FORM 10-K

63

MDU RESOURCES G ROUP, INC.

LIQUIDIT Y AND CAPITAL COMMITMENTS

Cash flows

Operating activities Net income before depreciation, depletion and amortization is a significant contributor to cash flows from operating

activities. The changes in cash flows from operating activities generally follow the results of operations as discussed in Financial and

Operating Data and also are affected by changes in working capital.

Cash flows provided by operating activities in 2007 decreased $96.4 million from the comparable prior period, the result of:

· Increased cash flows used related to discontinued operations of $104.9 million, largely due to an increase in quarterly income tax

payments due to the gain on the sale of the domestic independent power production assets

· Increased working capital requirements of $59.2 million, largely due to higher cash needs for receivables at the natural gas distribution

business, including the effects of the acquisition of Cascade and fluctuations in natural gas prices

Partially offsetting the decrease in cash flows from operating activities were:

· Higher depreciation, depletion and amortization expense of $45.4 million, largely at the natural gas and oil production business

· Higher deferred income taxes of $28.6 million, largely related to expenditures at the natural gas and oil production business and the

effect from an income tax adjustment associated with the anticipated repatriation of profits from Brazilian operations as discussed in

Item 8 -- Note 15.

Cash flows provided by operating activities in 2006 increased $176.0 million from the comparable 2005 period, the result of:

· Lower working capital requirements of $66.4 million, largely due to lower cash needs for receivables at the natural gas distribution,

natural gas and oil production and construction services businesses

· Higher depreciation, depletion and amortization expense of $37.1 million largely at the natural gas and oil production and construction

materials and contracting businesses

· Increased income from continuing operations of $42.5 million, largely increased earnings at the construction materials and contracting,

construction services and pipeline and energy services businesses

· Decreased earnings, net of distributions, from equity method investments of $10.3 million, primarily the result of the sale of the

Termoceara Generating Facility in 2005

Investing activities Cash flows used in investing activities in 2007 decreased $318.0 million compared to the comparable prior period,

the result of:

· An increase in cash flows provided by discontinued operations of $586.1 million, primarily the result of the sale of the domestic

independent power production assets in the third quarter of 2007

· Increased proceeds from the sale of equity method investments of $58.5 million, primarily the result of the sale of the Trinity Generating

Facility in the first quarter of 2007 and Hartwell in the third quarter of 2007

Partially offsetting the decrease in cash flows used in investing activities were:

· An increase in cash flows used for acquisitions, net of cash acquired, of $234.7 million, largely the result of the Cascade acquisition

· Higher ongoing capital expenditures, including expenditures related to a wind electric generation project at the electric business

Cash flows used in investing activities in 2006 increased $16.3 million compared to the comparable 2005 period, the result of:

· Increased investments largely due to the acquisition of the Brazilian Transmission Lines

· The absence in 2006 of the 2005 proceeds from the sale of the Termoceara Generating Facility

· Higher ongoing capital expenditures, primarily at the natural gas and oil production and construction materials and contracting businesses

Partially offsetting the increase was a decrease in cash flows used for:

· Acquisitions of $99.8 million, largely at the natural gas and oil production and construction materials and contracting businesses

· Discontinued operations, due to lower capital expenditures related to the Hardin Generating Facility

Financing activities Cash flows used in financing activities in 2007 increased $158.4 million compared to the comparable prior period,

primarily the result of a decrease in the issuance of long-term debt of $236.1 million, partially offset by lower repayments of long-term debt

of $83.0 million. Also reflected in cash flows from financing activities was the issuance and subsequent repayment of short-term borrowings

of $310.0 million from the term loan agreement entered into in connection with the funding of the Cascade acquisition.