MDU RESOURCES GROUP INC - FORM 8-K/A - EX-99.1 - EXHIBIT 99.1 - July 20, 2016

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EX-2.1 - EXHIBIT 2.1 - MDU RESOURCES GROUP INCexhibit21mipa-dpr.htm
EX-2.3 - EXHIBIT 2.3 - MDU RESOURCES GROUP INCexhibit23calumetpsaamendme.htm
EX-2.2 - EXHIBIT 2.2 - MDU RESOURCES GROUP INCexhibit22calumetpsa.htm
8-K/A - 8-K/A - MDU RESOURCES GROUP INCa8-kadpr.htm

Overview
On June 24, 2016, WBI Energy, Inc. (WBI), a subsidiary of MDU Resources Group, Inc. (Company), entered into a membership interest purchase agreement with Tesoro Refining & Marketing Company LLC (Tesoro), an affiliate of Tesoro Corporation, to sell all of the outstanding membership interests in Dakota Prairie Refining, LLC (DPR) to Tesoro. WBI and Calumet North Dakota, LLC, a subsidiary of Calumet Specialty Products Partners, L.P., each previously owned 50 percent of the DPR membership interests and were equal members in building and operating the Dakota Prairie Refinery. To effectuate the sale, WBI acquired Calumet North Dakota’s 50 percent membership interests in DPR on June 27, 2016. The sale of the membership interests to Tesoro closed on June 27, 2016.

As consideration for the DPR membership interests, Tesoro agreed to indemnify the Company’s subsidiary, Centennial Energy Holdings, Inc. (Centennial), for any losses and litigation expenses arising from Centennial’s guarantee of certain debt obligations of DPR that currently total approximately $66 million. WBI repaid $64.5 million of indebtedness outstanding under DPR’s revolving credit agreement, which includes WBI’s share and $28.5 million of Calumet’s share of the indebtedness as consideration for its DPR membership interests.

The Company and certain of its subsidiaries provide electric and natural gas utility services to certain facilities owned by Tesoro and its affiliates, including DPR, and will continue to provide such services under arm’s-length transactions.

Basis of Presentation
The unaudited pro forma consolidated financial statements reflect adjustments to the Company's historical financial results in connection with the sale of DPR. Management believes the adjustments made and the assumptions used are directly attributable to the sale, factually supportable and are expected to have a continuing impact on the consolidated statement of income. The following unaudited pro forma consolidated statements of income for the three months ended March 31, 2016, and the years ended December 31, 2015, 2014 and 2013, give effect to the sale as if it occurred on January 1, 2013, the beginning of the earliest period presented. The unaudited pro forma consolidated balance sheet gives effect to the sale as if it occurred as of March 31, 2016, the latest balance sheet data on file. The pro forma adjustments are described in the accompanying notes to the unaudited pro forma consolidated financial statements. The unaudited pro forma financial statements are based on, and should be read in conjunction with, the audited consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, and the unaudited consolidated financial statements and accompanying notes included in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2016.

The Company's anticipated after-tax impairment charge from the sale of DPR is in the range of $150 million to $160 million, subject to customary closing adjustments, and has not been reflected in the unaudited pro forma consolidated statements of income.

The unaudited pro forma consolidated financial statements and accompanying notes are not intended to be a complete presentation of the Company’s financial position or results of operations had the sale occurred as of and for the periods indicated. In addition, the adjustments are estimates, and as such, are subject to change. The unaudited pro forma consolidated financial statements and accompanying notes are provided for illustrative and informational purposes only, and are not necessarily indicative of the Company’s future results of operations or financial condition had the sale been completed on the dates assumed.

