NorthWestern Energy Group Inc (NWE) 2007 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to NorthWestern Corporation's First Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode, and later we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions.) As a reminder, this conference is being recorded, and I would now like to turn the conference over to your host, Mr. Dan Rausch. Please go ahead.

Good morning, and welcome to NorthWestern Corporation's March 31, 2007 quarter end financial results conference call and Webcast. NorthWestern's results were released this morning, and the release is available on our Website at www.northwesternenergy.com. We also filed our quarterly report on Form 10-Q this morning. Joining us today from our offices in Sioux Falls, South Dakota, are Mike Hanson, President and CEO, Brian Bird, Chief Financial Officer, Tom Knapp, General Counsel, and Kendall Kliewer, Controller.

This presentation contains forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based upon our current expectations and speak only as of this date. Our actual results may differ materially and adversely from those expressed in our forward-looking statements as a result of various factors and uncertainties, including those listed on our Annual Report on Form 10-K, recent and forthcoming 10-Qs, recent Form 8-Ks and other filings with the SEC. We undertake no obligation to revise or publicly update our forward-looking statements for any reason.

Following the presentation today, those joining us by teleconference will be able to ask questions. A replay of today's call will also be available beginning at 3:30 p.m. Eastern time today through June 2, 2007. To access the replay, dial 800-475-6701, then access code 871160. A replay of the Webcast can also be accessed from our Website. I'll now turn it over to President and CEO, Mike Hanson. Mike?

Thanks, Dan, and thanks to all of you for participating in our call today. It's been another solid quarter for the Company, where we've improved the financial performance of our regulated operations. We improved both our gross margin and operating income. In addition, we continued to progress with the Montana Public Service Commission toward attaining the final approval needed for our proposed transaction with BBI. Brian Bird, our CFO, will discuss the financial results in more detail in just a couple of minutes, but before we do that, I'd like to give you an update on the merger and approval process.

I think as most of you know, on April 25 of 2006, NorthWestern reached a definitive agreement with Babcock & Brown Infrastructure, Limited, or BBI, under which they will acquire NorthWestern in an all-cash transaction valued at $37.00 a share. The merger agreement contemplated the consummation of the deal within 12 months of the date of the merger agreement but allows for six-month extensions. On April 25 of 2007, we did extend the date for consummation of our merger to October 25 of 2007. This is really just a formality. Either party could extend the date another six months, and both parties in this case--BBI and NorthWestern--want to complete the proposed transaction.

Our merger agreement with BBI required a number of approvals before we could close. We've received all of the required approvals except that from the Montana Public Service Commission. The MPSC held a hearing on the transaction during March of this year, of '07, and since then, on April 11, BBI and NorthWestern filed a joint post-hearing brief. Other interveners in the case have until May 7 to file their briefs, and the process allows BBI/NorthWestern to reply to the interveners by May 14, which we intend to do. After our replies, the MPSC will conduct public deliberation sessions to consider the evidence and make a decision. The Company anticipates receiving the MPSC's decision in June of this year, '07. If we get MPSC approval, we expect the transaction to be completed, including all contractual closing conditions, as soon as is practicable from the date of the MPSC decision. Upon closing, NorthWestern's common stock will cease to be publicly traded.

Now let me turn it over to Brian Bird, our Chief Financial Officer, to discuss our first quarter 2007 financial results in more detail. Brian?

Thanks, Mike. Regarding our consolidated operations, consolidated operating income for the three months ended March 31, 2007, increased $2.2 million or 5.2% as compared with the first quarter of 2006. This increase was primarily due to higher margin, partly offset by increased operating expenses. Consolidated net income was $19.1 million, or $0.54 per basic share for the quarter ended March 31, 2007, compared with the consolidated net income of $21 million for the quarter ended March 31, 2006. The main reason for the decrease was due to a $4.9 million decrease in investment income, primarily related to a hedge gain recorded in the first quarter of 2006. Our consolidated gross margin for the first quarter of 2007 was $147.3 million, a 3.9% increase compared with $141.8 million for the first quarter of 2006.

