MDU Resources Reports First Quarter 2004 Consolidated Earnings and
Increases Earnings Guidance for 2004
BISMARCK, N.D. - April 20, 2004 - MDU Resources Group, Inc.
(NYSE:MDU) announced financial results for the first quarter of
2004, showing consolidated earnings of $23.4 million, compared to
$19.9 million for 2003. Earnings per common share, diluted, were
$0.20, compared to $0.18 per common share for 2003.
Highlights for First Quarter 2004
(Ended March 31, 2004)
- Earnings per common share of $0.20
- Consolidated earnings of $23.4 million
- Increased 2004 earnings per share guidance to a range of
$1.60 to $1.75, up from previous guidance of $1.55 to $1.68
Earnings for the first quarter of 2003 included a $7.6 million
after-tax noncash transition charge to earnings which reflected
the cumulative effect of a change in accounting for asset
retirement obligations as required by the adoption of Statement
of Financial Accounting Standards No. 143. Excluding the $7.6
million accounting charge, 2003 first quarter earnings totaled
$27.5 million.
"We are pleased with the significantly increased earnings
contributions from our natural gas and oil production and
independent power production businesses this quarter," said
Martin A. White, chairman of the board, president and chief
executive officer of MDU Resources. "Although we experienced
seasonal losses at our construction materials and mining segment,
we are optimistic that this business will perform well in 2004
given its extensive backlog and the recent acquisition activity.
"We expect that 2004 will be another excellent year for MDU
Resources," White continued. "Therefore, based on the continued
strength of natural gas and oil prices as well as general
optimism throughout our organization, we are increasing our
earnings guidance. Projected earnings per share for 2004 are now
expected to be in the range of $1.60 to $1.75.
"MDU Resources celebrated its 80th anniversary on March 14th. For
eight decades we've been providing the essential products and
services that support this country's infrastructure. We believe
our strategies of building on our expertise have made us the
successful company we are today and will continue to serve us
well for the next 80 years."
QUARTERLY PERFORMANCE SUMMARY AND FUTURE OUTLOOK
The following information highlights the key growth strategies,
projections and certain assumptions for the company and its
subsidiaries 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.
Business Line Earnings First Earnings First
Quarter 2004 Quarter 2003
(In Millions) (In Millions)
Electric $ 3.4 $ 4.8
Natural gas distribution 2.3 4.2
Utility services (1.9) 1.1
Pipeline and energy services 2.7 4.3
Natural gas and oil
production 25.3 11.7
Construction materials and
mining (11.9) (7.4)
Independent power
production & other 3.5 1.2
Total $23.4 $19.9
On a consolidated basis, the following information highlights the
key growth strategies, projections and certain assumptions for
the company:
- - Earnings per common share for 2004, diluted, are projected
in the range of $1.60 to $1.75, an increase from prior guidance
of $1.55 to $1.68.
- - Projections for 2004 include the effect of an identified
potential acquisition expected to close in the second quarter of
2004.
- - The company expects the percentage of 2004 earnings per
common share, diluted, by quarter to be in the following
approximate ranges:
- Second quarter - 22 percent to 27 percent
- Third quarter - 37 percent to 42 percent
- Fourth quarter - 24 percent to 29 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 approximately $415 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.
Natural Gas and Oil Production
Earnings at this segment were $25.3 million, compared to $11.7
million for the same period last year. The increase was a result
of average realized natural gas prices that were 13 percent
higher and average realized oil prices that were 7 percent higher
than a year ago. The realized natural gas price increase was due
in part to the company's ability to access higher-priced markets
for its natural gas production through the recently constructed
Grasslands Pipeline. Natural gas and oil production volumes on a
combined basis were 5 percent higher than last year. Earnings for
2003 included a $7.7 million after-tax noncash transition charge
to earnings, which reflected the cumulative effect of the
accounting change previously mentioned. The positive variance was
partially offset by higher depreciation, depletion and
amortization expense.
The following information highlights the key growth strategies,
projections and certain assumptions for this segment:
- - 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 May
through December 2004, reflected in the company's 2004 earnings
guidance, are in the range of $3.75 to $4.25 per Mcf. The
company's estimates for natural gas prices on the NYMEX for May
through December 2004, reflected in the company's 2004 earnings
guidance, are in the range of $4.75 to $5.25 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 April through December 2004,
reflected in the company's 2004 earnings guidance, are in the
range of $28 to $32 per barrel.
