MDU Resources Announces Record Earnings
BISMARCK, N.D. - January 22, 2004 - MDU Resources Group, Inc.
(NYSE:MDU) announced financial results for the year ended
December 31, 2003, showing record consolidated earnings of
$174.6 million, compared to $147.7 million for 2002. Earnings per
common share, diluted, totaled $1.55, compared to $1.38 for 2002.
Earnings for 2003 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 effect of the
compromise agreement, 2003 earnings would have totaled $182.2
million or $1.62 per common share, diluted, versus $131.1 million
or $1.23 per common share for 2002.
Due to the continued strength of natural gas and oil commodity
prices, the company is increasing its 2004 earnings per share
guidance. Projected earnings per common share for 2004 are
expected to be in the range of $1.55 to $1.68.
"I am extremely pleased with our 2003 results," said Martin A.
White, chairman of the board, president and chief executive
officer of MDU Resources. "Our natural gas and oil production
business had an excellent year not only because prices were
higher, but also because we increased our production and reserve
base. The construction materials and mining segment exceeded $1
billion in revenues for the first time. We continue to acquire
excellent companies and to grow aggregate reserves. We also
completed the largest natural gas pipeline construction project
in our history, allowing us access to broader markets."
"We thrived while the economy struggled and with the positive
outlook for economic improvement, we are enthusiastic about the
future," White said. "Our strategies are proving to be sound.
The fact that the products and services our company provides
are essential to the nation's infrastructure has helped us
succeed. We will continue making an important contribution
toward building a strong America."
ANNUAL PERFORMANCE SUMMARY
Natural Gas and Oil Production
Earnings at this segment were $63.0 million for 2003, compared to
$53.2 million for the same period last year. Earnings from 2002
included the previously mentioned $16.6 million after-tax gain on
a compromise agreement, while 2003 earnings include a $7.7
million after-tax noncash transition charge, reflecting the
cumulative effect of the accounting change. The earnings increase
was the result of average realized natural gas prices that were
43 percent higher and average realized oil prices that were 20
percent higher than 2002. In addition, the company's combined
natural gas and oil production increased 10 percent, primarily
from enhanced natural gas production from operated properties
located in the Rocky Mountain area. The price and production
gains were somewhat offset by higher depreciation, depletion and
amortization expense, as well as higher lease operating expenses
due in part to increased production. The company's combined
proved natural gas and oil reserves increased to 525 Bcf
equivalents, a 10 percent increase over 2002 reserves.
Construction Materials and Mining
Earnings for 2003 for this business segment totaled $54.4
million, compared to $48.7 million for the same period last year.
Higher ready-mixed concrete and aggregate volumes, as well as
improved aggregate margins at existing operations, contributed to
the earnings gain. New acquisitions also added to the earnings
increase. Lower asphalt margins from existing operations, due in
part to higher asphalt oil costs, partially offset the gains, as
did higher selling, general and administrative expenses,
including insurance, computer system support and payroll-related
costs.
Electric
Electric business earnings for 2003 totaled $16.9 million,
compared to 2002 earnings of $15.8 million. The improvement is
primarily attributable to an increase in wholesale electric
volumes and prices due to a stronger wholesale market and higher
retail sales. These improvements were partially offset by
increased operation and maintenance expenses, including repair
and maintenance at certain electric generating stations,
insurance and payroll-related costs.
Natural Gas Distribution
This segment reported 2003 earnings of $3.9 million, compared to
2002 earnings of $3.6 million. Rate relief approved by various
public service commissions was largely offset by higher operation
and maintenance costs and the effects of weather that was 4
percent warmer than last year. Earnings in 2003 also benefited
from the absence of a $3.3 million after-tax reserve adjustment
in 2002 related to certain pipeline capacity charges. This
benefit was partially offset by higher income taxes in 2003, the
result of the reversal of certain tax contingency reserves in
2002.
