NorthWestern Reports Second Quarter 2011 Financial Results

SIOUX FALLS, S.D., July 27, 2011 /PRNewswire/ -- NorthWestern Corporation d/b/a NorthWestern Energy (NYSE: NWE) reported financial results for the quarter ended June 30, 2011.

"We are excited about the progress we are making on our distribution infrastructure project and generation projects during the second quarter of 2011," said Bob Rowe, President and CEO.  "Although our earnings for the quarter were slightly less than the prior year, we still intend to achieve our earnings guidance for 2011.  Due to the seasonality of our business, the second quarter typically has the least impact on earnings for the year."

Highlights for the quarter include:

• Upsized our revolving credit facility from $250 million to $300 million, extended the maturity date from June 30, 2012 to June 30, 2016, and significantly lowered the cost of the facility.
• Filed for approval with the Montana Public Service Commission (MPSC) to purchase and operate the yet to be developed 40 megawatt Spion Kop Wind Project located in Central Montana.
  • The construction of that wind project is contingent on the MPSC approving the project into rate base.
• Filed an application to adjust our rates for natural gas services in South Dakota. 
  • Company is requesting an increase of $2.7 million annually due to increased operations and maintenance costs and an increase of $1.4 million annually to complete the company's remediation of a manufactured gas plant (MGP) site in South Dakota.
• NorthWestern declared a common stock dividend of 36 cents per share, payable on September 30, 2011, to common shareholders of record as of September 15, 2011.

Financial Results

Consolidated net income was $11.0 million or $.30 per diluted share for the quarter ended June 30, 2011, compared with consolidated net income of $11.7 million or $.32 per diluted share for the quarter ended June 30, 2010.  

Consolidated net income for the six months ended June 30, 2011, was $43.5 million, an increase of $3.1 million from $40.4 million in 2010.  

The following tables reconcile the primary changes from 2010 to 2011:

For more information see www.northwesternenergy.com/documents/investor/Q211.pdf

Consolidated gross margin for the second quarter of 2011 was $141.4 million compared with $132.1 million for the second quarter of 2010.  The improvement in consolidated gross margin was substantially due to the following:

• Dave Gates Generating Station (DGGS) revenues based on our current estimate of final resolution of applicable rate proceedings with the MPSC and Federal Energy Regulatory Commission (FERC);
• An increase in electric and natural gas retail volumes due primarily to colder spring weather and customer growth;
• An increase in Montana electric transmission and distribution rates implemented in July 2010;
• The expiration in December 2010 of a power sales agreement related to Colstrip Unit 4; and
• Gas production margin from the Battle Creek Field.

These increases were partly offset by the following:

• A decrease in Montana property taxes included in a tracker as compared to the same period in 2010;
• Lower transmission capacity revenues due to decreased demand;
• Higher cost of sales because 2010 results included a settlement related to coal supply costs at Colstrip; and
• A decrease in Montana natural gas transmission and distribution rates implemented in January 2011.

Consolidated gross margin for the six months ended June 30, 2011, was $317.6 million compared with $293.5 million in the same period of 2010.  

Consolidated operating, general and administrative expenses increased to $69.5 million for the quarter ended June 30, 2011, as compared with $57.1 million for the quarter ended June 30, 2010.  The increase was due primarily to the following:

• Increased operating and maintenance costs, primarily due to accelerated maintenance to enhance system reliability and performance;
• Higher insurance expense as second quarter 2010 results included a $2.6 million insurance recovery;
• Increased labor costs due primarily to compensation increases and a larger number of employees;
• Higher plant operator costs at Colstrip Unit 4 due to scheduled maintenance;
• The operations of DGGS in 2011;
• Higher bad debt expense based on slower collections from customers;
• 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; and
• Higher pension expense, however, based on current assumptions we expect the annual pension expense for 2011 to be comparable with 2010 due to the regulatory treatment of our Montana pension plan.

Consolidated operating, general and administrative expenses were $136.9 million for the six months ended June 30, 2011, as compared with $115.4 million in same period of 2010.

