NorthWestern Reports 2011 Financial Results

SIOUX FALLS, S.D., Feb. 16, 2012 /PRNewswire/ -- NorthWestern Corporation d/b/a NorthWestern Energy (NYSE: NWE) reported financial results for the year ended Dec. 31, 2011.

Consolidated net income was $92.6 million, or $2.53 per fully diluted share, for the year ended Dec. 31, 2011, compared with consolidated net income of $77.4 million, or $2.14 per fully diluted share, for the year ended Dec. 31, 2010.  The improvement in net income was due primarily to lower income tax expenses.

"We produced good results for our shareholders in 2011," said Bob Rowe, President and CEO. "Our gross margin, operating income and net income all improved compared with 2010. Importantly, during 2011 we made continued progress on investments that reflect our focus on maintaining our system reliability and address our generation supply mix and transmission opportunities."

Annual Summary Financial Results

The following table reconciles the primary changes in 2011 results from 2010:

For more information see www.northwesternenergy.com/documents/investor/Q411.pdf

Significant Drivers

Gross Margin

Consolidated gross margin for 2011 was $622.8 million compared with $579.6 million for 2010.  The increase in gross margin was due primarily to an increase for interim DGGS rates and an increase in electric and natural gas retail volumes due primarily to warmer summer weather, and colder winter/spring weather; offset by a decrease in Montana property taxes included in a tracker and lower transmission capacity revenues due to a combination of hydro conditions and other factors that decreased demand.

Operating, General and Administrative Expenses

Consolidated operating, general and administrative expenses were $267.2 million for the year ended Dec. 31, 2011 as compared with $237.0 million during 2010.  The increase in operating, general and administrative expenses was primarily due to a decrease in insurance settlements and recoveries, increased labor costs, and higher plant operating expenses, due to beginning commercial operations on January 1, 2011 at DGGS and scheduled maintenance at the Colstrip Unit 4 and the Big Stone plants.

Income Tax Expense

Consolidated income tax expense in 2011 was $10.1 million as compared with $25.8 million in 2010.  The effective tax rate in 2011 was 9.8% as compared with 25.0% for the same period of 2010.  The effective tax rate differs from the federal tax rate of 35% primarily due to repairs and state tax bonus depreciation deductions.

The following table summarizes the significant differences from the Federal statutory rate, which result in reduced income tax expense:

While we reflect an income tax provision in our financial statements, we expect our cash payments for income taxes will be minimal through at least 2015, based on our projected taxable income and anticipated use of consolidated NOL carryforwards.

Regulated Operations

In the regulated operations, electric net income improved $9.7 million, due primarily to an increase in gross margins and a reduction in income tax expense, offset in part by an increase in operating, general, and administrative expenses.  Natural gas net income improved $0.4 million, due primarily to an increase in gross margins and a reduction in income tax expense, offset in part by an increase in operating, general, and administrative expenses.  

Fourth Quarter Financial Results

Consolidated net income for the fourth quarter ended Dec. 31, 2011, was $34.1 million, or $.93/share, compared with $22.6 million, or $.63/share for the fourth quarter in 2010.  

The increase was primarily due to an increase in gross margin and a significant decrease in income tax expense, when compared with the prior fourth quarter.  Those increases were partially offset by an increase in depreciation and property tax expenses for the fourth quarter.  

Liquidity and Capital Resources

As of Dec. 31, 2011, cash and cash equivalents were $5.9 million compared with $6.2 million at Dec. 31, 2010.  The Company had $130.1 million available from its revolving credit facility at Dec. 31, 2011, compared with $96.5 million at Dec. 31, 2010.  

To fund our strategic growth opportunities we intend to utilize available cash flow, debt capacity that would allow us to maintain investment grade ratings, and if necessary additional equity financing.  We plan to maintain a 50 - 55% debt to total capital ratio excluding capital leases.

Dividend Declaration

NorthWestern's Board of Directors declared a quarterly common stock dividend of 37 cents per share, payable on Mar. 31, 2012, to common shareholders of record as of Mar. 15, 2012.  

Update on DGGS Outage

DGGS was shut down on January 31, 2012 and is expected to be down for a period of up to several months following the discovery of a problem within the gas turbines on each of the three generation units.  We expect the turbine repair costs to be covered under the manufacturer's warranty; however, we will also have incremental costs for contracts with third parties for replacement regulation service. We estimate our contracted costs will exceed the variable operating costs of DGGS by up to $0.5 million per month while the plant is down.  We will actively manage our contracted service in an effort to reduce these costs as much as possible as DGGS is brought back into service.  We believe these contracted costs for regulation service are recoverable from customers through our normal course of business; however, there can be no assurance that the MPSC and/or Federal Energy Regulatory Commission will allow us full recovery of such costs.

