acquisition complements
and expands Knife River’s existing precast
and prestressed operations in Oregon and
Alaska, allowing us to better serve the
growing Pacific Northwest.
Knife River is installing equipment and
rail infrastructure at a substantial new
aggregate quarry in Texas, for which it
received in the fourth quarter of 2019 an
Air Quality Standard permit to construct
a rock-crushing plant. The 570-acre Honey
Report to Stockholders
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20192018201720162015
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Earnings Per Share
(from continuing operations)
MDU Resources Group, Inc.5
Creek Quarry contains an estimated
40-year supply of high-quality aggregates
that will supply our Texas ready-mix
concrete, asphalt and construction
operations, as well as third-party
customers. Knife River expects aggregate
production to begin there this year.
We continue to see strong bidding
opportunities across our markets. Knife
River’s year-end 2019 backlog of work is
on par with the previous year’s record, at
$693 million compared to $706 million,
respectively. With state and federal
officials recognizing that infrastructure
repairs and replacements are overdue in
many areas, we are ready with our 1.1
billion tons of aggregate reserves to serve
the needs of our country.
Utility customer count,
rate base continue to grow
Our electric and natural gas utility
business earned a record $94.3 million in
2019, compared to $84.7 million in 2018.
Natural gas sales volumes increased 9.9%
and electric sales volumes declined 1.2%.
The increase in natural gas sales volumes
primarily was the result of colder weather
across our eight-state service territory,
with results partially offset by weather
normalization mechanisms in most
jurisdictions. Our utility customer base of
approximately 1.1 million customers grew
again in 2019 by 1.8%, and we anticipate it
will continue to grow annually by 1% to 2%.
We had extensive rate-related regulatory
activity in 2019 and expect that to
continue in 2020. In 2019, our team
completed a natural gas case in Oregon
and an electric case in Montana,
implementing approximately $11 million
in annual rate increases. In early 2020, we
completed a natural gas case in
Washington, with approximately $6.5
million in annual rate increases to begin
March 1. Our utility companies also
completed rate adjustments that were
necessary in every jurisdiction to return to
customers the benefits of lower federal
income taxes. In total, those adjustments
provide approximately $31 million in
annual rate reductions to our customers.
Our companies have two additional rate
cases pending before state utility
commissions, and we anticipate filing
additional requests this year to earn
recovery on costs associated with
upgrading and expanding our facilities to
safely meet customer demand. We are
forecasting compounded annual growth of
5% over the next five years on our $2.4
billion rate base.
Our utility companies, Cascade Natural
Gas Corporation, Intermountain Gas
Company and Montana-Dakota Utilities
Co., took first, second and third places,
respectively, in the West Midsize Segment
of the J.D. Power 2019 Gas Utility
Residential Customer Satisfaction Study.SM
In addition, Cascade Natural Gas took
first place nationwide in the survey — a
significant accomplishment based on
complimentary feedback from our
customers. We are proud of the women
and men who serve our customers every
day with reliable and safe natural gas
service, including our Customer
Experience Team headquartered in
Meridian, Idaho, which handles
approximately 1.5 million natural gas and
electric utility customer inquiries per year.
We continue to focus on upgrading and
replacing aging natural gas distribution
pipeline with the safest, most up-to-date
distribution materials available. We are
fortunate not to have any cast-iron pipe in
our system, which has been identified
industrywide as a higher safety risk.
As we announced in early 2019, we are
proceeding with efforts to retire the Lewis
& Clark Station at Sidney, Montana, and
the Heskett 1 and 2 units at Mandan,
North Dakota. We expect to close these
coal-fired electric generating facilities,
with a combined capacity of 144
megawatts, at the end of first quarter 2020
and 2021, respectively, and replace them
with an 88-MW natural gas-fired peaking
unit to be built at the Heskett site, as well
as purchasing low-cost power available to
us as a member of the Midcontinent
Independent System Operator market.
Replacing these outdated plants, which
were built in the 1950s and early 1960s,
will reduce costs for our electric customers
while also reducing our greenhouse gas
emissions from power generation sources.
Pipeline has third year of record volumes
Our pipeline and midstream business
earned $29.6 million in 2019, compared to
$28.5 million in 2018. Results in 2018
included a $4.2 million tax benefit related
to a final accounting order issued by the
Federal Energy Regulatory Commission.
David L. Goodin
President and Chief Executive Officer
Dennis W. Johnson
Chair of the Board
MDU Resources Group, Inc.6
Alongside all of MDU Resources’ directors
and employees, we thank you for your
investment in our company. We look
forward to continuing to provide the
essential energy and construction
products and services that are Building a
Strong America.®
Dennis W. Johnson
Chair of the Board
David L. Goodin
President and Chief Executive Officer
February 21, 2020
WBI Energy transported a record volume
of natural gas for the third consecutive
year, approximately 22% more than in
2018. These volume increases are partly
due to organic growth projects on our
pipeline system that provide additional
capacity to third-party producers in the
Bakken region, where natural gas flaring
continues to exceed state-imposed
restrictions.
We completed construction and placed
into service in September the Demicks
Lake project in McKenzie County, North
Dakota, which added approximately 175
million cubic feet per day of capacity. Line
Section 22, an expansion project near
Billings, Montana, was put into service in
November and adds approximately 22.5
MMcf/day of capacity. The Demicks Lake
Expansion project also was just completed
and put into service at the beginning of
February this year. It adds another 175
MMcf/day of capacity. In total, our
interstate pipeline system now has capacity
to transport more than 2.2 billion cubic
feet of natural gas per day.
WBI Energy also benefited in 2019 from a
FERC-approved rate increase that took
effect May 1. The increase includes higher
customer and depreciation rates, which
will allow WBI Energy to invest more in
system upgrades each year.
WBI Energy continues to propose
solutions to assist in the gas flaring
challenges in North Dakota, where
producer demand remains high for
additional natural gas pipeline capacity.
We just filed our application with the
FERC for permission to proceed with
construction in 2021 on the North Bakken
Expansion project in western North
Dakota, which will add approximately 350
MMcf/day of capacity. Company sustainability remains a strong focus
We recognize that the sustainability of our
operations hinges on public perception
and policy, which are greatly impacted by
our role as a corporate citizen in the
communities we serve across the country.
In 2019, our board sharpened its focus on
environmental and social matters by
establishing an Environmental and
Sustainability Committee. The committee
helps fulfill the board’s oversight
responsibilities by providing
recommendations on company policies,
strategies, public policy positions,
programs and performance related to
environmental, workplace health and
safety, and other social sustainability
matters.
We also provided you in 2019 with a
deeper look at our environmental, social
and governance efforts through more
extensive reporting in those areas. We
adapted our ESG reporting to follow the
standards outlined by the Sustainability
Accounting Standards Board and other
industry organizations, and this
information is now available on our
website at www.mdu.com/sustainability.
We will continue to focus on expanding
our metrics and reporting in regard to
ESG matters.
Also related to ensuring our operations are
sustainable, we maintain our focus on the
safety of our employees, the public and our
operations. Our employee safety records
continue to beat industry rates, and we
remain committed to ensuring our
systems provide safe and reliable service to
customers across our operations.
We also continue to enhance our
cybersecurity measures to keep our
systems, data and customer information
safe.
Keeping our operations and hardworking
employees safe helps ensure we can
provide you with the long-term returns
you expect from MDU Resources. As part
of our pledge to deliver results to you, this
was the 82nd consecutive year we have
paid a competitive dividend, while
increasing it each of the past 29 years. Our
board remains committed to maintaining
this tradition for our shareholders.
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20162015201420132012
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20 year10 year5 year3 year1 year
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Total Shareholder Returns
MDU Resources Group, Inc.7
Numbers indicate age and years of service ( ) on the MDU Resources Board of Directors as of December 31, 2019.
David L. Goodin
58 (7)Bismarck, North Dakota
President and Chief Executive Officer of MDU Resources
Formerly president and chief executive officer of Cascade Natural Gas Corporation, Great
Plains Natural Gas Co.,
Intermountain Gas Company and Montana-Dakota Utilities Co.
From left, Chenxi Wang, John K. Wilson, Dennis W. Johnson, Mark A. Hellerstein, David L. Goodin, David M. Sparby, Patricia L. Moss, Thomas Everist, Edward A. Ryan and Karen B. Fagg.
Thomas Everist
70 (25)Sioux Falls, South Dakota
President and chair of The Everist Co., formerly a construction materials company; a director of
Raven Industries, Inc., a public company.
Expertise: Construction materials and contracting industry, business leadership and management.
Karen B. Fagg
66 (15)Billings, Montana
Retired, formerly vice president of DOWL HKM and formerly chair, chief executive officer and
majority owner of HKM Engineering Inc.
Expertise: Engineering, natural resource development, environment and business management.
Mark A. Hellerstein
67 (7)Denver, Colorado
Retired, formerly chair, president and chief executive officer of St. Mary Land & Exploration Co.; a
former director of Transocean Inc.
Expertise: Accounting, finance, business leadership and public company management.
Patricia L. Moss
66 (17)
Bend, Oregon
Formerly vice chair, president
and chief executive officer of Cascade Bancorp and Bank of the Cascades; a director of First Interstate BancSystem Inc., a public company.
Expertise: Finance, compliance oversight, business development and public company governance.
Chenxi Wang
49 (1)
Los Altos, California
Founder and managing general partner of Rain Capital Fund LP,
a cybersecurity-focused venture fund; formerly chief strategy officer of Twistlock, a security software company.
Expertise: Technology, cybersecurity, capital markets and business development.
David M. Sparby
65 (2)
Minneapolis, Minnesota
Formerly senior vice president
and group president, Revenue at Xcel Energy Inc. and president and chief executive officer of Northern States Power-Minnesota.
Expertise: Public utility, renewable energy, finance, legal and public company leadership.
John K. Wilson
65 (17)
Omaha, Nebraska
Formerly president of Durham
Resources LLC, a privately held financial management company, and formerly a director of a mutual fund.
Expertise: Accounting, finance, public utility and business management.
Edward A. Ryan
66 (2)
Washington, D.C.
Formerly executive vice
president and general counsel of Marriott International, a large public company with international operations.
Expertise: Corporate governance and transactions, legal and public company leadership.
Dennis W. Johnson
70 (19)Dickinson, North Dakota
Chair of MDU Resources Board of Directors
Chair, president and chief executive officer of TMI Group, an architectural woodwork manufacturer; former president of the Dickinson City Commission; a former director of Federal Reserve Bank of Minneapolis.
Expertise: Business management, specialty contracting, finance and strategic planning.
Director ChangesHarry J. Pearce did not stand for re-election in 2019. His term as a director and chair of the MDU Resources Board of Directors concluded May 7, 2019.
William E. McCracken did not stand for re-election in 2019. His term as a director concluded May 7, 2019.
Chenxi Wang was elected to the Board of Directors on May 7, 2019.
Dennis W. Johnson was named chair of the MDU Resources Board of Directors on May 7, 2019.
Board of Directors
MDU Resources Group, Inc.8
Numbers indicate age and years of service ( ) as of December 31, 2019.
David L. Goodin
58 (37)
President and Chief Executive Officer of MDU Resources
Serves on the company’s Board of Directors and as chair of the board of all major subsidiary
companies; formerly president and chief executive officer of Cascade Natural Gas Corporation, Great Plains Natural Gas Co., Intermountain Gas Company and Montana-Dakota Utilities Co.
Trevor J. Hastings
46 (24)
President and Chief Executive Officer of WBI Holdings, Inc.
Formerly vice president of business development and operations support of Knife River
Corporation.
Anne M. Jones
56 (38)
Vice President of Human Resources of MDU Resources
Formerly vice president of human resources, customer service and safety of Cascade Natural Gas Corporation, Great Plains Natural Gas Co., Intermountain Gas Company and Montana-Dakota Utilities Co.
David C. Barney
64 (34)
President and Chief Executive Officer of Knife River Corporation
Formerly held executive and management positions with
Knife River.
Nicole A. Kivisto
46 (25)
President and Chief Executive Officer of Cascade Natural Gas Corporation, Intermountain Gas Company and Montana-Dakota Utilities Co.
Formerly vice president of operations of Great Plains Natural Gas Co. and Montana-Dakota Utilities.
Daniel S. Kuntz
66 (16)
Vice President, General Counsel and Secretary of MDU Resources
Serves as general counsel and secretary of all major subsidiary companies; formerly associate general counsel and assistant secretary of MDU Resources.
Jason L. Vollmer
42 (15)
Vice President, Chief Financial Officer and Treasurer of MDU Resources
Formerly vice president, chief accounting officer and treasurer of MDU Resources.
Jeffrey S. Thiede
57 (16)
President and Chief Executive Officer of MDU Construction Services Group, Inc.
Formerly held executive and management positions with MDU Construction Services Group.
Peggy A. Link
53 (15)
Vice President and Chief Information Officer of MDU Resources
Formerly assistant vice president of technology and cybersecurity officer of MDU Resources.
Corporate Management
From left, Trevor J. Hastings, Anne M. Jones, Jeffrey S. Thiede, David C. Barney, David L. Goodin, Nicole A. Kivisto, Jason L. Vollmer, Peggy A. Link and Daniel S. Kuntz.
MDU Resources Group, Inc.9
Numbers indicate age and years of service ( ) as of December 31, 2019.
Comparison of One-Year Total Stockholder Return
(as of December 31, 2019)
Comparison of Five-Year Total Stockholder Return (in dollars)
$100 invested December 31, 2014, in MDU Resources was worth $148.48 at year-end 2019.
2014 2015 2016 2017 2018 2019
MDU Resources Group, Inc. $100.00 $81.12 $131.63 $126.54 $115.60 $148.48
S&P 500 Index 100.00 101.38 113.51 138.29 132.23 173.86
New Peer Group 100.00 107.28 140.13 157.81 149.74 197.49
Old Peer Group 100.00 111.43 150.78 166.75 149.20 198.24
Comparison of 10-Year Total Stockholder Return (in dollars)
$100 invested December 31, 2009, in MDU Resources was worth $170.76 at year-end 2019.
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
MDU Resources Group, Inc. $100.00 $88.70 $96.83 $98.84 $145.93 $115.01 $93.29 $151.38 $145.53 $132.95 $170.76
S&P 500 Index 100.00 115.06 117.49 136.30 180.44 205.14 207.98 232.85 283.69 271.25 356.66
New Peer Group 100.00 114.35 127.83 143.56 174.40 200.09 214.65 280.39 315.77 299.61 395.15
Old Peer Group 100.00 106.98 113.41 131.84 160.27 186.06 207.32 280.54 310.27 277.61 368.86
0
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New Peer Group
S&P 500 Index
MDU Resources Group, Inc.
20132012201120102009
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S&P 500 Index New Peer GroupMDU Resources
’19’18’17’16’15’14
Old Peer Group
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New Peer Group
S&P 500
MDU Resources
20142013201220112010200920082007200620052004
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’19’18’17’16’15’14’13’12’11’10’09
New Peer Group Old Peer GroupS&P 500 IndexMDU Resources
Old PeerS&P 500MDU New Peer
28%31%32%33%
An explanation of the peer group is provided on the following page.
Stockholder Return Comparison
MDU Resources Group, Inc.10
Data is indexed to December 31, 2019, for
the one-year total stockholder return
comparison, December 31, 2014, for the five-
year total stockholder return comparison
and December 31, 2009, for the 10-year total
stockholder return comparison for MDU
Resources, the S&P 500 and the peer
groups. Total stockholder return is
calculated using the December 31 price for
each year. It is assumed that all dividends
are reinvested in stock at the frequency
paid, and the returns of each component
peer issuer of the group are weighted
according to the issuer’s stock market
capitalization at the beginning of the
period.
Effective January 1, 2019, a new peer group
was established. These changes were made
to better reflect the makeup of the company
relative to each business segment’s size and
nature of business. The charts show
stockholder return performance for both
the old and new peer groups.
The new peer group issuers are Alliant
Energy Corporation, Ameren Corporation,
Atmos Energy Corporation, Black Hills
Corporation, CMS Energy Corporation,
Dycom Industries, Inc., EMCOR Group,
Inc., Evergy, Inc., Granite Construction
Incorporated, Jacobs Engineering Group
Inc., KBR, Inc., Martin Marietta Materials,
Inc., MasTec, Inc., NiSource Inc., Pinnacle
West Capital Corporation, Portland General
Electric Company, Quanta Services, Inc.,
Southwest Gas Holding, Inc., Summit
Materials, Inc., Vulcan Materials Company
and WEC Energy Group, Inc.
The old peer group issuers were ALLETE,
Inc., Alliant Energy Corporation, Atmos
Energy Corporation, Black Hills
Corporation, EMCOR Group, Inc., Granite
Construction Incorporated, IDACORP, Inc.,
Martin Marietta Materials, Inc., MasTec,
Inc., MYR Group Inc., Northwest Natural
Holding Company (formerly Northwest
Natural Gas Company), NorthWestern
Corporation, Otter Tail Corporation,
Portland General Electric Company,
Southwest Gas Holding, Inc., Spire Inc.,
Summit Materials, Inc., U.S. Concrete, Inc.,
and Vulcan Materials Company. Vectren
Corporation was originally an issuer in this
peer group but was purchased by
Centerpoint Energy in February 2019 and,
as such, is no longer included in this peer
group.
Stockholder Return Comparison
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission file number 1-03480
MDU RESOURCES GROUP INC
(Exact name of registrant as specified in its charter)
Delaware 30-1133956
(State or other jurisdiction ofincorporation or organization)(I.R.S. Employer Identification No.)
1200 West Century Avenue
P.O. Box 5650
Bismarck, North Dakota 58506-5650
(Address of principal executive offices)
(Zip Code)
[phone]
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading symbol(s)Name of each exchange on which registered
Common Stock, par value $1.00 per share MDU New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒.
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 ☒ No ☐.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files). Yes ☒ No ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and
"emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒Accelerated filer ☐
Non-accelerated filer ☐Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒.
State the aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 28, 2019: $5,134,204,876.
Indicate the number of shares outstanding of the registrant's common stock, as of February 13, 2020: 200,389,708 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Relevant portions of the registrant's 2020 Proxy Statement, to be filed no later than 120 days from December 31, 2019, are incorporated by
reference in Part III, Items 10, 11, 12, 13 and 14 of this Report.
Part I Page
Forward-Looking Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Items 1 and 2 Business and Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Electric. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Natural Gas Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Pipeline and Midstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Construction Materials and Contracting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Construction Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Item 1A Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Item 1B Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Item 4 Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Part II
Item 5 Market for the Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . .30
Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Item 7A Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Item 8 Financial Statements and Supplementary Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
Consolidated Statements of Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Consolidated Statements of Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67
1. Summary of Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67
2. Revenue from Contracts with Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78
3. Business Combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80
4. Discontinued Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81
5. Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
6. Goodwill and Other Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84
7. Regulatory Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85
8. Fair Value Measurements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .86
9. Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .88
10. Asset Retirement Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91
11. Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91
12. Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91
13. Stock-Based Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92
14. Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93
15. Cash Flow Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .96
16. Business Segment Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .96
17. Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100
Contents
2 MDU Resources Group, Inc. Form 10-K
Part II (continued)Page
18. Jointly Owned Facilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109
19. Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109
20. Commitments and Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111
21. Subsequent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114
Item 9 Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .118
Item 9A Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .118
Item 9B Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .118
Part III
Item 10 Directors, Executive Officers and Corporate Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119
Item 11 Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119
Item 12 Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119
Item 13 Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . .119
Item 14 Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119
Part IV
Item 15 Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .120
Item 16 Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .124
3. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .124
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127
Contents
MDU Resources Group, Inc. Form 10-K 3
The following abbreviations and acronyms used in this Form 10-K are defined below:
Abbreviation or Acronym
AFUDC Allowance for funds used during construction
Army Corps U.S. Army Corps of Engineers
ASC FASB Accounting Standards Codification
ASU FASB Accounting Standards Update
Audit Committee Audit Committee of the board of directors of the Company
Bcf Billion cubic feet
Big Stone Station 475-MW coal-fired electric generating facility near Big Stone City, South Dakota (22.7 percent
ownership)
Brazilian Transmission Lines Company's former investment in companies owning three electric transmission lines in Brazil
BSSE 345-kilovolt transmission line from Ellendale, North Dakota, to Big Stone City, South Dakota
(50 percent ownership)
Btu British thermal unit
Cascade Cascade Natural Gas Corporation, an indirect wholly owned subsidiary of MDU Energy Capital
Centennial Centennial Energy Holdings, Inc., a direct wholly owned subsidiary of the Company
Centennial Capital Centennial Holdings Capital LLC, a direct wholly owned subsidiary of Centennial
Centennial's Consolidated EBITDA Centennial's consolidated net income from continuing operations plus the related interest
expense, taxes, depreciation, depletion, amortization of intangibles and any non-cash charge
relating to asset impairment for the preceding 12-month period
Centennial Resources Centennial Energy Resources LLC, a direct wholly owned subsidiary of Centennial
CERCLA Comprehensive Environmental Response, Compensation and Liability Act
Clean Air Act Federal Clean Air Act
Clean Water Act Federal Clean Water Act
Company MDU Resources Group, Inc. (formerly known as MDUR Newco), which, as the context requires,
refers to the previous MDU Resources Group, Inc. prior to January 1, 2019, and the new holding
company of the same name after January 1, 2019
Coyote Creek Coyote Creek Mining Company, LLC, a subsidiary of The North American Coal Corporation
Coyote Station 427-MW coal-fired electric generating facility near Beulah, North Dakota (25 percent ownership)
CyROC Cyber Risk Oversight Committee
Dakota Prairie Refining Dakota Prairie Refining, LLC, a limited liability company previously owned by WBI Energy and
Calumet Specialty Products Partners, L.P. (previously included in the Company's refining
segment)
dk Decatherm
Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer Protection Act
EBITDA Earnings before interest, taxes, depreciation, depletion and amortization
EIN Employer Identification Number
EPA United States Environmental Protection Agency
ERISA Employee Retirement Income Security Act of 1974
ESA Endangered Species Act
Exchange Act Securities Exchange Act of 1934, as amended
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
Fidelity Fidelity Exploration & Production Company, a direct wholly owned subsidiary of WBI Holdings
(previously referred to as the Company's exploration and production segment)
FIP Funding improvement plan
GAAP Accounting principles generally accepted in the United States of America
GHG Greenhouse gas
Great Plains Great Plains Natural Gas Co., a public utility division of the Company prior to the closing of the
Holding Company Reorganization and a public utility division of Montana-Dakota as of January 1,
2019
GVTC Generation Verification Test Capacity
Definitions
4 MDU Resources Group, Inc. Form 10-K
Holding Company Reorganization The internal holding company reorganization completed on January 1, 2019, pursuant to the
agreement and plan of merger, dated as of December 31, 2018, by and among Montana-Dakota,
the Company and MDUR Newco Sub, which resulted in the Company becoming a holding
company and owning all of the outstanding capital stock of Montana-Dakota.
IBEW International Brotherhood of Electrical Workers
ICWU International Chemical Workers Union
Intermountain Intermountain Gas Company, an indirect wholly owned subsidiary of MDU Energy Capital
IPUC Idaho Public Utilities Commission
Item 8 Financial Statements and Supplementary Data
Knife River Knife River Corporation, a direct wholly owned subsidiary of Centennial
Knife River - Northwest Knife River Corporation - Northwest, an indirect wholly owned subsidiary of Knife River
K-Plan Company's 401(k) Retirement Plan
kW Kilowatts
kWh Kilowatt-hour
LIBOR London Inter-bank Offered Rate
LWG Lower Willamette Group
MD&A Management's Discussion and Analysis of Financial Condition and Results of Operations
Mdk Thousand dk
MDU Construction Services MDU Construction Services Group, Inc., a direct wholly owned subsidiary of Centennial
MDU Energy Capital MDU Energy Capital, LLC, a direct wholly owned subsidiary of the Company
MDUR Newco MDUR Newco, Inc., a public holding company created by implementing the Holding Company
Reorganization, now known as the Company
MDUR Newco Sub MDUR Newco Sub, Inc., a direct, wholly owned subsidiary of MDUR Newco, which was merged
with and into Montana–Dakota in the Holding Company Reorganization
MEPP Multiemployer pension plan
MISO Midcontinent Independent System Operator, Inc.
MMBtu Million Btu
MMcf Million cubic feet
MMdk Million dk
MNPUC Minnesota Public Utilities Commission
Montana-Dakota Montana-Dakota Utilities Co. (formerly known as MDU Resources Group, Inc.), a public utility
division of the Company prior to the closing of the Holding Company Reorganization and a direct
wholly owned subsidiary of MDU Energy Capital as of January 1, 2019
MPPAA Multiemployer Pension Plan Amendments Act of 1980
MTPSC Montana Public Service Commission
MW Megawatt
NDPSC North Dakota Public Service Commission
NERC North American Electric Reliability Corporation
NGL Natural gas liquids
Non-GAAP Not in accordance with GAAP
Oil Includes crude oil and condensate
OPUC Oregon Public Utility Commission
PCBs Polychlorinated biphenyls
Pronghorn Natural gas processing plant located near Belfield, North Dakota (WBI Energy Midstream's
50 percent ownership interests were sold effective January 1, 2017)
Proxy Statement Company's 2020 Proxy Statement to be filed no later than April 29, 2020
PRP Potentially Responsible Party
RCRA Resource Conservation and Recovery Act
RP Rehabilitation plan
SDPUC South Dakota Public Utilities Commission
SEC United States Securities and Exchange Commission
Securities Act Securities Act of 1933, as amended
Securities Act Industry Guide 7 Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations
Definitions
MDU Resources Group, Inc. Form 10-K 5
Sheridan System A separate electric system owned by Montana-Dakota
TCJA Tax Cuts and Jobs Act
Tesoro Tesoro Refining & Marketing Company LLC
UA United Association of Journeyman and Apprentices of the Plumbing and Pipefitting Industry of
the United States and Canada
VIE Variable interest entity
Washington DOE Washington State Department of Ecology
WBI Energy WBI Energy, Inc., a direct wholly owned subsidiary of WBI Holdings
WBI Energy Midstream WBI Energy Midstream, LLC, an indirect wholly owned subsidiary of WBI Holdings
WBI Energy Transmission WBI Energy Transmission, Inc., an indirect wholly owned subsidiary of WBI Holdings
WBI Holdings WBI Holdings, Inc., a direct wholly owned subsidiary of Centennial
WUTC Washington Utilities and Transportation Commission
Wygen III 100-MW coal-fired electric generating facility near Gillette, Wyoming (25 percent ownership)
WYPSC Wyoming Public Service Commission
ZRCs Zonal resource credits - a MW of demand equivalent assigned to generators by MISO for meeting
system reliability requirements
Definitions
6 MDU Resources Group, Inc. Form 10-K
Part I
MDU Resources Group, Inc. Form 10-K 7
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 - Business
Segment Financial and Operating Data.
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 regulated energy delivery and construction materials and services business. Montana-Dakota was incorporated under the
state laws of Delaware in 1924. The Company was incorporated under the state laws of Delaware in 2018. Its principal executive offices are
located at 1200 West Century Avenue, P.O. Box 5650, Bismarck, North Dakota 58506-5650, telephone [phone].
On January 2, 2019, the Company announced the completion of the Holding Company Reorganization, which resulted in Montana-Dakota
becoming a subsidiary of the Company. The merger was conducted pursuant to Section 251(g) of the General Corporation Law of the State
of Delaware, which provides for the formation of a holding company without a vote of the stockholders of the constituent corporation.
Immediately after consummation of the Holding Company Reorganization, the Company had, on a consolidated basis, the same assets,
businesses and operations as Montana-Dakota had immediately prior to the consummation of the Holding Company Reorganization. As a
result of the Holding Company Reorganization, the Company became the successor issuer to Montana-Dakota pursuant to Rule 12g-3(a) of
the Exchange Act, and as a result, the Company's common stock was deemed registered under Section 12(b) of the Exchange Act.
The Company operates with a two-platform business model. Its regulated energy delivery platform and its construction materials and
services platform are each comprised of different operating segments. Some of these segments experience seasonality related to the
industries in which they operate. The two-platform approach helps balance this seasonality and the risk associated with each type of
industry. Through its regulated energy delivery platform, the Company provides electric and natural gas services to customers, generates,
transmits and distributes electricity, and provides natural gas transportation, storage and gathering services. These businesses are regulated
by state public service commissions and/or the FERC. The construction materials and services platform provides construction services to a
variety of industries, including commercial, industrial and governmental, and provides construction materials through aggregate mining and
marketing of related products, such as ready-mixed concrete and asphalt.
The Company is organized into five reportable business segments. These business segments include: electric, natural gas distribution,
pipeline and midstream, construction materials and contracting, and construction services. The Company's business segments are
determined 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 internal reporting of these segments is defined based on the reporting and review process used by
the Company's chief executive officer.
The Company, through its wholly owned subsidiary, MDU Energy Capital, owns Montana-Dakota, Cascade and Intermountain. The electric
segment is comprised of Montana-Dakota while the natural gas distribution segment is comprised of Montana-Dakota, Cascade and
Intermountain.
The Company, through its wholly owned subsidiary, Centennial, owns WBI Holdings, Knife River, MDU Construction Services, Centennial
Resources and Centennial Capital. WBI Holdings is the pipeline and midstream segment, Knife River is the construction materials and
contracting segment, MDU Construction Services is the construction services segment, and Centennial Resources and Centennial Capital are
both reflected in the Other category.
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 16 and Supplementary Financial Information.
The Company's material 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 Company seeks to align the interest of its board of directors and management with that of its shareholders. The Company believes that
an independent, well-diversified board of directors makes it a better corporate citizen. The Company's board includes individuals of ethnic,
gender and skill diversity. The Company also believes that its separation of chairman and chief executive officer further enhances
accountability and social responsibility. The Company's management and its board of directors also have significant ownership in the
Company's common stock, which further aligns their interests with those of other shareholders.
Employees The Company hires its employees from a number of sources, including within its various industries, trade schools, colleges and
universities. The primary sources for its employees include promotion from within, team member referrals, union workforce, direct recruiting
and various forms of advertising, including social media. The Company attracts and retains employees by offering competitive salaries,
technical training opportunities, employee incentive programs and a comprehensive benefits package. The Company believes its focus on
training and career development helps it to attract and retain employees. The Company's employees participate in ongoing educational
programs to enhance their technical and management skills through classroom and field training. The Company provides opportunities for
promotion and mobility within the organization, which also helps to retain employees.
As of December 31, 2019, the Company had 13,359 employees with 244 employed at MDU Resources Group, Inc., 1,578 at MDU Energy
Capital, 335 at WBI Holdings, 4,255 at Knife River and 6,947 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.
The Company has a number of employees represented by labor contracts. 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 following
information is as of December 31, 2019.
•At Montana-Dakota and WBI Energy Transmission, 333 and 71 employees, respectively, are represented by the IBEW. Labor contracts
with such employees are in effect through April 30, 2021, and March 31, 2022, respectively.
•At Cascade, 192 employees are represented by the ICWU. The labor contract with the field operations group is effective through
March 31, 2021.
•At Intermountain, 127 employees are represented by the UA. Labor contracts with such employees are in effect through March 31,
2023.
•Knife River operates under 42 labor contracts that represent 681 of its construction materials and contracting employees. Knife River
is in negotiations on six of its labor contracts.
•MDU Construction Services has 107 labor contracts representing the majority of its employees. MDU Construction Services is in
negotiations on four of its labor contracts.
Environmental Matters 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 20. There are no pending CERCLA actions for any of the Company's material properties. However,
the Company is involved in certain claims relating to the Portland, Oregon, Harbor Superfund Site and the Bremerton Gasworks Superfund
Site. For more information on the Company's environmental matters, see Item 8 - Note 20.
Part I
8 MDU Resources Group, Inc. Form 10-K
The Company produces GHG emissions primarily from its fossil fuel electric generating facilities, as well as from natural gas pipeline and
storage systems, and operations of equipment and fleet vehicles. GHG emissions also result from customer use of natural gas for heating
and other uses. As interest in reductions in GHG emissions has grown, the Company has developed renewable generation with lower or no
GHG emissions. 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 and regulatory 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. In addition, for a discussion of the Company's risks related to environmental laws and
regulations, see Item 1A - Risk Factors.
Technology The Company uses technology in substantially all aspects of its business operations and requires uninterrupted operation of
information technology systems and network infrastructure. These systems may be vulnerable to failures or unauthorized access. The
Company has policies, procedures and processes in place designed to strengthen and protect these systems, which includes the Company’s
enterprise information technology and operation technology groups continually evaluating new tools and techniques that can be
implemented to reduce the risk of a cyber breach.
The Company created CyROC to oversee the Company’s approach to cybersecurity. CyROC is responsible for supplying management at all
levels and the Audit Committee with analyses, appraisals, recommendations and pertinent information concerning cyber defense of the
Company’s electronic information and information technology systems. CyROC provides a quarterly cybersecurity report to the Audit
Committee. For a discussion of the Company's risks related to cybersecurity, see Item 1A - Risk Factors.
Available Information This annual report on Form 10-K, the Company's quarterly reports on Form 10-Q and 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. The SEC also maintains a website where the Company's filings can be obtained free of charge at
www.SEC.gov.
Part I
MDU Resources Group, Inc. Form 10-K 9
Electric
General The Company's electric segment is operated through its wholly owned subsidiary, MDU Energy Capital, which consists of operations
from Montana-Dakota. Montana-Dakota provides electric service at retail, serving 143,346 residential, commercial, industrial and municipal
customers in 185 communities and adjacent rural areas in Montana, North Dakota, South Dakota and Wyoming as of December 31, 2019.
For more information on the retail customer classes served, see the table below. The material properties owned by Montana-Dakota for use
in its electric operations include interests in 16 electric generating units at 11 facilities and two small portable diesel generators, as further
described under System Supply, System Demand and Competition, approximately 3,300 and 4,800 miles of transmission and distribution
lines, respectively, and 79 transmission and 297 distribution substations. 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. At December 31,
2019, Montana-Dakota's net electric plant investment was $1.6 billion and its rate base was $1.2 billion.
The retail customers served and respective revenues by class for the electric business were as follows:
2019 2018 2017
CustomersServed Revenues CustomersServed Revenues CustomersServed Revenues
(Dollars in thousands)
Residential 118,563 $125,614 118,426 $126,173 118,379 $121,171
Commercial 22,948 142,062 22,756 141,961 22,764 140,856
Industrial 234 37,790 236 36,081 242 34,417
Other 1,601 7,454 1,604 7,882 1,516 8,275
143,346 $312,920 143,022 $312,097 142,901 $304,719
Other electric revenues, which are largely transmission-related revenues, for Montana-Dakota were $38.8 million, $23.0 million and
$38.1 million for the years ended December 31, 2019, 2018 and 2017, respectively.
The percentage of electric retail revenues by jurisdiction was as follows:
2019 2018 2017
North Dakota 65%66%66%
Montana 22%20%20%
Wyoming 8%9%9%
South Dakota 5%5%5%
Retail electric rates, service, accounting and certain security issuances are subject to regulation by the MTPSC, NDPSC, SDPUC and
WYPSC. The interstate transmission and wholesale electric power operations of Montana-Dakota are also 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 certain
securities, accounting and other matters.
Through MISO, Montana-Dakota has access to wholesale energy, ancillary services and capacity markets for its interconnected system.
MISO is a regional transmission organization responsible for operational control of the transmission systems of its members. MISO provides
security center operations, tariff administration and operates day-ahead and real-time energy markets, ancillary services and capacity
markets. As a member of MISO, Montana-Dakota's generation is sold into the MISO 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
North Dakota, Montana and South Dakota. These markets are highly seasonal and sales volumes depend largely on the weather. Additionally,
the average customer consumption has tended to decline due to increases in energy efficient lighting and appliances being installed. The
interconnected system consists of 15 electric generating units at 10 facilities and two small portable diesel generators, which have an
aggregate nameplate rating attributable to Montana-Dakota's interest of 750,318 kW and total net ZRCs of 549.0 in 2019. For 2019,
Montana-Dakota's total ZRCs, including its firm purchase power contracts, were 591.3. Montana-Dakota's planning reserve margin
requirement within MISO was 537.2 ZRCs for 2019. The maximum electric peak demand experienced to date attributable to Montana-
Dakota's sales to retail customers on the interconnected system was 611,542 kW in August 2015. Montana-Dakota's latest forecast for its
interconnected system indicates that its annual peak will continue to occur during the summer. Montana-Dakota's interconnected system
electric generating capability includes five steam-turbine generating units at four facilities using coal for fuel, four combustion turbine units
at three facilities, three wind electric generating facilities, two reciprocating internal combustion engines at one facility, a heat recovery
electric generating facility and two small portable diesel generators.
In June 2016, Montana-Dakota and a partner began construction on the BSSE project within the footprint of MISO. The project commenced
on-line operations on February 5, 2019.
Additional energy is purchased as needed, or in lieu of generation if more economical, from the MISO market, and in 2019, Montana-
Dakota purchased approximately 23 percent of its net kWh needs for its interconnected system through the MISO market.
Approximately 26 percent of the electricity delivered to customers from Montana-Dakota's owned generation in 2019 was from renewable
resources. Although Montana-Dakota's generation resource capacity has increased to serve the needs of its customers, the carbon dioxide
emission intensity of its electric generation resource fleet has been reduced by approximately 31 percent since 2003 and is expected to
continue to decline.
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 63,686 kW in July 2018.
Montana-Dakota has a power supply contract with Black Hills Power, Inc. to purchase up to 49,000 kW of capacity annually through
December 31, 2023. Wygen III also serves a portion of the needs of Montana-Dakota's Sheridan-area customers.
Part I
10 MDU Resources Group, Inc. Form 10-K
The following table sets forth details applicable to the Company's electric generating stations:
Generating Station Type NameplateRating (kW)2019 ZRCs (a)
2019 NetGeneration (kWhin thousands)
Interconnected System:
North Dakota:
Coyote (b)Steam 103,647 90.9 501,394
Heskett Steam 86,000 86.9 438,726
Heskett Combustion Turbine 89,038 65.2 1,900
Glen Ullin Heat Recovery 7,500 4.8 42,276
Cedar Hills Wind 19,500 4.6 51,845
Diesel Units Oil 3,650 3.8 4
Thunder Spirit Wind 155,500 29.3 548,180
South Dakota:
Big Stone (b)Steam 94,111 105.8 656,783
Montana:
Lewis & Clark Steam 44,000 41.4 261,457
Lewis & Clark Reciprocating Internal Combustion Engine 18,700 17.6 3,673
Glendive Combustion Turbine 75,522 70.8 2,702
Miles City Combustion Turbine 23,150 21.6 352
Diamond Willow Wind 30,000 6.3 95,224
750,318 549.0 2,604,516
Sheridan System:
Wyoming:
Wygen III (b)Steam 28,000 N/A 188,254
778,318 549.0 2,792,770
(a)Interconnected system only. MISO requires generators to obtain their summer capability through the GVTC. The GVTC is thenconverted to ZRCs by applying each generator's forced outage factor against its GVTC. Wind generator's ZRCs are calculated basedon a wind capacity study performed annually by MISO. ZRCs are used to meet supply obligations within MISO.(b)Reflects Montana-Dakota's ownership interest.
Virtually all of the current fuel requirements of the Heskett and Lewis & Clark stations are met with coal supplied by subsidiaries of
Westmoreland Coal Company under contracts that expire in December 2021 and December 2020, respectively. 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 425,000 to 460,000 tons and
250,000 to 350,000 tons per contract year, respectively.
The owners of Coyote Station, including Montana-Dakota, have a contract with Coyote Creek for coal supply to the Coyote Station that
expires December 2040. Montana-Dakota estimates the Coyote Station coal supply agreement to be approximately 2.3 million tons per
contract year. For more information, see Item 8 - Note 20.
The owners of Big Stone Station, including Montana-Dakota, have a coal supply agreement with Peabody COALSALES, LLC to meet all of
the Big Stone Station's fuel requirements for 2020. Montana-Dakota estimates the Big Stone Station coal supply agreement to be
approximately 1.6 million tons for 2020.
Montana-Dakota has a coal supply agreement with Wyodak Resources Development Corp., to supply the coal requirements of Wygen III at
contracted pricing through June 1, 2060. Montana-Dakota estimates the maximum annual coal consumption of the facility to be
585,000 tons.
The average cost of coal purchased, including freight, at Montana-Dakota's electric generating stations (including the Big Stone, Coyote and
Wygen III stations) was as follows:
Years ended December 31,2019 2018 2017
Average cost of coal per MMBtu $2.15 $2.00 $2.07
Average cost of coal per ton $31.36 $29.08 $30.04
Part I
MDU Resources Group, Inc. Form 10-K 11
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 2020. In February 2019, Montana-Dakota announced that it intends to retire three aging coal-fired electric generating
units. The retirements are expected to be completed in early 2021 for Lewis & Clark Station and early 2022 for units 1 and 2 at Heskett
Station. Montana-Dakota also announced the intent to construct a new simple-cycle natural gas-fired combustion turbine peaking unit at the
existing Heskett Station. Future capacity that is needed to replace contracts, generation retirements and meet system growth requirements
is expected to be met by constructing new generation resources or acquiring additional capacity through power purchase contracts or the
MISO capacity auction.
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.
Montana-Dakota is subject to competition resulting from customer demands, technological advances and other factors 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 In North Dakota, Montana, South Dakota and Wyoming, there are various recurring
mechanisms with annual true-ups that can impact Montana-Dakota's results of operations, which also reflect monthly increases or decreases
in electric fuel and purchased power costs (including demand charges). Montana-Dakota is deferring those electric fuel and purchased
power costs that are greater or less than amounts presently being recovered through its existing rate schedules. Examples of these recurring
mechanisms include: monthly Fuel and Purchased Power Tracking Adjustments, a fuel adjustment clause and an annual Electric Power
Supply Cost Adjustment. Such orders generally provide that these amounts are recoverable or refundable through rate adjustments which are
filed annually. Montana-Dakota's results of operations reflect 95 percent of the increases or decreases from the base purchased power costs
and in addition also reflects 85 percent of the increases or decreases from the base coal price, which is also recovered through the Electric
Power Supply Cost Adjustment in Wyoming. For more information on regulatory assets and liabilities, see Item 8 - Note 7.
For the Thunder Spirit Wind project, Montana-Dakota implemented a renewable resource cost adjustment rider, and all of Montana-Dakota's
wind resources pertaining to North Dakota electric operations were placed in this rider upon a final order of the most recent North Dakota
electric general rate case. Montana-Dakota also has in place in North Dakota a transmission tracker to recover transmission costs associated
with MISO and the Southwest Power Pool, regional transmission organizations serving parts of Montana-Dakota's system, along with certain
of the transmission investments not recovered through retail rates. The tracking mechanism has an annual true-up.
In South Dakota, Montana-Dakota recovers the South Dakota investment in the Thunder Spirit Wind project through an Infrastructure Rider
tracking mechanism that is subject to an annual true-up. Montana-Dakota also has in place in South Dakota a transmission tracker to
recover transmission costs associated with MISO and the Southwest Power Pool, regional transmission organizations serving parts of
Montana-Dakota's system, along with certain of the transmission investments not recovered through retail rates. This tracking mechanism
also has an annual true-up.
In Montana, Montana-Dakota recovers in rates, through a tracking mechanism, its allocated share of Montana property-related taxes
assessed to electric operations on an after-tax basis.
For more information on regulatory matters, see Item 8 - Note 19.
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. The Title V Operating Permit renewal application for Coyote Station was submitted timely to the North Dakota Department of
Health in September 2017, with the permit issuance date not specified at this time. Wygen III is allowed to operate under the facility's
construction permit until the Title V Operating Permit is issued by the Wyoming Department of Environmental Quality. The Title V Operating
Permit application for Wygen III was submitted timely in January 2011, with the permit issuance date not specified at this time. The Title V
Operating Permit renewal application for Heskett Station was submitted timely in June 2019 to the North Dakota Department of
Environmental Quality with the permit expected to be issued in 2020. The Title V Operating Permit renewal application for Lewis & Clark
Part I
12 MDU Resources Group, Inc. Form 10-K
Station was submitted timely in December 2019 to the Montana Department of Environmental Quality with the permit expected to be
issued in 2020.
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 very small-quantity generators of hazardous waste 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.
Montana-Dakota incurred $5.5 million of environmental capital expenditures in 2019, mainly for an embankment stabilization project at
Lewis & Clark Station and coal ash management projects at Big Stone Station and Coyote Station. Environmental capital expenditures are
estimated to be $700,000, $1.1 million and $3.3 million in 2020, 2021 and 2022, respectively, for various environmental projects,
including coal ash impoundment closure project at Lewis & Clark Station. Montana-Dakota's capital and operational expenditures could also
be affected by future environmental requirements, such as regional haze emissions reductions. For more information, see Item 1A - Risk
Factors.
Part I
MDU Resources Group, Inc. Form 10-K 13
Natural Gas Distribution
General The Company's natural gas distribution segment is operated through its wholly owned subsidiary, MDU Energy Capital, which
consists of operations from Montana-Dakota, Cascade and Intermountain. These companies sell natural gas at retail, serving 977,468
residential, commercial and industrial customers in 337 communities and adjacent rural areas across eight states as of December 31,
2019. They also provide natural gas transportation services to certain customers on the Company's systems. For more information on the
retail customer classes served, see the table below. These services are provided through distribution systems aggregating approximately
20,300 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. At December 31, 2019, the
natural gas distribution operations' net natural gas distribution plant investment was $1.8 billion and its rate base was $1.2 billion.
The retail customers served and respective revenues by class for the natural gas distribution operations were as follows:
2019 2018 2017
CustomersServed Revenues CustomersServed Revenues CustomersServed Revenues
(Dollars in thousands)
Residential 868,821 $479,673 850,595 $464,697 833,255 $477,699
Commercial 107,741 293,201 106,297 279,566 104,795 283,899
Industrial 906 26,570 835 24,555 817 24,030
977,468 $799,444 957,727 $768,818 938,867 $785,628
Transportation and other revenues for the natural gas distribution operations were $65.8 million, $54.4 million and $62.8 million for the
years ended December 31, 2019, 2018 and 2017, respectively.
The percentage of the natural gas distribution operations' retail sales revenues by jurisdiction was as follows:
2019 2018 2017
Idaho 29%30%33%
Washington 28%26%26%
North Dakota 15%15%13%
Montana 9%9%9%
Oregon 8%8%8%
South Dakota 6%7%6%
Minnesota 3%3%3%
Wyoming 2%2%2%
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, Minnesota, Montana, North Dakota,
Oregon, South Dakota, Washington and Wyoming. 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 later in Regulatory Matters.
Additionally, the average customer consumption has tended to decline as more efficient appliances and furnaces are installed, and as the
Company has implemented conservation programs. In addition to the residential and commercial sales, the utilities transport natural gas for
larger commercial and industrial customers who purchase their own supply of natural gas.
Competition resulting from customer demands, technological advances and other factors 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. 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 and various distribution transportation customers obtain their system requirements directly from
producers, processors and marketers. The Company's purchased natural gas is supplied by a portfolio of contracts specifying market-based
pricing and is transported under transportation agreements with WBI Energy Transmission, Northern Border Pipeline Company, Northwest
Pipeline LLC, South Dakota Intrastate Pipeline, Northern Natural Gas, Gas Transmission Northwest LLC, Northwestern Energy, Viking Gas
Transmission Company, Enbridge Westcoast Pipeline, Inc., Ruby Pipeline LLC, Foothills Pipe Lines Ltd. and NOVA Gas Transmission Ltd.
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 various storage providers, including WBI Energy Transmission, Dominion Energy Questar Pipeline, LLC,
Northwest Pipeline LLC, Northwest Natural Gas Company and Northern Natural Gas. In addition, certain of the operations have entered into
natural gas supply management agreements with various parties. 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 through rate adjustments which are filed annually.
Montana-Dakota's North Dakota and South Dakota natural gas tariffs contain weather normalization mechanisms applicable to certain firm
customers that adjust the distribution delivery charge revenues to reflect weather fluctuations during the November 1 through May 1 billing
periods.
In Montana, Montana-Dakota recovers in rates, through a tracking mechanism, its allocated share of Montana property-related taxes
assessed to natural gas operations on an after-tax basis.
In Minnesota and Washington, Great Plains and Cascade recover in rates, through a cost recovery tracking mechanism, qualifying capital
investments related to the safety and integrity of its pipeline system.
On December 28, 2015, the OPUC approved an extension of Cascade's decoupling mechanism until January 1, 2020, with an agreement
that Cascade would initiate a review of the mechanism by September 30, 2019. Cascade also has an earnings sharing mechanism with
respect to its Oregon jurisdictional operations as required by the OPUC. Cascade initiated the required review by September 30, 2019,
which resulted in a slight modification to the mechanism. The decoupling mechanism was approved to continue until January 1, 2025, with
a review to be initiated by September 30, 2024.
On July 7, 2016, the WUTC approved a full decoupling mechanism where Cascade is allowed recovery of an average revenue per customer
regardless of actual consumption. The mechanism also includes an earnings sharing component if Cascade earns beyond its authorized
return. The decoupling mechanism will be reviewed in 2020.
On December 22, 2016, the MNPUC approved a request by Great Plains to implement a full revenue decoupling mechanism pilot project
for three years. The decoupling mechanism will reflect the period January 1 through December 31. Great Plains requested approval to
extend the initial pilot period through 2020 with a final determination to be made as part of its pending rate case.
Part I
14 MDU Resources Group, Inc. Form 10-K
For more information on regulatory matters, see Item 8 - Note 19.
Environmental Matters The natural gas distribution operations are subject to federal, state and local environmental, facility-siting, zoning
and planning laws and regulations. The Company believes its natural gas distribution operations are in substantial compliance with those
regulations.
The Company's natural gas distribution operations are very small-quantity generators of hazardous waste, and subject only to minimum
regulation under the RCRA. Washington state rule defines Cascade as a small-quantity generator, but regulation under the rule is similar to
RCRA. Certain locations 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. Natural gas distribution operations expect to recover the operational and capital expenditures for GHG
regulatory compliance in 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 2019. Except as to what may be ultimately
determined with regard to the issues described in the following paragraph, the natural gas distribution operations do not expect to incur any
material capital expenditures related to environmental compliance with current laws and regulations through 2022.
Montana-Dakota has ties to six historic manufactured gas plants as a successor corporation or through direct ownership of the plant.
Montana-Dakota is investigating possible soil and groundwater impacts due to the operation of two of these former manufactured gas plant
sites. To the extent not covered by insurance, Montana-Dakota may seek recovery in its natural gas rates charged to customers for certain
investigation and remediation costs incurred for these sites. Cascade has ties to nine historic manufactured gas plants as a successor
corporation or through direct ownership of the plant. Cascade is involved in the investigation and remediation of three of these
manufactured gas plants in Washington and Oregon. To the extent not covered by insurance, Cascade will seek recovery of investigation and
remediation costs through its natural gas rates charged to customers.
See Item 8 - Note 20 for further discussion of certain manufactured gas plant sites.
Part I
MDU Resources Group, Inc. Form 10-K 15
Pipeline and Midstream
General WBI Energy owns and operates both regulated and nonregulated businesses. The regulated business of this segment, WBI Energy
Transmission, owns and operates approximately 4,000 miles of natural gas transmission, gathering and storage lines in Minnesota, Montana,
North Dakota, South Dakota and Wyoming. WBI Energy Transmission's underground storage fields in Montana and Wyoming provide storage
services to local distribution companies, industrial customers, natural gas marketers and others, and serve to enhance system reliability. Its
system is strategically located near four natural gas producing basins, making natural gas supplies available to its transportation and storage
customers. The system has 13 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. Under the Natural Gas Act, as amended, WBI Energy Transmission is subject to the
jurisdiction of the FERC regarding certificate, rate, service and accounting matters, and at December 31, 2019, its net plant investment
was $519.3 million.
The nonregulated business of this segment owns and operates gathering facilities in Montana and Wyoming. In total, facilities include
approximately 800 miles of operated field gathering lines, some of which interconnect with WBI Energy's regulated pipeline system. The
nonregulated business provides natural gas gathering services and a variety of other energy-related services, including cathodic protection
and energy efficiency product sales and installation services to large end-users.
A majority of its pipeline and midstream business is transacted in the northern Great Plains and Rocky Mountain regions of the United
States.
System Supply, System Demand and Competition Natural gas supplies emanate from traditional and nontraditional production activities in
the region from both on-system and off-system supply sources. Incremental supply from nontraditional sources, such as the Bakken area in
Montana and North Dakota, have helped offset declines in traditional regional supply sources and supports WBI Energy Transmission's
transportation and storage services. In addition, off-system supply sources are available through the Company's interconnections with other
pipeline systems. WBI Energy Transmission continues to look for opportunities to increase transportation and storage services through
system expansion and/or other pipeline interconnections or enhancements that could provide substantial future benefits.
WBI Energy Transmission's underground natural gas storage facilities have a certificated storage capacity of approximately 353 Bcf,
including 194 Bcf of working gas capacity, 84 Bcf of cushion gas and 75 Bcf of native gas. These storage facilities enable customers to
purchase natural gas throughout the year and meet winter peak requirements.
WBI Energy Transmission 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 its system near four natural gas producing basins and
the availability of underground storage and gathering services, along with interconnections with other pipelines, serve to enhance its
competitive position.
Although certain of WBI Energy Transmission's firm customers, including its largest firm customer Montana-Dakota, serve relatively secure
residential, commercial and industrial end-users, they generally all have some price-sensitive end-users that could switch to alternate fuels.
WBI Energy Transmission transports substantially all of Montana-Dakota's natural gas, primarily utilizing firm transportation agreements,
which for 2019 represented 27 percent of WBI Energy Transmission's subscribed firm transportation contract demand. The majority of the
firm transportation agreements with Montana-Dakota expire in June 2022. In addition, Montana-Dakota has contracts, expiring in July
2035, with WBI Energy Transmission to provide firm storage services to facilitate meeting Montana-Dakota's winter peak requirements.
The nonregulated business competes for existing customers in the areas in which it operates. Its focus on customer service and the variety
of services it offers serve to enhance its competitive position.
Environmental Matters The pipeline and midstream operations are subject to federal, state and local environmental, facility-siting, zoning
and planning laws and regulations.
Administration of certain provisions of federal environmental laws has been delegated to the states where WBI Energy and its subsidiaries
operate. Administering agencies may issue permits with varying terms and operational compliance conditions. Permits are renewed and
modified, as necessary, based on defined permit expiration dates, operational demand, facility upgrades or modifications, and/or regulatory
changes. The Company believes it is in substantial compliance with these regulations.
Detailed environmental assessments and/or environmental impact statements as required by the National Environmental Policy Act are
included in the FERC's environmental review process for both the construction and abandonment of WBI Energy Transmission's natural gas
transmission pipelines, compressor stations and storage facilities.
The pipeline and midstream operations did not incur any material environmental expenditures in 2019 and do not expect to incur any
material capital expenditures related to environmental compliance with current laws and regulations through 2022.
Part I
16 MDU Resources Group, Inc. Form 10-K
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, South Dakota, Texas, Washington and Wyoming. Knife River mines, processes and sells
construction aggregates (crushed stone, sand and gravel); produces and sells asphalt mix; and supplies ready-mixed concrete. These
products are used in most types of construction, performed by Knife River and other companies, including roads, freeways and bridges, as
well as homes, schools, shopping centers, office buildings and industrial parks. Knife River focuses on vertical integration of its contracting
services with its construction materials to support the aggregate based product lines including aggregate placement, asphalt and concrete
paving, and site development and grading. Although not common to all locations, other products include the sale of cement, liquid asphalt
for various commercial and roadway applications, various finished concrete products and other building materials and related contracting
services.
During 2019, Knife River purchased additional aggregate deposits in Texas and received a permit to construct a rock crushing plant at the
quarry. Knife River also completed two business combinations of ready-mixed concrete suppliers headquartered in Idaho and Oregon. For
more information on business combinations, see Item 8 - Note 3.
Knife River's backlog was approximately $693 million, $706 million and $486 million at December 31, 2019, 2018 and 2017,
respectively. Backlog increases with awards of new contracts and decreases as work is performed on existing contracts. Knife River expects
to complete a significant amount of the backlog at December 31, 2019, during the next 12 months. For more information on backlog
including the timing of revenue recognition, see Item 8 - Note 2.
Knife River's backlog is comprised of the anticipated revenues from the uncompleted portion of services to be performed under job-specific
contracts. A project is included in backlog when a contract is awarded and agreement on contract terms has been reached. However,
backlog does not contain contracts for time and material projects that a fixed amount cannot be determined. Backlog is comprised of:
(a) original contract amounts, (b) change orders approved by customers and (c) claims made against customers, which are determined to
have a legal basis under existing contractual arrangements, and the amount for which recovery is considered to be probable. Such claim
amounts were immaterial for all periods presented. Backlog may be subject to delay, default or cancellation at the election of the
customers. Historically, cancellations have not had a materially adverse effect on backlog. Due to the nature of its contractual arrangements,
in many instances Knife River's customers are not committed to the specific volumes of services to be purchased under a contract, but
rather Knife River is committed to perform these services if and to the extent requested by the customer. Therefore, there can be no
assurance as to the customers' requirements during a particular period or that such estimates, or backlog estimates in general, at any point
in time are predictive of future revenues.
Competition Knife River's construction materials products and contracting services are marketed under highly competitive conditions. Price
is the principal competitive force to which these products and services are subject, with service, quality, delivery time and proximity to the
customer also being significant factors. Knife River focuses on markets located near aggregate sites to reduce transportation costs which
allows Knife River to remain competitive with the pricing of aggregate products. 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 and contracting services is significantly influenced by the cyclical nature of the
construction industry in general. In addition, construction materials and contracting services 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 on roads and infrastructure projects, general economic conditions within the market area that influence both the
commercial and residential sectors, and prevailing interest rates.
Knife River's customers are a diverse group which includes federal, state and municipal government agencies, commercial and residential
developers, and private parties. The mix of sales by customer will vary each year depending on the work available. 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 Aggregate 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 high walls and other exposures of the aggregate
reserves. Mine plans, production history and geologic data are also utilized to estimate reserve quantities.
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 previously 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
978 million 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, including estimated sales from acquired reserves prior to
acquisition, from 2017 through 2019. 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.
Part I
MDU Resources Group, Inc. Form 10-K 17
The following table sets forth details applicable to the Company's aggregate reserves under ownership or lease as of December 31, 2019,
and sales for the years ended December 31, 2019, 2018 and 2017:
Number of Sites(Crushed Stone)Number of Sites(Sand & Gravel)Tons Sold (000's)EstimatedReserves(000's tons)LeaseExpiration
ReserveLife(years)Production Area owned leased owned leased 2019 2018 2017
Anchorage, AK ——1 —868 725 1,425 15,179 N/A 15
Hawaii —6 ——1,680 1,734 1,614 47,979 2020-2064 29
Northern CA ——8 1 1,901 1,798 1,785 40,768 2028 22
Southern CA —2 ——292 356 55 90,910 2035 Over 100
Portland, OR 2 4 5 3 4,868 5,402 4,694 204,583 2025-2055 41
Eugene, OR 3 4 6 —1,205 743 633 158,558 2021-2049 Over 100
Central OR/WA/ID —1 9 2 2,700 2,362 2,160 85,181 2028-2077 35
Southwest OR 5 5 10 6 1,932 2,395 2,367 107,098 2020-2053 48
Central MT ——3 1 822 1,081 1,065 14,417 2023 15
Northwest MT ——9 1 2,084 1,965 1,745 61,098 2020 32
Wyoming ———2 837 626 613 8,762 2020-2026 13
Central MN 1 1 41 7 3,477 2,890 2,773 62,381 2020-2028 20 *
Northern MN 2 —14 2 330 369 270 20,555 2020-2021 64
ND/SD 1 —2 29 3,747 1,506 1,100 70,921 2020-2031 33 *
Texas 1 2 4 —1,378 1,094 1,192 65,796 2022-2029 54
Sales from other sources 4,193 4,749 4,722
32,314 29,795 28,213 1,054,186
*Includes estimate of three-year average sales for acquired reserves.
The 1.1 billion tons of estimated aggregate reserves at December 31, 2019, are comprised of 572 million tons on properties that are owned
and 482 million tons that are leased. Approximately 38 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 21 years, including
options for renewal that are at Knife River's discretion. Based on a three-year average of sales from 2017 through 2019 of leased reserves,
the average time necessary to produce remaining aggregate reserves from such leases is approximately 43 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 changes in Knife River's aggregate reserves for the years ended December 31 were as follows:
2019 2018 2017
(000's of tons)
Aggregate reserves:
Beginning of year 1,014,431 965,036 989,084
Acquisitions (a)71,157 81,004 2,726
Sales volumes (b)(28,121)(25,046)(23,491)
Other (c)(3,281)(6,563)(3,283)
End of year 1,054,186 1,014,431 965,036
(a)Includes reserves from acquisitions of businesses.(b)Excludes sales from other sources.
(c)Includes property sales, revisions of previous estimates and expiring leases.
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 the issues described later,
Knife River believes it is in substantial compliance with these regulations. Individual permits applicable to Knife River's various operations
are managed and tracked as they relate to the statuses of the application, modification, renewal, compliance and reporting procedures.
Knife River's asphalt and ready-mixed concrete manufacturing plants and aggregate processing plants are subject to the Clean Air Act and
the Clean Water Act requirements for controlling air emissions and water discharges. Some mining and construction activities are also
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 are also subject to the RCRA as it applies to the management of hazardous wastes and
Part I
18 MDU Resources Group, Inc. Form 10-K
underground storage tank systems. These programs 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 has 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 are also 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 are also 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 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 considering 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 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
Surface Mining Control and Reclamation Act, 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.
Knife River did not incur any material environmental expenditures in 2019 and, except as to what may be ultimately determined with regard
to the issues described in the following paragraph, Knife River does not expect to incur any material expenditures related to environmental
compliance with current laws and regulations through 2022.
In December 2000, Knife River - Northwest was named by the EPA as a PRP in connection with the cleanup of a commercial property site,
acquired by Knife River - Northwest in 1999, and part of the Portland, Oregon, Harbor Superfund Site. For more information, see Item 8 -
Note 20.
Mine Safety The Dodd-Frank Act requires disclosure of certain mine safety information. For more information, see Item 4 - Mine Safety
Disclosures.
Part I
MDU Resources Group, Inc. Form 10-K 19
Construction Services
General MDU Construction Services provides inside and outside specialty contracting services. Its inside services include design,
construction and maintenance of electrical and communication wiring and infrastructure, fire suppression systems, and mechanical piping
and services. Its outside services include design, construction and maintenance of overhead and underground electrical distribution and
transmission lines, substations, external lighting, traffic signalization, and gas pipelines, as well as utility excavation and the manufacture
and distribution of transmission line construction equipment. This segment also constructs and maintains renewable energy projects. These
specialty contracting services are provided to utilities and large manufacturing, commercial, industrial, institutional and government
customers.
During 2019, MDU Construction Services purchased the assets of an electrical construction company in Redmond, Washington. For more
information on business combinations, see Item 8 - Note 3.
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 works with the National Electrical Contractors Association, the IBEW and other trade
associations on hiring and recruiting a qualified workforce.
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, 2019, MDU Construction
Services owned or leased facilities in 16 states. This space is used for offices, equipment yards, manufacturing, warehousing, storage and
vehicle shops.
MDU Construction Services’ backlog at December 31 was as follows:
2019 2018 2017
(In millions)
Inside specialty contracting $908 $814 $625
Outside specialty contracting 236 125 83
$1,144 $939 $708
The increase in backlog at December 31, 2019, compared to backlog at December 31, 2018, was largely attributable to the new project
opportunities that MDU Construction Services continues to be awarded across its diverse operations, particularly inside specialty electrical
and mechanical contracting in the hospitality, high-tech, mission critical and public industries. MDU Construction Services' outside power,
communications and natural gas specialty contracting also have a high volume of available work. Backlog increases with awards of new
contracts and decreases as work is performed on existing contracts. MDU Construction Services expects to complete a significant amount of
the backlog at December 31, 2019, during the next 12 months. Additionally, MDU Construction Services continues to further evaluate
potential business combination opportunities that would be accretive to its business and grow its backlog. For more information on backlog
including the timing of revenue recognition, see Item 8 - Note 2.
MDU Construction Services’ backlog is comprised of the anticipated revenues from the uncompleted portion of services to be performed
under job-specific contracts. A project is included in backlog when a contract is awarded and agreement on contract terms has been
reached. However, backlog does not contain contracts for time and material projects that a fixed amount cannot be determined. Backlog is
comprised of: (a) original contract amounts, (b) change orders approved by customers, (c) change orders expected to receive confirmation in
the ordinary course of business and (d) claims made against customers, which are determined to have a legal basis under existing
contractual arrangements, and the amount for which recovery is considered to be probable. Such claim amounts were immaterial for all
periods presented. Backlog may be subject to delay, default or cancellation at the election of the customers. Historically, cancellations have
not had a material adverse effect on backlog. 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 customers' requirements during a particular period or that such estimates, or backlog estimates in general, at any point in time are
predictive of future revenues.
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. MDU Construction Services expects
bidding activity to remain strong for both inside and outside specialty construction companies in 2020. 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
quality and 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
Part I
20 MDU Resources Group, Inc. Form 10-K
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 2019 and does not expect to incur any material capital
expenditures related to environmental compliance with current laws and regulations through 2022.
Part I
MDU Resources Group, Inc. Form 10-K 21
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 filed with the SEC. The factors and 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.
If any of the risks described below actually occur, the Company's business, prospects, financial condition or financial results could be
materially harmed.
Economic Risks
The Company is subject to government regulations that may 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 or impose conditions on an acquisition of or by
the Company.
The Company's electric and natural gas transmission and distribution businesses are subject to comprehensive regulation by federal, state
and local regulatory agencies with respect to, among other things, allowed rates of return and recovery of investments and costs, financing,
rate structures, customer service, health care coverage and costs, taxes, franchises; recovery of purchased power and purchased natural gas
costs; and construction and siting of generation and transmission facilities. 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 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.
There can be no assurance that applicable regulatory commissions will determine that the Company's electric and natural gas transmission
and distribution businesses' costs have been prudent, which could result in disallowance of costs. Also, the regulatory process for approving
rates for these businesses may not allow for timely and full recovery of the costs of providing services or a return on the Company's invested
capital. Changes in regulatory requirements or operating conditions may require early retirement of certain assets. While regulation typically
provides relief for these types of retirements, there is no assurance regulators will allow full recovery of all remaining costs, which could
leave stranded asset costs. Rising fuel costs could increase the risk that the utility businesses will not be able to fully recover those fuel
costs from customers.
Approval from federal and state regulatory agencies would be needed for acquisition of the Company, as well as for certain acquisitions by
the Company. The approval process could be lengthy and the outcome uncertain, which may deter potential acquirers from approaching the
Company or impact the Company's ability to pursue acquisitions.
Economic volatility affects the Company's operations, as well as the demand for its products and services.
Unfavorable economic conditions can negatively affect the level of public and private expenditures on projects and the timing of these
projects which, in turn, can negatively affect demand for the Company's products and services, primarily at the Company's construction
businesses. The level of demand for construction products and services could be adversely impacted by the economic conditions in the
industries the Company serves, as well as in the general economy. State and federal budget issues affect the funding available for
infrastructure spending.
Economic conditions and population growth affect the electric and natural gas distribution businesses' growth in service territory, customer
base and usage demand. Economic volatility in the markets served, along with economic conditions such as increased unemployment, which
could impact the ability of the Company's customers to make payments, could adversely affect the Company's results of operations, cash
flows and asset values. Further, any material decreases in customers' energy demand, for economic or other reasons, could have a material
adverse impact on the Company's earnings and results of operations.
The Company's operations involve risks that may result from catastrophic events.
The Company's operations, particularly those related to natural gas and electric transmission and distribution, include a variety of inherent
hazards and operating risks, such as product leaks, explosions, mechanical failures, vandalism, fires, acts of terrorism and acts of war,
which could result in loss of human life; personal injury; property damage; environmental pollution; impairment of operations; and
substantial financial losses. The Company maintains insurance against some, but not all, of these risks and losses. A significant incident
could also increase regulatory scrutiny and result in penalties and higher amounts of capital expenditures and operational costs. Losses not
fully covered by insurance could have a material effect on the Company’s financial position, results of operations and cash flows.
A disruption of the regional electric transmission grid or interstate natural gas infrastructure could negatively impact the Company's
business and reputation. Because the Company's electric and natural gas utility and pipeline systems are part of larger interconnecting
systems, a disruption could result in a significant decrease in revenues and system repair costs, which could have a material impact on the
Company's financial position, results of operations and cash flows.
The Company is subject to capital market and interest rate risks.
The Company's operations, particularly its electric and natural gas transmission and distribution businesses, require significant capital
investment. Consequently, the Company relies on financing sources and capital markets as sources of liquidity for capital requirements not
satisfied by its cash flows from operations. If the Company is not able to access capital at competitive rates, including through its current
"at-the-market" offering program, the ability to implement its business plans, make capital expenditures or pursue acquisitions that the
Company would otherwise rely on for future growth may be adversely affected. Market disruptions may increase the cost of borrowing or
adversely affect the Company's ability to access one or more financial markets. Such disruptions could include:
•A significant economic downturn.
•The financial distress of unrelated industry leaders in the same line of business.
•Deterioration in capital market conditions.
•Turmoil in the financial services industry.
•Volatility in commodity prices.
•Terrorist attacks.
•Cyberattacks.
The issuance of a substantial amount of the Company's common stock, whether issued in connection with an acquisition or otherwise, or the
perception that such an issuance could occur, could have a dilutive effect on shareholders and/or may adversely affect the market price of
the Company's common stock. Higher interest rates on borrowings could also have an adverse effect on the Company's operating results.