1


MDU Resources Group, Inc.
Unaudited Pro Forma Consolidated Balance Sheet
March 31, 2016
 
Historical

 
Pro Forma
Adjustments

 
Pro Forma

 
(In thousands, except shares and per share amounts)
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
90,938

 
$
(68,714
)
(a)
$
22,224

Receivables, net
537,744

 
(10,577
)
(b)
527,167

Inventories
276,812

 
(17,056
)
(b)
259,756

Deferred income taxes
33,868

 
325

(c)
34,193

Prepayments and other current assets
57,821

 
(5,442
)
(b)
52,379

Current assets held for sale
57,753

 
27,121

(c)(e)
84,874

Total current assets
1,054,936

 
(74,343
)
 
980,593

Investments
121,955

 
—

 
121,955

Property, plant and equipment
6,878,595

 
(430,081
)
(b)
6,448,514

Less accumulated depreciation, depletion and amortization
2,543,942

 
(22,834
)
(b)
2,521,108

Net property, plant and equipment
4,334,653

 
(407,247
)
 
3,927,406

Deferred charges and other assets:
 
 
 
 
 
Goodwill
641,527

 
—

 
641,527

Other intangible assets, net
7,803

 
—

 
7,803

Other
359,977

 
(390
)
(b)(d)
359,587

Noncurrent assets held for sale
97,549

 
58,803

(c)(f)
156,352

Total deferred charges and other assets
1,106,856

 
58,413

 
1,165,269

Total assets
$
6,618,400

 
$
(423,177
)
 
$
6,195,223

Liabilities and Equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Short-term borrowings
$
61,525

 
$
(61,525
)
(b)
$
—

Long-term debt due within one year
104,915

 
(6,375
)
(b)
98,540

Accounts payable
260,432

 
(27,411
)
(b)
233,021

Taxes payable
50,222

 
6,076

(c)
56,298

Dividends payable
36,791

 
—

 
36,791

Accrued compensation
41,137

 
(717
)
(b)
40,420

Other accrued liabilities
189,275

 
(6,472
)
(b)
182,803

Current liabilities held for sale
17,170

 
15,226

(c)(g)
32,396

Total current liabilities
761,467

 
(81,198
)
 
680,269

Long-term debt
1,822,139

 
(62,625
)
(b)
1,759,514

Deferred credits and other liabilities:
 
 
 
 
 
Deferred income taxes
728,304

 
(23,812
)
(c)
704,492

Other liabilities
811,106

 
8,455

(b)(d)
819,561

Total deferred credits and other liabilities
1,539,410

 
(15,357
)
 
1,524,053

Commitments and contingencies
 
 
 
 
 
Equity:
 
 
 
 
 
Preferred stocks
15,000

 
—

 
15,000

Common stockholders' equity:
 
 
 
 
 
Common stock
 
 
 
 
 
Authorized - 500,000,000 shares, $1.00 par value
Shares issued - 195,843,297 at March 31, 2016
195,843

 
—

 
195,843

Other paid-in capital
1,229,431

 
—

 
1,229,431

Retained earnings
984,315

 
(150,994
)
(h)
833,321

Accumulated other comprehensive loss
(38,582
)
 
—

 
(38,582
)
Treasury stock at cost - 538,921 shares
(3,626
)
 
—

 
(3,626
)
Total common stockholders' equity
2,367,381

 
(150,994
)
 
2,216,387

Total stockholders' equity
2,382,381

 
(150,994
)
 
2,231,387

Noncontrolling interest
113,003

 
(113,003
)
(h)
—

Total equity
2,495,384

 
(263,997
)
 
2,231,387

Total liabilities and equity
$
6,618,400

 
$
(423,177
)
 
$
6,195,223

See accompanying notes to the unaudited pro forma consolidated financial statements.

2


MDU Resources Group, Inc.
Unaudited Pro Forma Consolidated Statement of Income
For the Three Months Ended March 31, 2016
 
Historical

 
Pro Forma
Adjustments

 
Pro Forma

 
(In thousands, except per share amounts)
Operating revenues
$
905,153

 
$
(44,939
)
(i)
$
860,214

Operating expenses:
 
 
 
 
 
Fuel and purchased power
22,011

 
—

 
22,011

Purchased natural gas sold
161,035

 
—

 
161,035

Cost of crude oil
39,800

 
(39,800
)
(i)
—

Operation and maintenance
536,282

 
(19,157
)
(i)
517,125

Depreciation, depletion and amortization
60,259

 
(5,375
)
(i)
54,884

Taxes, other than income
44,014

 
(840
)
(i)
43,174

Total operating expenses
863,401

 
(65,172
)
 
