MDU Resources Announces First Quarter Earnings and Increases
Guidance for 2003
BISMARCK, ND - April 22, 2003 - MDU Resources Group, Inc.
(NYSE:MDU) announced financial results for the three months ended
March 31, 2003, showing consolidated earnings of $19.9 million,
compared to $23.5 million for the same period last year. Earnings
per common share, diluted, totaled 27 cents, compared to 34 cents
a year ago. However, 2003 earnings reflect a $7.6 million after-
tax noncash transition charge to earnings reflecting the
cumulative effect of the change in accounting for asset
retirement obligations as required by the adoption of Statement
of Financial Accounting Standards No. 143. In addition, first
quarter 2002 earnings included the effects of a compromise
agreement that resulted in a $16.6 million after-tax gain.
Excluding the 2003 $7.6 million accounting charge and the 2002
$16.6 million compromise agreement, 2003 earnings would have
nearly quadrupled to $27.5 million versus $6.9 million for the
first quarter of 2002.
Based on continuing strength in energy commodity prices through
early 2003 and earnings from construction materials companies
acquired in April, the company is revising its prior guidance on
earnings per share. Earnings per common share, diluted, before
the cumulative effect of the accounting change discussed above,
are now projected to be in the range of $2.00 to $2.25. Including
the cumulative effect of the $7.6 million after-tax accounting
change, earnings per common share, diluted, for 2003 are expected
to be in the range of $1.90 to $2.15.
"We are extremely pleased with our earnings results for this
quarter and are confident that we will achieve our 2003 earnings
goals," said Martin A. White, chairman of the board, president
and chief executive officer of MDU Resources. "Commodity prices
have been strong, and after a normal seasonal lull, our
construction materials businesses are beginning to work on their
extensive backlogs," White said. "While other businesses have
been challenged in today's economy, our companies have performed
quite well. We provide the energy that fuels our homes and
businesses and the transportation infrastructure that America's
homefront needs in order to grow and prosper."
QUARTERLY PERFORMANCE SUMMARY
Natural Gas and Oil Production
Realized natural gas prices were up 82 percent and oil prices
were 46 percent higher than last year at this time. However,
earnings at this segment totaled $11.7 million, compared to $21.1
million in the first quarter of 2002. The reason for the decline
is that last year's first quarter earnings included the
previously mentioned $16.6 million after-tax gain on a compromise
agreement, while this year's first quarter earnings include a
$7.7 million after-tax noncash transition charge, reflecting the
cumulative effect of the accounting change mentioned above. The
company's combined natural gas and oil production increased 15
percent, largely from significantly higher production from the
company's operated properties in the Rocky Mountain area. These
price and production gains were offset in part by higher lease
operating costs largely associated with the expansion of coalbed
natural gas production and higher general and administrative
costs. Higher depreciation and depletion expense, resulting
largely from increased production, also affected earnings.
Electric
Electric segment earnings increased by $1.3 million to $4.8
million, primarily the result of improved wholesale electric
sales at higher average realized prices due to stronger wholesale
markets. In addition, retail sales volumes increased. Higher
operation and maintenance expenses partially offset the earnings
increase.
Natural Gas Distribution
Earnings at the natural gas distribution segment decreased
slightly to $4.2 million, compared to $4.5 million for the same
period last year. Higher retail sales, due to slightly colder
weather, and rate relief approved by the public service
commissions in the states served largely mitigated higher
operation and maintenance expenses.
Utility Services
At the company's utility services operations, earnings totaled
$1.1 million compared to first quarter 2002 earnings of $1.3
million. This segment has experienced a slowdown in inside
electrical work, reflecting a soft economy, but has seen
increased workloads and improved margins in the utility sector
and increased equipment sales margins.
