MDU Resources Reports Second Quarter 2004 Consolidated Earnings and
Increases Earnings Guidance for 2004
BISMARCK, N.D. - July 21, 2004 - MDU Resources Group, Inc.
(NYSE:MDU) announced financial results for the second quarter of
2004, showing consolidated earnings of $58.5 million, compared to
$43.3 million for 2003. Earnings per common share, diluted, were
$0.50, compared to $0.39 for 2003.
Highlights for Second Quarter 2004
(Ended June 30, 2004)
- Earnings per common share increased 28 percent to $0.50
- Consolidated earnings of $58.5 million
- Increased 2004 earnings per share guidance to a range of
$1.75 to $1.90, up from previous guidance of $1.60 to $1.75
Earnings for the quarter benefited from the favorable resolution
of certain federal and related state income tax matters which,
net of interest expense, added $5.9 million to 2004 second
quarter earnings.
Earnings for the first six months ended June 30, 2004, totaled
$81.9 million or $0.70 per common share, diluted, compared to
$63.2 million or $0.57 per common share for the first half of
2003. Earnings for 2003 included a $7.6 million after-tax noncash
transition charge, reflecting 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 this charge, 2003 earnings would have totaled $70.8
million for the first half of 2003.
"Our earnings per share are up an impressive 28 percent compared
to second quarter last year," said Martin A. White, chairman of
the board, president and chief executive officer of MDU
Resources. "The earnings contributions from our natural gas and
oil production, construction materials and mining and independent
power production businesses are outstanding this quarter. Our
construction materials and mining segment is experiencing an
excellent season, and we are optimistic that this business will
have another record-setting year, considering its extensive
backlog and acquisition activity.
"We expect that 2004 will be an exceptional year for MDU
Resources," White continued. "Therefore, based on the continued
strength of natural gas and oil prices, as well as impressive
performance at several business units, we are increasing our
earnings guidance. Projected earnings per share for 2004 are now
expected to be in the range of $1.75 to $1.90.
"For eight decades we've been providing the essential products
and services that have helped build a foundation for the
infrastructure of the largest economy in the world. We are
successful today because we have grown by building on our
expertise, and we believe those strategies 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 Second Earnings Second
Quarter 2004 Quarter 2003
(In Millions) (In Millions)
Natural gas and oil
production $ 26.2 $ 17.9
Construction materials
and mining 20.4 12.8
Independent power
production & other 10.2 5.5
Pipeline and energy
services 4.4 5.1
Electric .7 1.8
Natural gas distribution (1.1) (1.3)
Utility services (2.3) 1.5
Total $ 58.5 $ 43.3
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 $1.75 to $1.90, an increase from prior guidance
of $1.60 to $1.75.
- - The company expects the percentage of 2004 earnings per
common share, diluted, by quarter to be in the following
approximate ranges:
- 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 approximately $440 million
in capital expenditures during 2004.
Natural Gas and Oil Production
Earnings at this segment were $26.2 million, compared to $17.9
million for the same period last year. The increase was partially
the result of average realized natural gas prices that were 17
percent higher and realized oil prices that were 25 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 much of its operated natural gas production through
the Grasslands Pipeline, completed late last year. Natural gas
and oil production volumes on a combined basis were 10 percent
higher for the quarter than last year. These positive variances
were partially offset by higher operating expenses and
depreciation, depletion and amortization expense.
On June 22, this segment was honored with a Fluid Minerals Award
from the Bureau of Land Management (BLM), recognizing the
company's community education and outreach efforts related to its
coalbed natural gas production activities. The company was
recognized as "an exemplary operator in Montana and Wyoming's
Powder River Basin" that "makes working with landowners a
priority." The BLM specifically highlighted the company's three-
year soil monitoring program for farmers and ranchers along the
Tongue River in Montana.
The following information highlights the key growth strategies,
projections and certain assumptions for this segment:
- - In 2004, the company believes a combined production increase
of approximately 10 percent over 2003 levels remains possible. A
portion of this increase is predicated on the timely receipt of
various regulatory approvals, which is affecting producers
throughout the Rocky Mountain region. The company is confident
that it will receive such permits, but forecasting the timing of
such receipt is difficult. Also affecting the forecasted
production increase is the timely installation of infrastructure.