798,229

Operating income
41,752

 
20,233

 
61,985

Other income
1,246

 
(197
)
(i)
1,049

Interest expense
23,776

 
(908
)
(i)
22,868

Income before income taxes
19,222

 
20,944

 
40,166

Income taxes
4,558

 
3,743

(j)
8,301

Income from continuing operations
14,664

 
17,201

 
31,865

Net loss attributable to noncontrolling interest
(11,040
)
 
11,040

(i)
—

Income from continuing operations attributable to the Company
$
25,704

 
$
6,161

 
$
31,865

 
 
 
 
 
 
Earnings from continuing operations, attributable to the Company, per common share - basic
$
.13

 
 
 
$
.16

Earnings from continuing operations, attributable to the Company, per common share - diluted
$
.13

 
 
 
$
.16

Weighted average common shares outstanding - basic
195,284

 
 
 
195,284

Weighted average common shares outstanding - diluted
195,284

 
 
 
195,284

See accompanying notes to the unaudited pro forma consolidated financial statements.

3


MDU Resources Group, Inc.
Unaudited Pro Forma Consolidated Statement of Income
For the Year Ended December 31, 2015
 
Historical

 
Pro Forma
Adjustments

 
Pro Forma

 
(In thousands, except per share amounts)
Operating revenues
$
4,191,549

 
$
(177,497
)
(i)
$
4,014,052

Operating expenses:
 
 
 
 
 
Fuel and purchased power
86,238

 
—

 
86,238

Purchased natural gas sold
450,114

 
—

 
450,114

Cost of crude oil
159,811

 
(159,811
)
(i)
—

Operation and maintenance
2,870,938

 
(65,715
)
(i)
2,805,223

Depreciation, depletion and amortization
227,730

 
(15,983
)
(i)
211,747

Taxes, other than income
142,585

 
(1,630
)
(i)
140,955

Total operating expenses
3,937,416

 
(243,139
)
 
3,694,277

Operating income
254,133

 
65,642

 
319,775

Other income
19,232

 
(775
)
(i)
18,457

Interest expense
93,068

 
(1,889
)
(i)
91,179

Income before income taxes
180,297

 
66,756

 
247,053

Income taxes
65,603

 
11,903

(j)
77,506

Income from continuing operations
114,694

 
54,853

 
169,547

Net loss attributable to noncontrolling interest
(35,256
)
 
35,256

(i)
—

Income from continuing operations attributable to the Company
$
149,950

 
$
19,597

 
$
169,547

 
 
 
 
 
 
Earnings from continuing operations, attributable to the Company, per common share - basic
$
.77

 
 
 
$
.87

Earnings from continuing operations, attributable to the Company, per common share - diluted
$
.77

 
 
 
$
.87

Weighted average common shares outstanding - basic
194,928

 
 
 
194,928

Weighted average common shares outstanding - diluted
194,986

 
 
 
194,986

See accompanying notes to the unaudited pro forma consolidated financial statements.


4


MDU Resources Group, Inc.
Unaudited Pro Forma Consolidated Statement of Income
For the Year Ended December 31, 2014
 
Historical

 
Pro Forma
Adjustments

 
Pro Forma

 
(In thousands, except per share amounts)
Operating revenues
$
4,114,816

 
$
257

(i)
$
4,115,073

Operating expenses:
 
 
 
 
 
Fuel and purchased power
89,312

 
—

 
89,312

Purchased natural gas sold
558,463

 
—

 
558,463

Operation and maintenance
2,798,245

 
(6,031
)
(i)
2,792,214

Depreciation, depletion and amortization
203,980

 
(896
)
(i)
203,084

Taxes, other than income
145,393

 
(575
)
(i)
144,818

Total operating expenses
3,795,393

 
(7,502
)
 