Construction Materials and Mining
As anticipated, this segment experienced seasonal first quarter
losses from existing operations, combined with normal seasonal
losses from acquisitions made since the first quarter of last
year. However, first quarter seasonal losses decreased by $2.3
million from the $9.7 million loss experienced in the first
quarter of 2002, largely the result of reduced seasonal losses at
existing operations. Increased aggregate volumes and margins,
plus increased construction revenues and ready mix volumes, were
partially offset by higher selling, general and administrative
expenses and higher depreciation associated with the larger
volumes produced. A large harbor-deepening project in southern
California continues to positively affect earnings. Earnings
prospects from the construction materials and mining companies
for the next three quarters remain sound given the over $325
million in backlog, as of mid-April 2003, compared to last year's
backlog of nearly $200 million.
Pipeline and Energy Services
At the company's pipeline and energy services segment, earnings
increased to $4.3 million, compared to $2.9 million for the first
quarter of 2002. The increase was due to higher transportation
and gathering volumes combined with increased storage revenues.
Transportation and gathering volumes increased a combined 13
percent over the comparable quarter a year ago.
Independent Power Production
The independent power production segment posted earnings of $1.2
million. Contributing to the earnings gains were a 213-megawatt
natural gas-fired electric generating facility in Brush, Colo.,
acquired in late 2002, and a 66.6-megawatt wind-powered electric
generation facility located in southern California, which was
acquired at the end of January 2003. In addition, this segment's
South American power generation facilities are in full operation
and also contributed to earnings. Capacity revenues being
received on the Brazilian project were partially offset by higher
bridge financing costs. Permanent financing is now in place.
Corporate News
The company's construction materials subsidiary completed
acquisitions in North Dakota and Montana in April. The two
central North Dakota companies that were acquired are among the
leading ready mix concrete and sand, gravel and aggregate product
companies in the state and had combined annual revenues of $13
million in 2002. The Kalispell, Mont.-based company is a leading
aggregate mining and ready mix supply company in the area and had
annual revenues of about $8 million in 2002. These acquisitions
are expected to add to earnings per share. In addition, the wind-
generation facility mentioned above was acquired earlier this
year.
In April, the company's natural gas distribution segment received
a final stipulation in its Montana natural gas rate case that
will increase annualized revenues by $2.4 million.
A webcast of White's presentation at the Annual Stockholders'
Meeting is scheduled for April 22, 2003, beginning at
approximately 11:10 a.m. CDT. The rebroadcast of the presentation
will be available on the company's website at http://www.mdu.com
beginning at 2:00 p.m. CDT on April 22.
The company will host a webcast on April 23, 2003, beginning at
12:00 noon CDT to discuss first quarter results and earnings
guidance for the coming year. The event can be accessed at
http://www.mdu.com. The online replay will be available beginning
at 3:00 p.m. CDT on April 23. An audio postview replay is also
available beginning at 3:00 p.m. CDT on April 23 through April
30, 2003. The dial-in number for postview is (888) 203-1112;
confirmation code 504553.
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 "Risk Factors and Cautionary
Statements that May Affect Future Results." 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 common share, diluted, before the
cumulative effect of the change in accounting for asset
retirement obligations as required by the adoption of Statement
of Financial Accounting Standards No. 143, are projected in the
range of $2.00 to $2.25. Including the $7.6 million after-tax
cumulative effect of the accounting change, 2003 earnings per
common share, diluted, are projected to be in the range of $1.90
to $2.15.
- - The company expects the percentage of 2003 earnings per
common share, diluted, after the cumulative effect of an
accounting change by quarter to be in the following approximate
ranges:
o Second Quarter - 19 percent to 24 percent
o Third Quarter - 36 percent to 41 percent
o 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 $490 million
in capital expenditures during 2003, excluding potential future
acquisitions of businesses.
- - 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 under
construction to be operational by June 1, 2003. The company
expects to build an additional 80-megawatts of peaking capacity
by 2007. These projects are expected to be recovered in rates
and will be used to meet the utility's need for additional
generating capacity.
