MDU Resources Announces Year-end Earnings
BISMARCK, ND - January 27, 2003 - MDU Resources
Group, Inc. (NYSE:MDU) announced financial results
for the year ended December 31, 2002, showing
consolidated earnings of $147.7 million, compared
to $155.1 million for 2001. Earnings per common
share, diluted, totaled $2.07, compared to $2.29
per common share, diluted, for 2001.
"Overall, I am pleased with our 2002 results," said
Martin A. White, chairman of the board, president
and chief executive officer of MDU Resources. "Our
pipeline and energy services segment set new
records in both pipeline and gathering throughput.
Both natural gas and oil production and reserves
increased at our natural gas and oil production
segment. The construction materials and mining
segment had record annual earnings and our natural
gas distribution business earnings returned to a
more normal level."
"The strategic direction of our company is proving
to be beneficial with the slower economy the United
States is currently experiencing," White said. "The
fact that the products and services our company
provides are essential to the nation's
infrastructure has helped us succeed. In addition,
the reserves we have in natural gas, oil and
aggregates will prove beneficial as the economy
improves. The hard assets we have in power plants
and pipelines are invaluable. I remain bullish on
our company and its ability to provide earnings
growth well into the future. We are maintaining our
guidance for 2003 earnings per common share,
diluted, at $1.80 to $2.05, excluding the
cumulative effects of new accounting rules related
to asset retirement obligations being implemented
in 2003. We will continue making an important
contribution toward building a strong America."
ANNUAL PERFORMANCE SUMMARY
Construction Materials and Mining
Record earnings of $48.7 million were recorded at
the construction materials and mining segment, an
increase of $11.7 million over 2001 earnings,
excluding a one-time gain from the sale of coal
properties in 2001, and $5.5 million over 2001
inclusive of this one-time gain. Revenues for 2002
totaled a record $962 million, compared to 2001
revenues of $807 million.
Increased earnings were the result of increased
aggregate, asphalt and cement sales volumes.
Construction revenues also increased substantially
because of several big projects mainly in
California and Oregon. Gains from existing
operations were responsible for the majority of the
earnings increase with operations on the West Coast
and in Hawaii reporting exceptional results. New
acquisitions and the discontinuance of goodwill
amortization, as required under new accounting
rules, also added to the earnings gain.
Higher operating expenses, including higher
depreciation and depletion related to the higher
sales volumes, somewhat offset the gains. The
earnings growth more than offset the absence in
2002 of the $6.2 million after-tax gain from the
sale of coal properties, as well as earnings from
four months of coal operations, which were both
included in 2001 earnings.
Electric
Electric segment earnings totaled $15.8 million
compared to 2001 earnings of $18.7 million. The
decrease was largely the result of average realized
wholesale electric prices that were 34 percent
lower than in 2001 due primarily to a weaker demand
in the wholesale spot markets. Increased retail
sales somewhat offset this decrease.
Natural Gas Distribution
In 2002, the natural gas distribution segment
increased earnings to $3.6 million, a $2.9 million
increase over 2001 earnings. The increase was
largely due to increased retail sales as a result
of weather that was 9 percent colder than the prior
year combined with retail rate increases in
Minnesota, Montana and North Dakota. Increased
returns on natural gas storage, demand and prepaid
commodity balances, higher service and repair
margins and lower income taxes also contributed to
the increased earnings. A reserve adjustment of
$3.3 million after-tax related to certain pipeline
capacity charges partially offset the earnings
increase.
Utility Services
Earnings from the company's utility services
segment were $6.4 million for 2002, compared to
earnings of $12.9 million for 2001. The decrease
was due primarily to a slowdown in
telecommunications, inside electrical and
engineering services work, brought about by a
slowdown in these industries, which resulted in
lower construction revenues and margins. Receivable
write-offs and lower equipment sales also affected
earnings. These decreases were partially offset by
increased utility workloads, particularly in the
Southwest and Northwest regions, and discontinuance
of goodwill amortization as required by new
accounting rules.
Pipeline and Energy Services
Pipeline and energy services segment earnings for
2002 totaled $19.1 million compared to 2001
earnings of $16.4 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
operating and maintenance expenses and higher
depreciation, a result of the gathering system
expansion to accommodate increasing natural gas
volumes. The net effects of the sale of certain
smaller non-strategic properties in 2001 also
positively affected the earnings results for that
year.