- - This segment expects to drill more than 400 wells in 2004.
- - Natural gas prices in the Rocky Mountain region for August
through December 2004, reflected in the company's 2004 earnings
guidance, are in the range of $4.50 to $5.00 per Mcf. The
company's estimates for natural gas prices on the NYMEX for
August through December 2004, reflected in the company's 2004
earnings guidance, are in the range of $5.50 to $6.00 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 July through December 2004,
reflected in the company's 2004 earnings guidance, are in the
range of $33 to $37 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 25 percent to 30 percent of 2004 estimated annual
oil production.
- - The company has hedged a portion of its 2005 estimated
natural gas production. The company has entered into agreements
representing approximately 15 percent to 20 percent of its 2005
estimated annual natural gas production. The agreements are at a
Ventura index with a low of $4.75 and a high of $5.87 per Mcf.
Ventura is an index pricing point related to Northern Natural Gas
Co.'s system.
- - This segment has hedged a portion of its 2005 oil
production. The company has entered into agreements at NYMEX
prices with a low of $30.70 and a high of $36.50 representing
approximately 20 percent to 25 percent of its 2005 estimated
annual oil production.
Construction Materials and Mining
Earnings for the second quarter of 2004 at this segment totaled
$20.4 million, compared to $12.8 million for the same period last
year. This segment reported higher volumes in all product lines
and increased construction activity. Existing operations were
largely responsible for the earnings increase with operations
acquired since the second quarter of 2003 and favorable
resolution of federal and related state income tax matters also
adding to the earnings gain. Earnings improved 59 percent even
though last year's results included the benefits from a large
harbor-deepening project in southern California, which is now
substantially complete.
In early May, this segment acquired Masco Inc., a leading
construction materials and construction services company in
southwestern Idaho. The company has annual revenues of about $35
million. With this acquisition, the construction materials and
mining segment has increased its geographic diversity and now has
operations in 11 states.
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 18 percent to 23 percent, while asphalt volumes are
expected to increase 10 percent to 15 percent over 2003.
- - Revenues in 2004 are expected to increase by approximately
13 percent to 18 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 equal to or higher than previous funding
levels.
- - As of mid-July, this segment had $545 million in work
backlog compared to $497 million in mid-July of 2003.
Independent Power Production and Other
Earnings at this business were $10.2 million, a $4.7 million
increase compared to the same period last year. Higher earnings
were primarily attributable to the increased value of the
embedded derivative in the Brazilian electric power sales
contract, lower financing costs, and acquisitions made since the
comparable period last year. These gains were partially offset by
foreign currency changes.
In April, this segment acquired Colorado Energy Management, LLC.,
a company that provides analysis, design, construction,
refurbishment, and operation and maintenance services to
independent power producers. This company recently constructed a
140-MW combined-cycle facility in Payson, Utah, for a third party
and is providing operation and maintenance services. The facility
entered commercial operation on June 16, 2004.
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 is constructing 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 for a three-year term with an
option for a two-year extension. The projected on-line date for
this plant is late 2005.
Pipeline and Energy Services
Earnings at this segment totaled $4.4 million, compared to $5.1
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 last year's expansion of pipeline and gathering operations,
also contributed to the decrease, but were partially offset by
favorable resolution of federal and related state income tax
matters.
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 15 percent to 20 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 and order
on rehearing received in May 2004.
Electric
Earnings at this segment for the three months ended June 30,
2004, totaled $735,000, compared to 2003 earnings of $1.8 million
for the same period. Higher sales for resale margins and
favorable resolution of federal and related state income tax
matters were more than offset by higher operation and maintenance
expense, including payroll-related costs and company-owned
generation facility subcontract expenses. Retail sales margins
decreased largely due to higher fuel and purchased power-related
costs.
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.
