NorthWestern Reports Third Quarter 2012 Financial Results Reports loss per share of $0.10 for quarter

Guidance for 2012 of $2.30 - $2.40 per fully diluted share (adjusted for non-GAAP items)

Announced a quarterly dividend of $0.37 per share, payable December 31, 2012

SIOUX FALLS, S.D., Oct. 24, 2012 /PRNewswire/ -- NorthWestern Corporation, d/b/a NorthWestern Energy, (NYSE: NWE), reported financial results for the quarter ended September 30, 2012.  Net loss was $3.8 million, or $(0.10) per fully diluted share, for the quarter ended September 30, 2012, compared with net income of $14.9 million, or $0.41 per fully diluted share, for the quarter ended September 30, 2011.  

"Our core business continues to perform to expectations.  However, we recorded a quarterly loss as a result of two previously-disclosed items: our decision to shelve the Mountain States Transmission Intertie project and the unfavorable, although non-binding, decision by a FERC administrative law judge regarding the allocation of costs at our Dave Gates Generating Station," said Bob Rowe.  "We are disappointed with these items' effect on our quarterly results.  Our focus is to remain committed to funding our distribution improvement plan and transmission infrastructure improvements while we seek additional regulated energy supply resources to provide our customers long-term price stability and resource adequacy." 

Significant items during third quarter of 2012

  • A pre-tax charge of approximately $24 million in the third quarter of 2012 for the impairment of substantially all of the capitalized preliminary survey and investigative costs associated with the Mountain States Transmission Intertie (MSTI) project.
  • Received a non-binding initial decision made by a FERC Administrative Law Judge (ALJ) concerning the allocation of costs at our Dave Gates Generating Station (DGGS), which concluded that NorthWestern should recover only approximately 4.4% of revenues from FERC jurisdictional customers, resulting in a deferral of $11.4 million of revenues.  NorthWestern plans to appeal this decision through customary channels.
  • Closed on $90 million of First Mortgage Bonds at 4.15% and $60 million of First Mortgage Bonds at 4.30%, maturing in 2042 and 2052, respectively.
  • Completed the purchase of natural gas production interests in northern Montana's Bear Paw Basin for approximately $19.5 million. The purchase also includes a 75% interest in the Lodge Creek and Willow Creek Gas Gathering Systems.
  • Filed with the Montana Public Service Commission a request to increase natural gas rates by $15.7 million to account for investments in its natural gas transmission, distribution and storage systems and to implement pipeline integrity and infrastructure improvements, as well as cover increased expenses. 

Summary Financial Results

The following table reconciles the primary changes from 2011 to 2012:








Three Months Ended


Nine Months Ended



Pre-tax

Net

EPS


Pre-tax

Net

EPS



Income

Income(1)

Diluted


Income

Income(1)

Diluted











2011 reported

$

15.5


$

14.9


$

0.41



$

67.7


$

58.4


$

1.60











Gross Margin









DGGS

(9.6)


(5.9)


(0.16)



(4.6)


(2.8)


(0.08)



Natural gas retail volumes

(0.3)


(0.2)


(0.01)



(6.3)


(3.9)


(0.11)



Electric retail volumes

3.8


2.3


0.06



(0.4)


(0.2)


(0.01)



Operating expenses recovered in trackers

1.4


0.9


0.02



1.4


0.9


0.02



Montana property tax tracker

1.4


0.9


0.02



2.4


1.5


0.04



South Dakota natural gas rate increase

0.3


0.2


0.01



1.3


0.8


0.02



Gas production





(0.8)


(0.5)


(0.01)



DSM lost revenues





5.1


3.1


0.08



Transmission capacity





1.4


0.9


0.02



Other

(0.1)


(0.1)




(1.4)


(0.9)


(0.02)



    Subtotal - Gross Margin

(3.1)


(1.9)


(0.06)



(1.9)


(1.1)


(0.05)


OG&A Expense









Operating and maintenance





2.3


1.4


0.04



Insurance settlements and recoveries

2.3


1.4


0.04



1.4


0.9


0.02



Labor

1.6


1.0


0.03



1.1


0.7


0.02



Abandoned gas transmission project

0.8


0.5


0.01



0.8


0.5


0.01



Bad debt expense





1.0


0.6


0.02



Plant operator costs





0.7


0.4


0.01



Operating expenses recovered in energy supply trackers

(1.4)


(0.9)


(0.02)







Other

(0.1)


(0.1)




0.3


0.2


0.01



    Subtotal - OG&A Expense

3.2


1.9


0.06



7.6


4.7


0.13


Other









MSTI impairment

(24)


