MDU Resources Announces Third Quarter Earnings
BISMARCK, ND - October 22, 2002 - MDU Resources Group, Inc.
(NYSE:MDU) announced financial results for the three months ended
September 30, 2002, showing consolidated earnings of
$53.7 million, an increase of $3.1 million compared to the same
period last year. Earnings per common share, diluted, totaled 75
cents, compared to 74 cents per common share, diluted, for the
third quarter of 2001. "I am especially pleased to report that
record quarterly earnings were achieved at our construction
materials and mining segment," said Martin A. White, chairman of
the board, president and chief executive officer. "These gains
along with the gain at our pipeline and energy services segment
were largely responsible for the quarterly increase."
Earnings for the nine months ended September 30, 2002, totaled
$101.9 million or $1.44 per common share, diluted. The year-to-
date 2002 earnings include the one-time effects of a compromise
agreement resulting in a $16.6 million after-tax nonrecurring
gain realized in the first quarter.
"The soft economy in the United States continues to affect
company operations," White said, "however, we still expect 2002
to provide respectable earnings. The products and services our
company provides are essential to the nation's infrastructure and
as a result our company has not felt the same degree of impact
from the slowed economy that so many other companies have. In
addition, our earnings are based on hard assets that will
continue to benefit stockholders for years to come. The power
plants, gas lines, substantial aggregate reserves held by our
construction materials segment, and the reserves held by our
natural gas and oil production segment will continue to provide
earnings well into the future. I remain confident that with our
strong management and operations teams, our company will be
successful in any economy. We will continue making an important
contribution toward building a strong America."
"We are maintaining our guidance for 2002 earnings per common
share, diluted, at $1.80 to $2.00. Excluding the benefit of the
compromise agreement discussed earlier, 2002 earnings per common
share from operations are projected to be $1.60 to $1.80. Current
projections on earnings per common share for 2003 are in the
range of $1.80 to $2.05."
QUARTERLY PERFORMANCE SUMMARY
Construction Materials and Mining
Record third quarter earnings of $33.4 million were recorded at
the construction materials and mining segment, an increase of 23
percent or $6.2 million over the same period last year. Increased
aggregate, cement and ready-mixed concrete sales volumes combined
with higher construction revenues at existing operations and
earnings from companies acquired since the comparable period a
year ago were largely responsible for the increased earnings.
Revenues for the third quarter were $77 million higher than for
the same period last year.
Electric
Electric segment earnings for the three months ended September
30, 2002, totaled $4.5 million compared to 2001 earnings of $8.3
million for the same period. The decrease was largely the result
of significantly lower average realized wholesale electric prices
due to a weaker demand in the wholesale spot markets and a North
Dakota retail rate reduction. Somewhat offsetting these decreases
were increased retail sales. The company has filed an appeal in a
North Dakota District Court on the retail rate reduction order.
Natural Gas Distribution
For the third quarter, the natural gas distribution segment
experienced a normal seasonal loss. The loss of $2.6 million in
2002 was slightly less than that experienced in the third quarter
last year as a result of slightly higher retail sales volumes. In
addition, an interim Montana rate increase of $2.1 million
annually was implemented in early September. A natural gas rate
case has recently been filed in Minnesota. Rate cases were filed
in North Dakota, Wyoming and Montana earlier this year. These
cases would result in higher natural gas rates if approved.
Utility Services
Earnings from the company's utility services segment were $1.6
million for the third quarter 2002, compared to earnings of $3.4
million for the same period in 2001. The decrease was largely due
to a slowdown in telecommunications work and the impact of the
weak economy on the technology sector, which resulted in lower
construction revenues and margins in the Rocky Mountain and
Pacific Northwest regions as well as in the engineering services
business. Lower equipment sales revenues and margins also
affected the quarterly earnings. These decreases were partially
offset by increased workloads in the utility sector.
Pipeline and Energy Services
Pipeline and energy services segment third quarter 2002 earnings
totaled $9.9 million compared to 2001 earnings of $3.9 million
for the same period. The pipeline and gathering operations
produced higher earnings as a result of higher volumes
transported and gathered at higher average rates as well as
higher storage revenues. The earnings increase from these
activities was somewhat offset by higher depreciation, which is a
result of the gathering system expansion to accommodate
increasing natural gas volumes.