Highlights for 2011

• Moody's Investors Services upgraded our senior secured debt from A3 to A2 and our senior unsecured bank credit facility from Baa2 to Baa1;
• Received approval from the Montana Public Service Commission ("MPSC") of an accounting order to defer certain incremental operating and maintenance costs up to $16.9 million for 2011 and 2012 associated with our Distribution System Infrastructure Project;
• Received approval from the South Dakota Public Utilities Commission to increase our South Dakota natural gas rates resulting in an annualized revenue increase of approximately $1.8 million;
• Signed an asset purchase agreement and requested MPSC approval to develop a 40 MW wind project in central Montana at an estimated cost of approximately $86 million;
• Began construction on a 60 MW peaking facility located in Aberdeen, South Dakota, which we expect to achieve commercial operation before the 2013 summer season; and
• Successfully accessed the capital markets to reduce short-term borrowing costs and extend maturities by;
  • Entering into a commercial paper program to fund short-term liquidity needs of up to $250 million, and
  • Increasing our revolving credit facility from $250 million to $300 million and extending the maturity date to June 30, 2016;

Significant Items Not Contemplated in 2011 Guidance

A reconciliation of items not factored into our 2011 GAAP earnings guidance of $2.30 to $2.40 per fully diluted earnings per share is as follows (net of tax).  The amount calculated below represents a non-GAAP measure that may provide users of this financial information with additional meaningful comparisons between current results and results the Company originally contemplated in 2011 guidance. Non-GAAP financial measures should be viewed in addition to, and not as an alternative to, the reported operating results or cash flows from operations or any other measure of performance prepared in accordance with GAAP.  In addition, the presentation of these measures may not be comparable to similarly titled measures other companies use.

2012 Earnings Outlook

NorthWestern expects its earnings for 2012 to be $2.35 - $2.50 per fully diluted share.  

Basic assumptions include the following expectations:

• A consolidated income tax rate of approximately 18% - 20% of pre-tax income;
• No scheduled maintenance at Colstrip Unit 4 and Big Stone Plants;
• No expected increase in insurance reserves or insurance recoveries in 2012;
• DGGS outage costs fully recovered;
• Fully diluted average shares outstanding of 37.0 million; and
• Normal weather in the Company's electric and natural gas service territories for 2012.

Spion Kop Update

On February 14, 2012, the MPSC held a work session on the proposed Spion Kop Wind, LLC wind project and approved the project, but included a condition that would reduce our revenue requirement if the average production failed to meet a minimum threshold for the first three years.  A written order has not yet been issued and we will evaluate our options after we review the MPSC's written order.  

If the MPSC fails to grant approval to the satisfaction of both parties on or before April 1, 2012, then either party may terminate this agreement.  Material construction would not commence until we receive a favorable ruling from the MPSC. Assuming satisfactory approval by April 1, 2012, commercial operation is projected to begin by December 31, 2012.

Company Hosting Investor Conference Call

NorthWestern will host an investor conference call today at 2:00 pm Eastern Time (1:00 p.m. Central Time) to review its financial results for the year ended Dec. 31, 2011.

The conference call will be webcast live on the Internet at http://www.northwesternenergy.com under the "Investor Information" heading.  To listen, please go to the site at least 10 minutes in advance of the call to register.  An archived webcast will be available shortly after the call.

A telephonic replay of the call will be available beginning at 5:00 p.m. ET on Feb. 16, 2012, through March 16, 2012, at 800-475-6701, access code 235153.

Annual Meeting

The Company's Annual Meeting of Stockholders will be held on Wednesday, April 25, 2012, in Butte, Montana.  The record date for the annual meeting is February 27, 2012.  The annual meeting notice, proxy statement, annual report to stockholders and voting instructions will be provided approximately 40 days prior to the meeting date to stockholders as of the record date.

About NorthWestern Energy

NorthWestern Energy is one of the largest providers of electricity and natural gas in the Upper Midwest and Northwest, serving approximately 668,300 customers in Montana, South Dakota and Nebraska.  More information on NorthWestern Energy is available on the Company's Web site at www.northwesternenergy.com.

SPECIAL NOTE REGARDING FORWARD—LOOKING STATEMENTS

This press release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including, without limitation, the information under "2012 Earnings Outlook".  Forward-looking statements often address our expected future business and financial performance, and often contain words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," or "will."  These statements are based upon our current expectations and speak only as of the date hereof.  Our actual future business and financial performance may differ materially and adversely from those expressed in any forward-looking statements as a result of various factors and uncertainties, including, but not limited to:

• potential adverse federal, state, or local legislation or regulation or adverse determinations by regulators could have a material effect on our liquidity, results of operations and financial condition;
• we have capitalized approximately $20.9 million in preliminary survey and investigative costs related to our proposed Mountain States Transmission Intertie transmission project.  If our efforts to complete MSTI are not successful, we may have to write-off all or a portion these costs, which could have a material effect on our results of operations;
• changes in availability of trade credit, creditworthiness of counterparties, usage, commodity prices, fuel supply costs or availability due to higher demand, shortages, weather conditions, transportation problems or other developments, may reduce revenues or may increase operating costs, each of which could adversely affect our liquidity and results of operations;
• unscheduled generation outages or forced reductions in output, maintenance or repairs, which may reduce revenues and increase cost of sales or may require additional capital expenditures or other increased operating costs; and
• adverse changes in general economic and competitive conditions in the U.S. financial markets and in our service territories.

Our Annual Report on Form 10-K, recent and forthcoming Quarterly Reports on Form 10-Q, recent Current Reports on Form 8-K and other Securities and Exchange Commission filings discuss some of the important risk factors that may affect our business, results of operations and financial condition. 

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

SOURCE NorthWestern Corporation