Financial market changes could impact the Company’s pension and postretirement benefit plans and obligations.
The Company has pension and postretirement defined benefit plans for some of its employees and former employees. Assumptions regarding
future costs, returns on investments, interest rates and other actuarial assumptions have a significant impact on the funding requirements
and expense recorded relating to these plans. Adverse changes in economic indicators, such as consumer spending, inflation data, interest
rate changes, political developments and threats of terrorism, among other things, can create volatility in the financial markets which could
change these assumptions and negatively affect the 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 for those plans.
Significant changes in energy prices could negatively affect the Company's businesses.
Fluctuations in oil, NGL and natural gas production and prices; fluctuations in commodity price basis differentials; supplies of domestic and
foreign oil, NGL and natural gas; political and economic conditions in oil-producing countries; actions of the Organization of Petroleum
Exporting Countries; and other external factors impact the development of oil and natural gas supplies and the expansion and operation of
natural gas pipeline systems. Prolonged depressed prices for oil, NGL and natural gas could negatively affect the growth, results of
operations, cash flows and asset values of the Company's pipeline and midstream business.
If oil and natural gas prices increase significantly, customer demand for utility, pipeline and midstream, and construction materials could
decline, which could have a material impact on the Company's results of operations and cash flows. While the Company has fuel clause
recovery mechanisms for its utility operations in most of the states in which it operates, higher utility fuel costs could significantly impact
results of operations if such costs are not recovered. Delays in the collection of utility fuel cost recoveries, as compared to expenditures for
fuel purchases, could have a negative impact on the Company's cash flows. High oil prices also affect the cost and demand for asphalt
Part I
22 MDU Resources Group, Inc. Form 10-K
products and related contracting services. Low commodity prices could have a positive impact on sales but could negatively impact oil and
natural gas production activities and subsequently the Company's pipeline and construction revenues in energy producing states in which
the Company operates.
Reductions in the Company's credit ratings could increase financing costs.
There is no assurance the Company's current credit ratings, or those of its subsidiaries, will remain in effect or that a rating will not be
lowered or withdrawn by a rating agency. Events affecting the Company's financial results may impact its cash flows and credit metrics,
potentially resulting in a change in the Company's credit ratings. The Company's credit ratings may also change as a result of the differing
methodologies or changes in the methodologies used by the rating agencies. A downgrade in credit ratings could lead to higher borrowing
costs.
Increasing costs associated with health care plans may adversely affect the Company's results of operations.
The Company's self-insured costs of health care benefits for eligible employees continues to increase. Increasing quantities of large
individual health care claims and an overall increase in total health care claims could have an adverse impact on operating results, financial
position and liquidity. Legislation related to health care could also change the Company's benefit program and costs.
The Company is exposed to risk of loss resulting from the nonpayment and/or nonperformance by the Company's customers and counterparties.
If the Company's customers or counterparties experience financial difficulties, the Company could experience difficulty in collecting
receivables. Nonpayment and/or nonperformance by the Company's customers and counterparties, particularly customers and counterparties
of the Company’s construction materials and contracting and construction services businesses for large construction projects, could have a
negative impact on the Company's results of operations and cash flows. The Company could also have indirect credit risk from participating
in energy markets such as MISO in which credit losses are socialized to all participants.
Changes in tax law may negatively affect the Company's business.
Changes to federal, state and local tax laws have the ability to benefit or adversely affect the Company's earnings and customer costs.
Significant changes to corporate tax rates could result in the impairment of deferred tax assets that are established based on existing law at
the time of deferral. Changes to the value of various tax credits could change the economics of resources and the resource selection for the
electric generation business. Regulation incorporates changes in tax law into the rate-setting process for the regulated energy delivery
businesses and therefore could create timing delays before the impact of changes are realized.
The Company's operations could be negatively impacted by import tariffs and/or other government mandates.
The Company operates in or provides services to capital intensive industries in which federal trade policies could significantly impact the
availability and cost of materials. Imposed and proposed tariffs could significantly increase the prices and delivery lead times on raw
materials and finished products that are critical to the Company and its customers, such as aluminum and steel. Prolonged lead times on
the delivery of raw materials and further tariff increases on raw materials and finished products could have a material adverse effect on the
Company's business, financial condition and results of operations.
Operational Risks
Significant portions of the Company’s natural gas pipelines and power generation and transmission facilities are aging. The aging infrastructure may
require significant additional maintenance or replacement that could adversely affect the Company’s results of operations.
The Company’s energy delivery infrastructure is aging, which increases certain risks, including breakdown or failure of equipment, pipeline
leaks and fires developing from power lines. Aging infrastructure is more prone to failure which increases maintenance costs, unplanned
outages and the need to replace facilities. Even if properly maintained, reliability may ultimately deteriorate and negatively affect the
Company’s ability to serve its customers, which could result in increased costs associated with regulatory oversight. The costs associated
with maintaining the aging infrastructure and capital expenditures for new or replacement infrastructure could cause rate volatility and/or
regulatory lag in some jurisdictions. If, at the end of its life, the investment costs of a facility have not been fully recovered the Company
may be adversely affected if commissions do not allow such costs to be recovered in rates. Such impacts of an aging infrastructure could
have a material adverse effect on the Company’s results of operations and cash flows.
Additionally, hazards from aging infrastructure could result in serious injury, loss of human life, significant damage to property,
environmental impacts, and impairment of operations, which in turn could lead to substantial losses. The location of facilities near
populated areas, including residential areas, business centers, industrial sites, and other public gathering places, could increase the level of
damages resulting from these risks. A major incident involving another natural gas system could lead to additional capital expenditures,
increased regulation, and fines and penalties on natural gas utilities. The occurrence of any of these events could adversely affect the
Company’s results of operations, financial position, and cash flows.
Part I
MDU Resources Group, Inc. Form 10-K 23
The Company's utility and pipeline operations are subject to planning risks.
Most electric and natural gas utility investments, including natural gas transmission pipeline investments, are made with the intent of being
used for decades. In particular, electric transmission and generation resources are planned well in advance of when they are placed into
service based upon resource plans using assumptions over the planning horizon; including sales growth, commodity prices, equipment and
construction costs, regulatory treatment, available technology and public policy. Public policy changes and technology advancements related
to areas such as energy efficient appliances and buildings, renewable and distributive electric generation and storage, carbon dioxide
emissions, electric vehicle penetration, and natural gas availability and cost may significantly impact the planning assumptions. Changes in
critical planning assumptions may result in excess generation, transmission and distribution resources creating increased per customer costs
and downward pressure on load growth. These changes could also result in a stranded investment if the Company is unable to fully recover
the costs of its investments.
The regulatory approval, permitting, construction, startup and/or operation of pipelines, power generation and transmission facilities, and aggregate
reserves may involve unanticipated events, delays and unrecoverable costs.
The construction, startup and operation of natural gas pipelines and electric power generation and transmission facilities involve many risks,
which may include delays; breakdown or failure of equipment; inability to obtain required governmental permits and approvals; inability to
obtain or renew easements; public opposition; inability to complete financing; inability to negotiate acceptable equipment acquisition,
construction, fuel supply, off-take, transmission, transportation or other material agreements; changes in markets and market prices for
power; cost increases and overruns; the risk of performance below expected levels of output or efficiency; and the inability to obtain full cost
recovery in regulated rates. Additionally, in a number of states in which the Company operates, it can be difficult to permit new aggregate
sites or expand existing aggregate sites due to community resistance. Such unanticipated events could negatively impact the Company's
business, its results of operations and cash flows.
Operating or other costs required to comply with current or potential pipeline safety regulations and potential new regulations under various
agencies could be significant. The regulations require verification of pipeline infrastructure records by pipeline owners and operators to
confirm the maximum allowable operating pressure of certain lines. Increased emphasis on pipeline safety and increased regulatory scrutiny
may result in penalties and higher costs of operations. If these costs are not fully recoverable from customers, they could have a material
adverse effect on the Company’s results of operations and cash flows.
The backlogs at the Company's construction materials and contracting and construction services businesses may not accurately represent future
revenue.
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. Accordingly, there is no assurance that
backlog will be realized. The timing of contract awards, duration of large new contracts and the mix of services can significantly affect
backlog. Backlog at any given point in time may not accurately represent the revenue or net income that is realized in any period, and the
backlog as of the end of the year may not be indicative of the revenue and net income expected to be earned in the following year and
should not be relied upon as a stand-alone indicator of future revenues or net income.
Environmental and Regulatory Risks
The Company's operations could be adversely impacted by climate change.
Severe weather events, such as tornadoes, rain, ice and snowstorms and high and low temperature extremes, occur in regions in which the
Company operates and maintains infrastructure. Climate change could change the frequency and severity of these weather events, which
may create physical and financial risks to the Company. Such risks could have an adverse effect on the Company's financial condition,
results of operations and cash flows.
Severe weather events may damage or disrupt the Company's electric and natural gas transmission and distribution facilities, which could
increase costs to repair facilities and restore service to customers. The cost of providing service could increase to the extent the frequency of
severe weather events increases because of climate change or otherwise. The Company may not recover all costs related to mitigating these
physical risks.
Severe weather may result in disruptions to the pipeline and midstream business's natural gas supply and transportation systems, and
potentially increase the cost of gas and the natural gas utility's ability to procure gas to meet customer demand. These changes could result
in increased maintenance and capital costs, disruption of service, regulatory actions and lower customer satisfaction.
Increases in severe weather conditions or extreme temperature may cause infrastructure construction projects to be delayed or canceled and
limit resources available for such projects resulting in decreased revenue or increased project costs at the construction materials and
Part I
24 MDU Resources Group, Inc. Form 10-K
contracting and construction services businesses. In addition, drought conditions could restrict the availability of water supplies, inhibiting
the ability of the construction businesses to conduct operations.
Utility customers’ energy needs vary with weather conditions, primarily temperature and humidity. For residential customers, heating and
cooling represent the largest energy use. To the extent weather conditions are affected by climate change, customers’ energy use could
increase or decrease. Increased energy use by its utility customers due to weather may require the Company to invest in additional
generating assets, transmission and other infrastructure to serve increased load. Decreased energy use due to weather may result in
decreased revenues. Extreme weather conditions, such as uncommonly long periods of high or low ambient temperature, in general require
more system backup, adding to costs, and can contribute to increased system stress, including service interruptions. Weather conditions
outside of the Company's service territory could also have an impact on revenues. The Company buys and sells electricity that might be
generated outside its service territory, depending upon system needs and market opportunities. Extreme temperatures may create high
energy demand and raise electricity prices, which could increase the cost of energy provided to customers.
Climate change may impact a region’s economic health, which could impact revenues at all of the Company's businesses. The Company's
financial performance is tied to the health of the regional economies served. The Company provides natural gas and electric utility service,
as well as construction materials and services, for some states and communities that are economically affected by the agriculture industry.
Increases in severe weather events or significant changes in temperature and precipitation patterns could adversely affect the agriculture
industry and, correspondingly, the economies of the states and communities affected by that industry.
The insurance industry has also been adversely affected by severe weather events which may impact the availability of insurance coverage,
insurance premiums and insurance policy terms.
The Company may also be subject to litigation related to climate change. Costs of such litigation could be significant, and an adverse
outcome could require substantial capital expenditures, changes in operations and possible payment of penalties or damages, which could
affect the Company's results of operations and cash flows if the costs are not recoverable in rates.
The price of energy also has an impact on the economic health of communities. The cost of additional regulatory requirements to combat
climate change, such as regulation of carbon dioxide emissions under the Clean Air Act, or other environmental regulation or taxes could
impact the availability of goods and the prices charged by suppliers, which would normally be borne by consumers through higher prices for
energy and purchased goods. To the extent financial markets view climate change and emissions of GHGs as a financial risk, this could
negatively affect the Company's ability to access capital markets or cause less than ideal terms and conditions.
The Company's operations are subject to 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 environmental laws and regulations affecting many aspects of its operations, including air and water quality,
wastewater discharge, the generation, transmission and disposal of solid waste and hazardous substances, aggregate permitting and other
environmental considerations. These laws and regulations can increase capital, operating and other costs; cause delays as a result of
litigation and administrative proceedings; and create compliance, remediation, containment, monitoring and reporting obligations,
particularly relating to electric generation, permitting and environmental compliance for construction material facilities, natural gas
gathering, and transmission and storage operations. Environmental laws and regulations can also require the Company to install pollution
control equipment at its facilities, clean up spills and other contamination and correct environmental hazards, including payment of all or
part of the cost to remediate sites where the Company's past activities, or the activities of other parties, caused environmental
contamination. These laws and regulations generally require the Company to obtain and comply with a variety of environmental licenses,
permits, inspections and other approvals and may cause the Company to shut down existing facilities due to difficulties in assuring
compliance or where the cost of compliance makes operation of the facilities no longer economical. Although the Company strives to comply
with all applicable environmental laws and regulations, public and private entities and private individuals may interpret the Company's legal
or regulatory requirements differently and seek injunctive relief or other remedies against the Company. The Company cannot predict the
outcome, financial or operational, of any such litigation or administrative proceedings.
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; retire and replace certain facilities; install pollution controls; remediate environmental impacts;
remove or reduce environmental hazards; or forego or limit the development of resources. Revised or new laws and regulations that increase
compliance costs or restrict operations, particularly if costs are not fully recoverable from customers, could have a material adverse effect on
the Company's results of operations and cash flows.
Part I
MDU Resources Group, Inc. Form 10-K 25
Initiatives related to global climate change and to reduce GHG emissions could adversely impact the Company's operation, costs of or access to
capital and impact or limit business plans.
Concern that GHG emissions are contributing to global climate change has led to international, federal, state and local legislative and
regulatory proposals to reduce or mitigate the effects of GHG emissions. The Company’s primary GHG emission is carbon dioxide from fossil
fuels combustion at Montana-Dakota's electric generating facilities, particularly its coal-fired facilities. Approximately 46 percent of
Montana-Dakota's owned generating capacity and approximately 73 percent of the electricity it generated in 2019 was from coal-fired
facilities.
Treaties, legislation or regulations to reduce GHG emissions in response to climate change may be adopted that affect the Company's utility
operations by requiring additional energy conservation efforts or renewable energy sources, limiting emissions, imposing carbon taxes or
other compliance costs; as well as other mandates that could significantly increase capital expenditures and operating costs or reduce
demand for the Company's utility services. If the Company’s utility operations do not receive timely and full recovery of GHG emission
compliance costs from customers, then such costs could adversely impact the results of its operations and cash flows. Significant
reductions in demand for the Company's utility services as a result of increased costs or emissions limitations could also adversely impact
the results of its operations and cash flows.
The Company monitors, analyzes and reports GHG emissions from its other operations as required by applicable laws and regulations. The
Company will continue to monitor GHG regulations and their potential impact on operations.
Due to the uncertain availability of technologies to control GHG emissions and the unknown obligations that potential GHG emission
legislation or regulations may create, the Company cannot determine the potential financial impact on its operations.
There have also been recent efforts to influence the investment community to discourage investment in equity and debt securities of
companies engaged in fossil fuel related business and pressuring lenders to limit funding to such companies. Additionally, some insurance
carriers have indicated an unwillingness to insure assets and operations related to certain fossil fuels. Although the Company has not
experienced difficulties in accessing the capital markets or insurance; such efforts, if successfully directed at the Company, could increase
the costs of or access to capital and interfere with its business operations and ability to make capital expenditures.
Other Risks
The Company's various businesses are seasonal and subject to weather conditions that can adversely affect the Company's operations, revenues and
cash flows.
The Company's results of operations can be affected by changes in the weather. Weather conditions influence the demand for electricity and
natural gas and affect the price of energy commodities. Utility operations have historically generated lower revenues when weather
conditions are cooler than normal in the summer and warmer than normal in the winter particularly in jurisdictions that do not have weather
normalization mechanisms in place. Where weather normalization mechanisms are in place, there is no assurance the Company will
continue to receive such regulatory protection from adverse weather in future rates.
Adverse weather conditions, such as heavy or sustained rainfall or snowfall, storms, wind, and colder weather may affect the demand for
products and the ability to perform services at the construction businesses and affect ongoing operation and maintenance and construction
activities for the electric and natural gas transmission and distribution businesses. In addition, severe weather can be destructive, causing
outages, and/or property damage, which could require additional remediation costs. The Company could also be impacted by drought
conditions, which may restrict the availability of water supplies and inhibit the ability of the construction businesses to conduct operations.
As a result, unusually mild winters or summers or adverse weather conditions could negatively affect the Company's results of operations,
financial position and cash flows.
Competition exists in all of the Company's businesses.
The Company's businesses are subject to competition. Construction services' competition is based primarily on price and reputation for
quality, safety and reliability. Construction materials products are marketed under highly competitive conditions and are subject to
competitive forces such as price, service, delivery time and proximity to the customer. The electric utility and natural gas industries also
experience competitive pressures as a result of consumer demands, technological advances and other factors. The pipeline and midstream
business competes with several pipelines for access to natural gas supplies and for transportation and storage business. New acquisition
opportunities are subject to competitive bidding environments which impact prices the Company must pay to successfully acquire new
properties to grow its business. The Company's failure to effectively compete could negatively affect the Company's results of operations,
financial position and cash flows.
Part I
26 MDU Resources Group, Inc. Form 10-K
The Company's operations may be negatively affected if it is unable to obtain, develop and retain key personnel and skilled labor forces.
The Company must attract, develop and retain executive officers and other professional, technical and skilled labor forces with the skills and
experience necessary to successfully manage, operate and grow the Company's businesses. Competition for these employees is high, and in
some cases competition for these employees is on a regional or national basis. At times of low unemployment, it can be difficult for the
Company to attract and retain qualified and affordable personnel. A shortage in the supply of skilled personnel creates competitive hiring
markets, increased labor expenses, decreased productivity and potentially lost business opportunities to support the Company's operating
and growth strategies. Additionally, if the Company is unable to hire employees with the requisite skills, the Company may be forced to incur
significant training expenses. As a result, the Company's ability to maintain productivity, relationships with customers, competitive costs,
and quality services is limited by the ability to employ, retain and train the necessary skilled personnel and could negatively affect the
Company's results of operations, financial position and cash flows.
The Company's construction materials and contracting and construction services businesses may be exposed to warranty claims.
The Company, particularly its construction businesses, may provide warranties guaranteeing the work performed against defects in
workmanship and material. If warranty claims occur, they may require the Company to re-perform the services or to repair or replace the
warranted item, at a cost to the Company and could also result in other damages if the Company is not able to adequately satisfy warranty
obligations. In addition, the Company may be required under contractual arrangements with customers to warrant any defects or failures in
materials the Company purchased from third parties. While the Company generally requires suppliers to provide warranties that are
consistent with those the Company provides to customers, if any of the suppliers default on their warranty obligations to the Company, the
Company may nonetheless incur costs to repair or replace the defective materials. Costs incurred as a result of warranty claims could
adversely affect the Company's results of operations, financial condition and cash flows.
The Company is a holding company and relies on cash from its subsidiaries to pay dividends.
The Company is a holding company as a result of the Holding Company Reorganization in 2019. The Company's investments in its
subsidiaries comprise the Company's primary assets. The Company depends on earnings, cash flows and dividends from its subsidiaries to
pay dividends on its common stock. The Company's subsidiaries are separate legal entities that have no obligation to pay any amounts due
on its obligations or to make funds available to pay dividends on common stock. Regulatory, contractual and legal limitations, as well as
their capital requirements, affect the ability of the subsidiaries to pay dividends to the Company and thereby could restrict or influence the
Company's ability or decision to pay dividends on its common stock, which could adversely affect the Company's stock price.
Costs related to obligations under MEPPs could have a material negative effect on the Company's results of operations and cash flows.
Various operating subsidiaries of the Company participate in approximately 75 MEPPs for employees represented by certain unions. The
Company is required to make contributions to these plans in amounts established under numerous collective bargaining agreements
between the operating subsidiaries and those unions.
The Company may be obligated to increase its contributions to underfunded plans that are classified as being in endangered, seriously
endangered or critical status as defined by the Pension Protection Act of 2006. Plans classified as being in one of these statuses are
required to adopt RPs or FIPs to improve their funded status through increased contributions, reduced benefits or a combination of the two.
Based on available information, the Company believes that approximately 25 percent of the MEPPs to which it contributes are currently in
endangered, seriously endangered or critical status.
The Company may also be required to increase its contributions to MEPPs if the other participating employers in such plans withdraw from
the plans and are not able to contribute amounts sufficient to fund the unfunded liabilities associated with their participation in the plans.
The amount and timing of any increase in the Company's required contributions to MEPPs may also depend upon one or more factors
including the outcome of collective bargaining; actions taken by trustees who manage the plans; actions taken by the plans' other
participating employers; the industry for which contributions are made; future determinations that additional plans reach endangered,
seriously endangered or critical status; newly-enacted government laws or regulations and the actual return on assets held in the plans;
among others. The Company could experience increased operating expenses as a result of required contributions to MEPPs, which could
have a material adverse effect on the Company's results of operations, financial position or cash flows.
In addition, pursuant to ERISA, as amended by MPPAA, the Company could incur a partial or complete withdrawal liability upon
withdrawing from a plan, exiting a market in which it does business with a union workforce or upon termination of a plan. The Company
could also incur additional withdrawal liability if its withdrawal from a plan is determined by that plan to be part of a mass withdrawal.
Information technology disruptions or cyberattacks could adversely impact the Company's operations.
The Company uses technology in substantially all aspects of its business operations and requires uninterrupted operation of information
technology systems and network infrastructure. While the Company has policies, procedures and processes in place designed to strengthen
and protect these systems, they may be vulnerable to failures or unauthorized access, including disaster recovery and backup systems, due
to hacking, human error, theft, sabotage, malicious software, acts of terrorism, acts of war, acts of nature or other causes. If these systems
Part I
MDU Resources Group, Inc. Form 10-K 27
fail or become compromised, and they are not recovered in a timely manner, the Company may be unable to fulfill critical business
functions. This may include interruption of electric generation, transmission and distribution facilities, natural gas storage and pipeline
facilities and facilities for delivery of construction materials or other products and services, any of which could have a material adverse
effect on the Company's reputation, business, cash flows and results of operations or subject the Company to legal or regulatory liabilities
and increased costs.
The Company’s accounting systems and its ability to collect information and invoice customers for products and services could also be
disrupted. If the Company’s operations were disrupted, it could result in decreased revenues or remediation costs that could have a material
adverse effect on the Company's results of operations and cash flows. Additionally, because electric generation and transmission systems
and natural gas pipelines are part of interconnected systems with other operators’ facilities, a cyber-related disruption in another operator’s
system could negatively impact the Company's business.
The Company is subject to cyber security and privacy laws and regulations of many government agencies, including FERC and NERC. NERC
issues comprehensive regulations and standards surrounding the security of bulk power systems and is continually in the process of
updating these requirements, as well as establishing new requirements with which the utility industry must comply. As these regulations
evolve, the Company will experience increased compliance costs and be at higher risk for violating these standards. Experiencing a
cybersecurity incident could cause the Company to be non-compliant with applicable laws and regulations, causing the Company to incur
costs related to legal claims or proceedings and regulatory fines or penalties. FERC continues its efforts to address cybersecurity challenges
facing the nation's energy infrastructure. FERC has identified five areas of focus:
•Supply Chain/Insider Threat/Third-Party Authorized Access;
•Industry access to timely information on threats and vulnerabilities;
•Cloud/Managed Security Service Providers;
•Adequacy of security controls; and
•Internal network monitoring and detection.
The Company, through the ordinary course of business, requires access to sensitive customer, employee and Company data. While the
Company has implemented extensive security measures, a breach of its systems could compromise sensitive data and could go unnoticed
for some time. In addition, there has been an increase in the number and sophistication of cyber-attacks across all industries worldwide and
the threats are continually evolving. Such an event could result in negative publicity and reputational harm, remediation costs, legal claims
and fines that could have an adverse effect on the Company's financial results. Third-party service providers that perform critical business
functions for the Company or have access to sensitive information within the Company also may be vulnerable to security breaches and
information technology risks that could have an adverse effect on the Company.
The Company’s information systems experience on-going and often sophisticated cyber-attacks by a variety of sources with the apparent aim
to breach the Company's cyber-defenses. As cyber-attacks continue to increase in frequency and sophistication, the Company may be unable
to prevent all such attacks in the future. The Company is continuously reevaluating the need to upgrade and/or replace systems and network
infrastructure. These upgrades and/or replacements could adversely impact operations by imposing substantial capital expenditures,
creating delays or outages, or experiencing difficulties transitioning to new systems. Systems implementation disruption and any other
information technology disruption, if not anticipated and appropriately mitigated, could have an adverse effect on the Company.
Other factors that could impact the Company's businesses.
The following are other factors that should be considered for a better understanding of the risks to the Company. These other factors may
have a materially negative impact on 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 availability of economic expansion or development opportunities.
•Population decline and demographic patterns.
•Economic and social impacts of epidemics.
•Market demand for, available supplies of, and/or costs of, energy- and construction-related products and services.
•The cyclical nature of large construction projects at certain operations.
•Unanticipated project delays or changes in project costs, including related energy costs.
•Unanticipated changes in operating expenses or capital expenditures.
•Labor negotiations or disputes.
Part I
28 MDU Resources Group, Inc. Form 10-K
•Inability of the contract counterparties to meet their contractual obligations.
•Changes in accounting principles and/or the application of such principles to the Company.
•Changes in technology.
•Changes in legal or regulatory proceedings.
•Losses or costs relating to litigation.
•The inability to effectively integrate the operations and the internal controls of acquired companies.
Part I
MDU Resources Group, Inc. Form 10-K 29
Item 1B. Unresolved Staff Comments
The Company has no unresolved comments with the SEC.
Item 3. Legal Proceedings
For information regarding legal proceedings required by this item, see Item 8 - Note 20, which is incorporated herein by reference.
Item 4. Mine Safety Disclosures
For information regarding mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Act and
Item 104 of Regulation S-K, see Exhibit 95 to this Form 10-K, which is incorporated herein by reference.
Part II
30 MDU Resources Group, Inc. Form 10-K
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."
As of December 31, 2019, the Company's common stock was held by approximately 10,700 stockholders of record.
The Company depends on earnings and dividends from its subsidiaries to pay dividends on common stock. The Company has paid quarterly
dividends for more than 80 consecutive years with an increase in the payout amount for the last 29 consecutive years. The declaration and
payment of dividends is at the sole discretion of the board of directors, subject to limitations imposed by the Company's credit agreements,
federal and state laws, and applicable regulatory limitations. For more information on factors that may limit the Company's ability to pay
dividends, see Item 8 - Note 12.
The following table includes information with respect to the Company's purchase of equity securities:
ISSUER PURCHASES OF EQUITY SECURITIES
Period
(a)Total Numberof Shares(or Units)Purchased (1)
(b) Average Price Paidper Share(or Unit)
(c)Total Number of Shares(or Units) Purchasedas Part of PubliclyAnnounced Plansor Programs (2)
(d)Maximum Number (orApproximate Dollar Value) of Shares (or Units) that May Yet BePurchased Under thePlans or Programs (2)
October 1 through October 31, 2019 ————
November 1 through November 30, 2019 41,644 $29.16 ——
December 1 through December 31, 2019 ————
Total 41,644 ——
(1)Represents shares of common stock purchased on the open market in connection with annual stock grants made to the Company's non-employee directors.
(2)Not applicable. The Company does not currently have in place any publicly announced plans or programs to purchase equity securities.
Item 6. Selected Financial Data
2019 2018 2017 2016 2015 2014
Selected Financial Data
Operating revenues (000's):
Electric $351,725 $335,123 $342,805 $322,356 $280,615 $277,874
Natural gas distribution 865,222 823,247 848,388 766,115 817,419 921,986
Pipeline and midstream 140,444 128,923 122,213 141,602 154,904 157,292
Construction materials and contracting 2,190,717 1,925,854 1,812,529 1,874,270 1,904,282 1,765,330
Construction services 1,849,266 1,371,453 1,367,602 1,073,272 926,427 1,119,529
Other 16,551 11,259 7,874 8,643 9,191 9,364
Intersegment eliminations (77,149)(64,307)(58,060)(57,430)(78,786)(136,302)
$5,336,776 $4,531,552 $4,443,351 $4,128,828 $4,014,052 $4,115,073
Operating income (loss) (000's):
Electric $64,039 $65,148 $79,902 $67,929 $59,915 $61,515
Natural gas distribution 69,188 72,336 84,239 66,166 54,974 68,185
Pipeline and midstream 42,796 36,128 36,004 42,864 30,218 46,500
Construction materials and contracting 179,955 141,426 143,230 178,753 148,312 87,243
Construction services 126,426 86,764 81,292 53,546 43,678 82,408
Other (1,184)(79)(619)(349)(8,414)(5,370)
Intersegment eliminations ————(2,942)(9,900)
$481,220 $401,723 $424,048 $408,909 $325,741 $330,581
Earnings (loss) on common stock (000's):
Electric $54,763 $47,000 $49,366 $42,222 $35,914 $36,731
Natural gas distribution 39,517 37,732 32,225 27,102 23,607 30,484
Pipeline and midstream 29,603 28,459 20,493 23,435 13,250 24,666
Construction materials and contracting 120,371 92,647 123,398 102,687 89,096 51,510
Construction services 92,998 64,309 53,306 33,945 23,762 54,432
Other (2,086)(761)(1,422)(3,231)(14,941)(7,386)
Intersegment eliminations ——6,849 6,251 5,016 (6,095)
Earnings on common stock before income (loss)from discontinued operations 335,166 269,386 284,215 232,411 175,704 184,342
Income (loss) from discontinued operations, netof tax*287 2,932 (3,783)(300,354)(834,080)109,311
Loss from discontinued operations attributable tononcontrolling interest ———(131,691)(35,256)(3,895)
$335,453 $272,318 $280,432 $63,748 $(623,120)$297,548
Earnings per common share before discontinuedoperations - diluted $1.69 $1.38 $1.45 $1.19 $.90 $.96
Discontinued operations attributable to theCompany, net of tax —.01 (.02)(.86)(4.10).59
$1.69 $1.39 $1.43 $.33 $(3.20)$1.55
Common Stock Statistics
Weighted average common shares outstanding -diluted (000's)198,626 196,150 195,687 195,618 194,986 192,587
Dividends declared per common share $.8150 $.7950 $.7750 $.7550 $.7350 $.7150
Book value per common share $14.21 $13.09 $12.44 $11.78 $12.83 $16.66
Market price per common share (year end)$29.71 $23.84 $26.88 $28.77 $18.32 $23.50
Market price ratios:
Dividend payout**48%58%53%63%82%74%
Yield 2.8%3.4%2.9%2.7%4.1%3.1%
Market value as a percent of book value 209.1%182.1%216.1%244.2%142.8%141.1%
*Reflects oil and natural gas properties noncash write-downs of $315.3 million (after tax) in 2015 and fair value impairments of assets held for sale of $157.8 million(after tax) and $475.4 million (after tax) in 2016 and 2015, respectively.
**Based on continuing operations.
Part II
MDU Resources Group, Inc. Form 10-K 31
Item 6. Selected Financial Data (continued)
2019 2018 2017 2016 2015 2014
General
Total assets (000's)$7,683,059 $6,988,110 $6,334,666 $6,284,467 $6,565,154 $7,805,405
Total long-term debt (000's)$2,243,107 $2,108,695 $1,714,853 $1,790,159 $1,796,163 $2,016,198
Capitalization ratios:
Total equity 56%55%59%56%58%62%
Total debt 44 45 41 44 42 38
100%100%100%100%100%100%
Electric
Retail sales (thousand kWh)3,314,307 3,354,401 3,306,470 3,258,537 3,316,017 3,308,358
Electric system summer and firm purchasecontract ZRCs (Interconnected system)591.3 574.5 553.1 559.7 547.3 584.0
Electric system peak demand obligation, includingfirm purchase contracts, planning reserve marginrequirement (Interconnected system)537.2 537.2 530.2 559.7 547.3 522.4
All-time demand peak - kW(Interconnected system)611,542 611,542 611,542 611,542 611,542 582,083
Electricity produced (thousand kWh)2,792,770 2,840,353 2,630,640 2,626,763 1,898,160 2,519,938
Electricity purchased (thousand kWh)891,539 831,039 955,687 904,702 1,658,002 1,010,422
Average cost of electric fuel and purchased powerper kWh $.023 $.022 $.022 $.021 $.024 $.025
Natural Gas Distribution
Retail sales (Mdk)123,675 112,566 112,551 99,296 95,559 104,297
Transportation sales (Mdk)166,077 149,497 144,477 147,592 154,225 145,941
Pipeline and Midstream
Transportation (Mdk)429,660 351,498 312,520 285,254 290,494 233,483
Gathering (Mdk)13,900 14,882 16,064 20,049 33,441 38,372
Customer natural gas storage balance (Mdk)16,223 13,928 22,397 26,403 16,600 14,885
Construction Materials and Contracting
Sales (000's):
Aggregates (tons)32,314 29,795 28,213 27,580 26,959 25,827
Asphalt (tons)6,707 6,838 6,237 7,203 6,705 6,070
Ready-mixed concrete (cubic yards)4,123 3,518 3,548 3,655 3,592 3,460
Aggregate reserves (000's tons)1,054,186 1,014,431 965,036 989,084 1,022,513 1,061,156
Part II
32 MDU Resources Group, Inc. Form 10-K
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
On January 2, 2019, the Company announced the completion of the Holding Company Reorganization, which resulted in Montana-Dakota
becoming a subsidiary of the Company. The merger was conducted pursuant to Section 251(g) of the General Corporation Law of the State
of Delaware, which provides for the formation of a holding company without a vote of the stockholders of the constituent corporation.
Immediately after consummation of the Holding Company Reorganization, the Company had, on a consolidated basis, the same assets,
businesses and operations as Montana-Dakota had immediately prior to the consummation of the Holding Company Reorganization. As a
result of the Holding Company Reorganization, the Company became the successor issuer to Montana-Dakota pursuant to Rule 12g-3(a) of
the Exchange Act, and as a result, the Company's common stock was deemed registered under Section 12(b) of the Exchange Act.
The Company operates with a two-platform business model. Its regulated energy delivery platform and its construction materials and
services platform are each comprised of different operating segments. Some of these segments experience seasonality related to the
industries in which they operate. The two-platform approach helps balance this seasonality and the risk associated with each type of
industry. Through its regulated energy delivery platform, the Company provides electric and natural gas services to customers, generates,
transmits and distributes electricity, and provides natural gas transportation, storage and gathering services. These businesses are regulated
by state public service commissions and/or the FERC. The construction materials and services platform provides construction services to a
variety of industries, including commercial, industrial and governmental, and provides construction materials through aggregate mining and
marketing of related products, such as ready-mixed concrete and asphalt.
The Company is organized into five reportable business segments. These business segments include: electric, natural gas distribution,
pipeline and midstream, construction materials and contracting, and construction services. The Company's business segments are
determined 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 internal reporting of these segments is defined based on the reporting and review process used by
the Company's chief executive officer.
The Company's strategy is to apply its expertise in the regulated energy delivery and construction materials and services businesses to
increase market share, increase profitability and enhance shareholder value through organic growth opportunities and strategic acquisitions.
The Company is focused on a disciplined approach to the acquisition of well-managed companies and properties.
The Company has capabilities to fund its growth and operations through various sources, including internally generated funds, commercial
paper facilities, revolving credit facilities and the issuance from time to time of debt and equity securities. For more information on the
Company's capital expenditures, see Liquidity and Capital Commitments.
Part II
MDU Resources Group, Inc. Form 10-K 33
Consolidated Earnings Overview
The following table summarizes the contribution to the consolidated earnings by each of the Company's business segments.
Years ended December 31,2019 2018 2017
(In millions, except per share amounts)
Electric $54.8 $47.0 $49.4
Natural gas distribution 39.5 37.7 32.2
Pipeline and midstream 29.6 28.5 20.5
Construction materials and contracting 120.4 92.6 123.4
Construction services 93.0 64.3 53.3
Other (2.1)(.7)(1.5)
Intersegment eliminations ——6.9
Earnings before discontinued operations 335.2 269.4 284.2
Income (loss) from discontinued operations, net of tax .3 2.9 (3.8)
Earnings on common stock $335.5 $272.3 $280.4
Earnings per common share - basic:
Earnings before discontinued operations $1.69 $1.38 $1.46
Discontinued operations, net of tax —.01 (.02)
Earnings per common share - basic $1.69 $1.39 $1.44
Earnings per common share - diluted:
Earnings before discontinued operations $1.69 $1.38 $1.45
Discontinued operations, net of tax —.01 (.02)
Earnings per common share - diluted $1.69 $1.39 $1.43
2019 compared to 2018 The Company's consolidated earnings increased $63.2 million.
Positively impacting the Company's earnings was an increase in gross margin at the construction services business, largely resulting from
higher inside and outside specialty contracting workloads. Also contributing to the increase in earnings was an increase in gross margin at
the construction materials and contracting business as a result of strong economic environments in certain states, as well as contributions
from the businesses acquired and an increase in gains recognized on asset sales. The electric business also positively impacted earnings
primarily due to approved rate relief in Montana and recovery of the investment in the BSSE project placed into service in the first quarter of
2019. Higher returns on the Company's benefit plan investments also increased earnings across all businesses. At the pipeline and
midstream business, increased rates and volumes of natural gas being transported through its pipeline were mostly offset by the absence of
a $4.2 million income tax benefit included in 2018, as discussed below, and higher depreciation, depletion and amortization expense.
2018 compared to 2017 The Company's consolidated earnings decreased $8.1 million.
The Company's earnings were positively impacted in 2018 as a result of the lower federal statutory tax rate, which was partially offset by the
absence of a $39.5 million tax benefit recorded in the fourth quarter of 2017 for the revaluation of the business's net deferred tax
liabilities. Both tax impacts were the result of the enactment of the TCJA, as further discussed in Item 8 - Note 14. Decreased earnings due
to lower returns on investments also offset the lower income tax rate. Also positively impacting the Company's earnings were higher outside
specialty contracting gross margins due to increased outside equipment sales and rentals at the construction services business, as well as a
$4.2 million income tax benefit relating to the reversal of a regulatory liability recorded in 2017 based on a FERC final accounting order
issued during the third quarter of 2018 at the pipeline and midstream business.
A discussion of key financial data from the Company's business segments follows.
Part II
34 MDU Resources Group, Inc. Form 10-K
Business Segment Financial and Operating Data
Following are key financial and operating data for each of the Company's business segments. Also included are highlights on key growth
strategies, projections and certain assumptions for the Company and its subsidiaries and other matters of the Company's business segments.
Many of these highlighted points are "forward-looking statements." For more information, see Part I - 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.
For information pertinent to various commitments and contingencies, see Item 8 - Notes to Consolidated Financial Statements. For a
summary of the Company's business segments, see Item 8 - Note 16.
Electric and Natural Gas Distribution
Strategy and challenges The electric and natural gas distribution segments provide electric and natural gas distribution services to
customers, as discussed in Items 1 and 2 - Business Properties. Both segments strive to be a top performing utility company measured by
integrity, safety, employee satisfaction, customer service and shareholder return, while continuing to focus on providing safe,
environmentally friendly, reliable and competitively priced energy and related services to customers. The Company is focused on cultivating
organic growth while managing operating costs and continues to monitor opportunities for these segments to retain, grow and expand their
customer base through extensions of existing operations, including building and upgrading electric generation, transmission and distribution
and natural gas systems, and through selected acquisitions of companies and properties with similar operating and growth objectives at
prices that will provide stable cash flows and an opportunity to earn a competitive return on investment. The continued efforts to create
operational improvements and efficiencies across both segments promotes the Company's business integration strategy. The primary factors
that impact the results of these segments are the ability to earn authorized rates of return, the cost of natural gas, cost of electric fuel and
purchased power, weather, competitive factors in the energy industry, population growth and economic conditions in the segments' service
areas.
The electric and natural gas distribution segments are subject to extensive regulation in the jurisdictions where they conduct operations with
respect to costs, timely recovery of investments and permitted returns on investment, as well as certain operational, environmental and
system integrity regulations. To assist in the reduction of regulatory lag with the increase in investments, tracking mechanisms have been
implemented in certain jurisdictions, as further discussed in Items 1 and 2 - Business Properties and Item 8 - Note 19. The Pipeline and
Hazardous Materials Safety Administration recently issued additional rules to strengthen the safety of natural gas transmission and
hazardous liquid pipelines. The Company is currently evaluating the first phase of the rules. Legislative and regulatory initiatives to increase
renewable energy resources and reduce GHG emissions could impact the price and demand for electricity and natural gas, as well as
increase costs to produce electricity and natural gas. The segments continue to invest in facility upgrades to be in compliance with the
existing and future regulations.
Tariff increases on steel and aluminum materials could negatively affect the segments' construction projects and maintenance work. The
Company continues to monitor the impact of tariffs on raw material costs. The natural gas distribution segment is also facing increased lead
times on delivery of certain raw materials used in pipeline projects. In addition to the effect of tariffs, long lead times are attributable to
increased demand for steel products from pipeline companies as they respond to the United States Department of Transportation Pipeline
System Safety and Integrity Plan. The Company continues to monitor the material lead times and is working with manufacturers to
proactively order such materials to help mitigate the risk of delays due to extended lead times.
The ability to grow through acquisitions is subject to significant competition and acquisition premiums. In addition, the ability of the
segments to grow their 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 any new electric generating facilities, transmission lines and other service
facilities is subject to increasing costs and lead times, extensive permitting procedures, and federal and state legislative and regulatory
initiatives, which will likely necessitate increases in electric energy prices.
Revenues are impacted by both customer growth and usage, the latter of which is primarily impacted by weather. Very cold winters increase
demand for natural gas and to a lesser extent, electricity, while warmer than normal summers increase demand for electricity, especially
among residential and commercial customers. Average consumption among both electric and natural gas customers has tended to decline as
more efficient appliances and furnaces are installed, and as the Company has implemented conservation programs. Natural gas decoupling
mechanisms in certain jurisdictions have been implemented to largely mitigate the effect that would otherwise be caused by variations in
volumes sold to these customers due to weather and changing consumption patterns on the Company's distribution margins.
Earnings overview - The following information summarizes the performance of the electric segment.
Years ended December 31,2019 2018 2017
(Dollars in millions, where applicable)
Operating revenues $351.7 $335.1 $342.8
Electric fuel and purchased power 86.6 80.7 78.7
Taxes, other than income .6 .7 .8
Adjusted gross margin 264.5 253.7 263.3
Operating expenses:
Operation and maintenance 125.7 123.0 122.2
Depreciation, depletion and amortization 58.7 51.0 47.7
Taxes, other than income 16.1 14.5 13.5
Total operating expenses 200.5 188.5 183.4
Operating income 64.0 65.2 79.9
Other income 3.4 1.2 3.2
Interest expense 25.3 25.9 25.4
Income before income taxes 42.1 40.5 57.7
Income taxes (12.7)(6.5)7.7
Net income 54.8 47.0 50.0
Loss/dividends on preferred stock ——.6
Earnings $54.8 $47.0 $49.4
Retail sales (million kWh):
Residential 1,177.9 1,196.6 1,153.5
Commercial 1,499.9 1,513.9 1,513.1
Industrial 549.4 551.0 539.9
Other 87.1 92.9 100.0
3,314.3 3,354.4 3,306.5
Average cost of electric fuel and purchased power per kWh $.023 $.022 $.022
Adjusted gross margin is a non-GAAP financial measure. For additional information and reconciliation of the non-GAAP adjusted gross
margin attributable to the electric segment, see the Non-GAAP Financial Measures section later in this Item.
2019 compared to 2018 Electric earnings increased $7.8 million (17 percent) as a result of:
Adjusted gross margin: Increase of $10.8 million, primarily due to an increase in revenues. The revenue increase was driven by
implemented regulatory mechanisms, which include approved Montana interim and final rates and recovery of the investment in the
Part II
MDU Resources Group, Inc. Form 10-K 35
BSSE project placed into service in the first quarter of 2019. Also contributing to the increase was the absence in 2019 of a transmission
formula rate adjustment recognized in the third quarter of 2018 for decreased costs on the BSSE project. These increases were partially
offset by lower retail sales volumes of 1.2 percent across all major customer classes.
Operation and maintenance: Increase of $2.7 million, primarily resulting from higher payroll-related costs, partially offset by lower
material expenses across all locations.
Depreciation, depletion and amortization: Increase of $7.7 million as a result of increased property, plant and equipment balances
including the BSSE project, as previously discussed, and other capital projects, as well as a reserve for certain costs related to the
retirement of three aging coal-fired electric generating units, as discussed in Item 8 - Note 7, which is offset in income taxes.
Taxes, other than income: Increase of $1.6 million, primarily from higher property taxes in certain jurisdictions.
Other income: Increase of $2.2 million, largely the result of higher returns on the Company's benefit plan investments, partially offset by
the write-down of a non-utility investment, as discussed in Item 8 - Note 8.
Interest expense: Decrease of $600,000 driven by higher AFUDC, which resulted in more interest being capitalized on regulated
construction projects.
Income taxes: Increase in income tax benefits of $6.2 million, largely due to increased production tax credits, as well as increased excess
deferred tax amortization.
2018 compared to 2017 Electric earnings decreased $2.4 million (5 percent) as a result of:
Adjusted gross margin: Decrease of $9.6 million, primarily due to lower operating revenues driven by the reserves against revenues in
certain jurisdictions for anticipated refunds to customers for lower income taxes due to the enactment of TCJA and a transmission formula
rate adjustment due to lower than anticipated project costs on the BSSE project recorded in the third quarter of 2018. Partially offsetting
the decreases to adjusted gross margin were the absence in 2018 of reserves related to tracker balances in prior years and increased
retail sales volumes of 1 percent to all major customer classes.
Operation and maintenance: Increase of $800,000, largely from higher contract services at certain generating stations. Partially offsetting
the increase were lower payroll-related costs.
Depreciation, depletion and amortization: Increase of $3.3 million as a result of increased plant balances.
Taxes, other than income: Increase of $1.0 million, primarily from higher property taxes in certain jurisdictions.
Other income: Decrease of $2.0 million, largely the result of lower returns on investments.
Interest expense: Comparable to the prior year.
Income taxes: Decrease of $14.2 million, largely due to the enactment of the TCJA reduced corporate tax rate, reduced income before
income taxes and the absence of $2.1 million of income tax expense in 2018 for the revaluation of nonutility net deferred tax assets in
2017. Partially offsetting these decreases were lower production tax credits. A portion of the reduction in income taxes are being reserved
against revenues, as previously discussed, resulting in a minimal impact on overall earnings.
Part II
36 MDU Resources Group, Inc. Form 10-K
Earnings overview - The following information summarizes the performance of the natural gas distribution segment.
Years ended December 31,2019 2018 2017
(Dollars in millions, where applicable)
Operating revenues $865.2 $823.2 $848.4
Purchased natural gas sold 477.6 454.8 479.9
Taxes, other than income 30.3 28.5 30.0
Adjusted gross margin 357.3 339.9 338.5
Operating expenses:
Operation and maintenance 185.0 173.4 164.3
Depreciation, depletion and amortization 79.6 72.5 69.4
Taxes, other than income 23.5 21.7 20.5
Total operating expenses 288.1 267.6 254.2
Operating income 69.2 72.3 84.3
Other income 7.2 .2 2.0
Interest expense 35.5 30.7 31.2
Income before income taxes 40.9 41.8 55.1
Income taxes 1.4 4.1 22.8
Net income 39.5 37.7 32.3
Loss/dividends on preferred stock ——.1
Earnings $39.5 $37.7 $32.2
Volumes (MMdk)
Retail sales:
Residential 69.4 63.7 63.6
Commercial 49.1 44.4 44.3
Industrial 5.2 4.5 4.6
123.7 112.6 112.5
Transportation sales:
Commercial 2.2 2.2 2.0
Industrial 163.9 147.3 142.5
166.1 149.5 144.5
Total throughput 289.8 262.1 257.0
Average cost of natural gas per dk $3.86 $4.04 $4.26
Adjusted gross margin is a non-GAAP financial measure. For additional information and reconciliation of the non-GAAP adjusted gross
margin attributable to the natural gas distribution segment, see the Non-GAAP Financial Measures section later in this Item.
2019 compared to 2018 Natural gas distribution earnings increased $1.8 million (5 percent) as a result of:
Adjusted gross margin: Increase of $17.4 million, primarily driven by an increase in retail sales volumes of 9.9 percent related to all
customer classes due to colder weather, partially offset by weather normalization and conservation adjustments in certain jurisdictions,
and approved rate recovery in certain jurisdictions. The adjusted gross margin was also positively impacted by higher rate realization due
to higher conservation revenue, which offsets the conservation expense in operation and maintenance expense.
Operation and maintenance: Increase of $11.6 million, largely related to higher payroll-related costs, as well as higher conservation
expenses being recovered in revenue. The increase was partially offset by lower contract services, which includes the absence of the prior
year's recognition of a non-recurring expense related to the approved WUTC general rate case settlement in the second quarter 2018.
Depreciation, depletion and amortization: Increase of $7.1 million, primarily as a result of increased property, plant and equipment
balances.
Taxes, other than income: Increase of $1.8 million due to higher property taxes in certain jurisdictions and increased payroll taxes.
Other income: Increase of $7.0 million, largely resulting from higher returns on the Company's benefit plan investments and increased
interest income related to higher gas costs to be collected from customers, as discussed in Item 8 - Note 19. Partially offsetting these
increases was a write-down of a non-utility investment, as discussed in Item 8 - Note 8.
Interest expense: Increase of $4.8 million, largely resulting from increased debt balances to finance higher gas costs to be collected from
customers, as discussed in Item 8 - Note 19.
Part II
MDU Resources Group, Inc. Form 10-K 37
Income taxes: Decrease of $2.7 million, largely due to increased permanent tax benefits related to the Company's benefit plan
investments.
2018 compared to 2017 Natural gas distribution earnings increased $5.5 million (17 percent) as a result of:
Adjusted gross margin: Increase of $1.4 million, primarily due to increased retail sales margins, mainly the result of weather
normalization mechanisms in certain jurisdictions and conservation revenue, which offsets the conservation expense in operation and
maintenance expense. Also contributing to the retail sales margin increase were higher basic service charges as a result of increased retail
sales customers and rate design. These increases were partially offset by tax reform revenue impacts for refunds to customers as a result
of lower income taxes due to the enactment of TCJA and lower volumes in certain jurisdictions.
Operation and maintenance: Increase of $9.1 million, largely related to conservation expenses being recovered in revenue; contract
services, which includes the recognition of a non-recurring expense related to the approved WUTC general rate case settlement in the
second quarter 2018; and higher payroll-related costs.
Depreciation, depletion and amortization: Increase of $3.1 million, primarily as a result of increased plant balances offset in part by lower
depreciation rates implemented in certain jurisdictions.
Taxes, other than income: Increase of $1.2 million due to higher property taxes in certain jurisdictions.
Other income: Decrease of $1.8 million, primarily the result of lower returns on investments.
Interest expense: Comparable to the prior year.
Income taxes: Decrease of $18.7 million, largely due to the enactment of the TCJA reduced corporate tax rate, as well as the absence of
$4.3 million income tax expense related to the 2017 revaluation of nonutility net deferred tax assets, and reduced income before income
taxes. A portion of the reduction in income taxes are being reserved against revenues or passed back to customers, as previously
discussed, resulting in a minimal impact on overall earnings.
Outlook The Company expects these segments will grow rate base by approximately 5 percent annually over the next five years on a
compound basis. Operations are spread across eight states where the Company expects customer growth to be higher than the national
average. Customer growth is expected to grow by 1 percent to 2 percent per year. This customer growth, along with system upgrades and
replacements needed to supply safe and reliable service, will require investments in new and replacement electric generation and
transmission and natural gas systems.
In February 2019, the Company announced that it intends to retire three aging coal-fired electric generating units, resulting from the
Company's analysis showing that the plants are no longer expected to be cost competitive for customers. The retirements are expected to be
in early 2021 for Lewis & Clark Station in Sidney, Montana, and in early 2022 for units 1 and 2 at Heskett Station in Mandan, North
Dakota. In addition, the Company announced that it intends to construct Heskett Unit 4, an 88-MW simple-cycle natural gas-fired
combustion turbine peaking unit at the existing Heskett Station near Mandan, North Dakota. Heskett Unit 4 production costs coupled with
the MISO market purchases are expected to be about half the total cost of continuing to run the coal-fired electric generating units at
Heskett and Lewis & Clark stations. Heskett Unit 4 was included in the Company's recently submitted integrated resource plan. On
August 28, 2019, the Company filed for an advanced determination of prudence with the NDPSC for Heskett Unit 4. If approved, Heskett
Unit 4 is expected to be placed into service in 2023. The Company filed requests for the usage of deferred accounting for the costs related
to the retirement of Lewis & Clark Station and units 1 and 2 at Heskett Station with the NDPSC on September 16, 2019, the MTPSC on
November 1, 2019 and the SDPUC on November 8, 2019. The SDPUC approved the use of deferred accounting as requested on January 7,
2020.
The Company continues to be focused on the regulatory recovery of its investments. The Company files for rate adjustments to seek recovery
of operating costs and capital investments, as well as reasonable returns as allowed by regulators. The Company's most recent cases by
jurisdiction are discussed in Item 8 - Note 19.
Part II
38 MDU Resources Group, Inc. Form 10-K
Pipeline and Midstream
Strategy and challenges The pipeline and midstream segment provides natural gas transportation, gathering and underground storage
services, as discussed in Items 1 and 2 - Business Properties. The segment focuses on utilizing its extensive expertise in the design,
construction and operation of energy infrastructure and related services to increase market share and profitability through optimization of
existing operations, organic growth and investments in energy-related assets within or in close proximity to its current operating areas. The
segment focuses on the continual safety and reliability of its systems, which entails building, operating and maintaining safe natural gas
pipelines and facilities. The segment continues to evaluate growth opportunities including the expansion of existing storage, gathering and
transmission facilities; incremental pipeline projects; and expansion of energy-related services leveraging on its core competencies. In
support of this strategy, the Company completed and placed into service the following projects in 2019 and 2018:
•In November 2019, Phase I of the Line Section 22 Expansion project in the Billings, Montana, area increased capacity by 14.3 MMcf
per day.
•In September 2019, the Demicks Lake project in McKenzie County, North Dakota, increased capacity by 175 MMcf per day.
•In November 2018, the Valley Expansion project in eastern North Dakota and far western Minnesota increased capacity by 40 MMcf
per day.
•In September 2018, the Line Section 27 Expansion project in the Bakken area of northwestern North Dakota increased capacity by
over 200 MMcf per day and brought the total capacity of Line Section 27 to over 600 MMcf per day.
The segment is exposed to energy price volatility which is impacted by the fluctuations in pricing, production and basis differentials of the
energy market's commodities. Legislative and regulatory initiatives to increase pipeline safety regulations and reduce methane emissions
could also impact the price and demand for natural gas.
Tariff increases on steel and aluminum materials could negatively affect the segment's construction projects and maintenance work. The
Company continues to monitor the impact of tariffs on raw material costs. The segment experiences extended lead times on raw materials
that are critical to the segment's construction and maintenance work. Long lead times on materials could delay maintenance work and
project construction potentially causing lost revenues and/or increased costs. The Company continues to proactively monitor and plan for the
material lead times, as well as work with manufacturers and suppliers to help mitigate the risk of delays due to extended lead times.
The pipeline and midstream segment is subject to extensive regulation including certain operational, environmental and system integrity
regulations, as well as various permit terms and operational compliance conditions. The Pipeline and Hazardous Materials Safety
Administration recently issued additional rules to strengthen the safety of natural gas transmission and storage facilities and hazardous
liquid pipelines. The Company is currently evaluating the first phase of the rules. The segment is charged with the ongoing process of
reviewing existing permits and easements, as well as securing new permits and easements as necessary to meet current demand and future
growth opportunities. Exposure to pipeline opposition groups could also cause negative impacts on the segment with increased costs and
potential delays to project completion.
The segment focuses on the recruitment and retention of a skilled workforce to remain competitive and provide services to its customers.
The industry in which it operates relies on a skilled workforce to construct energy infrastructure and operate existing infrastructure in a safe
manner. A shortage of skilled personnel can create a competitive labor market which could increase costs incurred by the segment.
Competition from other pipeline and midstream companies can also have a negative impact on the segment.
Part II
MDU Resources Group, Inc. Form 10-K 39
Earnings overview - The following information summarizes the performance of the pipeline and midstream segment.
Years ended December 31,2019 2018 2017
(Dollars in millions)
Operating revenues $140.4 $128.9 $122.2
Operating expenses:
Operation and maintenance 63.1 62.2 56.9
Depreciation, depletion and amortization 21.2 17.9 16.8
Taxes, other than income 13.3 12.7 12.5
Total operating expenses 97.6 92.8 86.2
Operating income 42.8 36.1 36.0
Other income 1.2 1.0 1.8
Interest expense 7.2 5.9 5.0
Income before income taxes 36.8 31.2 32.8
Income taxes 7.2 2.7 12.3
Net income $29.6 $28.5 $20.5
Transportation volumes (MMdk)429.7 351.5 312.5
Natural gas gathering volumes (MMdk)13.9 14.9 16.1
Customer natural gas storage balance (MMdk):
Beginning of period 13.9 22.4 26.4
Net injection (withdrawal)2.3 (8.5)(4.0)
End of period 16.2 13.9 22.4
2019 compared to 2018 Pipeline and midstream earnings increased $1.1 million (4 percent) as a result of:
Revenues: Increase of $11.5 million, largely attributable to increased volumes of natural gas transported through its system as a result of
organic growth projects, as previously discussed in Strategy and challenges, and increased rates effective May 1, 2019, due to the FERC
rate case finalized in September 2019.
Operation and maintenance: Increase of $900,000, primarily from higher payroll-related costs and materials costs.
Depreciation, depletion and amortization: Increase of $3.3 million, primarily due to increased property, plant and equipment balances,
largely the result of organic growth projects that have been placed into service, and higher depreciation rates effective May 1, 2019, due
to the FERC rate case finalized in September 2019.
Taxes, other than income: Increase of $600,000 driven by higher property taxes in certain jurisdictions.
Other income: Comparable to the prior year.
Interest expense: Increase of $1.3 million, largely resulting from higher debt balances to finance organic growth projects, as previously
discussed.
Income taxes: Increase of $4.5 million, primarily driven by the absence in 2019 of a $4.2 million income tax benefit, as discussed later.
2018 compared to 2017 Pipeline and midstream earnings increased $8.0 million (39 percent) as a result of:
Revenues: Increase of $6.7 million, largely attributable to increased volumes of natural gas transported through its system as a result of
completed organic growth projects, as previously discussed in Strategy and challenges, and higher nonregulated project workloads, which
increased revenues $4.1 million. These increases were partially offset by decreased storage-related revenues reflecting the decrease in
natural gas pricing spreads, as discussed in the Outlook section.
Operation and maintenance: Increase of $5.3 million, primarily from higher nonregulated project costs of $3.9 million directly related to
the increase in nonregulated project workloads, as previously discussed, as well as higher professional services, material costs and
contract services.
Depreciation, depletion and amortization: Increase of $1.1 million, largely resulting from organic growth projects.
Taxes, other than income: Comparable to the prior year.
Other income: Decrease of $800,000, primarily the result of lower returns on investments partially offset by higher AFUDC.
Interest expense: Increase of $900,000, largely resulting from higher debt balances.
Part II
40 MDU Resources Group, Inc. Form 10-K
Income taxes: Decrease of $9.6 million, primarily resulting from the lower corporate tax rate due to the enactment of the TCJA creating a
reduction to income tax expense, as well as the realization of a $4.2 million income tax benefit related to the reversal of a regulatory
liability recorded in 2017 based on a FERC final accounting order issued during third quarter of 2018.
Outlook The Company has continued to experience the effects of natural gas production at record levels, which has provided opportunities
for organic growth projects and increased demand. The completion of organic growth projects has contributed to the Company transporting
increasing volumes of natural gas through its system. The record levels of natural gas supply have moderated the need for storage services
and put downward pressure on natural gas prices and minimized pricing volatility. Both natural gas production levels and pressure on
natural gas prices are expected to continue in the near term. The Company continues to focus on growth and improving existing operations
through organic projects in all areas in which it operates. The following describes current growth projects.
The Company began construction on the Line Section 22 Expansion project in the Billings, Montana, area in May 2019. Phase I of the
project was placed into service in November 2019, as previously discussed. Phase II has an expected in-service date in the first quarter of
2020 and is designed to increase capacity by 8.2 MMcf per day to serve incremental demand in Billings, Montana. The Company has
signed long-term contracts supporting the project.
The Company began construction on the Demicks Lake Expansion project, located in McKenzie County, North Dakota, in November 2019.
In February 2020, the Company completed and placed the project into service. The Company has signed a long-term contract supporting
this project, which increased capacity by 175 MMcf per day.
In January 2019, the Company announced the North Bakken Expansion project, which includes construction of a new pipeline, compression
and ancillary facilities to transport natural gas from core Bakken production areas near Tioga, North Dakota, to a new connection with
Northern Border Pipeline in McKenzie County, North Dakota. The Company's long-term customer commitments and anticipated incremental
commitments with the continuing record levels of natural gas production in the Bakken region support the project at a design capacity of
350 MMcf per day. Construction is expected to begin in early 2021 with an estimated completion date late in 2021, which is dependent on
regulatory and environmental permitting. On June 28, 2019, the Company filed with the FERC a request to initiate the National
Environmental Policy Act pre-filing process and received FERC approval of the pre-filing request on July 3, 2019.
In December 2019, the Company entered into a purchase and sale agreement with Scout Energy Group II, LP to divest of its regulated
gathering assets located in Montana and North Dakota, which includes approximately 400 miles of natural gas gathering pipelines and
associated compression and ancillary facilities. On January 8, 2020, the Company filed an application with the FERC to authorize
abandonment by sale of the gathering assets. The sale is expected to close in the first half of 2020 with an effective date of January 1,
2020, pending approval by the FERC.
Part II
MDU Resources Group, Inc. Form 10-K 41
Construction Materials and Contracting
Strategy and challenges The construction materials and contracting segment provides an integrated set of aggregate-based construction
services, as discussed in Items 1 and 2 - Business Properties. The segment focuses on high-growth strategic markets located near major
transportation corridors and desirable mid-sized metropolitan areas; strengthening the long-term, strategic aggregate reserve position
through available purchase and/or lease opportunities; enhancing profitability through cost containment, margin discipline and vertical
integration of the segment's operations; development and recruitment of talented employees; and continued growth through organic and
acquisition opportunities.
A key element of the Company's long-term strategy for this business is to further expand its market presence in the higher-margin materials
business (rock, sand, gravel, liquid asphalt, asphalt concrete, ready-mixed concrete and related products), complementing and expanding on
the segment's expertise. The Company's acquisition activity supports this strategy.
As one of the country's largest sand and gravel producers, the segment continues to strategically manage its approximately 1.1 billion tons
of aggregate reserves in all its markets, as well as take further advantage of being vertically integrated. The segment's 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
permitted aggregate reserves being significant. The Company's aggregate reserves are naturally declining and as a result, the Company seeks
acquisition opportunities to replace the reserves. In the first quarter of 2019, the Company purchased additional aggregate deposits in Texas
that are estimated to contain a 40-year supply of high-quality aggregates. Also during 2019, the Company increased aggregate reserves by
approximately 40 million tons largely due to strategic asset purchases.
The construction materials and contracting segment faces challenges that are not under the direct control of the business. The segment
operates in geographically diverse and highly competitive markets. Competition can put negative pressure on the segment's operating
margins. The segment is also subject to volatility in the cost of raw materials such as diesel fuel, gasoline, liquid asphalt, cement and steel.
Although it is difficult to determine the split between inflation and supply/demand increases, diesel fuel costs remained fairly stable in
2019, while asphalt oil costs trended higher in 2019 as compared to 2018. Such volatility can have a negative impact on the segment's
margins. Other variables that can impact the segment's margins include adverse weather conditions, the timing of project starts or
completion and declines or delays in new and existing projects due to the cyclical nature of the construction industry and governmental
infrastructure spending.
The segment also faces challenges in the recruitment and retention of employees. Trends in the labor market include an aging workforce and
availability issues. The segment continues to face increasing pressure to control costs, as well as find and train a skilled workforce to meet
the needs of increasing demand and seasonal work.
Earnings overview - The following information summarizes the performance of the construction materials and contracting segment.
Years ended December 31,2019 2018 2017
(Dollars in millions)
Operating revenues $2,190.7 $1,925.9 $1,812.5
Cost of sales:
Operation and maintenance 1,798.3 1,601.7 1,500.1
Depreciation, depletion and amortization 74.3 59.0 52.5
Taxes, other than income 44.1 39.7 38.0
Total cost of sales 1,916.7 1,700.4 1,590.6
Gross margin 274.0 225.5 221.9
Selling, general and administrative expense:
Operation and maintenance 86.3 77.6 71.5
Depreciation, depletion and amortization 3.1 2.2 3.4
Taxes, other than income 4.6 4.3 3.8
Total selling, general and administrative expense 94.0 84.1 78.7
Operating income 180.0 141.4 143.2
Other income (expense)1.6 (3.1).4
Interest expense 23.8 17.3 14.8
Income before income taxes 157.8 121.0 128.8
Income taxes 37.4 28.4 5.4
Net income $120.4 $92.6 $123.4
Sales (000's):
Aggregates (tons)32,314 29,795 28,213
Asphalt (tons)6,707 6,838 6,237
Ready-mixed concrete (cubic yards)4,123 3,518 3,548
2019 compared to 2018 Construction materials and contracting's earnings increased $27.8 million (30 percent) as a result of:
Revenues: Increase of $264.8 million driven by higher contracting services and material sales due to strong economic environments in
certain states, as well as additional material volumes associated with the businesses acquired.
Gross margin: Increase of $48.5 million, largely resulting from higher revenues due to strong economic environments in certain states, as
previously discussed, higher contracting bid margins and higher realized material prices. Also contributing to the increased gross margin
was an increase in gains on asset sales in certain regions of approximately $7.5 million.
Selling, general and administrative expense: Increase of $9.9 million, primarily related to the businesses acquired and higher payroll-
related costs.
Other income (expense): Increased income of $4.7 million, largely the result of higher returns on the Company's benefit plan investments.
Interest expense: Increase of $6.5 million, largely resulting from higher debt balances as a result of recent acquisitions, capital
expenditures and higher average interest rates.
Income taxes: Increase of $9.0 million directly resulting from an increase in income before taxes.
Part II
42 MDU Resources Group, Inc. Form 10-K
2018 compared to 2017 Construction materials and contracting's earnings decreased $30.8 million (25 percent) as a result of:
Revenues: Increase of $113.4 million driven by higher asphalt product and aggregate volumes due to increased agency demand,
increased realized prices and lower material costs. Partially offsetting these increases were lower ready-mixed concrete volumes due to a
decrease in available work and unfavorable weather conditions in certain regions.
Gross margin: Increase of $3.6 million resulting from higher asphalt product volumes and margins, largely from recent acquisitions and
higher realized prices. Also contributing to the increase were higher aggregate volumes and margins due to strong market demand and
lower material costs. Partially offsetting these increases were lower ready-mixed concrete volumes and margins due to a decrease in
available work and unfavorable weather conditions in certain regions.
Selling, general and administrative expense: Increase of $5.4 million, primarily payroll-related costs, acquisition costs and higher
insurance-related costs.
Other income (expense): Decrease of $3.5 million, largely the result of lower returns on investments.
Interest expense: Increase of $2.5 million, largely resulting from higher debt balances as a result of recent acquisitions, capital
expenditures and higher working capital needs.
Income taxes: Increase of $23.0 million, primarily resulting from the absence in 2018 of a $41.9 million tax benefit recorded in the
fourth quarter of 2017 for the revaluation of the segment's net deferred tax liabilities. Partially offsetting this increase were lower income
taxes due to the enactment of the TCJA, which reduced the corporate tax rate.
Outlook The segment's vertically integrated aggregate-based business model provides the Company with the ability to capture margin
throughout the sales delivery process. The aggregate products are sold internally and externally for use in other products such as ready-
mixed concrete, asphaltic concrete and public and private construction markets. The contracting services and construction materials are
sold primarily to construction contractors in connection with street, highway and other public infrastructure projects, as well as private
commercial and residential development projects. The public infrastructure projects have traditionally been more stable markets as public
funding is more secure during periods of economic decline. The public funding is, however, dependent on state and federal funding such as
appropriations to the Federal Highway Administration. Spending on private development is highly dependent on both local and national
economic cycles, providing additional sales during times of strong economic cycles.
The Company remains optimistic about overall economic growth and infrastructure spending. The IBISWorld Incorporated Industry Report
issued in June 2019 for sand and gravel mining in the United States projects a 1.1 percent annual growth rate through 2024. The report
also states the demand for clay and refractory materials is projected to continue deteriorating in several downstream manufacturing
industries. However, the report expects this decline will be offset by rising activity in the residential and nonresidential construction
markets, growing public sector investment in the highway and bridge construction markets and the oil and gas sector growth. The Company
believes stronger demand in the housing construction markets along with continued demand from the highway and bridge construction
markets should provide a stable demand for construction materials and contracting products and services in the near future.