Also contributing to the positive results were earnings from our
49 percent owned Brazilian operations in the amount of $4.0
million, largely attributable to foreign currency gains on
Brazilian real-denominated obligations. While the matter has not
been finally resolved, our management has initially determined
the functional currency for the 200-megawatt natural gas
generation project to be the U.S. dollar. The company's
determination is based on the fact that the contract revenues for
the project are largely indexed to the U.S. dollar. In addition,
the majority of expected operation and maintenance expenses as
well as actual equipment purchases are in U.S. dollars. If,
however, the Brazilian real is ultimately deemed to be the
functional currency, rather than recording a $4.0 million gain,
the company would incur a net loss from the Brazilian operations
for the third quarter of approximately $7.5 million, largely from
foreign currency losses related to U.S. dollar-denominated
obligations.
Natural Gas and Oil Production
Earnings at the natural gas and oil production segment were $6.9
million, compared to $10.5 million in the third quarter of 2001.
The company's combined natural gas and oil production increased
17 percent, largely as a result of increased natural gas
production in the Rocky Mountain area. This increase was more
than offset by realized natural gas prices that were 16 percent
lower than the same period last year. Although natural gas prices
in the Gulf Coast increased, significantly lower natural gas
prices in the Rocky Mountain area more than offset those
increases. Higher lease operating costs were experienced
resulting from the expansion of coalbed natural gas production.
Corporate News
In August, the Board of Directors increased the quarterly common
stock dividend to 24 cents per share, a 4.3 percent increase from
the previously stated quarterly dividend of 23 cents. This marks
the twelfth consecutive year the dividend has been increased.
At the construction materials and mining segment, work has begun
on a $167 million joint venture harbor deepening project in Los
Angeles. One of the company subsidiaries is responsible for
approximately one-half of this project and will be supplying rock
from its Catalina Island quarry. Another subsidiary has begun
work on a multi-year resort project in the state of Washington.
The utility has begun construction on a 40-megawatt, natural gas
fired peaking unit. The unit is expected to be in operation by
June 1, 2003. The utility also announced it would purchase energy
from a 20-megawatt, wind energy farm in North Dakota. Pending
regulatory approval, the project will be the first large-scale
effort to harness North Dakota's immense wind energy resource.
An application has been filed to modify the proposed construction
of a 247-mile, FERC-regulated natural gas pipeline from Wyoming
to North Dakota. The amended plan seeks to reroute a portion of
the line and modifies facility construction to reduce the
proposed initial maximum firm daily design delivery capacity and
revises the original construction schedule.
The company's independent power production group recently entered
into an agreement to purchase 213-megawatts of natural gas fired
electric generating facilities. Financial closing is subject to
certain conditions and is expected to occur in the fourth
quarter. Ninety-five percent of the facilities' output is sold to
a non-affiliated utility under long-term power purchase
contracts.
On October 1, two privately held ready mix, asphalt and aggregate
companies with combined annual revenues in excess of $15 million
were acquired by the construction materials and mining
subsidiary. The companies serve northwestern Minnesota. Recently,
the utility services subsidiary acquired a union electrical
contractor based in Cincinnati, Ohio. The company, with annual
revenues averaging approximately $17 million, specializes in
inside electrical services, low voltage building systems and
electrical repair and maintenance services.
The company will host webcasts on October 22, 2002, beginning at
1:15 PM CDT of its presentation at the EEI Financial Conference
and on October 23, 2002, beginning at 10:00 AM CDT to discuss
third quarter results and earnings guidance. The online replay of
the EEI webcast will be available beginning at 3:00 PM CDT on
October 22 and continuing through November 5, 2002. The second
webcast replay will be available beginning at 1:00 PM CDT on
October 23 through November 6, 2002. An audio replay of the
October 23 presentation will be available beginning at 4:00 PM
CDT on October 23 through October 30, 2002. Both events can be
accessed at http://www.mdu.com. Listeners should go to the Web
site up to 15 minutes before the event to register and download
any necessary audio software.
OUTLOOK
The following information highlights the key growth strategies,
projections and certain assumptions for the company over the next
few years and other matters for each of its six business
segments. Many of these highlighted points are "forward-looking
statements." There is no assurance that the company's
projections, including estimates for growth and increases in
revenues and earnings, will in fact be achieved. Please refer to
assumptions contained in this section as well as the various
important factors listed at the end of this document under the
heading "Safe Harbor for Forward-looking Statements." Changes in
such assumptions and factors could cause actual future results to
differ materially from the company's targeted growth, revenue and
earnings projections.
MDU Resources Group, Inc.
* Earnings per share, diluted, for 2002 are projected in the
$1.80 to $2.00 range. Excluding the benefit of the compromise
agreement previously mentioned, 2002 earnings per share from
operations are projected to be in the approximate range of $1.60
to $1.80.