Utility Services
Earnings from this business were $6.2 million for 2003, compared
to $6.4 million for 2002. Operating margins decreased, largely
the result of lower line construction and telecommunications
workloads and margins. This decrease was largely offset by
efficiencies gained through restructuring of certain operations,
as well as the absence in 2003 of certain receivables write-offs
in 2002.
Pipeline and Energy Services
This segment's earnings totaled $18.2 million for 2003, compared
to $19.1 million for 2002. Higher gathering volumes and lower
financing-related costs were more than offset by decreased
volumes transported to storage, as well as reduced natural gas
margins and lower technology services revenues at our energy
services businesses.
Independent Power Production and Other
Earnings were $12.0 million for 2003, compared to $.9 million for
the same period last year. The Colorado and California generating
facilities, acquired in late 2002 and early 2003, respectively,
contributed significantly to the earnings increase. Also
contributing to the earnings increase were the Brazilian
operations, which realized the benefits of higher margins due to
increased capacity revenues resulting from all four units being
in operation compared to only two units in 2002, as well as
foreign currency gains from the revaluation of the Brazilian
real. These gains were partially offset by the decreased value of
the embedded derivative in the electric power contract.
CORPORATE NEWS
Patricia L. Moss, 50, president, chief executive officer and a
member of the Board of Directors of Cascade Bancorp and Bank of
the Cascades, was named to the board of directors in November
2003. She will stand for election at the annual meeting of MDU
Resources stockholders in April 2005. Moss was recently
recognized among the Top Five Bank CEOs in the nation by US
Banker Magazine.
MDU Resources was singled out by Forbes magazine as the Best
Managed Company in the utilities industry in America. The list
appeared in the January 12, 2004, issue of Forbes, where the
company was profiled in an article along with the front runners
in 25 other industries. This is the fourth consecutive year that
MDU Resources has been included on the Forbes Platinum list of
the best big companies in America. It's the first year the
magazine highlighted the Best Managed Company in each industry.
The 253-mile Grasslands Pipeline was completed in December by the
pipeline and energy services segment. It will enable the company
to move the natural gas it produces to broader markets. Firm
capacity for the pipeline is currently 90 million cubic feet per
day with expansion possible up to 200 million cubic feet per day.
A final order was received in December 2003 related to the
company's North Dakota electric rate filing. The order authorized
an increase to annualized revenues of $1.0 million effective
January 23, 2004, and a wholesale electric sales margin sharing
mechanism between the company and retail customers.
The company's natural gas distribution segment received a final
order related to its South Dakota rate filing. The order
authorized an increase of $1.3 million in revenues annually,
effective December 2, 2003.
A final order was received in January 2004 from the Minnesota
Public Utilities Commission approving a settlement for an annual
increase in natural gas revenues of $1.1 million. Interim rates
placed into effect in December 2002 slightly exceeded the final
rate levels. Rates will be adjusted based on the final increase
which will result in a refund to retail customers.
The company will host a webcast January 22, 2004, beginning at
1:00 p.m. EST to discuss 2003 earnings results and earnings
guidance for 2004. The event can be accessed at www.mdu.com. The
replay will be available beginning at 4:00 p.m. EST on January
22. An audio replay will also be available by calling (888) 203-
1112; confirmation code 118775.
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.
- Earnings per common share for 2004, diluted, are projected
in the range of $1.55 to $1.68.
- Projections for 2004 include the effects of certain
identified potential acquisitions expected to close in the first
quarter of 2004.
- The company expects the percentage of 2004 earnings per
common share, diluted, by quarter to be in the following
approximate ranges:
- First quarter - 13 percent to 18 percent
- Second quarter - 19 percent to 24 percent
- Third quarter - 35 percent to 40 percent
- Fourth quarter - 23 percent to 28 percent
- 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.
- 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 $370 million in capital
expenditures during 2004.
