MDU Resources Group, Inc. — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. MDU is a diversified company spanning regulated electric and natural gas utilities, pipeline and energy services, oil and gas exploration and production, construction materials and contracting, and construction services.
Financial performance
| Metric | 2011 | 2010 |
|---|---|---|
| Operating revenue | $4.050 billion | $3.910 billion |
| Operating income | $406.4 million | $410.7 million |
| Net income | $213.0 million | $240.7 million |
| Common earnings / diluted EPS | $212.3 million / $1.12 | $240.0 million / $1.27 |
| Cash from operating activities | $626.6 million | $551.6 million |
| Capital expenditures | $497.0 million | $449.3 million |
| Long-term debt, including current maturities | $1.425 billion | $1.507 billion |
At year-end, cash and cash equivalents were $162.8 million, current assets were $1.195 billion and current liabilities were $898.8 million. The company reported $583.4 million of available capacity under outstanding credit facilities. Common equity was 66% of capitalization; fixed-charge coverage, including preferred dividends, was 4.0x. The 2011 common dividend declared was $0.655 per share.
Changes versus 2010
- Revenue rose 3.6%, while operating income declined slightly and common earnings fell about 11.5%.
- Operating cash flow increased $75.0 million, principally from higher deferred income taxes, including bonus depreciation, and lower working-capital requirements.
- Utility earnings improved: electric earnings increased modestly and natural gas distribution earnings rose 4%. Exploration and production earnings declined 6%, reflecting lower gas prices and production, higher costs and depreciation, partly offset by stronger oil prices and production.
- Construction materials and contracting earnings fell 11%, chiefly on weaker liquid-asphalt and other product margins; construction services earnings increased 20% on stronger workloads and margins in some regions.
- Pipeline and energy services earnings were nearly flat. Lower storage, transportation and gathering activity was substantially offset by lower expenses, including the absence of the 2010 natural-gas-gathering arbitration charge.
Outlook, risks and unusual items
- Management projected 2012 diluted EPS of $1.00–$1.25 and stated a long-term annual EPS growth goal of 7%–10%. The filing cautions that projections are forward-looking and may not be achieved.
- Planned 2012 net capital expenditures were approximately $698 million; exploration and production capital spending was expected to be about $400 million. Management forecast oil production growth of 20%–30% and gas production declines of 12%–16% in 2012.
- The company’s share of the Big Stone Station air-quality control project was estimated at $125 million. Management intended to seek recovery through rates. An 88-MW gas turbine project was estimated at $85.6 million; prudence and certificate-of-need settlements were awaiting regulatory orders.
- 2011 included a $21.0 million pretax accrual, or $13.0 million after tax, related to a guarantee for a former subsidiary’s construction contract following a $22.0 million arbitration award. This contributed to the fourth-quarter discontinued-operations loss. The prior year included a $13.8 million after-tax gain from the Brazilian transmission-line sale.
- Key exposures include commodity prices and reserve estimates, environmental rules and compliance costs, construction-market cyclicality and backlog execution, weather, access to financing, pension funding, and litigation. Proved reserves declined to 585.9 Bcfe, including approximately 59.6 Bcfe of negative revisions, largely in gas reserves.
- Contingencies include disputed construction and gathering matters, the Portland Harbor Superfund site, and manufactured-gas-plant remediation. The filing reports $64.1 million accrued for litigation and environmental contingencies; certain potential outcomes and costs remain uncertain. Great Plains was ordered to initiate a rate proceeding after a regulator questioned whether its rates were reasonable.
Investor verification points
- Reconcile 2012 EPS guidance with the reported 2011 diluted EPS of $1.12 and distinguish guidance from GAAP results.
- Review cash generation against planned capital spending, debt maturities, and the company’s dependence on credit and capital markets.
- Track Big Stone project costs, regulatory recovery, and the proposed gas turbine approval and construction timeline.
- Assess reserve revisions, production trends, commodity-price assumptions, and hedge coverage against the 2012 exploration budget.
- Monitor the LPP/Bicent guarantee dispute, Omimex claims, environmental remediation estimates, and Great Plains rate-case outcome.