* Earnings per share, diluted, for 2003 are projected in the
$1.80 to $2.05 range.
* Weighted average diluted common shares outstanding for the
twelve months ended December 31, 2001, were 67.9 million. The
company anticipates a 3 percent to 7 percent increase in weighted
average diluted shares outstanding by 2002 year end.
* The company will examine issuing equity from time to time to
keep debt at the nonregulated businesses at no more than 40
percent of total capitalization.
* The company anticipates investing approximately $420 million
in capital expenditures during 2002, including potential future
acquisitions.
* The company estimates that the benefit resulting solely from
the discontinuance of goodwill amortization would be 5 cents to 6
cents per common share in 2002.
* The company's long-term compound annual growth goals on
earnings per share from operations are in the range of 6 percent
to 9 percent.
Electric
* A 40-megawatt natural gas fired peaking unit is scheduled
to be constructed for operation by June 1, 2003. This project is
expected to be recovered in rates and will be used to meet the
utility's need for additional generating capacity.
* Pending regulatory approval, the company plans to purchase
energy from a 20-megawatt, wind energy farm in North Dakota. Rate
recovery is expected.
* The company is working with the state of North Dakota to
determine the feasibility of constructing a 500-megawatt lignite-
fired power plant in western North Dakota. The first preliminary
decision is expected in December 2002.
* An appeal has been filed in a North Dakota District Court on
the North Dakota Public Service Commission's April 24, 2002,
electric rate reduction order. The PSC order required Montana-
Dakota to reduce its electric rates by $4.3 million annually. The
filing also asked for a stay of the effectiveness of the order.
The company was granted a partial stay for $3.5 million of the
reduction that it challenged. The balance of the reduction has
been put into effect and the company is placing the stayed amount
in reserve. In October, oral arguments were held at the District
Court with a ruling expected in the near future.
Natural Gas Distribution
* Annual natural gas throughput for 2002 is expected to be
approximately 53 million decatherms, with about 40 million
decatherms from sales and 13 million decatherms from
transportation, which compares to 37 million decatherms from
sales and 14 million decatherms from transportation in 2001.
* In April 2002, the natural gas distribution segment filed
with the North Dakota Public Service Commission for a natural gas
rate increase. The company is requesting a total of $2.8 million
or 4.1 percent above current rates. A hearing was held with the
PSC in October with a final order due in December 2002. In May, a
natural gas rate case was filed with the Montana Public Service
Commission. The company is requesting a total of $3.6 million or
6.5 percent above current rates. In September an interim increase
was approved for $2.1 million on an annualized basis. A hearing
is scheduled for December 2002 with the final order due in
February 2003. A natural gas rate case was filed with the Wyoming
Public Service Commission in June 2002. The company is requesting
a 5.6 percent increase above current rates or a total of $662,000
annually. A hearing is scheduled for December 2002, and a final
order is due in April 2003. The last rate cases in these states
were filed in the mid-1990s. A natural gas rate case was filed in
October 2002 with the Minnesota Public Utilities Commission. The
requested amount is $1.6 million annually or 6.9 percent above
current rates. The last rate case filed in Minnesota was in the
mid-1980s.
Utility Services
* Revenues for this segment are expected to be approximately
$450 million in 2002, a 23 percent increase over 2001. However,
earnings are estimated to decrease by approximately 50 percent
from the 2001 level due to lower margins resulting from current
economic conditions combined with the second quarter 2002 write-
off of receivables and an unfavorable billing dispute settlement.
Earnings from this segment accounted for approximately 8 percent
of consolidated 2001 earnings.
Pipeline and Energy Services
* In 2002, natural gas throughput from this segment, including
both transportation and gathering, is expected to increase by
more than 5 percent over the 2001 record level throughput.
* A 247-mile pipeline to transport additional natural gas to
market and enhance the use of the company's storage facilities is
currently under regulatory review. Depending upon the timing of
the receipt of the necessary regulatory approval, completion of
construction could occur as early as late 2003.
* The company continues its efforts to complete financing for
a 200-megawatt project in Brazil. The first 100 megawatts have
begun commercial production and the second 100 megawatts are
scheduled to begin commercial production early in 2003.
Petrobras, the purchaser of the output from the project,
commenced making capacity payments in the third quarter.