- - The company has hedged a portion of its 2004 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 NYMEX index of
$6.11 per Mcf. CIG is an index pricing point related to Colorado
Interstate Gas Co.'s system.
- - This segment 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 approximately 10 percent to 15
percent of its 2005 estimated annual natural gas production and
10 percent to 15 percent of its 2005 estimated annual oil
production. The company will continue to evaluate additional
hedging opportunities.
Construction Materials and Mining
The construction materials and mining segment experienced
seasonal first quarter losses from existing operations, combined
with seasonal losses from acquisitions made since the first
quarter of last year. Work on a large harbor-deepening project in
southern California is substantially complete, which produced
lower earnings from that operation when compared to last year.
These factors resulted in higher losses for the first quarter of
2004, which totaled $11.9 million, compared to a $7.4 million
last year. Earnings prospects from the construction materials and
mining companies for the next three quarters remain sound
considering their $460 million backlog, compared to $325 million
in backlog in mid-April last year.
Fred Carlson Company, Inc., Roverud Construction, Inc. and
Pederson Bros. of Harmony, Inc. were acquired by the construction
materials and mining segment in early February. Fred Carlson Co.
was a privately held ready-mixed concrete producer and concrete
and asphalt paving company with headquarters in Decorah, Iowa.
Roverud Construction and Pederson Bros. were privately held
aggregate mining and production companies serving the
northeastern Iowa and southeastern Minnesota markets. These
companies are among the leading construction materials providers
in their market areas. The companies have combined annual
revenues of approximately $90 million.
The following information highlights the key growth strategies,
projections and certain assumptions for this segment:
- - Aggregate volumes in 2004 are expected to be comparable to
2003 levels. Ready-mixed concrete volumes are expected to
increase by 15 percent to 20 percent, while asphalt volumes are
expected to increase 10 percent to 15 percent over 2003.
- - Revenues in 2004 are expected to increase by approximately
10 percent to 15 percent over 2003 levels.
- - The company 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 mid-April, this segment had $460 million in work
backlog compared to $325 million in mid-April of 2003.
Electric
Electric segment earnings were $3.4 million for the first
quarter, compared to $4.8 million for the same period last year.
Higher sales for resale margins and increased retail sales
volumes were more than offset by higher operation and maintenance
expense, including payroll, pension and other benefit-related
costs, as well as the seasonal effects of a new rate design for
retail customers in North Dakota.
The following information highlights the key growth strategies,
projections and certain assumptions for this segment:
- - The expected return for this segment in 2004 is anticipated
to be generally consistent with overall authorized levels.
- - Regulatory approval has been received from the North Dakota
Public Service Commission and the South Dakota Public Utilities
Commission to include renewable energy in the fuel adjustment
clause. The company has plans to purchase energy from a 20-
megawatt (MW) wind energy farm in North Dakota. However, wind
development is currently stalled nationwide awaiting federal
reauthorization of the production tax credits. This segment does
not anticipate the project being constructed until the tax
credits are extended.
- - 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. This segment 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
Earnings at this segment decreased to $2.3 million, compared to
$4.2 million for the same period last year. The decrease was
largely attributable to lower retail sales volumes due to weather
that was 5 percent warmer than a year ago and higher operation
and maintenance expense, including increased payroll, pension and
other benefit-related costs. Partially mitigating the decrease
were higher prices due to a rate increase effective in South
Dakota.
The following information highlights the key growth strategies,
projections and certain assumptions for this segment:
- - 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.
- - In March 2004, a natural gas rate case was filed with the
North Dakota Public Service Commission requesting an increase of
$3.3 million annually, or 2.8 percent. The company requested an
interim increase of $1.9 million annually to be effective within
60 days of the filing of the natural gas rate increase. A final
order on this case is expected in late 2004.
- - In April 2004, a natural gas rate case was filed with the
Montana Public Service Commission requesting an increase of $1.5
million annually, or 1.8 percent. The company requested an
interim increase of $500,000 annually to be effective within 30
days of the filing of the natural gas rate increase. A final
order on this case is expected in early 2005.
Utility Services
The utility services segment experienced a $1.9 million loss for
the first quarter, compared to $1.1 million in earnings for the
same period last year. Decreased inside electrical margins,
combined with decreased line construction margins and workload in
the Central and Rocky Mountain regions, more than offset
increased line construction work in the Northwest and Southwest
regions. Earnings are expected to improve for the remainder of
the year as evidenced by an increase of 10 percent in work
backlog, as well as an increase in bidding activity.