Our regulated electric segment performed well once again in the first quarter. Margin in the regulated electric segment increased $6.7 million from the first quarter of 2006, primarily due to a $4.2 million loss in 2006 related to a stipulation with the Montana Consumer Council related to electric tracker filings in the previous year and an increase in retail volume in 2007, contributing a $2.0 million improvement. Margin in the regulated natural gas segment increased $2.7 million in the first quarter of 2007, primarily due to increased load due to colder winter weather in our service territory. Gross margin in our unregulated electric segment decreased $3.4 million, due primarily to reduced prices from the first quarter of 2006. Gross margin in the unregulated natural gas segment decreased approximately $500,000 from the first quarter of 2006.

On the expense side, we experienced a $1.1 million increase in property tax, a $1.1 million increase in depreciation expense, and a $1.1 million increase in operating, general, and other expenses, and finally, a $1.2 million decrease in interest expense.

Now moving to the balance sheet. As of March 31, 2007, we had cash and cash equivalents of $1.5 million, compared with $1.9 million at December 31, 2006. Availability under our revolving credit facility was $160.6 million as of March 31, 2007, compared with $134.7 million at December 31, 2006. Long-term debt at March 31, 2007, was $687.8 million, compared with $706.7 million at year end 2006. The long-term debt/total capitalization ratio was less than 48% as of March 31, 2007.

Regarding our cash flow statement for the year ending March 31, 2007, cash provided by continuing operating activities totaled $104 million during the first quarter of 2007, compared with $77.6 million during the first quarter of 2006. This improvement in operating cash flows is primarily due to improved collection and supply costs due to reduced market prices.

The Company paid dividends on common stock of $11.1 million during the first quarter of 2007, compared to $11 million during the first quarter of 2006. Also, the Company paid down long-term debt by $37.6 million. One matter to note related to long-term debt--we recorded approximately $20.4 million in long-term debt with the Colstrip Unit 4 lease buyout. Capital expenditures were $20.5 million during the first quarter of 2007 compared with $21.2 million in the first quarter of 2006.

Now let me turn it back over to Mike for conclusions.

Thanks, Brian. In summary, NorthWestern Energy--.

I'm sorry. Once again, ladies and gentlemen, please continue to hold. We are experiencing difficulty at this time. We've lost the host connection, and you'll hear music until we--.

If and when we receive that consent, we will close the transaction as soon as practical thereafter.

So I'd like to close by saying that our purpose remains to provide high quality, safe, and reliable service to our customers at reasonable prices while providing a fair return to our shareholders, and we feel we are meeting those objectives.

With that, I'd like to turn it back to the operator to give instructions for questions and comments.

(Operator Instructions.) One moment for the first question. And we do have a question from Steven [Velgot]. Please go ahead.

Thank you. Mike, a question about whether the PSC has said anything more about the public deliberations they intend to undertake after all the filings are made?

They haven't made any further comments, Steven, or set a schedule. They, in Montana, there are ex parte communication rules. They can't speak directly to ourselves or other parties, and so what will happen is once all the briefs are in, the staff will prepare for that meeting, prepare a staff memo, and then the Commission will set and announce a schedule and date for its deliberation.

Okay. And those communications that you referred to that can't take place between the parties and the PSC, I take it that the parties themselves can communicate outside of these filings, at least to a certain extent. And I'm wondering if you could comment at all on whether or not the Montana Consumer Council's recommendation that the BBI limit the dividends to definite income is something that they've been flexible on?

Well, let me just start off. Yes, the parties can talk to each other, although that's not part of the record. The Commission's decision has to be made on the record. Before, as we've had no further discussions with the Consumer Council on that, we filed our position in our brief, offering some financial parameters that we would operate in. The Consumer Council has yet to file a brief, but that will outline, I think, its thinking on the subject to which we can respond, and then, of course, the decision ultimately gets made by the Commission.

