Shares of Upper Midwest gas and electric utility company NorthWestern Corp. fell 7% by Wednesday afternoon to $2.57/share after the company announced that it is suspending its common stock dividend and expects about $700 million in special charges for 2002 because of the poor performance of its investments in CornerStone Propane, communications network provider Expanets, and heating and airconditioning unit Blue Dot.

The company said it has launched a “turnaround plan” that is designed to strengthen its liquidity, and improve its balance sheet and financial performance going forward.

“The board recognizes the importance of dividends to our common shareholders,” said CEO Gary G. Drook. “However, we have made the determination that the long-term interests of our shareholders are best served by implementing our turnaround plan and by reducing the company’s debt burden. The $48 million per year that will now be available for debt reduction as a result of the suspension of the dividend is a critical component of our debt pay-down plan.”

Drook said the board will evaluate the resumption of dividend payments once the financial strength of the company is restored through asset sales, overhead cost reductions and other measures. “Through the successful execution of these strategies, we are targeting the reduction of at least $200 million in debt within the next 12 months.”

Drook, who was elected CEO on Jan. 7, 2003, said the turnaround plan is designed to return the company’s focus to its core electric and natural gas utility business, which continues to perform well. It plans to review strategic options for its nonregulated businesses and minimize their reliance on the company’s resources. In addition, the company has hired John C. van Roden Jr., former Conectiv CFO, as senior vice president.

As part of its prior diversification strategy aimed at accelerating revenue growth, NorthWestern compiled $1 billion in debt over the past several years to finance acquisitions of several nonregulated businesses. Currently, NorthWestern has $2.2 billion in debt and trust preferred instruments. Three of its recently acquired businesses, CornerStone Propane, Expanets and Blue Dot, have adversely impacted the company’s overall financial performance.

NorthWestern plans to avoid any further investments in Expanets or Blue Dot while it examines strategic alternatives for the two businesses. It has identified 11 underperforming Blue Dot locations for sale or closure in order to further support financial self-sufficiency for Blue Dot. The locations are expected to be sold or closed by mid-2003, leaving Blue Dot with 45 remaining locations.

On Nov. 7, 2002, NorthWestern wrote down the value of its investment and financial arrangements in the discontinued operations of CornerStone Propane.

To maintain liquidity, it has received funds from a $390 million senior secured credit facility, some of which were used to repay its existing $280 million working capital facility. NorthWestern currently has more than $100 million in cash on hand and intends to maintain that level of cash going forward. It doesn’t face any significant debt maturities until 2005 and believes that it has sufficient liquidity for ongoing operations. Its new credit facility also does not include any adverse rating triggers, and its covenants are linked to the performance of the company’s core utility operations and exclude its nonregulated businesses.

The company expects to release its fourth quarter and full-year 2002 results in March. The expected $700 million in charges break down as follows: Noncash goodwill and intangible asset impairment charges of $280 million for Blue Dot and $245 million for Expanets; Previously recorded noncash charges of $101 million to write down the company’s investment, financial arrangements and operating losses in the discontinued operations of CornerStone Propane; and Previously announced increase of Expanets’ reserves by more than $50 million for accounts receivable and billing adjustments stemming from implementation of Expanets’ enterprise software system.

NorthWestern said its core utility business will show improved performance in 2003 through continuing integration efforts and the benefit of full-year results from its Montana operations. “Our core utility business continues to perform well, and we will ensure that it continues to have the resources it needs to succeed,” said Drook. NorthWestern serves 595,000 electric and gas utility customers in Montana, South Dakota and Nebraska.

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