The following information highlights the key growth strategies,
projections and certain assumptions for this segment:
- - 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 March 31, 2004, was
approximately $174 million compared to $158 million at March 31,
2003.
Pipeline and Energy Services
Earnings at this segment were $2.7 million, compared to $4.3
million for the same period last year. Natural gas transportation
volumes increased as a result of the Grasslands Pipeline, which
began providing natural gas transmission service late in 2003.
The additional revenues from these volumes were offset by a
decrease in revenues from lower transportation reservation fees
resulting from a decrease in the level of firm services provided,
and lower storage service revenues. Higher operating expenses,
which were partially the result of increased costs associated
with the expansion of pipeline and gathering operations, also
contributed to the decrease.
The following information highlights the key growth strategies,
projections and certain assumptions for this segment:
- - In 2004, total natural gas throughput is expected to
increase approximately 20 percent to 25 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.
Independent Power Production and Other
Earnings at this business were $3.5 million, a $2.3 million
increase compared to the same period last year. Significantly
lower financing costs at the Brazilian operations, combined with
the effects of changes in the amortization of the embedded
derivative in the Brazilian electric power sales contract, were
partially offset by foreign currency changes. The decreased
financing costs were largely the result of obtaining low-cost,
long-term financing for the operation in mid-2003.
In late February, this business acquired a 49.9-percent ownership
interest in Carib Power Management LLC. Carib Power Management
indirectly owns InnCOGEN, Limited, a 225-MW natural gas-fired
electric generation facility located in The Republic of Trinidad
and Tobago. The facility consists of three natural gas-fired
combustion turbines operating in a simple cycle mode and has 26
years remaining on its power purchase agreement guaranteed
through the government entity responsible for the transmission,
distribution and administration of electrical power to the
national electrical grid of Trinidad and Tobago.
This month, Colorado Energy Management, LLC (CEM) was acquired by
this business. CEM, headquartered in Lafayette, Colo., has been
providing analysis, design, construction, refurbishment, and
operation and maintenance services to independent power producers
since the mid-1980s. CEM currently provides operation and
maintenance services for customers owning 668 MW of generating
capacity, including a 213-MW natural gas-fired electric
generation facility located in Brush, Colo., already owned by the
company. CEM is also constructing a 140-MW combined-cycle facility
in Payson, Utah for a third party, and will provide operation and
maintenance services for the facility upon commercial operation.
Also this month, this group announced that a subsidiary company,
Rocky Mountain Power, Inc. (RMP), entered into a power sales
agreement with Powerex Corp., a subsidiary of BC Hydro. Powerex
will purchase electricity generated at RMP, a 116-MW coal-fired
electric generation facility under construction near Hardin,
Mont. The facility is anticipated to be on line in late 2005. The
power sales agreement is for three years with a two-year
extension option and provides for capacity and energy payments
for the entire output of the plant.
The following information highlights the key growth strategies,
projections and certain assumptions for this business:
- - Earnings projections for independent power production and
other operations are expected to be in the range of $18 million
to $23 million in 2004.
- - The company has begun construction of a 116-MW coal-fired
electric generating project near Hardin, Mont. A power sales
agreement with Powerex Corp., a subsidiary of BC Hydro, has been
secured for the entire output of the plant. The projected on-line
date for this plant is late 2005.
The company will host a webcast April 20, 2004, beginning at 1:00
p.m. EDT to discuss first quarter 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. EDT on April 20.
An audio replay will also be available by calling 1 (877) 519-
4471 or 1 (973) 341-3080; access code 4672983.
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 which could cause actual results or outcomes
for the company to differ materially from those discussed in
forward-looking statements.
- - The company's natural gas and oil production business is
dependent on factors, including commodity prices, which cannot be
predicted or controlled.
- - The uncertain economic environment and depressed
telecommunication market 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 March 31, 2004, 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 obtain 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.
- - Some of the company's operations are subject to extensive
environmental laws and regulations that may increase costs of
operations, impact or limit 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 value of the company's investments 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, disposal and impairment of assets or facilities
- Changes in operation, performance and construction of plant
facilities or other assets
- 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 and/or available supplies of energy products
- 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 7 -
Management's Discussion and Analysis of Financial Condition and
Results of Operations - Risk Factors and Cautionary Statements
that May Affect Future Results of the company's most recent Form
10-K.