During 2019 and 2018, the Company made strategic asset purchases and acquired businesses that support the Company's long-term
strategy to expand its market presence. In the first quarter of 2019, the Company purchased additional aggregate deposits in Texas, which
augments the segment's existing operations and enhances its ability to sell aggregates to third parties in the coming years. Also, in the first
quarter of 2019, the Company acquired Viesko Redi-Mix, Inc., a ready mixed concrete supplier headquartered near Salem, Oregon. In the
fourth quarter of 2019, the Company acquired Roadrunner Ready Mix, Inc., a ready-mixed concrete supplier in Idaho. In the first quarter of
2020, the Company acquired the assets of Oldcastle Infrastructure Spokane, a prestressed-concrete business located in Spokane,
Washington. The Company continues to evaluate additional acquisition opportunities. For more information on the Company's business
combinations, see Item 8 - Note 3.
The construction materials and contracting segment had backlog at December 31, 2019, of $693 million, which was comparable to backlog
at December 31, 2018, of $706 million. The Company expects to complete a significant amount of backlog at December 31, 2019, during
the next 12 months.
During the second quarter of 2019, the governor of Oregon signed House Bill 3427, which creates a Corporate Activity Tax. The tax was
enacted in the third quarter of 2019 and was effective for the Company on January 1, 2020. The Company expects the additional taxation
will be less than $2.0 million annually at the construction materials and contracting segment, which is dependent on the level of taxable
commercial activity in Oregon.
Part II
MDU Resources Group, Inc. Form 10-K 43
Construction Services
Strategy and challenges The construction services segment provides inside and outside specialty contracting, as discussed in Items 1 and 2
- Business Properties. The construction services segment focuses on safely executing projects; providing a superior return on investment by
building new and strengthening existing customer relationships; ensuring quality service; effectively controlling costs; collecting on
receivables; retaining, developing and recruiting talented employees; growing through organic and acquisition opportunities; and focusing
efforts on projects that will permit higher margins while properly managing risk. The growth experienced by the segment in recent years is
due in part to its ability to support national customers in most of the regions in which they operate.
The construction services segment faces challenges in the highly competitive markets in which it operates. Competitive pricing
environments, project delays, changes in management's estimates of variable consideration and the effects from restrictive regulatory
requirements have negatively impacted revenues and margins in the past and could affect revenues and margins in the future. Additionally,
margins may be negatively impacted on a quarterly basis due to adverse weather conditions, as well as timing of project starts or
completions, declines or delays in new projects due to the cyclical nature of the construction industry and other factors. These challenges
may also impact the risk of loss on certain projects. Accordingly, operating results in any particular period may not be indicative of the
results that can be expected for any other period.
The need to ensure available specialized labor resources for projects also drives strategic relationships with customers and project margins.
These trends include an aging workforce and labor availability issues, increasing pressure to reduce costs and improve reliability, and
increasing duration and complexity of customer capital programs. Due to these and other factors, the Company believes overall customer
and competitor demand for labor resources will continue to increase, possibly surpassing the supply of industry resources.
Earnings overview - The following information summarizes the performance of the construction services segment.
Years ended December 31,2019 2018 2017
(In millions)
Operating revenues $1,849.3 $1,371.5 $1,367.6
Cost of sales:
Operation and maintenance 1,555.4 1,150.4 1,153.9
Depreciation, depletion and amortization 15.0 14.3 14.2
Taxes, other than income 58.8 42.0 43.4
Total cost of sales 1,629.2 1,206.7 1,211.5
Gross margin 220.1 164.8 156.1
Selling, general and administrative expense:
Operation and maintenance 87.0 72.2 69.3
Depreciation, depletion and amortization 2.0 1.4 1.5
Taxes, other than income 4.7 4.4 4.0
Total selling, general and administrative expense 93.7 78.0 74.8
Operating income 126.4 86.8 81.3
Other income 1.9 1.1 1.3
Interest expense 5.3 3.6 3.7
Income before income taxes 123.0 84.3 78.9
Income taxes 30.0 20.0 25.6
Net income $93.0 $64.3 $53.3
2019 compared to 2018 Construction services earnings increased $28.7 million (45 percent) as a result of:
Revenues: Increase of $477.8 million, largely resulting from higher inside specialty contracting workloads from an increase in customer
demand for hospitality, data center and high-tech projects. Also contributing to the increase was higher outside specialty contracting
workloads, primarily resulting from increased utility customer demand.
Gross margin: Increase of $55.3 million, primarily due to the higher volume of work resulting in an increase in revenues, as previously
discussed, partially offset by an increase in operation and maintenance expense as a direct result of the increased workloads.
Selling, general and administrative expense: Increase of $15.7 million, resulting from increased payroll-related costs, as well as higher
office expense and outside professional service costs.
Other income: Increase of $800,000, largely resulting from higher returns on the Company's benefit plan investments.
Interest expense: Increase of $1.7 million, related to higher debt balances as a result of additional working capital needs from the
increase in contracting workloads in 2019.
Income taxes: Increase of $10.0 million, directly resulting from an increase in income before taxes.
Part II
44 MDU Resources Group, Inc. Form 10-K
2018 compared to 2017 Construction services earnings increased $11.0 million (21 percent) as a result of:
Revenues: Comparable to the prior year.
Gross margin: Increase of $8.7 million, largely resulting from higher outside specialty contracting gross margins due to increased outside
equipment sales and rentals. Partially offsetting the increase were decreased inside specialty contracting gross margins as a result of
decreased workloads and customer demand.
Selling, general and administrative expense: Increase of $3.2 million, primarily higher office expense, outside professional costs and
payroll-related costs.
Other income: Comparable to the prior year.
Interest expense: Comparable to the prior year.
Income taxes: Decrease of $5.6 million, largely the lower corporate tax rate due to the enactment of the TCJA.
Outlook The Company expects bidding activity to remain strong for both inside and outside specialty construction companies in 2020.
Although bidding remains highly competitive in all areas, the Company expects the segment's skilled workforce, quality of service and
effective cost management will continue to provide a benefit in securing and executing profitable projects.
The construction services segment had backlog at December 31, 2019, of $1.1 billion, up from $939 million at December 31, 2018. The
22 percent increase in backlog was largely attributable to the new project opportunities that the Company continues to be awarded across
its diverse operations, particularly inside specialty electrical and mechanical contracting in the hospitality, high-tech, mission critical and
public industries. The Company's outside power, communications and natural gas specialty contracting also have a high volume of available
work. The Company expects to complete a significant amount of backlog at December 31, 2019, during the next 12 months. Additionally,
the Company continues to further evaluate potential acquisition opportunities that would be accretive to the Company and continue to grow
the Company's backlog.
In support of the Company's strategic plan to grow through acquisitions, the Company purchased the assets of Pride Electric, Inc., an
electrical construction company in Redmond, Washington, in the third quarter of 2019. In the first quarter of 2020, the Company acquired
PerLectric, Inc., an electrical construction company in Fairfax, Virginia. For more information on the Company's business combinations, see
Item 8 - Note 3.
During the second quarter of 2019, the governor of Oregon signed House Bill 3427, which creates a Corporate Activity Tax. The tax was
enacted in the third quarter of 2019 and was effective for the Company on January 1, 2020. The Company expects the additional taxation
will be less than $2.0 million annually at the construction services segment, which is dependent on the level of taxable commercial activity
in Oregon.
Part II
MDU Resources Group, Inc. Form 10-K 45
Other
Years ended December 31,2019 2018 2017
(In millions)
Operating revenues $16.6 $11.3 $7.9
Operating expenses:
Operation and maintenance 15.6 9.3 6.3
Depreciation, depletion and amortization 2.1 2.0 2.0
Taxes, other than income .1 .1 .2
Total operating expenses 17.8 11.4 8.5
Operating loss (1.2)(.1)(.6)
Other income .9 1.0 .9
Interest expense 1.9 2.8 3.6
Loss before income taxes (2.2)(1.9)(3.3)
Income taxes (.1)(1.2)(1.8)
Net loss $(2.1)$(.7)$(1.5)
Included in Other is insurance activity at the Company's captive insurer which impacts both operating revenues and operation and
maintenance expense. General and administrative costs and interest expense previously allocated to the exploration and production and
refining businesses that do not meet the criteria for income (loss) from discontinued operations are also included in Other. Additionally,
operation and maintenance expense in 2018 included costs associated with the Holding Company Reorganization. For further details on the
Company's reorganization, see Items 1 and 2 Business Properties - General.
Part II
46 MDU Resources Group, Inc. Form 10-K
Discontinued Operations
Years ended December 31,2019 2018 2017
(In millions)
Income from discontinued operations before intercompanyeliminations, net of tax $.3 $2.9 $3.1
Intercompany eliminations ——(6.9)
Income (loss) from discontinued operations, net of tax $.3 $2.9 $(3.8)
Included in discontinued operations are the results and supporting activities of Dakota Prairie Refining and Fidelity other than certain
general and administrative costs and interest expense. The loss in 2017 was largely attributable to eliminations for the presentation of
income tax adjustments between continuing and discontinued operations.
Intersegment Transactions
Amounts presented in the preceding tables will not agree with the Consolidated Statements of Income due to the Company's elimination of
intersegment transactions. The amounts related to these items were as follows:
Years ended December 31,2019 2018 2017
(In millions)
Intersegment transactions:
Operating revenues $77.1 $64.3 $58.0
Operation and maintenance 21.1 13.7 9.1
Purchased natural gas sold 56.0 50.6 48.9
Income from continuing operations*——(6.9)
*Includes eliminations for the presentation of income tax adjustments between
continuing and discontinued operations.
For more information on intersegment eliminations, see Item 8 - Note 16.
Liquidity and Capital Commitments
At December 31, 2019, the Company had cash and cash equivalents of $66.5 million and available borrowing capacity of $644.4 million
under the outstanding credit facilities of the Company and its subsidiaries. The Company expects to meet its obligations for debt maturing
within one year and its other operating and capital requirements from various sources, including internally generated funds; the Company's
credit facilities, as described later in Capital resources; the issuance of long-term debt; and issuance of equity securities.
Cash flows
Operating activities The changes in cash flows from operating activities generally follow the results of operations as discussed in Business
Segment Financial and Operating Data and are also affected by changes in working capital. Changes in cash flows for discontinued
operations are related to the Company's former exploration and production and refining businesses.
Cash flows provided by operating activities in 2019 increased $42.4 million from 2018. The increase in cash flows provided by operating
activities in 2019 was largely driven by increased earnings from higher workloads at the construction businesses, which were partially offset
by an increase in accounts receivable as a result of the higher workloads. Lower inventory balances due to higher workloads at the
construction materials and contracting business in 2019 as compared to the increase in inventory balances in 2018 due to the activity of
acquired businesses also contributed to the increase. Partially offsetting these increases were higher natural gas purchases including the
effects of colder weather, higher gas costs and the timing of collection of such balances from customers at the natural gas distribution
business, as well as higher pension contributions at all of the businesses.
Cash flows provided by operating activities in 2018 increased $51.9 million from 2017. The increase in cash flows provided by operating
activities was largely driven by stronger collection of accounts receivable at the construction services and construction materials and
contracting businesses and bonus depreciation for tax purposes due to the enactment of TCJA at the construction materials and contracting
business. Partially offsetting these increases were higher inventory balances at the construction materials and contracting business due to
higher asphalt oil inventory, largely resulting from higher average per ton cost, and higher aggregate inventory from higher production. Also
contributing to the decrease were decreased deferral of production tax credits, re-measurements of taxes on investments and accelerated tax
deductions related to TCJA.
Investing activities Cash flows used in investing activities in 2019 decreased $107.0 million from 2018. The decrease in cash used was
primarily related to $112.1 million lower cash used in acquisition activity in 2019 compared to 2018 at the construction materials and
contracting business and higher proceeds on asset sales at the construction businesses in 2019.
Cash flows used in investing activities in 2018 increased $496.7 million from 2017. The increase in cash used in investing activities was
primarily related to acquisition activity in 2018 at the construction materials and contracting business; the absence in 2018 of net
proceeds from the sale of Pronghorn in January 2017 and higher capital expenditures in 2018 at the pipeline and midstream business; and
higher capital expenditures related to various construction projects in 2018 at the electric and natural gas distribution businesses.
Financing activities Cash flows provided by financing activities in 2019 decreased $156.3 million from 2018. The decrease in cash provided
by financing activities was largely due to the higher repayment of long-term debt in 2019 on debt issued in 2018 for acquisitions at the
construction materials and contracting business. The Company also borrowed and repaid short-term borrowings in 2019. Partially offsetting
the decrease in cash provided by financing activities was the receipt of proceeds from the issuance of common stock. The Company issued
common stock for net proceeds of $106.8 million under its "at-the-market" offering and 401(k) plan in 2019.
Cash flows provided by financing activities in 2018 increased $475.7 million from 2017. The increase in cash provided by financing
activities was largely due to increased debt issuance from an increase in commercial paper balances used for acquisitions, ongoing capital
expenditures and working capital needs at the construction materials and contacting business; the issuance of an additional $200 million in
term loans for capital projects at the electric and natural gas distribution businesses; and the issuance of an additional $40 million under
the private shelf agreement for capital projects at the pipeline and midstream business. The increase in issuance of long-term debt was
partially offset by higher debt repayment on a line of credit at the natural gas distribution business; higher debt repayment on debt that
matured during third quarter 2018 at the electric and natural gas distribution businesses; and the strong collection of accounts receivable
resulting in lower commercial paper balances at the construction services business.
Part II
MDU Resources Group, Inc. Form 10-K 47
Defined benefit pension plans
The Company has noncontributory qualified defined benefit 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 and expected return on plan assets. At
December 31, 2019, the pension plans' accumulated benefit obligations exceeded these plans' assets by approximately $55.9 million.
Pretax pension expense reflected in the Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017, was
$2.5 million, $843,000 and $1.7 million, respectively. The Company's pension expense is currently projected to be approximately
$300,000 in 2020. Funding for the pension plans is actuarially determined. The minimum required contributions for the years ended
December 31, 2019 and 2018, were approximately $4.9 million and $6.1 million, respectively. There were no minimum required
contributions for the year ended December 31, 2017. For more information on the Company's pension plans, see Item 8 - Note 17.
Capital expenditures
The Company's capital expenditures from continuing operations for 2017 through 2019 and as anticipated for 2020 through 2022 are
summarized in the following table.
Actual*Estimated
2017 2018 2019 2020 2021 2022
(In millions)
Capital expenditures:
Electric $109 $186 $99 $111 $128 $139
Natural gas distribution 147 206 207 221 191 180
Pipeline and midstream 31 70 71 85 304 53
Construction materials and contracting 44 280 190 167 154 157
Construction services 19 25 61 61 20 20
Other 2 2 8 5 3 3
Total capital expenditures $352 $769 $636 $650 $800 $552
*Capital expenditures for 2019, 2018 and 2017 include noncash transactions such as the issuance of the Company's
equity securities in connection with acquisitions, capital expenditure-related accounts payable and AFUDC, totaling$4.8 million, $33.4 million and $10.5 million, respectively.
The 2019 capital expenditures include the two business combinations at the construction materials and contracting segment and one
business combination at the construction services segment, as discussed in Item 8 - Note 3. The 2019 capital expenditures were funded by
internal sources, issuance of long-term debt and issuance of the Company's equity securities. The Company has included in the estimated
capital expenditures for 2020 through 2022 the Demicks Lake Expansion project, North Bakken Expansion project, construction of Heskett
Unit 4 and the recently completed business combination at the construction services segment, as previously discussed in Business Segment
Financial and Operating Data.
Estimated capital expenditures for the years 2020 through 2022 include those for:
•System upgrades
•Routine replacements
•Service extensions
•Routine equipment maintenance and replacements
•Buildings, land and building improvements
•Pipeline and natural gas storage projects
•Power generation and transmission opportunities
•Environmental upgrades
•Other growth opportunities
The Company continues to evaluate potential future acquisitions and other growth opportunities that would be incremental to the outlined
capital program; 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 for the years
2020 through 2022 will be funded by various sources, including internally generated funds; the Company's credit facilities, as described
later; and issuance of debt and equity securities.
Part II
48 MDU Resources Group, Inc. Form 10-K
Capital resources
Certain debt instruments of the Company's subsidiaries, including those discussed later, contain restrictive and financial covenants and
cross-default provisions. In order to borrow under the debt agreements, the subsidiary companies must be in compliance with the applicable
covenants and certain other conditions, all of which the subsidiaries, as applicable, were in compliance with at December 31, 2019. In the
event the subsidiaries do not comply with the applicable covenants and other conditions, alternative sources of funding may need to be
pursued. For more information on the covenants, certain other conditions and cross-default provisions, see Item 8 - Note 9.
The following table summarizes the outstanding revolving credit facilities of the Company's subsidiaries at December 31, 2019:
Company Facility FacilityLimit AmountOutstanding Lettersof Credit ExpirationDate
(In millions)
Montana-Dakota Utilities Co.Commercial paper/Revolvingcredit agreement (a)$175.0 $118.6 (b)$—12/19/24
Cascade Natural GasCorporation Revolving credit agreement $100.0 (c)$64.6 $2.2 (d)6/7/24
Intermountain Gas Company Revolving credit agreement $85.0 (e)$24.5 $1.4 (d)6/7/24
Centennial Energy Holdings,Inc.Commercial paper/Revolvingcredit agreement (f)$600.0 $104.3 (b)$—12/19/24
(a)The commercial paper program is supported by a revolving credit agreement with various banks (provisions allow for increased borrowings, at the option of Montana-
Dakota on stated conditions, up to a maximum of $225.0 million). There were no amounts outstanding under the revolving credit agreement.(b)Amount outstanding under commercial paper program.
(c)Certain provisions allow for increased borrowings, up to a maximum of $125.0 million.
(d)Outstanding letter(s) of credit reduce the amount available under the credit agreement.(e)Certain provisions allow for increased borrowings, up to a maximum of $110.0 million.
(f)The commercial paper program is supported by a revolving credit agreement with various banks (provisions allow for increased borrowings, at the option of Centennialon stated conditions, up to a maximum of $700.0 million). There were no amounts outstanding under the revolving credit agreement.
The respective commercial paper programs are supported by revolving credit agreements. While the amount of commercial paper
outstanding does not reduce available capacity under the respective revolving credit agreements, Montana-Dakota and Centennial do not
issue commercial paper in an aggregate amount exceeding the available capacity under their credit agreements. The commercial paper
borrowings may vary during the period, largely the result of fluctuations in working capital requirements due to the seasonality of certain
operations of the Company's subsidiaries.
Total equity as a percent of total capitalization was 56 percent and 55 percent at December 31, 2019 and 2018, respectively. This ratio is
calculated as the Company's total equity, divided by the Company's total capital. Total capital is the Company's total debt, including short-
term borrowings and long-term debt due within one year, plus total equity. This ratio is an indicator of how the Company is financing its
operations, as well as its financial strength.
The Company currently has a shelf registration statement on file with the SEC, under which the Company may issue and sell any
combination of common stock and debt securities. The Company may sell such securities if warranted by market conditions and the
Company's capital requirements. Any public 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. The Company's board of directors currently has authorized the
issuance and sale of up to an aggregate of $1.0 billion worth of such securities. The Company's board of directors reviews this authorization
on a periodic basis and the aggregate amount of securities authorized may be increased in the future.
On February 22, 2019, the Company entered into a Distribution Agreement with J.P. Morgan Securities LLC and MUFG Securities Americas
Inc., as sales agents, with respect to the issuance and sale of up to 10.0 million shares of the Company's common stock in connection with
an “at-the-market” offering. The common stock may be offered for sale, from time to time, in accordance with the terms and conditions of
the agreement. Proceeds from the sale of shares of common stock under the agreement have been and are expected to be used for general
corporate purposes, which may include, among other things, working capital, capital expenditures, debt repayment and the financing of
acquisitions.
The Company issued 3.6 million shares of common stock for the year ended December 31, 2019, pursuant to the “at-the-market” offering.
For the year ended December 31, 2019, the Company received net proceeds of $94.0 million and paid commissions to the sales agents of
approximately $950,000 in connection with the sales of common stock under the "at-the-market" offering. The net proceeds were used for
capital expenditures and acquisitions. As of December 31, 2019, the Company had remaining capacity to issue up to 6.4 million additional
shares of common stock under the "at-the-market" offering program.
Certain of the Company's debt instruments use LIBOR as a benchmark for establishing the applicable interest rate. LIBOR is the subject of
recent national, international and other regulatory guidance and proposals for reform. These reforms and other pressures may
cause LIBOR to disappear entirely or to perform differently than in the past. The Company has been proactive to anticipate the reform of
LIBOR by replacing it with Secured Overnight Financing Rate in certain of its new debt instruments, as well as those that are being
renewed. The Company continues to evaluate the impact the reform will have on its debt instruments and, at this time, does not anticipate a
significant impact.
The following includes information related to the preceding table.
Montana-Dakota On January 1, 2019, the Company's revolving credit agreement and commercial paper program became Montana-Dakota's
revolving credit agreement and commercial paper program as a result of the Holding Company Reorganization. The outstanding balance of
the revolving credit agreement was also transferred to Montana-Dakota. All of the related terms and covenants of the credit agreements
remained the same.
On December 19, 2019, Montana-Dakota amended and restated its revolving credit agreement extending the maturity date to December 19,
2024. Montana-Dakota's revolving credit agreement supports its commercial paper program. Commercial paper borrowings under this
agreement are classified as long-term debt as they are intended to be refinanced on a long-term basis through continued commercial paper
borrowings. Montana-Dakota's objective is to maintain acceptable credit ratings in order to access the capital markets through the issuance
of commercial paper. Historically, downgrades in credit ratings have not limited, nor are currently expected to limit, Montana-Dakota's
ability to access the capital markets. If Montana-Dakota were to experience a downgrade of its credit ratings in the future, 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, Montana-Dakota expects that it will negotiate the extension or replacement of this agreement.
If Montana-Dakota 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 Montana-Dakota does not currently anticipate, it would seek alternative funding.
On July 24, 2019, Montana-Dakota entered into a $200.0 million note purchase agreement with maturity dates ranging from October 17,
2039 to November 18, 2059, at a weighted average interest rate of 3.95 percent.
Cascade On June 7, 2019, Cascade amended its revolving credit agreement to increase the borrowing limit to $100.0 million and extend
the maturity date to June 7, 2024. Any borrowings under the revolving credit agreement are classified as long-term debt as they are
intended to be refinanced on a long-term basis through continued borrowings.
Part II
MDU Resources Group, Inc. Form 10-K 49
On June 13, 2019, Cascade issued $75.0 million of senior notes under a note purchase agreement with maturity dates ranging from
June 13, 2029 to June 13, 2049, at a weighted average interest rate of 3.93 percent.
Intermountain On June 7, 2019, Intermountain amended its revolving credit agreement to extend the maturity date to June 7, 2024. Any
borrowings under the revolving credit agreement are classified as long-term debt as they are intended to be refinanced on a long-term basis
through continued borrowings.
On June 13, 2019, Intermountain issued $50.0 million of senior notes under a note purchase agreement with maturity dates ranging from
June 13, 2029 to June 13, 2049, at a weighted average interest rate of 3.92 percent.
Centennial On December 19, 2019, Centennial amended and restated its revolving credit agreement to increase the borrowing capacity to
$600.0 million and extend the maturity date to December 19, 2024. Centennial's revolving credit agreement supports its commercial paper
program. Commercial paper borrowings under this agreement are classified as long-term debt as they are intended to be refinanced on a
long-term basis through continued 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. Historically, 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 downgrade
of its credit ratings in the future, 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.
On April 4, 2019, Centennial issued $150.0 million of senior notes under a note purchase agreement with maturity dates ranging from
April 4, 2029 to April 4, 2034, at a weighted average interest rate of 4.60 percent.
WBI Energy Transmission On July 26, 2019, WBI Energy Transmission amended its uncommitted note purchase and private shelf agreement
to increase capacity to $300.0 million and extend the issuance period and expiration date to May 16, 2022. On December 16, 2019, WBI
Energy Transmission issued $45.0 million of senior notes under the private shelf agreement with a maturity date of December 16, 2034, at
an interest rate of 4.17 percent. WBI Energy Transmission had $170.0 million of notes outstanding at December 31, 2019, which reduced
the remaining capacity under this uncommitted private shelf agreement to $130.0 million.
Part II
50 MDU Resources Group, Inc. Form 10-K
Dividend restrictions
For information on the Company's dividends and dividend restrictions, see Item 8 - Note 12.
Off balance sheet arrangements
As of December 31, 2019, the Company had no material off balance sheet arrangements as defined by the rules of the SEC.
Contractual obligations and commercial commitments
For more information on the Company's contractual obligations on long-term debt, operating leases and purchase commitments, see
Item 8 - Notes 9 and 20. At December 31, 2019, the Company's commitments under these obligations were as follows:
Less than 1year 1-3 years 3-5 years More than 5years Total
(In millions)
Long-term debt maturities*$16.6 $149.5 $451.3 $1,632.8 $2,250.2
Estimated interest payments**.8 6.6 13.9 74.4 95.7
Operating leases 35.2 41.8 17.6 47.9 142.5
Purchase commitments 405.5 434.5 210.5 678.4 1,728.9
$458.1 $632.4 $693.3 $2,433.5 $4,217.3
*Unamortized debt issuance costs and discount are excluded from the table.
**Represents the estimated interest payments associated with the Company's long-term debt outstanding at
December 31, 2019, assuming current interest rates and consistent amounts outstanding until their respective
maturity dates over the periods indicated in the table above.
At December 31, 2019, the Company had total liabilities of $417.6 million related to asset retirement obligations that are excluded from
the table above. Of the total asset retirement obligations, the current portion was $4.3 million at December 31, 2019, and was included in
other accrued liabilities on the Consolidated Balance Sheet. The remainder, which constitutes the long-term portion of asset retirement
obligations, was included in deferred credits and other liabilities - other on the Consolidated Balance Sheet. Due to the nature of these
obligations, the Company cannot determine precisely when the payments will be made to settle these obligations. For more information, see
Item 8 - Note 10.
Not reflected in the previous table are $576,000 in uncertain tax positions at December 31, 2019.
The Company has no minimum funding requirements for its defined benefit pension plans for 2020 due to the additional contribution of
$20.0 million in 2019.
The Company's MEPP contributions are based on union employee payroll, which cannot be determined in advance for future periods. The
Company may also be required to make additional contributions to its MEPPs as a result of their funded status. For more information, see
Item 1A - Risk Factors and Item 8 - Note 17.
Part II
MDU Resources Group, Inc. Form 10-K 51
New Accounting Standards
For information regarding new accounting standards, see Item 8 - Note 1, which is incorporated herein 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 and goodwill; fair values of acquired assets and liabilities under
the acquisition method of accounting; aggregate reserves; property depreciable lives; tax provisions; revenue recognized using the cost-to-
cost measure of progress for contracts; uncollectible accounts; environmental and other loss contingencies; regulatory assets expected to be
recovered in rates charged to customers; costs on construction contracts; unbilled revenues; actuarially determined benefit costs; asset
retirement obligations; lease classification; present value of right-of-use assets and lease liabilities; and the valuation of stock-based
compensation. 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 assets held for sale, whenever events or changes
in circumstances indicate that such carrying values may not be recoverable and at least annually for goodwill.
Goodwill The Company performs its goodwill impairment testing annually in the fourth quarter. In addition, the test is performed on an
interim basis whenever events or circumstances indicate that the carrying amount of goodwill may not be recoverable. Examples of such
events or circumstances may include a significant adverse change in business climate, weakness in an industry in which the Company's
reporting units operate or recent significant cash or operating losses with expectations that those losses will continue.
The Company has determined that the reporting units for its goodwill impairment test are its operating segments, or components of an
operating segment, that constitute a business for which discrete financial information is available and for which segment management
regularly reviews the operating results. For more information on the Company's operating segments, see Item 8 - Note 16. Goodwill
impairment, if any, is measured by comparing the fair value of each reporting unit to its carrying value. If the fair value of a reporting unit
exceeds its carrying value, the goodwill of the reporting unit is not impaired. If the carrying value of a reporting unit exceeds its fair value,
the Company must record an impairment loss for the amount that the carrying value of the reporting unit, including goodwill, exceeds the
fair value of the reporting unit. For the years ended December 31, 2019, 2018 and 2017, there were no impairment losses recorded. At
December 31, 2019, the fair value substantially exceeded the carrying value at all reporting units.
Determining the fair value of a reporting unit requires judgment and the use of significant estimates which include assumptions about the
Company's future revenue, profitability and cash flows, amount and timing of estimated capital expenditures, inflation rates, risk adjusted
capital cost, operational plans, and current and future economic conditions, among others. The fair value of each reporting unit is
determined using a weighted combination of income and market approaches. The Company uses a discounted cash flow methodology for its
income approach. Under the income approach, the discounted cash flow model determines fair value based on the present value of
projected cash flows over a specified period and a residual value related to future cash flows beyond the projection period. Both values are
discounted using a rate which reflects the best estimate of the risk adjusted capital cost at each reporting unit. Risk adjusted capital cost,
which varies by reporting unit and was in the range of 4 percent to 9 percent, was utilized in the goodwill impairment test performed in the
fourth quarter of 2019. The goodwill impairment test also utilizes a long-term growth rate projection, which varies by reporting unit and was
in the range of approximately 2 percent to 3 percent in the goodwill impairment test performed in the fourth quarter of 2019. Under the
market approach, the Company estimates fair value using various multiples derived from enterprise value to EBITDA for comparative peer
companies for each respective reporting unit. These multiples are applied to operating data for each reporting unit to arrive at an indication
of fair value. In addition, the Company adds a reasonable control premium when calculating the fair value utilizing the peer multiples, which
is estimated as the premium that would be received in a sale in an orderly transaction between market participants. The Company believes
that the estimates and assumptions used in its impairment assessments are reasonable and based on available market information.
Long-Lived Assets 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.
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 that have a material impact on the estimated amount and timing of future cash flows. In addition, the
fair value of the asset could be different using different estimates and assumptions in the valuation techniques used.
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.
Business combinations
The Company accounts for acquisitions on the Consolidated Financial Statements starting from the date of the acquisition, which is the date
that control is obtained. The acquisition method of accounting requires acquired assets and liabilities assumed be recorded at their
respective fair values as of the date of the acquisition. The excess of the purchase price over the fair value of the assets acquired and
liabilities assumed is recorded as goodwill. The estimation of fair values of acquired assets and liabilities assumed by the Company requires
significant judgment and requires various assumptions. Although independent appraisals may be used to assist in the determination of the
fair value of certain assets and liabilities, the appraised values may be based on significant estimates provided by management. The
amounts and useful lives assigned to depreciable and amortizable assets compared to amounts assigned to goodwill, which is not amortized,
can affect the results of operations in the period of and periods subsequent to a business combination.
In determining fair values of acquired assets and liabilities assumed, the Company uses various observable inputs for similar assets or
liabilities in active markets and various unobservable inputs, which includes the use of valuation models. Fair values are based on various
factors including, but not limited to, age and condition of property, maintenance records, auction values for equipment with similar
characteristics, recent sales and listings of comparable properties, data collected from drill holes and other subsurface investigations and
geologic data. The Company primarily uses the market and cost approaches in determining the fair value of land and property, plant and
equipment. A combination of the market and income approaches are used for aggregate reserves and intangibles, primarily a discounted
cash flow model.
There is a measurement period after the acquisition date during which the Company may adjust the amounts recognized for a business
combination. Any such adjustments are recorded in the period the adjustment is determined with the corresponding offset to goodwill.
These adjustments are typically based on obtaining additional information that existed at the acquisition date regarding the assets acquired
and the liabilities assumed. The measurement period ends once the Company has obtained all necessary information that existed as of the
acquisition date, but does not extend beyond one year from the date of the acquisition. Once the measurement period has ended, any
adjustments to assets acquired or liabilities assumed are recorded in income from continuing operations.
Regulatory accounting
The Company is subject to rate regulation by state public service commissions and/or the FERC. The Company's regulated businesses
account for certain income and expense items under the provisions of regulatory accounting, which require 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. Regulatory assets generally represent incurred or accrued costs that have been deferred and
Part II
52 MDU Resources Group, Inc. Form 10-K
are expected to be recovered in rates charged to customers. Regulatory liabilities generally represent amounts that are expected to be
refunded to customers in future rates or amounts collected in current rates for future costs. Management continually assesses the likelihood
of recovery in future rates of incurred costs and refunds to customers associated with regulatory assets and liabilities. The expected recovery
or flowback of these deferred items generally is based on specific ratemaking decisions or precedent for each item. The Company believes
that the accounting subject to rate regulation remains appropriate and its regulatory assets are probable of recovery in current rates or in
future rate proceedings.
Revenue recognition
Revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services. The recognition of revenue requires the Company to make
estimates and assumptions that affect the reported amounts of revenue. The accuracy of revenues reported on the Consolidated Financial
Statements depends on, among other things, management's estimates of total costs to complete projects because the Company uses the
cost-to-cost measure of progress on construction contracts for revenue recognition.
To determine the proper revenue recognition method for contracts, the Company evaluates whether two or more contracts should be
combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one
performance obligation. This evaluation requires significant judgment and the decision to combine a group of contracts or separate the
combined or single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given
period. For most contracts, the customer contracts with the Company to provide a significant service of integrating a complex set of tasks
and components into a single project. Hence, the Company's contracts are generally accounted for as one performance obligation.
The Company recognizes construction contract revenue over time using an input method based on the cost-to-cost measure of progress for
contracts because it best depicts the transfer of assets to the customer which occurs as the Company incurs costs on the contract. Under
the cost-to-cost measure of progress, the costs incurred are compared with total estimated costs of a performance obligation. Revenues are
recorded proportionately to the costs incurred. 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. Changes in estimates could have a material effect on the Company's
results of operations, financial position and cash flows. For the years ended December 31, 2019 and 2018, the Company's total
construction contract revenue was $2.8 billion and $2.2 billion, respectively.
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. If a loss is anticipated on a contract, the loss is immediately recognized.
Contracts are often modified to account for changes in contract specifications and requirements. The Company considers contract
modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Generally,
contract modifications are for goods or services that are not distinct from the existing contract due to the significant integration of services
provided in the context of the contract and are accounted for as if they were part of that existing contract. The effect of a contract
modification on the transaction price and the measure of progress for the performance obligation to which it relates, is recognized as an
adjustment to revenue on a cumulative catch-up basis.
The Company's construction contracts generally contain variable consideration including liquidated damages, performance bonuses or
incentives, claims, unapproved/unpriced change orders and penalties or index pricing. The variable amounts usually arise upon achievement
of certain performance metrics or change in project scope. The Company estimates the amount of revenue to be recognized on variable
consideration using estimation methods that best predict the most likely amount of consideration the Company expects to be entitled to or
expects to incur. The Company includes variable consideration in the estimated transaction price to the extent it is probable that a
significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is
resolved. Changes in circumstances could impact management's estimates made in determining the value of variable consideration
recorded. The Company updates its estimate of the transaction price each reporting period and the effect of variable consideration on the
transaction price is recognized as an adjustment to revenue on a cumulative catch-up basis.
The Company believes its estimates surrounding the cost-to-cost method 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
Part II
MDU Resources Group, Inc. Form 10-K 53
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.
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, actuarially determined mortality data and health care 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, the mix of investments 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 health care cost trend rates are determined by historical and future trends. The Company
estimates that a 50-basis point decrease in the discount rate or in the expected return on plan assets would each increase expense by
approximately $1.7 million (after-tax) for the year ended December 31, 2019.
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 health care cost trend rates. The Company plans to continue to use its current methodologies to
determine plan costs. For more information on the assumptions used in determining plan costs, see Item 8 - Note 17.
Income taxes
The Company is required to make judgments regarding the potential tax effects of various financial transactions and ongoing operations to
estimate the Company's obligation to taxing authorities. These tax obligations include income, real estate, franchise and sales/use taxes.
Judgments related to income taxes require the recognition in the Company's financial statements a tax position that is more-likely-than-not
to be sustained on audit.
Judgment and estimation is required in developing the provision for income taxes and the reporting of tax-related assets and liabilities and,
if necessary, any valuation allowances. The interpretation of tax laws can involve uncertainty, since tax authorities may interpret such laws
differently. Actual income tax could vary from estimated amounts and may result in favorable or unfavorable impacts to net income, cash
flows, and tax-related assets and liabilities. In addition, the effective tax rate may be affected by other changes including the allocation of
property, payroll and revenues between states.
The Company assesses the deferred tax assets for recoverability taking into consideration historical and anticipated earnings levels; the
reversal of other existing temporary differences; available net operating losses and tax carryforwards; and available tax planning strategies
that could be implemented to realize the deferred tax assets. Based on this assessment, management must evaluate the need for, and
amount of, a valuation allowance against the deferred tax assets. As facts and circumstances change, adjustment to the valuation allowance
may be required.
Part II
54 MDU Resources Group, Inc. Form 10-K
Non-GAAP Financial Measures
The Business Segment Financial and Operating Data includes financial information prepared in accordance with GAAP, as well as another
financial measure, adjusted gross margin, that is considered a non-GAAP financial measure as it relates to the Company's electric and
natural gas distribution segments. The presentation of adjusted gross margin is intended to be a useful supplemental financial measure for
investors’ understanding of the segments' operating performance. This non-GAAP financial measure should not be considered as an
alternative to, or more meaningful than, GAAP financial measures such as operating income (loss) or net income (loss). The Company's non-
GAAP financial measure, adjusted gross margin, is not standardized; therefore, it may not be possible to compare this financial measure
with other companies’ gross margin measures having the same or similar names.
In addition to operating revenues and operating expenses, management also uses the non-GAAP financial measure of adjusted gross margin
when evaluating the results of operations for the electric and natural gas distribution segments. Adjusted gross margin for the electric and
natural gas distribution segments is calculated by adding back adjustments to operating income (loss). These add-back adjustments
include: operation and maintenance expense; depreciation, depletion and amortization expense; and certain taxes, other than income.
Adjusted gross margin includes operating revenues less the cost of electric fuel and purchased power, purchased natural gas sold and
certain taxes, other than income. These taxes, other than income, included as a reduction to adjusted gross margin relate to revenue taxes.
These segments pass on to their customers the increases and decreases in the wholesale cost of power purchases, natural gas and other fuel
supply costs in accordance with regulatory requirements. As such, the segments' revenues are directly impacted by the fluctuations in such
commodities. Revenue taxes, which are passed back to customers, fluctuate with revenues as they are calculated as a percentage of
revenues. For these reasons, period over period, the segments' operating income (loss) is generally not impacted. The Company's
management believes the adjusted gross margin is a useful supplemental financial measure as these items are included in both operating
revenues and operating expenses. The Company's management also believes that adjusted gross margin and the remaining operating
expenses that calculate operating income (loss) are useful in assessing the Company's utility performance as management has the ability to
influence control over the remaining operating expenses.
The following information reconciles operating income to adjusted gross margin for the electric segment.
Years ended December 31,2019 2018 2017
(In millions)
Operating income $64.0 $65.2 $79.9
Adjustments:
Operating expenses:
Operation and maintenance 125.7 123.0 122.2
Depreciation, depletion and amortization 58.7 51.0 47.7
Taxes, other than income 16.1 14.5 13.5
Total adjustments 200.5 188.5 183.4
Adjusted gross margin $264.5 $253.7 $263.3
The following information reconciles operating income to adjusted gross margin for the natural gas distribution segment.
Years ended December 31,2019 2018 2017
(In millions)
Operating income $69.2 $72.3 $84.3
Adjustments:
Operating expenses:
Operation and maintenance 185.0 173.4 164.3
Depreciation, depletion and amortization 79.6 72.5 69.4
Taxes, other than income 23.5 21.7 20.5
Total adjustments 288.1 267.6 254.2
Adjusted gross margin $357.3 $339.9 $338.5
Part II
MDU Resources Group, Inc. Form 10-K 55
Effects of Inflation
Inflation did not have a significant effect on the Company's operations in 2019, 2018 or 2017.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to the impact of market fluctuations associated with interest rates. The Company has policies and procedures to
assist in controlling these market risks and from time to time has utilized derivatives to manage a portion of its risk.
Interest rate risk
The Company uses fixed and 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 financing. The Company from time to time has utilized 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. For additional information on the Company's long-term debt, see Item 8 - Notes 8 and 9.
At December 31, 2019 and 2018, the Company had no outstanding interest rate hedges.
The following table shows the amount of long-term debt, which excludes unamortized debt issuance costs and discount, and related
weighted average interest rates, both by expected maturity dates, as of December 31, 2019.
2020 2021 2022 2023 2024 Thereafter Total FairValue
(Dollars in millions)
Long-term debt:
Fixed rate $16.6 $1.5 $148.0 $77.9 $61.4 $1,632.8 $1,938.2 $2,113.7
Weighted average interest rate 4.8%1.1%4.5%3.7%4.2%4.6%4.5%
Variable rate $—$—$—$—$312.0 $—$312.0 $312.0
Weighted average interest rate —%—%—%—%2.7%—%2.7%
Part II
56 MDU Resources Group, Inc. Form 10-K
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) and 15d-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 the Company's financial
statements for external purposes in accordance with generally accepted accounting principles in the United States of America.
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, 2019. 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 (2013).
Based on our evaluation under the framework in Internal Control-Integrated Framework (2013), management concluded that the Company's
internal control over financial reporting was effective as of December 31, 2019.
The effectiveness of the Company's internal control over financial reporting as of December 31, 2019, has been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as stated in their report.
David L. Goodin Jason L. Vollmer
President and Chief Executive Officer Vice President, Chief Financial Officer and Treasurer
Part II
MDU Resources Group, Inc. Form 10-K 57
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of MDU Resources Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of MDU Resources Group, Inc. and subsidiaries (the "Company") as of
December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of
the three years in the period ended December 31, 2019, and the related notes and the financial statement schedules listed in the Index at
Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United
States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21,
2020, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit
matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical
audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue from Contracts with Customers-Construction Contract Revenue-Refer to Notes 1 and 2 to the financial statements
Critical Audit Matter Description
The Company recognizes construction contract revenue over time using an input method based on the cost-to-cost measure of progress as it
best depicts the transfer of assets to the customer. Under this method of measuring progress, costs incurred are compared with total
estimated costs of the performance obligation and revenues are recorded proportionately to the costs incurred. Ordinarily the Company’s
contracts represent a single distinct performance obligation due to the highly interdependent and interrelated nature of the underlying goods
or services. For the year ended December 31, 2019, the Company recognized $2.8 billion of construction contract revenue.
Given the judgments necessary to estimate total costs and profit for the performance obligations used to recognize revenue for construction
contracts, auditing such estimates required extensive audit effort due to the volume and complexity of construction contracts and a high
degree of auditor judgment when performing audit procedures and evaluating the results of those procedures.
Part II
58 MDU Resources Group, Inc. Form 10-K
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s estimates of total costs and profit for the performance obligations used to recognize revenue
for certain construction contracts included the following, among others:
•We evaluated the operating effectiveness of controls over construction contract revenue, including those over management’s
estimation of total costs and profit for the performance obligations.
•We developed an expectation of the amount of construction contract revenues based on prior year margins, and taking into account
current year events, applied to the construction contract costs in the current year and compared our expectation to the amount of
construction contract revenues recorded by management.
•We selected a sample of construction contracts and performed the following:
•Evaluated whether the contracts were properly included in management’s calculation of construction contract revenue based on
the terms and conditions of each contract, including whether continuous transfer of control to the customer occurred as progress
was made toward fulfilling the performance obligation.
•Compared the transaction prices to the consideration expected to be received based on current rights and obligations under the
contracts and any modifications that were agreed upon with the customers.
•Evaluated management’s identification of distinct performance obligations by evaluating whether the underlying goods, services,
or both were highly interdependent and interrelated.
•Tested the accuracy and completeness of the costs incurred to date for the performance obligation.
•Evaluated the estimates of total cost and profit for the performance obligation by:
◦Observing the work sites and inspecting the progress to completion.
◦Comparing costs incurred to date to the costs management estimated to be incurred to date.
◦Evaluating management’s ability to achieve the estimates of total cost and profit by performing corroborating inquiries with
the Company’s project managers and engineers, and comparing the estimates to management’s work plans, engineering
specifications, and supplier contracts.
◦Comparing management’s estimates for the selected contracts to costs and profits of similar performance obligations, when
applicable.
•Tested the mathematical accuracy of management’s calculation of construction contract revenue for the performance obligation.
•We evaluated management’s ability to estimate total costs and profits accurately by comparing actual costs and profits to
management’s historical estimates for performance obligations that have been fulfilled.
Regulatory Matters-Impact of Rate Regulation on the Financial Statements-Refer to Notes 1 and 19 to the financial statements
Critical Audit Matter Description
Through the Company’s regulated utility businesses, it provides electric and natural gas services to customers, and generates, transmits, and
distributes electricity. The Company is subject to rate regulation by federal and state utility regulatory agencies (collectively, the
“Commissions”), which have jurisdiction with respect to the rates of electric and natural gas distribution companies in states where the
Company operates. The Company’s regulated utility 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.
Rates are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a
return on the Company’s investment in the regulated utility businesses. Regulatory decisions can have an impact on the recovery of costs,
the rate of return earned on investment, and the timing and amount of assets to be recovered by rates. The regulation of rates is premised
on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. Decisions to be made by the
Commissions in the future will impact the accounting for regulated operations.
Accounting for the economics of rate regulation impacts multiple financial statement line items and disclosures, such as property, plant,
and equipment; regulatory assets and liabilities; operating revenues; operation and maintenance expense; and depreciation expense. We
identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management to support its
assertions about impacted account balances and disclosures and the degree of subjectivity involved in assessing the impact of future
regulatory orders on the financial statements. Management judgments include assessing the likelihood of (1) recovery in future rates of
incurred costs and (2) refunds to customers. Given management’s accounting judgments are based on assumptions about the outcome of
future decisions by the Commissions, auditing these judgments requires specialized knowledge of accounting for rate regulation due to its
inherent complexities.
Part II
MDU Resources Group, Inc. Form 10-K 59
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the uncertainty of future decisions by the Commissions included the following, among others:
• We tested the design and operating effectiveness of management’s controls over the evaluation of the likelihood of (1) the recovery in
future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets; and (2) a refund or a future
reduction in rates that should be reported as regulatory liabilities. We tested management’s controls over the initial recognition of
amounts as regulatory assets or liabilities; and the monitoring and evaluation of regulatory developments that may affect the likelihood
of recovering costs in future rates or of a future reduction in rates.
• We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory
developments.
• We read relevant regulatory orders issued by the Commissions for the Company and other public utilities in the Company’s significant
jurisdictions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available
information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedence of the treatment
of similar costs under similar circumstances. We evaluated the external information and compared to management’s recorded
regulatory asset and liability balances for completeness.
• For regulatory matters in process, we inspected the Company’s filings with the Commissions and the filings with the Commissions by
intervenors that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
• We obtained an analysis from management regarding probability of recovery for regulatory assets or refund or future reduction in rates
for regulatory liabilities not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of
recovery, or that a future reduction in rates is not likely.
Minneapolis, Minnesota
February 21, 2020
We have served as the Company's auditor since 2002.
Part II
60 MDU Resources Group, Inc. Form 10-K
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of MDU Resources Group, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of MDU Resources Group, Inc. and subsidiaries (the "Company") as of
December 31, 2019, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework (2013)
issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2019, of the Company and
our report dated February 21, 2020, expressed an unqualified opinion on those consolidated financial statements and financial statement
schedules.
Basis for Opinion
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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process 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. 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 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.
Minneapolis, Minnesota
February 21, 2020
Part II
MDU Resources Group, Inc. Form 10-K 61
Consolidated Statements of Income
Years ended December 31,2019 2018 2017
(In thousands, except per share amounts)
Operating revenues:
Electric, natural gas distribution and regulated pipeline and midstream $1,279,304 $1,213,227 $1,244,759
Nonregulated pipeline and midstream, construction materials and contracting,construction services and other 4,057,472 3,318,325 3,198,592
Total operating revenues 5,336,776 4,531,552 4,443,351
Operating expenses:
Operation and maintenance:
Electric, natural gas distribution and regulated pipeline and midstream 356,132 340,331 326,687
Nonregulated pipeline and midstream, construction materials and contracting,construction services and other 3,539,162 2,915,790 2,808,779
Total operation and maintenance 3,895,294 3,256,121 3,135,466
Purchased natural gas sold 421,545 404,153 430,954
Depreciation, depletion and amortization 256,017 220,205 207,486
Taxes, other than income 196,143 168,638 166,673
Electric fuel and purchased power 86,557 80,712 78,724
Total operating expenses 4,855,556 4,129,829 4,019,303
Operating income 481,220 401,723 424,048
Other income (expense)15,812 (238)8,767
Interest expense 98,587 84,614 82,788
Income before income taxes 398,445 316,871 350,027
Income taxes 63,279 47,485 65,041
Income from continuing operations 335,166 269,386 284,986
Income (loss) from discontinued operations, net of tax 287 2,932 (3,783)
Net income 335,453 272,318 281,203
Loss on redemption of preferred stock ——600
Dividends declared on preferred stock ——171
Earnings on common stock $335,453 $272,318 $280,432
Earnings per common share - basic:
Earnings before discontinued operations $1.69 $1.38 $1.46
Discontinued operations, net of tax —.01 (.02)
Earnings per common share - basic $1.69 $1.39 $1.44
Earnings per common share - diluted:
Earnings before discontinued operations $1.69 $1.38 $1.45
Discontinued operations, net of tax —.01 (.02)
Earnings per common share - diluted $1.69 $1.39 $1.43
Weighted average common shares outstanding - basic 198,612 195,720 195,304
Weighted average common shares outstanding - diluted 198,626 196,150 195,687
The accompanying notes are an integral part of these consolidated financial statements.
Part II
62 MDU Resources Group, Inc. Form 10-K
Consolidated Statements of Comprehensive Income
Years ended December 31,2019 2018 2017
(In thousands)
Net income $335,453 $272,318 $281,203
Other comprehensive income (loss):
Reclassification adjustment for loss on derivative instruments included in netincome, net of tax of $(140), $429 and $224 in 2019, 2018 and 2017,respectively 731 162 366
Postretirement liability adjustment:
Postretirement liability gains (losses) arising during the period, net of tax of$(2,012), $1,471 and $(1,162) in 2019, 2018 and 2017, respectively (6,151)4,441 (1,812)
Amortization of postretirement liability losses included in net periodic benefitcost, net of tax of $476, $721 and $645 in 2019, 2018 and 2017,respectively 1,486 2,173 1,013
Reclassification of postretirement liability adjustment from regulatory asset, netof tax of $0, $0 and $(876) in 2019, 2018 and 2017, respectively ——(1,143)
Postretirement liability adjustment (4,665)6,614 (1,942)
Foreign currency translation adjustment:
Foreign currency translation adjustment recognized during the period, net of taxof $0, $(14) and $(3) in 2019, 2018 and 2017, respectively —(61)(6)
Reclassification adjustment for foreign currency translation adjustment includedin net income, net of tax of $0, $75 and $0 in 2019, 2018 and 2017,respectively —249 —
Foreign currency translation adjustment —188 (6)
Net unrealized gain (loss) on available-for-sale investments:
Net unrealized gain (loss) on available-for-sale investments arising during theperiod, net of tax of $35, $(38) and $(75) in 2019, 2018 and 2017,respectively 134 (144)(139)
Reclassification adjustment for loss on available-for-sale investments included innet income, net of tax of $10, $35 and $65 in 2019, 2018 and 2017,respectively 40 131 120
Net unrealized gain (loss) on available-for-sale investments 174 (13)(19)
Other comprehensive income (loss)(3,760)6,951 (1,601)
Comprehensive income attributable to common stockholders $331,693 $279,269 $279,602
The accompanying notes are an integral part of these consolidated financial statements.
Part II
MDU Resources Group, Inc. Form 10-K 63
Consolidated Balance Sheets
December 31,2019 2018
(In thousands, except shares and per share amounts)
Assets
Current assets:
Cash and cash equivalents $66,459 $53,948
Receivables, net 836,605 722,945
Inventories 278,407 287,309
Prepayments and other current assets 115,805 119,500
Current assets held for sale 425 430
Total current assets 1,297,701 1,184,132
Investments 148,656 138,620
Property, plant and equipment 7,908,628 7,397,321
Less accumulated depreciation, depletion and amortization 2,991,486 2,818,644
Net property, plant and equipment 4,917,142 4,578,677
Deferred charges and other assets:
Goodwill 681,358 664,922
Other intangible assets, net 15,246 10,815
Operating lease right-of-use assets 115,323 —
Other 506,207 408,857
Noncurrent assets held for sale 1,426 2,087
Total deferred charges and other assets 1,319,560 1,086,681
Total assets $7,683,059 $6,988,110
Liabilities and Stockholders' Equity
Current liabilities:
Long-term debt due within one year $16,540 $251,854
Accounts payable 403,391 358,505
Taxes payable 48,970 41,929
Dividends payable 41,580 39,695
Accrued compensation 99,269 69,007
Current operating lease liabilities 31,664 —
Other accrued liabilities 221,502 221,059
Current liabilities held for sale 3,511 4,001
Total current liabilities 866,427 986,050
Long-term debt 2,226,567 1,856,841
Deferred credits and other liabilities:
Deferred income taxes 506,583 430,085
Noncurrent operating lease liabilities 83,742 —
Other 1,152,494 1,148,359
Total deferred credits and other liabilities 1,742,819 1,578,444
Commitments and contingencies (Note 20)
Stockholders' equity:
Common stock
Authorized - 500,000,000 shares, $1.00 par valueShares issued - 200,922,790 at December 31, 2019 and 196,564,907 at December 31, 2018 200,923 196,565
Other paid-in capital 1,355,404 1,248,576
Retained earnings 1,336,647 1,163,602
Accumulated other comprehensive loss (42,102)(38,342)
Treasury stock at cost - 538,921 shares (3,626)(3,626)
Total stockholders' equity 2,847,246 2,566,775
Total liabilities and stockholders' equity $7,683,059 $6,988,110
The accompanying notes are an integral part of these consolidated financial statements.
Part II
64 MDU Resources Group, Inc. Form 10-K
Consolidated Statements of Equity
Years ended December 31, 2019, 2018 and 2017
OtherPaid-in Capital RetainedEarnings
Accumu-latedOtherCompre-hensiveLoss
Preferred Stock Common Stock Treasury Stock
Shares Amount Shares Amount Shares Amount Total
(In thousands, except shares)
At December 31, 2016 150,000 $15,000 195,843,297 $195,843 $1,232,478 $912,282 $(35,733)(538,921)$(3,626)$2,316,244
Net income —————281,203 ———281,203
Other comprehensive loss ——————(1,601)——(1,601)
Dividends declared onpreferred stock —————(171)———(171)
Dividends declared oncommon stock —————(151,966)———(151,966)
Stock-basedcompensation ————3,375 ————3,375
Repurchase of commonstock ———————(64,384)(1,684)(1,684)
Issuance of commonstock upon vesting ofstock-basedcompensation,net of shares used fortax withholdings ————(2,441)——64,384 1,684 (757)
Redemption of preferredstock (150,000)(15,000)———(600)———(15,600)
At December 31, 2017 ——195,843,297 195,843 1,233,412 1,040,748 (37,334)(538,921)(3,626)2,429,043
Cumulative effect ofadoption of ASU2014-09 —————(970)———(970)
Adjusted balance atJanuary 1, 2018 ——195,843,297 195,843 1,233,412 1,039,778 (37,334)(538,921)(3,626)2,428,073
Net income —————272,318 ———272,318
Other comprehensiveincome ——————6,951 ——6,951
Reclassification of certainprior period tax effectsfrom accumulated othercomprehensive loss —————7,959 (7,959)———
Dividends declared oncommon stock —————(156,453)———(156,453)
Stock-basedcompensation ————5,060 ————5,060
Repurchase of commonstock ———————(182,424)(5,020)(5,020)
Issuance of commonstock upon vesting ofstock-basedcompensation,net of shares used fortax withholdings ————(7,350)——182,424 5,020 (2,330)
Issuance of commonstock ——721,610 722 17,454 ————18,176
At December 31, 2018 ——196,564,907 196,565 1,248,576 1,163,602 (38,342)(538,921)(3,626)2,566,775
Net income —————335,453 ———335,453
Other comprehensive loss ——————(3,760)——(3,760)
Dividends declared oncommon stock —————(162,408)———(162,408)
Stock-basedcompensation ————7,353 ————7,353
Issuance of commonstock upon vesting ofstock-basedcompensation,net of shares used fortax withholdings ——246,214 246 (3,261)————(3,015)
Issuance of commonstock ——4,111,669 4,112 102,736 ————106,848
At December 31, 2019 —$—200,922,790 $200,923 $1,355,404 $1,336,647 $(42,102)(538,921)$(3,626)$2,847,246
The accompanying notes are an integral part of these consolidated financial statements.
Part II
MDU Resources Group, Inc. Form 10-K 65
Consolidated Statements of Cash Flows
Years ended December 31,2019 2018 2017
(In thousands)
Operating activities:
Net income $335,453 $272,318 $281,203
Income (loss) from discontinued operations, net of tax 287 2,932 (3,783)
Income from continuing operations 335,166 269,386 284,986
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization 256,017 220,205 207,486
Deferred income taxes 63,415 59,735 (25,423)
Changes in current assets and liabilities, net of acquisitions:
Receivables (104,374)28,234 (108,255)
Inventories 9,331 (46,796)9,135
Other current assets (38,283)(31,814)(30,588)
Accounts payable 30,079 21,109 26,013
Other current liabilities 51,278 22,285 4,648
Other noncurrent changes (60,813)(38,521)(18,790)
Net cash provided by continuing operations 541,816 503,823 349,212
Net cash provided by (used in) discontinued operations 464 (3,942)98,799
Net cash provided by operating activities 542,280 499,881 448,011
Investing activities:
Capital expenditures (576,065)(568,230)(341,382)
Acquisitions, net of cash acquired (55,597)(167,692)—
Net proceeds from sale or disposition of property and other 29,812 26,100 126,588
Investments (2,011)(2,321)(1,608)
Net cash used in continuing operations (603,861)(712,143)(216,402)
Net cash provided by discontinued operations —1,236 2,234
Net cash used in investing activities (603,861)(710,907)(214,168)
Financing activities:
Issuance of short-term borrowings 169,977 ——
Repayment of short-term borrowings (170,000)——
Issuance of long-term debt 599,455 566,829 140,812
Repayment of long-term debt (468,917)(174,520)(217,394)
Proceeds from issuance of common stock 106,848 ——
Payments of stock issuance costs —(10)—
Dividends paid (160,256)(154,573)(150,727)
Redemption of preferred stock ——(15,600)
Repurchase of common stock —(5,020)(1,684)
Tax withholding on stock-based compensation (3,015)(2,330)(757)
Net cash provided by (used in) financing activities 74,092 230,376 (245,350)
Effect of exchange rate changes on cash and cash equivalents —(1)(1)
Increase (decrease) in cash and cash equivalents 12,511 19,349 (11,508)
Cash and cash equivalents - beginning of year 53,948 34,599 46,107
Cash and cash equivalents - end of year $66,459 $53,948 $34,599
The accompanying notes are an integral part of these consolidated financial statements.
Part II
66 MDU Resources Group, Inc. Form 10-K
Notes to Consolidated Financial Statements
Part II
MDU Resources Group, Inc. Form 10-K 67
Note 1 - Summary of Significant Accounting Policies
Basis of presentation
The abbreviations and acronyms used throughout are defined following the Notes to Consolidated Financial Statements. The consolidated
financial statements of the Company include the accounts of the following businesses: electric, natural gas distribution, pipeline and
midstream, construction materials and contracting, construction services and other. The electric and natural gas distribution businesses, as
well as a portion of the pipeline and midstream business, are regulated. Construction materials and contracting, construction services and
the other businesses, as well as a portion of the pipeline and midstream business, are nonregulated. For further descriptions of the
Company's businesses, see Note 16. Intercompany balances and transactions have been eliminated in consolidation, except for certain
transactions related to the Company's regulated operations in accordance with GAAP. 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 7 for
more information regarding the nature and amounts of these regulatory deferrals.
On January 2, 2019, the Company announced the completion of the Holding Company Reorganization, which resulted in Montana-Dakota
becoming a subsidiary of the Company. The purpose of the reorganization was to make the public utility division into a subsidiary of the
holding company, just as the other operating companies are wholly owned subsidiaries.
On December 22, 2017, President Trump signed into law the TCJA which includes lower corporate tax rates, repealing the domestic
production deduction, disallowance of immediate expensing for regulated utility property and modifying or repealing many other business
deductions and credits. The reduction in the corporate tax rate was effective on January 1, 2018. The effects of the change in tax laws or
rates must be accounted for in the period of enactment, which resulted in the Company making reasonable estimates of the impact of the
reduction in corporate tax rate on the Company's net deferred tax liabilities during the fourth quarter of 2017. The SEC issued rules that
allowed for a measurement period of up to one year after the enactment date of the TCJA to finalize the recording of the related tax impacts.
At December 31, 2018, the Company finalized the estimates from the fourth quarter of 2017 and no material adjustments were recorded to
income from continuing operations during the twelve months ended December 31, 2018.
Effective January 1, 2019, the Company adopted the requirements of the ASU on leases, as further discussed in this note, as well as in
Note 5. As such, results for reporting periods beginning January 1, 2019, are presented under the new guidance, while prior period amounts
are not adjusted and continue to be reported in accordance with the historic accounting for leases.
The assets and liabilities for the Company's discontinued operations have been classified as held for sale and the results of operations are
shown in income (loss) from discontinued operations, other than certain general and administrative costs and interest expense which do not
meet the criteria for income (loss) from discontinued operations. At the time the assets were classified as held for sale, depreciation,
depletion and amortization expense was no longer recorded. Unless otherwise indicated, the amounts presented in the accompanying notes
to the consolidated financial statements relate to the Company's continuing operations. For more information on the Company's
discontinued operations, see Note 4.
Management has also evaluated the impact of events occurring after December 31, 2019, up to the date of issuance of these consolidated
financial statements. For more information on the Company's subsequent events, see Note 21.
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.
Accounts receivable and allowance for doubtful accounts
Accounts receivable consists primarily of trade receivables from the sale of goods and services which are recorded at the invoiced amount
net of allowance for doubtful accounts, and costs and estimated earnings in excess of billings on uncompleted contracts. For more
information, see Note 2. The total balance of receivables past due 90 days or more was $46.7 million and $30.0 million at December 31,
2019 and 2018, respectively.
The allowance for doubtful accounts is determined through a review of past due balances and other specific account data. Account balances
are written off when management determines the amounts to be uncollectible. The Company's allowance for doubtful accounts at
December 31, 2019 and 2018, was $8.5 million and $8.9 million, respectively.
Accounts receivable also consists of accrued unbilled revenue representing revenues recognized in excess of amounts billed. Accrued
unbilled revenue at MDU Energy Capital was $100.8 million and $96.2 million at December 31, 2019 and 2018, respectively.
Amounts representing balances billed but not paid by customers under retainage provisions in contracts at December 31 were as follows:
2019 2018
(In thousands)
Short-term retainage*$75,590 $56,228
Long-term retainage**14,228 4,152
Total retainage $89,818 $60,380
*Expected to be paid within one year or less and included in receivables, net.
**Included in deferred charges and other assets - other.
Inventories and natural gas in storage
Natural gas in storage for the Company's regulated operations is generally valued at lower of cost or market using the last-in, first-out
method or lower of cost or net realizable value using the average cost or first-in, first-out method. The majority of all other inventories are
valued at lower of cost or net realizable value using the average cost method. The portion of the cost of natural gas in storage expected to be
used within 12 months was included in inventories. Inventories at December 31 consisted of:
2019 2018
(In thousands)
Aggregates held for resale $147,723 $139,681
Asphalt oil 41,912 54,741
Materials and supplies 22,512 23,611
Merchandise for resale 22,232 22,552
Natural gas in storage (current)22,058 22,117
Other 21,970 24,607
Total $278,407 $287,309
The remainder of natural gas in storage, which largely represents the cost of gas required to maintain pressure levels for normal operating
purposes, was included in deferred charges and other assets - other and was $48.4 million and $48.5 million at December 31, 2019 and
2018, respectively.
Investments
The Company's investments include the cash surrender value of life insurance policies, an insurance contract, mortgage-backed securities
and U.S. Treasury securities. The Company measures its investment in the insurance contract at fair value with any unrealized gains and
losses recorded on the Consolidated Statements of Income. The Company has not elected the fair value option for its mortgage-backed
securities and U.S. Treasury securities and, as a result, the unrealized gains and losses on these investments are recorded in accumulated
other comprehensive income (loss). For more information, see Notes 8 and 17.
Part II
68 MDU Resources Group, Inc. Form 10-K
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, 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
for the years ended December 31 were as follows:
2019 2018 2017
(In thousands)
AFUDC - borrowed $2,807 $2,290 $966
AFUDC - equity $698 $1,897 $909
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. The Company collects removal costs for plant
assets in regulated utility rates. These amounts are recorded as regulatory liabilities, which are included in deferred credits and other
liabilities - other.
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MDU Resources Group, Inc. Form 10-K 69
Property, plant and equipment at December 31 was as follows:
2019 2018
WeightedAverageDepreciableLife in Years
(Dollars in thousands, where applicable)
Regulated:
Electric:
Generation $1,139,059 $1,131,484 48
Distribution 443,780 430,750 46
Transmission 445,485 302,315 65
Construction in progress 66,664 161,893 —
Other 132,157 122,127 15
Natural gas distribution:
Distribution 2,133,249 1,981,356 47
Construction in progress 39,506 21,028 —
Other 515,368 496,708 17
Pipeline and midstream:
Transmission 636,796 585,594 46
Gathering 35,661 37,829 20
Storage 50,001 49,101 53
Construction in progress 22,597 5,915 —
Other 48,340 45,763 16
Nonregulated:
Pipeline and midstream:
Gathering and processing 31,148 31,094 19
Construction in progress 154 86 —
Other 9,518 9,577 10
Construction materials and contracting:
Land 127,729 109,541 —
Buildings and improvements 122,064 114,905 20
Machinery, vehicles and equipment 1,180,343 1,090,790 12
Construction in progress 25,018 22,507 —
Aggregate reserves 455,408 430,263 *
Construction services:
Land 7,146 5,216 —
Buildings and improvements 31,735 29,795 24
Machinery, vehicles and equipment 156,537 145,859 6
Other 17,952 7,716 2
Other:
Land 2,648 2,648 —
Other 32,565 25,461 14
Less accumulated depreciation, depletion and amortization 2,991,486 2,818,644
Net property, plant and equipment $4,917,142 $4,578,677
*Depleted on the units-of-production method based on recoverable aggregate reserves.
Impairment of long-lived assets
The Company reviews the carrying values of its long-lived assets, excluding goodwill and assets held for sale, 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. The impairments are recorded in operation and maintenance expense on the
Consolidated Statements of Income.
No significant impairment losses were recorded in 2019, 2018 or 2017. Unforeseen events and changes in circumstances could require the
recognition of impairment losses at some future date.
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70 MDU Resources Group, Inc. Form 10-K
Leases
Lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected
lease term. The Company recognizes leases with an original lease term of 12 months or less in income on a straight-line basis over the term
of the lease and does not recognize a corresponding right-of-use asset or lease liability. The Company determines the lease term based on
the non-cancelable and cancelable periods in each contract. The non-cancelable period consists of the term of the contract that is legally
enforceable and cannot be canceled by either party without incurring a significant penalty. The cancelable period is determined by various
factors that are based on who has the right to cancel a contract. If only the lessor has the right to cancel the contract, the Company will
assume the contract will continue. If the lessee is the only party that has the right to cancel the contract, the Company looks to asset, entity
and market-based factors. If both the lessor and the lessee have the right to cancel the contract, the Company assumes the contract will not
continue.
The discount rate used to calculate the present value of the lease liabilities is based upon the implied rate within each contract. If the rate
is unknown or cannot be determined, the Company uses an incremental borrowing rate, which is determined by the length of the contract,
asset class and the Company's borrowing rates, as of the commencement date of the contract.
Regulatory assets and liabilities
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. The Company records regulatory assets or liabilities at the time the Company determines the amounts to be recoverable in current
or future rates.
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 the Company completes in the fourth quarter, or
more frequently if events or changes in circumstances indicate that goodwill may be impaired.
The Company has determined that the reporting units for its goodwill impairment test are its operating segments, or components of an
operating segment, that constitute a business for which discrete financial information is available and for which segment management
regularly reviews the operating results. For more information on the Company's operating segments, see Note 16. Goodwill impairment, if
any, is measured by comparing the fair value of each reporting unit to its carrying value. If the fair value of a reporting unit exceeds its
carrying value, the goodwill of the reporting unit is not impaired. If the carrying value of a reporting unit exceeds its fair value, the Company
must record an impairment loss for the amount that the carrying value of the reporting unit, including goodwill, exceeds the fair value of the
reporting unit. For the years ended December 31, 2019, 2018 and 2017, there were no impairment losses recorded. At December 31,
2019, the fair value substantially exceeded the carrying value at all reporting units.
