MDU Resources Announces Second Quarter Earnings and Increases Guidance
BISMARCK, ND - July 24, 2003 - MDU Resources Group, Inc.
(NYSE:MDU) announced financial results for the three months ended
June 30, 2003, showing consolidated earnings of $43.3 million,
compared to $24.7 million for the same period last year. Earnings
per common share, diluted, totaled 58 cents, compared to 35 cents
per common share, diluted, for the second quarter of 2002.
Earnings for the six months ended June 30, 2003, totaled $63.2
million or 85 cents per common share, diluted. Earnings for the
first six months of 2002 totaled $48.2 million or 68 cents per
common share, diluted. 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,
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 totaled $70.8
million versus $31.6 million for the first six months of 2002.
Due to the continued strength of natural gas and oil commodity
prices and its recent construction materials acquisition, the
company is increasing its 2003 earnings per share guidance.
Earnings per common share, diluted, before the cumulative effect
of the accounting change discussed above, are now projected to be
in the range of $2.20 to $2.45. 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 $2.10 to $2.35.
"I am pleased to announce that our earnings per share are up 66
percent for this quarter compared to the second quarter of 2002,"
said Martin A. White, chairman of the board, president and chief
executive officer of MDU Resources. "Energy prices have been
strong, and our construction materials company is having an even
better year than 2002, which was a record year," White said.
"Even though the economy has been challenged to recover this year
and some businesses are still seeing the negative effects, our
companies are doing quite well. We provide the goods and services
that are essential to our country's infrastructure, which is the
foundation of all businesses and a strong economy."
QUARTERLY PERFORMANCE SUMMARY
Natural Gas and Oil Production
Earnings at the natural gas and oil production segment were $17.9
million, compared to $9.3 million in the second quarter of 2002.
The increase was the result of realized natural gas prices that
were 35 percent higher and realized oil prices that were 14
percent higher than the same period last year. In addition, the
company's combined natural gas and oil production increased 14
percent, primarily from enhanced natural gas production in the
Rocky Mountain area. These price and production gains were
somewhat offset by higher depreciation, depletion and
amortization expense, partly due to increased production.
Construction Materials and Mining
Earnings for the second quarter of 2003 at this segment totaled
$12.8 million, compared to $10.9 million for the same period last
year. Higher aggregate, cement, and ready-mixed concrete volumes,
together with increased construction activity contributed to the
earnings gain. A large harbor-deepening project in southern
California continues to positively affect earnings. Higher
asphalt oil and fuel costs and lower asphalt volumes, along with
higher depreciation due in part to larger volumes produced,
partially offset the increases. Existing operations were largely
responsible for the earnings increase, with operations acquired
since the second quarter of 2002 also adding to the earnings
gain. This segment's current backlog is $497 million, compared to
$317 million last year at this time.
Independent Power Production and Other
Earnings at independent power production and other were $5.5
million for the quarter, compared to a loss of $1.9 million for
the same period last year. Domestic power production in Colorado
and California contributed the majority of the earnings. The
Brazilian operations also made a significant contribution to
earnings. There were no power production facilities operational
in the second quarter of 2002; therefore, the loss reported last
year was the result of expenses related to start-up operations.
Utility Services
Earnings from the company's utility services segment were $1.5
million for the second quarter of 2003, compared to earnings of
$.8 million for the same period in 2002. Earnings improved due to
the absence in 2003 of a write-off of receivables associated with
a telecommunications company in the second quarter of 2002, as
well as lower selling, general and administrative expenses.
Partially offsetting the increases were lower margins, reflecting
the continuing effects of the soft economy and the downturn in
the telecommunications market.
Electric
Electric segment earnings for the three months ended June 30,
2003, totaled $1.8 million compared to 2002 earnings of $1.7
million for the same period. Improved wholesale electric prices
combined with higher retail volumes were offset by increased
operation and maintenance expenses and lower wholesale electric
volumes, primarily related to planned maintenance outages at two
generating stations.
Natural Gas Distribution
The natural gas distribution segment experienced a normal
seasonal loss this quarter. The loss of $1.3 million in 2003
compared to a loss of $.8 million in the same period of 2002.
Retail sales decreased due to weather that was 31 percent warmer
than the same period last year. The effects of the warmer
weather, combined with higher operation and maintenance expenses,
were partially offset by rate relief approved by various public
service commissions.