3,787,891

Operating income
319,423

 
7,759

 
327,182

Other income
9,873

 
(735
)
(i)
9,138

Interest expense
86,906

 
(35
)
(i)
86,871

Income before income taxes
242,390

 
7,059

 
249,449

Income taxes
63,227

 
1,195

(j)
64,422

Income from continuing operations
179,163

 
5,864

 
185,027

Net loss attributable to noncontrolling interest
(3,895
)
 
3,895

(i)
—

Income from continuing operations attributable to the Company
$
183,058

 
$
1,969

 
$
185,027

 
 
 
 
 
 
Earnings from continuing operations, attributable to the Company, per common share - basic
$
.95

 
 
 
$
.96

Earnings from continuing operations, attributable to the Company, per common share - diluted
$
.95

 
 
 
$
.96

Weighted average common shares outstanding - basic
192,507

 
 
 
192,507

Weighted average common shares outstanding - diluted
192,587

 
 
 
192,587

See accompanying notes to the unaudited pro forma consolidated financial statements.


5


MDU Resources Group, Inc.
Unaudited Pro Forma Consolidated Statement of Income
For the Year Ended December 31, 2013
 
Historical

 
Pro Forma
Adjustments

 
Pro Forma

 
(In thousands, except per share amounts)
Operating revenues
$
3,920,171

 
$
(3
)
(i)
$
3,920,168

Operating expenses:
 
 
 
 
 
Fuel and purchased power
83,528

 
—

 
83,528

Purchased natural gas sold
495,471

 
—

 
495,471

Operation and maintenance
2,679,359

 
(594
)
(i)
2,678,765

Depreciation, depletion and amortization
200,398

 
(14
)
(i)
200,384

Taxes, other than income
140,713

 
(7
)
(i)
140,706

Total operating expenses
3,599,469

 
(615
)
 
3,598,854

Operating income
320,702

 
612

 
321,314

Other income
6,086

 
(520
)
(i)
5,566

Interest expense
83,803

 
(113
)
(i)
83,690

Income before income taxes
242,985

 
205

 
243,190

Income taxes
74,294

 
(59
)
(j)
74,235

Income from continuing operations
168,691

 
264

 
168,955

Net loss attributable to noncontrolling interest
(363
)
 
363

(i)
—

Income from continuing operations attributable to the Company
$
169,054

 
$
(99
)
 
$
168,955

 
 
 
 
 
 
Earnings from continuing operations, attributable to the Company, per common share - basic
$
.89

 
 
 
$
.89

Earnings from continuing operations, attributable to the Company, per common share - diluted
$
.89

 
 
 
$
.89

Weighted average common shares outstanding - basic
188,855

 
 
 
188,855

Weighted average common shares outstanding - diluted
189,693

 
 
 
189,693

See accompanying notes to the unaudited pro forma consolidated financial statements.

6


MDU Resources Group, Inc.
Notes to the Unaudited Pro Forma Consolidated Financial Statements

(a)
Reflects the repayment of short-term borrowings, payment to Calumet North Dakota, LLC for their membership interest, the reclassification of cash to an escrow account for the payment of renewable identification numbers (RINs), the reclassification of cash to an escrow account for vendor letters of credit issued under the revolving credit facility and cash receipt of the working capital adjustment from Tesoro
(b)
Elimination of the assets and liabilities attributable to the sale of DPR
(c)
Reflects the reclassification of deferred taxes and prepaid income taxes to assets and liabilities held for sale
(d)
Reflects the liability for Centennial's guarantee of certain debt obligations of DPR and the related indemnification asset for Tesoro's indemnification of Centennial of any losses and litigation expenses arising from the guarantee
(e)
Reflects the restricted cash for payment of the RINs and the vendor letters of credit, as noted above
(f)
Reflects the deferred tax asset attributable to the sale of DPR
(g)
Liabilities that remain with WBI Energy in connection with the sale of DPR
(h)
Reflects the effect of the sale transactions in the respective equity accounts
(i)
Adjustments attributable to the sale of DPR including revenue; cost of crude oil; operation and maintenance expenses; depreciation, depletion and amortization; taxes, other than income; other income; interest expense; and net loss attributable to noncontrolling interest
(j)
Reflects the tax effect of the unaudited pro forma adjustments at the applicable statutory income tax rates


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