Property and other taxes were $20.6 million for the three months ended June 30, 2011, as compared with $25.0 million in the second quarter of 2010.  For the six months ended June 30, 2011, property and other taxes were $45.9 million compared with $48.0 million in the same period of 2010.  The decrease in property and other taxes is primarily attributable to lower actual 2010 property taxes than our initial estimate based on assessed property valuations and mill levy increases in Montana, partially offset by the addition of the DGGS.

Depreciation expense was $25.1 million for the three months ended June 30, 2011, as compared with $23.0 million in the second quarter of 2010.  For the six months ended June 30, 2011, depreciation expense was $50.4 million compared with $45.9 million in the same period of 2010.  These increases were primarily due to plant additions in 2010, including DGGS.    

Interest expense was $16.9 million for the three months ended June 30, 2011, as compared with $16.1 million in the second quarter of 2010.  This increase was primarily due to lower capitalization of accumulated funds used during construction (AFUDC) as DGGS began operating in January 2011.  This increase was partially offset by lower rates on debt outstanding.  Consolidated interest expense was $34.0 million for the six months ended June 30, 2011 compared with $33.1 million for the second quarter in 2010.

Consolidated other income was $1.1 million for the three months ended June 30, 2011, compared with $ 1.9 million in the second quarter of 2010.  The decrease in other income was primarily due to lower capitalization of AFUDC as DGGS began operating in January 2011.  Consolidated other income was $1.9 million for the six months ended June 30, 2011 compared with $2.6 million for the second quarter in 2010.

Consolidated income tax expense for the three months ended June 30, 2011 was a $.5 million tax benefit, as compared with $1.1 million tax expense for the second quarter of 2010. The effective tax rate in for the quarter ended June 30, 2011 was -4.9% as compared with 8.7% for the same period of 2010. The reduction in the effective income tax rate versus the statutory rate in 2011 is primarily due to a $1.6 million favorable state net operating loss (NOL) carryforward utilization benefit from higher 2010 taxable income than our original estimate., a tax benefit of $1.5 million recognized for repair costs, due to flow-through regulatory treatment and a flow-through state bonus depreciation related tax benefit of $0.7 million.  Consolidated income tax expense for the six months ended June 30, 2011, was $8.7 million as compared with $13.3 million in the same period of 2010.  The effective tax rate for the six months ended June 30, 2011 was 16.6% as compared with 24.8% for the same period of 2010, and we expect our effective tax rate for 2011 to range between 18% - 22%.

Results from Regulated Operations

Regulated electric gross margin for the quarter ended June 30, 2011, was $109.9 million, compared with $102.5 million for the same period of 2010.  The improvement in margin is primarily due to DGGS interim rates, an increase in Montana rates, the expiration in December 2010 of a power sales agreement related to Colstrip Unit 4, an increase in retail volumes due primarily to colder spring weather and to a lesser extent customer growth, and higher revenues for operating expenses recovered in supply trackers primarily related to customer efficiency programs.

These increases were offset in part by a decrease in Montana property taxes included in a tracker as compared to the same period in 2010, a decline in transmission capacity demand, and the inclusion in the second quarter of 2010 of a settlement to recover previously incurred reclamation costs associated with the coal supply at Colstrip, which reduced cost of sales.  

Regulated retail electric volumes for the quarter ended June 30, 2011, totaled 2,320,000 megawatt hours compared with 2,285,000 megawatt hours for the quarter ended June 30, 2010.  Retail volumes increased slightly from colder weather and customer growth.  While heating and cooling degree days may fluctuate significantly during the second quarter, our customer usage is not highly sensitive to these changes between the heating and cooling seasons.  Wholesale electric volumes were 42,000 megawatt hours for the quarter ended June 30, 2011, a decrease from 278,000 megawatt hours for the same period in 2010.  Wholesale volumes decreased in South Dakota from lower plant utilization due to market conditions. The Company no longer has Montana wholesale volumes due to the expiration of a remaining wholesale supply contract associated with Colstrip. Beginning January 1, 2011 these volumes are used to supply our retail demand.

Regulated electric gross margin for the six months ended June 30, 2011, was $234.0 million compared with $215.3 million for the same period of 2010.  