Pipeline and Energy Services
Pipeline and energy services segment earnings totaled $5.1
million for the second quarter of 2003 compared to $4.7 million
in the second quarter of 2002. This segment reported a 12 percent
increase in gathering volumes, mainly from increased gathering in
the Powder River Basin. Transportation volumes decreased,
primarily the result of lower volumes to storage; however,
transportation revenues improved due to an increase in firm
services.
Corporate News
The company's construction materials subsidiary completed the
acquisition of a large privately held construction materials and
services company serving East Central Texas. The company supplies
and places ready-mixed concrete, asphalt, crushed stone and sand
and gravel for highways, subdivisions and a variety of other
projects in 27 central Texas counties. In 2002, the acquired
company had annual revenues of about $87 million. The acquisition
is expected to be accretive to earnings per share.
The Federal Energy Regulatory Commission (FERC) has issued a
certificate of public convenience and necessity for the 253-mile
Grasslands Pipeline project and construction has begun on a new
compressor station and an addition to an existing station.
Pipeline construction is expected to begin later this summer. The
pipeline has an estimated in-service date of November 1, 2003,
and will have the capacity to deliver 80 million cubic feet of
natural gas per day on a firm basis. The pipeline will relieve
some of the pipeline capacity constraints out of the Rocky
Mountain region and will allow the company's natural gas
production in Wyoming and Montana better access to Midwestern
markets.
A new 40-megawatt, natural gas-fueled combustion turbine near
Glendive, Montana, became operational in late May. The new plant
will help the utility provide peak period electrical energy to
customers on its integrated system in North Dakota, South Dakota
and Montana. In addition, the added capacity will allow the
company to meet its peak load obligation with the regional power
pool.
The company will host a webcast on July 24, 2003, beginning at
12:00 noon CDT to discuss second quarter results and 2003
earnings guidance. The event can be accessed at www.mdu.com. The
online replay will be available beginning at 3:00 p.m. CDT on
July 24. An audio replay is also available beginning at 3:00 p.m.
CDT on July 24 through July 31, 2003. The dial in number for the
audio replay is (888) 203-1112; confirmation code 210994.
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 businesses. 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 $2.20 to $2.45. 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 $2.10
to $2.35.
- - 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:
- Third Quarter - 35 percent to 40 percent
- Fourth Quarter - 22 percent to 27 percent
- - The company will consider 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 $525 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
- - In May 2003, an electric rate case was filed with the North
Dakota Public Service Commission requesting an increase of $7.8
million annually, or 9.1 percent. The filing included an interim
request of $2.4 million effective July 1, 2003, related to the
recovery of costs for the 40-megawatt peaking unit brought into
operation in late May. The Commission had not acted on the
interim request as of mid-July. A final order on this case is
expected in January 2004.
- - 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 or early 2004.
- - The company expects to build an additional 80-megawatts of
peaking capacity by 2007. The costs of these projects are
expected to be recovered in rates and will be used to meet the
utility's need for additional generating capacity.
- - 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. A final order is
expected in late 2003. The last rate case filed in South Dakota
was filed in the mid-1990s. A natural gas rate case was filed in
October 2002 with the Minnesota Public Utilities Commission. The
requested increase is $1.6 million annually, or 6.9 percent above
current rates. An interim increase was implemented in December
2002 for $1.4 million annually. A settlement calling for an
annual increase of $1.1 million is now pending Commission action.
A final order is due by October 2003. The last rate case filed in
Minnesota was filed in the mid-1980s.
Utility Services
- - 2003 revenues for this segment are expected to be in the
range of $425 million to $475 million.
- - During 2002, a number of factors affected earnings,
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 decrease slightly
from 2002 levels.
- - This segment's work backlog as of June 30, 2003, was
approximately $150 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.
- - Pipeline construction is expected to begin later this summer
on the 253-mile Grasslands Pipeline project. The estimated in-
service date is November 1, 2003.
Natural Gas and Oil Production
- - In 2003, this segment expects a combined natural gas and oil
production increase of approximately 15 percent over 2002 record
levels.
- - This segment expects to drill more than 400 wells in 2003.
- - Estimates for natural gas prices in the Rocky Mountain
region for August through December 2003, reflected in the
company's 2003 earnings guidance, are in the range of $3.00 to
$3.50 per Mcf. The company's estimates for natural gas prices on
the NYMEX for August through December 2003, reflected in the
company's 2003 earnings guidance, are in the range of $4.25 to
$4.75 per Mcf. During 2002, more than half of this segment's
natural gas production was priced using Rocky Mountain or other
non-NYMEX prices.