Determining the fair value of a reporting unit requires judgment and the use of significant estimates which include assumptions about the
Company's future revenue, profitability and cash flows, amount and timing of estimated capital expenditures, inflation rates, risk adjusted
capital cost, operational plans, and current and future economic conditions, among others. The fair value of each reporting unit is
determined using a weighted combination of income and market approaches. The Company uses a discounted cash flow methodology for its
income approach. Under the income approach, the discounted cash flow model determines fair value based on the present value of
projected cash flows over a specified period and a residual value related to future cash flows beyond the projection period. Both values are
discounted using a rate which reflects the best estimate of the risk adjusted capital cost at each reporting unit. Risk adjusted capital cost,
which varies by reporting unit and was in the range of 4 percent to 9 percent was utilized in the goodwill impairment test performed in the
fourth quarter of 2019. The goodwill impairment test also utilizes a long-term growth rate projection, which varies by reporting unit and was
in the range of approximately 2 percent to 3 percent in the goodwill impairment test performed in the fourth quarter of 2019. Under the
market approach, the Company estimates fair value using various multiples derived from enterprise value to EBITDA for comparative peer
companies for each respective reporting unit. These multiples are applied to operating data for each reporting unit to arrive at an indication
of fair value. In addition, the Company adds a reasonable control premium when calculating the fair value utilizing the peer multiples, which
is estimated as the premium that would be received in a sale in an orderly transaction between market participants. The Company believes
that the estimates and assumptions used in its impairment assessments are reasonable and based on available market information.
Revenue recognition
Revenue is recognized when a performance obligation is satisfied by transferring control over a product or service to a customer. Revenue is
measured based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on
behalf of third parties. The Company is considered an agent for certain taxes collected from customers. As such, the Company presents
revenues net of these taxes at the time of sale to be remitted to governmental authorities, including sales and use taxes.
Part II
MDU Resources Group, Inc. Form 10-K 71
The electric and natural gas distribution segments generate revenue from the sales of electric and natural gas products and services, which
includes retail and transportation services. These segments establish a customer's retail or transportation service account based on the
customer's application/contract for service, which indicates approval of a contract for service. The contract identifies an obligation to provide
service in exchange for delivering or standing ready to deliver the identified commodity; and the customer is obligated to pay for the service
as provided in the applicable tariff. The product sales are based on a fixed rate that includes a base and per-unit rate, which are included in
approved tariffs as determined by state or federal regulatory agencies. The quantity of the commodity consumed or transported determines
the total per-unit revenue. The service provided, along with the product consumed or transported, are a single performance obligation
because both are required in combination to successfully transfer the contracted product or service to the customer. Revenues are
recognized over time as customers receive and consume the products and services. The method of measuring progress toward the
completion of the single performance obligation is on a per-unit output method basis, with revenue recognized based on the direct
measurement of the value to the customer of the goods or services transferred to date. For contracts governed by the Company’s utility
tariffs, amounts are billed monthly with the amount due between 15 and 22 days of receipt of the invoice depending on the applicable
state’s tariff. For other contracts not governed by tariff, payment terms are net 30 days. At this time, the segment has no material
obligations for returns, refunds or other similar obligations.
The pipeline and midstream segment generates revenue from providing natural gas transportation, gathering and underground storage
services, as well as other energy-related services to both third parties and internal customers, largely the natural gas distribution segment.
The pipeline and midstream segment establishes a contract with a customer based upon the customer’s request for firm or interruptible
natural gas transportation, storage or gathering service(s). The contract identifies an obligation for the segment to provide the requested
service(s) in exchange for consideration from the customer over a specified term. Depending on the type of service(s) requested and
contracted, the service provided may include transporting, gathering or storing an identified quantity of natural gas and/or standing ready to
deliver or store an identified quantity of natural gas. Natural gas transportation, gathering and storage revenues are based on fixed rates,
which may include reservation fees and/or per-unit commodity rates. The services provided by the segment are generally treated as single
performance obligations satisfied over time simultaneous to when the service is provided and revenue is recognized. Rates for the segment’s
regulated services are based on its FERC approved tariff or customer negotiated rates, and rates for its non-regulated services are negotiated
with its customers and set forth in the contract. For contracts governed by the company’s tariff, amounts are billed on or before the ninth
business day of the following month and the amount is due within 12 days of receipt of the invoice. For gathering contracts not governed by
the tariff, amounts are due within 20 days of invoice receipt. For other contracts not governed by the tariff, payment terms are net 30 days.
At this time, the segment has no material obligations for returns, refunds or other similar obligations.
The construction materials and contracting segment generates revenue from contracting services and construction materials sales. This
segment focuses on the vertical integration of its contracting services with its construction materials to support the aggregate based product
lines. This segment provides contracting services to a customer when a contract has been signed by both the customer and a representative
of the segment obligating a service to be provided in exchange for the consideration identified in the contract. The nature of the services
this segment provides generally includes integrating a set of services and related construction materials into a single project to create a
distinct bundle of goods and services, which the Company evaluates to determine whether a separate performance obligation exists. The
transaction price is the original contract price plus any subsequent change orders and variable consideration. Examples of variable
consideration that exist in this segment's contracts include liquidated damages; performance bonuses or incentives and penalties; claims;
unapproved/unpriced change orders; and index pricing. The variable amounts usually arise upon achievement of certain performance metrics
or change in project scope. The Company estimates the amount of revenue to be recognized on variable consideration using estimation
methods that best predict the most likely amount of consideration the Company expects to be entitled to or expects to incur. The Company
includes variable consideration in the estimated transaction price to the extent it is probable that a significant reversal of cumulative
revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved. Changes in circumstances
could impact management's estimates made in determining the value of variable consideration recorded. The Company updates its estimate
of the transaction price each reporting period and the effect of variable consideration on the transaction price is recognized as an
adjustment to revenue on a cumulative catch-up basis. Revenue is recognized over time using an input method based on the cost-to-cost
measure of progress on a project. This is the preferred method of measuring revenue because the costs incurred have been determined to
represent the best indication of the overall progress toward the transfer of such goods or services promised to a customer. This segment also
sells construction materials to third parties and internal customers. The contract for material sales is the use of a sales order or an invoice,
which includes the pricing and payment terms. All material contracts contain a single performance obligation for the delivery of a single
distinct product or a distinct separately identifiable bundle of products and services. Revenue is recognized at a point in time when the
performance obligation has been satisfied with the delivery of the products or services. The warranties associated with the sales are those
consistent with a standard warranty that the product meets certain specifications for quality or those required by law. For most contracts,
amounts billed to customers are due within 30 days of receipt. There are no material obligations for returns, refunds or other similar
obligations.
Part II
72 MDU Resources Group, Inc. Form 10-K
The construction services segment generates revenue from specialty contracting services which also includes the sale of construction
equipment and other supplies. This segment provides specialty contracting services to a customer when a contract has been signed by both
the customer and a representative of the segment obligating a service to be provided in exchange for the consideration identified in the
contract. The nature of the services this segment provides generally includes multiple promised goods and services in a single project to
create a distinct bundle of goods and services, which the Company evaluates to determine whether a separate performance obligation exists.
The transaction price is the original contract price plus any subsequent change orders and variable consideration. Examples of variable
consideration that exist in this segment's contracts include claims, unapproved/unpriced change orders, bonuses, incentives, penalties and
liquidated damages. The variable amounts usually arise upon achievement of certain performance metrics or change in project scope. The
Company estimates the amount of revenue to be recognized on variable consideration using estimation methods that best predict the most
likely amount of consideration the Company expects to be entitled to or expects to incur. The Company includes variable consideration in
the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or
when the uncertainty associated with the variable consideration is resolved. Changes in circumstances could impact management's
estimates made in determining the value of variable consideration recorded. The Company updates its estimate of the transaction price each
reporting period and the effect of variable consideration on the transaction price is recognized as an adjustment to revenue on a cumulative
catch-up basis. Revenue is recognized over time using the input method based on the measurement of progress on a project. The input
method is the preferred method of measuring revenue because the costs incurred have been determined to represent the best indication of
the overall progress toward the transfer of such goods or services promised to a customer. This segment also sells construction equipment
and other supplies to third parties and internal customers. The contract for these sales is the use of a sales order or invoice, which includes
the pricing and payment terms. All such contracts include a single performance obligation for the delivery of a single distinct product or a
distinct separately identifiable bundle of products and services. Revenue is recognized at a point in time when the performance obligation
has been satisfied with the delivery of the products or services. The warranties associated with the sales are those consistent with a standard
warranty that the product meets certain specifications for quality or those required by law. For most contracts, amounts billed to customers
are due within 30 days of receipt. There are no material obligations for returns, refunds or other similar obligations.
The Company recognizes all other revenues when services are rendered or goods are delivered.
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.
Legal costs
The Company expenses external legal fees as they are incurred.
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
36 months from the time such costs are paid. Natural gas costs refundable through rate adjustments were $23.8 million and $30.0 million
at December 31, 2019 and 2018, respectively, which is included in other accrued liabilities on the Consolidated Balance Sheets. Natural
gas costs recoverable through rate adjustments were $89.2 million and $42.7 million at December 31, 2019 and 2018, respectively, which
is included in prepayments and other current assets and deferred charges and other assets - other on the Consolidated Balance Sheets.
Stock-based compensation
The Company determines compensation expense for stock-based awards based on the estimated fair values at the grant date and recognizes
the related compensation expense over the vesting period. The Company uses the straight-line amortization method to recognize
compensation expense related to restricted stock, which only has a service condition. This method recognizes stock compensation expense
on a straight-line basis over the requisite service period for the entire award. The Company recognizes compensation expense related to
performance awards that vest based on performance metrics and service conditions on a straight-line basis over the service period.
Inception-to-date expense is adjusted based upon the determination of the potential achievement of the performance target at each
reporting date. The Company recognizes compensation expense related to performance awards with market-based performance metrics on a
straight-line basis over the requisite service period.
The Company records the compensation expense for performance share awards using an estimated forfeiture rate. The estimated forfeiture
rate is calculated based on an average of actual historical forfeitures. The Company also performs an analysis of any known factors at the
Part II
MDU Resources Group, Inc. Form 10-K 73
time of the calculation to identify any necessary adjustments to the average historical forfeiture rate. At the time actual forfeitures become
more than estimated forfeitures, the Company records compensation expense using actual forfeitures.
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 by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect
of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. 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.
The Company records uncertain tax positions in accordance with accounting guidance on accounting for income taxes on the basis of a two-
step process in which (1) the Company determines whether it is more-likely-than-not that the tax position will be sustained on the basis of
the technical merits of the position and (2) for those tax positions that meet the more-likely than-not recognition threshold, the Company
recognizes the largest amount of the tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related
tax authority. Tax positions that do not meet the more-likely-than-not criteria are reflected as a tax liability. The Company recognizes interest
and penalties accrued related to unrecognized tax benefits in income taxes.
Earnings per common share
Basic earnings per common share were computed by dividing earnings 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 nonvested performance
share awards and restricted stock units. Common stock outstanding includes issued shares less shares held in treasury. Earnings on
common stock was the same for both the basic and diluted earnings per share calculations. A reconciliation of the weighted average
common shares outstanding used in the basic and diluted earnings per share calculation was as follows:
2019 2018 2017
(In thousands)
Weighted average common shares outstanding - basic 198,612 195,720 195,304
Effect of dilutive performance share awards 14 430 383
Weighted average common shares outstanding - diluted 198,626 196,150 195,687
Shares excluded from the calculation of diluted earnings per share 164 10 —
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 long-lived assets and
goodwill; fair values of acquired assets and liabilities under the acquisition method of accounting; aggregate reserves; property depreciable
lives; tax provisions; revenue recognized using the cost-to-cost measure of progress for contracts; uncollectible accounts; environmental and
other loss contingencies; regulatory assets expected to be recovered in rates charged to customers; costs on construction contracts; unbilled
revenues; actuarially determined benefit costs; asset retirement obligations; lease classification; present value of right-of-use assets and
lease liabilities; and the valuation of stock-based compensation. 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.
New accounting standards
Recently adopted accounting standards
ASU 2016-02 - Leases In February 2016, the FASB issued this ASU guidance relating to ASC 842 - Leases. The guidance required lessees
to recognize a lease liability and a right-of-use asset on the balance sheet for operating and financing leases. The guidance remained largely
the same for lessors, although some changes were made to better align lessor accounting with the new lessee accounting and to align with
the revenue recognition standard. The guidance also required additional disclosures, both quantitative and qualitative, related to operating
and financing leases for the lessee and sales-type, direct financing and operating leases for the lessor. The Company adopted the standard
on January 1, 2019.
Part II
74 MDU Resources Group, Inc. Form 10-K
In July 2018, the FASB issued ASU 2018-11 - Leases: Targeted Improvements, an accounting standard update to ASU 2016-02. This ASU
provided an entity the option to adopt the guidance using one of two modified retrospective approaches. An entity could adopt the guidance
using the modified retrospective transition approach beginning in the earliest year presented in the financial statements. This method of
adoption would have required the restatement of prior periods reported and the presentation of lease disclosures under the new guidance for
all periods reported. The additional transition method of adoption, introduced by ASU 2018-11, allowed entities the option to apply the
guidance on the date of adoption by recognizing a cumulative effect adjustment to retained earnings during the period of adoption and did
not require prior comparative periods to be restated.
The Company adopted the standard on January 1, 2019, utilizing the additional transition method of adoption applied on the date of
adoption and the practical expedient that allowed the Company to not reassess whether an expired or existing contract contained a lease,
the classification of leases or initial direct costs. The Company did not identify any cumulative effect adjustments. The Company also
adopted a short-term leasing policy as the lessee where leases with a term of 12 months or less are not included on the Consolidated
Balance Sheet.
As a practical expedient, a lessee may choose not to separate nonlease components from lease components and instead account for lease
and nonlease components as a single lease component. The election shall be made by asset class. The Company has elected to adopt the
lease/nonlease component practical expedient for all asset classes as the lessee. The Company did not elect the practical expedient to use
hindsight when assessing the lease term or impairment of right-of-use assets for the existing leases on the date of adoption.
In January 2018, the FASB issued a practical expedient for land easements under the new lease guidance. The practical expedient permits
an entity to elect the option to not evaluate land easements under the new guidance if they existed or expired before the adoption of the new
lease guidance and were not previously accounted for as leases under the previous lease guidance. Once an entity adopts the new guidance,
the entity should apply the new guidance on a prospective basis to all new or modified land easements. The Company has adopted this
practical expedient.
The Company formed a lease implementation team to review and assess existing contracts to identify and evaluate those containing leases.
Additionally, the team implemented new and revised existing software to meet the reporting and disclosure requirements of the standard.
The Company also assessed the impact the standard had on its processes and internal controls and identified new and updated existing
internal controls and processes to ensure compliance with the new lease standard; such modifications were not deemed to be significant.
During the assessment phase, the Company used various surveys, reconciliations and analytic methodologies to ensure the completeness of
the lease inventory. The Company determined that most of the current operating leases were subject to the guidance and were recognized as
operating lease liabilities and right-of-use assets on the Consolidated Balance Sheet upon adoption. On January 1, 2019, the Company
recorded approximately $112 million to right-of-use assets and lease liabilities as a result of the initial adoption of the guidance. In
addition, the Company evaluated the impact the new guidance had on lease contracts where the Company is the lessor and determined it
did not have a significant impact to the Company's financial statements.
ASU 2017-04 - Simplifying the Test for Goodwill Impairment In January 2017, the FASB issued guidance on simplifying the test for goodwill
impairment by eliminating Step 2, which required an entity to measure the amount of impairment loss by comparing the implied fair value
of reporting unit goodwill with the carrying amount of such goodwill. This guidance requires entities to perform a quantitative impairment
test, previously Step 1, to identify both the existence of impairment and the amount of impairment loss by comparing the fair value of a
reporting unit to its carrying amount. Entities will continue to have the option of performing a qualitative assessment to determine if the
quantitative impairment test is necessary. The guidance also requires additional disclosures if an entity has one or more reporting units with
zero or negative carrying amounts of net assets. The Company early adopted the guidance on a prospective basis beginning with the
preparation of its 2019 goodwill impairment test in the fourth quarter of 2019. The adoption of the guidance did not have a material impact
on its results of operations, financial position, cash flows or disclosures.
ASU 2018-15 - Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract In
August 2018, the FASB issued guidance on the accounting for implementation costs of a hosting arrangement that is a service contract.
The guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract
similar to the costs incurred to develop or obtain internal-use software and such capitalized costs to be expensed over the term of the
hosting arrangement. Costs incurred during the preliminary and postimplementation stages should continue to be expensed as activities are
performed. The capitalized costs are required to be presented on the balance sheet in the same line the prepayment for the fees associated
with the hosting arrangement would be presented. In addition, the expense related to the capitalized implementation costs should be
presented in the same line on the income statement as the fees associated with the hosting element of the arrangements. The Company
adopted the guidance effective January 1, 2019, on a prospective basis. The adoption of the guidance did not have a material impact on its
results of operations, financial position, cash flows or disclosures.
Part II
MDU Resources Group, Inc. Form 10-K 75
Recently issued accounting standards not yet adopted
ASU 2016-13 - Measurement of Credit Losses on Financial Instruments In June 2016, the FASB issued guidance on the measurement of credit
losses on certain financial instruments. The guidance introduces a new impairment model known as the current expected credit loss model
that will replace the incurred loss impairment methodology currently included under GAAP. This guidance requires entities to present certain
investments in debt securities, trade accounts receivable and other financial assets at their net carrying value of the amount expected to be
collected on the financial statements. The Company adopted the guidance on January 1, 2020.
The Company formed an implementation team to review and assess existing financial assets to identify and evaluate the financial assets
subject to the new current expected credit loss model. The Company assessed the impact of the guidance on its processes and internal
controls and has identified and updated existing internal controls and processes to ensure compliance with the new guidance; such
modifications were deemed insignificant. During the assessment phase, the Company completed checklists to identify the complete
portfolio of assets subject to the current expected credit loss model. The Company determined the guidance did not have a material impact
on its results of operations, financial position, cash flows or disclosures and did not record a material cumulative effect adjustment upon
adoption.
ASU 2018-13 - Changes to the Disclosure Requirements for Fair Value Measurement In August 2018, the FASB issued guidance on modifying
the disclosure requirements on fair value measurements as part of the disclosure framework project. The guidance modifies, among other
things, the disclosures required for Level 3 fair value measurements, including the range and weighted average of significant unobservable
inputs. The guidance removes, among other things, the disclosure requirement to disclose transfers between Levels 1 and 2. The guidance
will be effective for the Company on January 1, 2020, including interim periods, with early adoption permitted. Level 3 fair value
measurement disclosures should be applied prospectively while all other amendments should be applied retrospectively. The Company
continues to evaluate the effects the adoption of the new guidance will have on its disclosures in the first quarter of 2020.
ASU 2018-14 - Changes to the Disclosure Requirements for Defined Benefit Plans In August 2018, the FASB issued guidance on modifying the
disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans as part of the disclosure
framework project. The guidance removes disclosures that are no longer considered cost beneficial, clarifies the specific requirements of
disclosures and adds disclosure requirements identified as relevant. The guidance adds, among other things, the requirement to include an
explanation for significant gains and losses related to changes in benefit obligations for the period. The guidance removes, among other
things, the disclosure requirement to disclose the amount of net periodic benefit costs to be amortized over the next fiscal year from
accumulated other comprehensive income (loss) and the effects a one percentage point change in assumed health care cost trend rates will
have on certain benefit components. The guidance will be effective for the Company on January 1, 2021, and must be applied on a
retrospective basis with early adoption permitted. The Company is evaluating the effects the adoption of the new guidance will have on its
disclosures.
ASU 2019-12 - Simplifying the Accounting for Income Taxes In December 2019, the FASB issued guidance on simplifying the accounting for
income taxes by removing certain exceptions in ASC 740 and providing simplification amendments. The guidance removes exceptions on
intraperiod tax allocations and reporting and provides simplification on accounting for franchise taxes, tax basis goodwill and tax law
changes. The guidance will be effective for the Company on January 1, 2021, with early adoption permitted. Transition requirements vary
among the exceptions and amendments which include retrospective, modified retrospective and prospective application. The Company does
not expect the guidance to have a material impact on its results of operations, financial position, cash flows and disclosures.
Variable interest entities
The Company evaluates its arrangements and contracts with other entities to determine if they are VIEs and if so, if the Company is the
primary beneficiary. GAAP provides a framework for identifying VIEs and determining when a company should include the assets, liabilities,
noncontrolling interest and results of activities of a VIE in its consolidated financial statements.
A VIE should be consolidated if a party with an ownership, contractual or other financial interest in the VIE (a variable interest holder) has
the power to direct the VIE's most significant activities and the obligation to absorb losses or right to receive benefits of the VIE that could
be significant to the VIE. A variable interest holder that consolidates the VIE is called the primary beneficiary. Upon consolidation, the
primary beneficiary generally must initially record all of the VIE's assets, liabilities and noncontrolling interests at fair value and
subsequently account for the VIE as if it were consolidated.
The Company's evaluation of whether it qualifies as the primary beneficiary of a VIE involves significant judgments, estimates and assumptions
and includes a qualitative analysis of the activities that most significantly impact the VIE's economic performance and whether the Company
has the power to direct those activities, the design of the entity, the rights of the parties and the purpose of the arrangement.
Part II
76 MDU Resources Group, Inc. Form 10-K
Accumulated other comprehensive income (loss)
The Company's accumulated other comprehensive income (loss) is comprised of losses on derivative instruments qualifying as hedges,
postretirement liability adjustments, foreign currency translation adjustments and gain (loss) on available-for-sale investments.
The after-tax changes in the components of accumulated other comprehensive loss at December 31, 2019, 2018 and 2017, were as
follows:
NetUnrealizedLoss onDerivative Instruments Qualifyingas Hedges
Post-retirement LiabilityAdjustment
ForeignCurrency Translation Adjustment
NetUnrealizedGain (Loss) onAvailable-for-saleInvestments
TotalAccumulated OtherComprehensive Loss
(In thousands)
At December 31, 2017 $(1,934)$(35,163)$(155)$(82)$(37,334)
Other comprehensive income (loss) beforereclassifications —4,441 (61)(144)4,236
Amounts reclassified from accumulated othercomprehensive loss 162 2,173 249 131 2,715
Net current-period other comprehensive income (loss)162 6,614 188 (13)6,951
Reclassification adjustment of prior period tax effectsrelated to TCJA included in accumulated othercomprehensive loss (389)(7,520)(33)(17)(7,959)
At December 31, 2018 (2,161)(36,069)—(112)(38,342)
Other comprehensive income (loss) beforereclassifications —(6,151)—134 (6,017)
Amounts reclassified from accumulated othercomprehensive loss 731 1,486 —40 2,257
Net current-period other comprehensive income (loss)731 (4,665)—174 (3,760)
At December 31, 2019 $(1,430)$(40,734)$—$62 $(42,102)
The following amounts were reclassified out of accumulated other comprehensive loss into net income. The amounts presented in
parenthesis indicate a decrease to net income on the Consolidated Statements of Income. The reclassifications for the years ended
December 31 were as follows:
2019 2018 Location on ConsolidatedStatements of Income
(In thousands)
Reclassification adjustment for loss on derivative instrumentsincluded in net income $(591)$(591)Interest expense
(140)429 Income taxes
(731)(162)
Amortization of postretirement liability losses included in netperiodic benefit cost (1,962)(2,894)Other income
476 721 Income taxes
(1,486)(2,173)
Reclassification adjustment for foreign currency translationadjustment included in net income —(324)Other income
—75 Income taxes
—(249)
Reclassification adjustment for loss on available-for-saleinvestments included in net income (50)(166)Other income
10 35 Income taxes
(40)(131)
Total reclassifications $(2,257)$(2,715)
Part II
MDU Resources Group, Inc. Form 10-K 77
Note 2 - Revenue from Contracts with Customers
Revenue is recognized when a performance obligation is satisfied by transferring control over a product or service to a customer. Revenue is
measured based on consideration specified in a contract with a customer and excludes any sales incentives and amounts collected on
behalf of third parties. The Company is considered an agent for certain taxes collected from customers. As such, the Company presents
revenues net of these taxes at the time of sale to be remitted to governmental authorities, including sales and use taxes.
As part of the adoption of ASC 606 - Revenue from Contracts with Customers, the Company elected the practical expedient to recognize the
incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the Company otherwise
would have recognized is 12 months or less.
Disaggregation
In the following table, revenue is disaggregated by the type of customer or service provided. The Company believes this level of
disaggregation best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The
table also includes a reconciliation of the disaggregated revenue by reportable segments. For more information on the Company's business
segments, see Note 16.
Year ended December 31, 2019 Electric Natural gasdistribution Pipeline andmidstream
Constructionmaterials andcontracting Constructionservices Other Total
(In thousands)
Residential utility sales $125,369 $483,452 $—$—$—$—$608,821
Commercial utility sales 141,596 296,835 ————438,431
Industrial utility sales 37,765 26,895 ————64,660
Other utility sales 7,408 —————7,408
Natural gas transportation —45,449 101,665 ———147,114
Natural gas gathering ——9,164 ———9,164
Natural gas storage ——11,708 ———11,708
Contracting services ———1,088,633 ——1,088,633
Construction materials ———1,627,833 ——1,627,833
Intrasegment eliminations*———(525,749)——(525,749)
Inside specialty contracting ————1,266,196 —1,266,196
Outside specialty contracting ————531,882 —531,882
Other 35,574 12,726 17,687 —131 16,551 82,669
Intersegment eliminations ——(56,252)(1,066)(3,370)(16,461)(77,149)
Revenues from contracts with
customers 347,712 865,357 83,972 2,189,651 1,794,839 90 5,281,621
Revenues out of scope 4,013 (135)220 —51,057 —55,155
Total external operating revenues $351,725 $865,222 $84,192 $2,189,651 $1,845,896 $90 $5,336,776
*Intrasegment revenues are presented within the construction materials and contracting segment to highlight the focus on vertical integration as this segment sells
materials to both third parties and internal customers. Due to consolidation requirements, these revenues must be eliminated against construction materials to arrive
at the external operating revenue total for the segment.
Part II
78 MDU Resources Group, Inc. Form 10-K
Year ended December 31, 2018 Electric Natural gasdistribution Pipeline andmidstream
Constructionmaterials andcontracting Constructionservices Other Total
(In thousands)
Residential utility sales $121,477 $457,959 $—$—$—$—$579,436
Commercial utility sales 136,236 276,716 ————412,952
Industrial utility sales 34,353 24,603 ————58,956
Other utility sales 7,556 —————7,556
Natural gas transportation —43,238 89,159 ———132,397
Natural gas gathering ——9,159 ———9,159
Natural gas storage ——11,543 ———11,543
Contracting services ———968,755 ——968,755
Construction materials ———1,423,068 ——1,423,068
Intrasegment eliminations*———(465,969)——(465,969)
Inside specialty contracting ————926,875 —926,875
Outside specialty contracting ————392,544 —392,544
Other 31,568 14,579 18,865 —525 11,259 76,796
Intersegment eliminations ——(50,905)(669)(1,681)(11,052)(64,307)
Revenues from contracts with
customers 331,190 817,095 77,821 1,925,185 1,318,263 207 4,469,761
Revenues out of scope 3,933 6,152 197 —51,509 —61,791
Total external operating revenues $335,123 $823,247 $78,018 $1,925,185 $1,369,772 $207 $4,531,552
*Intrasegment revenues are presented within the construction materials and contracting segment to highlight the focus on vertical integration as this segment sells
materials to both third parties and internal customers. Due to consolidation requirements, these revenues must be eliminated against construction materials to arrive
at the external operating revenue total for the segment.
Contract balances
The timing of revenue recognition may differ from the timing of invoicing to customers. The timing of invoicing to customers does not
necessarily correlate with the timing of revenues being recognized under the cost‐to‐cost method of accounting. Contracts from contracting
services are billed as work progresses in accordance with agreed upon contractual terms. Generally, billing to the customer occurs
contemporaneous to revenue recognition. A variance in timing of the billings may result in a contract asset or a contract liability. A contract
asset occurs when revenues are recognized under the cost-to-cost measure of progress, which exceeds amounts billed on uncompleted
contracts. Such amounts will be billed as standard contract terms allow, usually based on various measures of performance or achievement.
A contract liability occurs when there are billings in excess of revenues recognized under the cost-to-cost measure of progress on
uncompleted contracts. Contract liabilities decrease as revenue is recognized from the satisfaction of the related performance obligation.
The changes in contract assets and liabilities were as follows:
December 31,2019 December 31,2018 Change Location on Consolidated Balance Sheets
(In thousands)
Contract assets $109,078 $104,239 $4,839 Receivables, net
Contract liabilities - current (142,768)(93,901)(48,867)Accounts payable
Contract liabilities - noncurrent (19)(135)116 Deferred credits and other liabilities - other
Net contract assets (liabilities)$(33,709)$10,203 $(43,912)
December 31,2018 December 31,2017 Change Location on Consolidated Balance Sheets
(In thousands)
Contract assets $104,239 $109,540 $(5,301)Receivables, net
Contract liabilities - current (93,901)(84,123)(9,778)Accounts payable
Contract liabilities - noncurrent (135)—(135)Deferred credits and other liabilities - other
Net contract assets $10,203 $25,417 $(15,214)
The Company recognized $89.0 million and $78.6 million in revenue for the years ended December 31, 2019 and 2018, respectively,
which was previously included in contract liabilities at December 31, 2018 and 2017, respectively.
Part II
MDU Resources Group, Inc. Form 10-K 79
The Company recognized a net increase in revenues of $44.1 million and $36.7 million for the years ended December 31, 2019 and 2018,
respectively, from performance obligations satisfied in prior periods.
Remaining performance obligations
The remaining performance obligations at the construction materials and contracting and construction services segments include
unrecognized revenues, also referred to as backlog, that the Company reasonably expects to be realized. These unrecognized revenues can
include: projects that have a written award, a letter of intent, a notice to proceed, an agreed upon work order to perform work on mutually
accepted terms and conditions and change orders or claims to the extent management believes additional contract revenues will be earned
and are deemed probable of collection. Excluded from remaining performance obligations are potential orders under master service
agreements. The remaining performance obligations at the pipeline and midstream segment include firm transportation and storage
contracts with fixed pricing and fixed volumes.
At December 31, 2019, the Company's remaining performance obligations were $2.0 billion. The Company expects to recognize the
following revenue amounts in future periods related to these remaining performance obligations: $1.5 billion within the next 12 months or
less; $229.4 million within the next 13 to 24 months; and $259.3 million thereafter.
The majority of the Company's construction contracts have an original duration of less than two years. The Company's firm transportation
and firm storage contracts have weighted average remaining durations of approximately five and three years, respectively.
Part II
80 MDU Resources Group, Inc. Form 10-K
Note 3 - Business Combinations
The acquisitions below were accounted for as business combinations in accordance with ASC 805 - Business Combinations. The results of
the acquired businesses have been included in the Company's Consolidated Financial Statements beginning on the acquisition date. Pro
forma financial amounts reflecting the effects of the business combinations are not presented, as none of these business combinations were
material to the Company's financial position or results of operations.
For all business combinations, the Company preliminarily allocates the purchase price of the acquisitions to the assets acquired and
liabilities assumed based on their estimated fair values as of the acquisition dates and are considered provisional until final fair values are
determined or the measurement period has passed. The Company expects to record adjustments as it accumulates the information needed
to estimate the fair value of assets acquired and liabilities assumed, including working capital balances, estimated fair value of identifiable
intangible assets, property, plant and equipment, total consideration and goodwill. The excess of the purchase price over the aggregate fair
values is recorded as goodwill. The Company calculated the fair value of the assets acquired in 2019 and 2018 using a market or cost
approach (or a combination of both). Fair values for some of the assets were determined based on Level 3 inputs including estimated future
cash flows, discount rates, growth rates, sales projections, retention rates and terminal values, all of which require significant management
judgment and are susceptible to change. The final fair value of the net assets acquired may result in adjustments to the assets and
liabilities, including goodwill, and will be made as soon as practical, but no later than one year from the respective acquisition dates. Any
subsequent measurement period adjustments are not expected to have a material impact on the Company's results of operations. The
discount rate used in calculating the fair value of the common stock issued was determined by a Black-Scholes-Merton model. The model
used Level 2 inputs including risk-free interest rate, volatility range and dividend yield.
The acquisitions are also subject to customary adjustments based on, among other things, the amount of cash, debt and working capital in
the business as of the closing date. The amounts included in the Consolidated Balance Sheets for these adjustments are considered
provisional until final settlement has occurred.
The following are the acquisitions made during 2019 and 2018 at the construction materials and contracting segment:
•In December 2019, the Company acquired Roadrunner Ready Mix, Inc., a provider of ready-mixed concrete in Idaho.
•In March 2019, the Company acquired Viesko Redi-Mix, Inc., a provider of ready-mixed concrete in Oregon.
•In October 2018, the Company acquired Sweetman Construction Company, a provider of aggregates, asphalt and ready-mixed
concrete in South Dakota.
•In July 2018, the Company acquired Molalla Redi-Mix and Rock Products, Inc., a producer of ready-mixed concrete in Oregon.
•In June 2018, the Company acquired Tri-City Paving, Inc., a general contractor and aggregate, asphalt and ready-mixed concrete
supplier in Minnesota.
•In April 2018, the Company acquired Teevin & Fischer Quarry, LLC, an aggregate producer that provides crushed rock and gravel to
construction and retail customers in Oregon.
In addition to the above acquisitions, in September 2019, the Company purchased the assets of Pride Electric, Inc., an electrical
construction company in Washington. The results of Pride Electric, Inc. are included in the constructions services segment.
In 2019, the gross aggregate consideration for acquisitions was $56.8 million, subject to certain adjustments, and includes $1.2 million of
debt assumed. The amounts allocated to the aggregated assets acquired and liabilities assumed during 2019 were as follows: $15.8 million
to current assets; $16.7 million to property, plant and equipment; $23.1 million to goodwill; $6.7 million to other intangible assets;
$500,000 to deferred charges and other assets - other; $5.9 million to current liabilities and $100,000 to deferred credits and other
liabilities - other. At December 31, 2019, the purchase price adjustments for Viesko Redi-Mix, Inc. have been settled and no material
adjustments were made to the provisional accounting. Purchase price allocations for Pride Electric, Inc. and Roadrunner Ready Mix, Inc. are
preliminary and will be finalized within one year of the respective acquisition dates. The Company issued debt and equity securities to
finance these acquisitions.
In 2018, the gross aggregate consideration for acquisitions was $168.1 million in cash, subject to certain adjustments, and 721,610
shares of common stock with a market value of $20.3 million as of the respective acquisition date. Due to the holding period restriction on
the common stock, the share consideration was discounted to a fair value of approximately $18.2 million, as reflected in the Company's
financial statements. In addition to the issuance of the Company's equity securities, the Company issued debt to finance these acquisitions.
During the third quarter of 2019, the Company finalized its valuation of the assets acquired and liabilities assumed in conjunction with the
acquisition in 2018 of Sweetman Construction Company. As a result, measurement period adjustments were made to the previously
disclosed provisional fair values. At December 31, 2019, the purchase price adjustments for all business combinations that occurred in
2018 had been finalized. These adjustments did not have a material impact on the Company's consolidated results of operations. The
aggregate total consideration for the 2018 acquisitions and the final amounts allocated to the assets acquired and liabilities assumed were
as follows:
December 31,2018
MeasurementPeriodAdjustments December 31,2019
(In thousands)
Assets
Current assets:
Receivables, net $18,984 $—$18,984
Inventories 10,329 (228)10,101
Other current assets 515 (14)501
Total current assets 29,828 (242)29,586
Property, plant and equipment 131,766 6,669 138,435
Deferred charges and other assets:
Goodwill 33,131 (6,669)26,462
Other intangible assets, net 8,227 —8,227
Other 927 —927
Total deferred charges and other assets 42,285 (6,669)35,616
Total assets acquired $203,879 $(242)$203,637
Liabilities
Current liabilities $11,122 $(242)$10,880
Deferred credits and other liabilities:
Asset retirement obligation 914 —914
Deferred income taxes 5,565 —5,565
Total deferred credits and other liabilities 6,479 —6,479
Total liabilities assumed $17,601 $(242)$17,359
Total consideration (fair value)$186,278 $—$186,278
For the years ended December 31, 2019 and 2018, costs incurred for acquisitions were $655,000 and $1.5 million, respectively, and are
included in operation and maintenance expense on the Consolidated Statements of Income.
Part II
MDU Resources Group, Inc. Form 10-K 81
Note 4 - Discontinued Operations
The assets and liabilities of the Company's discontinued operations have been classified as held for sale and the results of operations are
shown in income (loss) from discontinued operations, other than certain general and administrative costs and interest expense which do not
meet the criteria for income (loss) from discontinued operations. At the time the assets were classified as held for sale, depreciation,
depletion and amortization expense was no longer recorded.
On June 27, 2016, the Company sold Dakota Prairie Refining to Tesoro. During 2015 and 2016, the Company sold substantially all of
Fidelity's oil and natural gas assets. In July 2018, the Company completed the sale of a majority of the remaining property, plant and
equipment of Fidelity. The sales of Dakota Prairie Refining and Fidelity were part of the Company's strategic plan to grow its capital
investments in the remaining business segments, reduce exposure to commodity pricing and to focus on creating a greater long-term value.
At December 31, 2019 and 2018, the Company’s deferred tax assets included in assets held for sale of $1.3 million and $1.9 million,
respectively, were largely comprised of state alternative minimum tax credits.
The carrying amounts of the major classes of assets and liabilities classified as held for sale on the Consolidated Balance Sheets at
December 31 were as follows:
2019 2018
(In thousands)
Assets
Current assets:
Receivables, net $425 $430
Total current assets held for sale 425 430
Noncurrent assets:
Deferred income taxes 1,265 1,926
Other 161 161
Total noncurrent assets held for sale 1,426 2,087
Total assets held for sale $1,851 $2,517
Liabilities
Current liabilities:
Accounts payable $—$80
Taxes payable 1,279 1,451
Other accrued liabilities 2,232 2,470
Total current liabilities held for sale 3,511 4,001
Total liabilities held for sale $3,511 $4,001
The reconciliation of the major classes of income and expense constituting pretax income (loss) from discontinued operations to the after-
tax income (loss) from discontinued operations on the Consolidated Statements of Income for the years ended December 31 were as follows:
2019 2018 2017
(In thousands)
Operating revenues $103 $(459)$465
Operating expenses 290 921 (4,607)
Operating income (loss)(187)(1,380)5,072
Other income (expense)—12 (13)
Interest expense —575 250
Income (loss) from discontinued operations before income taxes (187)(1,943)4,809
Income taxes*(474)(4,875)8,592
Income (loss) from discontinued operations $287 $2,932 $(3,783)
*Includes eliminations for the presentation of income tax adjustments between continuing and discontinued operations.
Part II
82 MDU Resources Group, Inc. Form 10-K
Note 5 - Leases
Most of the leases the Company enters into are for equipment, buildings, easements and vehicles as part of their ongoing operations. The
Company also leases certain equipment to third parties through its utility and construction services segments. The Company determines if
an arrangement contains a lease at inception of a contract and accounts for all leases in accordance with ASC 842 - Leases. For more
information on the adoption of ASC 842, see Note 1.
The recognition of leases requires the Company to make estimates and assumptions that affect the lease classification and the assets and
liabilities recorded. The accuracy of lease assets and liabilities reported on the Consolidated Financial Statements depends on, among other
things, management's estimates of interest rates used to discount the lease assets and liabilities to their present value, as well as the lease
terms based on the unique facts and circumstances of each lease.
Lessee accounting
The leases the Company has entered into as part of its ongoing operations are considered operating leases and are recognized on the
Consolidated Balance Sheets as right-of-use assets, current lease liabilities and, if applicable, noncurrent lease liabilities. The
corresponding lease costs are included in operation and maintenance expense on the Consolidated Statements of Income.
Generally, the leases for vehicles and equipment have a term of five years or less and buildings and easements have a longer term of up to
35 years or more. To date, the Company does not have any residual value guarantee amounts probable of being owed to a lessor, financing
leases or material agreements with related parties.
The following tables provide information on the Company's operating leases at and for the year ended December 31, 2019:
(In thousands)
Lease costs:
Operating lease cost $43,759
Variable lease cost 1,555
Short-term lease cost 120,030
Total lease costs $165,344
(Dollars in thousands)
Weighted average remaining lease term 3.13 years
Weighted average discount rate 4.41%
Cash paid for amounts included in themeasurement of lease liabilities $43,477
The reconciliation of the future undiscounted cash flows to the operating lease liabilities presented on the Consolidated Balance Sheet at
December 31, 2019, was as follows:
(In thousands)
2020 $35,156
2021 24,893
2022 16,932
2023 10,227
2024 7,368
Thereafter 47,926
Total 142,502
Less discount 27,096
Total operating lease liabilities $115,406
The undiscounted annual minimum lease payments due under the Company's leases following the previous lease accounting standard as of
December 31, 2018, were as follows:
2019 2020 2021 2022 2023 Thereafter
(In thousands)
Operating leases $37,740 $26,255 $17,868 $11,647 $7,278 $49,098
Lessor accounting
The Company leases certain equipment to third parties, which are considered operating leases. The Company recognized revenue from
operating leases of $51.5 million for the year ended December 31, 2019.
The majority of the Company's operating leases are short-term leases of less than 12 months. At December 31, 2019, the Company had
$11.3 million of lease receivables with a majority due within 12 months or less.
Part II
MDU Resources Group, Inc. Form 10-K 83
Note 6 - Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the year ended December 31, 2019, were as follows:
Balance atJanuary 1, 2019
GoodwillAcquiredDuring the Year
MeasurementPeriod Adjustments Balance atDecember 31, 2019
(In thousands)
Natural gas distribution $345,736 $—$—$345,736
Construction materials and contracting 209,421 14,482 (6,669)217,234
Construction services 109,765 8,623 —118,388
Total $664,922 $23,105 $(6,669)$681,358
The changes in the carrying amount of goodwill for the year ended December 31, 2018, were as follows:
Balance atJanuary 1, 2018
GoodwillAcquiredDuring the Year
MeasurementPeriod Adjustments Balance atDecember 31, 2018
(In thousands)
Natural gas distribution $345,736 $—$—$345,736
Construction materials and contracting 176,290 33,131 —209,421
Construction services 109,765 ——109,765
Total $631,791 $33,131 $—$664,922
During 2019 and 2018, the Company completed three and four business combinations, respectively, and the results of these acquisitions
have been included in the Company's construction materials and contracting and construction services segments. These business
combinations increased the construction materials and contracting segment's goodwill balance at December 31, 2019 and 2018,
respectively, and increased the construction services segment's goodwill balance at December 31, 2019, as noted in the previous tables. At
December 31, 2019 and 2018, the impacts of these business combinations on other intangible assets resulted in an increase of
$6.8 million and $8.2 million, respectively. For more information related to these business combinations, see Note 3.
Other amortizable intangible assets at December 31 were as follows:
2019 2018
(In thousands)
Customer relationships $17,958 $22,720
Less accumulated amortization 6,268 13,535
11,690 9,185
Noncompete agreements 3,439 2,605
Less accumulated amortization 1,957 1,956
1,482 649
Other 8,094 6,458
Less accumulated amortization 6,020 5,477
2,074 981
Total $15,246 $10,815
Amortization expense for amortizable intangible assets for the years ended December 31, 2019, 2018 and 2017, was $2.4 million,
$1.2 million and $2.0 million, respectively. The amounts of estimated amortization expense for identifiable intangible assets as of
December 31, 2019, were:
2020 2021 2022 2023 2024 Thereafter
(In thousands)
Amortization expense $3,365 $2,016 $1,968 $1,924 $1,610 $4,363
Part II
84 MDU Resources Group, Inc. Form 10-K
Note 7 - Regulatory Assets and Liabilities
The following table summarizes the individual components of unamortized regulatory assets and liabilities as of December 31:
Estimated RecoveryPeriod *2019 2018
(In thousands)
Regulatory assets:
Pension and postretirement benefits (a)(e)$157,069 $165,898
Natural gas costs recoverable through rate adjustments (a) (b)Up to 3 years 89,204 42,652
Asset retirement obligations (a)Over plant lives 66,000 60,097
Plants to be retired (a)-32,931 —
Cost recovery mechanisms (a) (b)Up to 3 years 19,396 17,948
Manufactured gas plant sites remediation (a)-15,347 17,068
Taxes recoverable from customers (a)Over plant lives 11,486 11,946
Conservation programs (a) (b)Up to 3 years 7,405 7,494
Long-term debt refinancing costs (a)Up to 18 years 4,286 4,898
Costs related to identifying generation development (a)Up to 7 years 2,052 2,508
Other (a) (b)Up to 19 years 12,221 9,608
Total regulatory assets $417,397 $340,117
Regulatory liabilities:
Taxes refundable to customers (c) (d)$249,506 $277,833
Plant removal and decommissioning costs (c)173,722 173,143
Natural gas costs refundable through rate adjustments (d)23,825 29,995
Pension and postretirement benefits (c)18,065 15,264
Other (c) (d)25,187 25,197
Total regulatory liabilities $490,305 $521,432
Net regulatory position $(72,908)$(181,315)
*Estimated recovery period for regulatory assets currently being recovered in rates charged to customers.
(a)Included in deferred charges and other assets - other on the Consolidated Balance Sheets.
(b)Included in prepayments and other current assets on the Consolidated Balance Sheets.
(c)Included in deferred credits and other liabilities - other on the Consolidated Balance Sheets.
(d)Included in other accrued liabilities on the Consolidated Balance Sheets.
(e)Recovered as expense is incurred or cash contributions are made.
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. As of December 31, 2019
and 2018, approximately $276.5 million and $313.5 million, respectively, of regulatory assets were not earning a rate of return.
During the first quarter of 2019 and the fourth quarter of 2018, the Company experienced increased natural gas costs in certain
jurisdictions where it supplies natural gas. The Company has recorded these natural gas costs as regulatory assets as they are expected to be
recovered from customers, as discussed in Note 19.
In February 2019, the Company announced that it intends to retire three aging coal-fired electric generating units in early 2021 and early
2022. The Company has accelerated the depreciation related to these facilities in property, plant and equipment and has recorded the
difference between the accelerated depreciation, in accordance with GAAP, and the depreciation approved for rate-making purposes as
regulatory assets. The Company expects to recover the regulatory assets related to the plants to be retired in future rates.
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 or accumulated other comprehensive income (loss) in the period in which the
discontinuance of regulatory accounting occurs.
Part II
MDU Resources Group, Inc. Form 10-K 85
Note 8 - Fair Value Measurements
The Company measures its investments in certain fixed-income and equity securities at fair value with changes in fair value recognized in
income. The Company anticipates using these investments, which consist of an insurance contract, to satisfy its obligations under its
unfunded, nonqualified defined 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
$87.0 million and $73.8 million at December 31, 2019 and 2018, respectively, are classified as investments on the Consolidated Balance
Sheets. The net unrealized gains on these investments for the years ended December 31, 2019 and 2017, were $13.2 million and
$9.3 million, respectively. The net unrealized loss on these investments for the year ended December 31, 2018, was $3.6 million. The
change in fair value, which is considered part of the cost of the plan, is classified in other income on the Consolidated Statements of
Income.
The Company did not elect the fair value option, which records gains and losses in income, for its available-for-sale securities, which include
mortgage-backed securities and U.S. Treasury securities. These available-for-sale securities are recorded at fair value and are classified as
investments on the Consolidated Balance Sheets. Unrealized gains or losses are recorded in accumulated other comprehensive income
(loss). Details of available-for-sale securities were as follows:
December 31, 2019 Cost
GrossUnrealizedGains
GrossUnrealizedLosses Fair Value
(In thousands)
Mortgage-backed securities $9,804 $87 $10 $9,881
U.S. Treasury securities 1,228 1 —1,229
Total $11,032 $88 $10 $11,110
December 31, 2018 Cost
GrossUnrealizedGains
GrossUnrealizedLosses Fair Value
(In thousands)
Mortgage-backed securities $10,473 $21 $162 $10,332
U.S. Treasury securities 179 ——179
Total $10,652 $21 $162 $10,511
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 fair value ASC establishes a hierarchy for grouping assets and liabilities, based
on the significance of inputs. The estimated fair values of the Company's assets and liabilities measured on a recurring basis are determined
using the market approach. The Company's Level 2 money market funds are valued at the net asset value of shares held at the end of the
period, based on published market quotations on active markets, or using other known sources including pricing from outside sources. The
estimated fair value of the Company's Level 2 mortgage-backed securities and U.S. Treasury securities are based on comparable market
transactions, other observable inputs or other sources, including pricing from outside sources. The estimated fair value of the Company's
Level 2 insurance contract is based on contractual cash surrender values that are determined primarily by investments in managed separate
accounts of the insurer. These amounts approximate fair value. The managed separate accounts are valued based on other observable inputs
or corroborated market data.
Though the Company believes the methods used to estimate fair value are consistent with those used by other market participants, the use
of other methods or assumptions could result in a different estimate of fair value. For the years ended December 31, 2019 and 2018, there
were no transfers between Levels 1 and 2.
Part II
86 MDU Resources Group, Inc. Form 10-K
The Company's assets measured at fair value on a recurring basis were as follows:
Fair Value Measurementsat December 31, 2019, Using
Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1)
SignificantOtherObservableInputs(Level 2)
SignificantUnobservableInputs (Level 3)
Balance atDecember 31,2019
(In thousands)
Assets:
Money market funds $—$8,440 $—$8,440
Insurance contract*—87,009 —87,009
Available-for-sale securities:
Mortgage-backed securities —9,881 —9,881
U.S. Treasury securities —1,229 —1,229
Total assets measured at fair value $—$106,559 $—$106,559
*The insurance contract invests approximately 51 percent in fixed-income investments, 23 percent in common stock of large-cap companies, 12 percent in common
stock of mid-cap companies, 10 percent in common stock of small-cap companies, 3 percent in target date investments and 1 percent in cash equivalents.
Fair Value Measurementsat December 31, 2018, Using
Quoted Pricesin ActiveMarkets forIdenticalAssets (Level 1)
SignificantOtherObservableInputs(Level 2)
SignificantUnobservableInputs (Level 3)
Balance atDecember 31,2018
(In thousands)
Assets:
Money market funds $—$10,799 $—$10,799
Insurance contract*—73,838 —73,838
Available-for-sale securities:
Mortgage-backed securities —10,332 —10,332
U.S. Treasury securities —179 —179
Total assets measured at fair value $—$95,148 $—$95,148
*The insurance contract invests approximately 53 percent in fixed-income investments, 21 percent in common stock of large-cap companies, 11 percent in common
stock of mid-cap companies, 10 percent in common stock of small-cap companies, 3 percent in target date investments and 2 percent in cash equivalents.
The Company applies the provisions of the fair value measurement standard to its nonrecurring, non-financial measurements, including
long-lived asset impairments. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only
in certain circumstances. The Company reviews the carrying value of its long-lived assets, excluding goodwill, whenever events or changes in
circumstances indicate that such carrying amounts may not be recoverable.
In the second quarter of 2019, the Company reviewed a non-utility investment at its electric and natural gas distribution segments for
impairment. This was a cost-method investment and was written down to zero using the income approach to determine its fair value,
requiring the Company to record a write-down of $2.0 million, before tax. The fair value of this investment was categorized as Level 3 in the
fair value hierarchy. The reduction is reflected in investments on the Consolidated Balance Sheet, as well as within other income on the
Consolidated Statement of Income.
The Company performed a fair value assessment of the assets acquired and liabilities assumed in the business combinations that occurred
during 2019 and 2018. For more information on these Level 2 and Level 3 fair value measurements, see Note 3.
Part II
MDU Resources Group, Inc. Form 10-K 87
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 fair value was categorized as Level 2 in the fair value hierarchy and was based on discounted future cash
flows using current market interest rates. The estimated fair value of the Company's Level 2 long-term debt at December 31 was as follows:
2019 2018
(In thousands)
Carrying Amount $2,243,107 $2,108,695
Fair Value $2,418,631 $2,183,819
The carrying amounts of the Company's remaining financial instruments included in current assets and current liabilities approximate their
fair values.
Part II
88 MDU Resources Group, Inc. Form 10-K
Note 9 - Debt
Certain debt instruments of the Company's subsidiaries, including those discussed later, contain restrictive and financial covenants and
cross-default provisions. In order to borrow under the debt agreements, the subsidiary companies must be in compliance with the applicable
covenants and certain other conditions, all of which the subsidiaries, as applicable, were in compliance with at December 31, 2019. In the
event the 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 revolving credit facilities of the Company's subsidiaries:
Company Facility FacilityLimit
AmountOutstanding atDecember 31,2019
AmountOutstanding atDecember 31, 2018
Letters ofCredit atDecember 31,2019 ExpirationDate
(In millions)
Montana-DakotaUtilities Co.Commercial paper/Revolvingcredit agreement (a)$175.0 $118.6 (b)$48.5 $—12/19/24
Cascade NaturalGas Corporation Revolving credit agreement $100.0 (c)$64.6 $53.8 $2.2 (d)6/7/24
Intermountain GasCompany Revolving credit agreement $85.0 (e)$24.5 $56.3 $1.4 (d)6/7/24
Centennial EnergyHoldings, Inc.Commercial paper/Revolvingcredit agreement (f)$600.0 $104.3 (b)$289.6 (b)$—12/19/24
(a)The commercial paper program is supported by a revolving credit agreement with various banks (provisions allow for increased borrowings, at the option of Montana-
Dakota on stated conditions, up to a maximum of $225.0 million). There were no amounts outstanding under the revolving credit agreement at December 31, 2019,
and $48.5 million was outstanding at December 31, 2018.(b)Amount outstanding under commercial paper program.
(c)Certain provisions allow for increased borrowings, up to a maximum of $125.0 million.
(d)Outstanding letter(s) of credit reduce the amount available under the credit agreement.
(e)Certain provisions allow for increased borrowings, up to a maximum of $110.0 million.
(f)The commercial paper program is supported by a revolving credit agreement with various banks (provisions allow for increased borrowings, at the option of Centennialon stated conditions, up to a maximum of $700.0 million). There were no amounts outstanding under the revolving credit agreement.
The respective commercial paper programs are supported by revolving credit agreements. While the amount of commercial paper
outstanding does not reduce available capacity under the respective revolving credit agreements, Montana-Dakota and Centennial do not
issue commercial paper in an aggregate amount exceeding the available capacity under their credit agreements. The commercial paper
borrowings may vary during the period, largely the result of fluctuations in working capital requirements due to the seasonality of certain
operations of the Company's subsidiaries.
The following includes information related to the preceding table.
Long-term debt
Long-term Debt Outstanding Long-term debt outstanding was as follows:
Weighted AverageInterest Rate atDecember 31, 2019 2019 2018
(In thousands)
Senior Notes due on dates ranging from October 22, 2022 to November 18, 2059 4.45%$1,850,000 $1,381,000
Commercial paper supported by revolving credit agreements 2.04%222,900 338,100
Term Loan Agreement due on September 3, 2032 2.00%9,100 209,800
Credit agreements due on June 7, 2024 4.40%89,050 110,100
Medium-Term Notes due on dates ranging from September 1, 2020 to March 16, 2029 6.68%50,000 50,000
Other notes due on dates ranging from July 15, 2021 to November 30, 2038 4.48%29,117 25,229
Less unamortized debt issuance costs 7,010 5,207
Less discount 50 327
Total long-term debt 2,243,107 2,108,695
Less current maturities 16,540 251,854
Net long-term debt $2,226,567 $1,856,841
Montana-Dakota On January 1, 2019, the Company's revolving credit agreement and commercial paper program became Montana-Dakota's
revolving credit agreement and commercial paper program as a result of the Holding Company Reorganization. The outstanding balance of
the revolving credit agreement was also transferred to Montana-Dakota. All of the related terms and covenants of the credit agreements
remained the same. For more information on the reorganization, see Note 1.
On December 19, 2019, Montana-Dakota amended and restated its revolving credit agreement extending the maturity date to December 19,
2024. Montana-Dakota's revolving credit agreement supports its commercial paper program. Commercial paper borrowings under this
agreement are classified as long-term debt as they are intended to be refinanced on a long-term basis through continued commercial paper
borrowings.
The credit agreement contains customary covenants and provisions, including covenants of Montana-Dakota not to permit, as of the end of
any fiscal quarter, the ratio of funded debt to total capitalization (determined on a consolidated basis) to be greater than 65 percent. Other
covenants include limitations on the sale of certain assets and on the making of certain loans and investments.
On July 24, 2019, Montana-Dakota entered into a $200.0 million note purchase agreement with maturity dates ranging from October 17,
2039 to November 18, 2059, at a weighted average interest rate of 3.95 percent. The agreement contains customary covenants and
provisions, including a covenant of Montana-Dakota not to permit, at any time, the ratio of total debt to total capitalization to be greater
than 65 percent.
Montana-Dakota's ratio of total debt to total capitalization at December 31, 2019, was 52 percent.
Cascade On June 7, 2019, Cascade amended its revolving credit agreement to increase the borrowing capacity to $100.0 million and
extend the maturity date to June 7, 2024. Any borrowings under the revolving credit agreement are classified as long-term debt as they are
intended to be refinanced on a long-term basis through continued borrowings.
The 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. Other covenants include restrictions on the sale of certain assets, limitations
on indebtedness and the making of certain investments.
On June 13, 2019, Cascade issued $75.0 million of senior notes with maturity dates ranging from June 13, 2029 to June 13, 2049, at a
weighted average interest rate of 3.93 percent. The 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 ratio of total debt to total capitalization at December 31, 2019, was 53 percent.
Part II
MDU Resources Group, Inc. Form 10-K 89
Intermountain On June 7, 2019, Intermountain amended its revolving credit agreement to extend the maturity date to June 7, 2024. Any
borrowings under the revolving credit agreement are classified as long-term debt as they are intended to be refinanced on a long-term basis
through continued borrowings.
The credit agreement contains customary covenants and provisions, including a covenant of Intermountain not to permit, at any time, the
ratio of total debt to total capitalization to be greater than 65 percent. Other covenants include restrictions on the sale of certain assets,
limitations on indebtedness and the making of certain investments.
On June 13, 2019, Intermountain issued $50.0 million of senior notes with maturity dates ranging from June 13, 2029 to June 13, 2049,
at a weighted average interest rate of 3.92 percent. The agreement contains customary covenants and provisions, including a covenant of
Intermountain not to permit, at any time, the ratio of total debt to total capitalization to be greater than 65 percent.
Intermountain's ratio of total debt to total capitalization at December 31, 2019, was 50 percent.
Centennial On December 19, 2019, Centennial amended and restated its revolving credit agreement to increase the borrowing capacity to
$600.0 million and extend the maturity date to December 19, 2024. Centennial's revolving credit agreement supports its commercial paper
program. Commercial paper borrowings under this agreement are classified as long-term debt as they are intended to be refinanced on a
long-term basis through continued commercial paper borrowings.
Centennial's revolving credit agreement contains customary covenants and provisions, including a covenant of Centennial, not to permit, as
of the end of any fiscal quarter, the ratio of total consolidated debt to total consolidated capitalization to be greater than 65 percent. Other
covenants include restricted payments, restrictions on the sale of certain assets, limitations on subsidiary indebtedness, minimum
consolidated net worth, limitations on priority debt and the making of certain loans and investments.
On April 4, 2019, Centennial issued $150.0 million of senior notes with maturity dates ranging from April 4, 2029 to April 4, 2034, at a
weighted average interest rate of 4.60 percent. The agreement contains customary covenants and provisions, including a covenant of
Centennial not to permit, at any time, the ratio of total debt to total capitalization to be greater than 60 percent.
Centennial's ratio of total debt to total capitalization at December 31, 2019, was 34 percent.
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.
WBI Energy Transmission On July 26, 2019, WBI Energy Transmission amended its uncommitted note purchase and private shelf agreement
to increase capacity to $300.0 million and extend the issuance period to May 16, 2022. On December 16, 2019, WBI Energy Transmission
issued $45.0 million of senior notes under the private shelf agreement with a maturity date of December 16, 2034, at an interest rate of
4.17 percent. WBI Energy Transmission had $170.0 million of notes outstanding at December 31, 2019, which reduced the remaining
capacity under this uncommitted private shelf agreement to $130.0 million. This agreement contains customary covenants and provisions,
including a covenant of WBI Energy Transmission 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 a limitation on priority debt and restrictions on the sale of certain
assets and the making of certain investments.
WBI Energy Transmission's ratio of total debt to total capitalization at December 31, 2019, was 40 percent.
Schedule of Debt Maturities Long-term debt maturities, which excludes unamortized debt issuance costs and discount, for the five years and
thereafter following December 31, 2019, were as follows:
2020 2021 2022 2023 2024 Thereafter
(In thousands)
Long-term debt maturities $16,540 $1,528 $148,021 $77,921 $373,372 $1,632,785
Part II
90 MDU Resources Group, Inc. Form 10-K
Note 10 - Asset Retirement Obligations
The Company records obligations related to retirement costs of natural gas distribution mains and lines, natural gas transmission lines,
natural gas storage 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 facilities and buildings, and
certain other obligations as asset retirement obligations.
A reconciliation of the Company's liability, which is included in other accrued liabilities and deferred credits and other liabilities - other on
the Consolidated Balance Sheets, for the years ended December 31 was as follows:
2019 2018
(In thousands)
Balance at beginning of year $375,553 $341,969
Liabilities incurred 25,869 13,424
Liabilities acquired 486 1,002
Liabilities settled (7,097)(3,699)
Accretion expense*19,789 18,242
Revisions in estimates 2,975 4,615
Balance at end of year $417,575 $375,553
*Includes $18.3 million and $16.8 million in 2019 and 2018, respectively, related to regulatory assets.
The Company believes that largely all 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. For more information on the Company's regulatory
assets and liabilities, see Note 7.
Part II
MDU Resources Group, Inc. Form 10-K 91
Note 11 - Preferred Stock
The Company currently has 2.0 million shares of preferred stock authorized to be issued with a $100 par value. At December 31, 2019,
there were no shares outstanding. At December 31, 2018, there were no shares outstanding. On April 1, 2017, the Company redeemed all
outstanding 4.50% Series and 4.70% Series preferred stocks at $105 per share and $102 per share, respectively, for a repurchase price of
approximately $15.6 million and $300,000 of redeemable preferred stock classified as long-term debt.
Note 12 - Common Stock
The Company depends on earnings and dividends from its subsidiaries to pay dividends on common stock. The Company has paid quarterly
dividends for more than 80 consecutive years with an increase in the dividend amount for the last 29 consecutive years. For the years ended
December 31, 2019, 2018 and 2017, dividends declared on common stock were $.8150, $.7950 and $.7750 per common share,
respectively. Dividends on common stock are paid quarterly to the stockholders of record less than 30 days prior to the distribution date. For
the years ended December 31, 2019, 2018 and 2017, the dividends declared to common stockholders were $162.1 million,
$155.7 million and $151.5 million, respectively.
The declaration and payment of dividends of the Company is at the sole discretion of the board of directors. In addition, the Company's
subsidiaries are generally restricted to paying dividends out of capital accounts or net assets. The following discusses the most restrictive
limitations.
Pursuant to a covenant under a credit agreement, Centennial may only declare or pay distributions if as of the last day of any fiscal quarter,
the ratio of Centennial's average consolidated indebtedness as of the last day of such fiscal quarter and each of the preceding three fiscal
quarters to Centennial's Consolidated EBITDA does not exceed 3.5 to 1. In addition, certain credit agreements and regulatory limitations of
the Company's subsidiaries also contain restrictions on dividend payments. The most restrictive limitation requires the Company's
subsidiaries not to permit the ratio of funded debt to capitalization to be greater than 65 percent. Based on this limitation, approximately
$1.4 billion of the net assets of the Company's subsidiaries, which represents common stockholders' equity including retained earnings,
would be restricted from use for dividend payments at December 31, 2019.
The Company currently has a shelf registration statement on file with the SEC, under which the Company may issue and sell any
combination of common stock and debt securities. The Company may sell such securities if warranted by market conditions and the
Company's capital requirements. Any public 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. The Company's board of directors currently has authorized the
issuance and sale of up to an aggregate of $1.0 billion worth of such securities.
On February 22, 2019, the Company entered into a Distribution Agreement with J.P. Morgan Securities LLC and MUFG Securities Americas
Inc., as sales agents, with respect to the issuance and sale of up to 10.0 million shares of the Company's common stock in connection with
an “at-the-market” offering. The common stock may be offered for sale, from time to time, in accordance with the terms and conditions of
the agreement.
The Company issued 3.6 million shares of common stock for the year ended December 31, 2019, pursuant to the “at-the-market” offering.
For the year ended December 31, 2019, the Company received net proceeds of $94.0 million and paid commissions to the sales agents of
approximately $950,000 in connection with the sales of common stock under the "at-the-market" offering. The net proceeds were used for
capital expenditures and acquisitions. As of December 31, 2019, the Company had remaining capacity to issue up to 6.4 million additional
shares of common stock under the "at-the-market" offering program.
The K-Plan provides participants the option to invest in the Company's common stock. For the years ended December 31, 2019, 2018 and
2017, the K-Plan purchased shares of common stock on the open market or issued original issue common stock of the Company. At
December 31, 2019, there were 7.3 million shares of common stock reserved for original issuance under the K-Plan.
Part II
92 MDU Resources Group, Inc. Form 10-K
Note 13 - Stock-Based Compensation
The Company has stock-based compensation plans under which it is currently authorized to grant restricted stock and other stock awards.
As of December 31, 2019, there were 4.6 million remaining shares available to grant under these plans. The Company either purchases
shares on the open market or issues new shares of common stock to satisfy the vesting of stock-based awards.
Total stock-based compensation expense (after tax) was $6.5 million, $4.6 million and $2.7 million in 2019, 2018 and 2017, respectively.
As of December 31, 2019, total remaining unrecognized compensation expense related to stock-based compensation was approximately
$9.7 million (before income taxes) which will be amortized over a weighted average period of 1.6 years.
Stock awards
Non-employee directors receive shares of common stock in addition to and in lieu of cash payment for directors' fees. Shares of common
stock were issued under the non-employee director stock compensation plan or the non-employee director long-term incentive compensation
plan in 2019, 2018 and 2017. There were 41,644 shares with a fair value of $1.2 million, 38,605 shares with a fair value of $1.0 million
and 40,572 shares with a fair value of $1.1 million issued to non-employee directors during the years ended December 31, 2019, 2018
and 2017, respectively.
Restricted stock awards
In February 2018, the Company granted restricted stock awards under the long-term performance-based incentive plan to certain key
employees. The restricted stock awards granted will vest after three years. The grant-date fair value is the market price of the Company's
stock on the grant date. At December 31, 2019, the total nonvested shares were 22,838 with a weighted average grant-date fair value of
$27.48 per share.
Performance share awards
Since 2003, key employees of the Company have been granted performance share awards each year under the long-term performance-based
incentive plan. Entitlement to performance shares is established by either the market condition or the performance metrics and service
condition relative to the designated award.
Target grants of performance shares outstanding at December 31, 2019, were as follows:
Grant Date PerformancePeriod Target Grantof Shares
February 2018 2018-2020 246,309
February 2019 2019-2021 327,194
Under the market condition for these performance share awards, participants may earn from zero to 200 percent of the apportioned 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 as determined by Monte Carlo simulation. The blended volatility term structure ranges are comprised of
50 percent historical volatility and 50 percent implied volatility. Risk-free interest rates were based on U.S. Treasury security rates in effect
as of the grant date. Assumptions used for grants applicable to the market condition for certain performance shares issued in 2019, 2018
and 2017 were:
2019 2018 2017
Weighted average grant-date fair value $35.07 $34.55 $24.31
Blended volatility range 19.50%–19.69%17.87%–22.14%22.70%–25.56%
Risk-free interest rate range 2.46%–2.55%1.86%–2.46%.69%–1.61%
Weighted average discounted dividends per share $2.85 $2.46 $1.70
Under the performance conditions for these performance share awards, participants may earn from zero to 200 percent of the apportioned
target grant of shares. The performance conditions are based on the Company's compound annual growth rate in earnings from continuing
operations before interest, taxes, depreciation, depletion and amortization and the Company's compound annual growth rate in earnings
from continuing operations. The weighted average grant-date fair value per share for the performance shares applicable to these
performance conditions issued in 2019 and 2018 was $26.25 and $27.48, respectively.
The fair value of the performance shares that vested during the years ended December 31, 2019 and 2017, was $9.7 million and
$9.6 million, respectively. There were no performance shares that vested in 2018.
A summary of the status of the performance share awards for the year ended December 31, 2019, was as follows:
Number ofShares
WeightedAverageGrant-DateFair Value
Nonvested at beginning of period 668,791 $23.03
Granted 327,194 30.66
Additional performance shares earned 103,159 14.60
Less:
Vested 398,919 15.52
Forfeited 126,722 24.31
Nonvested at end of period 573,503 $30.81
Part II
MDU Resources Group, Inc. Form 10-K 93
Note 14 - Income Taxes
The components of income before income taxes from continuing operations for each of the years ended December 31 were as follows:
2019 2018 2017
(In thousands)
United States $398,532 $317,655 $350,064
Foreign (87)(784)(37)
Income before income taxes from continuing operations $398,445 $316,871 $350,027
Income tax expense (benefit) from continuing operations for the years ended December 31 was as follows:
2019 2018 2017
(In thousands)
Current:
Federal $(3,502)$(15,901)$74,272
State 3,366 3,651 16,192
(136)(12,250)90,464
Deferred:
Income taxes:
Federal 50,218 50,755 (24,497)
State 12,098 7,206 (864)
Investment tax credit - net 1,099 1,774 (62)
63,415 59,735 (25,423)
Total income tax expense $63,279 $47,485 $65,041
In accordance with the accounting guidance on accounting for income taxes, the tax effects of the change in tax laws or rates are to be
recorded in the period of enactment. The TCJA was enacted on December 22, 2017, as discussed in Note 1. Therefore, the reduction in the
corporate tax rate from 35 percent to 21 percent required the Company to prepare a one-time revaluation of the Company's deferred tax
assets and liabilities in the fourth quarter of 2017, the period of enactment. The deferred taxes were revalued at the new tax rate because
deferred taxes should reflect what the Company expects to pay or receive in future periods under the applicable tax rate. As a result of the
revaluation, the Company reduced the value of these assets and liabilities and recorded a tax benefit from continuing operations of
$39.5 million on the Consolidated Statements of Income for the year ended December 31, 2017. Included in the tax benefit from
continuing operations was income tax expense of $7.7 million related to amounts in accumulated other comprehensive loss and
$1.0 million related to the Company's assets held for sale.