- The company has formed an alliance with several electric
cooperatives in the region to evaluate potential utility
opportunities presented by the bankruptcy of NorthWestern
Corporation. NorthWestern filed for Chapter 11 bankruptcy
protection on Sept. 14, 2003.
Electric
- Expected returns in 2004 are anticipated to be generally
consistent with authorized levels.
- 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 (MW) wind energy farm in North Dakota. The contract
provides for this wind energy farm to be on-line by early to mid
2004.
- The company continues to evaluate potential needs for future
generation. The company expects to build or acquire an additional
175 MW to 200 MW of capacity over the next 10 years to replace
expiring contracts and meet system growth requirements. The
company is working with the state of North Dakota to determine
the feasibility of constructing a lignite-fired power plant in
western North Dakota. The company also announced its involvement
in a coalition with four other utilities to study the feasibility
of building a coal-based facility possibly combined with a wind
energy facility at potential sites in North Dakota, South Dakota
and Iowa. The costs of building and/or acquiring the additional
generating capacity needed by the utility are expected to be
recovered in rates.
Natural Gas Distribution
- Annual natural gas throughput for 2004 is expected to be
approximately 52 million decatherms.
- The company expects to seek natural gas rate increases from
time to time to offset higher expected operating costs.
Utility Services
- Revenues for this segment are expected to be in the range of
$440 million to $490 million in 2004.
- The company anticipates margins to increase in 2004 as
compared to 2003 levels.
- This segment's work backlog as of December 31, 2003, was
approximately $148 million.
Pipeline and Energy Services
- In 2004, total natural gas throughput is expected to
increase approximately 25 to 30 percent over 2003 levels largely
due to the Grasslands Pipeline, which began providing natural gas
transmission service on December 23, 2003.
- Firm capacity for the Grasslands Pipeline is currently 90
million cubic feet per day with expansion possible to 200 million
cubic feet per day.
- Transportation rates are expected to decline in 2004 from
2003 levels due to the estimated effects of a Federal Energy
Regulatory Commission rate order received in July 2003.
Natural Gas and Oil Production
- In 2004, the company expects a combined production increase
of approximately 10 percent over 2003 levels.
- This segment expects to drill more than 400 wells in 2004.
- Natural gas prices in the Rocky Mountain region for February
through December 2004 reflected in the company's 2004 earnings
guidance are in the range of $3.25 to $3.75 per Mcf. The
company's estimates for natural gas prices on the NYMEX for
February through December 2004, reflected in the company's 2004
earnings guidance, are in the range of $4.00 to $4.50 per Mcf.
During 2003, more than two-thirds 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 2004,
reflected in the company's 2004 earnings guidance, are in the
range of $26 to $30 per barrel.
- The company has hedged a portion of its 2004 estimated
annual natural gas production. The company has entered into
agreements representing approximately 30 percent to 35 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 CIG index of $5.48 per Mcf. CIG is an index pricing point
related to Colorado Interstate Gas Co.'s system.
- The company has hedged a portion of its 2004 oil production.
The company has entered into agreements at NYMEX prices with a
low of $28.84 and a high of $30.28, representing approximately 30
percent to 35 percent of 2004 estimated annual oil production.
- The company has hedged less than 5 percent of its 2005
estimated annual natural gas production and will continue to
evaluate additional opportunities.
Construction Materials and Mining
- Aggregate volumes in 2004 are expected to be comparable to
2003 levels, while ready-mixed concrete and asphalt volumes are
expected to increase over 2003.
- Revenues in 2004 are expected to increase by approximately 5
percent to 10 percent over 2003 levels.
- Knife River is confident that the replacement funding
legislation for the Transportation Equity Act for the 21st
Century (TEA-21) will be at funding levels equal to or higher
than the funding under TEA-21.
- As of December 31, 2003, this segment had $332 million in
work backlog.