(14.8)


(0.4)



(24)


(14.8)


(0.4)



Depreciation expense

(1.3)


(0.8)


(0.02)



(3.8)


(2.3)


(0.06)



Property and other taxes

(2.2)


(1.4)


(0.04)



(5.8)


(3.6)


(0.1)



Interest Expense

(1)


(0.6)


(0.02)



1.1


0.7


0.02



Other Income

0.6


0.4


0.01



0.9


0.6


0.02


Items related to income tax









Prior year permanent return to accrual adjustments


1.9


0.05




4.5


0.12



Flow-through repairs deductions


(1.4)


(0.04)




0.8


0.02



Flow-through of state bonus depreciation deduction


(0.9)


(0.02)




(2.3)


(0.06)



Recognition of state net operating loss benefit/valuation allowance release


0.1





(2.3)


(0.06)



State income tax and other, net


(0.2)


(0.01)




(2.5)


(0.07)



All other, net

(0.1)


(1)


$

(0.02)



(0.1)


(1.1)


$

(0.03)












    Total EPS impact of above items



(0.51)





(0.52)












2012 reported

$

(12.4)


$

(3.8)


$

(0.1)



$

41.7


$

39.7


$

1.08


 

(1) Income Tax Benefit (Expense) calculation on reconciling items assumes normal effective tax rate of 38.5%.

For more information see http://www.northwesternenergy.com/documents/investor/Q312.pdf.

Significant Drivers

Gross Margin

Consolidated gross margin for the third quarter of 2012 was $142.9 million compared with $146.0 million for same period of 2011.  Consolidated gross margin decreased $3.1 million primarily due to the $11.4 million deferral of DGGS FERC related revenue, offset in part by higher DGGS retail revenues due to the regulatory treatment of bonus depreciation by the Montana Public Service Commission.

This decrease was partly offset by the following improvements:

  • Warmer summer weather increasing electric customer usage for cooling during the third quarter of 2012;
  • Higher revenues for operating expenses recovered in trackers, primarily related to customer efficiency programs and environmental remediation costs; and
  • An increase in Montana property taxes included in a tracker as compared to the same period in 2011.

Consolidated gross margin for the nine months ended September 30, 2012 was $461.6 million compared with $463.5 million for same period of 2011.

Operating, General and Administrative Expenses

Consolidated operating, general and administrative expenses were $63.1 million for the quarter ended September 30, 2012 as compared with $66.3 million during the same period of 2011.  The decrease in operating, general and administrative expenses of $3.2 million was primarily due to lower insurance settlements as 2011 results included an increase of $2.3 million related to a  settlement with a former employee and the write-off of an abandoned gas transmission project due to the pursuit of a more cost effective solution, as well as decreased labor costs primarily due to a lower incentive accrual, offset in part by compensation increases and a higher number of employees. 

These decreases were offset in part by higher operating expenses primarily related to costs incurred for customer efficiency programs, which are recovered from customers through supply trackers and have no impact on operating income. 

Consolidated operating, general and administrative expenses were $195.7 million for the nine months ended September 30, 2012 as compared with $203.3 million during the same period of 2011.

MSTI

We recorded a pre-tax charge of approximately $24 million in the third quarter of 2012 for the impairment of substantially all of the capitalized preliminary survey and investigative costs associated with MSTI.

Property and Other Taxes

Consolidated property and other taxes were $24.8 million for the quarter ended September 30, 2012 as compared with $22.6 million during the same period of 2011.  This increase was due primarily to higher assessed property valuations in Montana and plant additions.  The higher assessed property valuations are primarily due to a lower capitalization rate used by the Montana Department of Revenue.

Consolidated property and other taxes were $74.4 million for the nine months ended September 30, 2012 as compared with $68.5 million during the same period of 2011.

Depreciation Expense

Consolidated depreciation expense was $26.5 million for the three months ended September 30, 2012  as compared with $25.2 million during the same period of 2011.  This increase was due primarily to plant additions.

Consolidated depreciation expense was $79.4 million for the nine months ended September 30, 2012 as compared with $75.6 million during the same period of 2011.

Interest Expense

Consolidated interest expense was $17.7 million for the quarter ended September 30, 2012 as compared with $16.7 million during the same period of 2011.  This increase was primarily due to an increase in debt outstanding and interest accrued on DGGS deferred revenues, partially offset by higher capitalization of AFUDC.

Consolidated interest expense was $49.6 million for the nine months ended September 30, 2012 as compared with $50.7 million during the same period of 2011.

