FORM 10-K
77
MDU RESOURCES G ROUP, INC.
Property, plant and equipment
Additions to property, plant and equipment are recorded at cost. When regulated assets are retired, or otherwise disposed of in the ordinary
course of business, the original cost of the asset is charged to accumulated depreciation. With respect to the retirement or disposal of all
other assets, except for natural gas and oil production properties as described in natural gas and oil properties in this note, the resulting
gains or losses are recognized as a component of income. The Company is permitted to capitalize AFUDC on regulated construction
projects and to include such amounts in rate base when the related facilities are placed in service. In addition, the Company capitalizes
interest, when applicable, on certain construction projects associated with its other operations. The amount of AFUDC and interest
capitalized was $7.1 million, $5.8 million and $4.3 million in 2007, 2006 and 2005, respectively. Generally, property, plant and equipment
are depreciated on a straight-line basis over the average useful lives of the assets, except for depletable aggregate reserves, which are
depleted based on the units-of-production method based on recoverable aggregate reserves, and natural gas and oil production properties,
which are amortized on the units-of-production method based on total reserves.
Property, plant and equipment at December 31 was as follows:
Estimated
Depreciable
Life
2007
2006
in Years
(Dollars in thousands, as applicable)
Regulated:
Electric:
Electric generation, distribution and transmission plant
$ 784,705
$ 703,838
450
Natural gas distribution:
Natural gas distribution plant
948,446
289,106
445
Pipeline and energy services:
Natural gas transmission, gathering and storage facilities
403,459
384,354
8104
Nonregulated:
Construction services:
Land
4,513
3,974
--
Buildings and improvements
11,987
11,288
340
Machinery, vehicles and equipment
76,937
70,687
210
Other
8,498
8,805
310
Pipeline and energy services:
Natural gas gathering and other facilities
197,253
178,242
320
Natural gas and oil production:
Natural gas and oil properties
1,892,757
1,606,508
*
Other
31,142
29,737
315
Construction materials and contracting:
Land
115,935
95,294
--
Buildings and improvements
94,598
96,533
1- 40
Machinery, vehicles and equipment
921,199
817,209
120
Construction in progress
22,253
23,968
--
Aggregate reserves
384,731
377,653
**
Other:
Land
3,022
3,079
--
Other
28,811
27,450
340
Less accumulated depreciation, depletion and amortization
2,270,691
1,735,302
Net property, plant and equipment
$3,659,555
$2,992,423
* Amortized on the units-of-production method based on total proved reserves at an Mcf equivalent average rate of $1.59, $1.38
and $1.19 for the years ended December 31, 2007, 2006 and 2005, respectively. Includes natural gas and oil production properties
accounted for under the full-cost method, of which $142.5 million and $164.0 million were excluded from amortization at
December 31, 2007 and 2006, respectively.
** 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 natural gas and oil properties, whenever events or
changes in circumstances indicate that such carrying values may not be recoverable. The determination of whether an impairment has
occurred is based on an estimate of undiscounted future cash flows attributable to the assets, compared to the carrying value of the assets.
If impairment has occurred, the amount of the impairment recognized is determined by estimating the fair value of the assets and recording
a loss if the carrying value is greater than the fair value. No significant impairment losses were recorded in 2007, 2006 and 2005.
Unforeseen events and changes in circumstances could require the recognition of other impairment losses at some future date.