- - Estimates of NYMEX crude oil prices for July through
December 2003, reflected in the company's 2003 earnings guidance,
are in the range of $22 to $27 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 45 percent to 50 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. CIG is an index pricing point related to Colorado
Interstate Gas Co.'s system and Ventura is an index pricing point
related to Northern Natural Gas Co.'s system.
- - 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. The company has entered
into agreements representing approximately 10 percent to 15
percent of 2004 estimated annual natural gas production. The
agreements are at various indices and range from a low CIG index
of $3.75 to a high NYMEX index of $5.20 per Mcf.
Construction Materials and Mining
- - Excluding the effects of potential future acquisitions,
aggregate and ready-mixed concrete volumes are expected to
increase over record levels achieved in 2002, while asphalt
volumes are expected to be comparable to 2002 levels.
- - Revenues for this segment in 2003 are expected to increase
by approximately 10 percent as compared to 2002 record levels.
- - As of mid-July 2003, this segment had $497 million in work
backlog.
Independent Power Production and Other
- - 2003 earnings projections for independent power and other
include the estimated results from the wind-powered electric
generation facility in California, 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 are expected to be in the range of $9 million
to $14 million in 2003.
- - The company had previously suspended construction of a 113-
megawatt coal-fired development project except for those items of
a critical nature. The company is in the process of accessing
markets previously unavailable to this project. Construction is
planned to resume in the near future to the extent access to such
markets has been secured.
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 and may result in a goodwill impairment for
Innovatum, Inc., an indirect wholly owned subsidiary of the
company.
- The company's natural gas and oil production business is
dependent on factors including commodity prices, which cannot be
predicted or controlled.
- Some of the company's operations are subject to extensive
environmental laws and regulations that may increase its costs of
operations, impact or limit its business plans, or expose the
company to environmental liabilities. One of the company's
subsidiaries has been sued in connection with its coalbed natural
gas development activities.
- The company is subject to extensive government regulations
that may have a negative impact on its business and its results
of operations.
- The company relies on financing sources and capital markets.
The company's inability to access financing may impair its
ability to execute business plans, make capital expenditures or
pursue 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. If the company
is unable to access markets previously unavailable to a proposed
113-megawatt coal-fired electric generation station, it may not
complete construction or commence operations of that facility. If
it is not economically feasible for the company to construct and
operate this facility or if alternative markets cannot be
identified, an asset impairment may occur.
- The value of the company's investment in foreign operations
may diminish due to political, regulatory and economic conditions
and changes in currency exchange rates in countries where the
company does business.
- Competition is increasing in all of the company's
businesses.
- Weather conditions can adversely affect the company's
operations and revenues.
- 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 a further discussion of these risk factors and cautionary
statements, refer to the company's most recent Form 10-Q at Item
2 - 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 natural gas and oil
production, construction materials and mining, a natural gas
pipeline, electric and natural gas utilities, utility services,
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 Six Months Ended
June 30, June 30,
2003 2002 2003 2002
(In millions, where applicable)
(Unaudited)
Consolidated Statements of Income
Operating revenues:
