MDU Resources Group, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a quarterly filing. MDU operates regulated electric, natural gas distribution and pipeline businesses, alongside construction materials and contracting and construction services.
Financial performance
| Metric | 2021 | 2020 |
|---|---|---|
| Operating revenue | $5.681 billion | $5.533 billion |
| Operating income | $534.2 million | $544.9 million |
| Income from continuing operations | $377.7 million | $390.5 million |
| Net income | $378.1 million | $390.2 million |
| Diluted EPS | $1.87 | $1.95 |
| Cash from operating activities | $495.8 million | $768.4 million |
| Cash used in investing activities | $885.9 million | $630.2 million |
| Cash and cash equivalents at year-end | $54.2 million | $59.5 million |
Revenue increased 2.7%, while operating income and net income declined. Operating margin was approximately 9.4%, compared with 9.9% in 2020. Operating cash flow fell by $272.6 million, largely reflecting working-capital needs, higher natural gas purchases, deferred tax payments and timing of insurance collections. The company reported $380 million of available borrowing capacity under subsidiary credit facilities.
Long-term debt was $2.742 billion at year-end, versus $2.213 billion a year earlier; $148.1 million was due within one year. Equity was 55% of total capitalization, down from 58%. The company issued $554.0 million of long-term debt and raised $88.8 million net through its at-the-market stock offering. Dividends paid were $171.4 million; the company reported 84 consecutive years of dividends and 31 consecutive annual increases.
Segment earnings and key changes
| Segment net income | 2021 | 2020 | Change |
|---|---|---|---|
| Electric | $51.9 million | $55.6 million | Down 6.7% |
| Natural gas distribution | $51.6 million | $44.0 million | Up 17.3% |
| Pipeline | $40.9 million | $37.0 million | Up 10.5% |
| Construction materials and contracting | $129.8 million | $147.3 million | Down 11.9% |
| Construction services | $109.4 million | $109.7 million | Nearly unchanged |
Natural gas distribution benefited from approved rate relief, customer growth and higher transportation volumes. Pipeline earnings benefited from increased transportation activity and $7.3 million of higher allowance for funds used during construction on the North Bakken Expansion. Construction materials and contracting faced higher labor, fuel, asphalt-oil and equipment costs, as well as less paving work in some regions. Construction services results reflected project mix, including job losses and a change-order settlement.
Liquidity, debt and investment
Cash capital expenditures were $659.4 million and acquisitions, net of cash acquired, used $237.7 million. The company’s capital expenditure forecast for 2022–2024 totals approximately $2.061 billion. It expected to fund investment through operating cash flow, subsidiary credit facilities and commercial paper, and debt or equity issuance if needed. Contractual cash requirements reported at year-end totaled $6.017 billion, including estimated interest, operating leases and purchase commitments.
Major projects include the North Bakken Expansion, placed in service February 1, 2022, with initial capacity of 250 MMcf per day, and the planned Wahpeton Expansion, subject to approvals and targeted for completion in 2024. MDU also planned an 88-MW natural-gas peaking unit at Heskett and the retirement of two Heskett coal units in early 2022.
Outlook, risks and contingencies
- Management expected regulated utility rate base to grow about 5% annually over the next five years, with customer growth averaging 1%–2% annually. These are forward-looking estimates, not guarantees.
- Construction backlog at year-end was $708 million for construction materials and contracting and $1.385 billion for construction services. Management estimated about $665 million and $1.2 billion, respectively, could be completed within 12 months; backlog may be delayed, changed or canceled.
- Severe cold in February 2021 resulted in approximately $44 million of extraordinary natural gas costs recorded as regulatory assets. Recovery was approved in affected jurisdictions, but Minnesota’s recovery remained subject to a prudence review.
- Key risks include regulation and possible cost-recovery delays, changing environmental and greenhouse-gas rules, weather and seasonality, fuel and materials inflation, labor shortages, supply-chain disruption, cybersecurity and infrastructure reliability. Management said COVID-19 had not materially adversely affected 2021 results, while noting ongoing uncertainty and supply constraints.
- The company had $468.7 million of asset retirement obligations. For the Bremerton Gasworks site, Cascade disclosed estimated potential remediation and natural-resource damage costs of $13.6 million to $71.0 million; it had accrued $17.5 million for remediation and $2.3 million for investigation and feasibility work. The Portland Harbor matter was not considered probable to result in material remediation costs, according to the company.
- MDU identified $134.8 million of fixed-maximum guarantees and approximately $934.4 million of outstanding surety bonds, neither reflected as balance-sheet liabilities in the disclosed amounts. The company stated it was in compliance with applicable debt covenants at year-end.
- For Coyote Station, another co-owner announced an intention to begin withdrawal with an anticipated exit by December 31, 2028. MDU cannot decide the plant’s future unilaterally; potential environmental-control costs and cost recovery remain uncertainties.
Most important facts for investors to verify
- Whether regulatory recovery of the February 2021 gas costs, including Minnesota’s pending prudence review, is completed as expected.
- Whether projected utility rate-base growth and planned capital projects proceed on schedule and within budget.
- How labor, fuel, asphalt-oil and other input-cost inflation affects construction margins and backlog conversion.
- Debt refinancing, liquidity and funding needs against the company’s capital program and contractual commitments.
- Potential changes in Coyote Station ownership, environmental compliance costs and recovery of coal-plant retirement costs.
- Progress and updated cost estimates for the Bremerton and other manufactured-gas-plant environmental matters.