- - Regulatory approval has been received from the North Dakota
Public Service Commission and the South Dakota Public Utilities
Commission on the company's plans to purchase energy from a 20-
megawatt, wind energy farm in North Dakota. This wind energy farm
is expected to be on line by late 2003.
- - The company is working with the state of North Dakota to
determine the feasibility of constructing a 250-megawatt to 500-
megawatt lignite-fired power plant in western North Dakota. The
next preliminary decision on this matter is expected in late
2003.
Natural Gas Distribution
- - Annual natural gas throughput for 2003 is expected to be
approximately 52 million decatherms.
- - 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 case filed in this state was 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.
- - This segment's work backlog as of March 31, 2003, was
approximately $158 million.
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 levels.
- - 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, construction could
be completed in late 2003.
Natural Gas and Oil Production
- - In 2003, this segment expects a combined natural gas and oil
production increase of approximately 20 percent over 2002 record
levels.
- - This segment expects to drill more than 400 wells in 2003.
- - Natural gas prices in the Rocky Mountain region for May
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 May
through December 2003 reflected in the company's 2003 earnings
guidance are in the range of $3.00 to $3.50 per Mcf. During 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 April 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.
- - The company has begun hedging a portion of its 2004
estimated annual natural gas production and will continue to
evaluate additional opportunities in the near future.
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.
- - As of mid-April 2003, this segment had over $325 million in
work backlog.
Independent Power Production
- - Earnings projections for 2003 for the independent power
production segment include the estimated results from the wind-
powered electric generation facility, the natural gas-fired
generating facilities in Colorado, and the company's 49-percent
ownership in a 220-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.
Use of Non-GAAP Financial Measure
Where noted in the press release, the company, in addition to
presenting its earnings information in conformity with Generally
Accepted Accounting Principles (GAAP), has provided non-GAAP
earnings data that reflect adjustments to exclude a 2002 $16.6
million after-tax gain arising from a compromise agreement. The
company believes that this non-GAAP financial measure is useful
to investors because the item excluded is not indicative of the
company's continuing operating results. Also, the company's
management uses this non-GAAP financial measure as an indicator
for planning and forecasting future periods. The presentation of
this additional information is not meant to be considered a
substitute for financial measures prepared in accordance with
GAAP.
Risk Factors and Cautionary Statements that May Affect Future Results
The information in this release includes certain forward-looking
statements, including earnings per share guidance 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. Following are
important factors that could cause actual results or outcomes for
the company to differ materially from those discussed in forward-
looking statements.
- - The recent events leading to the current adverse economic
environment may have a general negative impact on the company's
future revenues.
- - The company's natural gas and oil production business is
dependent on factors including commodity prices that cannot be
predicted or controlled.
- - The company's operations are weather sensitive.
- - The company is subject to extensive environmental laws and
regulations that may increase its costs of operations, impact or
limit business plans, or expose the company to environmental
liabilities.
- - The company is subject to extensive government regulations
that may have a negative impact on its business and its results
of operations.
- - The company is dependent on its ability to successfully
access capital markets. Inability to access capital may limit
its ability to execute business plans, pursue improvements or
make acquisitions that it may otherwise rely on for future
growth.
- - There are risks involved with the growth strategies of the
company's independent power production business.
- - The value of the company's investment in foreign operations
may diminish due to political, regulatory and economic conditions
and changes in currency rates in countries where the company does
business.
- - Competition is increasing in all of the company's
businesses.
- - Other important factors that could cause actual results or
outcomes for the company to differ materially from those
discussed in forward-looking statements include:
- Acquisition and disposal of assets or facilities
- Changes in operation and construction of plant facilities
- Changes in present or prospective generation
- Changes in anticipated tourism levels
- The availability of economic expansion or development
opportunities
- 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
- 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-K at Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Risk Factors and
Cautionary Statements that May Affect Future Results.
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.