Electric $ 38.1 $ 36.3 $ 83.7 $ 76.4
Natural gas distribution 42.4 34.1 153.4 105.9
Utility services 108.9 116.3 212.6 224.6
Pipeline and energy services 56.2 44.5 117.3 86.2
Natural gas and oil production 64.7 43.8 133.7 106.2
Construction materials and mining 264.1 229.6 384.9 322.9
Independent power production
and other 11.0 .9 18.1 1.7
Intersegment eliminations (37.2) (25.3) (87.7) (61.7)
548.2 480.2 1,016.0 862.2
Operating expenses:
Fuel and purchased power 13.3 13.1 28.7 27.1
Purchased natural gas sold 27.6 19.8 103.7 55.5
Operation and maintenance 366.3 342.4 625.9 577.9
Depreciation, depletion and
amortization 46.9 37.8 91.0 73.9
Taxes, other than income 19.4 15.9 39.1 30.8
473.5 429.0 888.4 765.2
Operating income:
Electric 5.1 5.0 15.0 12.8
Natural gas distribution (1.8) (1.1) 5.5 6.2
Utility services 3.1 2.0 5.8 5.1
Pipeline and energy services 9.4 9.6 18.5 15.7
Natural gas and oil
production 30.3 15.6 62.9 50.4
Construction materials and
mining 22.9 20.9 13.0 7.9
Independent power production
and other 5.7 (.8) 6.9 (1.1)
74.7 51.2 127.6 97.0
Other income - net 4.9 1.2 8.7 4.8
Interest expense 12.8 11.0 25.7 21.5
Income before income taxes 66.8 41.4 110.6 80.3
Income taxes 23.3 16.5 39.4 31.7
Income before cumulative
effect of accounting change 43.5 24.9 71.2 48.6
Cumulative effect of accounting
change --- --- (7.6) ---
Net income 43.5 24.9 63.6 48.6
Dividends on preferred stocks .2 .2 .4 .4
Earnings on common stock:
Electric 1.8 1.7 6.6 5.2
Natural gas distribution (1.3) (.8) 2.9 3.7
Utility services 1.5 .8 2.6 2.2
Pipeline and energy services 5.1 4.7 9.4 7.5
Natural gas and oil production 17.9 9.3 29.5 30.4
Construction materials and
mining 12.8 10.9 5.4 1.1
Independent power production
and other 5.5 (1.9) 6.8 (1.9)
$ 43.3 $ 24.7 $ 63.2 $ 48.2
Earnings per common share - basic:
Earnings before cumulative
effect of accounting change $ .59 $ .35 $ .96 $ .69
Cumulative effect of accounting
change --- --- (.10) ---
Earnings per common share -
basic $ .59 $ .35 $ .86 $ .69
Earnings per common share -
diluted:
Earnings before cumulative
effect of accounting change $ .58 $ .35 $ .95 $ .68
Cumulative effect of accounting
change --- --- (.10) ---
Earnings per common share -
diluted $ .58 $ .35 $ .85 $ .68
Dividends per common share $ .24 $ .23 $ .48 $ .46
Weighted average common shares
outstanding:
Basic 73.7 70.5 73.6 70.0
Diluted 74.4 71.0 74.2 70.5
Pro forma amounts assuming
retroactive application of
accounting change:
Net income $ 43.5 $ 24.3 $ 71.2 $ 47.4
Earnings per common share -
basic $ .59 $ .34 $ .96 $ .67
Earnings per common share -
diluted $ .58 $ .34 $ .95 $ .67
Operating Statistics
Electric (thousand kWh):
Retail sales 529,722 500,887 1,129,837 1,059,715
Sales for resale 122,926 199,792 374,317 426,389
Natural gas distribution (Mdk):
Sales 5,335 6,534 22,805 23,086
Transportation 2,964 2,733 6,047 6,374
Pipeline and energy services (Mdk):
Transportation 26,040 28,714 46,979 47,103
Gathering 18,684 16,702 37,535 33,629
Natural gas and oil production:
Natural gas (MMcf) 13,258 10,949 26,897 22,352
Oil (000's of barrels) 453 502 927 983
Average realized natural
gas price $ 3.97 $ 2.93 $ 4.01 $ 2.57
Average realized oil price $ 26.52 $ 23.20 $ 27.79 $ 21.60
Construction materials and
mining (000's):
Aggregates (tons) 9,592 8,869 14,619 12,445
Asphalt (tons) 1,701 1,820 1,863 1,987
Ready-mixed concrete
(cubic yards) 912 793 1,427 1,194
Independent power production
and other:*
Net generation capacity - kW 279,600 --- 279,600 ---
Electricity produced and sold
(thousand kWh) 89,694 --- 138,594 ---
Other Financial Data**
Book value per common share $ 17.68 $ 16.30
Dividend yield (indicated
annual rate) 2.9% 3.5%
Price/earnings ratio*** 15.0x 14.4x
Market value as a percent of
book value 189.4% 161.3%
Return on average common equity*** 13.0% 11.5%
Fixed charges coverage,
including preferred dividends*** 4.9x 4.5x
Total assets $ 3,137.7 $ 2,774.8
Total equity $ 1,327.6 $ 1,179.5
Net long-term debt $ 938.6 $ 834.9
Capitalization ratios:
Common equity 58% 58%
Preferred stocks 1 1
Long-term debt 41 41
100% 100%
*Reflects domestic independent power production operations acquired
in November 2002 and January 2003
**Reported on a year-to-date basis only
***Represents 12 months ended