NorthWestern Corporation (NWE)

Q2 2010 Earnings Call

July 29, 2010 11:00 a.m. ET

Executives

Dan Rausch - IR

Bob Rowe - President & CEO

Brian Bird - VP & CFO

Analysts

Chris Ellinghaus - Wellington Shields

Paul Ridzon - KeyBanc

Ryan Rosenthal - Sidoti & Company

Brian Russo - Ladenburg Thalmann

James Bellessa - DA Davidson & Company

Jonathan Reeder - Wells Fargo

Kyle Henderson - Praesidis Asset Management

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the NorthWestern Corporation's Second Quarter 2010 Financial Results Conference Call. At this time, all participants are in a listen-only mode. (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.

Dan Rausch

Good morning and welcome to NorthWestern Corporation's June 30, 2010 quarter-end financial results conference call and webcast. NorthWestern's results have been released and that release is available on our website at www.northwesternenergy.com. We also filed our 10-Q yesterday. Joining us today on the call are Bob Rowe, President and CEO; Brian Bird, Chief Financial Officer; Dave Gates, Vice President of Wholesale Operations 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 in 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 reasons.

Following our presentation today, those joining us by teleconference will be able to ask questions. A replay of today's call will be available beginning at Noon Eastern Time today through August 29, 2010. To access the replay, dial 1-800-475-6710 and then access code 163720. Those numbers again are 1-800-475-6701 and then the code is 163720. A replay of today's webcast is also going to be available on our website for about the next month.

And with that, I'll turn it over to President and CEO, Bob Rowe.

Bob Rowe

Thank you, Dan. We're really quite please with our results for the second quarter and in addition to our financial results, we have several non-operational success that I will mention in just a moment. And we made significant progress on the Montana rate case since the last time we spoke.

First, starting with the financial results, our net income improved to $11.7 million for the second quarter of 2010, and that's compared with 6.1 million for the second quarter of 2009. This was primarily due to improvement in income tax expenses and in operating, general and administrative expenses.

We've announced our third quarter of $0.34 per share and that's payable on September 30 for shareholders, a record as of September 15. And during 2009, our quarterly dividends were $0.335 per quarter.

Also, early in the quarter, we were added to the Standard and Poor's small cap group of 600 stocks. And finally, Forbes.com has included us on their list of 100 Most Trustworthy Companies. Both of these are good indications of the progress we have made of our future direction. And particularly, the Forbes.com recognition, I think, is a great testament of the integrity of our employees and our Board of Directors.

Now, I am going to turn the call over to Mr. Brian Bird to discuss our 2010 financial results in more detail.

Brian Bird

Thanks Bob. We reported diluted EPS of $0.32 a share during the second quarter of 2010 compared to $0.17 a share in the second quarter of 2009. So, basically earnings increased $0.15 per diluted share on year-over-year basis. Let me give you a quick overview of the largest drivers.

Reduced operating costs, including benefits, legal costs, pension costs, and plant operations contributed about $0.08 per diluted share compared with second quarter 2009. Allowance for funds, used during construction or in other words, AFUDC, benefitted our earnings by about $0.06 a share, primarily, related to the Mill Creek Generating Station between decreasing interest expense and adding to other income. We expect to capitalize another 6 million of AFUDC related to Mill Creek through the remainder of the year.

Release in valuation allowance against certain state net operating loss carry-forwards benefitted net income by approximately $0.06 per diluted share compared with the second quarter of 2009. Also, we had continued tax benefits for repair costs due to flow-through regulatory treatment, which contributed about $0.03 per diluted share compared with second quarter of last year.

In the second quarter of 2010, we benefitted from the absence of a 2009 $0.02 per diluted share loss on a natural gas capacity contract. Offsetting those improvements or increases to second quarter 2010 earnings included higher qualifying facility supply costs of approximately $0.06 per fully diluted share compared to second quarter of '09. And a net decrease of about $0.06 per fully diluted share in our earnings due to the increase in property taxes caused by an increase in asset property values in Montana. And this is the net result of our property tax tracker which has reflected in gross margin.

And you can tell from our press release and our 10-Q filing, there were other increases and decreases to earnings year-over-year, but these were the most significant drivers.

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