Three Months Ended
March 31,
2003 2002
(In millions, where applicable)
(Unaudited)
Consolidated Statements of Income
Operating revenues:
Electric $ 45.7 $ 40.1
Natural gas distribution 111.0 71.7
Utility services 103.7 108.3
Pipeline and energy services 61.1 41.7
Natural gas and oil production 69.0 62.4
Construction materials and mining 120.8 93.3
Independent power production 7.1 .8
Intersegment eliminations (50.6) (36.4)
467.8 381.9
Operating expenses:
Fuel and purchased power 15.4 13.9
Purchased natural gas sold 76.1 35.7
Operation and maintenance 259.6 235.5
Depreciation, depletion and amortization 44.1 36.1
Taxes, other than income 19.7 14.9
414.9 336.1
Operating income:
Electric 9.9 7.8
Natural gas distribution 7.3 7.3
Utility services 2.6 3.1
Pipeline and energy services 9.1 6.2
Natural gas and oil production 32.7 34.8
Construction materials and mining (10.0) (13.0)
Independent power production 1.3 (.4)
52.9 45.8
Other income - net 3.7 3.5
Interest expense 12.8 10.5
Income before income taxes 43.8 38.8
Income taxes 16.1 15.1
Income before cumulative effect of
accounting change 27.7 23.7
Cumulative effect of accounting change (7.6) ---
Net income 20.1 23.7
Dividends on preferred stocks .2 .2
Earnings on common stock:
Electric 4.8 3.5
Natural gas distribution 4.2 4.5
Utility services 1.1 1.3
Pipeline and energy services 4.3 2.9
Natural gas and oil production 11.7 21.1
Construction materials and mining (7.4) (9.7)
Independent power production 1.2 (.1)
$ 19.9 $ 23.5
Earnings per common share - basic:
Earnings before cumulative
effect of accounting change $ .37 $ .34
Cumulative effect of accounting change (.10) ---
Earnings per common share - basic $ .27 $ .34
Earnings per common share - diluted:
Earnings before cumulative
effect of accounting change $ .37 $ .34
Cumulative effect of accounting change (.10) ---
Earnings per common share - diluted $ .27 $ .34
Dividends per common share $ .24 $ .23
Weighted average common shares
outstanding:
Basic 73.5 69.5
Diluted 74.1 70.0
Pro forma amounts assuming retroactive
application of accounting change:
Net income $ 27.7 $ 23.1
Earnings per common share - basic $ .37 $ .33
Earnings per common share - diluted $ .37 $ .33
Operating Statistics
Electric (thousand kWh):
Retail sales 600,115 558,828
Sales for resale 251,391 226,597
Natural gas distribution (Mdk):
Sales 17,470 16,552
Transportation 3,083 3,641
Pipeline and energy services (Mdk):
Transportation 20,939 18,389
Gathering 18,851 16,927
Natural gas and oil production:
Natural gas (MMcf) 13,639 11,403
Oil (000's of barrels) 474 481
Average realized natural gas price $ 4.05 $ 2.23
Average realized oil price $ 29.00 $ 19.92
Construction materials and mining (000's):
Aggregates (tons) 5,027 3,576
Asphalt (tons) 162 167
Ready-mixed concrete (cubic yards) 515 401
Independent power production:
Net generation capacity - kW 279,600* ---
Electricity produced and sold
(thousand kWh) 48,900* ---
Other Financial Data
Book value per common share $ 17.32 $ 16.08
Market value as a percent of book value 161.2% 192.8%
Dividend yield (indicated annual rate) 3.4% 3.0%
Price/earnings ratio** 14.0x 14.6x
Total assets $ 3,058.1 $ 2,632.9
Total equity $ 1,298.4 $ 1,146.7
Net long-term debt $ 895.5 $ 764.5
Capitalization ratios:
Common equity 58% 59%
Preferred stocks 1 1
Long-term debt 41 40
100% 100%
Return on average common equity** 11.8% 13.7%
*Reflects domestic independent power production operations acquired in
November 2002 and January 2003
**Represents 12 months ended