The Company's regulated operations prepared a one-time revaluation of the Company's regulatory deferred tax assets and liabilities in the
fourth quarter of 2017 related to the enactment of the TCJA. The revaluation was deferred under regulatory accounting as the Company
worked with the various regulators to determine the amount and timing of amounts to be returned to customers. In the third quarter of
2018, the Company reversed a regulatory liability recorded in 2017 based on a FERC final accounting order being issued, which resulted in
a $4.2 million tax benefit.
The changes included in the TCJA were broad and complex. The SEC issued rules that allowed for a measurement period of up to one year
after the enactment date of the TCJA to finalize the recording of the related tax impacts. The Company reviewed the impacts of the TCJA
and completed its assessment of the transitional impacts during the period ending December 31, 2018, of which there were no such
material adjustments.
Part II
94 MDU Resources Group, Inc. Form 10-K
Components of deferred tax assets and deferred tax liabilities at December 31 were as follows:
2019 2018
(In thousands)
Deferred tax assets:
Postretirement $51,075 $51,930
Compensation-related 37,330 29,885
Operating lease liabilities 24,459 —
Asset retirement obligations 7,450 7,083
Customer advances 7,325 7,734
Legal and environmental contingencies 6,601 6,729
Federal renewable energy credit 5,343 8,015
Alternative minimum tax credit carryforward —13,404
Other 32,533 37,347
Total deferred tax assets 172,116 162,127
Deferred tax liabilities:
Depreciation and basis differences on property, plant and equipment 511,867 476,832
Postretirement 48,927 44,432
Operating lease right-of-use-assets 24,436 —
Intangible asset amortization 18,930 17,752
Other 61,385 39,712
Total deferred tax liabilities 665,545 578,728
Valuation allowance 13,154 13,484
Net deferred income tax liability $506,583 $430,085
As of December 31, 2019 and 2018, the Company had various state income tax net operating loss carryforwards of $149.8 million and
$153.2 million, respectively, and federal and state income tax credit carryforwards, excluding alternative minimum tax credit carryforwards,
of $43.7 million and $43.5 million, respectively. Included in the state credits are various regulatory investment tax credits of approximately
$37.4 million and $32.2 million at December 31, 2019 and 2018, respectively. The federal income tax credit carryforwards expire in 2040
if not utilized and state income tax credit carryforwards are due to expire between 2020 and 2033. Changes in tax regulations or
assumptions regarding current and future taxable income could require additional valuation allowances in the future.
The following table reconciles the change in the net deferred income tax liability from December 31, 2018, to December 31, 2019, to
deferred income tax expense:
2019
(In thousands)
Change in net deferred income tax liability from the preceding table $76,498
Deferred taxes associated with other comprehensive loss 1,631
Deferred taxes associated with TCJA enactment for regulated activities (11,904)
Other (2,810)
Deferred income tax expense for the period $63,415
Part II
MDU Resources Group, Inc. Form 10-K 95
Total income tax expense differs from the amount computed by applying the statutory federal income tax rate to income before taxes. The
reasons for this difference were as follows:
Years ended December 31,2019 2018 2017
Amount %Amount %Amount %
(Dollars in thousands)
Computed tax at federal statutory rate $83,674 21.0 $66,543 21.0 $122,509 35.0
Increases (reductions) resulting from:
State income taxes, net of federal income tax 14,029 3.5 12,190 3.8 10,724 3.1
Federal renewable energy credit (15,843)(4.0)(11,759)(3.7)(13,958)(4.0)
Tax compliance and uncertain tax positions (2,739)(.7)(2,725)(.9)(643)(.2)
Domestic production deduction ————(6,849)(2.0)
Excess deferred income tax amortization (11,904)(3.0)(9,319)(2.9)(397)—
TCJA revaluation ——(5,947)(1.9)(47,242)(13.5)
TCJA revaluation related to accumulated other comprehensive loss balance ——(42)—7,735 2.2
Other (3,938)(.9)(1,456)(.4)(6,838)(2.0)
Total income tax expense $63,279 15.9 $47,485 15.0 $65,041 18.6
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state, local and foreign jurisdictions.
The Company is no longer subject to U.S. federal or non-U.S. income tax examinations by tax authorities for years ending prior to 2015.
With few exceptions, as of December 31, 2019, the Company is no longer subject to state and local income tax examinations by tax
authorities for years ending prior to 2015.
For the years ended December 31, 2019, 2018 and 2017, total reserves for uncertain tax positions were not material. The Company
recognizes interest and penalties accrued relative to unrecognized tax benefits in income tax expense.
Part II
96 MDU Resources Group, Inc. Form 10-K
Note 15 - Cash Flow Information
Cash expenditures for interest and income taxes for the years ended December 31 were as follows:
2019 2018 2017
(In thousands)
Interest, net*$93,414 $83,009 $79,638
Income taxes paid (refunded), net**$(8,475)$16,041 $112,137
*AFUDC - borrowed was $2.8 million, $2.3 million and $966,000 for the years ended December 31, 2019, 2018
and 2017, respectively.
**Income taxes paid (refunded), including discontinued operations, were $(9.4) million, $5.5 million and
$9.7 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Noncash investing and financing transactions at December 31 were as follows:
2019 2018 2017
(In thousands)
Property, plant and equipment additions in accounts payable $46,119 $42,355 $29,263
Issuance of common stock in connection with acquisition $—$18,186 $—
Debt assumed in connection with a business combination $1,163 $—$—
Right-of-use assets obtained in exchange for new operating lease liabilities $54,880 $—$—
Note 16 - 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 internal reporting of these operating segments is
defined based on the reporting and review process used by the Company's chief executive officer. The vast majority of the Company's
operations are located within the United States.
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 services.
The pipeline and midstream 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 other energy-related services.
The construction materials and contracting segment mines, processes and sells construction aggregates (crushed stone, sand and gravel);
produces and sells asphalt mix; and supplies ready-mixed concrete. This segment focuses on vertical integration of its contracting services
with its construction materials to support the aggregate based product lines including aggregate placement, asphalt and concrete paving,
and site development and grading. Although not common to all locations, other products include the sale of cement, liquid asphalt for
various commercial and roadway applications, various finished concrete products and other building materials and related contracting
services. This segment operates in the central, southern and western United States, including Alaska and Hawaii.
The construction services segment provides inside and outside specialty contracting services. Its inside services include design, construction
and maintenance of electrical and communication wiring and infrastructure, fire suppression systems, and mechanical piping and services.
Its outside services include design, construction and maintenance of overhead and underground electrical distribution and transmission
lines, substations, external lighting, traffic signalization, and gas pipelines, as well as utility excavation and the manufacture and
distribution of transmission line construction equipment. This segment also constructs and maintains renewable energy projects. These
specialty contracting services are provided to utilities and large manufacturing, commercial, industrial, institutional and government
customers.
The Other category includes the activities of Centennial Capital, which, through its subsidiary InterSource Insurance Company, 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 self-
insured layers of the insured Company's general liability, automobile liability, pollution liability and other coverages. Centennial Capital also
owns certain real and personal property. In addition, the Other category includes certain assets, liabilities and tax adjustments of the
holding company primarily associated with corporate functions and certain general and administrative costs (reflected in operation and
maintenance expense) and interest expense which were previously allocated to the refining business and Fidelity and do not meet the
criteria for income (loss) from discontinued operations. The Other category also includes Centennial Resources' former investment in Brazil.
Discontinued operations include the results and supporting activities of Dakota Prairie Refining and Fidelity other than certain general and
administrative costs and interest expense as described above. For more information on discontinued operations, see Note 4.
Part II
MDU Resources Group, Inc. Form 10-K 97
The information below follows the same accounting policies as described in Note 1. Information on the Company's segments as of
December 31 and for the years then ended was as follows:
2019 2018 2017
(In thousands)
External operating revenues:
Regulated operations:
Electric $351,725 $335,123 $342,805
Natural gas distribution 865,222 823,247 848,388
Pipeline and midstream 62,357 54,857 53,566
1,279,304 1,213,227 1,244,759
Nonregulated operations:
Pipeline and midstream 21,835 23,161 19,602
Construction materials and contracting 2,189,651 1,925,185 1,811,964
Construction services 1,845,896 1,369,772 1,366,317
Other 90 207 709
4,057,472 3,318,325 3,198,592
Total external operating revenues $5,336,776 $4,531,552 $4,443,351
Intersegment operating revenues:
Regulated operations:
Electric $—$—$—
Natural gas distribution ———
Pipeline and midstream 56,037 50,580 48,867
56,037 50,580 48,867
Nonregulated operations:
Pipeline and midstream 215 325 178
Construction materials and contracting 1,066 669 565
Construction services 3,370 1,681 1,285
Other 16,461 11,052 7,165
21,112 13,727 9,193
Intersegment eliminations (77,149)(64,307)(58,060)
Total intersegment operating revenues $—$—$—
Depreciation, depletion and amortization:
Electric $58,721 $50,982 $47,715
Natural gas distribution 79,564 72,486 69,381
Pipeline and midstream 21,220 17,896 16,788
Construction materials and contracting 77,450 61,158 55,862
Construction services 17,038 15,728 15,739
Other 2,024 1,955 2,001
Total depreciation, depletion and amortization $256,017 $220,205 $207,486
Operating income (loss):
Electric $64,039 $65,148 $79,902
Natural gas distribution 69,188 72,336 84,239
Pipeline and midstream 42,796 36,128 36,004
Construction materials and contracting 179,955 141,426 143,230
Construction services 126,426 86,764 81,292
Other (1,184)(79)(619)
Total operating income $481,220 $401,723 $424,048
Part II
98 MDU Resources Group, Inc. Form 10-K
2019 2018 2017
(In thousands)
Interest expense:
Electric $25,334 $25,860 $25,377
Natural gas distribution 35,488 30,768 31,234
Pipeline and midstream 7,198 5,964 4,990
Construction materials and contracting 23,792 17,290 14,778
Construction services 5,331 3,551 3,742
Other 1,859 2,762 3,564
Intersegment eliminations (415)(1,581)(897)
Total interest expense $98,587 $84,614 $82,788
Income taxes:
Electric $(12,650)$(6,482)$7,699
Natural gas distribution 1,405 4,075 22,756
Pipeline and midstream 7,219 2,677 12,281
Construction materials and contracting 37,389 28,357 5,405
Construction services 29,973 20,000 25,558
Other (57)(1,142)(1,809)
Intersegment eliminations ——(6,849)
Total income taxes $63,279 $47,485 $65,041
Earnings on common stock:
Regulated operations:
Electric $54,763 $47,000 $49,366
Natural gas distribution 39,517 37,732 32,225
Pipeline and midstream 28,255 26,905 20,620
122,535 111,637 102,211
Nonregulated operations:
Pipeline and midstream 1,348 1,554 (127)
Construction materials and contracting 120,371 92,647 123,398
Construction services 92,998 64,309 53,306
Other (2,086)(761)(1,422)
212,631 157,749 175,155
Intersegment eliminations (a)——6,849
Earnings on common stock before income (loss) from discontinued operations 335,166 269,386 284,215
Income (loss) from discontinued operations, net of tax (a)287 2,932 (3,783)
Earnings on common stock $335,453 $272,318 $280,432
Capital expenditures:
Electric $99,449 $186,105 $109,107
Natural gas distribution 206,799 205,896 146,981
Pipeline and midstream 71,477 70,057 31,054
Construction materials and contracting 190,092 280,396 44,302
Construction services 60,500 25,081 18,630
Other 8,181 1,768 1,850
Total capital expenditures (b)$636,498 $769,303 $351,924
Part II
MDU Resources Group, Inc. Form 10-K 99
(a)Includes eliminations for the presentation of income tax adjustments between continuing and discontinued operations.
(b)Capital expenditures for 2019, 2018 and 2017 include noncash transactions such as the issuance of the Company's equity securities in connection with
acquisitions, capital expenditure-related accounts payable and AFUDC, totaling $4.8 million, $33.4 million and $10.5 million, respectively.(c)Includes allocations of common utility property.
(d)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).
2019 2018 2017
(In thousands)
Assets:
Electric (c)$1,680,194 $1,613,822 $1,470,922
Natural gas distribution (c)2,574,965 2,375,871 2,201,081
Pipeline and midstream 677,482 616,959 566,295
Construction materials and contracting 1,684,161 1,508,032 1,238,696
Construction services 761,127 604,798 591,382
Other (d)303,279 266,111 261,419
Assets held for sale 1,851 2,517 4,871
Total assets $7,683,059 $6,988,110 $6,334,666
Property, plant and equipment:
Electric (c)$2,227,145 $2,148,569 $1,982,264
Natural gas distribution (c)2,688,123 2,499,093 2,319,845
Pipeline and midstream 834,215 764,959 700,284
Construction materials and contracting 1,910,562 1,768,006 1,560,048
Construction services 213,370 188,586 177,265
Other 35,213 28,108 31,123
Less accumulated depreciation, depletion and amortization 2,991,486 2,818,644 2,691,641
Net property, plant and equipment $4,917,142 $4,578,677 $4,079,188
Part II
100 MDU Resources Group, Inc. Form 10-K
Note 17 - Employee Benefit Plans
Pension and other postretirement benefit plans
The Company has noncontributory qualified 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.
Prior to 2013, defined benefit pension plan benefits and accruals for all nonunion and certain union plans were frozen and on June 30,
2015, the remaining union plan was frozen. These employees were eligible to receive additional defined contribution plan benefits. In
October 2018, the Company transferred the liability of certain participants in the defined benefit pension plan, who are currently receiving
benefits, to an annuity company. The transfer of the benefit payments for these participants reduced the Company's liability and future
premiums.
Effective January 1, 2010, eligibility to receive retiree medical benefits was modified at certain of the Company's businesses. Employees
who had attained age 55 with 10 years of continuous service by December 31, 2010, were provided the option to choose between a pre-65
comprehensive medical plan coupled with a Medicare supplement or a specified company funded Retiree Reimbursement Account,
regardless of when they retire. All other eligible employees must meet the new eligibility criteria of age 60 and 10 years of continuous
service at the time they retire to be eligible for a specified company funded Retiree Reimbursement Account. Employees hired after
December 31, 2009, will not be eligible for retiree medical benefits at certain of the Company's businesses.
In 2012, the Company modified health care coverage for certain retirees. Effective January 1, 2013, post-65 coverage was replaced by a
fixed-dollar subsidy for retirees and spouses to be used to purchase individual insurance through an exchange.
Changes in benefit obligation and plan assets for the years ended December 31, 2019 and 2018, and amounts recognized in the
Consolidated Balance Sheets at December 31, 2019 and 2018, were as follows:
Pension Benefits OtherPostretirement Benefits
2019 2018 2019 2018
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year $391,602 $445,923 $81,201 $91,206
Service cost ——1,142 1,494
Interest cost 15,225 14,591 2,986 2,899
Plan participants' contributions ——1,040 1,282
Actuarial (gain) loss 40,219 (32,637)2,632 (10,115)
Benefits paid (25,880)(36,275)(5,387)(5,565)
Benefit obligation at end of year 421,166 391,602 83,614 81,201
Change in net plan assets:
Fair value of plan assets at beginning of year 307,809 354,384 82,516 88,739
Actual gain (loss) on plan assets 58,409 (21,138)15,731 (2,781)
Employer contribution 24,926 10,838 687 842
Plan participants' contributions ——1,040 1,281
Benefits paid (25,880)(36,275)(5,387)(5,565)
Fair value of net plan assets at end of year 365,264 307,809 94,587 82,516
Funded status - over (under)$(55,902)$(83,793)$10,973 $1,315
Amounts recognized in the ConsolidatedBalance Sheets at December 31:
Deferred charges and other assets - other $—$—$30,475 20,843
Other accrued liabilities ——647 660
Deferred credits and other liabilities - other 55,902 83,793 18,855 18,868
Benefit obligation assets (liabilities) - net amount recognized $(55,902)$(83,793)$10,973 $1,315
Amounts recognized in accumulated other comprehensive loss:
Actuarial loss $27,748 $28,796 $6,118 $6,372
Prior service credit ——(731)(848)
Total $27,748 $28,796 $5,387 $5,524
Amounts recognized in regulatory assets or liabilities:
Actuarial (gain) loss $155,484 $159,939 $(4,450)$3,944
Prior service credit ——(8,109)(9,390)
Total $155,484 $159,939 $(12,559)$(5,446)
Employer contributions and benefits paid in the preceding table include only those amounts contributed directly to, or paid directly from,
plan assets. Amounts related to regulated operations are recorded as regulatory assets or liabilities and are expected to be reflected in rates
charged to customers over time. For more information on regulatory assets and liabilities, see Note 7.
Unrecognized pension actuarial losses in excess of 10 percent of the greater of the projected benefit obligation or the market-related value
of assets are amortized over the average life expectancy of plan participants for frozen plans. The market-related value of assets is
determined using a five-year average of assets.
The pension plans all have accumulated benefit obligations in excess of plan assets. The projected benefit obligation, accumulated benefit
obligation and fair value of plan assets for these plans at December 31 were as follows:
2019 2018
(In thousands)
Projected benefit obligation $421,166 $391,602
Accumulated benefit obligation $421,166 $391,602
Fair value of plan assets $365,264 $307,809
Part II
MDU Resources Group, Inc. Form 10-K 101
Components of net periodic benefit cost (credit) for the Company's pension and other postretirement benefit plans for the years ended
December 31 were as follows:
Pension Benefits OtherPostretirement Benefits
2019 2018 2017 2019 2018 2017
(In thousands)
Components of net periodic benefit cost (credit):
Service cost $—$—$—$1,142 $1,494 $1,508
Interest cost 15,225 14,591 16,207 2,986 2,899 3,265
Expected return on assets (18,236)(20,753)(20,528)(4,804)(4,866)(4,641)
Amortization of prior service credit ———(1,398)(1,394)(1,371)
Recognized net actuarial loss 5,548 7,005 6,355 353 640 857
Net periodic benefit cost (credit), including amount capitalized 2,537 843 2,034 (1,721)(1,227)(382)
Less amount capitalized ——310 113 153 (370)
Net periodic benefit cost (credit)2,537 843 1,724 (1,834)(1,380)(12)
Other changes in plan assets and benefit obligations recognizedin accumulated comprehensive loss:
Net (gain) loss (144)991 (1,091)(127)(1,735)1,742
Amortization of actuarial loss (904)(1,084)(1,040)(110)(354)(289)
Amortization of prior service (cost) credit ———100 (220)161
Total recognized in accumulated other comprehensive loss (1,048)(93)(2,131)(137)(2,309)1,614
Other changes in plan assets and benefit obligations recognizedin regulatory assets or liabilities:
Net (gain) loss 189 8,263 (4,736)(8,168)(732)(4,932)
Amortization of actuarial loss (4,644)(5,921)(5,315)(242)(286)(568)
Amortization of prior service credit ———1,297 1,614 1,210
Total recognized in regulatory assets or liabilities (4,455)2,342 (10,051)(7,113)596 (4,290)
Total recognized in net periodic benefit cost (credit),accumulated other comprehensive loss and regulatory assetsor liabilities $(2,966)$3,092 $(10,458)$(9,084)$(3,093)$(2,688)
The estimated net loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss and
regulatory assets or liabilities into net periodic benefit cost in 2020 is $7.2 million. The estimated net loss and prior service credit for the
other postretirement benefit plans that will be amortized from accumulated other comprehensive loss and regulatory assets or liabilities into
net periodic benefit credit in 2020 are $250,000 and $1.4 million, respectively. Prior service credit is amortized on a straight-line basis
over the average remaining service period of active participants.
Weighted average assumptions used to determine benefit obligations at December 31 were as follows:
Pension Benefits OtherPostretirement Benefits
2019 2018 2019 2018
Discount rate 2.96%4.03%3.00%4.05%
Expected return on plan assets 6.25%6.75%5.75%5.75%
Rate of compensation increase N/A N/A 3.00%3.00%
Weighted average assumptions used to determine net periodic benefit cost (credit) for the years ended December 31 were as follows:
Pension Benefits OtherPostretirement Benefits
2019 2018 2019 2018
Discount rate 4.03%3.38%4.05%3.41%
Expected return on plan assets 6.25%6.75%5.75%5.75%
Rate of compensation increase N/A N/A 3.00%3.00%
The expected rate of return on pension plan assets is based on a targeted asset allocation range determined by the funded ratio of the plan.
As of December 31, 2019, the expected rate of return on pension plan assets is based on the targeted asset allocation range of 40 percent
Part II
102 MDU Resources Group, Inc. Form 10-K
to 50 percent equity securities and 50 percent to 60 percent fixed-income securities and the expected rate of return from these asset
categories. The expected rate of return on other postretirement plan assets is based on the targeted asset allocation range of 30 percent
equity securities and 70 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:
2019 2018
Health care trend rate assumed for next year 7.1%–7.4%7.5%–8.1%
Health care cost trend rate - ultimate 4.5%4.5%
Year in which ultimate trend rate achieved 2024 2024
The Company's other postretirement benefit plans include health care and life insurance benefits for certain retirees. The plans underlying
these benefits may require contributions by the retiree depending on such retiree's age and years of service at retirement or the date of
retirement. The Company contributes a flat dollar amount to the monthly premiums which is updated annually on January 1.
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, 2019:
1 Percentage Point Increase 1 PercentagePoint Decrease
(In thousands)
Effect on total of service and interest cost components $245 $(203)
Effect on postretirement benefit obligation $3,751 $(3,155)
In 2019, the Company contributed an additional $20.0 million to its defined benefit pension plans, which increased the funded status and
decreased future expenses for the plans. The Company does not expect to contribute to its defined benefit pension plans and expects to
contribute approximately $660,000 to its postretirement benefit plans in 2020.
The following benefit payments, which reflect future service, as appropriate, and expected Medicare Part D subsidies at December 31,
2019, are as follows:
Years PensionBenefits
OtherPostretirementBenefits
ExpectedMedicarePart D Subsidy
(In thousands)
2020 $24,128 $5,024 $92
2021 24,432 5,073 86
2022 24,642 5,098 80
2023 24,874 5,091 73
2024 24,924 5,000 65
2025-2029 121,205 24,242 222
Outside investment managers manage the Company's pension and postretirement assets. 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 futures
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.
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 fair value ASC establishes a hierarchy for grouping assets and liabilities, based
on the significance of inputs. The estimated fair values of the Company's pension plans' assets are determined using the market approach.
The carrying value of the pension plans' Level 2 cash equivalents approximates fair value and is determined using observable inputs in
active markets or the net asset value of shares held at year end, which is determined using other observable inputs including pricing from
outside sources.
Part II
MDU Resources Group, Inc. Form 10-K 103
The estimated fair value of the pension plans' Level 1 equity securities is based on the closing price reported on the active market on which
the individual securities are traded. The estimated fair value of the pension plans' Level 1 and Level 2 collective and mutual funds are
based on the net asset value of shares held at year end, based on either published market quotations on active markets or other known
sources including pricing from outside sources. The estimated fair value of the pension plans' Level 2 corporate and municipal bonds is
determined using other observable inputs, including benchmark yields, reported trades, broker/dealer quotes, bids, offers, future cash flows
and other reference data. The estimated fair value of the pension plans' Level 1 U.S. Government securities are valued based on quoted
prices on an active market. The estimated fair value of the pension plans' Level 2 U.S. Government securities are valued mainly using other
observable inputs, including benchmark yields, reported trades, broker/dealer quotes, bids, offers, to be announced prices, future cash flows
and other reference data. Some of these securities are valued using pricing from outside sources.
Though the Company believes the methods used to estimate fair value are consistent with those used by other market participants, the use
of other methods or assumptions could result in a different estimate of fair value. For the years ended December 31, 2019 and 2018, there
were no transfers between Levels 1 and 2.
The fair value of the Company's pension plans' assets (excluding cash) by class were as follows:
Fair Value Measurements at December 31, 2019, Using
Quoted Pricesin ActiveMarkets forIdenticalAssets (Level 1)
SignificantOtherObservableInputs (Level 2)
SignificantUnobservable Inputs (Level 3)
Balance atDecember 31,2019
(In thousands)
Assets:
Cash equivalents $—$26,166 $—$26,166
Equity securities:
U.S. companies 14,457 ——14,457
International companies —938 —938
Collective and mutual funds*160,906 58,894 —219,800
Corporate bonds —80,768 —80,768
Municipal bonds —11,828 —11,828
U.S. Government securities 7,296 2,082 —9,378
Total assets measured at fair value $182,659 $180,676 $—$363,335
*Collective and mutual funds invest approximately 29 percent in common stock of international companies, 21 percent in common stock of large-cap U.S. companies,
18 percent in U.S. Government securities, 9 percent in corporate bonds, 6 percent in cash equivalents and 17 percent in other investments.
Fair Value Measurements at December 31, 2018, Using
Quoted Pricesin ActiveMarkets forIdenticalAssets (Level 1)
SignificantOtherObservableInputs (Level 2)
SignificantUnobservable Inputs (Level 3)
Balance atDecember 31,2018
(In thousands)
Assets:
Cash equivalents $—$4,930 $—$4,930
Equity securities:
U.S. companies 11,038 ——11,038
International companies —967 —967
Collective and mutual funds*145,960 51,600 —197,560
Corporate bonds —73,110 —73,110
Municipal bonds —10,624 —10,624
U.S. Government securities 479 5,896 —6,375
Total assets measured at fair value $157,477 $147,127 $—$304,604
*Collective and mutual funds invest approximately 27 percent in common stock of international companies, 31 percent in corporate bonds, 18 percent in common stockof large-cap U.S. companies, 5 percent in cash equivalents and 19 percent in other investments.
Part II
104 MDU Resources Group, Inc. Form 10-K
The estimated fair values of the Company's other postretirement benefit plans' assets are determined using the market approach.
The estimated fair value of the other postretirement benefit plans' Level 2 cash equivalents is valued at the net asset value of shares held at
year end, based on published market quotations on active markets, or using other known sources including pricing from outside sources.
The estimated fair value of the other postretirement benefit plans' Level 1 equity securities is based on the closing price reported on the
active market on which the individual securities are traded. The estimated fair value of the other postretirement benefit plans' Level 2
insurance contract is based on contractual cash surrender values that are determined primarily by investments in managed separate
accounts of the insurer. These amounts approximate fair value. The managed separate accounts are valued based on other observable inputs
or corroborated market data.
Though the Company believes the methods used to estimate fair value are consistent with those used by other market participants, the use
of other methods or assumptions could result in a different estimate of fair value. For the years ended December 31, 2019 and 2018, there
were no transfers between Levels 1 and 2.
The fair value of the Company's other postretirement benefit plans' assets (excluding cash) by asset class were as follows:
Fair Value Measurements at December 31, 2019, Using
Quoted Pricesin ActiveMarkets forIdenticalAssets (Level 1)
SignificantOtherObservableInputs (Level 2)
SignificantUnobservable Inputs (Level 3)
Balance atDecember 31,2019
(In thousands)
Assets:
Cash equivalents $—$4,017 $—$4,017
Equity securities:
U.S. companies 2,073 ——2,073
International companies —1 —1
Insurance contract*10 88,486 —88,496
Total assets measured at fair value $2,083 $92,504 $—$94,587
*The insurance contract invests approximately 50 percent in corporate bonds, 25 percent in common stock of large-cap U.S. companies, 7 percent in U.S. Government
securities, 7 percent in common stock of small-cap U.S. companies and 11 percent in other investments.
Fair Value Measurements at December 31, 2018, Using
Quoted Pricesin ActiveMarkets forIdenticalAssets (Level 1)
SignificantOtherObservableInputs (Level 2)
SignificantUnobservable Inputs (Level 3)
Balance atDecember 31,2018
(In thousands)
Assets:
Cash equivalents $—$3,866 $—$3,866
Equity securities:
U.S. companies 1,767 ——1,767
International companies —2 —2
Insurance contract*1 76,880 —76,881
Total assets measured at fair value $1,768 $80,748 $—$82,516
*The insurance contract invests approximately 51 percent in corporate bonds, 23 percent in common stock of large-cap U.S. companies, 7 percent in U.S. Governmentsecurities, 7 percent in common stock of small-cap U.S. companies and 12 percent in other investments.
Part II
MDU Resources Group, Inc. Form 10-K 105
Nonqualified benefit plans
In addition to the qualified defined benefit pension plans reflected in the table at the beginning of this note, the Company also has
unfunded, nonqualified defined 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, upon death, to their beneficiaries for a 15-year period. In
February 2016, the Company froze the unfunded, nonqualified defined benefit plans to new participants and eliminated benefit increases.
Vesting for participants not fully vested was retained.
The projected benefit obligation and accumulated benefit obligation for these plans at December 31 were as follows:
2019 2018
(In thousands)
Projected benefit obligation $99,245 $93,988
Accumulated benefit obligation $99,245 $93,988
Components of net periodic benefit cost for these plans for the years ended December 31 were as follows:
2019 2018 2017
(In thousands)
Components of net periodic benefit cost:
Service cost $109 $185 $289
Interest cost 3,473 3,157 3,494
Recognized net actuarial loss 764 1,047 883
Net periodic benefit cost $4,346 $4,389 $4,666
Weighted average assumptions used at December 31 were as follows:
2019 2018
Benefit obligation discount rate 2.73%3.86%
Benefit obligation rate of compensation increase N/A N/A
Net periodic benefit cost discount rate 3.86%3.20%
Net periodic benefit cost rate of compensation increase N/A N/A
The amount of future benefit payments for the unfunded, nonqualified defined benefit plans at December 31, 2019, are expected to
aggregate as follows:
2020 2021 2022 2023 2024 2025-2029
(In thousands)
Nonqualified benefits $7,774 $7,795 $7,023 $7,219 $7,597 $35,998
In 2012, the Company established a nonqualified defined contribution plan for certain key management employees. Expenses incurred
under this plan for 2019, 2018 and 2017 were $1.6 million, $597,000 and $736,000, respectively.
The amount of investments that the Company anticipates using to satisfy obligations under these plans at December 31 was as follows:
2019 2018
(In thousands)
Investments
Insurance contract*$87,009 $73,838
Life insurance**38,659 37,274
Other 8,450 10,818
Total investments $134,118 $121,930
*For more information on the insurance contract, see Note 8.
**Investments of life insurance are carried on plan participants (payable upon the employee'sdeath).
Defined contribution plans
The Company sponsors various defined contribution plans for eligible employees and the costs incurred under these plans were
$51.8 million in 2019, $42.4 million in 2018 and $41.2 million in 2017.
Part II
106 MDU Resources Group, Inc. Form 10-K
Multiemployer plans
The Company contributes to a number of MEPPs under the terms of collective-bargaining agreements that cover its union-represented
employees. The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:
•Assets contributed to the MEPP by one employer may be used to provide benefits to employees of other participating employers
•If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining
participating employers
•If the Company chooses to stop participating in some of its MEPPs, the Company may be required to pay those plans an amount based on
the underfunded status of the plan, referred to as a withdrawal liability
The Company's participation in these plans is outlined in the following table. Unless otherwise noted, the most recent Pension Protection
Act zone status available in 2019 and 2018 is for the plan's year-end at December 31, 2018, and December 31, 2017, respectively. The
zone status is based on information that the Company received from the plan and is certified by the plan's actuary. Among other factors,
plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are between 65 percent and 80 percent funded,
and plans in the green zone are at least 80 percent funded.
EIN/PensionPlan Number
Pension Protection ActZone Status FIP/RP StatusPending/Implemented
Contributions SurchargeImposed
Expiration Dateof CollectiveBargainingAgreementPension Fund 2019 2018 2019 2018 2017
(In thousands)
Alaska Laborers-EmployersRetirement Fund 91-6028298-001 Yellow as of6/30/2019 Yellow as of6/30/2018 Implemented $815 $732 $690 No 12/31/2020
Construction Industryand Laborers JointPension Trust for SoNevada, Plan A 88-0135695-001 Red Red Implemented 544 346 377 No 6/30/2020
Edison Pension Plan 93-6061681-001 Green Green No 12,252 12,111 12,725 No 12/31/2020
IBEW Local 212Pension Trust 31-6127280-001 Green as of4/30/2019 Green as of4/30/2018 No 1,110 1,341 1,312 No 6/1/2025
IBEW Local 357Pension Plan A 88-6023284-001 Green Green No 10,162 3,460 3,286 No 5/31/2021
IBEW Local 648Pension Plan 31-6134845-001 Yellow as of2/28/2019 Yellow as of2/28/2018 Implemented 728 2,175 2,254 No 8/29/2021
IBEW Local 82Pension Plan 31-6127268-001 Green as of6/30/2019 Green as of6/30/2018 No 1,662 1,569 1,757 No 12/3/2023
Idaho Plumbers andPipefitters PensionPlan 82-6010346-001 Green as of5/31/2019 Green as of5/31/2018 No 1,307 1,247 1,156 No 3/31/2023
Minnesota TeamstersConstruction DivisionPension Fund 41-6187751-001 Green as of11/30/2018 Green as of11/30/2017 No 673 740 826 No 4/30/2021
National AutomaticSprinkler IndustryPension Fund 52-6054620-001 Red Red Implemented 1,074 738 718 No 3/31/2021-7/31/2024
National ElectricalBenefit Fund 53-0181657-001 Green Green No 12,679 8,468 8,891 No 8/31/2019-6/1/2025 *
Pension Trust Fund forOperating Engineers 94-6090764-001 Yellow Yellow Implemented 2,598 2,403 2,391 No 3/31/2020-6/15/2022
Sheet Metal WorkersPension Plan ofSouthern CA, AZ, andNV 95-6052257-001 Yellow Yellow Implemented 2,119 1,774 1,016 No 6/30/2020
Southwest MarinePension Trust 95-6123404-001 Red Red Implemented 132 81 48 No 1/31/2024
Other funds 24,670 21,537 19,298
Total contributions $72,525 $58,722 $56,745
*Plan includes contributions required by collective bargaining agreements which have expired, but contain provisions automatically renewing their terms in the absence
of a subsequent negotiated agreement.
Part II
MDU Resources Group, Inc. Form 10-K 107
The Company was listed in the plans' Forms 5500 as providing more than 5 percent of the total contributions for the following plans and
plan years:
Pension Fund Year Contributions to Plan Exceeded More Than 5 Percentof Total Contributions (as of December 31 of the Plan's Year-End)
Edison Pension Plan 2018 and 2017
IBEW Local 82 Pension Plan 2018 and 2017
IBEW Local 124 Pension Trust Fund 2018 and 2017
IBEW Local 212 Pension Trust Fund 2018 and 2017
IBEW Local 357 Pension Plan A 2018 and 2017
IBEW Local 648 Pension Plan 2018 and 2017
IBEW Local Union No 226 Open End Pension Fund 2018
Idaho Plumbers and Pipefitters Pension Plan 2018 and 2017
International Union of Operating Engineers Local 701 Pension Trust Fund 2018 and 2017
Minnesota Teamsters Construction Division Pension Fund 2018 and 2017
Pension and Retirement Plan of Plumbers and Pipefitters Local 525 2018 and 2017
The Company also contributes to a number of multiemployer other postretirement plans under the terms of collective-bargaining agreements
that cover its union-represented employees. These plans provide benefits such as health insurance, disability insurance and life insurance to
retired union employees. Many of the multiemployer other postretirement plans are combined with active multiemployer health and welfare
plans. The Company's total contributions to its multiemployer other postretirement plans, which also includes contributions to active
multiemployer health and welfare plans, were $59.5 million, $51.9 million and $50.8 million for the years ended December 31, 2019,
2018 and 2017, respectively.
Amounts contributed in 2019, 2018 and 2017 to defined contribution multiemployer plans were $49.2 million, $31.1 million and
$32.2 million, respectively.
Part II
108 MDU Resources Group, Inc. Form 10-K
Note 18 - Jointly Owned Facilities
The consolidated financial statements include the Company's ownership interests in three coal-fired electric generating facilities (Big Stone
Station, Coyote Station and Wygen III) and one major transmission line (BSSE). Each owner of the jointly owned facilities is responsible for
financing its investment.
The Company's share of the jointly owned facilities operating expenses was reflected in the appropriate categories of operating expenses
(electric fuel and purchased power; operation and maintenance; and taxes, other than income) in the Consolidated Statements of Income.
At December 31, the Company's share of the cost of utility plant in service, construction work in progress and related accumulated
depreciation for the jointly owned facilities was as follows:
OwnershipPercentage 2019 2018
(In thousands)
Big Stone Station:22.7%
Utility plant in service $152,836 $156,534
Construction work in progress 518 92
Less accumulated depreciation 46,266 49,345
$107,088 $107,281
BSSE:50.0%
Utility plant in service $105,767 $—
Construction work in progress —105,846
Less accumulated depreciation 1,232 —
$104,535 $105,846
Coyote Station:25.0%
Utility plant in service $160,235 $155,236
Construction work in progress 21 1,920
Less accumulated depreciation 107,638 105,565
$52,618 $51,591
Wygen III:25.0%
Utility plant in service $67,869 $65,382
Construction work in progress 112 220
Less accumulated depreciation 10,482 9,174
$57,499 $56,428
Part II
MDU Resources Group, Inc. Form 10-K 109
Note 19 - Regulatory Matters
The Company regularly reviews the need for electric and natural gas rate changes in each of the jurisdictions in which service is provided.
The Company files for rate adjustments to seek recovery of operating costs and capital investments, as well as reasonable returns as allowed
by regulators. As indicated below, certain regulatory proceedings and cases may also contain recurring mechanisms that can have an annual
true-up. Examples of these recurring mechanisms include: infrastructure riders, transmission trackers, renewable resource cost adjustment
riders, as well as weather normalization and decoupling mechanisms. The following paragraphs summarizes the Company's significant
regulatory proceedings and cases by jurisdiction including the status of each open request. The Company is unable to predict the ultimate
outcome of these matters, the timing of final decisions of the various regulators and courts, or the effect on the Company's results of
operations, financial position or cash flows.
MNPUC
On September 27, 2019, Great Plains filed an application with the MNPUC for a natural gas rate increase of approximately $2.9 million
annually or approximately 12.0 percent above current rates. The requested increase was primarily to recover investments in facilities to
enhance safety and reliability and the depreciation and taxes associated with the increase in investment. On November 22, 2019, Great
Plains received approval to implement an interim rate increase of approximately $2.6 million or approximately 11.0 percent, subject to
refund, effective January 1, 2020. This matter is pending before the MNPUC.
MTPSC
On November 1, 2019, Montana-Dakota submitted an application with the MTPSC requesting the use of deferred accounting for the
treatment of costs related to the retirement of Lewis & Clark Station in Sidney, Montana, and units 1 and 2 at Heskett Station near Mandan,
North Dakota. This matter is pending before the MTPSC.
NDPSC
Montana-Dakota has a transmission cost adjustment rider that allows annual updates to rates for actual costs for transmission-related
projects and services. On July 19, 2019, Montana-Dakota filed a change to its transmission cost adjustment rates to reflect projected
charges for July 2019 through June 2020 assessed to Montana-Dakota for transmission-related services provided by MISO and Southwest
Power Pool, along with the projected transmission service revenues or credits received for the same time period. Montana-Dakota also
requested recovery of six transmission capital projects. Total revenues of approximately $9.2 million, which reflects a true-up of the prior
period adjustment, were requested resulting in an increase of approximately $600,000 or approximately 7.2 percent over current rates,
which includes approximately $1.5 million related to transmission capital projects. On October 22, 2019, the NDPSC approved the rates as
requested. The rates were effective October 28, 2019.
Montana-Dakota has a renewable resource cost adjustment rate tariff that allows for annual adjustments for recent projected capital costs
and related expenses for projects determined to be recoverable under the tariff. On November 1, 2019, Montana-Dakota filed an annual
update to its renewable resource cost adjustment requesting to recover a revised revenue requirement of approximately $14.7 million
annually, not including the prior period true-up adjustment. The update reflects a decrease of approximately $800,000 from the revenues
currently included in rates. On February 19, 2020, the NDPSC approved the increase with rates effective on March 1, 2020.
On August 28, 2019, Montana-Dakota filed an application with the NDPSC for an advanced determination of prudence and a certificate of
public convenience and necessity to construct, own and operate Heskett Unit 4, an 88-MW simple-cycle natural gas-fired combustion
turbine peaking unit at the existing Heskett Station near Mandan, North Dakota. This matter is pending before the NDPSC.
On September 16, 2019, Montana-Dakota submitted an application with the NDPSC requesting the use of deferred accounting for the
treatment of costs related to the retirement of Lewis & Clark Station in Sidney, Montana, and units 1 and 2 at Heskett Station near Mandan,
North Dakota. This matter is pending before the NDPSC.
OPUC
On December 29, 2017, Cascade filed a request with the OPUC to use deferred accounting for the 2018 net benefits associated with the
implementation of the TCJA. On September 12, 2019, the OPUC approved the request, including a settlement to refund to customers
approximately $1.4 million related to TJCA impacts for the period from January 2018 through March 2019. These refunds will be reflected
in customers' rates over a 12-month period beginning November 1, 2019.
On June 14, 2019, Cascade filed a request with the OPUC to implement a new pipeline safety cost recovery mechanism to recover
investments to replace Cascade's highest risk infrastructure which would have required Cascade to file a report annually with the OPUC
detailing actual projects undertaken and the related costs incurred. This matter was denied by the OPUC on January 15, 2020.
SDPUC
On November 8, 2019, Montana-Dakota submitted an application with the SDPUC requesting the use of deferred accounting for the
treatment of costs related to the retirement of Lewis & Clark Station in Sidney, Montana, and units 1 and 2 at Heskett Station near Mandan,
North Dakota. The SDPUC approved the use of deferred accounting treatment as requested on January 7, 2020.
WUTC
On March 29, 2019, Cascade filed a natural gas general rate case with the WUTC requesting an increase in annual revenue of
$12.7 million or approximately 5.5 percent. On September 20, 2019, Cascade filed a joint settlement agreement with the WUTC reflecting
a revised annual increase of approximately $6.5 million or approximately 2.8 percent with an effective date of March 1, 2020. A settlement
hearing was held on November 5, 2019. On February 3, 2020, the WUTC approved the increase with rates effective on March 1, 2020.
Cascade has a pipeline replacement cost recovery mechanism, which is designed to recover the replacement cost of the Company's most at
risk pipelines. The mechanism requires an annual filing on May 31, as well as two update filings for actual costs before the November 1
effective date. On May 31, 2019, Cascade filed its seventh annual update to its pipeline cost recovery mechanism requesting an increase in
revenue of approximately $1.6 million or approximately 0.7 percent. On October 10, 2019, Cascade filed a final update to the cost recovery
mechanism with a revised increase in revenue of approximately $440,000 or approximately 0.2 percent annually. On October 24, 2019,
the WUTC approved the increase with rates effective for services provided on or after November 1, 2019.
Cascade defers the actual cost of gas spent to serve customers and annually records a true-up to their purchased gas adjustment tariff. On
September 13, 2019, Cascade filed its annual update to its purchased gas adjustment with the WUTC requesting an annual increase of
approximately $12.8 million or approximately 5.7 percent for a period of three years. The requested increase is primarily due to unrecovered
purchased gas costs as a result of the rupture of the Enbridge pipeline in Canada on October 9, 2018, causing increased natural gas costs.
On October 24, 2019, the WUTC approved the increase with rates effective for services provided on or after November 1, 2019.
Part II
110 MDU Resources Group, Inc. Form 10-K
WYPSC
On May 23, 2019, Montana-Dakota filed an application with the WYPSC for a natural gas rate increase of approximately $1.1 million
annually or approximately 7.0 percent above current rates. The requested increase was to recover increased operating expenses and
investments in distribution facilities to improve system safety and reliability. On December 17, 2019, Montana-Dakota filed a settlement
agreement with the WYPSC reflecting an annual increase in revenues of approximately $830,000 or approximately 5.5 percent with rates
effective March 1, 2020. This matter is pending before the WYPSC.
FERC
On December 9, 2019, MISO accepted Montana-Dakota's annual revenue requirement update to its transmission formula rates under the
MISO tariff for its multi-value project for approximately $13.1 million, which was effective January 1, 2020. The update effective
January 1, 2020, reflects the reduced return on equity order issued by the FERC on November 21, 2019.
Part II
MDU Resources Group, Inc. Form 10-K 111
Note 20 - Commitments and Contingencies
The Company is party to claims and lawsuits arising out of its business and that of its consolidated subsidiaries, which may include, but are
not limited to, matters involving property damage, personal injury, and environmental, contractual, statutory and regulatory obligations. The
Company accrues a liability for those contingencies when the incurrence of a loss is probable and the amount can be reasonably estimated.
If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the
minimum of the range is accrued. The Company does not accrue liabilities when the likelihood that the liability has been incurred is
probable but the amount cannot be reasonably estimated or when the liability is believed to be only reasonably possible or remote. For
contingencies where an unfavorable outcome is probable or reasonably possible and which are material, the Company discloses the nature of
the contingency and, in some circumstances, an estimate of the possible loss. Accruals are based on the best information available, but in
certain situations management is unable to estimate an amount or range of a reasonably possible loss including, but not limited to when:
(1) the damages are unsubstantiated or indeterminate, (2) the proceedings are in the early stages, (3) numerous parties are involved, or
(4) the matter involves novel or unsettled legal theories.
At December 31, 2019 and 2018, the Company accrued liabilities which have not been discounted, including liabilities held for sale, of
$29.1 million and $30.4 million, respectively. The accruals are for contingencies, including litigation, production taxes, royalty claims and
environmental matters. This includes amounts that have been accrued for matters discussed in Environmental matters within this note. The
Company will continue to monitor each matter and adjust accruals as might be warranted based on new information and further
developments. Management believes that the outcomes with respect to probable and reasonably possible losses in excess of the amounts
accrued, net of insurance recoveries, while uncertain, either cannot be estimated or will not have a material effect upon the Company's
financial position, results of operations or cash flows. Unless otherwise required by GAAP, legal costs are expensed as they are incurred.
Environmental matters
Portland Harbor Site In December 2000, Knife River - Northwest was named by the EPA as a PRP in connection with the cleanup of the
riverbed site adjacent to a commercial property site acquired by Knife River - Northwest from Georgia-Pacific West, Inc. along the
Willamette River. The riverbed site is part of the Portland, Oregon, Harbor Superfund Site where the EPA wants responsible parties to share
in the costs of cleanup. 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. Investigative costs are indicated to be in excess of $100 million.
Remediation is expected to take up to 13 years with a present value cost estimate of approximately $1 billion. Corrective action will not be
taken until remedial design/remedial action plans are approved by the EPA. Knife River - Northwest was also notified 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. It is not possible to estimate the costs of natural resource damages until an assessment
is completed and allocations are undertaken.
At this time, Knife River - Northwest does not believe it is a responsible party and 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. Knife River - Northwest
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. LWG has stated its intent to file suit against Knife River - Northwest and others to recover
LWG's investigation costs to the extent Knife River - Northwest 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, Knife River - Northwest
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 matter.
Manufactured Gas Plant Sites Claims have been made against Cascade for cleanup of environmental contamination at manufactured gas plant
sites operated by Cascade's predecessors and a similar claim has been made against Montana-Dakota for a site operated by Montana-Dakota
and its predecessors. Any accruals related to these claims are reflected in regulatory assets. For more information, see Note 7.
Demand has been made of Montana-Dakota to participate in investigation and remediation of environmental contamination at a site in
Missoula, Montana. The site operated as a former manufactured gas plant from approximately 1907 to 1938 when it was converted to a
butane-air plant that operated until 1956. Montana-Dakota or its predecessors owned or controlled the site for a period of the time it
operated as a manufactured gas plant and Montana-Dakota operated the butane-air plant from 1940 to 1951, at which time it sold the
plant. There are no documented wastes or by-products resulting from the mixing or distribution of butane-air gas. Preliminary assessment of
a portion of the site provided a recommended remedial alternative for that portion of approximately $560,000. However, the recommended
remediation would not address any potential contamination to adjacent parcels that may be impacted by contamination from the
manufactured gas plant. Montana-Dakota and another party agreed to voluntarily investigate and remediate the site and that Montana-
Dakota will pay two-thirds of the costs for further investigation and remediation of the site. Montana-Dakota received notice from a prior
insurance carrier that it will participate in payment of defense costs incurred in relation to the claim. Montana-Dakota has accrued
$375,000 for the remediation of this site.
A claim was made against Cascade for contamination at the Bremerton Gasworks Superfund Site in Bremerton, Washington, which was
received in 1997. A preliminary investigation has found soil and groundwater at the site contain contaminants requiring further investigation
and cleanup. The 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. In April 2010, the Washington DOE issued notice it considered Cascade a PRP for hazardous
substances at the site. In May 2012, the EPA added the site to the National Priorities List of Superfund sites. Cascade has entered into an
administrative settlement agreement and consent order with the EPA regarding the scope and schedule for a remedial investigation and
feasibility study for the site. Current estimates for the cost to complete the remedial investigation and feasibility study are approximately
$7.6 million of which $4.4 million has been incurred. Cascade has accrued $3.2 million for the remedial investigation and feasibility study,
as well as $6.4 million for remediation of this site; however, the accrual for remediation costs will be reviewed and adjusted, if necessary,
after completion of the remedial investigation and feasibility study. In April 2010, Cascade filed a petition with the WUTC for authority to
defer the costs incurred in relation to the environmental remediation of this site. The WUTC approved the petition in September 2010,
subject to conditions set forth in the order.
A claim was made against Cascade for contamination at a site in Bellingham, 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 and its
predecessor from about 1946 to 1962. Other PRPs reached an agreed order and work plan with the Washington DOE for completion of a
remedial investigation and feasibility study for the site. A feasibility study prepared for one of the PRPs in March 2018 identifies five
cleanup action alternatives for the site with estimated costs ranging from $8.0 million to $20.4 million with a selected preferred alternative
having an estimated total cost of $9.3 million. The other PRPs will develop a cleanup action plan and, after public review of the cleanup
action plan, develop design documents. Cascade believes its proportional share of any liability will be relatively small in comparison to other
PRPs. The plant manufactured gas from coal between approximately 1890 and 1946. In 1946, shortly after Cascade's predecessor
acquired the plant, the plant converted to a propane-air gas facility. There are no documented wastes or by-products resulting from the
mixing or distribution of propane-air gas. Cascade has recorded an accrual for this site for an amount that is not material.
Cascade has received notices from and entered into agreement with certain of its insurance carriers that they will participate in defense of
Cascade for certain of the contamination claims subject to full and complete reservations of rights and defenses to insurance coverage. To
the extent these claims are not covered by insurance, Cascade intends to seek recovery of remediation costs through the OPUC and WUTC in
its natural gas rates charged to customers.
Part II
112 MDU Resources Group, Inc. Form 10-K
Purchase commitments
The Company has entered into various commitments largely consisting of contracts for natural gas and coal supply; purchased power;
natural gas transportation and storage; employee service; information technology; and construction materials. Certain of these contracts are
subject to variability in volume and price. The commitment terms vary in length, up to 41 years. The commitments under these contracts as
of December 31, 2019, were:
2020 2021 2022 2023 2024 Thereafter
(In thousands)
Purchase commitments $405,535 $250,266 $184,225 $123,166 $87,297 $678,432
These commitments were not reflected in the Company's consolidated financial statements. Amounts purchased under various commitments
for the years ended December 31, 2019, 2018 and 2017, were $686.5 million, $548.0 million and $516.1 million, respectively.
Guarantees
In June 2016, WBI Energy sold all of the outstanding membership interests in Dakota Prairie Refining. In connection with the sale,
Centennial agreed to continue to guarantee certain debt obligations of Dakota Prairie Refining which were expected to mature in 2023.
Tesoro agreed to indemnify Centennial for any losses and litigation expenses arising from the guarantee. Continuation of the guarantee was
required as a condition to the sale of Dakota Prairie Refining. On October 17, 2018, Centennial was released from this guarantee of certain
debt obligations of Dakota Prairie Refining.
In 2009, multiple sale agreements were signed to sell the Company's ownership interests in the Brazilian Transmission Lines. In connection
with the sale, Centennial agreed to guarantee payment of any indemnity obligations of certain of the Company's indirect wholly owned
subsidiaries. The remaining guarantee is expected to expire in 2021. The guarantees were required by the buyers as a condition to the sale
of the Brazilian Transmission Lines.
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, insurance deductibles and loss limits, and certain other guarantees. At
December 31, 2019, the fixed maximum amounts guaranteed under these agreements aggregated $174.8 million. Certain of the
guarantees also have no fixed maximum amounts specified. The amounts of scheduled expiration of the maximum amounts guaranteed
under these agreements aggregate to $162.6 million in 2020; $700,000 in 2021; $400,000 in 2022; $500,000 in 2023; $500,000 in
2024; $1.1 million thereafter; and $9.0 million, which has no scheduled maturity date. There were no amounts outstanding under the
above guarantees at December 31, 2019. 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 and other agreements, some of which are
guaranteed by other subsidiaries of the Company. At December 31, 2019, the fixed maximum amounts guaranteed under these letters of
credit aggregated $33.2 million. The amounts of scheduled expiration of the maximum amounts guaranteed under these letters of credit
aggregate to $32.7 million in 2020 and $500,000 in 2021. There were no amounts outstanding under the above letters of credit at
December 31, 2019. In the event of default under these letter of credit obligations, the subsidiary guaranteeing the letter of credit would be
obligated for reimbursement of payments made under the letter of credit.
In addition, Centennial, Knife River and MDU Construction Services have issued guarantees to third parties related to the 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 these obligations, Centennial, Knife River or MDU
Construction Services would be required to make payments under these guarantees. Any amounts outstanding by subsidiaries of the
Company were reflected on the Consolidated Balance Sheet at December 31, 2019.
In the normal course of business, Centennial has 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. At December 31, 2019,
approximately $1.1 billion of surety bonds were outstanding, which were not reflected on the Consolidated Balance Sheet.
Variable interest entities
The Company evaluates its arrangements and contracts with other entities to determine if they are VIEs and if so, if the Company is the
primary beneficiary.
Part II
MDU Resources Group, Inc. Form 10-K 113
Fuel Contract Coyote Station entered into a coal supply agreement with Coyote Creek that provides for the purchase of coal necessary to
supply the coal requirements of the Coyote Station for the period May 2016 through December 2040. Coal purchased under the coal supply
agreement is reflected in inventories on the Consolidated Balance Sheets and is recovered from customers as a component of electric fuel
and purchased power.
The coal supply agreement creates a variable interest in Coyote Creek due to the transfer of all operating and economic risk to the Coyote
Station owners, as the agreement is structured so that the price of the coal will cover all costs of operations, as well as future reclamation
costs. The Coyote Station owners are also providing a guarantee of the value of the assets of Coyote Creek as they would be required to buy
the assets at book value should they terminate the contract prior to the end of the contract term and are providing a guarantee of the value
of the equity of Coyote Creek in that they are required to buy the entity at the end of the contract term at equity value. Although the
Company has determined that Coyote Creek is a VIE, the Company has concluded that it is not the primary beneficiary of Coyote Creek
because the authority to direct the activities of the entity is shared by the four unrelated owners of the Coyote Station, with no primary
beneficiary existing. As a result, Coyote Creek is not required to be consolidated in the Company's financial statements.
At December 31, 2019, the Company's exposure to loss as a result of the Company's involvement with the VIE, based on the Company's
ownership percentage was $36.0 million.
Part II
114 MDU Resources Group, Inc. Form 10-K
Note 21 - Subsequent Events
On February 3, 2020, the Company acquired PerLectric, Inc., a leading electrical construction company in Fairfax, Virginia, which will be
included in the Company's construction services segment. On February 14, 2020, the Company acquired the assets of Oldcastle
Infrastructure Spokane, a prestressed-concrete business located in Spokane, Washington, which will be included in the Company's
construction materials and contracting segment. To date, the initial accounting for these acquisitions is incomplete. Due to the limited time
since the date of these acquisitions, it is impracticable for the Company to make business combination disclosures related to these
acquisitions. The Company is still gathering the necessary information to provide such disclosures in future filings.
Supplementary Financial Information
Quarterly Data (Unaudited)
The following unaudited information shows selected items by quarter for the years 2019 and 2018:
FirstQuarter SecondQuarter ThirdQuarter FourthQuarter
(In thousands, except per share amounts)
2019
Operating revenues $1,091,191 $1,303,573 $1,563,799 $1,378,213
Operating expenses 1,026,973 1,206,262 1,374,329 1,247,992
Operating income 64,218 97,311 189,470 130,221
Income from continuing operations 41,089 63,145 136,128 94,804
Income (loss) from discontinued operations, net of tax (163)(1,320)1,509 261
Net income 40,926 61,825 137,637 95,065
Earnings per share - basic:
Income from continuing operations .21 .32 .68 .47
Discontinued operations, net of tax —(.01).01 —
Earnings per share - basic .21 .31 .69 .47
Earnings per share - diluted:
Income from continuing operations .21 .32 .68 .47
Discontinued operations, net of tax —(.01).01 —
Earnings per share - diluted .21 .31 .69 .47
Weighted average common shares outstanding:
Basic 196,401 198,270 199,343 200,383
Diluted 196,414 198,287 199,383 200,478
2018
Operating revenues $976,293 $1,064,597 $1,280,787 $1,209,875
Operating expenses 906,917 990,605 1,140,783 1,091,524
Operating income 69,376 73,992 140,004 118,351
Income from continuing operations 41,960 44,075 107,369 75,982
Income (loss) from discontinued operations, net of tax 477 (273)(118)2,846
Net income 42,437 43,802 107,251 78,828
Earnings per share - basic:
Income from continuing operations .22 .22 .55 .39
Discontinued operations, net of tax ———.01
Earnings per share - basic .22 .22 .55 .40
Earnings per share - diluted:
Income from continuing operations .22 .22 .55 .39
Discontinued operations, net of tax ———.01
Earnings per share - diluted .22 .22 .55 .40
Weighted average common shares outstanding:
Basic 195,304 195,524 196,018 196,023
Diluted 195,982 196,169 196,265 196,385
Certain operations of the Company 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.
Part II
MDU Resources Group, Inc. Form 10-K 115
Definitions
The following abbreviations and acronyms used in Notes to Consolidated Financial Statements are defined below:
Abbreviation or Acronym
AFUDC Allowance for funds used during construction
ASC FASB Accounting Standards Codification
ASU FASB Accounting Standards Update
Big Stone Station 475-MW coal-fired electric generating facility near Big Stone City, South Dakota (22.7 percentownership)
Brazilian Transmission Lines Company's former investment in companies owning three electric transmission lines in Brazil
BSSE 345-kilovolt transmission line from Ellendale, North Dakota, to Big Stone City, South Dakota(50 percent ownership)
Cascade Cascade Natural Gas Corporation, an indirect wholly owned subsidiary of MDU Energy Capital
Centennial Centennial Energy Holdings, Inc., a direct wholly owned subsidiary of the Company
Centennial Capital Centennial Holdings Capital LLC, a direct wholly owned subsidiary of Centennial
Centennial's Consolidated EBITDA Centennial's consolidated net income from continuing operations plus the related interestexpense, taxes, depreciation, depletion, amortization of intangibles and any non-cash chargerelating to asset impairment for the preceding 12-month period
Centennial Resources Centennial Energy Resources LLC, a direct wholly owned subsidiary of Centennial
Company MDU Resources Group, Inc. (formerly known as MDUR Newco), which, as the context requires,refers to the previous MDU Resources Group, Inc. prior to January 1, 2019, and the new holdingcompany of the same name after January 1, 2019
Coyote Creek Coyote Creek Mining Company, LLC, a subsidiary of The North American Coal Corporation
Coyote Station 427-MW coal-fired electric generating facility near Beulah, North Dakota (25 percent ownership)
Dakota Prairie Refining Dakota Prairie Refining, LLC, a limited liability company previously owned by WBI Energy and
Calumet Specialty Products Partners, L.P. (previously included in the Company's refining
segment)
EBITDA Earnings before interest, taxes, depreciation, depletion and amortization
EIN Employer Identification Number
EPA United States Environmental Protection Agency
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
Fidelity Fidelity Exploration & Production Company, a direct wholly owned subsidiary of WBI Holdings(previously referred to as the Company's exploration and production segment)
FIP Funding improvement plan
GAAP Accounting principles generally accepted in the United States of America
Great Plains Great Plains Natural Gas Co., a public utility division of the Company prior to the closing of theHolding Company Reorganization and a public utility division of Montana-Dakota as of January 1,2019
Holding Company Reorganization The internal holding company reorganization completed on January 1, 2019, pursuant to theagreement and plan of merger, dated as of December 31, 2018, by and among Montana-Dakota,the Company and MDUR Newco Sub, which resulted in the Company becoming a holdingcompany and owning all of the outstanding capital stock of Montana-Dakota.
IBEW International Brotherhood of Electrical Workers
Intermountain Intermountain Gas Company, an indirect wholly owned subsidiary of MDU Energy Capital
Knife River Knife River Corporation, a direct wholly owned subsidiary of Centennial
Knife River - Northwest Knife River Corporation - Northwest, an indirect wholly owned subsidiary of Knife River
K-Plan Company's 401(k) Retirement Plan
LWG Lower Willamette Group
MDU Construction Services MDU Construction Services Group, Inc., a direct wholly owned subsidiary of Centennial
MDU Energy Capital MDU Energy Capital, LLC, a direct wholly owned subsidiary of the Company
MDUR Newco MDUR Newco, Inc., a public holding company created by implementing the Holding CompanyReorganization, now known as the Company
MDUR Newco Sub MDUR Newco Sub, Inc., a direct, wholly owned subsidiary of MDUR Newco, which was mergedwith and into Montana–Dakota in the Holding Company Reorganization
MEPP Multiemployer pension plan
MISO Midcontinent Independent System Operator, Inc.
Part II
116 MDU Resources Group, Inc. Form 10-K
MNPUC Minnesota Public Utilities Commission
Montana-Dakota Montana-Dakota Utilities Co. (formerly known as MDU Resources Group, Inc.), a public utilitydivision of the Company prior to the closing of the Holding Company Reorganization and a directwholly owned subsidiary of MDU Energy Capital as of January 1, 2019
MTPSC Montana Public Service Commission
MW Megawatt
NDPSC North Dakota Public Service Commission
Oil Includes crude oil and condensate
OPUC Oregon Public Utility Commission
PRP Potentially Responsible Party
RP Rehabilitation plan
SDPUC South Dakota Public Utilities Commission
SEC United States Securities and Exchange Commission
TCJA Tax Cuts and Jobs Act
Tesoro Tesoro Refining & Marketing Company LLC
VIE Variable interest entity
Washington DOE Washington State Department of Ecology
WBI Energy WBI Energy, Inc., a direct wholly owned subsidiary of WBI Holdings
WBI Energy Transmission WBI Energy Transmission, Inc., an indirect wholly owned subsidiary of WBI Holdings
WBI Holdings WBI Holdings, Inc., a direct wholly owned subsidiary of Centennial
WUTC Washington Utilities and Transportation Commission
Wygen III 100-MW coal-fired electric generating facility near Gillette, Wyoming (25 percent ownership)
WYPSC Wyoming Public Service Commission
Part II
MDU Resources Group, Inc. Form 10-K 117
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Part II
118 MDU Resources Group, Inc. Form 10-K
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) under the Exchange Act. The Company's
disclosure 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
management, with the participation of the Company's chief executive officer and chief financial officer, has evaluated the effectiveness of
the Company's disclosure controls and procedures. Based upon that evaluation, the chief executive officer and the chief financial officer
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
No change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
occurred during the three months ended December 31, 2019, that has materially affected, or is 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
MDU Resources Group, Inc. Form 10-K 119
Item 10. Directors, Executive Officers and Corporate Governance
Information required by this item will be included in the Company's Proxy Statement, which is incorporated herein by reference.
Item 11. Executive Compensation
Information required by this item will be included in the Company's Proxy Statement, which 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, 2019, with respect to the Company's equity compensation plans:
Plan Category
(a)Number of securities tobe issued upon exerciseof outstanding options,warrants and rights
(b)Weighted averageexercise price ofoutstanding options,warrants and rights
(c)Number of securitiesremaining available forfuture issuance underequity compensationplans (excludingsecurities reflected incolumn (a))
Equity compensation plans approved by stockholders (1)596,341 (2)$—(3)4,012,055 (4)(5)
Equity compensation plans not approved by stockholders N/A N/A N/A
Total 596,341 $—4,012,055
(1)Consists of the Non-Employee Director Long-Term Incentive Compensation Plan and the Long-Term Performance-Based Incentive Plan.(2)Consists of performance shares and restricted stock awards.
(3)No weighted average exercise price is shown for the performance shares or restricted stock awards because such awards have no exercise price.
(4)This amount includes 3,737,848 shares available for future issuance under the Long-Term Performance-Based Incentive Plan in connection with grants ofrestricted stock, performance units, performance shares or other equity-based awards.
(5)This amount includes 274,207 shares available for future issuance under the Non-Employee Director Long-Term Incentive Compensation Plan.
The remaining information required by this item will be included in the Company's Proxy Statement, which is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this item will be included in the Company's Proxy Statement, which is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Information required by this item will be included in the Company's Proxy Statement, which is incorporated herein by reference.
Part IV
120 MDU Resources Group, Inc. Form 10-K
Item 15. Exhibits, 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 areincluded under Item 8 - Financial Statements and Supplementary Data.Page
Consolidated Statements of Income for each of the three years in the period endedDecember 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Consolidated Statements of Comprehensive Income for each of the three years inthe period ended December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
Consolidated Balance Sheets at December 31, 2019 and 2018 . . . . . . . . . . . . . . .64
Consolidated Statements of Equity for each of the three years in the period endedDecember 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Consolidated Statements of Cash Flows for each of the three years in the periodended December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67
2. Financial Statement Schedules
The following financial statement schedules are included in Part IV of this report.Page
Schedule I - Condensed Financial Information of Registrant (Unconsolidated)
Condensed Statements of Income and Comprehensive Income for each of the threeyears in the period ended December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . .121
Condensed Balance Sheets at December 31, 2019 and 2018 . . . . . . . . . . . . . . . .122
Condensed Statements of Cash Flows for each of the three years in the period endedDecember 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .123
Notes to Condensed Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .123
Schedule II - Consolidated Valuation and Qualifying Accounts. . . . . . . . . . . . . . . . .124
MDU RESOURCES GROUP, INC.
Schedule I - Condensed Financial Information of Registrant (Unconsolidated)
Condensed Statements of Income and Comprehensive Income
Years ended December 31,2019 2018 2017
(In thousands)
Operating revenues $—$628,331 $623,693
Operating expenses —540,125 520,069
Operating income —88,206 103,624
Other income —1,504 4,876
Interest expense —32,761 31,997
Income before income taxes —56,949 76,503
Income taxes —(4,259)13,800
Equity in earnings of subsidiaries from continuing operations 335,166 208,177 222,283
Net income from continuing operations 335,166 269,385 284,986
Equity in earnings (loss) of subsidiaries from discontinued operations 287 2,933 (3,783)
Loss on redemption of preferred stock ——600
Dividends declared on preferred stock ——171
Earnings on common stock $335,453 $272,318 $280,432
Comprehensive income $331,693 $279,269 $279,602
The accompanying notes are an integral part of these condensed financial statements.
Part IV
MDU Resources Group, Inc. Form 10-K 121
MDU RESOURCES GROUP, INC.
Schedule I - Condensed Financial Information of Registrant (Unconsolidated)
Condensed Balance Sheets
December 31,2019 2018
(In thousands, except shares and per share amounts)
Assets
Current assets:
Cash and cash equivalents $12,326 $2,271
Receivables, net 4,727 92,724
Accounts receivable from subsidiaries 49,943 36,015
Inventories —13,293
Prepayments and other current assets 501 14,488
Total current assets 67,497 158,791
Investments 46,294 76,202
Investment in subsidiaries 2,842,068 1,790,886
Property, plant and equipment —2,846,715
Less accumulated depreciation, depletion and amortization —836,735
Net property, plant and equipment —2,009,980
Deferred charges and other assets:
Goodwill —4,812
Operating lease right-of-use assets 153 —
Other 34,367 180,473
Total deferred charges and other assets 34,520 185,285
Total assets $2,990,379 $4,221,144
Liabilities and Stockholders' Equity
Current liabilities:
Long-term debt due within one year $—$200,711
Accounts payable 2,981 50,051
Accounts payable to subsidiaries 4,752 12,438
Taxes payable 1,253 24,704
Dividends payable 41,580 39,695
Accrued compensation 8,812 14,346
Current operating lease liabilities 96 —
Other accrued liabilities 7,690 54,099
Total current liabilities 67,164 396,044
Long-term debt —586,012
Deferred credits and other liabilities:
Deferred income taxes —165,122
Noncurrent operating lease liabilities 56 —
Other 75,913 507,191
Total deferred credits and other liabilities 75,969 672,313
Commitments and contingencies
Stockholders' equity:
Common stock
Authorized - 500,000,000 shares, $1.00 par value
Shares issued - 200,922,790 at December 31, 2019 and 196,564,907 at December 31, 2018 200,923 196,565
Other paid-in capital 1,355,404 1,248,576
Retained earnings 1,336,647 1,163,602
Accumulated other comprehensive loss (42,102)(38,342)
Treasury stock at cost - 538,921 shares (3,626)(3,626)
Total stockholders' equity 2,847,246 2,566,775
Total liabilities and stockholders' equity $2,990,379 $4,221,144
The accompanying notes are an integral part of these condensed financial statements.