- - In mid-May, the company submitted an air quality permit application
to construct a 175 MW coal-fired plant at Gascoyne, N.D. The air
permit application is now under review at the North Dakota
Department of Health, and the company is confident the new
facility will provide it with the opportunity to replace capacity
associated with expiring contracts and help it meet its growing
needs into the future. This segment is also involved 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
This segment experienced a normal seasonal loss for the quarter.
The $1.1 million loss in 2004 compared to a loss of $1.3 million
for the same period of 2003. A favorable resolution of federal
and related state income tax matters and higher prices due to a
rate increase effective in South Dakota were partially mitigated
by higher operation and maintenance expense, including payroll-
related and subcontract costs.
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 51 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. Interim rate relief of
$1.7 million was implemented with service rendered on or after
May 3, 2004, subject to refund. 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.
- - In June 2004, a natural gas rate case for the Black Hills
service area was filed with the South Dakota Public Utilities
Commission requesting an increase of $1.3 million annually, or
2.2 percent. A final order is expected in late 2004.
Utility Services
This segment experienced a $2.3 million loss for the second
quarter of 2004, compared to earnings of $1.5 million for the
second quarter of 2003. Increased line construction margins in
the Southwest, Central and Rocky Mountain regions were more than
offset by decreased inside electrical margins.
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
$400 million to $450 million in 2004.
- - The company anticipates margins for 2004 to be lower than
2003 levels. However, margins for the second half of 2004 should
improve over those experienced in the first half of 2004.
- - This segment's work backlog as of June 30, 2004, was
approximately $217 million compared to $150 million at June 30,
2003.
The company will host a webcast July 21, 2004, beginning at 1:00
p.m. EDT to discuss second 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 July 21.
An audio replay will also be available by calling 1 (877) 519-
4471; access code 4938766.
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 construction and operation of power generation
facilities may involve unanticipated changes or delays which
could negatively impact the company's business and its results of
operations.
- - 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 June 30, 2004, the goodwill amount
at Innovatum was approximately $8.3 million.
- - The company relies on financing sources and capital markets.
If the company is 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 for, 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 2 -
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-Q.
MDU Resources Group Inc., a member of Standard & Poor's 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 electric
and natural gas utilities, natural gas pipelines and energy
services, utility services, natural gas and oil production,
construction materials and mining, 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 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,
2004 2003 2004 2003
(In millions, where applicable)
(Unaudited)
Consolidated Statements of Income
Operating revenues:
Electric $ 39.8 $ 38.1 $ 86.8 $ 83.7
Natural gas distribution 47.5 42.4 175.8 153.4
Utility services 97.2 108.9 197.5 212.6
Pipeline and energy services 85.5 56.2 169.6 117.3
Natural gas and oil production 84.2 64.7 165.2 133.7
Construction materials and
mining 347.2 264.1 486.7 384.9
Independent power production
and other 11.6 11.0 18.9 18.1
Intersegment eliminations (59.7) (37.2) (131.7) (87.7)
653.3 548.2 1,168.8 1,016.0
Operating expenses:
Fuel and purchased power 16.4 13.3 33.1 28.7
Purchased natural gas sold 39.5 27.6 134.3 103.7
Operation and maintenance 435.4 366.3 724.0 625.9
Depreciation, depletion and
amortization 51.8 46.9 101.3 91.0
Taxes, other than income 25.5 19.4 47.3 39.1
568.6 473.5 1,040.0 888.4
Operating income:
Electric 1.8 5.1 9.9 15.0
Natural gas distribution (2.9) (1.8) 2.1 5.5
Utility services (2.5) 3.1 (5.1) 5.8
Pipeline and energy services 7.2 9.4 14.2 18.5
Natural gas and oil production 42.6 30.3 85.0 62.9
Construction materials and
mining 34.0 22.9 17.7 13.0
Independent power production
and other 4.5 5.7 5.0 6.9
84.7 74.7 128.8 127.6
Other income - net 9.6 4.9 14.3 8.7
Interest expense 15.7 12.8 29.5 25.7
Income before income taxes 78.6 66.8 113.6 110.6
Income taxes 20.0 23.3 31.4 39.4
Income before cumulative effect
of accounting change 58.6 43.5 82.2 71.2
Cumulative effect of
accounting change --- --- --- (7.6)
Net income 58.6 43.5 82.2 63.6
Dividends on preferred stocks .1 .2 .3 .4
Earnings on common stock:
Electric .7 1.8 4.2 6.6
Natural gas distribution (1.1) (1.3) 1.2 2.9
Utility services (2.3) 1.5 (4.2) 2.6
Pipeline and energy services 4.4 5.1 7.1 9.4
Natural gas and oil production 26.2 17.9 51.4 29.5
Construction materials and
mining 20.4 12.8 8.5 5.4
Independent power production
and other 10.2 5.5 13.7 6.8
$ 58.5 $ 43.3 $ 81.9 $ 63.2
Earnings per common share - basic:
Earnings before cumulative
effect of accounting change $ .50 $ .39 $ .71 $ .64
Cumulative effect of
accounting change --- --- --- (.07)
Earnings per common share -
basic $ .50 $ .39 $ .71 $ .57
Earnings per common share -
diluted:
Earnings before cumulative
effect of accounting change $ .50 $ .39 $ .70 $ .64
Cumulative effect of accounting
change --- --- --- (.07)
Earnings per common share -
diluted $ .50 $ .39 $ .70 $ .57
Dividends per common share $ .17 $ .16 $ .34 $ .32
Weighted average common shares
outstanding:
Basic 116.6 110.6 115.6 110.5
Diluted 117.6 111.5 116.6 111.3
Pro forma amounts assuming
retroactive application of
accounting change:
Net income $ 58.6 $ 43.5 $ 82.2 $ 71.2
Earnings per common share -
basic $ .50 $ .39 $ .71 $ .64
Earnings per common share -
diluted $ .50 $ .39 $ .70 $ .64
Operating Statistics
Electric (thousand kWh):
Retail sales 505,307 529,722 1,126,454 1,129,837
Sales for resale 169,968 122,926 397,238 374,317
Natural gas distribution (Mdk):
Sales 5,385 5,335 21,722 22,805
Transportation 2,651 2,964 6,430 6,047
Pipeline and energy services (Mdk):
Transportation 28,045 26,040 50,434 46,979
Gathering 19,846 18,684 39,315 37,535
Natural gas and oil production:
Natural gas (MMcf) 14,796 13,258 29,302 26,897
Oil (000's of barrels) 450 453 907 927
Average realized natural
gas price $ 4.63 $ 3.97 $ 4.60 $ 4.01
Average realized oil price $ 33.09 $ 26.52 $ 32.12 $ 27.79
Construction materials and
mining (000's):
Aggregates (tons sold) 11,187 9,592 15,994 14,619
Asphalt (tons sold) 2,346 1,701 2,648 1,863
Ready-mixed concrete (cubic
yards sold) 1,239 912 1,813 1,427
Independent power production
and other:*
Net generation capacity - kW 279,600 279,600 279,600 279,600
Electricity produced and sold
(thousand kWh) 84,148 89,694 115,503 138,594
Other Financial Data**
Book value per common share $ 13.26 $ 11.79
Dividend yield (indicated
annual rate) 2.8% 2.9%
Price/earnings ratio*** 14.3x 15.0x
Market value as a percent of
book value 181.2% 189.4%
Return on average common equity*** 13.3% 13.0%
Fixed charges coverage, including
preferred dividends*** 4.7x 4.9x
Total assets $ 3,612.6 $ 3,200.8
Total equity $ 1,572.7 $ 1,327.6
Long-term debt (net of
current maturities) $ 887.7 $ 938.6
Capitalization ratios:
Common equity 63% 58%
Preferred stocks 1 1
Long-term debt (net of
current maturities) 36 41
100% 100%
*Reflects domestic independent power production operations
**Reported on a year-to-date basis only
***Represents 12 months ended
Note: Common stock share amounts reflect the company's three-for-two
common stock split effected in October 2003.