Regulated retail electric volumes for the six months ended June 30, 2011 totaled 5,004,000 megawatt hours compared with 4,867,000 megawatt hours for the six months ended June 30, 2010.  Wholesale electric volumes were 73,000 megawatt hours for the six months ended June 30, 2011, compare with 521,000 megawatt hours for the same period in 2010.  

Regulated natural gas gross margin was $31.2 million for the quarter ended June 30, 2011 compared with $29.3 million during the second quarter of 2010.  This increase in margin was primarily due to increased retail volumes from colder spring weather and gas production margin from the Battle Creek Field.  Regulated retail natural gas volumes were 5,990,000 dekatherms for the quarter ended June 30, 2011 compared with 5,389,000 dekatherms for the same period in 2010.  

Regulated natural gas gross margin was $82.8 million for the six months ended June 30, 2011 compared with $77.5 million during the same period of 2010.  

Regulated retail natural gas volumes were 20,279,000 dekatherms for the six months ended June 30, 2011, compared with 19,074,000 dekatherms for the same period in 2010.  The increase in gross margin and volumes is primarily due to increased retail volumes from colder winter and spring weather.

Liquidity and Capital Resources

As of June 30, 2011, our total net liquidity was approximately $214.3 million, including $4.5 million of cash and $209.8 million of revolving credit facility availability.  Revolver availability was $222.8 million as of July 22, 2011.  

As of June 30, 2011, cash and cash equivalents were $4.5 million as compared with $6.2 million at December 31, 2010 and $6.1 million at June 30, 2010. Cash provided by operating activities totaled $163.5 million for the six months ended June 30, 2011 as compared with $132.4 million during the six months ended June 30, 2010. This increase in operating cash flows is primarily related to a $10.0 million decrease in contributions to our qualified pension plans as compared with the same period in 2010 and improvements in the collection of our supply costs.

Cash used in investing activities totaled approximately $71.7 million, a decrease by approximately $44.5 million as compared with the first six months of 2010 due primarily to additions related to the DGGS project in the prior year.

Cash used in financing activities totaled approximately $93.5 million during the six months ended June 30, 2011 as compared with approximately $14.4 million during the six months ended June 30, 2010. During the six months ended June 30, 2011, net cash used in financing activities consisted of the net revolving credit facility repayments of $153.0 million, net issuance of commercial paper of $90.0 million, the repayment of long-term debt of $3.6 million and the payment of dividends of $26.0 million. During the six months ended June 30, 2010, we received proceeds from the issuance of debt of $225.0 million, made debt repayments of $208.4 million, paid deferred financing costs of $6.6 million and paid dividends on common stock of $24.5 million.

2011 Earnings Outlook

NorthWestern reaffirms its earnings outlook for 2011 to be $2.25 - $2.40 per fully diluted share.  

The major assumptions include, but are not limited to, the following expectations:

• We expect strong hydro conditions west of our Colstrip Transmission System to persist, causing additional declines to our wholesale transmission revenues for the third quarter of 2011;
• We expect a reduction in general & administrative expenses for the rest of 2011 from the second quarter levels;
• Normal weather in the Company's electric and natural gas service territories for the remainder of 2011; and
• Fully diluted average shares of 36.5 million.

Dividend

NorthWestern's Board of Directors declared a quarterly common stock dividend of 36 cents per share, payable on September 30, 2011, to common shareholders of record as of September 15, 2011.

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 ended June 30, 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 1:00 pm Eastern Time today through August 29, 2011, at 800-475-6701, access code 209282.

About NorthWestern Energy

NorthWestern Energy is one of the largest providers of electricity and natural gas in the Upper Midwest and Northwest, serving approximately 665,000 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 "2011 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, including costs of compliance with existing and future environmental requirements, as well as adverse determinations by regulators, could have a material adverse effect on our liquidity, results of operations and financial condition;
• We have capitalized approximately $18.6 million in preliminary survey and investigative costs related to our proposed Mountain States Transmission Intertie (MSTI) transmission project. If our efforts to complete MSTI are not successful we may have to write-off all or a portion of these costs which could have a material adverse 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