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
March 31,
2004 2003
(In millions, where applicable)
(Unaudited)
Consolidated Statements of Income
Operating revenues:
Electric $ 47.0 $ 45.7
Natural gas distribution 128.3 111.0
Utility services 100.3 103.7
Pipeline and energy services 84.2 61.1
Natural gas and oil production 81.0 69.0
Construction materials and mining 139.4 120.8
Independent power production and other 7.3 7.1
Intersegment eliminations (72.0) (50.6)
515.5 467.8
Operating expenses:
Fuel and purchased power 16.7 15.4
Purchased natural gas sold 94.8 76.1
Operation and maintenance 288.6 259.6
Depreciation, depletion and
amortization 49.5 44.1
Taxes, other than income 21.9 19.7
471.5 414.9
Operating income:
Electric 8.0 9.9
Natural gas distribution 5.0 7.3
Utility services (2.6) 2.6
Pipeline and energy services 6.9 9.1
Natural gas and oil production 42.5 32.7
Construction materials and mining (16.3) (10.0)
Independent power production and other .5 1.3
44.0 52.9
Other income - net 4.8 3.7
Interest expense 13.8 12.8
Income before income taxes 35.0 43.8
Income taxes 11.4 16.1
Income before cumulative effect of
accounting change 23.6 27.7
Cumulative effect of accounting change --- (7.6)
Net income 23.6 20.1
Dividends on preferred stocks .2 .2
Earnings on common stock:
Electric 3.4 4.8
Natural gas distribution 2.3 4.2
Utility services (1.9) 1.1
Pipeline and energy services 2.7 4.3
Natural gas and oil production 25.3 11.7
Construction materials and mining (11.9) (7.4)
Independent power production and other 3.5 1.2
$ 23.4 $ 19.9
Earnings per common share - basic:
Earnings before cumulative effect
of accounting change $ .20 $ .25
Cumulative effect of accounting
change --- (.07)
Earnings per common share - basic $ .20 $ .18
Earnings per common share - diluted:
Earnings before cumulative effect
of accounting change $ .20 $ .25
Cumulative effect of accounting
change --- (.07)
Earnings per common share - diluted $ .20 $ .18
Dividends per common share $ .17 $ .16
Weighted average common shares
outstanding:
Basic 114.7 110.3
Diluted 115.7 111.1
Pro forma amounts assuming retroactive
application of accounting change:
Net income $ 23.6 $ 27.7
Earnings per common share - basic $ .20 $ .25
Earnings per common share - diluted $ .20 $ .25
Operating Statistics
Electric (thousand kWh):
Retail sales 621,147 600,115
Sales for resale 227,270 251,391
Natural gas distribution (Mdk):
Sales 16,337 17,470
Transportation 3,779 3,083
Pipeline and energy services (Mdk):
Transportation 22,389 20,939
Gathering 19,469 18,851
Natural gas and oil production:
Natural gas (MMcf) 14,506 13,639
Oil (000's of barrels) 457 474
Average realized natural gas price $ 4.57 $ 4.05
Average realized oil price $ 31.16 $ 29.00
Construction materials and mining (000's):
Aggregates (tons) 4,807 5,027
Asphalt (tons) 302 162
Ready-mixed concrete (cubic yards) 574 515
Independent power production and other:*
Net generation capacity - kW 279,600 279,600
Electricity produced and sold
(thousand kWh) 31,355 48,900
Other Financial Data
Book value per common share $ 12.93 $ 11.55
Dividend yield (indicated annual rate) 2.9% 3.4%
Price/earnings ratio** 15.0x 14.0x
Market value as a percent of book value 181.7% 161.2%
Return on average common equity** 12.7% 11.8%
Fixed charges coverage, including
preferred dividends** 4.7x 4.6x
Total assets $3,455.5 $3,119.6
Total equity $1,524.7 $1,298.4
Net long-term debt $ 878.5 $ 895.5
Capitalization ratios:
Common equity 63% 58%
Preferred stocks 1 1
Long-term debt 36 41
100% 100%
*Reflects domestic independent power production operations
**Represents 12 months ended
Note: Common stock share amounts reflect the company's three-for-
two common stock split effected in October 2003.