Independent Power Production and Other
- Earnings projections in 2004 for independent power
production and other operations 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-MW natural gas-fired
generation project in Brazil. Earnings are expected to be in the
range of $18 million to $23 million in 2004.
- The company has begun construction of a 113-megawatt coal-
fired development project in Hardin, Mont. Based on demand and
power pricing in the Northwest, the plant is being built on a
merchant basis. Efforts will continue towards securing a contract
for the off-take of the plant. The company is optimistic that
this plant will be under contract by the time of plant
completion. The projected on-line date for this plant is late
2005.
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 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. At December 31, 2003, the
goodwill amount at Innovatum was approximately $8.3 million.
- The company relies on financing sources and capital markets.
If the company was unable to access financing in the future, the
company's ability to execute its business plans, make capital
expenditures or pursue acquisitions that the company may
otherwise rely on for future growth could be impaired.
- 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 is subject to litigation 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 has begun construction of a 113-megawatt coal-
fired development project in Hardin, Mont. Based on demand and
power pricing in the Northwest, the plant is being built on a
merchant basis. Unanticipated events could delay completion of
construction, start-up and/or operation of the project. Changes
in the market price for power from the company's projections
could also negatively impact earnings to be derived from the
project.
- 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 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 contract counterparties to
meet their contractual obligations
- Changes in accounting principles and/or the
application of such principles to the company
- Changes in technology
- Changes in 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 Introduction and to Item 2 -
Management's Discussion and Analysis of Financial Condition and
Results of Operations - Risk Factors and Cautionary Statements
that May Affect Future Results in the company's most recent Form
10-Q.
MDU Resources Group, Inc., a member of the S&P MidCap 400 Index,
provides value-added natural resource products and related
services that are essential to our country's energy and
transportation infrastructure. MDU Resources includes natural gas
and oil production, construction materials and mining, electric
and natural gas utilities, natural gas pipelines and energy
services, domestic and international independent power production
and utility 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:
Warren L. Robinson - Executive Vice President and Chief Financial Officer
(701) 222-7991 or
Cathi Christopherson - Vice President, Corporate Communications
(701) 222-7959
MDU Resources Group, Inc.
Three Months Ended Twelve Months Ended
December 31, December 31,
2003 2002 2003 2002
-------- -------- ---------- -----------
(In millions, where applicable)
Consolidated Statements of
Income
Operating revenues:
Electric $ 46.9 $ 44.7 $ 178.6 $ 162.6
Natural gas distribution 93.5 63.9 274.6 186.6
Utility services 105.5 120.6 434.2 458.7
Pipeline and energy services 73.4 51.5 252.2 165.2
Natural gas and oil production 65.8 55.3 264.3 203.6
Construction materials and
mining 293.1 260.8 1,104.4 962.3
Independent power production
and other 6.8 4.2 35.0 6.8
Intersegment eliminations (64.9) (44.0) (191.1) (114.3)
620.1 557.0 2,352.2 2,031.5
Operating expenses:
Fuel and purchased power 17.2 14.4 62.0 56.0
Purchased natural gas sold 60.5 32.4 184.2 92.5
Operation and maintenance 405.0 369.5 1,525.3 1,393.0
Depreciation, depletion and
amortization 49.6 43.4 188.3 158.0
Taxes, other than income 19.0 18.3 80.3 65.9
551.3 478.0 2,040.1 1,765.4
Operating income:
Electric 8.5 11.6 35.8 33.9
Natural gas distribution 4.9 .1 6.5 2.4
Utility services 3.7 5.2 12.9 14.0
Pipeline and energy services 8.0 11.9 35.2 39.1
Natural gas and oil
production 27.4 23.1 118.3 85.6
Construction materials and
mining 15.3 25.3 91.6 91.4
Independent power production
and other 1.0 1.8 11.8 (.3)
68.8 79.0 312.1 266.1
Other income - net 11.0 1.8 22.2 13.6
Interest expense 13.5 11.8 52.8 45.0
Income before income taxes 66.3 69.0 281.5 234.7
Income taxes 20.1 23.1 98.6 86.3
Income before cumulative
effect of accounting change 46.2 45.9 182.9 148.4
Cumulative effect of accounting
change --- --- (7.6) ---
Net income 46.2 45.9 175.3 148.4
Dividends on preferred stocks .1 .2 .7 .7
Earnings on common stock:
Electric 4.1 6.2 16.9 15.8
Natural gas distribution 3.4 2.5 3.9 3.6
Utility services 1.9 2.6 6.2 6.4
Pipeline and energy services 4.1 5.7 18.2 19.1
Natural gas and oil production 17.0 15.8 63.0 53.2
Construction materials and
mining 12.9 14.1 54.4 48.7
Independent power
production and other 2.7 (1.2) 12.0 .9
$ 46.1 $ 45.7 $ 174.6 $ 147.7
Earnings per common share -
basic:
Earnings before cumulative
effect of accounting change $ .41 $ .42 $ 1.64 $ 1.39
Cumulative effect of accounting
change --- --- (.07) ---
Earnings per common share -
basic $ .41 $ .42 $ 1.57 $ 1.39
Earnings per common share -
diluted:
Earnings before cumulative
effect of accounting change $ .40 $ .42 $ 1.62 $ 1.38
Cumulative effect of
accounting change --- --- (.07) ---
Earnings per common share -
diluted $ .40 $ .42 $ 1.55 $ 1.38
Dividends per common share $ .1700 $ .1600 $ .6600 $ .6266
Weighted average common
shares outstanding:
Basic 112.6 108.1 111.5 106.1
Diluted 113.8 108.9 112.5 106.9
Pro forma amounts assuming
retroactive application of
accounting change:
Net income $ 46.2 $ 45.3 $ 182.9 $ 146.1
Earnings per common share -
basic $ .41 $ .42 $ 1.64 $ 1.37
Earnings per common share -
diluted $ .40 $ .41 $ 1.62 $ 1.36
Operating Statistics
Electric (thousand kWh):
Retail sales 599,843 605,449 2,359,888 2,275,024
Sales for resale 254,582 204,554 841,637 784,530
Natural gas distribution (Mdk):
Sales 12,657 13,318 38,572 39,558
Transportation 5,095 4,829 13,903 13,721
Pipeline and energy services
(Mdk):
Transportation 20,346 22,877 90,239 99,890
Gathering 19,482 20,305 75,861 72,692
Natural gas and oil production:
Natural gas (MMcf) 14,360 13,668 54,727 48,239
Oil (000's of barrels) 476 499 1,856 1,968
Average realized natural gas
price $ 3.70 $ 3.17 $ 3.90 $ 2.72
Average realized oil price $ 26.56 $ 23.55 $ 27.25 $ 22.80
Construction materials and
mining (000's):
Aggregates (tons) 9,700 9,478 38,438 35,078
Asphalt (tons) 1,765 1,540 7,275 7,272
Ready-mixed concrete
(cubic yards) 896 757 3,484 2,902
Independent power production
and other:*
Net generation capacity - kW 279,600 213,000 279,600 213,000
Electricity produced and sold
(thousand kWh) 27,634 15,804 270,044 15,804
Other Financial Data**
Book value per common share $ 12.66 $ 11.56
Dividend yield (indicated
annual rate) 2.9% 3.7%
Price/earnings ratio*** 15.4x 12.5x
Market value as a percent
of book value 188.1% 148.8%
Return on average common
equity*** 13.0% 12.5%
Fixed charges coverage,
including preferred
dividends*** 4.7x 4.8x
Total equity $ 1,450.6 $ 1,298.7
Net long-term debt $ 939.5 $ 819.6
Capitalization ratios:
Common equity 60% 60%
Preferred stocks 1 1
Long-term debt 39 39
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