Part IV
122 MDU Resources Group, Inc. Form 10-K
MDU RESOURCES GROUP, INC.
Schedule I - Condensed Financial Information of Registrant (Unconsolidated)
Condensed Statements of Cash Flows
Years ended December 31,2019 2018 2017
(In thousands)
Net cash provided by operating activities $168,520 $294,379 $284,075
Investing activities:
Capital expenditures —(242,692)(146,370)
Net proceeds from sale or disposition of property and other —5,032 (5,665)
Investments in and advances to subsidiaries (120,000)(40,000)(40,000)
Advances from subsidiaries 17,000 70,000 40,000
Investments (236)(528)(468)
Net cash used in investing activities (103,236)(208,188)(152,503)
Financing activities:
Issuance of long-term debt —199,422 70,080
Repayment of long-term debt —(125,961)(37,569)
Payments of stock issuance costs —(10)—
Proceeds from issuance of common stock 106,848 ——
Dividends paid (160,256)(154,573)(150,727)
Redemption of preferred stock ——(15,600)
Repurchase of common stock —(1,920)(564)
Tax withholding on stock-based compensation (1,821)(1,721)(508)
Net cash used in financing activities (55,229)(84,763)(134,888)
Increase (decrease) in cash and cash equivalents 10,055 1,428 (3,316)
Cash and cash equivalents - beginning of year 2,271 843 4,159
Cash and cash equivalents - end of year $12,326 $2,271 $843
The accompanying notes are an integral part of these condensed financial statements.
Part IV
MDU Resources Group, Inc. Form 10-K 123
Notes to Condensed Financial Statements
Note 1 - Summary of Significant Accounting Policies
Basis of presentation The condensed financial information reported in Schedule I is being presented to comply with Rule 12-04 of
Regulation S-X. The information is unconsolidated and is presented for the parent company only, MDU Resources Group, Inc. (the
Company) as of and for the year ended December 31, 2019. Prior to the Holding Company Reorganization, the Company included Montana-
Dakota and Great Plains, public utility divisions of the Company as of December 31, 2018. On January 2, 2019, the Company announced
the completion of the Holding Company Reorganization, which resulted in Montana-Dakota and Great Plains becoming a subsidiary of the
Company. Immediately after consummation, the Company had, on a consolidated basis, the same assets, businesses and operations as it
had immediately prior to the reorganization. For more information on the reorganization, see Item 8 - Note 1. The prior periods have not
been restated and reflect the condensed financial information of Montana-Dakota and Great Plains as of and for the years ended
December 31, 2018 and 2017. Due to the completion of the Holding Company Reorganization, the presentation of prior periods will vary
from that of and for the year ended December 31, 2019. In Schedule I, investments in subsidiaries are presented under the equity method
of accounting where the assets and liabilities of the subsidiaries are not consolidated. The investments in net assets of the subsidiaries are
recorded on the Condensed Balance Sheets. The income from subsidiaries is reported as equity in earnings of subsidiaries on the
Condensed Statements of Income. The material cash inflows on the Condensed Statements of Cash Flows are primarily from the dividends
and other payments received from its subsidiaries and the proceeds raised from the issuance of equity securities. The consolidated financial
statements of MDU Resources Group, Inc. reflect certain businesses as discontinued operations. These statements should be read in
conjunction with the consolidated financial statements and notes thereto of MDU Resources Group, Inc.
Earnings per common share Please refer to the Consolidated Statements of Income of the registrant for earnings per common share. In
addition, see Item 8 - Note 1 for information on the computation of earnings per common share.
Note 2 - Debt At December 31, 2019, the Company had no long-term debt maturities. For more information on debt, see Item 8 - Note 9.
Note 3 - Dividends The Company depends on earnings and dividends from its subsidiaries to pay dividends on common stock. Cash dividends
paid to the Company by subsidiaries were $177.1 million, $115.9 million and $116.1 million for the years ended December 31, 2019,
2018 and 2017, respectively.
Part IV
124 MDU Resources Group, Inc. Form 10-K
MDU RESOURCES GROUP, INC.
Schedule II - Consolidated Valuation and Qualifying Accounts
For the years ended December 31, 2019, 2018 and 2017
Additions
Description Balance atBeginning of Year Charged to Costsand Expenses Other *Deductions **Balance atEnd of Year
(In thousands)
Allowance for doubtful accounts:
2019 $8,850 $7,864 $980 $9,197 $8,497
2018 8,069 7,532 1,121 7,872 8,850
2017 10,479 7,024 989 10,423 8,069
*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.
Item 16. Form 10-K Summary
None.
3. Exhibits
Incorporated by Reference
ExhibitNumber Exhibit Description FiledHerewith Form PeriodEnded Exhibit FilingDate File Number
2(a)Agreement and Plan of Merger, dated December 31, 2018, byand among MDU Resources Group, Inc., MDUR Newco, Inc.MDU Newco Sub, Inc.
8-K 2(a)1/2/19 1-03480
3(a)Amended and Restated Certificate of Incorporation of MDUResources Group, Inc.8-K 3.2 5/8/19 1-03480
3(b)Amended and Restated Bylaws of MDU Resources Group, Inc. 8-K 3.1 2/15/19 1-03480
4(a)Indenture, dated as of December 15, 2003, between MDUResources Group, Inc. and The Bank of New York, as trustee S-8 4(f)1/21/04 333-112035
4(b)First Supplemental Indenture, dated as of November 17,2009, between MDU Resources Group, Inc. and the Bank ofNew York Mellon, as trustee
10-K 12/31/09 4(c)2/17/10 1-03480
*4(c)Fifth Amended and Restated Credit Agreement, dated as ofDecember 19, 2019, among Centennial Energy Holdings,Inc., U.S. Bank National Association, as Administrative Agent,and The Several Financial Institutions party thereto
X
*4(d)Montana-Dakota Utilities Co. Amended and Restated CreditAgreement, dated December 19, 2019, among Montana-Dakota Utilities Co., Various Lenders, and Wells Fargo Bank,National Association, as Administrative Agent
X
4(e)Centennial Energy Holdings, Inc. Note Purchase Agreement,dated December 20, 2012, among Centennial EnergyHoldings, Inc. and various purchasers of the notes
10-Q 6/30/19 4(a)8/2/19 1-03480
4(f)Montana-Dakota Utilities Co. Note Purchase Agreement, datedJuly 24, 2019, among Montana-Dakota Utilities Co. andvarious purchasers of the notes
10-Q 9/30/19 4(a)11/1/19 1-03480
Incorporated by Reference
ExhibitNumber Exhibit Description FiledHerewith Form PeriodEnded Exhibit FilingDate File Number
4(g)MDU Resources Group, Inc. Description of SecuritiesRegistered Pursuant to Section 12 of the Securities andExchange Act of 1934
X
+10(a)MDU Resources Group, Inc. Supplemental Income SecurityPlan, as amended and restated May 10, 2017 10-Q 6/30/17 10(d)8/4/17 1-03480
+10(b)MDU Resource Group, Inc. Director Compensation Policy, asamended May 8, 2019 10-Q 6/30/19 10(a)8/2/19 1-03480
+10(c)Deferred Compensation Plan for Directors, as amendedMay 15, 2008 10-Q 6/30/08 10(a)8/7/08 1-03480
+10(d)Non-Employee Director Stock Compensation Plan, asamended May 12, 2011 10-Q 6/30/11 10(a)8/5/11 1-03480
+10(e)MDU Resources Group, Inc. Non-Employee Director Long-Term Incentive Compensation Plan, as amended May 17,2012
10-Q 6/30/12 10(a)8/7/12 1-03480
+10(f)MDU Resources Group, Inc. Long-Term Performance-BasedIncentive Plan, as amended February 11, 2016 10-K 12/31/15 10(f)2/19/16 1-03480
+10(g)MDU Resources Group, Inc. Executive IncentiveCompensation Plan, as amended November 13, 2019, andRules and Regulations, as amended November 13, 2019
X
+10(h)Form of Performance Share Award Agreement under the Long-Term Performance-Based Incentive Plan, as amendedFebruary 16, 2017
8-K 10.1 2/21/17 1-03480
+10(i)Form of Performance Share Award Agreement under the Long-Term Performance-Based Incentive Plan, as amendedFebruary 15, 2018
8-K 10.1 2/21/18 1-03480
+10(j)Form of Performance Share Award Agreement under the Long-Term Performance-Based Incentive Plan, as amendedFebruary 14, 2019
10-K 12/31/18 10(k)2/22/19 1-03480
+10(k)Form of Annual Incentive Award Agreement under the Long-Term Performance-Based Incentive Plan, as amendedFebruary 13, 2020
X
+10(l)Restricted Stock Unit Award Agreement under the Long-TermPerformance-Based Incentive Plan, as amended February 15,2018
8-K 10.3 2/21/18 1-03480
+10(m)Form of MDU Resources Group, Inc. IndemnificationAgreement for Section 16 Officers and Directors, datedMay 15, 2014
8-K 10.1 5/15/14 1-03480
+10(n)Form of Amendment No. 1 to Indemnification Agreement,dated May 15, 2014 8-K 10.2 5/15/14 1-03480
+10(o)MDU Resources Group, Inc. Nonqualified DefinedContribution Plan, as amended May 10, 2017 10-Q 6/30/17 10(c)8/4/17 1-03480
+10(p)MDU Resources Group, Inc. 401(k) Retirement Plan, asrestated January 1, 2017 10-Q 3/31/17 10(a)5/8/17 1-03480
+10(q)Instrument of Amendment to the MDU Resources Group, Inc.401(k) Retirement Plan, dated March 31, 2017 10-Q 3/31/17 10(b)5/8/17 1-03480
+10(r)Instrument of Amendment to the MDU Resources Group, Inc.401(k) Retirement Plan, dated April 10, 2017 10-Q 6/30/17 10(e)8/4/17 1-03480
+10(s)Instrument of Amendment to the MDU Resources Group, Inc.401(k) Retirement Plan, dated August 30, 2017 10-Q 9/30/17 10(a)11/3/17 1-03480
+10(t)Instrument of Amendment to the MDU Resources Group, Inc.401(k) Retirement Plan, dated April 25, 2018 10-Q 6/30/19 10(b)8/2/19 1-03480
+10(u)Instrument of Amendment to the MDU Resources Group, Inc.401(k) Retirement Plan, dated September 6, 2018 10-Q 6/30/19 10(c)8/2/19 1-03480
+10(v)Instrument of Amendment to the MDU Resources Group, Inc.401(k) Retirement Plan, dated December 20, 2018 10-Q 6/30/19 10(d)8/2/19 1-03480
Part IV
MDU Resources Group, Inc. Form 10-K 125
* Schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omittedschedule and/or exhibit will be furnished as a supplement to the SEC upon request.
+ 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 ResourcesGroup, Inc. has not filed as an exhibit pursuant to the exemption provided by Item 601(b)(4)(iii)(A) of Regulation S-K.
Incorporated by Reference
ExhibitNumber Exhibit Description FiledHerewith Form PeriodEnded Exhibit FilingDate File Number
+10(w)Instrument of Amendment to the MDU Resources Group, Inc.401(k) Retirement Plan, dated March 22, 2019 10-Q 6/30/19 10(e)8/2/19 1-03480
+10(x)Instrument of Amendment to the MDU Resources Group, Inc.401(k) Retirement Plan, dated August 22, 2019 10-Q 9/30/19 10(a)11/1/19 1-03480
+10(y)Instrument of Amendment to the MDU Resources Group, Inc.401(k) Retirement Plan, dated October 15, 2019 X
+10(z)Employment Letter for Jeffrey S. Thiede, dated May 16, 2013 10-K 12/31/13 10(ab)2/21/14 1-03480
+10(aa)Jason L. Vollmer Offer Letter, dated September 20, 2017 8-K 10.1 9/21/17 1-03480
21 Subsidiaries of MDU Resources Group, Inc.X
23 Consent of Independent Registered Public Accounting Firm X
31(a)Certification of Chief Executive Officer filed pursuant toSection 302 of the Sarbanes-Oxley Act of 2002 X
31(b)Certification of Chief Financial Officer filed pursuant toSection 302 of the Sarbanes-Oxley Act of 2002 X
32 Certification of Chief Executive Officer and Chief FinancialOfficer furnished pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002
X
95 Mine Safety Disclosures X
101.INS XBRL Instance Document - the instance document does notappear in the Interactive Data File because its XBRL tags areembedded within the Inline XBRL document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
Part IV
126 MDU Resources Group, Inc. Form 10-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 21, 2020 By:/s/ David L. Goodin
David L. Goodin
(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/ David L. Goodin Chief Executive Officer and Director February 21, 2020
David L. Goodin
(President and Chief Executive Officer)
/s/ Jason L. Vollmer Chief Financial Officer February 21, 2020
Jason L. Vollmer
(Vice President, Chief Financial Officer and Treasurer)
/s/ Stephanie A. Barth Chief Accounting Officer February 21, 2020
Stephanie A. Barth
(Vice President, Chief Accounting Officer and Controller)
/s/ Dennis W. Johnson Director February 21, 2020
Dennis W. Johnson
(Chair of the Board)
/s/ Thomas Everist Director February 21, 2020
Thomas Everist
/s/ Karen B. Fagg Director February 21, 2020
Karen B. Fagg
/s/ Mark A. Hellerstein Director February 21, 2020
Mark A. Hellerstein
/s/ Patricia L. Moss Director February 21, 2020
Patricia L. Moss
/s/ Edward A. Ryan Director February 21, 2020
Edward A. Ryan
/s/ David M. Sparby Director February 21, 2020
David M. Sparby
/s/ Chenxi Wang Director February 21, 2020
Chenxi Wang
/s/ John K. Wilson Director February 21, 2020
John K. Wilson
Part IV
MDU Resources Group, Inc. Form 10-K 127
March 27, 2020
Fellow Stockholders:
I invite you to join me, our Board of Directors and members of our senior management team for our annual meeting at
11 a.m. on May 12, 2020, at 909 Airport Road in Bismarck, North Dakota.
We will hear at the meeting the results of stockholder voting on the items outlined in this Proxy Statement, including
election of our Board of Directors, advisory vote to approve the compensation paid to our named executive officers, and
ratification of the appointment of our independent auditors.
In addition to the business items to be conducted at the annual meeting, I will provide an overview of our excellent
2019 financial results and the growth we accomplished during the year. We have a strong outlook for 2020, and I will
provide additional details about our backlog of construction work as well as the growth projects underway at our
regulated energy delivery businesses.
As you read this year’s Proxy Statement, you will find information about the board’s newly chartered Environmental
and Sustainability Committee. This committee helps the board fulfill its oversight responsibilities related to MDU
Resources’ environmental, workplace health, safety and other social sustainability matters. We also adapted our
corporate environmental, social and governance reporting in 2019 to follow standards outlined by the Sustainability
Accounting Standards Board and industry organizations. You can find this ESG information on our website at
www.mdu.com/sustainability. Our board is committed to continuing to expand efforts regarding ESG matters.
I look forward to seeing you May 12 at the annual stockholder meeting. You can find information on p. 67 of this Proxy
Statement about how to receive an admission ticket to the meeting.
If you cannot attend, your vote is still important to us. I ask that you please promptly follow the instructions on your
notice or proxy card to vote your shares.
We appreciate your continued investment in MDU Resources and remain committed to providing you with the long-term
returns you expect.
Sincerely,
David L. Goodin
President and Chief Executive Officer
MDU Resources Group, Inc. Proxy Statement
1200 West Century Avenue
Mailing Address:
P.O. Box 5650
Bismarck, North Dakota 58506-5650
[phone]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 12, 2020
March 27, 2020
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of MDU Resources Group, Inc. will be held at 909 Airport Road,
Bismarck, North Dakota 58504, on Tuesday, May 12, 2020, at 11:00 a.m., Central Daylight Saving Time, for the following purposes:
Items of
Business
1.Election of directors;
2.Advisory vote to approve the compensation paid to the company’s named executive officers;
3.Ratification of the appointment of Deloitte & Touche LLP as the company’s independent registered public
accounting firm for 2020; and
4.Transaction of any other business that may properly come before the meeting or any adjournment(s) thereof.
Record Date The board of directors has set the close of business on March 13, 2020, as the record date for the determination
of stockholders who will be entitled to notice of, and to vote at, the meeting and any adjournment(s) thereof.
Meeting
Attendance
All stockholders as of the record date of March 13, 2020, are cordially invited and urged to attend the annual
meeting. You must request an admission ticket to attend. If you are a stockholder of record and plan to attend
the meeting, please contact MDU Resources Group, Inc. by email at [e-mail] or
by telephone at 701-530-1010 to request an admission ticket. A ticket will be sent to you by mail.
If your shares are held beneficially in the name of a bank, broker, or other holder of record, and you plan to
attend the annual meeting, you will need to submit a written request for an admission ticket by mail to:
Investor Relations, MDU Resources Group, Inc., P.O. Box 5650, Bismarck, ND 58506 or by email at
[e-mail]. The request must include proof of stock ownership as of March 13,
2020, such as a bank or brokerage firm account statement or a legal proxy from the bank, broker, or other holder
of record confirming ownership. A ticket will be sent to you by mail.
Requests for admission tickets must be received no later than May 1, 2020. You must present your admission
ticket and state-issued photo identification, such as a driver’s license, to gain admittance to the meeting.
Proxy
Materials
Notice of Availability of Proxy Materials will be first sent to stockholders on or about March 27, 2020. The Notice
contains basic information about the annual meeting and instructions on how to view our proxy materials and vote
electronically on the Internet. Stockholders who do not receive the Notice will receive a paper copy of our proxy
materials, which will be sent on or about April 2, 2020.
By order of the Board of Directors,
Daniel S. Kuntz
Secretary
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held on May 12, 2020.
The 2020 Notice of Annual Meeting and Proxy Statement and 2019 Annual Report to Stockholders
are available at www.mdu.com/proxymaterials.
Proxy Statement
MDU Resources Group, Inc. Proxy Statement
TABLE OF CONTENTS
Page Page
PROXY STATEMENT SUMMARY . . . . . . . . . . . . . . .1 EXECUTIVE COMPENSATION (continued)
BOARD OF DIRECTORS Executive Compensation Tables . . . . . . . . . . . . . . . . . . .50
Item 1. Election of Directors . . . . . . . . . . . . . . . . . . . . .8 Summary Compensation Table . . . . . . . . . . . . . . . . .50
Director Nominees. . . . . . . . . . . . . . . . . . . . . . . . . .9 Grants of Plan-Based Awards. . . . . . . . . . . . . . . . . .51
Board Evaluations and Process for Selecting Directors 14 Outstanding Equity Awards at Fiscal Year-End. . . . . .53
CORPORATE GOVERNANCE Option Exercises and Stock Vested . . . . . . . . . . . . .54
Director Independence. . . . . . . . . . . . . . . . . . . . . . .17 Pension Benefits . . . . . . . . . . . . . . . . . . . . . . . . . .54
Sustainability and Social Responsibility . . . . . . . . . .17 Nonqualified Deferred Compensation. . . . . . . . . . . .56
Stockholder Engagement . . . . . . . . . . . . . . . . . . . . .18 Potential Payments upon Termination or
Board Leadership Structure . . . . . . . . . . . . . . . . . . .18 Change of Control . . . . . . . . . . . . . . . . . . . . . . . .57
Board’s Role in Risk Oversight . . . . . . . . . . . . . . . . .18 CEO Pay Ratio Disclosure . . . . . . . . . . . . . . . . . . . .61
Board Meetings and Committees. . . . . . . . . . . . . . . .19 AUDIT MATTERS
Stockholder Communications with the Board . . . . . . .23 Item 3. Ratification of the Appointment of
Additional Governance Features . . . . . . . . . . . . . . . .23 Deloitte & Touche LLP as the Company’s Independent
Corporate Governance Materials . . . . . . . . . . . . . . . .25 Registered Public Accounting Firm for 2020 . . . . . . . .62
Related Person Transaction Disclosure . . . . . . . . . . .25 Annual Evaluation and Selection of Deloitte &
COMPENSATION OF NON-EMPLOYEE DIRECTORS Touche LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Director Compensation. . . . . . . . . . . . . . . . . . . . . . .26 Audit Fees and Non-Audit Fees . . . . . . . . . . . . . . . .63
SECURITY OWNERSHIP Policy on Audit Committee Pre-Approval of Audit
Security Ownership Table. . . . . . . . . . . . . . . . . . . . .29 and Permissible Non-Audit Services 63
Hedging Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 Audit Committee Report . . . . . . . . . . . . . . . . . . . . . . . .64
Greater than 5% Beneficial Owners. . . . . . . . . . . . . .30 INFORMATION ABOUT THE ANNUAL MEETING
EXECUTIVE COMPENSATION Who Can Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Item 2. Advisory Vote to Approve the Compensation Paid .Notice and Access . . . . . . . . . . . . . . . . . . . . . . . . .65
to the Company’s Named Executive Officers . . . . . . . . .31 How to Vote. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Information Concerning Executive Officers . . . . . . . . . . . .32 Revoking Your Proxy or Changing Your Vote. . . . . . . .65
Compensation Discussion and Analysis. . . . . . . . . . . . . . .33 Discretionary Voting Authority . . . . . . . . . . . . . . . . .66
Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . .33 Voting Standards . . . . . . . . . . . . . . . . . . . . . . . . . .66
2019 Compensation Framework . . . . . . . . . . . . . . . .37 Proxy Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . .66
2019 Compensation for Our Named Electronic Delivery of Proxy Statement . . . . . . . . . . .67
Executive Officers . . . . . . . . . . . . . . . . . . . . . . . .41 Householding of Proxy Materials . . . . . . . . . . . . . . .67
Other Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 MDU Resources Group, Inc. 401(k) Plan . . . . . . . . .67
Compensation Governance . . . . . . . . . . . . . . . . . . . .48 Annual Meeting Admission and Guidelines . . . . . . . .67
Compensation Committee Report . . . . . . . . . . . . . . . . . .49 Conduct of the Meeting . . . . . . . . . . . . . . . . . . . . .68
Stockholder Proposals, Director Nominations, and
Other Items of Business for 2021. . . . . . . . . . . . .68
Proxy Statement
MDU Resources Group, Inc. Proxy Statement
PROXY STATEMENT SUMMARY
To assist you in reviewing the company’s 2019 performance and voting your shares, we call your attention to key elements of our 2020
Proxy Statement. The following is only a summary and does not contain all the information you should consider. You should read the entire
Proxy Statement carefully before voting. For more information about these topics, please review the full Proxy Statement and our 2019
Annual Report to Stockholders.
Meeting Information Summary of Stockholder Voting Matters
Time and Date Voting Matters Board VoteRecommendation See Page
11:00 a.m.
Central Daylight Saving Time
Tuesday, May 12, 2020
Item 1.Election of Directors FOR Each Nominee 8
Item 2. Advisory Vote to Approve the Compensation Paid to
the Company’s Named Executive Officers FOR 31
Place Item 3.Ratification of the Appointment of Deloitte &
Touche LLP as the Company’s Independent
Registered Public Accounting Firm for 2020
FOR 62MDU Service Center
909 Airport Road
Bismarck, ND 58504
Corporate Governance Practices
MDU Resources Group, Inc. is committed to strong corporate governance practices. The following highlights our corporate governance
practices and policies. See the sections entitled “Corporate Governance” and “Executive Compensation” for more information on the
following:
ü Annual Election of All Directors ü Standing Committees Consist Entirely of Independent
Directors
ü Majority Voting for Directors ü Active Investor Outreach Program
ü Succession Planning and Implementation Process ü Stock Ownership Requirements for Directors and Executive
Officers
ü Separate Board Chair and CEO ü Anti-Hedging and Anti-Pledging Policies for Directors and
Executive Officers
ü Executive Sessions of Independent Directors at Every
Regularly Scheduled Board Meeting ü No Related Party Transactions by Our Directors or Executive
Officers
ü Annual Board and Committee Self-Evaluations ü Compensation Recovery/Clawback Policy
ü Risk Oversight by Full Board and Committees ü Annual Advisory Approval on Executive Compensation
ü All Directors are Independent Other Than Our CEO ü Mandatory Retirement for Directors at Age 76
ü “Proxy Access” Allowing Stockholders to Nominate
Directors in Accordance With the Terms of Our Bylaws ü Directors May Not Serve on More Than Three Public Boards
Including the Company’s Board
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 1
Governance Highlights
We are committed to strong corporate governance aligned with stockholder interests. The board, through its nominating and governance
committee, regularly monitors leading practices in governance and adopts measures that it determines are in the best interests of the
company and its stockholders.
■Three new independent directors were added to the board during 2018 and 2019 with the retirement of three former directors,
including the independent chair of the board.
■Dennis W. Johnson, who previously served as chair of our audit committee, was elected as the new independent board chair in 2019.
■The environmental and sustainability committee was established in 2019 as a standing committee of the board of directors to oversee
environmental, workplace health, safety, and other social sustainability matters that fundamentally affect the company’s business and
long-term viability.
■In conjunction with the election of new directors, the appointment of Mr. Johnson as board chair, and the establishment of the
environmental and sustainability committee, membership on the board’s standing committees was refreshed with new chairs appointed
for each of the committees.
■Membership of all committees consists entirely of independent directors.
■The company was recognized, for the third consecutive year, by the 2020 Women on Boards campaign for diversity on the corporation’s
board of directors.
■The company was recognized by the Women’s Forum of New York as a 2019 Corporate Champion with at least 30% of board seats held
by women.
■On January 1, 2019, we completed a holding company reorganization to provide additional financing flexibility and further separation
between the company’s utility and other business segments. As a result of the reorganization, all of the company’s utility operations are
conducted through wholly-owned subsidiaries.
Business Performance Highlights
Our overall performance in 2019 was consistent with our long-term strategy as we focused on growing our regulated energy delivery and
construction materials and services business segments. In addition to our 2019 financial performance highlighted on the next page:
■The electric segment completed construction of the 345-kilovolt transmission line project from Ellendale, North Dakota, to Big Stone
City, South Dakota, in February 2019.
■The electric segment announced plans to retire three aging coal-fired electric generation units at two locations within the next two to
three years and construct a new simple-cycle natural gas combustion turbine. The retirement of the 44-megawatt Lewis & Clark Station
in Sidney, Montana is expected in early 2021 and the Heskett units 1 and 2, which combine for 100 megawatts, would be retired in
early 2022. Subject to regulatory approval, a new 88-megawatt simple-cycle peaking unit at the Heskett Station would be constructed
in 2023.
■The construction materials and contracting segment had record revenues in 2019.
■The construction materials and contracting segment completed the acquisition of Viesko Redi-Mix, Inc. in Wheatland, Oregon in 2019.
■The construction materials and contracting segment also acquired aggregate reserves near Marble Falls, Texas in February 2019. In
November 2019, the Texas Commission on Environmental Quality issued an Air Quality Standard Permit to construct a rock-crushing
plant at the quarry. The quarry, which is expected to begin production in late 2020, contains an estimated 40-year supply of high
quality aggregates enabling the construction materials and contracting segment to supply a significant portion of the base materials
used for its local construction and production of ready-mixed concrete and asphalt along with third-party sales in our Texas market.
■The pipeline and midstream segment in 2019 had record transportation volumes for the third consecutive year. The segment completed
construction of its Demicks Lake Project in McKenzie County, North Dakota, and Phase I of the Line Section 22 Project near Billings,
Montana came online. The projects are designed to increase capacity by 175 MMcf and 14.3 MMcf per day, respectively. Construction
on Phase II of the Line Section 22 Project, which includes additional design capacity of 8.2 MMcf per day, is expected to be completed
the first half of 2020. In February 2020, the segment also completed construction and placed into service the Demicks Lake Expansion
Project which is designed to increase capacity by 175 MMcf per day.
■The pipeline and midstream segment announced plans to construct approximately 62 miles of pipeline, compression, and ancillary
facilities to transport natural gas from core Bakken production areas in western North Dakota to an interconnection point with another
interstate transmission pipeline. This North Bakken Expansion Project, as designed, would provide 350 million cubic feet per day of
natural gas transportation capacity with estimated completion in 2021.
■The construction services segment had record revenues in 2019.
■The construction services segment completed the acquisition of the assets of Pride Electric, Inc. in Redmond, Washington in 2019.
Proxy Statement
2 MDU Resources Group, Inc. Proxy Statement
Performance from Continuing Operations
2015 2016 2017 2018 2019
Electric Distribution Retail Sales (thousand kWh)3,316,017 3,258,537 3,306,470 3,354,401 3,314,307
Natural Gas Distribution
Retail Sales (Mdk)95,559 99,296 112,551 112,566 123,675
Transportation (Mdk)154,225 147,592 144,477 149,497 166,077
Pipeline Transportation (Mdk)290,494 285,254 312,520 351,498 429,660
Construction Materials and Contracting Revenues (000’s)1,904,282 1,874,270 1,812,529 1,925,854 2,190,717
Construction Services Revenues (000’s)926,427 1,073,272 1,367,602 1,371,453 1,849,266
2019 Financial Performance Highlights
■Strong year-over-year performance from operations at both our regulated energy delivery and construction materials and services
segments resulted in an earnings increase of 23% in 2019 to $335.5 million, or $1.69 per share, compared to 2018 earnings of
$272.3 million, or $1.39 per share, including discontinued operations.
■Including our accomplishments in 2019, we are optimistic about the company’s future financial performance. The chart below shows
our progress over the last five years.
Earnings per Share
from Continuing Operations
$1.75
$1.50
$1.25
$1.00
$0.75
$0.50
$0.25
$0.00
2015 2016 2017*2018 2019
$0.90
$1.19 $1.25 $1.38
$1.69
$0.20
$1.45
* MDU Resources Group, Inc. reported 2017 earnings from continuing operations of $1.45 per share which included a
non-recurring benefit of 20 cents per share attributable to the federal Tax Cuts and Jobs Act that was signed into law on
December 22, 2017.
■Returned $162.1 million to stockholders through dividends:
¨Increased dividend for 29th straight year to our current annualized dividend of 83 cents per share; and
¨Paid uninterrupted dividend for 82 straight years.
■Maintained BBB+ stable credit rating from Standard & Poor’s and Fitch rating agencies. 1
■Operating income increased 20 percent from $401.7 million in 2018 to $481.2 million in 2019.
■Over the five-year period, earnings per common share before discontinued operations have grown at 12% compounded annually.
1 A securities rating is not a recommendation to buy, sell, or hold securities, and it may be revised or withdrawn at any time by the rating
agency.
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 3
29 Years Dividends Paid 82 Years
of Consecutive $762 Million of Uninterrupted
Dividend Increases Over the Last 5 Years Dividend Payments
Compensation Highlights
The company’s executive compensation is focused on paying for performance. Our compensation program is structured to align
compensation with the company’s financial performance as a substantial portion of our executive compensation is based upon
performance incentive awards.
■Over 75% of our chief executive officer’s target compensation and over 66% of our other named executive officers’ target
compensation is performance based.
■100% of our chief executive officer’s annual and long-term incentive compensation is tied to performance against pre-established,
specific, measurable financial goals.
■We require our executive officers to own a significant amount of company stock based upon a multiple of their base salary.
2019 Named Executive Officer Target Pay Mix

At the 2019 Annual Meeting, the company’s advisory vote
to approve executive compensation received support from
over 96% of the common stock represented at the
meeting and entitled to vote on the matter.
Proxy Statement
4 MDU Resources Group, Inc. Proxy Statement
Key Features of Our Executive Compensation Program
What We Do
þ Pay for Performance - Annual and long-term award incentives tied to performance measures set by the compensation committee
comprise the largest portion of executive compensation.
þ Independent Compensation Committee - All members of the compensation committee meet the independence standards under the
New York Stock Exchange listing standards and the Securities and Exchange Commission rules.
þ Independent Compensation Consultant - The compensation committee retains an independent compensation consultant to evaluate
executive compensation plans and practices.
þ Competitive Compensation - Executive compensation reflects executive performance, experience, relative value compared to other
positions within the company, relationship to competitive market value compensation, business segment economic environment,
and the actual performance of the overall company and the business segments.
þ Annual Cash Incentive - Payment of annual cash incentive awards are based on business segment and overall company performance
against pre-established annual financial measures.
þ Long-Term Equity Incentive - Long-term incentive awards may be earned at the end of a three-year period based on achieving pre-
established performance measures and are paid through performance shares which encourages stock ownership and helps retain
management talent.
þ Balanced Mix of Pay Components - The target compensation mix is not overly weighted toward annual incentive awards but rather
represents a balance of annual cash and long-term equity-based compensation.
þ Mix of Financial Goals - Use of a mixture of financial goals to measure performance prevents overemphasis on a single metric.
þ Annual Compensation Risk Analysis - Risks related to our compensation programs are regularly analyzed through an annual
compensation risk assessment.
þ Stock Ownership and Retention Requirements - Executive officers are required to own, within five years of appointment or promotion,
company common stock equal to a multiple of their base salary. Our president and chief executive officer is required to own stock
equal to four times his base salary, and the other named executive officers are required to own stock equal to three times their
base salary. The executive officers also must retain at least 50% of the net after-tax shares of stock vested through the long-term
incentive plan for the earlier of two years or until termination of employment. Net performance shares must also be held until
share ownership requirements have been met.
þ Clawback Policy - If the company’s audited financial statements are restated due to any material noncompliance with the financial
reporting requirements under the securities laws, the compensation committee may, or shall if required, demand repayment of
some or all incentives paid to our executive officers within the last three years.
What We Do Not Do
ý Stock Options - The company does not use stock options as a form of incentive compensation.
ý Employment Agreements - Executives do not have employment agreements entitling them to specific payments upon termination or
a change of control of the company.
ý Perquisites - Executives do not receive perquisites that materially differ from those available to employees in general.
ý Hedge Stock - Executives are not allowed to hedge company securities.
ý Pledge Stock - Executives are not allowed to pledge company securities in margin accounts or as collateral for loans.
ý No Dividends or Dividend Equivalents on Unvested Shares - We do not provide for payment of dividends or dividend equivalents on
unvested share awards.
ý Tax Gross-Ups - Executives do not receive tax gross-ups on their compensation except for circumstances regarding relocation.
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 5
Corporate Responsibility, Environmental, and Sustainability Highlights
MDU Resources Group, Inc. is Building a Strong America® by providing essential products and services to our customers with a long-term
view toward sustainable operations. To ensure we can continue to provide these products and services in the communities where we do
business, we recognize that we must preserve the trust our communities place in us to be a good corporate citizen. We remain committed
to pursuing responsible corporate environmental and sustainability practices and to maintaining the health and safety of the public and
our employees. In 2019 the board of directors established the environmental and sustainability committee as a standing committee of the
board. The committee meets quarterly in conjunction with the regular meetings of the board. The committee oversees and provides
recommendations to management and the board regarding environmental, workplace health, safety, and other social sustainability matters
that fundamentally affect the company’s business interests and long-term liability. To better serve our investors and other stakeholders, in
2019 we began reporting environmental, social, governance, and sustainability (ESG/sustainability) metrics relevant and important to our
operations in frameworks that provide our stakeholders more uniform and transparent data and information, allowing for comparison with
our peers and other companies operating in our industries. For our electric and natural gas distribution segments, as well as our pipeline
and midstream segment, we report ESG/sustainability metrics using the reporting templates developed by the Edison Electric Institute and
the American Gas Association. For our other business segments, we report ESG/sustainability information under the framework developed
by the Sustainability Accounting Standards Board (SASB) for our applicable industries. The use of the metrics developed by these
organizations provides for ESG/sustainability reporting tailored to our industries. The reports can be found at www.mdu.com/sustainability.
These are some highlights of our recent efforts regarding sustainability:
■As our renewable generation resource capacity has increased, the carbon dioxide (CO2) emission intensity of our electric generation
resource fleet has been reduced by approximately 31% since 2003. We expect it to continue to decline with the planned retirements of
the Lewis & Clark and Heskett 1 and 2 coal generation facilities.
■Renewable resources comprised approximately 27% of our current electric generation resource nameplate capacity.
Percent of Renewable Generation Resources
30
25
20
15
10
5
0Percent
of
Renewables
2000 2008 2010 2015 2019
0%4%
11%
22%
27%
■Approximately 26.5% of the electricity delivered to our customers from company-owned generation in 2019 was from renewable
resources.
■We invested approximately $137 million in environmental emission control equipment and other environmental improvements at our
coal-fired electric generation plants since 2013. The investments have resulted in substantial reductions in mercury, sulfur dioxide,
nitrogen oxide, and filterable particulate emissions from our coal-fired electric generation resources.
■Montana-Dakota Utilities Co. produces renewable natural gas (RNG) from the Billings Regional Landfill in Montana. The project came
online at the end of 2010 and has produced approximately 1.23 million dekatherm of RNG through year-end 2019. The RNG is
supplied to the vehicle fuel market generating renewable identification numbers (RINS) and low carbon fuel standard (LCFS) credits in
California and Oregon. In calendar year 2019, the Billings Landfill Plant produced approximately 1.63 million RINs and 4,303 LCFS
credits.
■Our utility companies received high scores in customer satisfaction. Cascade Natural Gas Corporation ranked first nationwide for all gas
utilities in the 2019 J.D. Power Gas Utility Residential Customer Satisfaction Study.SM In addition, Cascade Natural Gas Corporation
ranked first, Intermountain Gas Company second, and Montana-Dakota Utilities Co. third among West Region mid-sized natural gas
utilities in the 2019 J.D. Power Gas Utility Residential Customer Satisfaction Study.SM
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6 MDU Resources Group, Inc. Proxy Statement
26.5%
of 2019 Electricity Generated
From Renewable Resources
Foundation Awarded
$1.57 Million
of Grants in 2019
31%
Reduction in CO2 Intensity in
Our Electric Generation Fleet
Since 2003
■Knife River Corporation produces and places warm-mix asphalt in applications where warm-mix asphalt is allowed. Warm-mix asphalt is
produced at cooler temperatures than traditional hot-mix asphalt methods, which reduces the amount of fuel needed in the production
process and thereby reduces emissions and fumes.
■Knife River Corporation continued its practice of recycling and reusing building materials. This conserves natural resources, uses less
energy, alleviates waste disposal problems in local landfills, and ultimately costs less for the consumer.
■The MDU Resources Foundation awarded grants of $1.57 million to educational and nonprofit institutions in 2019. Since its
incorporation in 1983, the foundation has contributed more than $35.5 million to worthwhile causes in categories of education, civic
and community activities, culture and arts, environmental stewardship, and health and human services.
■We encourage and support community volunteerism by our employees. The MDU Resources Foundation contributes a $500 grant to an
eligible nonprofit organization after an employee volunteers a minimum of 25 hours to the organization during non-company hours
during a calendar year. Eligible organizations are local 501(c) nonprofit organizations providing services in categories of civic and
community activities, culture and arts, education, environment, and health and human services. In 2019, the foundation granted
$60,000 under this program, matching over 7,900 employee volunteer hours.
■We encourage support of educational institutions by all employees. The MDU Resources Foundation matches contributions to
educational institutions by employees up to $750.
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MDU Resources Group, Inc. Proxy Statement 7
BOARD OF DIRECTORS
ITEM 1. ELECTION OF DIRECTORS
The board currently consists of ten directors, all of whom are standing for election to the board at the 2020 Annual Meeting of Stockholders
to hold office until the 2021 annual meeting and until their successors are duly elected and qualified.
The board has affirmatively determined that all the director nominees, other than David L. Goodin, our president and chief executive officer,
are independent in accordance with New York Stock Exchange (NYSE) rules, our governance guidelines, and our bylaws.
Our bylaws provide for a majority voting standard for the election of directors. See “Additional Information - Majority Voting” below for
further detail.
Each of the director nominees has consented to be named in this proxy statement and to serve as a director, if elected. We do not know of
any reason why any nominee would be unable or unwilling to serve as a director, if elected. If, however, a nominee becomes unable to serve
or will not serve, proxies may be voted for the election of such other person nominated by the board as a substitute or the board may choose
to reduce the number of directors.
Information about each director nominee’s share ownership is presented under “Security Ownership.”
The shares represented by the proxies received will be voted for the election of each of the ten nominees named below unless you indicate
in the proxy that your vote should be cast against any or all the director nominees or that you abstain from voting. Each nominee elected as
a director will continue in office until his or her successor has been duly elected and qualified or until the earliest of his or her resignation,
retirement, or death.
The ten nominees for election to the board at the 2020 annual meeting, all proposed by the board, are listed below with brief biographies.
The nominees’ ages are current as of December 31, 2019.
The board of directors recommends that the stockholders
vote FOR the election of each nominee.
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8 MDU Resources Group, Inc. Proxy Statement
Director Nominees
Thomas Everist
Age 70
Independent Director Since 1995
Compensation Committee
Nominating and Governance Committee
Other Current Public Boards:
--Raven Industries, Inc.
Key Contributions to the Board: With a 44-year career in the construction materials and mining industry,
Mr. Everist brings critical knowledge of the construction materials and contracting industry to the board.
Mr. Everist also contributes strong business leadership and management capabilities and insights through
his role as president and chair of his companies for over 32 years. His service on the board of another public
company further enhances his contributions to the board.
Career Highlights
•President and chair of The Everist Company, Sioux Falls, South Dakota, an investment and land development company, since April
2002. Prior to January 2017, The Everist Company was engaged in aggregate, concrete, and asphalt production.
•Managing member of South Maryland Creek Ranch, LLC, a land development company, since June 2006; president of SMCR, Inc., an
investment company, since June 2006; and managing member of MCR Builders, LLC, which provides residential building services to
South Maryland Creek Ranch, LLC, since November 2014.
•Director and chair of the board of Everist Health, Inc., Ann Arbor, Michigan, which provides solutions for personalized medicines, since
2002, and chief executive officer from August 2012 to December 2012.
•President and chair of L.G. Everist, Inc., Sioux Falls, South Dakota, an aggregate production company, from 1987 to April 2002.
Other Leadership Experience
•Director of publicly traded Raven Industries, Inc., Sioux Falls, South Dakota, a general manufacturer of electronics, flow controls, and
engineered films, since 1996, and chair from April 2009 to May 2017.
•Director of Bell, Inc., Sioux Falls, South Dakota, a manufacturer of folding cartons and packages, since April 2011.
•Director of Showplace Wood Products, Inc., Sioux Falls, South Dakota, a custom cabinets manufacturer, since January 2000.
•Director of Angiologix Inc., Mountain View, California, a medical diagnostic device company, from July 2010 through October 2011
when it was acquired by Everist Genomics, Inc.
•Member of the South Dakota Investment Council, the state agency responsible for investing state funds, from July 2001 to June 2006.
Karen B. Fagg
Age 66
Independent Director Since 2005
Compensation Committee
Environmental and Sustainability Committee
Key Contributions to the Board: Through her management experience and knowledge in the fields of engineering,
environment, and energy resource development, including four years as director of the Montana Department of
Natural Resources and Conservation and over eight years as president, chief executive officer, and chair of her
own engineering and environmental services company, as well as her service on a number of Montana state
and community boards, Ms. Fagg contributes experience in responsible natural resource development with an
informed perspective of the construction, engineering, and energy industries.
Career Highlights
•Vice president of DOWL LLC, dba DOWL HKM, an engineering and design firm, from April 2008 until her retirement in December 2011.
•President of HKM Engineering, Inc., Billings, Montana, an engineering and environmental services firm, from April 1995 to June 2000,
and chair, chief executive officer, and majority owner from June 2000 through March 2008. HKM Engineering, Inc. merged with
DOWL LLC in April 2008.
•Employed with MSE, Inc., Butte, Montana, an energy research and development company, from 1976 through 1988, and vice president
of operations and corporate development director from 1993 to April 1995.
•Director of the Montana Department of Natural Resources and Conservation, Helena, Montana, the state agency charged with promoting
stewardship of Montana’s water, soil, energy, and rangeland resources; regulating oil and gas exploration and production; and
administering several grant and loan programs, for a four-year term from 1989 through 1992.
Other Leadership Experience
•Chair of SCL Health Montana Regional Board from January 2020 to present; and member of Carroll College Board of Trustees from
2005 through 2010 and August 2019 to present.
•Former member of several regional, state, and community boards, including director of St. Vincent’s Healthcare from October 2003 to
October 2009 and January 2016 through December 2019, including a term as chair; director of the Billings Catholic Schools Board
from December 2011 through December 2018, including a term as chair; the First Interstate BancSystem Foundation from June 2013
to 2016; the Montana Justice Foundation from 2013 into 2015; Montana Board of Investments from 2002 through 2006; Montana
State University’s Advanced Technology Park from 2001 to 2005; and Deaconess Billings Clinic Health System from 1994 to 2002.
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MDU Resources Group, Inc. Proxy Statement 9
David L. Goodin
Age 58
Director Since 2013
President and Chief Executive Officer
Key Contributions to the Board: Serving as president and chief executive officer of MDU Resources Group, Inc.
since 2013, Mr. Goodin is the only officer of the company that serves on our board. With 30 years of operating
and leadership positions with our utility operations and seven years in his current position, he brings utility
industry experience to the board as well as extensive knowledge of our company and its business operations.
He contributes valuable insight into management’s views and perspectives and the day-to-day operations of the
company.
Career Highlights
•President and chief executive officer and a director of the company since January 4, 2013.
•Prior to January 4, 2013, served as chief executive officer and president of Intermountain Gas Company, Cascade Natural Gas
Corporation, Montana-Dakota Utilities Co., and Great Plains Natural Gas Co.
•Began his career in 1983 at Montana-Dakota Utilities Co. as a division electrical engineer and served in positions of increasing
responsibility until 2007 when he was named president of Cascade Natural Gas Corporation; positions included division electric
superintendent, electric systems manager, vice president-operations, and executive vice president-operations and acquisitions.
Other Leadership Experience
•Member of the U.S. Bancorp Western North Dakota Advisory Board since January 2013.
•Director of Sanford Bismarck, an integrated health system dedicated to the work of health and healing, and Sanford Living Center, since
January 2011.
•Board member of the BSC Innovations Foundation, an extension of Bismarck State College providing curriculum to Saudi Arabia
industries, since August 1, 2018.
•Former board member of numerous industry associations, including the American Gas Association, the Edison Electric Institute, the
North Central Electric Association, the Midwest ENERGY Association, and the North Dakota Lignite Energy Council.
Mark A. Hellerstein
Age 67
Independent Director Since 2013
Audit Committee
Environmental and Sustainability Committee
Key Contributions to the Board: As a certified public accountant, on inactive status, with extensive financial
experience through his employment as chief financial officer with several companies including public
companies, Mr. Hellerstein provides knowledge of financial statements, corporate finance, and accounting
matters to our board and audit committee. Mr. Hellerstein also contributes business leadership and public
company management experience to the board as a result of 17 years of senior management and service as
board chair of St. Mary Land & Exploration Company (now SM Energy Company).
Career Highlights
•Chief executive officer of St. Mary Land & Exploration Company (now SM Energy Company), an energy company engaged in
the acquisition, exploration, development, and production of crude oil, natural gas, and natural gas liquids, from 1995 until February
2007; president from 1992 until June 2006; and executive vice president and chief financial officer from 1991 until 1992. He was
first elected to the board of St. Mary in 1992 and served as chair from 2002 until May 2009.
•Several positions prior to joining St. Mary in 1991, including chief financial officer of CoCa Mines Inc., which mined and extracted
minerals from lands previously held by the public through the Bureau of Land Management; American Golf Corporation, which manages
and owns golf courses in the United States; and Worldwide Energy Corporation, an oil and gas acquisition, exploration, development,
and production company with operations in the United States and Canada.
Other Leadership Experience
•Director of Transocean Inc., a leading provider of offshore drilling services for oil and gas wells, from December 2006 to November
2007.
•Director of the Denver Children’s Advocacy Center, whose mission is to provide a continuum of care for traumatized children and their
families, from August 2006 until December 2011, including chair for the last three years.
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10 MDU Resources Group, Inc. Proxy Statement
Dennis W. Johnson
Age 70
Independent Director Since 2001
Chair of the Board
Key Contributions to the Board: With over 45 years of experience in business management, manufacturing,
and finance, holding positions as chair, president, and chief executive officer of TMI Group Incorporated for 38
years, as well as his prior service as a director of the Federal Reserve Bank of Minneapolis, Mr. Johnson brings
operational, management, strategic planning, specialty contracting, and financial knowledge and insight to the
board. Mr. Johnson also contributes significant knowledge of local, state, and regional issues involving North
Dakota, the state where we are headquartered and have significant operations, resulting from his service on
several state and local organizations.
Career Highlights
•Chair of the board of the company effective May 8, 2019; and vice chair of the board from February 15, 2018 to May 8, 2019.
•Chair, president, and chief executive officer of TMI Group Incorporated as well as its two wholly owned subsidiary companies, TMI
Corporation and TMI Transport Corporation, manufacturers of casework and architectural woodwork in Dickinson, North Dakota;
employed since 1974 and serving as president or chief executive officer since 1982.
Other Leadership Experience
•Member of the Bank of North Dakota Advisory Board of Directors since August 2017.
•President of the Dickinson City Commission from July 2000 through October 2015.
•Director of the Federal Reserve Bank of Minneapolis from 1993 through 1998.
•Served on numerous industry, state, and community boards, including the North Dakota Workforce Development Council (chair); the
Decorative Laminate Products Association; the North Dakota Technology Corporation; and the business advisory council of the Steffes
Corporation, a metal manufacturing and engineering firm.
•Served on North Dakota Governor Sinner’s Education Action Commission; the North Dakota Job Service Advisory Council; the North
Dakota State University President’s Advisory Council; North Dakota Governor Schafer’s Transition Team; and chaired North Dakota
Governor Hoeven’s Transition Team.
Patricia L. Moss
Age 66
Independent Director Since 2003
Compensation Committee
Environmental and Sustainability Committee
Other Current Public Boards:
--First Interstate BancSystem, Inc.
--Aquila Group of Funds
Key Contributions to the Board: With substantial experience in the finance and banking industry, including
service on the boards of public banking and investment companies, Ms. Moss contributes broad knowledge of
finance, business development, and compliance oversight, as well as public company governance, to the
board. Through her business experience and knowledge of the Pacific Northwest, Ms. Moss also provides
insight on state, local and regional economic and political issues where a significant portion of our operations
and the largest number of our employees are located. Ms. Moss also contributes experience as a certified
senior professional in human resources.
Career Highlights
•President and chief executive officer of Cascade Bancorp, a financial holding company, Bend, Oregon, from 1998 to January 3, 2012;
chief executive officer of Cascade Bancorp’s principal subsidiary, Bank of the Cascades, from 1998 to January 3, 2012, serving also as
president from 1998 to 2003; and chief operating officer, chief financial officer and secretary of Cascade Bancorp from 1987 to 1998.
Other Leadership Experience
•Member of the Oregon Investment Council, which oversees the investment and allocation of all state of Oregon trust funds, since
December 2018.
•Director of First Interstate BancSystem, Inc., since May 30, 2017.
•Director of Cascade Bancorp and Bank of the Cascades from 1993, and vice chair from January 3, 2012 until May 30, 2017 when
Cascade Bancorp merged into First Interstate BancSystem, Inc., and became First Interstate Bank.
•Chair of the Bank of the Cascades Foundation Inc. from 2014 to July 31, 2018; co-chair of the Oregon Growth Board, a state board
created to improve access to capital and create private-public partnerships, from May 2012 through December 2018; and a member of
the Board of Trustees for the Aquila Group of Funds, whose core business is mutual fund management and provision of investment
strategies to fund shareholders, from January 2002 to May 2005 (one fund) and from June 2015 to present (currently three funds). 
•Former director of the Oregon Investment Fund Advisory Council, a state-sponsored program to encourage the growth of small businesses
in Oregon; the Oregon Business Council, with a mission to mobilize business leaders to contribute to Oregon’s quality of life and
economic prosperity; the North Pacific Group, Inc., a wholesale distributor of building materials, industrial, and hardwood products; and
Clear Choice Health Plans Inc., a multi-state insurance company.
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MDU Resources Group, Inc. Proxy Statement 11
Edward A. Ryan
Age 66
Independent Director Since 2018
Audit Committee
Nominating and Governance Committee
Key Contributions to the Board: As an executive vice president and general counsel for a large public company
with international operations, Mr. Ryan contributes expertise to the board in the areas of corporate governance,
acquisitions, risk management, legal, compliance, and labor relations. Mr. Ryan also brings senior leadership,
transactional, and public company experience.
Career Highlights
•Advisor to the chief executive officer and president of Marriott International from December 2017 to December 31, 2018.
•Executive vice president and general counsel of Marriott International from December 2006 to December 2017; senior vice president
and associate general counsel from 1999 to November 2006; assumed responsibility for all corporate transactions and corporate
governance in 2005; and joined Marriott International as assistant general counsel in May 1996.
•Private law practice from 1979 to 1996.
Other Leadership Experience
•Chair of Goodwill of Greater Washington, D.C., a non-profit organization whose mission is to transform lives and communities through
education and employment, effective January 1, 2020, where he has served as a director since January 2015, including a term as vice
chair from January 2019 through December 2019 and chair of the finance committee from January 2018 through December 2019.
David M. Sparby
Age 65
Independent Director Since 2018
Audit Committee
Nominating and Governance Committee
Key Contributions to the Board: With over 32 years of broad public utility management and leadership experience
with a large public utility company, including positions as senior vice president and as chief financial officer,
Mr. Sparby provides a broad understanding of the public utility and natural gas pipeline industries, including
renewable energy expertise. His lengthy senior leadership experience with a public company also contributes to
the board.
Career Highlights
•Senior vice president and group president, revenue, of Xcel Energy and president and chief executive officer of its subsidiary, NSP-
Minnesota, from May 2013 until his retirement in December 2014; senior vice president and group president, from September 2011 to
May 2013; chief financial officer from March 2009 to September 2011; and president and chief executive officer of NSP-Minnesota
from 2008 to March 2009. He joined Xcel Energy, or its predecessor Northern States Power Company, as an attorney in 1982 and held
positions of increasing responsibility.
•Attorney with the State of Minnesota, Office of Attorney General, from 1980 to 1982, during which period his responsibilities included
representation of the Department of Public Service and the Minnesota Public Utilities Commission.
Other Leadership Experience
•Board of Trustees of Mitchell Hamline School of Law since July 2011, including executive committee and committee chair positions.
•Board of Trustees of the College of St. Scholastica since July 2012, including vice chair and executive committee positions.
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12 MDU Resources Group, Inc. Proxy Statement
Chenxi Wang
Age 49
Independent Director Since 2019
Audit Committee
Environmental and Sustainability Committee
Key Contributions to the Board: Having significant technology and cybersecurity expertise through her
management and leadership positions with several organizations, Ms. Wang contributes knowledge to the
board on technology and cybersecurity issues. As the founder and managing general partner of a cybersecurity-
focused venture fund, Ms. Wang also provides knowledge regarding capital markets and business development.
Career Highlights
•Founder and managing general partner of Rain Capital Fund, L.P., a cybersecurity-focused venture fund aiming to fund early-stage,
transformative technology innovations in the security market with a goal of supporting women and minority entrepreneurs, since
December 2017.
•Chief strategy officer at Twistlock, an automated and scalable cloud native cybersecurity platform, from August 2015 to February 2017.
•Vice president, cloud security & strategy of CipherCloud, a cloud security software company, from January 2015 to August 2015.
•Vice president of strategy of Intel Security, a company focused on developing proactive, proven security solutions and services that
protect systems, networks, and mobile devices, from April 2013 to January 2015.
•Principal analyst and vice president of research at Forrester Research, a market research company that provides advice on existing and
potential impact of technology, from January 2007 to April 2013.
•Assistant research professor and associate professor of computer engineering at Carnegie Mellon University from September 2001
through August 2007.
Other Leadership Experience
•Technical Board of Advisors of Secure Code Warriors, a Sydney-based cybersecurity company, since June 2019.
•Board of directors of OWASP Global Foundation, a nonprofit global community that drives visibility and evolution in the safety and
security of the world’s software, from January 2018 to December 2019, including a term as vice chair.
•Recipient of the 2019 Investor in Women Award by Women Tech Founders Foundation, an organization dedicated to advancing women
in the tech industry.
•Board of advisors of Keyp GmbH, a Munich-based software company with a mission to provide enterprises convenient access to the
digital identity ecosystem, from December 2017 to August 2019.
•Program co-chair (security and privacy track) for the Grace Hopper Conference 2016 and 2017, the world’s largest gathering of women
in computing.
John K. Wilson
Age 65
Independent Director Since 2003
Compensation Committee
Nominating and Governance Committee
Key Contributions to the Board: As a certified public accountant, on inactive status, with extensive finance and
accounting experience through his employment with a major accounting firm and senior leadership positions
with other firms, including a public utility, as well as his experience with mergers and acquisitions, Mr. Wilson
contributes important oversight perspectives to the board, particularly in the fields of finance, accounting, and
business management. He also provides valuable business leadership expertise and knowledge of the public
utility industry.
Career Highlights
•Executive director of the Robert B. Daugherty Foundation in Omaha, Nebraska, since January 2010.
•President of Durham Resources, LLC, a privately held financial management company in Omaha, Nebraska, from 1994 to December 31,
2008; president of Great Plains Energy Corp., a public utility holding company and an affiliate of Durham Resources, LLC, from 1994
to July 1, 2000; and vice president of Great Plains Natural Gas Co., an affiliate company of Durham Resources, LLC, until July 1, 2000.
•Held positions of audit manager at Peat, Marwick, Mitchell (now known as KPMG), controller for Great Plains Natural Gas Co., and chief
financial officer and treasurer for all Durham Resources entities.
Other Leadership Experience
•Director of HDR, Inc., an international architecture and engineering firm, since December 2008; and director of Tetrad Corporation, a
privately held investment company, since April 2010, both located in Omaha, Nebraska.
•Former director of Bridges Investment Fund, Inc., a mutual fund, from April 2003 to April 2008; director of the Greater Omaha
Chamber of Commerce from January 2001 through December 2008; member of the advisory board of U.S. Bank NA Omaha from
January 2000 to July 2010; and the advisory board of Duncan Aviation, an aircraft service provider, headquartered in Lincoln, Nebraska,
from January 2010 to February 2016.
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MDU Resources Group, Inc. Proxy Statement 13
Additional Information - Majority Voting
A majority of votes cast is required to elect a director in an uncontested election. A majority of votes cast means the number of votes cast
“for” a director’s election must exceed the number of votes cast “against” the director’s election. “Abstentions” and “broker non-votes” do
not count as votes cast “for” or “against” the director’s election. In a contested election, which is an election in which the number of
nominees for director exceeds the number of directors to be elected and which we do not anticipate, directors will be elected by a plurality
of the votes cast.
Unless you specify otherwise when you submit your proxy, the proxies will vote your shares of common stock “for” all directors nominated by
the board of directors. If a nominee becomes unavailable for any reason or if a vacancy should occur before the election, which we do not
anticipate, the proxies will vote your shares in their discretion for another person nominated by the board.
Our policy on majority voting for directors contained in our corporate governance guidelines requires any proposed nominee for re-election as
a director to tender to the board, prior to nomination, his or her irrevocable resignation from the board that will be effective, in an
uncontested election of directors only, upon:
•receipt of a greater number of votes “against” than votes “for” election at our annual meeting of stockholders; and
•acceptance of such resignation by the board of directors.
Following certification of the stockholder vote, the nominating and governance committee will promptly recommend to the board whether or
not to accept the tendered resignation. The board will act on the nominating and governance committee’s recommendation no later than 90
days following the date of the annual meeting.
Brokers may not vote your shares on the election of directors if you have not given your broker specific instructions on how to vote. Please be sure
to give specific voting instructions to your broker so your vote can be counted.
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14 MDU Resources Group, Inc. Proxy Statement
Board Evaluations and Process for Selecting Directors
In the annual board evaluation process, the nominating and governance committee evaluates our directors considering the current needs of
the board and the company. In addition, during the year, the committee discusses board succession and reviews potential candidates.
Although the committee may also retain a third party to assist in identifying potential nominees, none were retained in 2019.
Our annual board evaluation process involves assessments at the board and board committee levels. These annual evaluations are conducted
by the chair of the nominating and governance committee and periodically by an independent third party.
Our governance guidelines provide that directors are not eligible to be nominated or appointed to the board if they are 76 years or older at
the time of the election or appointment. Term limits on directors’ service have not been instituted.
Director Qualifications, Skills, and Experience
Director nominees are chosen to serve on the board based on their qualifications, skills, and experience, as discussed in their biographies,
and how those characteristics supplement the resources and talent on the board and serve the current needs of the board and the company.
In making its nominations, the nominating and governance committee also assesses each director nominee by a number of key
characteristics, including character, success in a chosen field of endeavor, background in publicly traded companies, independence, and
willingness to commit the time needed to satisfy the requirements of board and committee membership. Although the committee has no
formal policy regarding diversity, in recommending director nominees the committee considers diversity in gender, ethnic background,
geographic area of residence, skills, and professional experience.
The following shows core specialized competencies and other characteristics of the director nominees.
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MDU Resources Group, Inc. Proxy Statement 15
Board Composition and Refreshment
The nominating and governance committee is focused on ensuring that the board reflects a diversity of experience, skills, and backgrounds.
Each of the current directors has been nominated for election to the board of directors upon recommendation by the nominating and
governance committee and each has decided to stand for election.
With the retirement of former board members Harry J. Pearce and William E. McCracken at the 2019 annual meeting, the committee
identified qualified director candidates with commensurate experience and background as replacement board members. In evaluating the
board retirements and current needs of the board and the company, the nominating and governance committee focused on identifying board
candidates that would add gender diversity to the board as well as background and core competencies in the fields of technology,
cybersecurity, and public company governance. Potential director nominees were brought to the attention of the nominating and governance
committee by board members, management, organizations, and database searches.
The nominating and governance committee continues to identify individuals as potential board of director candidates, particularly
individuals with industry experience to support the company’s strategy to grow its two business platforms of regulated energy delivery and
construction materials and services.
By tenure, if the nominees are elected, the board will be comprised of three directors who have served from 0-4 years, two directors who
have served from 5-10 years, and five directors who have served over 11 years. This mix provides a balance of experience and institutional
knowledge with fresh perspectives.
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16 MDU Resources Group, Inc. Proxy Statement
CORPORATE GOVERNANCE AND THE BOARD OF DIRECTORS
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 17
Director Independence
The board of directors has adopted guidelines on director independence that are included in our corporate governance guidelines. Our
guidelines require that a substantial majority of the board consists of independent directors. In general, the guidelines require that an
independent director must have no material relationship with the company directly or indirectly, except as a director. The board determines
independence on the basis of the standards specified by the NYSE, the additional standards referenced in our corporate governance
guidelines, and other facts and circumstances the board considers relevant. Based on its review, the board has determined that all directors,
except for our chief executive officer Mr. Goodin, have no material relationship with us and are independent.
In determining director independence, the board of directors reviewed and considered information about any transactions, relationships, and
arrangements between the non-employee directors and their immediate family members and affiliated entities on the one hand, and the
company and its affiliates on the other, and in particular the following transactions, relationships, and arrangements:
•Charitable contributions by the MDU Resources Foundation (Foundation) to nonprofit organizations where a director or their spouse
serves or served as a director, chair, or vice chair of the board of trustees, trustee, or member of the organization or related entity: The
Foundation made charitable contributions to three such nonprofit organizations that collectively amounted to $8,650 in 2019. None of
the contributions made to any of the nonprofit entities exceeded 2% of the relevant entity’s consolidated gross revenues.
•Business relationships with entities with which a director or director nominee is affiliated: Mr. Wilson is a member of the board of
directors of HDR, Inc., an architectural, engineering, environmental, and consulting firm. The company paid HDR, Inc. or its affiliates
approximately $900,000 in 2019 directly or through a third party for services which were provided in the ordinary course of business and
on substantially the same terms prevailing for comparable services from other consulting firms. Mr. Wilson had no role in securing or
promoting HDR, Inc. services and the relationship did not affect his independence under our corporate governance guidelines or the
NYSE listing standards.
The board has also determined that all members of the audit, compensation, and nominating and governance committees of the board are
independent in accordance with our guidelines and applicable NYSE and Securities Exchange Act of 1934 rules.
Sustainability and Social Responsibility
We view corporate responsibility as critical to our sustainability. While we are always focused on delivering strong financial performance, we
are committed to doing so in a responsible manner that recognizes and respects the interests of all our stakeholders.
In recognition of its social responsibility and sustainability commitments, the board of directors in May 2019 formed the environmental and
sustainability committee as a standing committee of the board with particular focus on our environmental, workplace health, safety, human
capital, and other social sustainability programs and performance. Our environmental and sustainability committee is discussed further on
page 22.
Also in 2019, the company issued an updated and expanded sustainability report based upon standards outlined by the Sustainability
Accounting Standards Board or other industry organizations for each of our segment industries to provide investors and other
interested stakeholders with information regarding our sustainability efforts. The sustainability report can be found on our website at
http://www.mdu.com/sustainability.
In August 2019, the Business Roundtable issued a statement on corporate social responsibility stating that its members share a
fundamental commitment to all their stakeholders: customers, employees, suppliers, communities, and stockholders. With the company’s
origin and rich history in providing electric and natural gas utility service to rural communities in the Dakotas and Montana, our utility
companies have long operated under the motto, “In the Community to Serve®.” With the addition of our construction businesses to our
legacy of regulated energy delivery businesses, we define our purpose as “Building a Strong America®” in recognition of our mission to
deliver value to our stakeholders. In 2007, the company adopted its Leading with Integrity Guide, which sets out our commitments to
stakeholders:
•Commitment to Integrity. We will conduct the corporation’s business legally and ethically with our best skills and judgment.
•Commitment to Shareholders. We will always act in the best interests of the corporation and protect its assets.
•Commitment to Employees. We will work together to provide a safe and positive workplace.
•Commitment to Customers, Suppliers, and Competitors. We will compete in business only by lawful and ethical means.
•Commitment to Communities. We will be a responsible and valued corporate citizen.
Further detail on our commitments to our stakeholders can be found at http://www.mdu.com/commitmenttointegrity.
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18 MDU Resources Group, Inc. Proxy Statement
Stockholder Engagement
The company has an active stockholder outreach program. We believe in providing transparent and timely information to our investors. Each
year we routinely engage directly or indirectly with our stockholders, including our top institutional stockholders. Management regularly
attends and presents at investor and financial conferences and holds one-on-one meetings with investors and also interacts directly with
investors and analysts during our quarterly earnings conference calls. During 2019, the company held meetings, conference calls, and
webcasts with a diverse mix of stockholders including meetings or telephone conferences with eleven of the institutional investors included
in our year-end top 30 stockholders. In our meetings or conferences, we discussed a variety of topics, including company strategy and our
capital expenditure forecast; operational and financial updates; environmental, social, and corporate governance issues; sustainability; and,
previously announced strategic initiatives. Feedback from engagements is shared by management with the board and its committees, and
the discussions with some of our investors included the chair of our board of directors giving those stockholders the opportunity to provide
feedback directly to a member of our board. The company also held telephone conferences with a proxy advisory firm to discuss corporate
governance, executive compensation practices, and other topics.
Board Leadership Structure
The board separated the positions of chair of the board and chief executive officer in 2006, and our bylaws and corporate governance
guidelines currently require that our chair be independent. The board believes this structure provides balance and is currently in the best
interest of the company and its stockholders. Separating these positions allows the chief executive officer to focus on the full-time job of
running our business, while allowing the chair to lead the board in its fundamental role of providing advice to and independent oversight of
management. The chair meets regularly between board meetings with the chief executive officer and consults with the chief executive
officer regarding the board meeting agendas, the quality and flow of information provided to the board, and the effectiveness of the board
meeting process. The board believes this split structure recognizes the time, effort, and energy the chief executive officer is required to
devote to the position in the current business environment, as well as the commitment required to serve as the chair, particularly as the
board’s oversight responsibilities continue to grow and demand more time and attention. The fundamental role of the board of directors is to
provide oversight of the management of the company in good faith and in the best interests of the company and its stockholders. Having an
independent chair is a means to ensure the chief executive officer is accountable for managing the company in close alignment with the
interests of stockholders including with respect to risk management as discussed below. An independent chair is in a position to encourage
frank and lively discussions including during regularly scheduled executive sessions consisting of only independent directors and to assure
that the company has adequately assessed all appropriate business risks before adopting its final business plans and strategies. The board
believes that having separate positions and having an independent outside director serve as chair is the appropriate leadership structure for
the company at this time and demonstrates our commitment to good corporate governance. With the retirement of Mr. Pearce at the 2019
annual meeting, the board elected Mr. Johnson as its independent chair at its May 2019 board meeting.
Board’s Role in Risk Oversight
Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks,
including economic risks, strategic risks, operational risks, environmental and regulatory risks, the impact of competition, climate and
weather conditions, limitations on our ability to pay dividends, pension plan obligations, cyberattacks or acts of terrorism, and third party
liabilities. Management is responsible for identifying material risks, implementing appropriate risk management and mitigation strategies,
and providing information regarding material risks and risk management and mitigation to the board. The board, as a whole and through its
committees, has responsibility for the oversight of risk management. In its risk oversight role, the board of directors has the responsibility to
satisfy itself that the risk management processes designed and implemented by management are adequate for identifying, assessing, and
managing risk.