Income Tax Expense

Consolidated income tax benefit in the third quarter of 2012 was $8.6 million as compared with $0.6 million income tax expense in same period of 2011.  The effective tax rate for the three months ended September 30, 2012 was (69.5)% (a tax benefit) as compared with 4.1% for the same period of 2011.  The decrease in income tax expense for the third quarter of 2012 was primarily due to lower taxable income.  The effective tax rate differs from the federal statutory tax rate of 35.0% primarily due to repairs and state tax bonus depreciation deductions.

Consolidated income tax expense for the nine months ended September 30, 2012 was $2.0 million as compared with $9.3 million in same period of 2011.  The effective tax rate for the nine months ended September 30, 2012 was 4.8% as compared with 13.7% for the same period of 2011.

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



Three Months Ended September 30,


Nine Months Ended September 30,



(in millions)



2012


2011


2012


2011

Income Before Income Taxes


(12.4)



15.5



41.7



67.7











Income tax calculated at 35% federal statutory rate


4.3



(5.4)



(14.6)



(23.7)











Permanent or flow through adjustments:










Prior year permanent return to accrual adjustments


1.9





1.9



(2.6)

Flow-through repairs deductions


1.8



3.2



9.5



8.7

Flow-through of state bonus depreciation deduction


0.3



1.2



2.2



4.5

Recognition of state net operating loss benefit/valuation allowance release


0.1





0.1



2.4

State income tax and other, net


0.2



0.4



(1.1)



1.4



4.3



4.8



12.6



14.4










Income tax benefit (expense)


8.6



(0.6)



(2.0)



(9.3)

Regulated Operations

In the regulated operations for the three months ended September 30, 2012, electric gross margin declined by $2.7 million, due primarily to the revenue deferral related to the initial decision of the FERC ALJ concerning DGGS cost allocation offset in part by higher DGGS retail revenues due to regulatory treatment of bonus depreciation and higher volumes due to warmer summer weather.  Natural gas gross margin declined by $0.4 million, due primarily to reduced volumes driven by lower customer usage. 

For the nine months ended September 30, 2012, in the regulated operations, electric gross margin improved by $5.4 million, and natural gas gross margin declined by $7.2 million

Liquidity and Capital Resources

As of September 30, 2012, cash and cash equivalents were $18.2 million compared with $5.9 million at December 31, 2011.  The Company had $294.0 million available from its revolving credit facility at September 30, 2012, compared with $130.1 million at December 31, 2011. 

Dividend Declaration

NorthWestern's Board of Directors declared a quarterly common stock dividend of $0.37 per share, payable December 31, 2012, to common shareholders of record as of December 14, 2012. 

Significant Items Not Contemplated in 2012 Guidance

A reconciliation of items not factored into our 2012 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 information regarding the impact of certain items on the Company's expected earnings.   The Company believes the following presentation is more representative of our ongoing earnings than the estimated GAAP EPS, also represented below.  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

Actual

Actual

Actual


est. low

est. high


Low

High


Q1 2012

Q2 2012

Q3 2012


Q4 2012

Q4 2012


2012

2012











Reported EPS

$

0.88


$

0.31


$

(0.10)



$

0.71


$

0.81



$

1.80


$

1.90












Non-GAAP Adjustments:




















Weather

0.09


0.05


(0.06)






0.08


0.08


Release of DGGS deferral

(0.05)








(0.05)


(0.05)


Lost revenue recovery related to 2010/2011


(0.05)







(0.05)


(0.05)


FERC ALJ Decision related to 2011



0.12






0.12


0.12


MSTI write-off



0.40






0.40


0.40


Adjusted EPS

$

0.92


$

0.31


$

0.36



$

0.71


$

0.81



$

2.30


$

2.40


2012 Earnings Outlook

NorthWestern expects its 2012 earnings, as adjusted above, for 2012 to be $2.30 - $2.40 per fully diluted share. 

Basic assumptions include the following expectations:

  • DGGS cost allocation methodology consistent with the Initial Decision, excluding the 2011 effect of the Initial Decision;
  • Excludes any potential effect of an arbitration decision in the Colstrip Energy Limited Partnership (CELP) matter, which is expected in the fourth quarter of 2012.  The Company currently estimates that, if CELP prevailed entirely, we could be required to increase our QF liability by approximately $30 million. If we prevailed entirely, we could reduce our QF liability by up to $52 million.
  • Fully diluted average shares outstanding of 37.1 million for 2012; and
  • Normal weather in the Company's electric and natural gas service territories for the fourth quarter of 2012.