Natural Gas and Oil Production
Earnings at the natural gas and oil production
segment were $53.2 million, compared to $63.2
million in 2001. The company's combined natural gas
and oil production increased 14 percent, largely as
a result of increased natural gas production at our
company operated properties in the Rocky Mountain
area which posted an impressive 55 percent growth.
Also contributing to 2002 results was the one-time
effect of a compromise agreement resulting in a
$16.6 million after-tax nonrecurring gain realized
in the first quarter of 2002. These increases were
more than offset by realized natural gas prices
that were 28 percent lower and oil prices that were
7 percent lower than last year. Higher lease
operating costs were experienced due to the
expansion of coalbed natural gas production. Higher
depreciation and depletion costs resulting largely
from increased production also affected earnings.
Independent Power Production
Earnings at our new independent power production
segment totaled $.9 million. The majority of these
earnings came from the newly acquired 213-megawatt
natural gas-fired electric generating facilities
in Colorado. The Brazilian operations also
contributed to the gain. A gain from an embedded
derivative in the electric power contract and the
earnings margin at the Brazil facilities were
largely offset by foreign currency losses resulting
from devaluation of the Brazilian real and net
interest expense. Petrobras, the purchaser of
the output from the Brazilian project, commenced
making capacity payments on the first 100 megawatts
in the third quarter of 2002. Construction of
the 200-megawatt, natural gas-fired power plant
is now complete. The second 100 megawatts were
placed in service in early January 2003.
As reported in the third quarter 2002 financial
results, the company had pending the matter of the
functional currency with respect to its
subsidiary's 49 percent owned Brazilian operations.
At that time, company management had determined the
functional currency for the 200-megawatt natural
gas-fired electric generation project to be the
U.S. dollar. The company's determination was based
on the fact that the contract revenues for the
project are largely indexed to the U.S. dollar and
that the majority of expected operation and
maintenance expenses and actual equipment purchases
are in U.S. dollars. The auditor for the project
has now determined the functional currency to be
the Brazilian real.
In the third quarter of 2002, financial results
were presented utilizing the U.S. dollar as the
functional currency. The company had reported
earnings from its Brazilian operations in the
amount of $4.0 million. As a result of now
utilizing the Brazilian real as the functional
currency, instead of the U.S. dollar, the earnings
from the Brazilian operations would have been
reduced by $1.2 million and the company's reported
earnings for the third quarter 2002 would have been
reduced by a like amount or $.01 per common share.
For the third quarter 2002, the foreign currency
losses related to the U S. dollar denominated debt
were largely offset by the fair value of the
embedded derivative in the electric power contract.
Corporate News
In December, the company completed the sale of 2.4
million shares of common stock. The company
received proceeds before expenses of $23.28 per
share. The net proceeds from the sale were used for
various acquisitions, the repayment of debt and
general corporate purposes.
Final resolution was reached on the North Dakota
electric rate case. In April 2002, Montana-Dakota
filed an appeal in District Court on the North
Dakota Public Service Commission's April 2002 rate
reduction order challenging $3.5 million of the
$4.3 million annual reduction the NDPSC ordered.
The challenge was based on the determination of the
level of electricity sales to other utilities and
the resulting revenues. The company was granted a
stay for $3.5 million of the reduction and the
balance of the reduction was put into place. On
January 15, 2003, the NDPSC, in response to a
District Court remand order, issued an order
accepting Montana-Dakota's level of electricity
sales to other utilities thus reversing its initial
decision and allowing the company to continue to
charge the electric rates now in effect.
Final orders have been received on a number of the
natural gas rate cases filed by Montana-Dakota this
past year. In North Dakota, a $2 million or 2.9
percent increase was granted effective December 12,
2002. In Wyoming, a $466,000 or 4 percent annual
increase was granted effective January 1, 2003. A
final order on the Montana rate case is due
February 20, 2003. Interim orders have provided a
$2.4 million interim increase in Montana. An
interim order was also received in Minnesota that
provided a $1.4 million or 5.9 percent increase.
The final order from Minnesota is not due until
August 2003. An annual $2.2 million or 5.8 percent
increase was filed in South Dakota on December 30,
2002. The final order from the South Dakota Public
Utilities Commission on this filing is due June 30,
2003.
The purchase of 213-megawatts of natural gas-fired
electric generating facilities in Colorado was
completed in November as anticipated. Ninety-five
percent of these facilities' output is sold to a
non-affiliated utility under long-term power
purchase contracts.
The company's independent power production group
recently entered into an agreement to purchase a
66.6-megawatt wind-powered electric generation
facility in California. Closing on this facility is
expected early this year. All of the output of this
facility is sold under a long-term contract with
the California Department of Water Resources.