Right. Okay. Thank you.

(Operator Instructions.) And we do have a question from Scott Middleton with Jefferies Asset. Please go ahead.

Hi. Scott Middleton. Thank you very much. I was just wondering about the new interstate transmission investment. If the merger doesn't go through, is that something that the company would pursue?

Mike Hanson; Yes, Scott, we're continuing to look at development of that project in that corridor. We, as you're probably aware, had gone out and surveyed the market interest some time ago. There was significant market interest in transmission upgrade in that corridor. The development process and time line are quite lengthy, but we're continuing through that. We'll finalize our engineering analysis. We're going to have to go through a permitting process. We'll have a variety of public meetings about the siting and so on if we go down that--it would be our intent to continue to work on that project at this point in time, still believing that it is a viable and necessary upgrade. All right. Thank you very much.

And we do have a question from John Goodrich. Please go ahead.

Good morning. I'm sorry, but I think we lost connection with the host line just as you started to discuss Colstrip. Could you pick it up from there to the end of the presentation?

Okay, John. I guess Brian was speaking at the time.

Yes, one second, please, while I find that. In terms of--are you referring to, that we did mention something in the cash flow statement, and we mentioned something in the income statement. Which particular area did you drop off?

I think it was in the cash flow statement, where you were mentioning Colstrip.

Okay, I did note in there that one matter to note related to long-term debt. We recorded approximately a $20.4 million in long-term debt with the Colstrip unit for lease buyout. We purchased 79 megawatts, which was (inaudible) interest in the Colstrip unit for lease.

Okay. And then was there a closing comment about some modification or commitment once the Babcock transaction would be completed?

All we did, John, and of course, there will be a replay available, but Brian just compared our CapEx this year, and then I closed off by summarizing what we've just said about continuing to make progress with our regulated business, increasing gross margins and the like, and reminding folks that assuming we receive the consent from the Montana Public Service Commission, we will close as soon as is practical thereafter.

Okay. Sorry for the redundancy. Thanks.

And there is a follow-up question from Steven Velgot. Please go ahead.

Yes, Mike. Could you just remind us where you stand in terms of potential for a rate case in Montana going forward, regardless of what happens with the transaction?

Steven, we continue to evaluate that. You may be aware that under our bankruptcy stipulation, we were required to file an informational filing last fall, September of '06, based on 2005 results. That showed a combined revenue deficiency, as it's called, of gas and electric in Montana of about $41 million. We continue to analyze 2006 and look at that. We haven't finalized that analysis or determined if we're going to be filing for a rate increase this year or next, but our view is as property taxes have continued to climb in Montana, pension expenses, and right now material costs are up-- fuel, so on and so forth--that at some point in time, we are going to need to adjust our rates to reflect our current costs, but haven't made a decision on a time line yet.

So is there any sort of window for that, or is it just that--is it always available to you in terms of filing another informational filing?

Well, it, we have the right to request an increase when we are prepared to do that. As a practical matter, you look at that a year at a time, because the date of that is filed is what's called a "test year." It's a one-year--in our case, calendar year--financial results. You look at it each year, and it takes six to nine months to assemble and analyze all of that information to make a decision as to whether we're going to request one based on that year or wait for another period of time.

Okay. Thank you.

(Operator Instructions.) At this time, we have no questions. Please continue.

All right. Well, I'd just like to thank everyone for participating today and your continued interest in NorthWestern.

Ladies and gentlemen, this conference will be available for replay after 2:30 p.m. Eastern today until June 2 at midnight. You may access the AT&T Executive Playback Service at any time by dialing 1-800-475-6701 and entering the access code 871160. Again, the dial-in number is 1-800-475-6701, and entering the access code 871160. And that does conclude your conference for today, and thank you for your participation and for using AT&T Executive Service. You may now disconnect.