NorthWestern reports first quarter 2003 financial results

SIOUX FALLS, S.D., May 19, 2003 — NorthWestern Corp., a provider of electricity and natural gas in the Upper Midwest and Northwest, reported earnings on common stock of $9.9 million or 26 cents per diluted share for the quarter ended March 31, 2003, compared with a loss on common stock of $52.4 million or $1.91 per diluted share for the first quarter of 2002.

Results for the first quarter of 2003 included a $27.3 million or 73 cents per share gain from the extinguishment of a subordinated note of Expanets, NorthWestern’s communications services business, on March 13, 2003.

In addition, first quarter 2003 results included a loss of $2.6 million from discontinued operations related to the sale of certain business locations of Blue Dot, the company’s heating, ventilation and air conditioning business.

In comparison, results in the first quarter of 2002 were significantly impacted by $40.0 million in losses from the discontinued operations of CornerStone Propane, a retail propane provider, and a $20.7 million charge for the retirement of an acquisition term loan.

“Without the gain from the cancellation of debt, NorthWestern would have reported a loss for the first quarter of 2003,” said Gary G. Drook, NorthWestern’s Chief Executive Officer. “While cash and cash equivalents increased during the quarter due to financing activities, our operations continued to use more cash than they brought in.”

Consolidated revenues for the quarter ended March 31, 2003, were $563.2 million, a 27.8 percent increase from $440.7 million in the first quarter of 2002. The increase in consolidated revenues during the first quarter of 2003 was due primarily to higher electric and natural gas revenues of $112.5 million, of which the Company’s Montana utility operations contributed $100.7 million.

Results in the first quarter of 2003 included three months of Montana utility operations, compared with two months in the same period in 2002 due to the February 2002 effective date of the acquisition of the Montana operations. Revenues during the first quarter of 2003 also increased by $18.7 million at Blue Dot, due to previous acquisitions and growth in same unit sales, but were offset by a $10.4 million reduction in revenues from Expanets due primarily to continued weak telecommunications market conditions. Consolidated operating income for the first quarter of 2003 was $37.3 million, compared with operating income of $13.0 million in the first quarter of 2002.

Results from Core Utility Operations

NorthWestern’s core electric and natural gas utility, NorthWestern Energy, reported operating income of $53.0 million for the quarter ended March 31, 2003, compared with operating income of $42.3 million for the first quarter of 2002. Revenues for the first quarter of 2003 increased to $286.2 million, compared with $173.7 million for the first quarter of 2002.

Results for the first quarter of 2003 included three months from Montana operations, compared with two months in the same period in 2002 due to the February 2002 effective date of acquisition of the Montana operations.

Total sales of electricity increased to approximately 2.7 million megawatt hours during the first quarter of 2003, compared with approximately 1.8 million megawatt hours sold during the same period in 2002. Total sales of natural gas grew to approximately 16.4 million MMBTU, compared with 10.5 million MMBTU in the first quarter of 2002. Sales of electricity and natural gas during the first quarter of 2002 included only two months from Montana operations.

Retail and wholesale megawatt hours sold from the Company’s Montana electric operations increased by 5.3 percent and 3.0 percent, respectively, during February and March of 2003, compared with the same months in 2002. South Dakota electric operations experienced a 6.5 percent increase in retail volumes during the first quarter of 2003, compared with the same period in 2002 as a result of colder weather.

Retail natural gas volumes (MMBTU) from the Company’s Montana natural gas operations decreased 3.8 percent during February and March of 2003, compared with the same months in 2002. Retail natural gas volumes from South Dakota and Nebraska operations increased 8.8 percent, while wholesale natural gas volumes increased 10.9 percent in the first quarter of 2003, compared to the same period in 2002. The higher volumes from the South Dakota and Nebraska operations were due to colder weather and increased wholesale volumes sold to ethanol facilities.

Results from Nonutility Operations

During the first quarter of 2003, Expanets reported an operating loss of $5.2 million, compared with operating losses of $23.4 million in the first quarter of 2002. The reduction in losses resulted from an increase in gross margin and a decline in operating expenses.

Revenues in the first quarter of 2003 were $168.8 million, compared with $179.3 million in the first quarter of 2002. The decline in revenues was primarily due to continued softness in the telecommunications equipment market and problems with Expanets’ EXPERT billing and collection system implementation that have contributed to an erosion of its customer base.

Blue Dot reported an operating loss of $1.4 million from continuing operations in the first quarter of 2003, compared with an operating loss of $1.9 million in the same period in 2002. Revenues for the first quarter of 2003 were $97.7 million, compared with revenues of $79.0 million during the same period in 2002. The increase in revenues is due to acquisitions made after the first quarter of 2002 along with increased same unit sales at core business locations.

During the first quarter of 2003, Blue Dot committed to sell 16 underperforming noncore business locations, of which nine were sold during the quarter and the remaining seven were sold in April 2003.

Blue Dot received $1.8 million from the sale of the 16 noncore locations, of which $1.4 million was related to the nine locations sold in the quarter ended March 31, 2003. In addition to cash proceeds, minority interest shareholders surrendered 8.1 million shares of Blue Dot Class C common stock. Results from the locations sold during the quarter are reported as discontinued operations in the Company’s consolidated income statement.

“In overview, NorthWestern’s first quarter results illustrate why our strategy going forward is focused on our core electric and natural gas utility operations,” said Drook. “We are continuing to take action to implement our turnaround plan, which includes selling noncore businesses and assets and applying net proceeds to reduce debt. In addition, we are focusing on building liquidity, stabilizing operations at Expanets and Blue Dot, reducing costs company wide and strengthening internal financial controls.”

Trust Preferred Securities

NorthWestern has five wholly owned special-purpose business trusts, NWPS Capital Financing I (NYSE:NOR PrA), NorthWestern Capital Financing I (NYSE:NOR PrB); NorthWestern Capital Financing II (NYSE:NOR PrC), NorthWestern Capital Financing III (NYSE:NOR PrD) and Montana Power Capital I (NYSE:MTP PrA).

The sole assets of these trusts are the investments in subordinated debentures, which are interest bearing. NorthWestern has a right, on one or more occasions, to defer interest payments in the subordinated debentures for up to 20 consecutive quarters unless a default under the subordinated debentures has occurred and is continuing. If the Company defers interest payments on the subordinated debentures, cash distributions on the trust preferred securities will also be deferred. The payment of the upcoming distributions is under review and while NorthWestern’s Board of Directors has not yet made a formal decision, it is likely that such payments will be deferred.

Annual Shareholders Meeting

The Board of Directors of NorthWestern has established Tuesday, Aug. 26, 2003, at 2 p.m. Central time as the time for the annual meeting of shareholders in Sioux Falls, S.D. A proxy statement related to the annual meeting will be mailed to all common shareholders of record as of June 27, 2003.

About NorthWestern

NorthWestern Corporation is one of the largest providers of electricity and natural gas in the Upper Midwest and Northwest, serving approximately 598,000 customers in Montana, South Dakota and Nebraska. NorthWestern also has investments in Expanets, Inc., a leading nationwide provider of networked communications and data services to small and mid-sized businesses, and Blue Dot Services Inc., a provider of heating, ventilation and air conditioning services to residential and commercial customers.


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