The company was named to the Forbes magazine
"Platinum List of America's 400 Best Big Companies"
for the third consecutive year. In addition,
Fortune magazine named the company to its "100
fastest growing companies" list.
The company will host a webcast January 27, 2003,
beginning at 12:00 p.m. CST to discuss 2002 results
and updated earnings guidance for 2003. The event
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. The online replay will be available
beginning at 3:00 p.m. CST on January 27 and
continuing through February 10, 2003. An audio
postview replay is also available beginning at 3:00
p.m. CST on January 27 through February 3, 2003.
The dial in number for postview is (888) 203-1112;
confirmation code 374234.
OUTLOOK
The following information highlights the key growth
strategies, projections and certain assumptions for
the company and its subsidiaries over the next few
years and other matters for each of the company's
seven 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.
- - 2003 earnings per share, diluted, before the
cumulative effect of an accounting change
required by the implementation of SFAS 143,
"Accounting for Asset Retirement Obligations" in
the first quarter of 2003, are projected in the
range of $1.80 to $2.05.
- - The company expects the percentage of 2003
earnings per share before the cumulative effect
of an accounting change by quarter to be in
the following approximate ranges:
- First Quarter - 5 percent to 10 percent
- Second Quarter - 20 percent to 25 percent
- Third Quarter - 40 percent to 45 percent
- Fourth Quarter - 25 percent to 30 percent
- - 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 $465
million in capital expenditures during 2003, excluding
any potential future acquisitions. However, this
amount does include expenditures for the previously
announced purchase of a 66.6-megawatt wind-powered
electric generation facility in California.
- - 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. In December 2002, the company confirmed its
intent to continue the study, however, the company is
also in the process of obtaining approval to include a
250-megawatt plant option within the study. The next
preliminary decision is expected in late 2003.
Natural Gas Distribution
- - Annual natural gas throughput for 2003 is expected to
be approximately 50 million decatherms.
- - In May 2002, a natural gas rate case was filed with
the Montana Public Service Commission. The company is
requesting a total of $3.6 million annually or 6.5
percent above current rates. In September 2002, an
interim increase was approved for $2.1 million on an
annualized basis. A second interim order was effective
in November 2002 for $300,000 with a total interim
increase in effect of $2.4 million. The final order is
due in February 2003. In December 2002, a natural gas
rate case was filed with the South Dakota Public
Utilities Commission requesting an increase of $2.2
million annually or 5.8 percent. The final order is
due by June 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.
An interim increase was implemented in December for
$1.4 million annually. A final order is due by August
2003. The last rate case filed in Minnesota was in the
mid-1980s.
Utility Services
- - Revenues for this segment are expected to be in the
range of $450 million to $500 million. During 2002, a
number of factors affected margins, including the
write-off of certain receivables and restructuring of
the engineering function which amounts totaled
approximately $5.2 million after-tax. The company
anticipates margins in 2003 to increase over 2002
levels.
Pipeline and Energy Services
- - In 2003, natural gas throughput from this segment,
including both transportation and gathering, is
expected to increase slightly over the 2002 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 receiving the
necessary regulatory approval, completion of
construction could occur as early as late 2003.
Natural Gas and Oil Production
- - In 2003, this segment expects a combined natural gas and oil
production increase in excess of 20 percent over 2002 record
levels.
- - This segment expects to drill in excess of 400 wells in
2003.
- - Natural gas prices in the Rocky Mountain Region for February
through December 2003 reflected in the company's 2003 earnings
guidance are in the range of $2.50 to $3.00 per Mcf. The
company's estimates for natural gas prices on the NYMEX for
February through December 2003 reflected in the company's 2003
earnings guidance are in the range of $3.00 to $3.50 per Mcf.
During the year 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 January through December 2003
reflected in the company's 2003 earnings guidance are in the
range of $20 to $25 per barrel.
- - The company has hedged a portion of its 2003 production
primarily using collars that establish both a floor and a cap.
The company has entered into agreements representing
approximately 40 percent to 45 percent of 2003 estimated annual
natural gas production. The agreements are at various indices
and range from a low CIG index of $2.94 to a high Ventura index
of $4.76 per Mcf.
- - The company has hedged a portion of its 2003 oil production.
The company has entered into agreements at NYMEX prices with
floors of $24.50 and caps as high as $28.12 representing
approximately 30 percent to 35 percent of 2003 estimated annual
oil production.