The board believes establishing the right “tone at the top” and full and open communication between management and the board of
directors are essential for effective risk management and oversight. Our chair meets regularly with our chief executive officer to discuss
strategy and risks facing the company. Senior management attends the quarterly board meetings and is available to address any questions or
concerns raised by the board on risk management-related and any other matters. Each quarter, the board of directors receives presentations
from senior management on strategic matters involving our operations. Senior management annually presents an assessment to the board of
critical enterprise risks that threaten the company’s strategy and business model including risks inherent in the key assumptions underlying
the company’s business strategy for value creation. Periodically, the board receives presentations from external experts on matters of
strategic importance to the board. At least annually, the board holds strategic planning sessions with senior management to discuss
strategies, key challenges, and risks and opportunities for the company.
The company has also developed a robust compliance program to promote a culture of compliance, consistent with the right tone at the top,
to mitigate risk. The program includes training and adherence to our code of conduct and legal compliance guide. We further mitigate risk
through our internal audit and legal departments.
While the board is ultimately responsible for risk oversight at our company, our standing board committees assist the board in fulfilling its
oversight responsibilities in certain areas of risk.
•The audit committee assists the board in fulfilling its oversight responsibilities with respect to risk management in a general manner and
specifically in the areas of financial reporting, internal controls, cybersecurity, and compliance with legal and regulatory requirements,
and, in accordance with NYSE requirements, discusses with the board policies with respect to risk assessment and risk management and
their adequacy and effectiveness. The audit committee receives regular reports on the company’s compliance program, including reports
received through our anonymous reporting hot line. It also receives reports and regularly meets with the company’s external and internal
auditors. During its quarterly meetings in 2019, the audit committee received presentations or reports from management on cybersecurity
and the company’s mitigation of cybersecurity risks. The entire board was present for the presentations and had access to the reports.
Risk assessment and mitigation reports are regularly provided by management to the audit committee or the full board. This opens the
opportunity for discussions about areas where the company may have material risk exposure, steps taken to manage such exposure, and
the company’s risk tolerance in relation to company strategy. The audit committee reports regularly to the board of directors on the
company’s management of risks in the audit committee’s areas of responsibility.
•The compensation committee assists the board in fulfilling its oversight responsibilities with respect to the management of risks arising
from our compensation policies and programs.
•The nominating and governance committee assists the board in fulfilling its oversight responsibilities with respect to the management of
risks associated with board organization, board membership and structure, succession planning for our directors and executive officers,
and corporate governance.
•The environmental and sustainability committee was established in May 2019 and assists the board in fulfilling its oversight
responsibilities with respect to the management of risks related to environmental matters, physical and other workplace hazards,
employee and public safety, and other social sustainability matters.
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 19
Board Meetings and Committees
During 2019, the board of directors held four regular meetings and one special meeting. Each director attended at least 75% of the
combined total meetings of the board and the committees on which the director served during 2019 (held during the period he or she was a
director). Directors are encouraged to attend our annual meeting of stockholders. All but one director attended our 2019 Annual Meeting of
Stockholders.
The board has standing audit, compensation, nominating and governance, and environmental and sustainability committees which meet at
least quarterly. Following the 2019 annual meeting and the establishment of the environmental and sustainability committee, new chairs
were elected to the standing committees, and membership changes were made to each committee. The table below provides current
committee membership.
Name Audit
Committee
Compensation
Committee
Nominating and
Governance Committee
Environmental and
Sustainability Committee
Thomas Everist ●●
Karen B. Fagg ●C
Mark A. Hellerstein ●●
Patricia L. Moss ●●
Edward A. Ryan ●C
David M. Sparby C ●
Chenxi Wang ●●
John K. Wilson C ●
C - Chair
● - Member
Below is a description of each standing committee of the board. The board has affirmatively determined that each of these standing
committees consists entirely of independent directors pursuant to rules established by the NYSE, rules promulgated under the Securities
and Exchange Commission (SEC), and the director independence standards established by the board. The board has also determined that
each member of the audit committee and the compensation committee is independent under the criteria established by the NYSE and the
SEC for audit committee and compensation committee members, as applicable.
Proxy Statement
20 MDU Resources Group, Inc. Proxy Statement
Nominating and Governance Committee Met Four Times in 2019
The nominating and governance committee met four times during 2019. The current committee members are Edward A. Ryan, chair,
Thomas Everist, David M. Sparby, and John K. Wilson.
The nominating and governance committee is governed by a written charter and provides recommendations to the board with respect to:
•board organization, membership, and function;
•committee structure and membership;
•succession planning for our executive management and directors; and
•our corporate governance guidelines.
The nominating and governance committee assists the board in overseeing the management of risks in the committee’s areas of
responsibility.
The committee identifies individuals qualified to become directors and recommends to the board the director nominees for the next annual
meeting of stockholders. The committee also identifies and recommends to the board individuals qualified to become our principal officers
and the nominees for membership on each board committee. The committee oversees the evaluation of the board and management.
In identifying nominees for director, the committee consults with board members, management, consultants, organizational representatives,
and other individuals likely to possess an understanding of our business and knowledge concerning suitable director candidates.
In evaluating director candidates, the committee, in accordance with our corporate governance guidelines, considers an individual’s:
•background, character, and experience, including experience relative to our company’s lines of business;
•skills and experience which complement the skills and experience of current board members;
•success in the individual’s chosen field of endeavor;
•skill in the areas of accounting and financial management, banking, business management, human resources, marketing, operations,
public affairs, law, technology, risk management, governance, and operations abroad;
•background in publicly traded companies including service on other public company boards of directors;
•geographic area of residence;
•diversity of business and professional experience, skills, gender, and ethnic background, as appropriate in light of the current composition
and needs of the board;
•independence, including any affiliation or relationship with other groups, organizations, or entities; and
•compliance with applicable law and applicable corporate governance, code of conduct and ethics, conflict of interest, corporate
opportunities, confidentiality, stock ownership and trading policies, and other policies and guidelines of the company.
In addition, our bylaws contain requirements that a person must meet to qualify for service as a director.
The nominating and governance committee assesses these considerations annually in connection with the nomination of directors for
election at the annual meeting of stockholders. The committee seeks a collective background of board members to provide a portfolio of
experience and knowledge that serves the company’s governance and strategic needs and best perpetrates our long-term success. Directors
should have demonstrated experience and knowledge that is relevant to the board’s oversight role of the company’s business. The
nominating and governance committee also considers the board’s diversity in recommending nominees, including diversity of experience,
expertise, ethnicity, gender, and geography. The composition of the current board and the board nominees reflects diversity in business and
professional experience, skills, ethnicity, gender, and geography.
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 21
Audit Committee Met Eight Times in 2019
The audit committee is a separately-designated committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934 and is governed by a written charter.
The audit committee met eight times during 2019. The current audit committee members are David M. Sparby, chair, Mark A. Hellerstein,
Edward A. Ryan, and Chenxi Wang. The board of directors has determined that Messrs. Sparby and Hellerstein are “audit committee
financial experts” as defined by SEC rules, and all audit committee members are financially literate within the meaning of the listing
standards of the NYSE. All members also meet the independence standard for audit committee members under our director independence
guidelines, the NYSE listing standards, and SEC rules.
The audit committee assists the board of directors in fulfilling its oversight responsibilities to the stockholders and serves as a
communication link among the board, management, the independent registered public accounting firm, and the internal auditors. The
committee reviews and discusses with management and the independent auditors, before filing with the SEC, the annual audited financial
statements and quarterly financial statements. The audit committee also:
•assists the board’s oversight of
◦the integrity of our financial statements and system of internal controls;
◦the company’s compliance with legal and regulatory requirements and the code of conduct;
◦discussions with management regarding the company’s earnings releases and guidance;
◦the independent registered public accounting firm’s qualifications and independence;
◦the appointment, compensation, retention, and oversight of the work of the independent registered public accounting firm;
◦the performance of our internal audit function and independent registered public accounting firm;
◦management of risk in the audit committee’s areas of responsibility, including cybersecurity, financial reporting, legal and regulatory
compliance, and internal controls; and
•arranges for the preparation of and approves the report that SEC rules require we include in our annual proxy statement. See the section
entitled “Audit Committee Report” for further information.
Compensation Committee Met Four Times in 2019
During 2019, the compensation committee met four times. The compensation committee consists entirely of independent directors within
the meaning of the company’s corporate governance guidelines and the NYSE listing standards and who meet the definitions of non-
employee directors for purposes of Rule 16-b under the Exchange Act. Current members of the compensation committee are John K.
Wilson, chair, Thomas Everist, Karen B. Fagg, and Patricia L. Moss.
The compensation committee is governed by a written charter and assists the board of directors in fulfilling its responsibilities relating to the
company’s compensation policies and programs. It has direct responsibility for determining compensation for our Section 16 officers and for
overseeing the company’s management of compensation risk in its areas of responsibility. The compensation committee also reviews and
recommends any changes to director compensation policies to the board of directors. The authority and responsibility of the compensation
committee is outlined in the compensation committee’s charter.
The compensation committee uses analysis and recommendations from outside consultants, the chief executive officer, and the human
resources department in making its compensation decisions. The chief executive officer, the vice president-human resources, and the
general counsel regularly attend compensation committee meetings. The committee meets in executive session as needed. The processes
and procedures for consideration and determination of compensation of the Section 16 officers as well as the role of our executive officers
are discussed in the “Compensation Discussion and Analysis.”
The compensation committee has sole authority to retain compensation consultants, legal counsel, or other advisers to assist in
consideration of the compensation of the chief executive officer, the other Section 16 officers, and the board of directors. The committee is
directly responsible for the appointment, compensation, and oversight of the work of such advisers. The compensation committee’s practice
has been to retain a compensation consultant every other year to conduct a competitive analysis on executive compensation. The
competitive analysis is conducted internally by the human resources department in the other years. In 2018, the compensation committee
retained a compensation consultant, Meridian Compensation Partners, LLC (“Meridian”), to conduct a competitive analysis on executive
compensation for 2019. In 2019, the human resources department conducted the executive officer market analysis of the Section 16
officers with a review of the analysis by the compensation consultant, Meridian. Prior to retaining an adviser, the compensation committee
considers all factors relevant to ensure the adviser’s independence from management. Annually the compensation committee conducts a
potential conflicts of interest assessment raised by the work of any compensation consultant and how such conflicts, if any, should be
addressed. The compensation committee requested and received information from Meridian to assist in its potential conflicts of interest
assessment. Based on its review and analysis, the compensation committee determined in 2019 that Meridian was independent from
management.
The board of directors determines compensation for our non-employee directors based upon recommendations from the compensation
committee. The compensation committee’s practice has been to retain a compensation consultant every other year to conduct a competitive
analysis on director compensation. In 2019, the analysis of non-employee director compensation was performed by the compensation
consultant, Meridian.
Proxy Statement
22 MDU Resources Group, Inc. Proxy Statement
Environmental and Sustainability Committee Met Two Times in 2019
The environmental and sustainability committee was formed by the board of directors in May 2019 and met twice during the balance of
2019. The committee is governed by a written charter and consists entirely of independent directors within the meaning of the company’s
corporate governance guidelines and the listing standards of the NYSE. The current members of the committee are Karen B. Fagg, chair,
Mark A. Hellerstein, Patricia L. Moss, and Chenxi Wang.
The environmental and sustainability committee oversees and provides recommendations to the board with respect to the company’s
policies, strategies, public policy positions, programs, and performance related to environmental, workplace health, safety, and other social
sustainability matters. The environmental and sustainability committee:
•reviews significant risks regarding environmental and social sustainability matters that fundamentally affect the company’s business
interests and long-term viability;
•reviews the company’s environmental and social sustainability strategies, policies, processes, programs, and performance;
•reviews recent and emerging environmental and social sustainability matters;
•reviews labor and human relations issues related to the company’s operations;
•reviews any fatality, serious injury, or illness involving an employee, customer, contractor, or third-party occurring in connection with the
company’s operations;
•reviews any material noncompliance by the company with environmental, health, and safety laws and regulations;
•reviews the company’s efforts to advance progress on sustainable development;
•reviews methods to communicate the company’s environmental and social sustainability values and performance;
•considers and advises the compensation committee on the company’s performance with respect to incentive compensation metrics
relating to environmental and social sustainability matters;
•reports to, advises, and makes recommendations to the board on environmental and social sustainability matters affecting the company;
•reviews the company’s environmental and social sustainability disclosures;
•reviews stockholder proposals related to environmental and social sustainability matters; and
•reviews significant legislative, regulatory, political, and social issues and trends that may affect the company’s environmental,
sustainability, health, and safety management processes and systems.
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 23
Stockholder Communications with the Board
Stockholders and other interested parties who wish to contact the board of directors or any individual director, including our non-employee
chair or non-employee directors as a group, should address a communication in care of the secretary at MDU Resources Group, Inc.,
P.O. Box 5650, Bismarck, ND 58506-5650. The secretary will forward all communications.
Additional Governance Features
Board and Committee Evaluations
Our corporate governance guidelines provide that the board of directors, in coordination with the nominating and governance committee,
will annually review and evaluate the performance and functioning of the board and its committees. The self-evaluations are intended
to facilitate a candid assessment and discussion by the board and each committee of its effectiveness as a group in fulfilling its
responsibilities, its performance as measured against the corporate governance guidelines, and areas for improvement. The board and
committee members are provided with a questionnaire to facilitate discussion. The results of the evaluations are reviewed and discussed
in executive sessions of the committees and the board of directors.
Executive Sessions of the Independent Directors
The non-employee directors meet in executive session at each regularly scheduled quarterly board of directors meeting. The chair of the
board presides at the executive session of the non-employee directors.
Director Resignation Upon Change of Job Responsibility
Our corporate governance guidelines require a director to tender his or her resignation after a material change in job responsibility. In 2019,
no directors or director nominees submitted resignations under this requirement.
Majority Voting in Uncontested Director Elections
Our corporate governance guidelines require that in uncontested elections (those where the number of nominees does not exceed the
number of directors to be elected), director nominees must receive the affirmative vote of a majority of the votes cast to be elected to our
board of directors. Contested director elections (those where the number of director nominees exceeds the number of directors to be
elected) are governed by a plurality of the vote of shares present in person or represented by proxy at the meeting.
The board has adopted a director resignation policy for incumbent directors in uncontested elections. Any proposed nominee for re-election
as a director shall, before he or she is nominated to serve on the board, tender to the board 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 our annual meeting of stockholders; and (ii) acceptance of such resignation by the board of directors.
Director Overboarding Policy
Our bylaws and corporate governance guidelines state that a director may not serve on more than two other public company boards.
Currently, all of our directors are in compliance of this policy.
Board Refreshment
The company regularly evaluates the need for board refreshment. The nominating and governance committee and the board focus on
identifying individuals whose skills and experiences will enable them to make meaningful contributions to shaping the company’s business
strategy. As part of its consideration of director succession, the nominating and governance committee from time to time reviews, including
when considering potential candidates, the appropriate skills and characteristics required of board members. The board believes it is
important to consider diversity of skills, expertise, race, ethnicity, gender, age, education, geography, cultural background, and professional
experiences in evaluating board candidates for expected contributions to an effective board. Independent directors may not serve on the
board beyond the next annual meeting of stockholders after attaining the age of 76. We believe the mandatory retirement age allows us to
benefit from experienced directors, with industry expertise, company institutional knowledge and historical perspective, stability, and
comfort with challenging company management, while maintaining our ability to refresh the board through the addition of new members. In
connection with our mandatory retirement for directors, Harry J. Pearce and William E. McCracken retired as directors at the completion of
their term following the 2019 annual meeting. Two replacement members were added to the board of directors. Edward A. Ryan was
appointed to the board of directors in November 2018, and subsequently elected to the board in May 2019, and Chenxi Wang was elected
to the board of directors in May 2019.
Our corporate governance guidelines include our policy on consideration of director candidates recommended to us. We will consider
candidates that our stockholders recommend in the same manner we consider other nominees. Stockholders who wish to recommend a
director candidate may submit recommendations, along with the information set forth in the guidelines, to the nominating and governance
committee chair in care of the secretary at MDU Resources Group, Inc., P.O. Box 5650, Bismarck, ND 58506-5650.
Stockholders who wish to nominate persons for election to our board at an annual meeting of stockholders must follow the applicable
procedures set forth in Section 2.08 or 2.10 of our bylaws. Our bylaws are available on our website. See “Stockholder Proposals, Director
Nominations, and Other Items of Business for 2021 Annual Meeting” in the section entitled “Information about the Annual Meeting” for
further details.
Prohibitions on Hedging/Pledging Company Stock
The director compensation policy prohibits directors from hedging their ownership of common stock, pledging company stock as collateral
for a loan, or holding company stock in an account that is subject to a margin call.
Code of Conduct
We have a code of conduct and ethics, which we refer to as the Leading With Integrity Guide. It applies to all directors, officers, and
employees.
We intend to satisfy our disclosure obligations regarding amendments to, or waivers of, any provision of the code of conduct that applies to
our principal executive officer, principal financial officer, and principal accounting officer, and that relates to any element of the code of
ethics definition in Regulation S-K, Item 406(b), and waivers of the code of conduct for our directors or executive officers, as required by
NYSE listing standards, by posting such information on our website.
Proxy Access
Our bylaws allow stockholders to nominate directors for inclusion in our proxy statement subject to the following parameters:
Ownership Threshold:3% of outstanding shares of our common stock
Nominating Group Size:Up to 20 stockholders may combine to reach the 3% ownership threshold
Holding Period:Continuously for three years
Number of Nominees:The greater of two nominees or 20% of our board
We believe these proxy access parameters reflect a well designed and balanced approach to proxy access that mitigates the risk of abuse
and protects the interests of all of our stockholders. Stockholders who wish to nominate directors for inclusion in our Proxy Statement in
accordance with proxy access must follow the procedures in Section 2.10 of our bylaws. See “Stockholder Proposals, Director Nominations,
and Other Items of Business for 2021 Annual Meeting.”
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24 MDU Resources Group, Inc. Proxy Statement
One Class of Stock
Our common stock is the only class of shares outstanding.
No Shareholder Rights Plan
We do not have a “poison pill” and have no intention of adopting one at this time.
Annual Say-on-Pay Advisory Vote
Stockholders annually vote on the company’s named executive officer compensation.
Cybersecurity Oversight
The audit committee receives periodic briefings concerning cybersecurity, information security, technology risks, and risk mitigation
programs.
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 25
Corporate Governance Materials
Stockholders can see our bylaws, corporate governance guidelines, board committee charters, and Leading With Integrity Guide on our
website.
Corporate Governance Materials Website
•Bylaws http://www.mdu.com/governance
•Corporate Governance Guidelines http://www.mdu.com/governance
•Board Committee Charters for the Audit, Compensation,
Nominating and Governance, and Environmental and
Sustainability Committees
http://www.mdu.com/governance
•Leading With Integrity Guide http://www.mdu.com/commitmenttointegrity
Related Person Transaction Disclosure
The board of directors’ policy for the review of related person transactions is contained in our corporate governance guidelines. The policy
requires the audit committee to review any transaction, arrangement or relationship, or series thereof:
•in which the company was or will be a participant;
•the amount involved exceeds $120,000; and
•a related person had or will have a direct or indirect material interest.
The purpose of this review is to determine whether this transaction is in the best interests of the company.
Related persons are directors, director nominees, executive officers, holders of 5% or more of our voting stock, and their immediate family
members. Related persons are required promptly to report to our general counsel all proposed or existing related person transactions in
which they are involved.
If our general counsel determines that the transaction is required to be disclosed under the SEC rules, the general counsel furnishes the
information to the chair of the audit committee. After its review, the committee makes a determination or a recommendation to the board
and officers of the company with respect to the related person transaction. Upon receipt of the committee’s recommendation, the board of
directors or officers, as the case may be, take such action as they deem appropriate in light of their responsibilities under applicable laws
and regulations.
We had no related person transactions in 2019.
COMPENSATION OF NON-EMPLOYEE DIRECTORS
Director Compensation for 2019
MDU Resources’ non-employee directors are compensated for their service according to the MDU Resources Group Inc. Director
Compensation Policy. Only one company employee, David L. Goodin, the company’s president and chief executive officer, serves as a
director. Mr. Goodin receives no additional compensation for his service on the board. Director compensation is reviewed annually by the
compensation committee with analysis provided by an independent consultant in odd numbered years and analysis prepared by the
company’s human resources department in even numbered years. The company’s independent consultant provided the director
compensation analysis for 2019. The analysis included research on market trends in director compensation as well as a review of director
compensation practices of our peer group companies. Based on the analysis, the compensation committee recommended and the board
concurred that the annual compensation for non-employee directors be set at:
Base Cash Retainer1 $85,000
Additional Cash Retainers:
Non-Executive Chair 95,000
Audit Committee Chair 20,000
Compensation Committee Chair 15,000
Nominating and Governance Committee Chair 15,000
Environmental and Sustainability Committee Chair 15,000
Annual Stock Grant2 - Directors (other than Non-Executive Chair)125,000
Annual Stock Grant3 - Non-Executive Chair 150,000
1 Cash retainer amounts shown were effective June 1, 2019, when the base retainer was increased by $15,000 and the
retainer for the board chair and committee chairs were each increased by $5,000.
2 The annual stock grant is a grant of shares of company common stock equal in value to $125,000.
3 The annual stock grant is a grant of shares of company common stock equal in value to $150,000.
There are no meeting fees paid to directors.
Proxy Statement
26 MDU Resources Group, Inc. Proxy Statement
The following table outlines the compensation paid to our non-employee directors for 2019.
Name
Fees Earned or
Paid in Cash
($)
Stock
Awards
($)1
All Other
Compensation
($)2
Total
($)
Thomas Everist 82,917 125,000 5,083 213,000
Karen B. Fagg 91,667 125,000 2,083 218,750
Mark A. Hellerstein 78,750 125,000 3,683 207,433
Dennis W. Johnson 140,417 141,667 3,683 285,767
William E. McCracken3 29,167 52,083 35 81,285
Patricia L. Moss 78,750 125,000 2,083 205,833
Harry J. Pearce3 66,667 62,500 5,035 134,202
Edward A. Ryan 87,500 125,000 3,683 216,183
David M. Sparby4 90,417 125,000 5,083 220,500
Chenxi Wang 55,417 83,333 48 138,798
John K. Wilson 87,500 125,000 1,583 214,083
1 Directors receive an annual payment of $125,000 in company common stock, except the non-executive chair who receives $150,000 in company common
stock, under the MDU Resources Group, Inc. Non-Employee Director Long-Term Incentive Compensation Plan. Directors serving less than a full year receive
a prorated stock payment based on the number of months served. All stock payments are measured in accordance with Financial Accounting Standards
Board (FASB) generally accepted accounting principles for stock-based compensation in FASB Accounting Standards Codification Topic 718. The grant date
fair value is based on the purchase price of our common stock on the grant date of November 19, 2019, which was $29.16 per share. The amount paid in
cash for fractional shares is included in the amount reported in the stock awards column to this table. As of December 31, 2019, there are no outstanding
stock awards or options associated with the Non-Employee Director Long-Term Incentive Compensation Plan. 
2 Includes group life insurance premiums and charitable donations made on behalf of the director as applicable. Amounts for life insurance premiums reflect
prorated amounts for directors serving less than a full year based on the number of months served.
3 Messrs. McCracken and Pearce retired from the board on May 7, 2019.
4 Mr. Sparby elected to receive shares of our common stock in lieu of his $90,417 of fees earned in cash. He received a total of 3,295 shares of company
common stock which was purchased during 2019 on March 29, June 28, September 30, and December 31 at market prices of $25.66, $25.47, $28.39,
and $29.54, respectively.
Other Compensation
In addition to liability insurance, we maintain group life insurance in the amount of $100,000 on each non-employee director for the
benefit of their beneficiaries during the time they serve on the board. The annual cost per director is $82.80. Directors who contribute to
the company’s Good Government Fund may designate up to two charities to receive a matching donation from the MDU Resources
Foundation based on their contributions to the fund. Directors are reimbursed for all reasonable travel expenses, including spousal expenses
in connection with attendance at meetings of the board and its committees. Perquisites, if any, were below the disclosure threshold in
2019.
Deferral of Compensation
Directors may defer all or any portion of the annual cash retainer and any other cash compensation paid for service as a director pursuant to
the Deferred Compensation Plan for Directors. Deferred amounts are held as phantom stock with dividend accruals and are paid out in cash
over a five-year period after the director leaves the board.
Post-Retirement
Our post-retirement income plan for directors was terminated in May 2001 for current and future directors. The net present value of each
director’s benefit was calculated and converted into phantom stock. Payment is deferred pursuant to the Deferred Compensation Plan for
Directors and will be made in cash over a five-year period after the director’s retirement from the board.
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 27
Stock Ownership Policy
Our director stock ownership policy contained in our corporate governance guidelines requires each director to beneficially own our common
stock equal in value to five times the director’s annual cash base retainer. Shares acquired through purchases on the open market and
received through our Non-Employee Director Long-Term Incentive Compensation Plan are considered in ownership calculations as well as
other beneficial ownership of our common stock by a spouse or other immediate family member residing in the director’s household. A
director is allowed five years commencing January 1 of the year following the year of the director’s initial election to the board to meet the
requirements. The level of common stock ownership is monitored with an annual report made to the compensation committee of the board.
All directors are in compliance with the stock ownership policy or are within the first five years of their election to the board. For further
details on our director’s stock ownership, see the section entitled “Security Ownership.”
Proxy Statement
28 MDU Resources Group, Inc. Proxy Statement
SECURITY OWNERSHIP
Security Ownership Table
The table below sets forth the number of shares of our common stock that each director, each named executive officer, and all directors and
executive officers as a group owned beneficially as of February 29, 2020. Unless otherwise indicated, each person has sole investment and
voting power (or share such power with his or her spouse) of the shares noted.
Name1
Shares of
Common Stock
Beneficially Owned
Percent
of Class
David C. Barney 46,381 2,3 *
Thomas Everist 865,978 *
Karen B. Fagg 78,179 *
David L. Goodin 280,772 2 *
Mark A. Hellerstein 28,286 *
Dennis W. Johnson 99,224 4 *
Nicole A. Kivisto 63,182 2,5 *
Patricia L. Moss 80,614 *
Edward A. Ryan 18,476 *
David M. Sparby 14,807 *
Jeffrey S. Thiede 47,920 2 *
Jason L. Vollmer 12,721 2 *
Chenxi Wang 2,857 *
John K. Wilson 133,887 *
All directors and executive officers as a group (18 in number)1,884,869 2,6 *
*Less than one percent of the class. Percent of class is calculated based on 200,474,914 outstanding shares as of February 29, 2020.
1 The table includes the ownership of all current directors, named executive officers, and other executive officers of the company without naming them.
2 Includes full shares allocated to the officer’s account in our 401(k) retirement plan.
3 The total includes 687 shares owned by Mr. Barney’s spouse.
4 Mr. Johnson disclaims all beneficial ownership of the 163 shares owned by his spouse.
5 The total includes 531 shares owned by Ms. Kivisto’s spouse.
6 Includes shares owned by a director’s or executive’s spouse regardless of whether the director or executive claims beneficial ownership.
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 29
Hedging Policy
The company’s Director Compensation Policy and its Executive Compensation Policy prohibit our directors and executives from hedging their
ownership of company stock. The Director Compensation Policy applies to all directors who are not full-time employees of the company. The
Executive Compensation Policy applies to the executives of the company designated as an officer for purposes of Section 16 of the
Securities Exchange Act of 1934 as well as all other executives of the company and its subsidiaries who participate in its Long-Term
Performance-Based Incentive Plan and its Executive Incentive Compensation Plan. Under the policies, directors and executives are
prohibited from engaging in transactions that allow them to own stock technically but without the full benefits and risks of such ownership,
including, but not limited to, zero-cost collars, equity swaps, straddles, prepaid variable forward contracts, security futures contracts,
exchange funds, forward sale contracts, and other financial transactions that allow the director or executive to benefit from the devaluation
of the company’s stock.
The company policies also prohibit directors, executives, and related persons from holding company stock in a margin account, with certain
exceptions, or pledging company securities as collateral for a loan. Company common stock may be held in a margin brokerage account only
if the stock is explicitly excluded from any margin, pledge, or security provisions of the customer agreement. Company common stock may
be held in a cash account, which is a brokerage account that does not allow any extension of credit on securities. “Related person” means
an executive officer’s or director’s spouse, minor child, and any person (other than a tenant or domestic employee) sharing the household of
a director or executive officer as well as any entities over which a director or executive officer exercises control.
Proxy Statement
30 MDU Resources Group, Inc. Proxy Statement
Greater Than 5% Beneficial Owners
Based solely on filings with the SEC, the table below shows information regarding the beneficial ownership of more than five percent of the
outstanding shares of our common stock.
Title of Class
Name and Address
of Beneficial Owner
Amount and Nature
of Beneficial Ownership
Percent
of Class
Common Stock The Vanguard Group 20,929,217 1 10.44%
100 Vanguard Blvd.
Malvern, PA 19355
Common Stock BlackRock, Inc.20,068,550 2 10.00%
55 East 52nd Street
New York, NY 10055
Common Stock State Street Corporation 13,740,378 3 6.86%
State Street Financial Center
One Lincoln Street
Boston, MA 02111
1 Based solely on the Schedule 13G, Amendment No. 8, filed on February 12, 2020, The Vanguard Group reported sole dispositive power with respect to
20,801,988 shares, shared dispositive power with respect to 127,229 shares, sole voting power with respect to 110,365 shares, and shared voting power
with respect to 46,984 shares. These shares include 76,663 shares beneficially owned by Vanguard Fiduciary Trust Company, a wholly-owned subsidiary
of The Vanguard Group, Inc., as a result of its serving as investment manager of collective trust accounts, and 80,686 shares beneficially owned by
Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of The Vanguard Group, Inc., as a result of its serving as investment manager of
Australian investment offerings.
2 Based solely on the Schedule 13G, Amendment No. 11, filed on February 4, 2020, BlackRock, Inc. reported sole voting power with respect to
18,902,771 shares and sole dispositive power with respect to 20,068,550 shares as the parent holding company or control person of BlackRock Life
Limited; BlackRock International Limited; BlackRock Advisors, LLC; BlackRock (Netherlands) B.V.; BlackRock Fund Advisors; BlackRock Institutional
Trust Company, National Association; BlackRock Asset Management Ireland Limited; BlackRock Financial Management, Inc.; BlackRock Japan Co., Ltd.;
BlackRock Asset Management Schweiz AG; BlackRock Investment Management, LLC; BlackRock Investment Management (UK) Limited; BlackRock Asset
Management Canada Limited; BlackRock Investment Management (Australia) Limited; BlackRock Advisors (UK) Limited; BlackRock Asset Management
North Asia Limited; and BlackRock Fund Managers Ltd.
3 Based solely on the Schedule 13G, filed on February 14, 2020, State Street Corporation reported shared voting power with respect to 13,343,597 shares
and shared dispositive power with respect to 13,740,378 shares as the parent holding company or control person of SSGA Funds Management, Inc.,
State Street Global Advisors Limited (UK), State Street Global Advisors LTD (Canada), State Street Global Advisors Asia LTD, State Street Global Advisors
Singapore LTD, State Street Global Advisors GmbH, State Street Global Advisors Ireland Limited, and State Street Global Advisors Trust Company.
EXECUTIVE COMPENSATION
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 31
ITEM 2. ADVISORY VOTE TO APPROVE THE COMPENSATION PAID TO THE COMPANY’S NAMED EXECUTIVE
OFFICERS
In accordance with Section 14A of the Securities Exchange Act of 1934 and Rule 14a-21(a), we are asking our stockholders to approve, in
an advisory vote, the compensation of our named executive officers as disclosed in this Proxy Statement pursuant to Item 402 of Regulation
S-K. As discussed in the Compensation Discussion and Analysis, the compensation committee and board of directors believe the current
executive compensation program directly links compensation of the named executive officers to our financial performance and aligns the
interests of the named executive officers with those of our stockholders. The compensation committee and board of directors also believe
the executive compensation program provides the named executive officers with a balanced compensation package that includes an
appropriate base salary along with competitive annual and long-term incentive compensation targets. These incentive programs are designed
to reward the named executive officers on both an annual and long-term basis if they attain specified goals.
Our overall compensation program and philosophy for 2019 was built on a foundation of these guiding principles:
•we pay for performance, with over 65% of our 2019 total target direct compensation for the named executive officers in the form of
performance-based incentive compensation;
•we review competitive compensation data for the named executive officers, to the extent available, and incorporate internal equity in the
final determination of target compensation levels;
•we align executive compensation and performance by using annual performance incentives based on criteria that are important to
stockholder value, including earnings, earnings per share, and earnings before interest, taxes, depreciation, and amortization (EBITDA);
and
•we align executive compensation and performance by using long-term performance incentives based on total stockholder return relative to
our peer group and financial measures important to company growth.
We are asking our stockholders to indicate their approval of our named executive officer compensation as disclosed in this Proxy Statement,
including the Compensation Discussion and Analysis, the executive compensation tables, and narrative discussion. This vote is not intended
to address any specific item of compensation, but rather the overall compensation of our named executive officers for 2019. Accordingly,
the following resolution is submitted for stockholder vote at the 2020 annual meeting:
“RESOLVED, that the compensation paid to the company’s named executive officers, as disclosed pursuant to Item 402 of
Regulation S-K, including the Compensation Discussion and Analysis, compensation tables, and narrative discussion of this Proxy
Statement, is hereby approved.”
As this is an advisory vote, the results will not be binding on the company, the board of directors, or the compensation committee and will
not require us to take any action. The final decision on the compensation of the named executive officers remains with the compensation
committee and the board of directors, although the board and compensation committee will consider the outcome of this vote when making
future compensation decisions. We intend to hold this advisory vote every year until at least the next stockholder advisory vote on the
frequency of this vote.
The board of directors recommends a vote “for” the approval, on a non-binding
advisory basis, of the compensation of the company’s named executive officers,
as disclosed in this Proxy Statement.
Approval of the compensation of the named executive officers requires the affirmative vote of a majority of the common stock present in
person or represented by proxy at the meeting and entitled to vote on the proposal. Abstentions will count as votes against this proposal.
Broker non-vote shares are not entitled to vote on this proposal and, therefore, are not counted in the vote.
INFORMATION CONCERNING EXECUTIVE OFFICERS
Information concerning the executive officers, including their ages as of December 31, 2019, present corporate positions, and business
experience during the past five years, is as follows:
Name Age Present Corporate Position and Business Experience
David L. Goodin 58 Mr. Goodin was elected president and chief executive officer of the company and a director
effective January 4, 2013. For more information about Mr. Goodin, see the section entitled
“Item 1. Election of Directors.”
David C. Barney 64 Mr. Barney was elected president and chief executive officer of Knife River Corporation
effective April 30, 2013, and president effective January 1, 2012.
Trevor J. Hastings 46 Mr. Hastings was elected president and chief executive officer of WBI Holdings, Inc. effective
October 16, 2017. Prior to that, he was vice president-business development and operations
support of Knife River Corporation effective January 11, 2012.
Anne M. Jones 56 Ms. Jones was elected vice president-human resources effective January 1, 2016. Prior to that,
she was vice president-human resources, customer service, and safety at Montana-Dakota
Utilities Co., Great Plains Natural Gas Co., Cascade Natural Gas Corporation, and
Intermountain Gas Company effective July 1, 2013, and director of human resources for
Montana-Dakota Utilities Co. and Great Plains Natural Gas Co. effective June 2008.
Nicole A. Kivisto 46 Ms. Kivisto was elected president and chief executive officer of Montana-Dakota Utilities Co.,
Cascade Natural Gas Corporation, and Intermountain Gas Company effective January 9, 2015.
Prior to that, she was vice president of operations for Montana-Dakota Utilities Co. and Great
Plains Natural Gas Co. effective January 3, 2014, and vice president, controller and chief
accounting officer for the company effective February 17, 2010.
Daniel S. Kuntz 66 Mr. Kuntz was elected vice president, general counsel and secretary effective January 1, 2017.
Prior to that, he was general counsel and secretary effective January 9, 2016, associate general
counsel effective April 1, 2007, and assistant secretary effective August 17, 2007.
Margaret (Peggy) A. Link 53 Ms. Link was elected vice president and chief information officer effective December 1, 2017.
Prior to that, she was chief information officer effective January 1, 2016, assistant vice
president-technology and cybersecurity officer effective January 1, 2015, and director shared
IT services effective June 2, 2009.
Jeffrey S. Thiede 57 Mr. Thiede was elected president and chief executive officer of MDU Construction Services
Group, Inc. effective April 30, 2013, and president effective January 1, 2012.
Jason L. Vollmer 42 Mr. Vollmer was elected vice president, chief financial officer and treasurer effective
September 30, 2017. Prior to that, he was vice president, chief accounting officer and
treasurer effective March 19, 2016, treasurer and director of cash and risk management
effective November 29, 2014, manager of treasury services and risk management effective
June 30, 2014, and manager of treasury services, cash and risk management effective
April 11, 2011.
Proxy Statement
32 MDU Resources Group, Inc. Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
The Compensation Discussion and Analysis describes how our named executive officers were compensated for 2019 and how their 2019
compensation aligns with our pay-for-performance philosophy. It also describes the oversight of the compensation committee and the
rationale and processes used to determine the 2019 compensation of our named executive officers including the objectives and specific
elements of our compensation program.
The Compensation Discussion and Analysis may contain statements regarding corporate performance targets and goals. The targets and
goals are disclosed in the limited context of our compensation programs and should not be understood to be statements of management’s
expectations or estimates of results or other guidance. We specifically caution investors not to apply these statements to other contexts.
Our Named Executive Officers for 2019 were:
David L. Goodin President and Chief Executive Officer (CEO)
Jason L. Vollmer Vice President, Chief Financial Officer (CFO) and Treasurer
David C. Barney President and Chief Executive Officer - Construction Materials and Contracting Segment
Jeffrey S. Thiede President and Chief Executive Officer - Construction Services Segment
Nicole A. Kivisto President and Chief Executive Officer - Electric and Natural Gas Distribution Segments
Executive Summary
Pay for Performance
The compensation committee is responsible for designing and approving our executive compensation program and setting compensation
opportunities for named executive officers. Our compensation program is directly linked to our business strategy to ensure officers are
focused on elements that drive our business strategy and create stockholder value. To ensure management’s interests are aligned with those
of our stockholders and the performance of the company, the significant majority of the CEO’s and the other named executive officers’
target compensation is dependent on the achievement of company performance targets. The charts below show the target pay mix for the
CEO and average target pay mix of the other named executive officers, including base salary and the annual and long-term incentives.

Annual Base Salary
We provide our executive officers with base salary at a sufficient level to attract, recruit, and retain executives with the knowledge, skills,
and abilities necessary to successfully execute their job responsibilities. Consistent with our compensation philosophy of linking pay to
performance, our executives receive a relatively smaller percentage of their overall target compensation in the form of base salary. In
establishing base salaries, the compensation committee considers each executive’s individual performance, the scope and complexities of
their responsibilities, internal equity, and whether the base salary is competitive as measured against the base salaries of similarly situated
executives in our peer group and market compensation data.
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MDU Resources Group, Inc. Proxy Statement 33
Annual Cash Incentive Awards
Annual cash incentive awards for our executive officers are linked to performance by rewarding achievement of financial goals and ensuring
our executive officers are focused and accountable for our growth and profitability. The design of the annual cash incentive award
opportunities for 2019 was the same as the design used in 2018. Each executive is assigned a target annual incentive award based on a
percentage of the executive’s base salary. The actual annual cash incentive realized is determined by multiplying the target award by the
payout percentage associated with the achievement of the executive’s performance measures.
The compensation committee selected specific business segment financial performance measures for the business segment executives
which represented 80% of their annual incentive award opportunity. The other 20% of the business segment executives’ annual incentive
award opportunity was based on the achievement of overall company earnings per share (EPS). These measures incentivize our business
segment executives to focus on the success and performance of their business segment while keeping the overall success of the company in
mind.
The annual cash incentive award for corporate executives (including our CEO and CFO) is based on the achievement of the performance
measures for each business segment executive and weighted by each business segment’s invested capital relative to the company’s total
invested capital. Each corporate executive’s target award is multiplied by the sum of the weighted achievement percentage for each
business segment executive to derive the corporate executive’s realized annual award. This incentivizes the corporate executives to assist the
business segments in their success while still emphasizing overall company performance. See the “Annual Incentives” section within this
Compensation Discussion and Analysis for further details on our company’s annual cash incentive program.
The following chart shows the percentage payout of the annual incentive target realized by our CEO compared to earnings per share from
continuing operations for the last five years. The chart demonstrates the alignment between our financial performance and realized annual
cash incentive compensation.
CEO %of Target Paid EPS (from continuing operations)
CEO
Annual Incentive Payout
200%
150%
100%
50%
0%
%
of
Target
Paid
$1.75
$1.50
$1.25
$1.00
$0.75
$0.50
$0.25
$0.00
EPS
2015 2016 2017 *2018 2019
49.9%
139.8%
173.7%
98.0%
163.2%
* MDU Resources Group, Inc. reported 2017 earnings from continuing operations of $1.45 per share which included a
non-recurring benefit of 20 cents per share attributable to the federal Tax Cuts and Jobs Act that was signed into law on
December 22, 2017.
Proxy Statement
34 MDU Resources Group, Inc. Proxy Statement
Long-Term Equity-Based Incentive Awards
Our compensation committee and the board approve grants of long-term incentives to our executives in the form of performance shares
which vest into company stock plus dividend equivalents at the end of a three-year performance cycle upon achievement of established
performance measures. The following chart depicts the actual vesting percentage for the last five performance cycles and demonstrates the
alignment between total stockholder return (TSR) and realized long-term incentive compensation by our executives.
%of Target Paid 3 Year TSR (absolute)
Long-Term Incentive Vested
200%
175%
150%
125%
100%
75%
50%
25%
0%
%
of
Target
Paid
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
-10.0%
3
Year
TSR
2013 -2015 2014 -2016 2015 -2017 2016 -2018 2017-2019
Performance Cycle
31%
68%
144%140%
23%
See the “Long-Term Incentives” section within this Compensation Discussion and Analysis for further details on the company’s long-term
incentive program.
With the majority of our executive officer’s compensation dependent on the achievement of robust performance measures set by the
compensation committee, we believe there is substantial alignment between executive pay and the company’s performance.
Stockholder Advisory Vote (“Say on Pay”)
At our 2019 Annual Meeting of Stockholders, 96.8% of the votes cast on the “Say on Pay” proposal approved the compensation of our
named executive officers. The compensation committee viewed the 2019 vote as an expression of the stockholders general satisfaction with
the company’s executive compensation programs. The compensation committee reviewed and considered the 2019 vote on “Say on Pay” in
setting compensation for 2020 by continuing to link performance-based annual and long-term incentives to company financial performance
and stockholder value.
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 35
Compensation Practices
Our practices and policies ensure alignment between the interests of our stockholders and our executives as well as effective compensation
governance.
What We Do
þ Pay for Performance - Annual and long-term award incentives tied to performance measures set by the compensation committee
comprise the largest portion of executive compensation.
þ Independent Compensation Committee - All members of the compensation committee meet the independence standards under the
New York Stock Exchange listing standards and the Securities and Exchange Commission rules.
þ Independent Compensation Consultant - The compensation committee retains an independent compensation consultant to evaluate
executive compensation plans and practices.
þ Competitive Compensation - Executive compensation reflects executive performance, experience, relative value compared to other
positions within the company, relationship to competitive market value compensation, business segment economic environment,
and the actual performance of the overall company and the business segments.
þ Annual Cash Incentive - Payment of annual cash incentive awards are based on business segment and overall company performance
against pre-established annual financial measures.
þ Long-Term Equity Incentive - Long-term incentive awards may be earned at the end of a three-year period based on achieving pre-
established performance measures and are paid through performance shares which encourages stock ownership and helps retain
management talent.
þ Balanced Mix of Pay Components - The target compensation mix is not overly weighted toward annual incentive awards but rather
represents a balance of annual cash and long-term equity-based compensation.
þ Mix of Financial Goals - Use of a mixture of financial goals to measure performance prevents overemphasis on a single metric.
þ Annual Compensation Risk Analysis - Risks related to our compensation programs are regularly analyzed through an annual
compensation risk assessment.
þ Stock Ownership and Retention Requirements - Executive officers are required to own, within five years of appointment or promotion,
company common stock equal to a multiple of their base salary. Our president and chief executive officer is required to own stock
equal to four times his base salary, and the other named executive officers are required to own stock equal to three times their
base salary. The executive officers also must retain at least 50% of the net after-tax shares of stock vested through the long-term
incentive plan for the earlier of two years or until termination of employment. Net performance shares must also be held until
share ownership requirements have been met.
þ Clawback Policy - If the company’s audited financial statements are restated due to any material noncompliance with the financial
reporting requirements under the securities laws, the compensation committee may, or shall if required, demand repayment of
some or all incentives paid to our executive officers within the last three years.
What We Do Not Do
ý Stock Options - The company does not use stock options as a form of incentive compensation.
ý Employment Agreements - Executives do not have employment agreements entitling them to specific payments upon termination or
a change of control of the company.
ý Perquisites - Executives do not receive perquisites that materially differ from those available to employees in general.
ý Hedge Stock - Executives are not allowed to hedge company securities.
ý Pledge Stock - Executives are not allowed to pledge company securities in margin accounts or as collateral for loans.
ý No Dividends or Dividend Equivalents on Unvested Shares - We do not provide for payment of dividends or dividend equivalents on
unvested share awards.
ý Tax Gross-Ups - Executives do not receive tax gross-ups on their compensation except for circumstances regarding relocation.
Proxy Statement
36 MDU Resources Group, Inc. Proxy Statement
2019 Compensation Framework
Objectives of our Compensation Program
We have a written executive compensation policy for our executive officers, including all the named executive officers. Our policy’s stated
objectives are to:
•recruit, motivate, reward, and retain high performing executive talent required to create superior shareholder value;
•reward executives for short-term performance as well as for growth in enterprise value over the long-term;
•ensure effective utilization and development of talent by working in concert with other management processes - for example, performance
appraisal, succession planning, and management development;
•help ensure that compensation programs do not encourage or reward excessive or imprudent risk taking; and
•provide a competitive package relative to industry-specific and general industry comparisons and internal equity, as appropriate.
Compensation Decision Process for 2019
For 2019, the compensation committee made recommendations to the board of directors regarding compensation of all executive officers,
and the board of directors then approved the recommendations. The CEO’s role in the process includes the assessment of executive officer
performance and recommending base salaries for the executive officers other than himself. The CEO attended all compensation committee
meetings but was not present during discussions of his compensation. At its meetings in November 2018 and February 2019, the
compensation committee established and approved base salaries and performance measures for the annual and long-term incentive
compensation for 2019. It also certified the achievement of performance measures for 2018 associated with annual and long-term incentive
compensation that was paid or vested in 2019.
At least every two years, the compensation committee hires an independent consulting firm to assess and recommend competitive pay
levels, including base salaries and incentive compensation, associated with executive officer positions. Typically the consulting firm
conducts its analysis in even numbered years. In odd numbered years, the assessment has been performed by the company’s human
resources department using a variety of industry specific sources. In August 2018, the compensation committee’s consultant, Meridian
Compensation Partners LLC, prepared the analysis of and provided recommendations for the 2019 executive compensation structure.
Compensation Policies and Practices as They Relate to Risk Management
The human resources department conducts an annual risk assessment of our compensation programs. Senior management and our
management policy committee reviewed the risk assessment for 2019 and concluded our compensation policies and practices do not create
risks which could have a material adverse effect on the company. After review and discussion of the assessment with senior management,
the compensation committee concurred with management’s assessment.
In assessing the risks arising from our compensation policies and practices, the human resources department identified the following
practices designed to prevent excessive risk taking:
•Business management and governance practices:
◦risk management is a specific performance competency included in the annual performance assessment of Section 16 officers;
◦board oversight on capital expenditure and operating plans promotes careful consideration of financial assumptions;
◦limitation on business acquisitions without board approval;
◦employee integrity training programs and anonymous reporting systems;
◦quarterly risk assessment reports at audit committee meetings; and
◦prohibitions on holding company stock in an account that is subject to a margin call, pledging company stock as collateral for a loan,
and hedging of company stock by Section 16 officers and directors.
•Executive compensation practices:
◦active compensation committee review of executive compensation, including portions of executive compensation based upon the
company’s total stockholder return in relation to that of the company’s peer group;
◦the initial determination of a position’s salary grade to be at or near the 50th percentile of base salaries paid to similar positions at
peer group companies and/or relevant industry companies;
◦consideration of peer group and/or relevant industry practices to establish appropriate compensation target amounts;
◦a balanced compensation mix of fixed salary and annual and long-term incentives tied primarily to the company’s financial and stock
performance;
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MDU Resources Group, Inc. Proxy Statement 37
◦use of interpolation for annual and long-term incentive awards to avoid payout cliffs;
◦negative discretion to adjust any annual incentive award payment downward;
◦use of caps on annual incentive awards (maximum of 200% of target for regulated segments and 240% of target for construction
materials and services segments) and long-term incentive stock grant awards (maximum of 200% of target);
◦ability to clawback incentive payments in the event of a financial restatement;
◦use of performance shares and restricted stock units, rather than stock options or stock appreciation rights, as an equity component of
incentive compensation;
◦use of performance shares for long-term incentive awards with relative total stockholder return, earnings before interest, taxes,
depreciation, and amortization (EBITDA) growth, and earnings growth performance measures;
◦use of three-year performance periods for performance shares and restricted stock units to discourage short-term risk-taking;
◦substantive annual incentive goals measured primarily by earnings, EBITDA, earnings per share criteria, and compound earnings and
EBITDA growth, which encourage balanced performance and are important to stockholders;
◦use of financial performance metrics that are readily monitored and reviewed;
◦regular review of companies in the peer group to ensure appropriateness and industry match;
◦stock ownership requirements for the board and for executives participating in the MDU Resources Long-Term Performance-Based
Incentive Plan;
◦Mandatory holding periods of all company stock awards to executives until stock ownership requirements are achieved and mandatory
holding period for 50% of any net after-tax shares of stock earned under long-term incentive awards until the earlier of: (1) the end of
the two-year period commencing on the date any stock earned under such award is issued, and (2) the executive’s termination of
employment; and
◦use of independent consultants to assist in establishing pay targets and compensation structure at least biennially.
Components of Compensation
Our executive compensation program is designed to promote sustained long-term profitability and create stockholder value. The components
of our executive officer’s compensation are selected to drive financial and operational results as well as align the executive officer’s interests
with those of our stockholders. Pay components and performance measures are considered by the compensation committee as fundamental
financial measures of successful company performance and long-term value creation. The components of our 2019 executive compensation
included:
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38 MDU Resources Group, Inc. Proxy Statement
Component Payments Purpose How Determined How it Links to Performance
Base Salary Assured Provides sufficient, regularly paid
income to attract and retain
executives with the knowledge,
skills, and abilities necessary to
successfully execute their job
responsibilities and reflects the
individual role, responsibilities,
performance, and experience of
each named executive officer and
the importance of the role to the
company.
Based on recommendation from
the CEO for executives other than
himself and analysis of peer
company and industry
compensation information. Base
salary for the CEO is determined
based on input from the
independent compensation
consultant.
Base salary is a means to
attract and retain talented
executives capable of driving
success and performance.
Annual Cash
Incentive
Performance
Based
At Risk
Provides an opportunity to earn
annual incentive compensation to
ensure focus on annual financial
and operating results and to be
competitive from a total
renumeration standpoint.
Annual cash incentives are
calculated as a percentage of
base salary with payout based on
the achievement of performance
measures established in advance
by the compensation committee.
Annual incentive
performance measures are
tied to the achievement of
financial goals aimed to drive
the success of the company
and the individual business
segments.
Performance
Shares
Performance
Based
At Risk
Provides an opportunity to earn
long-term compensation to ensure
focus on long-term value creation
and the company’s strategic
objectives and to be competitive
from a total renumeration
standpoint.
Performance share award
opportunities are recommended
by the CEO for executives other
than himself and approved by the
compensation committee.
Performance share opportunities
for the CEO are determined by
the compensation committee with
input from the independent
compensation consultant. Vesting
of the awards is based on the
company’s achievement of
financial measures established by
the compensation committee as
well as total stockholder return in
comparison to the company’s
peer group over a three-year
performance cycle.
Fosters ownership in
company stock and aligns
the executive’s interests with
those of stockholders in
increasing long-term
stockholder value.
Allocation of Total Target Compensation for 2019
Total target compensation consists of base salary plus target annual and long-term incentive compensation. Performance-based incentive
compensation, which consists of annual cash incentive and three-year performance share award opportunities, comprises the largest portion
of our named executive officers’ total target compensation because:
•performance shares align the interests of the named executive officers with those of stockholders by making a significant portion of their
target compensation contingent upon results beneficial to stockholders;
•our named executive officers are in positions of authority to drive, and therefore bear high levels of responsibility for, our corporate
performance;
•variable compensation helps ensure focus on the goals that are aligned with overall company strategy; and
•incentive compensation is more variable than base salary and dependent upon company performance and the satisfaction of performance
objectives.
The compensation committee generally allocates a higher percentage of total target compensation to the target long-term incentive than to
the target annual incentive for our higher level executives because they are in a better position to influence long-term performance. The
long-term incentive awards, if earned by achieving established measures, are paid in company common stock. These awards, combined with
our stock retention requirements and our stock ownership policy, promote ownership of our stock by the executive officers. As a result, the
compensation committee believes the executive officers, as stockholders, will be motivated to deliver long-term value to all stockholders.
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 39
Peer Group
The compensation committee evaluates the company’s compensation plan and its performance relative to a group of peer companies in
determining overall compensation and the vesting of long-term incentive compensation. The peer group is reviewed annually to assess
ongoing relevance and credibility. The companies included in our 2019 peer group were evaluated and recommended by the independent
compensation consultant, Meridian Compensation Partners, LLC. In evaluating potential peer companies, the compensation consultant
considered companies in the construction and engineering, construction materials, and utility industries. They also sought a group of
companies where MDU Resources would rank close to the 50th percentile in terms of revenues and market capitalization. In addition, the
consultant considered companies currently listed as peer companies for MDU Resources by proxy advisory firms. The 2019 peer group
recommended by the consultant includes eleven companies in regulated energy delivery businesses and ten companies in the construction
materials or construction services businesses. At the time of analysis, MDU Resources ranked at the 54th percentile in terms of revenue and
at the 41st percentile in terms of market capitalization in comparison to the selected peer group companies. The 2019 peer group reflects
MDU Resources’ size, mix of current businesses, and complexity and consequently provides an appropriate group for comparative purposes.
The companies included in the 2019 peer group are shown below:
2019 Peer Companies
Regulated Energy Delivery Construction Materials and Services
Alliant Energy Corporation Dycom Industries, Inc.*
Ameren Corporation*EMCOR Group, Inc.
Atmos Energy Corporation Granite Construction Incorporated
Black Hills Corporation Jacobs Engineering Group Inc.*
CMS Energy Corporation*KBR, Inc.*
Evergy, Inc.*Martin Marietta Materials, Inc.
NiSource Inc.*MasTec, Inc.
Pinnacle West Capital Corporation*Quanta Services, Inc.*
Portland General Electric Company Summit Materials, Inc.
Southwest Gas Holdings, Inc.Vulcan Materials Company
WEC Energy Group, Inc.*
*These companies were added to the peer group for 2019 to better align with the company’s
size in revenues and market capitalization.
Companies removed from the previous peer group because they were significantly smaller than the company were ALLETE, Inc., IDACORP,
Inc., MYR Group, Inc., Northwest Natural Gas Company, NorthWestern Corporation, Otter Tail Corporation, Spire Inc., U.S. Concrete, Inc.,
and Vectren Corporation.
Proxy Statement
40 MDU Resources Group, Inc. Proxy Statement
2019 Compensation for Our Named Executive Officers
2019 Base Salary and Incentive Targets
At its November 2018 meeting, the compensation committee approved 2019 base salaries for the named executive officers. Mr. Goodin was
not present during the portion of the meeting where the compensation committee discussed and approved the president and CEO base
salary for 2019. At its February 2019 meeting, the compensation committee approved the target annual and long-term incentive
opportunities for our named executive officers. In determining base salaries, target cash annual incentives, target long-term incentives, and
total direct compensation for our named executive officers, the compensation committee received and considered company and individual
performance, market and peer data, responsibilities, experience, tenure in position, internal equity, and input and recommendations from
the CEO, human resources department, and the independent compensation consultant. The following information relates to each named
executive officer’s 2019 base salary, target cash annual incentive, target long-term incentive, and target total direct compensation:
David L. Goodin
2019
($)
Compensation Component
as a % of Base Salary
Base Salary 860,000
Target Annual Incentive Opportunity 860,000 100%
Target Long-Term Performance Share Incentive Opportunity 2,400,000 279%
Target Total Potential Direct Compensation 4,120,000
The compensation committee considered information provided in the 2018 compensation study showing
Mr. Goodin's base salary, total cash compensation, and long-term incentives were below market levels and
increased Mr. Goodin’s base salary by 4.3%. Mr. Goodin’s 2019 annual incentive target remained at 100%
of his base salary. The compensation committee, based on recommendations from its compensation
consultant, Meridian Compensation Partners, LLC, set Mr. Goodin’s long-term incentive target at
$2,400,000 which is 279% of his base salary for 2019 compared to 250% in 2018.
Jason L. Vollmer
2019
($)
Compensation Component
as a % of Base Salary
Base Salary 400,000
Target Annual Incentive Opportunity 300,000 75%
Target Long-Term Performance Share Incentive Opportunity 480,000 120%
Target Total Potential Direct Compensation 1,180,000
Mr. Vollmer received a 14.3% increase in his base salary from when he was promoted to the CFO position
effective September 30, 2017. His 2019 annual incentive target was set at 75% of his base salary;
increased from 65% of base salary. No change was made to Mr. Vollmer’s long-term incentive as a
percentage of his base salary.
David C. Barney
2019
($)
Compensation Component
as a % of Base Salary
Base Salary 468,500
Target Annual Incentive Opportunity 351,375 75%
Target Long-Term Performance Share Incentive Opportunity 585,000 125%
Target Total Potential Direct Compensation 1,404,875
Mr. Barney received a 3.0% increase in base salary for 2019. The compensation committee maintained
Mr. Barney’s target annual incentive opportunity at 75% of his base salary but increased his long-term
incentive target to $585,000 or approximately 125% of his base salary, compared to 90% of his base
salary in 2018.
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 41
Jeffrey S. Thiede
2019
($)
Compensation Component
as a % of Base Salary
Base Salary 468,500
Target Annual Incentive Opportunity 351,375 75%
Target Long-Term Performance Share Incentive Opportunity 585,000 125%
Target Total Potential Direct Compensation 1,404,875
Mr. Thiede received a 3.0% increase in his base salary for 2019. The compensation committee maintained
Mr. Thiede’s target annual incentive opportunity at 75% of base salary but increased his long-term
incentive target to $585,000 or approximately 125% of his base salary, compared to 90% of his base
salary in 2018.
Nicole A. Kivisto
2019
($)
Compensation Component
as a % of Base Salary
Base Salary 455,000
Target Annual Incentive Opportunity 341,250 75%
Target Long-Term Performance Share Incentive Opportunity 585,000 129%
Target Total Potential Direct Compensation 1,381,250
Ms. Kivisto received a base salary increase of 5.8% for 2019. The compensation committee increased her
annual incentive target to 75% of her base salary; increased from 65% of base salary in 2018. Her long-
term incentive target was increased to $585,000 or approximately 129% of her base salary, compared to
90% of base salary in 2018.
Annual Incentives
Annual incentive awards are determined for business segment executives by the achievement of financial performance measures specific to
each business segment plus a performance measure tied to overall company earnings per share. For corporate executives, annual incentive
awards are determined as the sum of the weighted percentage award payouts for each business segment with the weighting based upon the
business segment’s invested capital relative to the company’s total invested capital. Through this, our business segment executives are
incentivized to primarily focus on the success and performance of their business segment while keeping the overall financial success of the
company in mind, whereas our corporate executives are incentivized to assist in the success and performance of all lines of business.
The compensation committee selected objective financial performance measures to ensure that compensation to the executives reflects the
success of their respective business segments and the company. The annual incentive performance measures for each business segment
president include a corporate earnings per share performance measure representing 20% of the target award opportunity and a business
segment financial performance measure representing 80% of the target award opportunity. In February 2019, the compensation committee
set performance targets that it believed were rigorous based on the company’s capital and business plans, prior year results, and anticipated
future market conditions. To incentivize executives to make decisions that have long-term positive impact, even at the expense of short-term
results, and to prevent one-time gains and losses from having an undue impact on incentive payments, the compensation committee
designed its annual incentive measures to allow for adjustments for certain unplanned events that impact our performance targets but are
not indicative of underlying business performance. The following annual incentive performance measures for 2019 were adopted by the
compensation committee for the business segment presidents (exclusive of the MDU Resources Group, Inc. corporate executive officers) at
its February 2019 meeting:
Proxy Statement
42 MDU Resources Group, Inc. Proxy Statement
Measure Applies to Purpose Measurement Target Weight How Target was Selected
MDU
Resources
Diluted
Adjusted
Earnings per
Share (EPS)
All Business
Segment
Presidents
EPS is a generally
accepted accounting
principle (GAAP)
measurement and is a
key driver of stockholder
return. This is the basis
on which we provide
annual performance
expectations and
consistent with how we
report results to the
financial community.
This goal applies to the
presidents of all business
segments to engage them
as members of the
company’s management
policy committee in the
overall success of the
company.
GAAP EPS (diluted) before
discontinued operations plus
earnings/losses from any
operations discontinued after
December 31, 2018, and
adjustments approved by the
compensation committee to
remove:
- the effect on earnings at the
company level of intersegment
earnings eliminations;
- the negative effect on earnings
from asset sales/dispositions/
retirements;
- the effect on earnings from
withdrawal liabilities relating to
multiemployer pension plans;
- the effect on earnings from
costs incurred for acquisitions
and mergers; and
- the effect on earnings from
unanticipated changes and
interpretations of tax law.
$1.45 20%Target reflects 2019 financial goal
to achieve an estimated return on
invested capital of 7.4%. The 2019
target is 10 cents more than the
2018 target and 7 cents more than
2018 actual EPS before
discontinued operations (diluted).
Business
Segment
Earnings
Electric and
Natural Gas
Distribution
Segments
President
Provides a measure of
financial performance
and an incentive to drive
business results.
Regulated entities are
valued based on earnings
potential and rate base.
GAAP business segment earnings
before discontinued operations
plus earnings/losses from any
operations discontinued after
December 31, 2018, and
adjustments approved by the
compensation committee to
remove:
- the negative effect on earnings
from asset sales/dispositions/
retirements;
- the effect on earnings from
transaction costs incurred for
acquisitions or mergers; and
- the effect on earnings from
unanticipated changes and
interpretations of tax law.
$91.9
million
80%Target reflects the 2019 financial
goal for the business segment. The
2019 target is 8.5% above 2018
actual results reflecting continued
investment in infrastructure and
revenue recovery from completed
and pending rate cases.
Pipeline and
Midstream
Segment
President
$27.4
million
80%Target reflects the 2019 financial
goal of the business segment. The
2019 target is 14.2% above the
2018 actual results adjusted for the
effects of the Tax Cuts and Jobs
Act. The increase reflects
anticipated revenue recovery from
rate case and investment in
completed projects.
Business
Segment
Earnings
Before
Interest, Tax,
Depreciation,
and
Amortization
(EBITDA)
Construction
Materials and
Contracting
Segment
President
Provides a measure of
financial performance
common to the industries
in which these segments
operate. Focusing on
EBITDA encourages
growth by excluding the
impact of decisions
regarding interest, taxes,
and depreciation
amortization made during
the acquisition process.
EBITDA from continuing
operations adjusted plus EBITDA
from any operations discontinued
after December 31, 2018, and
adjustments approved by the
compensation committee to
remove:
- the negative effect on earnings
from asset sales/dispositions/
retirements;
- the effect on earnings from
withdrawal liabilities relating to
multiemployer plans, and
- the effect on earnings from
costs incurred for acquisitions
or mergers.
$224.9
million
80%Target reflects the 2019 financial
goal of the business segment and is
12.7% above the actual 2018
EBITDA results. The increase
reflects acquisitions completed in
2018 and backlog at 2018 year-
end.
Construction
Services
Segment
President
$105.5
million
80%Target reflects the 2019 financial
goal of the business segment and is
1.8% above the actual 2018
EBITDA results reflecting backlog at
2018 year-end and anticipated
organic and acquisition growth but
offset by a return to more normal
equipment sales and rental results.
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 43
Actual performance results are compared to target performance measures to arrive at a percent of target achieved. The percent of target
achieved is translated into a payout percentage of the target award opportunity. Achievement of 100% of the target performance measure
results in a payout of 100% of the target award opportunity. Achievement of an established threshold is required to receive partial payment
of the target award opportunity. Results achieved below the established threshold result in no payout. The threshold and maximum
performance as well as the associated payout opportunity are depicted in the following chart:
Measure Weighting
Threshold Maximum
% of Target Payout %% of Target Payout %
MDU Resources Diluted Adjusted EPS 20%85%25%115%200%
Electric and Natural Gas Distribution Earnings 80%90%50%110%200%
Pipeline and Midstream Earnings 80%85%25%115%200%
Construction Materials and Contracting EBITDA 80%75%25%115%250%
Construction Services EBITDA 80%65%25%115%250%
Results achieved between payout levels are calculated using linear interpolation.
2019 Annual Incentive Results
The 2019 performance measure results, percent of target achieved based on those results, and the associated payout percentages reflect
the company’s excellent 2019 financial performance and are presented below:
Business Segment
Performance
Measure Result
Percent of
Performance
Measure
Achieved
Percent
of Award
Opportunity
Payout Weight
Weighted
Award
Opportunity
Payout %
All Business Segments Earnings per Share $1.69 116.6%200.0%20%40.0%
Electric and Natural Gas Distribution Earnings $94.3 million 102.6%125.9%80%100.7%
Pipeline and Midstream Earnings $29.6 million 108.2%154.7%80%123.8%
Construction Materials and Contracting EBITDA $259.0 million 115.1%250.0%80%200.0%
Construction Services EBITDA $145.3 million 137.8%250.0%80%200.0%
For our corporate named executive officers, namely Messrs. Goodin and Vollmer, the payout of the annual cash incentives is based on the
achievement of performance measures at the business segments weighted by each business segment’s average invested capital relative to
the company’s total invested capital. The compensation committee believes this approach provides alignment between our corporate
executives and business segment performance. Messrs. Goodin’s and Vollmer’s 2019 annual cash incentives were earned at 163.2% of the
target award opportunity based on the following proportional weighted sum of the annual business segment payouts:
Business Segment
Column A
Business Segment
Award Payout
Column B
Percentage of
Average Invested Capital Column A x Column B
Electric and Natural Gas Distribution 140.7%56.9%80.1%
Pipeline and Midstream 163.8%8.7%14.3%
Construction Materials and Contracting1 200.0%25.3%50.6%
Construction Services1 200.0%9.1%18.2%
Total Payout Percentage 163.2%
1 For purposes of calculating the incentive awards for Messrs. Goodin and Vollmer, the award payouts associated with the construction materials and
contracting and construction services segments were limited to 200%, which resulted in a weighted award payout of 200% versus 240% for the
construction materials and contracting and construction services business segment presidents.
Proxy Statement
44 MDU Resources Group, Inc. Proxy Statement
Based on the achievement of the performance targets, the named executive officers received the following 2019 annual incentive
compensation:
Name
Target Annual
Incentive
($)
Annual Incentive Earned
Payout as a % of Target
(%)Amount($)
David L. Goodin 860,000 163.2 1,403,520
Jason L. Vollmer 300,000 163.2 489,600
David C. Barney 351,375 240.0 843,300
Jeffrey S. Thiede 351,375 240.0 843,300
Nicole A. Kivisto 341,250 140.7 480,139
Long-Term Incentives
All our named executive officers participated in the 2019 long-term incentive plan which aligns long-term compensation with the
achievement of pre-determined financial goals. Long-term incentive compensation comprised 58.2% of the CEO’s 2019 total target direct
compensation and 41.6% of the average of the other named executive officer’s target total direct compensation. Stock earned under long-
term incentive compensation is subject to our stock retention requirements. If the executive’s employment is terminated during the
performance period for cause at any time, or for any reason other than cause before the executive has reached age 55 and completed ten
years of service, all performance shares and related dividend equivalents are forfeited.
Grant of 2019-2021 Long-Term Performance Share Awards
For 2019, the compensation committee approved performance share awards which may vest at the end of a three-year period between 0%
and 200% based on the achievement of three performance measures:
•Total stockholder return relative to that of the peer group companies was selected as the measure for 50% of the award vesting to align
the award with the company's performance relative to our peers;
•Compound annual growth rate in EBITDA from continuing operations was selected as the measure for 25% of the award vesting to
encourage strategic growth and focuses on controllable costs; and
•Compound annual growth rate in earnings from continuing operations was selected as the measure for 25% of the award vesting to
encourage quality earnings and continued growth of the company.
For the awards made in 2019, earnings used to calculate EBITDA growth may be adjusted, as such adjustments are approved by the
compensation committee, to remove:
•the effect on earnings from leases/impairments on asset sales/dispositions/retirements;
•the effect on earnings from withdrawal liabilities relating to multiemployer pension plans; and
•the effect on earnings from costs incurred for acquisitions or mergers.