Company Hosting Investor Conference Call

NorthWestern will host an investor conference call today at 4:00 pm Eastern Time to review its financial results for the quarter and the nine months ended September 30, 2012.

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 6:00 p.m. ET on October 24, 2012, through November 23, 2012, at (888) 203-1112 access code 3754155.

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;
  • 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.

Non-GAAP Financial Measure

This press release includes financial information prepared in accordance with GAAP, as well as other financial measures, Gross Margin, and adjusted EPS, that is considered a "non-GAAP financial measure." Generally, a non-GAAP financial measure is a numerical measure of a company's financial performance, financial position or cash flows that exclude (or include) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. Gross Margin (Revenues less Cost of Sales) is a non-GAAP financial measure due to the exclusion of depreciation from the measure. The presentation of Gross Margin is intended to supplement investors' understanding of our operating performance. Gross Margin is used by us to determine whether we are collecting the appropriate amount of energy costs from customers to allow recovery of operating costs. Our Gross Margin measure may not be comparable to other companies' Gross Margin measure. Furthermore, this measure is not intended to replace operating income as determined in accordance with GAAP as an indicator of operating performance.

 

NORTHWESTERN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME

(Unaudited)

(in thousands, except per share amounts)






Three Months Ended September 30,


Nine Months Ended September 30,


2012


2011


2012


2011

Revenues








Electric

$

202,485



$

206,613



$

605,716



$

602,024


Gas

32,965



37,067



182,812



230,971


Other

416



361



1,041



1,112


Total Revenues

235,866



244,041



789,569



834,107


Operating Expenses








Cost of sales

93,061



98,045



327,884



370,523


Operating, general and administrative

63,056



66,332



195,725



203,254


Mountain States Transmission Intertie impairment

24,039





24,039




Property and other taxes

24,796



22,605



74,395



68,551


Depreciation

26,505



25,181



79,364



75,562


Total Operating Expenses

231,457



212,163



701,407



717,890


Operating Income

4,409



31,878



88,162



116,217


Interest Expense, net

(17,743)



(16,694)



(49,598)



(50,737)


Other Income

974



346



3,134



2,257


(Loss) Income Before Income Taxes

(12,360)



15,530



41,698



67,737


Income Tax Benefit (Expense)

8,588



(635)



(1,989)



(9,297)


Net (Loss) Income

$

(3,772)



$

14,895



$

39,709



$

58,440


Average Common Shares Outstanding

37,201



36,262



36,723



36,254


Basic (Loss) Earnings per Average Common Share

$

(0.10)



$

0.41



$

1.09



$

1.61


Diluted (Loss) Earnings per Average Common Share

$

(0.10)



$

0.41



$

1.08



$

1.60


Dividends Declared per Average Common Share

$

0.37



$

0.36



$

1.11



$

1.08


 

NORTHWESTERN CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)






September 30,

2012


December 31,

2011





ASSETS




Current Assets

$

287,124



$

290,199


Property, Plant, and Equipment, Net

2,319,173



2,213,267


Goodwill

355,128



355,128


Regulatory Assets

320,956



308,804


Other Noncurrent Assets

24,565



43,040


Total Assets

$

3,306,946



$

3,210,438


LIABILITIES AND SHAREHOLDERS' EQUITY




Current Maturities of Long-term Debt and Capital Leases

$

1,585



$

5,162


Commercial Paper



166,934


Current Liabilities

320,131



303,858


Long-term Capital Leases

31,979



32,918


Long-term Debt

1,055,067



905,049


Noncurrent Regulatory Liabilities

273,744



265,987


Deferred Income Taxes

339,851



282,406


Other Noncurrent Liabilities

395,770



389,012


Total Liabilities

2,418,127



2,351,326


Total Shareholders' Equity

888,819



859,112


Total Liabilities and Shareholders' Equity

$

3,306,946



$

3,210,438


 

NORTHWESTERN CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)




Nine Months Ended September 30,


2012


2011

Operating Activities




Net income

$

39,709



$

58,440


Non-cash items

123,995



109,325


Changes in operating assets and liabilities

58,924



42,740


Cash Provided by Operating Activities

222,628



210,505






Cash Used in Investing Activities

(175,981)



(124,275)






Cash Used In Financing Activities

(34,379)



(86,470)






Net Increase (Decrease) in Cash and Cash Equivalents

12,268



(240)


Cash and Cash Equivalents, beginning of period

5,928



6,234


Cash and Cash Equivalents, end of period

$

18,196



$

5,994