Construction Materials and Mining
- - Excluding the effects of potential future acquisitions,
aggregate, asphalt and ready-mixed concrete volumes are
expected to remain at, or near the record levels achieved in
2002.
- - Revenues for this segment in 2003 are expected to be
unchanged from 2002 record levels.
Independent Power Production
- - Earnings projections for 2003 for the independent power
production segment include the estimated results from the
previously mentioned wind powered electric generation facility
and the 2002 acquisition of generating facilities in Colorado,
as well as earnings from the 200-megawatt natural gas-fired
generation project in Brazil. Earnings from this segment are
expected to be in the range of $12 million to $17 million 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,
including but not limited to those related to:
- Allowed rates of return
- Financings
- Industry and rate structures
- Recovery of purchased power and purchased gas costs
- Acquisition and disposal of assets or facilities
- Operation and construction of plant facilities
- Present or prospective generation
- Availability of economic supplies of natural gas
- 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
- 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, energy
services, and domestic and international independent power
production. 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:
Warren L. Robinson - Executive Vice President, Treasurer and
Chief Financial Officer
(701) 222-7991 or
Cathi Christopherson - Vice President, Corporate Communications
(701) 222-7959
MDU RESOURCES GROUP, INC.
COMPARATIVE HIGHLIGHTS
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001
-------- -------- ---------- -----------
Revenues (in millions):
Electric $ 44.7 $ 39.7 $ 162.6 $ 168.8
Natural gas distribution 63.9 54.6 186.6 255.4
Utility services 120.6 128.0 458.7 364.8
Pipeline and energy services 51.5 42.1 165.2 531.1
Natural gas and oil production 55.3 40.3 203.6 209.8
Construction materials and mining 260.8 210.4 962.3 806.9
Independent power production 4.2 --- 6.8 ---
Intersegment eliminations (44.0) (30.8) (114.3) (113.2)
-------- -------- ---------- -----------
Total $ 557.0 $ 484.3 $ 2,031.5 $ 2,223.6
======== ======== ========== ===========
Operating Income (in millions):
Electric $ 11.6 $ 6.5 $ 33.9 $ 38.7
Natural gas distribution .1 4.0 2.4 3.6
Utility services 5.2 6.9 14.0 25.2
Pipeline and energy services 11.9 6.9 39.1 30.4
Natural gas and oil production 23.1 10.6 85.6 103.9
Construction materials and mining 25.3 11.3 91.4 71.5
Independent power production 1.8 --- (.3) ---
-------- -------- ---------- -----------
Total $ 79.0 $ 46.2 $ 266.1 $ 273.3
======== ======== ========== ===========
Net Income (in millions) $ 45.9 $ 29.0 $ 148.4 $ 155.9
======== ======== ========== ===========
Earnings on Common Stock (in millions):
Electric $ 6.2 $ 3.5 $ 15.8 $ 18.7
Natural gas distribution 2.5 2.3 3.6 .7
Utility services 2.6 3.6 6.4 12.9
Pipeline and energy services 5.7 6.8 19.1 16.4
Natural gas and oil production 15.8 6.7 53.2 63.2
Construction materials and mining 14.1 5.9 48.7 43.2
Independent power production (1.2) --- .9 ---
-------- -------- ---------- -----------
Total $ 45.7 $ 28.8 $ 147.7 $ 155.1
======== ======== ========== ===========
Earnings Per Common Share:
Basic $ .63 $ .42 $ 2.09 $ 2.31
Diluted $ .63 $ .42 $ 2.07 $ 2.29
Weighted Average Common Shares
Outstanding (in millions):
Basic 72.1 68.7 70.7 67.3
Diluted 72.6 69.1 71.2 67.9
Electric (thousand kWh):
Retail sales 605,449 537,447 2,275,024 2,177,886
Sales for resale 204,554 249,181 784,530 898,178
Natural Gas Distribution (Mdk):
Sales 13,318 11,862 39,558 36,479
Transportation 4,829 4,543 13,721 14,338
Pipeline and Energy Services (Mdk):
Transportation 22,877 23,977 99,890 97,199
Gathering 20,305 17,186 72,692 61,136
Natural Gas and Oil Production:
Natural gas (MMcf) 13,668 10,950 48,239 40,591
Oil (000's of barrels) 499 550 1,968 2,042
Construction Materials and Mining
(000's):
Aggregates (tons) 9,478 7,614 35,078 27,565
Asphalt (tons) 1,540 1,496 7,272 6,228
Ready-mixed concrete (cubic yards) 757 626 2,902 2,542