MDU Resources Group, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report; the supplied filing text does not provide standalone fourth-quarter results. MDU operated regulated electric, natural gas distribution and pipeline businesses, alongside construction materials and contracting, and construction services.
Financial performance
| Metric | 2022 | 2021 |
|---|---|---|
| Operating revenue | $6.974 billion | $5.681 billion |
| Operating income | $574.0 million | $534.2 million |
| Income from continuing operations | $367.3 million | $377.7 million |
| Net income | $367.5 million | $378.1 million |
| Diluted EPS | $1.81 | $1.87 |
| Operating cash flow | $510.1 million | $495.8 million |
| Capital expenditures | $656.6 million | $659.4 million |
Revenue rose 22.8%, while net income fell 2.8%; calculated operating margin was approximately 8.2%, versus 9.4% in 2021. Higher revenue reflected, in part, commodity-price and cost pass-throughs, pricing, and construction activity, and did not translate proportionately into earnings. Interest expense increased to $119.3 million from $94.0 million.
Segment net income: electric $57.1 million (up from $51.9 million); natural gas distribution $45.2 million (down from $51.6 million); pipeline $35.3 million (down from $40.9 million); construction materials and contracting $116.2 million (down from $129.8 million); construction services $124.8 million (up from $109.4 million). Other recorded an $11.3 million loss.
Liquidity, debt and cash flows
At year-end, cash and cash equivalents were $80.5 million, current assets $2.012 billion and current liabilities $1.480 billion. Available borrowing capacity under subsidiary credit facilities was $427.3 million. Short-term borrowings were $246.5 million; reported long-term debt was $2.841 billion, including current maturities. Total equity was $3.587 billion, or 54% of total capitalization. Operating cash flow increased modestly, while investing activities used $638.9 million and financing activities provided $155.2 million. Dividends paid were $176.9 million.
Changes, outlook and notable items
- MDU attributed lower consolidated earnings mainly to weaker construction materials, natural gas distribution and pipeline results, higher costs and interest, $21.0 million of lower returns on nonqualified benefit-plan investments, and $12.7 million after-tax costs for strategic initiatives. Construction services and electric earnings partly offset the declines.
- Inflation, labor expense, fuel and materials costs, supply-chain delays and rising interest rates pressured results. Management reported mitigation through pricing, contract escalation clauses, supplier coordination and cost controls.
- Management expected regulated utility rate base to grow about 6%–7% annually over five years; 2022 rate-base growth was 7.8%. Estimated capital expenditures were $647 million in 2023, $776 million in 2024 and $728 million in 2025. These are estimates, not guarantees.
- The planned tax-free Knife River spinoff was expected in the second quarter of 2023, subject to approvals and other conditions. Management also began a strategic review of MDU Construction Services, targeting completion in the second quarter of 2023; no transaction outcome was assured.
- Notable operating projects included the North Bakken Expansion pipeline placed in service in February 2022 and construction of an 88-MW Heskett natural-gas peaking unit, then expected online in summer 2023. Natural-gas price spikes in the Pacific Northwest led Cascade and Intermountain to obtain $150 million and $125 million, respectively, in short-term loans in January 2023.
- Key risks include regulatory cost recovery and rate timing, commodity and input-cost volatility, weather, infrastructure reliability, cybersecurity, environmental and climate rules, construction execution, and the timing, tax treatment and costs of the proposed separations. MDU disclosed environmental and other contingencies; outcomes and potential losses are uncertain. Deloitte issued unqualified opinions on the financial statements and internal controls.
Investor verification priorities
- Review segment earnings and margins, separating commodity-cost pass-through revenue from underlying growth and profitability.
- Monitor debt, interest expense, borrowing capacity, working-capital needs and the funding of the capital program.
- Confirm progress and final terms of the Knife River spinoff and the construction-services strategic review, including costs, tax conditions and resulting capital structures.
- Track utility rate cases and recovery of higher gas costs, as well as regulatory outcomes affecting environmental compliance and coal-plant obligations.
- Assess construction-contract backlog conversion and estimates of costs to complete, which affect revenue and profit recognition.