* The company's independent power production group recently
entered into an agreement to purchase 213-megawatts of natural
gas fired electric generating facilities. The financial closing
is subject to certain conditions and is expected to occur in the
fourth quarter. Ninety-five percent of the facilities' output is
sold to a non-affiliated utility under long-term power purchase
contracts.
Natural Gas and Oil Production
* The company anticipates combined natural gas and oil
production at this segment in 2002 to be approximately 10 percent
to 15 percent higher than in 2001.
* In 2003, this segment expects a combined production increase
in excess of 20 percent over 2002 levels.
* This segment expects to drill approximately 250 wells in
2002.
* Natural gas prices in the Rocky Mountain Region for November
and December 2002 reflected in the company's 2002 earnings
guidance are in the range of $2.00 to $2.50 per Mcf. The
company's estimates for natural gas prices on the NYMEX for
November and December 2002 reflected in the company's 2002
earnings guidance are in the range of $3.50 to $4.00 per Mcf.
During the first nine months of 2002, more than half of this
segment's natural gas production was priced using Rocky Mountain
or other non-NYMEX prices.
* NYMEX crude oil prices for November and December 2002
reflected in the company's 2002 earnings guidance are in the
range of $28 to $30 per barrel.
* This segment has hedged a portion of its 2002 production.
The company has entered into swap agreements and fixed price
forward sales representing approximately 35 percent to 40 percent
of 2002 estimated annual natural gas production. These natural
gas swaps are at various indices and range from a low CIG index
of $2.73 to a high NYMEX price of $4.34. The company has also
entered into oil swap agreements at average NYMEX prices in the
range of $24.80 to $25.90 per barrel, representing approximately
30 percent to 35 percent of the company's 2002 estimated annual
oil production.
* The company has hedged a portion of its 2003 production. The
company has entered into costless collars, a natural gas swap and
fixed price forward sales, representing approximately 35 percent
to 40 percent of 2003 estimated annual natural gas production.
The costless collars and swap are at various indices and range
from a low CIG index of $2.94 to a high Ventura index of $4.30
per Mcf.
* For 2003, the company's estimates for natural gas prices in
the Rocky Mountain Region are in the range of $2.50 to $3.00 per
Mcf and estimates for natural gas prices on the NYMEX are in the
range of $3.00 to $3.50.
* The company's estimates for NYMEX crude oil prices are in
the range of $20 to $25 per barrel for 2003.
* The company has hedged a portion of its 2003 oil production.
The company has entered into a costless collar at NYMEX prices
with a floor of $24.50 and a cap of $27.15 representing
approximately 15 percent to 20 percent of 2003 estimated annual
oil production.
Construction Materials and Mining
* Excluding the effects of potential future acquisitions,
aggregate volumes are expected to increase by approximately 18
percent to 23 percent in 2002 and asphalt and ready-mixed
concrete volumes are expected to increase by 15 percent to 20
percent and 5 percent to 10 percent, respectively in 2002.
* Revenues for this segment are expected to exceed $900
million in 2002.
* Revenues are expected to grow by 5 percent to 10 percent in
2003.
Safe Harbor for Forward-looking Statements
The information in this release includes certain forward-looking
statements, including earnings per share guidance, growth
strategies, business opportunities, sales, transportation,
gathering and production volume increases and natural gas and oil
commodity price estimates and statements by the chairman of the
board, president and chief executive officer of MDU Resources,
within the meaning of Section 21E of the Securities Exchange Act
of 1934. Although the company believes that its expectations are
based on reasonable assumptions, actual results may differ
materially. Important factors that could cause actual results or
outcomes for the company to differ materially from those in the
forward-looking statements include natural gas and oil commodity
prices, prevailing governmental policies and regulatory actions
with respect to allowed rates of return, financings, or industry
and rate structures, acquisition and disposal of assets or
facilities, operation and construction of plant facilities,
recovery of purchased power and purchased gas costs, present or
prospective generation and availability of economic supplies of
natural gas. Other important factors include the level of
governmental expenditures on public projects and the timing of
such projects, changes in anticipated tourism levels, the effects
of competition (including but not limited to electric retail
wheeling and transmission costs and prices of alternate fuels and
system deliverability costs), drilling successes in natural gas
and oil operations, the ability to contract for or to secure
necessary drilling rig contracts and to retain employees to drill
for and develop reserves, ability to acquire natural gas and oil
properties, the availability of economic expansion or development
opportunities, political, regulatory and economic conditions and
changes in currency rates in foreign countries where the company
does business, political and economic risks, economic disruptions
caused by terrorist activities, changes in and compliance with
environmental and safety laws and policies, weather conditions,
population growth rates and demographic patterns, market demand
for energy from plants or facilities, changes in tax rates or
policies, unanticipated project delays or changes in project
costs, unanticipated changes in operating expenses or capital
expenditures, labor negotiations or disputes, changes in credit
ratings or capital market conditions, inflation rates, inability
of the various counterparties to meet their contractual
obligations, changes in accounting principles and/or the
application of such principles to the company, changes in
technology and legal proceedings, and the ability to effectively
integrate the operations of acquired companies. For further
discussion, refer to the company's most recent Form 10-Q at
Item 2 - Management's Discussion and Analysis - Safe Harbor for
Forward-looking Statements.