Earnings used to calculate earnings growth from continuing operations for the 2019 awards may be adjusted, as approved by the
compensation committee, to remove the effects on earnings as noted above for the calculation of EBITDA growth plus any effect on earnings
from unanticipated tax law changes.
Vesting of shares and associated dividend equivalents is predicated on achievement of an established threshold associated with each
performance measure. To safeguard the confidentiality of our long-term outlook on projected performance outcomes, we do not disclose
actual performance targets until the performance period is completed. Achievement of the threshold of the performance measure results in
vesting of 20% of the associated portion of the performance share award. Actual results of the performance measure achieved below the
threshold lead to zero vesting of the associated portion of the performance share award. Maximum performance measure levels have also
been established for each performance measure and result in vesting of 200% of the associated portion of the performance share award.
Thresholds and maximum payouts as a percentage of target performance for the 2019 measures are:
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 45
The Company’s Peer
TSR Percentile Rank
The Company’s Earnings and
EBITDA Growth Rate as a
Percentage of Target
Vesting Percentage
of Award Target
75th or higher 153.85% or higher 200%
50th Target 100%
25th 46.15%20%
Less than 25th Less than 46.15%0%
Vesting for percentile ranks falling between the intervals is interpolated.
On February 14, 2019, for the 2019-2021 performance period, the compensation committee determined the target number of performance
shares for each named executive officer by dividing a selected target long-term award amount by the average of the closing prices of our
stock from January 1 through January 22, 2019, which was $24.29 per share. Based on this price, the compensation committee awarded
the following target performance share opportunities to the named executive officers:
Name
Base Salary
($)
Target Long-Term
Performance Share
Incentive % of Base Salary
(%)
Long-Term Performance
Share Incentive Target
($)
Performance Share
Opportunities
(#)
David L. Goodin 860,000 279 2,400,000 98,806
Jason L. Vollmer 400,000 120 480,000 19,761
David C. Barney 468,500 125 585,000 24,083
Jeffrey S. Thiede 468,500 125 585,000 24,083
Nicole A. Kivisto 455,000 129 585,000 24,083
Vesting of 2017-2019 Performance Share Awards
For the 2017-2019 performance period, the long-term incentive program consisted solely of performance shares. The performance criteria
used for the 2017-2019 performance period was total stockholder return as a percentile of the total stockholder return for our peer
companies over the three-year performance period.
Our total stockholder return ranking over the performance period was at the 26th percentile which resulted in vesting at 23% of the target
performance shares and dividend equivalents. The named executive officers received the following long-term compensation for the
2017-2019 performance period:
Name
Target
Performance
Shares
(#)
Performance
Shares
Vested
(#)
Dividend
Equivalents
($)
David L. Goodin 61,890 14,234 33,948
Jason L. Vollmer 3,912 899 2,144
David C. Barney 13,338 3,067 7,315
Jeffrey S. Thiede 13,670 3,144 7,498
Nicole A. Kivisto 11,804 2,714 6,473
Stock Retention Requirement
The named executive officers must retain 50% of the net after-tax shares vested pursuant to the long-term incentive awards for the earlier of
two years from the date the vested shares are issued or the executive’s termination of employment. The executive officer is also required to
retain share awards net of taxes if the executive has not met the stock ownership requirements under the company’s stock ownership policy
for executives.
Proxy Statement
46 MDU Resources Group, Inc. Proxy Statement
Other Benefits
The company provides post-employment benefit plans and programs in which our named executive officers may be participants. We believe
it is important to provide post-employment benefits which approximate retirement benefits paid by other employers to executives in similar
positions. The compensation committee periodically reviews the benefits provided to maintain a market-based benefits package. Our named
executive officers participated in the following plans during 2019 which are described below:
Plans David L. Goodin Jason L. Vollmer David C. Barney Jeffrey S. Thiede Nicole A. Kivisto
401(k) Retirement Plan Yes Yes Yes Yes Yes
Pension Plans Yes Yes No No Yes
Supplemental Income Security Plan Yes No Yes No Yes
Nonqualified Defined Contribution Plan No Yes Yes Yes No
401(k) Retirement Plan
The named executive officers as well as all employees working a minimum of 1,000 hours per year are eligible to participate in the 401(k)
plan and defer annual income up to the IRS limit. The company provides a match up to 3% depending on the employee’s elected deferral
rate. Contributions and the company match are invested in various funds based on the employee’s election including company common
stock.
In 2010, the company began offering increased company contributions to our 401(k) plan in lieu of pension plan contributions. For non-
bargaining unit employees hired after 2006 or employees who were not previously participants in the pension plan, the added retirement
contribution is 5% of plan eligible compensation. For non-bargaining unit employees hired prior to 2006 who were participants in the
pension plan, the added retirement contributions are based on the employee’s age as of December 31, 2009. The retirement contribution is
11.5% for Mr. Goodin, 9.0% for Ms. Kivisto, 7.0% for Mr. Vollmer, and 5.0% for Messrs. Barney and Thiede. These amounts may be
reduced in accordance with the provisions of the 401(k) plan to ensure compliance with IRS limits.
Pension Plans
Effective in 2006, the defined benefit pension plans were closed to new non-bargaining unit employees and as of December 31, 2009, the
defined benefit plans were frozen. For further details regarding the company’s pension plans, please refer to the section entitled “Pension
Benefits for 2019.”
Supplemental Income Security Plan
We offered certain key managers and executives benefits under a nonqualified retirement plan referred to as the Supplemental Income
Security Plan (SISP). The SISP provides participants with additional retirement income and death benefits. Effective February 11, 2016,
the SISP was amended to exclude new participants to the plan and freeze current benefit levels for existing participants. For further details
regarding the company’s SISP, please refer to the section entitled “Pension Benefits for 2019.” Named executive officers participating in
the SISP are Messrs. Goodin and Barney and Ms. Kivisto.
The following table reflects our named executive officers’ SISP benefits as of December 31, 2019:

Name
SISP Benefits
Annual Death Benefit($)Annual Retirement Benefit($)
David L. Goodin 552,960 276,480
Jason L. Vollmer n/a n/a
David C. Barney 262,464 131,232
Jeffrey S. Thiede n/a n/a
Nicole A. Kivisto 108,000 54,000
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 47
Nonqualified Defined Contribution Plan
The company adopted the Nonqualified Defined Contribution Plan (NQDCP) effective January 1, 2012, to provide retirement and deferred
compensation for a select group of management and other highly compensated employees. The compensation committee, upon
recommendation from the CEO, annually determines which employees will participate in the NQDCP and the amount of contributions for
each participant. After satisfying a vesting requirement for each contribution, distributions will be made in accordance with the terms of the
plan. For further details regarding the company’s NQDCP, please refer to the section entitled “Nonqualified Deferred Compensation for
2019.”
For 2019, the compensation committee selected and approved contributions of $40,000 to Mr. Vollmer, $150,000 to Mr. Barney, and
$100,000 to Mr. Thiede. The contributions awarded to Messrs. Vollmer, Barney, and Thiede represent 10.00%, 32.02%, and 21.34% of
their base salaries, respectively.
Employment and Severance Agreements
We currently do not have employment or severance agreements with our executives entitling them to specific payments upon termination of
employment or a change of control of the company. The compensation committee generally considers providing severance benefits on a
case-by-case basis. Any post-employment or change of control benefits available to our executives are addressed within our incentive and
retirement plans. Please refer to the section entitled “Potential Payments upon Termination or Change of Control.”
Proxy Statement
48 MDU Resources Group, Inc. Proxy Statement
Compensation Governance
Impact of Tax and Accounting Treatment
The compensation committee may consider the impact of tax and/or accounting treatment in determining compensation.
Section 162(m) of the Internal Revenue Code limits the deductibility of certain compensation to $1 million paid to certain officers as a
business expense in any tax year. The federal Tax Cuts and Jobs Act (Tax Reform), signed into law in December 2017, expanded the number
of individuals covered by the Section 162(m) deductibility limit and repealed the exception for performance-based compensation, effective
for taxable years beginning after December 31, 2017. Incentive compensation approved by the compensation committee prior to Tax Reform
for our CEO and those executive officers whose overall compensation was likely to exceed $1 million was generally structured to meet the
requirements for the performance-based exception for deductibility for purposes of Section 162(m). As a result of Tax Reform,
compensation paid to our covered executive officers in excess of $1 million will not be deductible, unless it qualifies for transition relief
applicable to certain arrangements in place as of November 2, 2017. The compensation committee believes the tax deduction limitation
should not compromise its responsibility to design and maintain a compensation program that will attract and retain the executive talent
necessary to successfully execute the company’s strategy.
The compensation committee also considers the accounting and cash flow implications of various forms of executive compensation. We
expense salaries and annual incentive compensation as earned. For our equity awards, we record the accounting expense in accordance with
Financial Accounting Standards Board 718, which is generally expensed over the vesting period.
Stock Ownership Requirements
Executives participating in our Long-Term Performance-Based Incentive Plan are required within five years of appointment or promotion into
an executive level to beneficially own our common stock equal to a multiple of their base salary as outlined in the stock ownership policy.
Stock owned through our 401(k) plan or by a spouse is considered in ownership calculations. The level of stock ownership compared to the
ownership requirement is determined based on the closing sale price of our stock on the last trading day of the year and base salary at
December 31 of the same year. The table shows the named executive officers’ holdings as a multiple of their base salary.
Name
Ownership Policy Multiple of
Base Salary Within 5 Years
Actual Holdings as a
Multiple of Base Salary1
Ownership Requirement
Must Be Met By:
David L. Goodin 4X 9.7 01/01/2018
Jason L. Vollmer 3X 0.9 01/01/2023
David C. Barney 3X 2.9 01/01/2019
Jeffrey S. Thiede 3X 3.0 01/01/2019
Nicole A. Kivisto 3X 4.1 01/01/2020
1 Includes performance stock awards earned net of taxes for the 2017-2019 performance period.
Mr. Barney is required to retain all stock vesting through the Long-Term Performance-Based Incentive Plan, net of taxes, until the stock
ownership requirement is met.
Deferral of Annual Incentive Compensation
We provide executives the opportunity to defer receipt of earned annual incentives. If an executive chooses to defer all or part of an annual
incentive, we credit the deferral with interest at a rate determined by the compensation committee. For 2019, the interest rate for deferrals
was 4.4% based on an average of the Moody’s U.S. Long-Term Corporate Bond Yield Average for “A” and “Baa” rated companies. The
compensation committee’s reasons for using this interest rate recognized incentive deferrals are a low-cost source of capital for the company
and are unsecured obligations and, therefore, carry an associated level of risk to the executives.
Clawback
In February 2016, we amended our Long-Term Performance-Based Incentive Plan and Executive Incentive Compensation Plan sections
regarding the repayment of incentive compensation due to accounting restatements, commonly referred to as a clawback policy. The
compensation committee may, or shall if required, take action to recover incentive-based compensation from specific executives in the
event the company is required to restate its financial statements due to material noncompliance with any financial reporting requirements
under the securities laws.
Policy Regarding Hedging Stock Ownership
Our executive compensation policy prohibits executive officers, which includes our named executive officers, from hedging their ownership
of company common stock. Executives may not enter into transactions that allow the executive to benefit from devaluation of our stock or
otherwise own stock technically but without the full benefits and risks of such ownership. See the section entitled “Security Ownership” for
our policy on margin accounts and pledging of our stock.
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 49
COMPENSATION COMMITTEE REPORT
The compensation committee is primarily responsible for reviewing, approving, and overseeing the company’s compensation plans and
practices and works with management and the committee’s independent compensation consultant to develop the company executive
compensation programs. The compensation committee has reviewed and discussed the Compensation Discussion and Analysis required by
Regulation S-K, Item 402(b), with management. Based on the review and discussions referred to in the preceding sentence, the
compensation committee recommended to the board of directors that the Compensation Discussion and Analysis be included in our Proxy
Statement on Schedule 14A.
John K. Wilson, Chair
Thomas Everist
Karen B. Fagg
Patricia L. Moss
EXECUTIVE COMPENSATION TABLES
Proxy Statement
50 MDU Resources Group, Inc. Proxy Statement
Summary Compensation Table for 2019
Name and
Principal Position
(a)
Year
(b)
Salary
($)
(c)
Stock
Awards
($)
(e)1
Non-Equity
Incentive Plan
Compensation
($)
(g)
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
(h)2
All Other
Compensation
($)
(i)3
Total
($)
(j)
David L. Goodin 2019 860,000 3,029,392 1,403,520 735,366 116,077 6,144,355
President and CEO 2018 824,460 2,433,437 807,971 16,503 72,884 4 4,155,255
2017 792,750 1,504,546 1,377,007 342,727 40,971 4,058,001
Jason L. Vollmer 2019 400,000 605,877 489,600 8,455 86,049 1,589,981
Vice President, CFO and 2018 350,000 495,840 222,950 —69,589 4 1,138,379
Treasurer 2017 256,625 95,101 230,988 3,681 48,156 634,551
David C. Barney 2019 468,500 738,389 843,300 174,117 201,771 2,426,077
President and CEO of 2018 455,000 958,410 384,589 —251,255 4 2,049,254
Knife River Corporation 2017 427,140 324,247 483,736 93,786 173,331 1,502,240
Jeffrey S. Thiede 2019 468,500 738,389 843,300 —151,751 2,201,940
President and CEO of 2018 455,000 958,410 437,141 —140,925 4 1,991,476
MDU Construction 2017 437,750 332,318 743,629 —123,163 1,636,860
Services Group, Inc.
Nicole A. Kivisto 2019 455,000 738,389 480,139 243,761 54,763 1,972,052
President and CEO of 2018 430,000 609,197 225,277 210 42,302 4 1,306,986
Montana-Dakota Utilities Co.2017 378,000 286,955 433,906 96,931 33,049 1,228,841
1 Amounts in this column represent the aggregate grant date fair value of performance share award opportunities at target calculated in accordance with
Financial Accounting Standards Board (FASB) generally accepted accounting principles for stock-based compensation in FASB Accounting Standards
Codification Topic 718. This column was prepared assuming none of the awards were or will be forfeited. The amounts were calculated as described in Note
13 of our audited financial statements in our Annual Report on Form 10-K for the year ended December 31, 2019. For 2019, the aggregate grant date fair
value of outstanding performance share award opportunities assuming the highest level of payout would be as follows:
Name
Aggregate grant date fair
value at highest payout
($)
David L. Goodin 6,058,784
Jason L. Vollmer 1,211,753
David C. Barney 1,476,778
Jeffrey S. Thiede 1,476,778
Nicole A. Kivisto 1,476,778
2 Amounts shown for 2019 represent the change in the actuarial present value for the named executive officers’ accumulated benefits under the pension
plan, SISP, and Excess SISP, collectively referred to as the “accumulated pension change,” plus above-market earnings on deferred annual incentives as of
December 31, 2019.

Name
Accumulated Pension Change
($)
Above Market Interest
($)
David L. Goodin 722,199 13,167
Jason L. Vollmer 8,455 —
David C. Barney 174,117 —
Jeffrey S. Thiede ——
Nicole A. Kivisto 243,631 130
3 All Other Compensation is comprised of:
Name
401(k) Plan
($)a
Nonqualified Defined
Contribution Plan
($)
Life Insurance
Premium
($)
Matching Charitable
Contributions
($)
Dividend
Equivalents
($)b
Total
($)
David L. Goodin 40,600 —621 2,620 72,236 116,077
Jason L. Vollmer 28,000 40,000 497 2,985 14,567 86,049
David C. Barney 22,400 150,000 582 1,200 27,589 201,771
Jeffrey S. Thiede 22,400 100,000 582 1,180 27,589 151,751
Nicole A. Kivisto 33,600 —565 2,780 17,818 54,763
a Represents company contributions to the 401(k) plan, which includes matching contributions and retirement contributions associated with the freeze of
the pension plans at December 31, 2009.
b Represents accrued dividend equivalents on the 2019-2021 and 2018-2020 performance share awards at target and restricted stock units awarded to
Mr. Barney and Mr. Thiede in 2018.
4 2018 All Other Compensation has been updated to include dividend equivalents on the 2018-2020 performance share awards at target for all named
executive officers and restricted stock unit awards awarded to Mr. Barney and Mr. Thiede in 2018 which were inadvertently omitted in the Summary
Compensation Table for 2018.
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 51
Grants of Plan-Based Awards in 2019
Estimated Future
Payouts Under Non-Equity
Incentive Plan Awards
Estimated Future
Payouts Under Equity
Incentive Plan Awards
All Other Stock
Awards:
Number of
Shares of
Stock or Units#
(i)
Grant Date Fair
Value of
Stock and
Option Awards($)
(l)Name (a)
GrantDate
(b)
Threshold($)
(c)
Target($)
(d)
Maximum($)
(e)
Threshold(#)
(f)
Target(#)
(g)
Maximum(#)
(h)
David L. Goodin 2/14/2019 1 313,097 860,000 1,720,000
2/14/2019 2 19,761 98,806 197,612 3,029,392
Jason L. Vollmer 2/14/2019 1 109,220 300,000 600,000
2/14/2019 2 3,952 19,761 39,522 605,877
David C. Barney 2/14/2019 1 87,844 351,375 843,300
2/14/2019 2 4,816 24,083 48,166 738,389
Jeffrey S. Thiede 2/14/2019 1 87,844 351,375 843,300
2/14/2019 2 4,816 24,083 48,166 738,389
Nicole A. Kivisto 2/14/2019 1 153,563 341,250 682,500
2/14/2019 2 4,816 24,083 48,166 738,389
1 Annual incentive for 2019 granted pursuant to the MDU Resources Group, Inc. Executive Incentive Compensation Plan.
2 Performance shares for the 2019-2021 performance period granted pursuant to the MDU Resources Group, Inc. Long-Term Performance-Based Incentive
Plan.
Narrative Discussion Relating to the Summary Compensation Table
and Grants of Plan-Based Awards Table
Annual Incentive
The compensation committee recommended the 2019 annual incentive award opportunities for our named executive officers and the board
approved these opportunities at its meeting on February 14, 2019. The award opportunities at threshold, target, and maximum are reflected
in columns (c), (d), and (e), respectively, of the Grants of Plan-Based Awards Table. The actual amount paid with respect to 2019
performance is reflected in column (g) of the Summary Compensation Table.
As described in the “Annual Incentives” section of the “Compensation Discussion and Analysis,” payment of annual award opportunities is
dependent upon achievement of performance measures; actual payout may range from 0% to 200% of the target except for the construction
materials and contracting and construction services segments which may range from 0% to 240%.
All our named executive officers were awarded their annual incentive opportunities pursuant to the MDU Resources Group, Inc. Executive
Incentive Compensation Plan. Under the Executive Incentive Compensation Plan, executives who retire during the year at or after age 65
remain eligible to receive an award, but executives who terminate employment for other reasons are not eligible for an award. The
compensation committee generally does not modify the performance measures; however, if in years of unusually adverse or favorable
external conditions or other unforeseen significant factors beyond the control of management, the compensation committee may modify the
performance measures. The compensation committee has full discretion to determine the extent to which goals have been achieved, the
payment level, and whether to adjust payment of awards downward based upon individual performance. For further discussion of the
specific 2019 incentive plan performance measures and results, see the “Annual Incentives” section in the “Compensation Discussion and
Analysis.”
Long-Term Incentive
The compensation committee recommended long-term incentive award opportunities for the named executive officers in the form of
performance shares, and the board approved the award opportunities at its meeting on February 14, 2019. The long-term incentive
opportunities are presented as the number of performance shares at threshold, target, and maximum in columns (f), (g), and (h) of the
Grants of Plan-Based Awards Table. The value of the long-term performance-based incentive opportunities is based on the aggregate grant
date fair value and is reflected in column (e) of the Summary Compensation Table and column (l) of the Grant of Plan-Based Awards Table.
Depending on the achievement of the performance measures associated with our 2019-2021 performance period, executives will receive
from 0% to 200% of the target awards in February 2022. We also will pay dividend equivalents in cash on the number of shares actually
vested for the performance period. The dividend equivalents will be paid in 2022 at the same time as the performance share awards are
settled.
Nonqualified Defined Contribution Plan
The CEO recommends participants and contribution amounts to the Nonqualified Defined Contribution Plan which are approved by the
compensation committee of the board of directors. The purpose of the plan is to recognize outstanding performance coupled with enhanced
retention as the Nonqualified Defined Contribution Plan requires a vesting period. The amount shown in column (i) - All Other
Compensation of the Summary Compensation Table includes contributions of $40,000 to Mr. Vollmer, $150,000 to Mr. Barney, and
$100,000 to Mr. Thiede. For further information, see the section entitled “Nonqualified Deferred Compensation for 2019.”
Salary and Bonus in Proportion to Total Compensation
The following table shows the proportion of salary and bonus to total compensation:
Name
Salary
($)
Bonus
($)
Total
Compensation
($)
Salary and Bonus
as a % of
Total Compensation
David L. Goodin 860,000 —6,144,355 14.0%
Jason L. Vollmer 400,000 —1,589,981 25.2%
David C. Barney 468,500 —2,426,077 19.3%
Jeffrey S. Thiede 468,500 —2,201,940 21.3%
Nicole A. Kivisto 455,000 —1,972,052 23.1%
Proxy Statement
52 MDU Resources Group, Inc. Proxy Statement
Outstanding Equity Awards at Fiscal Year-End 2019
Stock Awards
Name
(a)
Equity Incentive Plan Awards:
Number of Unearned Shares, Units
or Other Rights That Have Not
Vested
(#)
(i)1
Equity Incentive Plan Awards:
Market or Payout Value of
Unearned Shares, Units or Other
Rights That Have Not Vested
($)
(j)2
David L. Goodin 416,422 12,371,898
Jason L. Vollmer 75,408 2,240,372
David C. Barney 114,491 3,401,528
Jeffrey S. Thiede 114,823 3,411,391
Nicole A. Kivisto 99,254 2,948,836
1 Below is a breakdown by year of the outstanding performance share plan awards:
2017 Award 2018 Award 2019 Award
TotalPerformance Period End 12/31/2019 12/31/2020 12/31/2021
David L. Goodin 61,890 156,920 197,612 416,422
Jason L. Vollmer 3,912 31,974 39,522 75,408
David C. Barney 13,338 52,987 48,166 114,491
Jeffrey S. Thiede 13,670 52,987 48,166 114,823
Nicole A. Kivisto 11,804 39,284 48,166 99,254
Shares for the 2017 award are shown at the target level (100%) based on results for the 2017-2019 performance cycle between threshold
and target.
Shares for the 2018 award are shown at the maximum level (200%) based on results for the first two years of the 2018-2020 performance
cycle above target. The number of shares under the 2018 award also includes 11,419 time-vesting restricted stock units granted to
Messrs. Barney and Thiede.
Shares for the 2019 award are shown at the maximum level (200%) based on results for the first year of the 2019-2021 performance cycle
above target.
2 Value based on the number of performance shares and restricted stock units reflected in column (i) multiplied by $29.71, the year-end per share closing
stock price for 2019.
While for purposes of the Outstanding Equity Awards at Fiscal Year-End 2019 Table, the number of shares and value shown for the
2017-2019 performance cycle is at 100% of target, the actual results for the performance period certified by the compensation committee
and settled on February 13, 2020, was 23% of target. For further information, see the “Long-Term Incentives” section of the
“Compensation Discussion and Analysis.”
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 53
Option Exercises and Stock Vested During 2019
Stock Awards
Name
(a)
Number of Shares
Acquired on Vesting
(#)
(d)1
Value Realized
on Vesting
($)
(e)2
David L. Goodin 138,269 3,951,037
Jason L. Vollmer 6,673 190,681
David C. Barney 26,488 756,895
Jeffrey S. Thiede 27,673 790,756
Nicole A. Kivisto 23,441 669,827
1 Reflects performance shares for the 2016-2018 performance period ended December 31, 2018, which were settled February 14, 2019.
2 Reflects the value of vested performance shares based on the closing stock price of $26.25 per share on February 14, 2019, and the dividend
equivalents paid on the vested shares.
Proxy Statement
54 MDU Resources Group, Inc. Proxy Statement
Pension Benefits for 2019
Name
(a)
Plan Name
(b)
Number of Years
Credited Service
(#)
(c)1
Present Value of
Accumulated Benefit
($)
(d)
David L. Goodin Pension 26 1,372,606
Basic SISP 2 10 2,836,360
Excess SISP 3 26 42,331
Jason L. Vollmer Pension 4 29,312
Basic SISP 3 n/a —
Excess SISP 3 n/a —
David C. Barney Pension 3 n/a —
Basic SISP 2 10 1,623,404
Excess SISP 3 n/a —
Jeffrey S. Thiede Pension 3 n/a —
Basic SISP 3 n/a —
Excess SISP 3 n/a —
Nicole A. Kivisto Pension 14 302,478
Basic SISP 2 9 586,981
Excess SISP 3 n/a —
1 Years of credited service related to the pension plan reflects the years of participation in the plan as of December 31, 2009, when the pension plan was
frozen. Years of credited service related to the Basic SISP reflects the years toward full vesting of the benefit which is 10 years. Years of credited service
related to Excess SISP reflects the same number of credited years of services as the pension plan.
2 The present value of accumulated benefits for the Basic SISP assumes the named executive officer would be fully vested in the benefit on the benefit
commencement date; therefore, no reduction was made to reflect actual vesting levels.
3 Messrs. Barney and Thiede are not eligible to participate in the pension plans. Messrs. Vollmer and Thiede do not participate in the SISP. Mr. Goodin is the
only named executive officer eligible to participate in the Excess SISP.
The amounts shown for the pension plan, Basic SISP, and Excess SISP represent the actuarial present values of the executives’
accumulated benefits accrued as of December 31, 2019, calculated using:
•a 2.71% discount rate for the Basic SISP and Excess SISP;
•a 2.93% discount rate for the pension plan;
•the Society of Actuaries PRi-2012 Total Dataset Mortality with Scale MP-2019 (post commencement only); and
•no recognition of future salary increases or pre-retirement mortality.
The actuary assumed a retirement age of 60 for the pension, Basic SISP, and Excess SISP benefits and assumed retirement benefits
commence at age 60 for the pension and Excess SISP and age 65 for Basic SISP benefits.
Pension Plan
The MDU Resources Group, Inc. Pension Plan for Non-Bargaining Unit Employees (pension plan) applies to employees hired before 2006
and was amended to cease benefit accruals as of December 31, 2009. The benefits under the pension plan are based on a participant’s
average annual salary over the 60 consecutive month period where the participant received the highest annual salary between 1999 and
2009. Benefits are paid as straight life annuities for single participants and as actuarially reduced annuities with a survivor benefit for
married participants unless they choose otherwise.
Supplemental Income Security Plan
The Supplemental Income Security Plan (SISP), a nonqualified defined benefit retirement plan, is offered to select key managers and
executives. SISP benefits are determined by reference to levels defined within the plan. Our compensation committee, after receiving
recommendations from our CEO, determined each participant’s level within the plan. On February 11, 2016, the SISP was amended to
exclude new participants to the plan and freeze current benefit levels for existing participants.
Basic SISP Benefits
Basic SISP is a supplemental retirement benefit intended to augment the retirement income provided under the pension plans. The Basic
SISP benefits are subject to the following ten-year vesting schedule:
•0% vesting for less than three years of participation;
•20% vesting for three years of participation;
•40% vesting for four years of participation; and
•an additional 10% vesting for each additional year of participation up to 100% vesting for ten years of participation.
Participants can elect to receive the Basic SISP as:
•monthly retirement benefits only;
•monthly death benefits paid to a beneficiary only; or
•a combination of retirement and death benefits, where each benefit is reduced proportionately.
Regardless of the election, if the participant dies before the SISP retirement benefit commences, only the SISP death benefit is provided.
Excess SISP Benefits
Excess SISP is an additional retirement benefit relating to Internal Revenue Code limitations on retirement benefits provided under the
pension plans. Excess SISP benefits are equal to the difference between the monthly retirement benefits that would have been payable to
the participant under the pension plans absent the limitations under the Internal Revenue Code and the actual benefits payable to the
participant under the pension plans. Participants are only eligible for the Excess SISP benefits if the participant is fully vested under the
pension plan, their employment terminates prior to age 65, and benefits under the pension plan are reduced due to limitations under the
Internal Revenue Code on plan compensation.
In 2009, the SISP was amended to limit eligibility for the Excess SISP benefit. Mr. Goodin is the only named executive officer eligible for
the Excess SISP benefit and must remain employed with the company until age 60 in order to receive the benefit. Benefits generally
commence six months after the participant’s employment terminates and continue to age 65 or until the death of the participant, if prior to
age 65.
Both Basic and Excess SISP benefits are forfeited if the participant’s employment is terminated for cause.
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 55
Nonqualified Deferred Compensation for 2019
Deferred Annual Incentive Compensation
Executives participating in the annual incentive compensation plans may elect to defer up to 100% of their annual incentive awards.
Deferred amounts accrue interest at a rate determined by the compensation committee. The interest rate in effect for 2019 was 4.4% based
on an average of the Moody’s U.S. Long-Term Corporate Bond Yield Average for “A” and “Baa” rated companies. The deferred amount will
be paid in accordance with the participant’s election, following termination of employment or beginning in the fifth year following the year
the award was earned. The amounts are paid in accordance with the participant’s election in either a lump sum or in monthly installments
not to exceed 120 months. In the event of a change of control, all amounts deferred would immediately become payable. For purposes of
deferred annual incentive compensation, a change of control is defined as:
•an acquisition during a 12-month period of 30% or more of the total voting power of our stock;
•an acquisition of our stock that, together with stock already held by the acquirer, constitutes more than 50% of the total fair market value
or total voting power of our stock;
•replacement of a majority of the members of our board of directors during any 12-month period by directors whose appointment or
election is not endorsed by a majority of the members of our board of directors; or
•acquisition of our assets having a gross fair market value at least equal to 40% of the gross fair market value of all of our assets.
Nonqualified Defined Contribution Plan
The company adopted the Nonqualified Defined Contribution Plan, effective January 1, 2012, to provide deferred compensation for a select
group of employees. The compensation committee approves the amount of employer contributions under the Nonqualified Defined
Contribution Plan and the obligations under the plan constitute an unsecured promise of the company to make such payments. The
company credits contributions to plan accounts which capture the hypothetical investment experience based on the participant’s elections.
Contributions made prior to 2017 vest four years after each contribution in accordance with the terms of the plan. Contributions made in
and after 2017 vest rateably over a three-year period with one-third vesting after the first year, an additional one-third after the second year,
and the final one-third after the third year. Amounts shown as aggregate earnings in the table below for Messrs. Vollmer, Barney, and Thiede
reflect the change in investment value at market rates for the hypothetical investments selected by the participants. Participants may elect
to receive their vested contributions and investment earnings either in a lump sum upon separation from service with the company or in
annual installments over a period of years upon the later of (i) separation from service and (ii) age 65. Plan benefits become fully vested if
the participant dies while actively employed. Benefits are forfeited if the participant’s employment is terminated for cause.
The table below includes individual contributions from deferrals of annual incentive compensation and company contributions under the
Nonqualified Defined Contribution Plan:
Name
(a)
Executive
Contributions in
Last FY
($)
(b)
Registrant
Contributions in
Last FY
($)
(c)
Aggregate
Earnings in
Last FY
($)
(d)
Aggregate
Withdrawals/
Distributions
($)
(e)
Aggregate
Balance at
Last FYE
($)
(f)
David L. Goodin 403,986 —82,592 —1,985,235 1
Jason L. Vollmer —40,000 27,426 —123,675 2
David C. Barney —150,000 91,195 —544,980 3
Jeffrey S. Thiede —100,000 157,271 —884,439 4
Nicole A. Kivisto ——794 —18,479
1 Mr. Goodin deferred 50% of his 2018 annual incentive compensation which was $807,971 as reported in the Summary Compensation Table for 2018.
2 Mr. Vollmer received $40,000 under the Nonqualified Defined Contribution Plan for 2019. Mr. Vollmer’s balance also includes a contribution of $35,000
for 2018 and $22,550 for 2017. Each of these amounts are reported in column (i) of the Summary Compensation Table for its respective year, where
applicable.
3 Mr. Barney received $150,000 under the Nonqualified Defined Contribution Plan for 2019. Mr. Barney’s balance also includes a contribution of
$150,000 for each of 2018 and 2017. Each of these amounts are reported in column (i) of the Summary Compensation Table for its respective year.
4 Mr. Thiede received $100,000 under the Nonqualified Defined Contribution Plan for 2019. Mr. Thiede’s balance also includes contributions of $100,000
for each of 2018, 2017, and 2016, $150,000 for 2015, $75,000 for 2014, and $33,000 for 2013. Each of these amounts was reported in column (i)
of the Summary Compensation Table in the Proxy Statement for its respective year, where applicable.
Proxy Statement
56 MDU Resources Group, Inc. Proxy Statement
Potential Payments upon Termination or Change of Control
The Potential Payments upon Termination or Change of Control Table shows the payments and benefits our named executive officers would
receive in connection with a variety of employment termination scenarios or upon a change of control. The scenarios include:
•Voluntary Termination;
•Not for Cause Termination;
•Death;
•Disability;
•Change of Control with Termination; and
•Change of Control without Termination.
For the named executive officers, the information assumes the terminations or the change of control occurred on December 31, 2019.
The table excludes compensation and benefits our named executive officers would earn during their employment with us whether or not a
termination or change of control event had occurred. The tables also do not include benefits under plans or arrangements generally available
to all salaried employees and that do not discriminate in favor of the named executive officers, such as benefits under our qualified defined
benefit pension plan (for employees hired before 2006), accrued vacation pay, continuation of health care benefits, and life insurance
benefits. The tables also do not include Nonqualified Defined Contribution Plan or deferred annual compensation amounts which are shown
and explained in the Nonqualified Deferred Compensation for 2019 Table.
Compensation
None of our named executive officers have employment or severance agreements entitling them to their base salary, some multiple of base
salary or severance upon termination or change of control. Our compensation committee generally considers providing severance benefits on
a case-by-case basis. Because severance payments are discretionary, no amounts are presented in the tables.
All our named executive officers were granted their 2019 annual incentive award under the Executive Incentive Compensation Plan (EICP)
which has no change of control provision in regards to annual incentive compensation other than for deferred compensation. The EICP
requires participants to remain employed with the company through the service year to be eligible for a payout unless otherwise determined
by the compensation committee for named executive officers or employment termination after age 65. As all our scenarios assume a
termination or change in control event on December 31st, the named executives officers would be considered employed for the entire
performance period; therefore, no amounts are shown for annual incentives in the tables for our named executive officers, as they would be
eligible to receive their annual incentive award based on the level that performance measures were achieved for the performance period
regardless of termination or change of control occurring on December 31, 2019.
All named executive officers received their performance share awards under the Long-Term Performance-Based Incentive Plan (LTIP). Upon
a change of control (with or without termination), performance share awards would be deemed fully earned and vest at their target levels for
the named executive officers. For this purpose, the term “change of control” is defined in the LTIP as:
•the acquisition by an individual, entity, or group of 20% or more of our outstanding common stock;
•a majority of our board of directors whose election or nomination was not approved by a majority of the incumbent board members;
•consummation of a merger or similar transaction or sale of all or substantially all of our assets, unless our stockholders immediately prior
to the transaction beneficially own more than 60% of the outstanding common stock and voting power of the resulting corporation in
substantially the same proportions as before the merger, no person owns 20% or more of the resulting corporation’s outstanding common
stock or voting power except for any such ownership that existed before the merger and at least a majority of the board of the resulting
corporation is comprised of our directors; or
•stockholder approval of our liquidation or dissolution.
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 57
For termination scenarios other than a change of control, our award agreements provide that performance share awards are forfeited if the
participant’s employment terminates before the participant has reached age 55 and completed 10 years of service. If a participant’s
employment is terminated other than for cause after reaching age 55 and completing 10 years of service, performance shares are prorated
as follows:
•termination of employment during the first year of the performance period = shares are forfeited;
•termination of employment during the second year of the performance period = performance shares earned are prorated based on the
number of months employed during the performance period; and
•termination of employment during the third year of the performance period = full amount of any performance shares earned are received.
Under the termination scenarios, Messrs. Goodin, Barney, and Thiede would receive performance shares as they have each reached age 55
and have 10 or more years of service. The number of performance shares received would be based on the following:
•2017-2019 performance shares would vest based on the achievement of the performance measure for the period ended December 31,
2019, which was 23%;
•2018-2020 performance shares would be prorated at 24 out of 36 months (2/3) of the performance period and vest based on the actual
achievement of the performance measure for the period ended December 31, 2020. For purposes of the Potential Payments upon
Termination or Change of Control Table, the vesting is shown at 100%; and
•2019-2021 performance shares would be forfeited.
For purposes of calculating the performance share value shown in the Potential Payments upon Termination or Change of Control Table, the
number of vesting shares was multiplied by the average of the high and low stock price for the last market day of the year, which was
December 31, 2019. Dividend equivalents based on the number of vesting shares are also included in the amounts presented.
Neither Ms. Kivisto nor Mr. Vollmer have reached age 55; therefore, they are not eligible for vesting of performance shares in the event of
their termination.
Messrs. Barney and Thiede were granted 11,419 restricted stock units in February 2018. The restricted stock units will vest on
December 31, 2020, provided that Messrs. Barney and Thiede remain continuously employed by the company through December 31, 2020,
except for termination due to death or disability or a change in control as defined in the LTIP. In the case of a voluntary or not for cause
termination on December 31, 2019, Messrs Barney and Thiede would forfeit the restricted stock units. In the case of death or disability, the
restricted stock units would vest based on the number of full months of employment completed during the grant period to the date of death
or disability divided by the total number of months in the grant period. In the case of death or disability occurring on December 31, 2019,
two-thirds of Messrs. Barney and Thiede’s restricted stock units plus dividend equivalents would vest. In the case of a change of control
(with or without termination) occurring on December 31, 2019, the restricted stock units plus dividend equivalents would fully vest.
Benefits and Perquisites
Supplemental Income Security Plan
As described in the “Pension Benefits for 2019” section, the Basic SISP provides a benefit of payments commencing at the latter of
retirement or age 65 and payable for 15 years. Of the named executive officers, only Messrs. Goodin, Barney, and Ms. Kivisto participate in
the Basic SISP benefits. While Messrs. Goodin and Barney are 100% vested in their SISP benefit, Ms. Kivisto entered the plan in 2011 and
is only 90% vested in her SISP benefit at December 31, 2019. Ms. Kivisto received a benefit level upgrade in 2014, which cliff vests on
January 1, 2021. This means that if her employment terminates for any reason other than death before January 1, 2021, her benefit
upgrade is forfeited.
Under all scenarios except death and change of control without termination, the payment represents the present value of the vested Basic
SISP benefit as of December 31, 2019, using the monthly retirement benefit shown in the table below and a discount rate of 2.71%. In the
event of death, Messrs. Goodin, Barney, and Ms. Kivisto’s beneficiaries would receive monthly death benefit payments for 15 years. The
Potential Payments upon Termination or Change of Control Table shows the present value calculations of the monthly death benefit using
the 2.71% discount rate.
Proxy Statement
58 MDU Resources Group, Inc. Proxy Statement
Monthly SISP Retirement Payment($)Monthly SISP Death Payment($)
David L. Goodin 23,040 46,080
David C. Barney 10,936 21,872
Nicole A. Kivisto 5,000 *10,000 *
*Ms. Kivisto’s calculations are based on 90% of the value shown above for voluntary, not for cause and change
of control with termination scenarios. The disability scenario allows for two additional years of vesting and is
calculated using 100% of the value shown above. Ms. Kivisto’s death benefit scenario is calculated using her
2014 benefit upgrade level with a monthly death benefit of $13,144.
Because the plan requires a participant to be no longer actively employed by the company in order to be eligible for payments, we do not
show benefits for the change of control without termination scenario.
Disability
We provide disability benefits to some of our salaried employees equal to 60% of their base salary, subject to a salary limit of $200,000 for
officers and $100,000 for other salaried employees when calculating benefits. For all eligible employees, disability payments continue until
age 65 if disability occurs at or before age 60 and for five years if disability occurs between the ages of 60 and 65. Disability benefits are
reduced for amounts paid as retirement benefits. The disability payments in the Potential Payments upon Termination or Change of Control
Table reflect the present value of the disability benefits attributable to the additional $100,000 of base salary recognized for executives
under our disability program, subject to the 60% limitation, after reduction for amounts that would be paid as retirement benefits. For
Messrs. Goodin and Vollmer and Ms. Kivisto, who participate in the pension plan, the amount represents the present value of the disability
benefit after reduction for retirement benefits using a discount rate of 2.93%. Because Mr. Goodin’s retirement benefit is greater than the
disability benefit, the amount shown is zero. For Messrs. Barney and Thiede, who do not participate in the pension plan, the amount
represents the present value of the disability benefit without reduction for retirement benefits using the discount rate of 2.71%, which is
considered a reasonable rate for purposes of the calculation.
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 59
Potential Payments upon Termination or Change of Control Table
Executive Benefits and Payments upon
Termination or Change of Control
Voluntary
Termination
($)
Not for
Cause
Termination
($)
Death
($)
Disability
($)
Change of
Control
(With
Termination)
($)
Change of
Control
(Without
Termination)
($)
David L. Goodin
Compensation:
Performance Shares 2,090,438 2,090,438 2,090,438 2,090,438 7,443,039 7,443,039
Benefits and Perquisites:
Basic SISP 2,836,089 2,836,089 —2,836,089 2,836,089 —
SISP Death Benefits ——6,824,695 ———
Disability Benefits ——————
Total 4,926,527 4,926,527 8,915,133 4,926,527 10,279,128 7,443,039
Jason L. Vollmer
Compensation:
Performance Shares ————1,226,697 1,226,697
Benefits and Perquisites:
Disability Benefits ———965,329 ——
Total ———965,329 1,226,697 1,226,697
David C. Barney
Compensation:
Performance Shares 531,221 531,221 531,221 531,221 1,810,097 1,810,097
Restricted Stock Units ——237,875 237,875 356,844 356,844
Benefits and Perquisites:
Basic SISP 1,608,756 1,608,756 —1,608,756 1,608,756 —
SISP Death Benefits ——3,239,360 ———
Disability Benefits ———280,900 ——
Total 2,139,977 2,139,977 4,008,456 2,658,752 3,775,697 2,166,941
Jeffrey S. Thiede
Compensation:
Performance Shares 533,687 533,687 533,687 533,687 1,820,730 1,820,730
Restricted Stock Units ——237,875 237,875 356,844 356,844
Benefits and Perquisites:
Disability Benefits ———387,175 ——
Total 533,687 533,687 771,562 1,158,737 2,177,574 2,177,574
Nicole A. Kivisto
Compensation:
Performance Shares ————1,709,044 1,709,044
Benefits and Perquisites:
Basic SISP 402,102 402,102 —446,780 402,102 —
SISP Death Benefits ——1,946,697 ———
Disability Benefits ———740,621 ——
Total 402,102 402,102 1,946,697 1,187,401 2,111,146 1,709,044
Proxy Statement
60 MDU Resources Group, Inc. Proxy Statement
CEO Pay Ratio Disclosure
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S-K, we
are providing information regarding the relationship of the annual total compensation of David L. Goodin, our president and chief executive
officer, to the annual total compensation of our median employee.
Our employee workforce fluctuates during the year largely depending on the seasonality, number, and size of construction project activity
conducted by our businesses. Approximately 51% of our employee workforce is employed under union bargained labor contracts which
define compensation and benefits for participants which may include payments made by the company associated with employee
participation in union benefit and pension plans.
We identified the median employee by examining the 2019 taxable wage information for all individuals on the company’s payroll records as
of December 31, 2019, excluding Mr. Goodin. All of the company’s employees are located in the United States. We made no adjustments to
annualize compensation for individuals employed for only part of the year. We selected taxable wages as reported to the Internal Revenue
Service on Form W-2 for 2019 to identify the median employee as it includes substantially all of the compensation for our median employee
and provided a reasonably efficient and cost-effective manner for the identification of the median employee. Our median employee is a
member of a union and works for a subsidiary of our construction services segment; he does not participate in our pension or 401(k) plan.
Once identified, we categorized the median employee’s compensation to correspond to the compensation components as reported in the
Summary Compensation Table. For 2019, the total annual compensation of Mr. Goodin as reported in the Summary Compensation Table
included in this Proxy Statement was $6,144,355, and the total annual compensation of our median employee was $63,768. Based on this
information, the 2019 ratio of annual total compensation of Mr. Goodin to the median employee was 96 to 1.
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 61
AUDIT MATTERS
Proxy Statement
62 MDU Resources Group, Inc. Proxy Statement
ITEM 3: RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY’S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2020
The audit committee at its February 2020 meeting appointed Deloitte & Touche LLP as our independent registered public accounting firm
for fiscal year 2020. The board of directors concurred with the audit committee’s decision. Deloitte & Touche LLP has served as our
independent registered public accounting firm since fiscal year 2002.
Although your ratification vote will not affect the appointment or retention of Deloitte & Touche LLP for 2020, the audit committee will
consider your vote in determining its appointment of our independent registered public accounting firm for the next fiscal year. The audit
committee, in appointing our independent registered public accounting firm, reserves the right, in its sole discretion, to change an
appointment at any time during a fiscal year if it determines that such a change would be in our best interests.
A representative of Deloitte & Touche LLP will be present at the annual meeting and will be available to respond to appropriate questions.
We do not anticipate that the representative will make a prepared statement at the annual meeting; however, he or she will be free to do so
if he or she chooses.
The board of directors recommends a vote “for” the ratification of the
appointment of Deloitte & Touche LLP as our independent registered
public accounting firm for fiscal year 2020.
Ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2020 requires the
affirmative vote of a majority of our common stock present in person or represented by proxy at the annual meeting and entitled to vote on
the proposal. Abstentions will count as votes against this proposal.
Annual Evaluation and Selection of Deloitte & Touche LLP
The audit committee annually evaluates the performance of its independent registered public accounting firm, including the senior audit
engagement team, and determines whether to re-engage the current independent accounting firm or consider other firms. Factors
considered by the audit committee in deciding whether to retain the current independent accounting firm include:
•Deloitte & Touche LLP’s capabilities considering the complexity of our business and the resulting demands placed on Deloitte & Touche
LLP in terms of technical expertise and knowledge of our industry and business;
•the quality and candor of Deloitte & Touche LLP’s communications with the audit committee and management;
•Deloitte & Touche LLP’s independence;
•the quality and efficiency of the services provided by Deloitte & Touche LLP, including input from management on Deloitte & Touche
LLP’s performance and how effectively Deloitte & Touche LLP demonstrated its independent judgment, objectivity, and professional
skepticism;
•external data on audit quality and performance, including recent Public Company Accounting Oversight Board reports on Deloitte &
Touche LLP and its peer firms; and
•the appropriateness of Deloitte & Touche LLP’s fees, tenure as our independent auditor, including the benefits of a longer tenure, and the
controls and processes in place that help ensure Deloitte & Touche LLP’s continued independence.
Based on this evaluation, the audit committee and the board believe that retaining Deloitte & Touche LLP to serve as our independent
registered public accounting firm for the fiscal year ending December 31, 2020, is in the best interests of our company and its
stockholders.
In accordance with rules applicable to mandatory partner rotation, Deloitte & Touche LLP’s lead engagement partner for our audit was
changed in 2017. The audit committee oversees the process for, and ultimately approves, the selection of the lead engagement partner.
Audit Fees and Non-Audit Fees
The following table summarizes the aggregate fees that our independent registered public accounting firm, Deloitte & Touche LLP, billed or
is expected to bill us for professional services rendered for 2019 and 2018:
2019 2018
Audit Fees 1 $2,919,950 $2,657,405
Audit-Related Fees ——
Tax Fees ——
All Other Fees 2 5,000 3,150
Total Fees 3 $2,924,950 $2,660,555
Ratio of Tax and All Other Fees to Audit and Audit-Related Fees 0.2 %0.1 %
1 Audit fees for 2019 and 2018 consisted of fees for the annual audit of our consolidated financial statements and internal control over financial reporting,
statutory and regulatory audits, reviews of quarterly financial statements, comfort letters in connection with securities offerings, and other filings with the
SEC.
2 All other fees relate to training.
3 Total fees reported above include out-of-pocket expenses related to the services provided of $310,000 for 2019 and $330,000 for 2018.
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 63
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of the Independent
Registered Public Accounting Firm
The audit committee pre-approved all services Deloitte & Touche LLP performed in 2019 in accordance with the pre-approval policy and
procedures the audit committee adopted in 2003. This policy is designed to achieve the continued independence of Deloitte & Touche LLP
and to assist in our compliance with Sections 201 and 202 of the Sarbanes-Oxley Act of 2002 and related rules of the SEC.
The policy defines the permitted services in each of the audit, audit-related, tax, and all other services categories, as well as prohibited
services. The pre-approval policy requires management to submit annually for approval to the audit committee a service plan describing the
scope of work and anticipated cost associated with each category of service. At each regular audit committee meeting, management reports
on services performed by Deloitte & Touche LLP and the fees paid or accrued through the end of the quarter preceding the meeting.
Management may submit requests for additional permitted services before the next scheduled audit committee meeting to the designated
member of the audit committee, currently David M. Sparby, for approval. The designated member updates the audit committee at the next
regularly scheduled meeting regarding any services approved during the interim period. At each regular audit committee meeting,
management may submit to the audit committee for approval a supplement to the service plan containing any request for additional
permitted services.
In addition, prior to approving any request for audit-related, tax, or all other services of more than $50,000, Deloitte & Touche LLP will
provide a statement setting forth the reasons why rendering of the proposed services does not compromise Deloitte & Touche LLP’s
independence. This description and statement by Deloitte & Touche LLP may be incorporated into the service plan or included as an exhibit
thereto or may be delivered in a separate written statement.
AUDIT COMMITTEE REPORT
The audit committee assists the board in fulfilling its oversight responsibilities and serves as a communication link among the board,
management, the independent auditors, and the internal auditors. The audit committee (a) assists the board’s oversight of (i) the integrity of
the company’s financial reporting process and system of internal controls, (ii) the company’s compliance with legal and regulatory
requirements and the code of conduct, (iii) the independent auditors’ qualifications and independence, (iv) the performance of the
company’s internal audit function and independent auditors, and (v) the company’s management of risks in the audit committee’s areas of
responsibility; (b) arranges for the preparation of and approves the report that SEC rules require be included in the company’s annual proxy
statement; (c) is also responsible for the appointment, compensation, retention, and oversight of the independent auditors including pre-
approval of all audit and non-audit services by the independent auditors. The audit committee acts under a written charter which it reviews
at least annually and a copy of which is available on our website.
Management has primary responsibility for the company’s financial statements and the reporting process, including the systems of internal
control over financial reporting. The independent auditors are responsible for performing an independent audit of the company’s
consolidated financial statements, issuing an opinion on the conformity of those audited financial statements with generally accepted
accounting principles, and assessing the effectiveness of the company’s internal controls over financial reporting. The audit committee
oversees the company’s financial reporting process and internal controls on behalf of the board.
In performing its oversight responsibilities in connection with our financial statements for the year ended December 31, 2019, the audit
committee:
•reviewed and discussed the audited financial statements with management;
•discussed with the independent auditors the matters required to be discussed by the applicable requirements of the Public Company
Accounting Oversight Board and the SEC;
•received the written disclosures and the letter from the independent auditors required by applicable requirements of the Public Company
Accounting Oversight Board regarding the independent auditors’ communications with the audit committee concerning independence,
and discussed with the independent auditors their independence; and
•reviewed and pre-approved the services provided by the independent auditors other than their audit services and considered whether the
provision of such other services by our independent auditors is compatible with maintaining their independence.
Based on the review and discussions referred to above, the audit committee recommended to the board of directors, and the board of
directors has approved, that the audited financial statements be included in our Annual Report on Form 10-K for the year ended
December 31, 2019, for filing with the SEC. The audit committee has appointed Deloitte & Touche LLP as the company’s independent
auditors for 2020. Stockholder ratifications of this appointment is included as Item 3 in these proxy materials.
David M. Sparby, Chair
Mark A. Hellerstein
Edward A. Ryan
Chenxi Wang
Proxy Statement
64 MDU Resources Group, Inc. Proxy Statement
INFORMATION ABOUT THE ANNUAL MEETING
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 65
Who Can Vote?Stockholders of record at the close of business on March 13, 2020, are entitled to vote each share they owned
on that date on each matter presented at the meeting and any adjournment(s) thereof. As of March 13, 2020,
we had 200,522,277 shares of common stock outstanding entitled to one vote per share.
Distribution of Our
Proxy Materials Using
Notice and Access
We distributed proxy materials to certain of our stockholders via the Internet under the SEC’s “Notice and
Access” rules to reduce our costs and decrease the environmental impact of our proxy materials. Using this
method of distribution, on or about March 27, 2020, we mailed a Notice Regarding the Availability of Proxy
Materials (Notice) that contains basic information about our 2020 annual meeting and instructions on how to
view all proxy materials, and vote electronically, on the Internet. If you received the Notice and prefer to receive
a paper copy of the proxy materials, follow the instructions in the Notice for making this request and the
materials will be sent promptly to you via the preferred method. Stockholders who do not receive the Notice will
receive a paper copy of our proxy materials which will be sent on or about April 2, 2020.
How to Vote You are encouraged to vote in advance of the meeting using one of the following voting methods, even if you are
planning to attend the 2020 Annual Meeting of Stockholders.
Registered Stockholders: Stockholders of record who hold their shares directly with our stock registrar can vote
any one of four ways:
Via the Internet: Go to the website shown on the Notice or Proxy Card, if you received one, and follow the
instructions.
By Telephone: Call the telephone number shown on the Notice or Proxy Card, if you received one, and follow
the instructions given by the voice prompts.
Voting via the Internet or by telephone authorizes the named proxies to vote your shares in the same manner
as if you marked, signed, dated, and returned a Proxy Card by mail. Your voting instructions may be
transmitted up until 11:59 p.m. Eastern Time on May 11, 2020.
By Mail: If you received paper copies of the Proxy Statement, Annual Report, and Proxy Card, mark, sign,
date, and return the Proxy Card in the postage-paid envelope provided.
In Person: Attend the annual meeting, or send a personal representative with an appropriate proxy, to vote
by ballot at the meeting.
Beneficial Stockholders: Stockholders whose shares are held beneficially in the name of a bank, broker, or other
holder of record (sometimes referred to as holding shares “in street name”), will receive voting instructions from
said bank, broker, or other holder of record. If you wish to vote in person at the meeting, you must obtain a legal
proxy from your bank, broker, or other holder of record of your shares and present it at the meeting.
See discussion below regarding the MDU Resources Group, Inc. 401(k) Plan for voting instructions for shares held
under our 401(k) plan.
Revoking Your Proxy
or Changing Your
Vote
You may change your vote at any time before the proxy is exercised.
Registered Stockholders:
●If you voted by mail: you may revoke your proxy by executing and delivering a timely and valid later dated proxy,
by voting by ballot at the meeting, or by giving written notice of revocation to the corporate secretary.
●If you voted via the Internet or by telephone: you may change your vote with a timely and valid later Internet
or telephone vote, as the case may be, or by voting by ballot at the meeting.
●Attendance at the meeting will not have the effect of revoking a proxy unless (1) you give proper written notice
of revocation to the corporate secretary before the proxy is exercised, or (2) you vote by ballot at the meeting.
Beneficial Stockholders: Follow the specific directions provided by your bank, broker, or other holder of record to
change or revoke any voting instructions you have already provided. Alternatively, you may vote your shares by ballot
at the meeting if you obtain a legal proxy from your bank, broker, or other holder of record and present it at the
meeting.
Discretionary Voting
Authority
If you complete and submit your proxy voting instructions, the individuals named as proxies will follow your
instructions. If you are a stockholder of record and you submit proxy voting instructions but do not direct how to
vote on each item, the individuals named as proxies will vote as the board recommends on each proposal. The
individuals named as proxies will vote on any other matters properly presented at the annual meeting in
accordance with their discretion. Our bylaws set forth requirements for advance notice of any nominations or
agenda items to be brought up for voting at the annual meeting, and we have not received timely notice of any
such matters, other than the items from the board of directors described in this Proxy Statement.
Voting Standards A majority of outstanding shares of stock entitled to vote must be present in person or represented by proxy to
hold the meeting. Abstentions and broker non-votes are counted for purposes of determining whether a quorum
is present at the annual meeting.
If you are a beneficial holder and do not provide specific voting instruction to your broker, the organization that
holds your shares will not be authorized to vote your shares, which would result in broker non-votes, on proposals
other than the ratification of the selection of our independent registered public accounting firm for 2020.
The following chart describes the proposals to be considered at the annual meeting, the vote required to elect
directors and to adopt each other proposal, and the manner in which votes will be counted:
Item
No.Proposal
Voting
Options Vote Required to Adopt the Proposal
Effect of
Abstentions
Effect of “Broker
Non-Votes”
1 Election of Directors For,
against,
or abstain
on each
nominee
A nominee for director will be
elected if the votes cast for such
nominee exceed the votes cast
against such nominee.
No effect No effect
2 Advisory Vote to Approve
the Compensation Paid
to the Company’s Named
Executive Officers
For,
against,
or abstain
The affirmative vote of a majority
of the shares of common stock
represented at the annual meeting
and entitled to vote thereon
Same
effect as
votes
against
No effect
3 Ratification of the
Appointment of Deloitte
& Touche LLP as the
Company’s Independent
Registered Public
Accounting Firm for
2020
For,
against,
or abstain
The affirmative vote of a majority
of the shares of common stock
represented at the annual meeting
and entitled to vote thereon
Same
effect as
votes
against
Brokers have
discretion to
vote
Proxy Solicitation The board of directors is furnishing proxy materials to solicit proxies for use at the Annual Meeting of
Stockholders on May 12, 2020, and any adjournment(s) thereof. Proxies are solicited principally by mail, but
directors, officers, and employees of MDU Resources Group, Inc. or its subsidiaries may solicit proxies
personally, by telephone, or by electronic media, without compensation other than their regular compensation.
Okapi Partners, LLC additionally will solicit proxies for approximately $8,500 plus out-of-pocket expenses. We
will pay the cost of soliciting proxies and will reimburse brokers and others for forwarding proxy materials to
stockholders.
Proxy Statement
66 MDU Resources Group, Inc. Proxy Statement
Electronic Delivery
of Proxy Statement
and Annual Report
Documents
For stockholders receiving proxy materials by mail, you can elect to receive an email in the future that will
provide electronic links to these documents. Opting to receive your proxy materials online will save the company
the cost of producing and mailing documents to your home or business and will also give you an electronic link
to the proxy voting site.
●Registered Stockholders: If you vote on the Internet, simply follow the prompts for enrolling in the electronic
proxy delivery service. You may also enroll in the electronic proxy delivery service at any time in the future by
going directly to http://enroll.icsdelivery.com/mdu to request electronic delivery. You may revoke an electronic
delivery election at this site at any time.
●Beneficial Stockholders: If you hold your shares in a brokerage account, you may also have the opportunity to
receive copies of the proxy materials electronically. You may enroll in the electronic proxy delivery service at
any time by going directly to http://enroll.icsdelivery.com/mdu to request electronic delivery. You may also
revoke an electronic delivery election at this site at any time. In addition, you may also check the information
provided in the proxy materials mailed to you by your bank or broker regarding the availability of this service
or contact your bank or broker to request electronic delivery.
Householding of
Proxy Materials
In accordance with a Notice sent to eligible stockholders who share a single address, we are sending only one
Annual Report to Stockholders and one Proxy Statement to that address unless we received instructions to the
contrary from any stockholder at that address. This practice, known as “householding,” is designed to reduce
our printing and postage costs. However, if a stockholder of record wishes to receive a separate Annual Report to
Stockholders and Proxy Statement in the future, he or she may contact the Office of the Treasurer at MDU
Resources Group, Inc., P.O. Box 5650, Bismarck, ND 58506-5650, Telephone Number: [phone].
Eligible stockholders of record who receive multiple copies of our Annual Report to Stockholders and Proxy
Statement can request householding by contacting us in the same manner. Stockholders who own shares
through a bank, broker, or other nominee can request householding by contacting the nominee.
We will promptly deliver, upon written or oral request, a separate copy of the Annual Report to Stockholders and
Proxy Statement to a stockholder at a shared address to which a single copy of the document was delivered.
MDU Resources
Group, Inc. 401(k)
Plan
This Proxy Statement is being used to solicit voting instructions from participants in the MDU Resources Group,
Inc. 401(k) Plan with respect to shares of our common stock that are held by the trustee of the plan for the
benefit of plan participants. If you are a plan participant and also own other shares as a registered stockholder or
beneficial owner, you will separately receive a Notice or proxy materials to vote those other shares you hold
outside of the MDU Resources Group, Inc. 401(k) Plan. If you are a plan participant, you must instruct the plan
trustee to vote your shares by utilizing one of the methods described on the voting instruction form that you
receive in connection with shares held in the plan. If you do not give voting instructions, the trustee generally
will vote the shares allocated to your personal account in accordance with the recommendations of the board of
directors. Your voting instructions may be transmitted up until 11:59 p.m. Eastern Time on May 7, 2020.
Annual Meeting
Admission and
Guidelines
Admission: All stockholders as of the record date of March 13, 2020, are cordially invited and urged to attend
the annual meeting. You must request an admission ticket to attend. If you are a stockholder of record and plan to
attend the meeting, please contact MDU Resources by email at [e-mail] or by
telephone at 701-530-1010 to request an admission ticket. A ticket will be sent to you by mail.
If your shares are held beneficially in the name of a bank, broker, or other holder of record, and you plan to
attend the annual meeting, you will need to submit a written request for an admission ticket by mail to:
Investor Relations, MDU Resources Group, Inc., P.O. Box 5650, Bismarck, ND 58506 or email at
[e-mail]. The request must include proof of stock ownership as of March 13,
2020, such as a bank or brokerage firm account statement or a legal proxy from the bank, broker, or other holder
of record confirming ownership. A ticket will be sent to you by mail.
Requests for admission tickets must be received no later than May 1, 2020. You must present your admission
ticket and state-issued photo identification, such as a driver’s license, to gain admittance to the meeting.
Guidelines: The business of the meeting will follow as set forth in the agenda which you will receive at the
meeting entrance. The use of cameras or sound recording equipment is prohibited, except by the media or those
employed by the company to provide a record of the proceedings. The use of cell phones and other personal
communication devices is also prohibited during the meeting. All devices must be turned off or muted. No
firearms or weapons, banners, packages, or signs will be allowed in the meeting room. MDU Resources Group,
Inc. reserves the right to inspect all items, including handbags and briefcases, that enter the meeting room.
Proxy Statement
MDU Resources Group, Inc. Proxy Statement 67
Annual Meeting
Admission and
Guidelines
(Continued)
Public Health Concerns: We are actively monitoring the public health and travel safety concerns relating to the
coronavirus (COVID-19) and the advisories or mandates that federal, state, and local governments and related
agencies may issue. In the event it is not possible or advisable to hold our annual meeting as currently planned,
we will announce additional or alternative arrangements for the meeting, which may include a change in venue
or holding the meeting solely by means of remote communication. Please monitor our company website at
https://www.mdu.com for updated information. If you are planning to attend our meeting, please check our
website the week of the meeting. As always, we encourage you to vote your shares prior to the annual meeting.
Conduct of the
Meeting
Neither the board of directors nor management intends to bring before the meeting any business other than the
matters referred to in the Notice of Annual Meeting and this Proxy Statement. We have not been informed that
any other matter will be presented at the meeting by others. However, if any other matters are properly brought
before the annual meeting, or any adjournment(s) thereof, your proxies include discretionary authority for the
persons named in the proxy to vote or act on such matters in their discretion.
Stockholder
Proposals, Director
Nominations, and
Other Items of
Business for 2021
Annual Meeting
Stockholder Proposals for Inclusion in Next Year’s Proxy Statement. To be included in the proxy materials for our
2021 annual meeting, a stockholder proposal must be received by the corporate secretary no later than
November 27, 2020, unless the date of the 2021 annual meeting is more than 30 days before or after May 12,
2021, in which case the proposal must be received a reasonable time before we begin to print and mail our
proxy materials. The proposal must also comply with all applicable requirements of Rule 14a-18 under the
Securities Exchange Act of 1934.
Director Nominations From Stockholders for Inclusion in Next Year’s Proxy Statement. If a stockholder or group of
stockholders wishes to nominate one or more director candidates to be included in our proxy statement for the
2021 annual meeting through our proxy access bylaw provision, we must receive proper written notice of the
nomination not later than 120 days or earlier than 150 days before the anniversary date that the definitive proxy
statement was first released to stockholders in connection with the annual meeting, or between October 28,
2020 and November 27, 2020. In the event that the 2021 annual meeting is more than 30 days before or after
May 12, 2021, the notice must be delivered no earlier than the 150th day prior to such meeting and no later
than the 120th day prior to such meeting or the 10th day following the date on which public announcement of
the meeting date is first made. In addition, the nomination must otherwise comply with the requirements in our
bylaws. The requirements of such notice can be found in our bylaws, a copy of which is on our website, at
www.mdu.com/governance.
Director Nominations and Other Stockholder Proposals Raised From the Floor at the 2021 Annual Meeting of
Stockholders. Under our bylaws, if a stockholder intends to nominate a person as a director, or present other
items of business at an annual meeting, the stockholder must provide written notice of the director nomination
or stockholder proposal within 90 to 120 days prior to the anniversary of the most recent annual meeting.
Notice of director nominations or stockholder proposals for our 2021 annual meeting must be received between
January 12, 2021 and February 11, 2021, and meet all the requirements and contain all the information,
including the completed questionnaire for director nominations, provided by our bylaws. The requirements for
such notice can be found in our bylaws, a copy of which is on our website, at www.mdu.com/governance.
Proxy Statement
68 MDU Resources Group, Inc. Proxy Statement
We will make available to our stockholders to whom we furnish this Proxy Statement a copy of our Annual Report on Form 10-K, excluding exhibits,
for the year ended December 31, 2019, which is required to be filed with the SEC. You may obtain a copy, without charge, upon written or oral
request to the Office of the Treasurer of MDU Resources Group, Inc., 1200 West Century Avenue, Mailing Address: P.O. Box 5650, Bismarck, North
Dakota 58506-5650, Telephone Number: [phone]. You may also access our Annual Report on Form 10-K through our website at
www.mdu.com.
By order of the Board of Directors,
Daniel S. Kuntz
Secretary
March 27, 2020
Corporate Headquarters
MDU Resources Group, Inc.
Street Address: 1200 W. Century Ave.
Bismarck, ND 58503
Mailing Address: P.O. Box 5650
Bismarck, ND 58506-5650
Telephone: [phone]
Toll-Free Telephone: [phone]
www.mdu.com
The company has filed as exhibits to its Annual Report on Form
10-K the CEO and CFO certifications as required by Section 302
of the Sarbanes-Oxley Act.
The company also submitted the required annual CEO
certification to the New York Stock Exchange.
Common Stock
MDU Resources’ common stock is listed on the NYSE under the
symbol MDU. The stock began trading on the NYSE in 1948 and
is included in the Standard & Poor’s MidCap 400 index. Average
daily trading volume in 2019 was 1,036,009 shares.
Common Stock Prices High Low Close
2019
First Quarter $27.19 $23.36 $25.83
Second Quarter 26.64 24.37 25.80
Third Quarter 28.82 25.25 28.19
Fourth Quarter 29.83 27.19 29.71
2018
First Quarter $28.23 $24.29 $28.16
Second Quarter 29.28 27.05 28.68
Third Quarter 29.62 25.33 25.69
Fourth Quarter 26.96 22.73 23.84
Shareowner Service Plus Plan
The Shareowner Service Plus Plan provides interested investors the
opportunity to purchase shares of MDU Resources’ common stock
and to reinvest all or a percentage of dividends without incurring
brokerage commissions or service charges. The plan is sponsored
and administered by Equiniti Trust Company, transfer agent and
registrar for MDU Resources. For more information, contact
Equiniti Trust Company at 877-536-3553 or visit www.
shareowneronline.com.
2020 Key Dividend Dates
Ex-Dividend Date Record Date Payment Date
First Quarter March 11 March 12 April 1
Second Quarter June 10 June 11 July 1
Third Quarter September 9 September 10 October 1
Fourth Quarter December 9 December 10 January 1, 2021
Key dividend dates are subject to the discretion of the Board of Directors.
Annual Meeting
11 a.m. CDT May 12, 2020
Montana-Dakota Utilities Co. Service Center
909 Airport Road
Bismarck, North Dakota
Shareholder Information and Inquiries
Registered shareholders have electronic access to their accounts by
visiting www.shareowneronline.com. Shareowner Online allows
shareholders to view their account balance, dividend information,
reinvestment details and more. The stock transfer agent maintains
stockholder account information.
Communications regarding stock transfer requirements, lost
certificates, dividends or change of address should be directed to
the stock transfer agent.
Company information, including financial reports, is available at
www.mdu.com.
Shareholder Contact
Dustin J. Senger
Telephone: [phone]
Email: [e-mail]
Analyst Contact
Jason L. Vollmer
Telephone: [phone]
Email: [e-mail]
Transfer Agent and Registrar for All Classes of Stock
Equiniti Trust Company
Stock Transfer Department
P.O. Box 64874
St. Paul, MN 55164-0874
Telephone: [phone]
www.shareowneronline.com
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
50 S. Sixth St., Suite 2800
Minneapolis, MN 55402-1538
Note: This information is not given in connection with any sale or
offer for sale or offer to buy any security.
Design: MDU Resources Printing: AFPI
Stockholder Information