NorthWestern Reports Second Quarter 2012 Financial Results

SIOUX FALLS, S.D., July 24, 2012 /PRNewswire/ -- NorthWestern Corporation d/b/a NorthWestern Energy (NYSE: NWE) reported financial results for the quarter ended June 30, 2012.  Net income was $11.4 million, or $0.31 per fully diluted share, for the quarter ended June 30, 2012, compared with net income of $11.0 million, or $0.30 per fully diluted share, for the quarter ended June 30, 2011.  

Income before income taxes for the quarter ended June 30, 2012, improved by $3.5 million, from $10.5 million to $14.0 million, compared with the quarter ended June 30, 2011.  However, income tax expense for the three months ended June 30, 2012, was $2.6 million, as compared with an income tax benefit of $0.5 million in the same period of 2011.  

"Our quarterly earnings of $.31/ share approximated our expectations," said Bob Rowe, President and CEO.  "We continue to focus on investments to serve our customers, while working with our employees to control costs.  This has allowed us to maintain our financial results despite an unseasonably mild spring in our service territories," added Rowe.

Highlights for second quarter of 2012

• Entered into an Equity Distribution Agreement with UBS Securities LLC. Under this agreement we sold 687,285 shares of common stock at an average price of $35.40 per share; and
• Priced $90 million of First Mortgage Bonds at 4.15% and $60 million of First Mortgage Bonds at 4.30%, which are expected to be issued in August 2012.

Summary Financial Results

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

For more information see www.northwesternenergy.com/documents/investor/Q212.pdf

Significant Drivers

Gross Margin

Consolidated gross margin for the second quarter of 2012 was $148.2 million compared with $141.4 million for same period of 2011.  The increase in gross margin includes the following:

• An increase in demand side management ("DSM") lost revenues recovered through our electric supply tracker related to our DSM efficiency programs (DSM lost revenues described further below);
• An increase in Montana property taxes included in a tracker as compared to the same period in 2011;
• An increase in transmission capacity revenues due to higher demand to transmit energy for others across our lines;
• Higher Dave Gates Generating Station ("DGGS") related revenues;
• An increase in South Dakota natural gas rates; and
• Higher revenues for operating expenses recovered in trackers, primarily related to customer efficiency programs and environmental remediation costs;
• These increases were partly offset by a decrease in natural gas retail volumes due primarily to warmer spring weather.

DSM lost revenues - Base rates, including impacts of past DSM activities, are reset in general rate case filings.  As time passes between rate cases, more energy saving measures (primarily more efficient residential and commercial lighting) are implemented, causing an increase in DSM lost revenues.  During the second quarter of 2012, we recognized approximately $6.6 million of DSM lost revenues as compared with approximately $2.1 million during the second quarter of 2011.  The 2012 amount includes $3.3 million in DSM lost revenues for the July 2010 through June 2011 tracker period, which we recognized as revenue when we received MPSC approval in April 2012.

Consolidated gross margin for the six months ended June 30, 2012 was $318.9 million compared with $317.6 million for same period of 2011.

Operating, General and Administrative Expenses

Consolidated operating, general and administrative expenses were $67.1 million for the quarter ended June 30, 2012 as compared with $69.5 million during the same period of 2011.  The decrease in operating, general and administrative expenses was primarily due to lower bad debt expense based on higher collections from customers, a timing related decrease in proactive line maintenance and tree trimming as more time was spent on capital projects as compared with the same period in 2011, and lower plant operator costs at Colstrip Unit 4.  These decreases were partly offset by higher operating expenses primarily related to costs incurred for customer efficiency programs and environmental remediation costs, which are recovered from customers through trackers and have no impact on operating income.

Consolidated operating, general and administrative expenses were $132.7 million for the six months ended June 30, 2012 as compared with $136.9 million during the same period of 2011.

Property and Other Taxes

Consolidated property and other taxes were $25.9 million for the quarter ended June 30, 2012 as compared with $20.6 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 $49.6 million for six months ended June 30, 2012 as compared with $45.9 million during the same period of 2011.

Interest Expense

Consolidated interest expense was $15.9 million for the quarter ended June 30, 2012 as compared with $16.9 million during the same period of 2011.  This decrease was primarily due to lower interest rates on debt outstanding and higher capitalization of AFUDC.

Consolidated interest expense was $31.9 million for the six months ended June 30, 2012 as compared with $34.0 million during the same period of 2011.

Income Tax Expense

Consolidated income tax expense in the second quarter of 2012 was $2.6 million as compared with $0.5 million income tax benefit in same period of 2011.  The effective tax rate for the three months ended June 30, 2012 was 18.3% as compared with (4.9)% for the same period of 2011.  The increase in income tax expense for the second quarter of 2012 was primarily due to higher taxable income and the absence of a benefit during the second quarter of 2011 which released $1.6 million in state net operating loss (NOL) carryforward reserves.  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 six months ended June 30, 2012 was $10.6 million as compared with $8.7 million in same period of 2011.  The effective tax rate for the six months ended June 30, 2012 was 19.6% as compared with 16.6% 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:

Regulated Operations

In the regulated operations for the three months ended June 30, 2012, electric net income improved $2.7 million, due primarily to an increase in DSM lost revenues recovered through our electric supply tracker, higher property taxes included in the tracker, and an increase in transmission revenues due to higher demand to transmit energy for others; offset by higher property and other tax expense and higher depreciation expense.  Natural gas net income declined $1.1 million, due primarily to a decrease in gross margins caused by warmer spring weather in our service territories and higher property taxes, offset in part by a reduction in interest expense and operating, general and other expenses. 

For the six months ended June 30, 2012, in the regulated operations, electric net income improved $3.1 million, and natural gas net income declined $1.8 million. 

Liquidity and Capital Resources

As of June 30, 2012, cash and cash equivalents were $8.1 million compared with $5.9 million at December 31, 2011.  The Company had $162.0 million available from its revolving credit facility at June 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 September 30, 2012, to common shareholders of record as of September 15, 2012. 

Update on DGGS Outage

As previously reported, DGGS was shut down on January 31, 2012 after problems were discovered in the power turbines of two of the generation units. Similar problems were subsequently found in the third unit.  There are two power turbines per unit, and as of June 30, 2012 five of the six turbines have been returned to service using a combination of the original turbines after servicing by their supplier Pratt & Whitney Power Systems (PWPS) and turbines on loan from PWPS.  Between February and April 2012, we acquired regulation service from third parties, which resulted in incremental costs of approximately $1.4 million, as compared to fully operating DGGS.  As of May 1, 2012, we had eliminated our contracted replacement services and are no longer incurring incremental costs.  We believe the incremental contracted costs for regulation service should be recoverable from customers through our normal course of business; however, there can be no assurance that the MPSC and/or FERC will allow us full recovery of such costs.

2012 Earnings Outlook

NorthWestern reaffirms 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 16% - 18% of pre-tax income;
• No scheduled maintenance at Colstrip Unit 4 and Big Stone Plants;
• DGGS outage costs fully recovered;
• That we have no impairment on the $23.5 million in preliminary survey and investigative costs related to our proposed Mountain States Transmission Intertie (MSTI) transmission project;
• 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 remainder 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 six months ended June 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 July 24, 2012, through August 23, 2012, at (888) 203-1112 access code 3759413.

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 $23.5 million in preliminary survey and investigative costs related to our proposed MSTI transmission project.  If we abandon our efforts to pursue MSTI 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.

Non-GAAP Financial Measure

This press release includes financial information prepared in accordance with GAAP, as well as another financial measure, Gross Margin, 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.

SOURCE NorthWestern Corporation