MDU Resources Group, Inc. provides energy, value-added natural
resource products and related services that are essential to our
country's energy, transportation and communication
infrastructure. MDU Resources includes electric and natural gas
utilities, a natural gas pipeline, utility services, natural gas
and oil production, construction materials and mining, and energy
services. For more information about MDU Resources, see the
company's Web site at www.mdu.com or contact the investor
relations department at investor@mduresources.com.
* * * * * * * *
Contacts:
Vernon A. Raile - Vice President, Controller and Chief Accounting
Officer (701) 222-7623 or
Cathi Christopherson - Vice President, Corporate Communications
(701) 222-7959
MDU RESOURCES GROUP, INC.
COMPARATIVE HIGHLIGHTS
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
-------- -------- -------- --------
Revenues (in millions):
Electric $ 41.5 $ 48.2 $ 117.9 $ 129.1
Natural gas distribution 16.8 18.7 122.7 200.8
Utility services 113.4 92.2 338.1 236.7
Pipeline and energy services 28.4 64.8 116.3 489.0
Natural gas and oil production 42.2 42.5 148.3 169.5
Construction materials and mining 378.6 301.6 701.5 596.6
Intersegment eliminations (8.5) (16.3) (70.2) (82.4)
-------- -------- -------- --------
Total $ 612.4 $ 551.7 $1,474.6 $1,739.3
======== ======== ======== ========
Operating Income (in millions):
Electric $ 9.6 $ 16.0 $ 22.4 $ 32.3
Natural gas distribution (3.9) (3.8) 2.3 (.4)
Utility services 3.6 6.8 8.8 18.3
Pipeline and energy services 10.5 8.7 25.1 23.4
Natural gas and oil production 12.1 17.3 62.5 93.3
Construction materials and mining 58.3 48.2 66.1 60.2
-------- -------- -------- --------
Total $ 90.2 $ 93.2 $ 187.2 $ 227.1
======== ======== ======== ========
Net Income (in millions) $ 53.9 $ 50.8 $ 102.5 $ 126.9
======== ======== ======== ========
Earnings on Common Stock (in millions):
Electric $ 4.5 $ 8.3 $ 9.6 $ 15.2
Natural gas distribution (2.6) (2.7) 1.0 (1.6)
Utility services 1.6 3.4 3.8 9.3
Pipeline and energy services 9.9 3.9 15.5 9.7
Natural gas and oil production 6.9 10.5 37.4 56.4
Construction materials and mining 33.4 27.2 34.6 37.3
-------- -------- -------- --------
Total $ 53.7 $ 50.6 $ 101.9 $ 126.3
======== ======== ======== ========
Earnings Per Common Share:
Basic $ .76 $ .75 $ 1.45 $ 1.89
Diluted $ .75 $ .74 $ 1.44 $ 1.87
Weighted Average Common Shares
Outstanding (in millions):
Basic 70.9 67.6 70.3 66.8
Diluted 71.3 68.1 70.8 67.5
Electric (thousand kWh):
Retail sales 609,860 597,338 1,669,575 1,640,439
Sales for resale 153,587 200,995 579,976 648,997
Natural Gas Distribution (Mdk):
Sales 3,154 3,035 26,240 24,617
Transportation 2,518 2,855 8,892 9,795
Pipeline and Energy Services (Mdk):
Transportation 29,910 28,092 77,013 73,222
Gathering 18,758 15,154 52,387 43,950
Natural Gas and Oil Production:
Natural gas (MMcf) 12,219 9,921 34,571 29,641
Oil (000's of barrels) 486 510 1,469 1,492
Construction Materials and Mining (000's):
Aggregates (tons) 13,155 11,023 25,600 19,951
Asphalt (tons) 3,745 3,310 5,732 4,732
Ready-mixed concrete (cubic yards) 951 804 2,145 1,916
* * * * * * * *