NorthWestern Reports Second Quarter 2016 Financial Results

SIOUX FALLS, S.D., July 22, 2016 /PRNewswire/ — NorthWestern Corporation d/b/a NorthWestern Energy (NYSE: NWE) reported financial results for the quarter ended June 30, 2016.  Net income for the quarter was $35.6 million, or $0.73 per diluted share, as compared with net income of $31.0 million, or $0.65 per diluted share, for the same period in 2015.  This $4.6 million, or 14.8%, increase in net income is due to improvements in gross margin and income tax expense partially offset by higher operating expense.  The higher operating expense is primarily the result of a $20.8 million insurance recovery that reduced operating expense in 2015.

“Although we experienced another quarter of unseasonably mild temperatures, we are pleased to deliver solid earnings to our investors while also delivering safe, reliable electric and gas service to our growing customer base,” said Bob Rowe, President and Chief Executive Officer.  “Our service territories in Montana, South Dakota and Nebraska continue to experience residential and commercial customer growth in excess of 1%.”

 

Significant items during the quarter include:

Significant Earnings Drivers

Gross Margin
Consolidated gross margin for the three months ended June 30, 2016 was $211.4 million compared with $191.1 million for the same period in 2015.  This $20.3 million increase was a result of a $27.3 million increase to items that have an impact on net income and $7.0 million decrease to items that are offset in operating expenses and income tax expense with no impact to net income.

Consolidated gross margin for items impacting net income increased $27.3 million, including:

These increases were offset in part by:

The change in consolidated gross margin for items that had no impact on net income (due to offsets in operating expenses or income tax expense) represented a $7.0 million decrease primarily due to the following:

These decreases were offset in part by:

Consolidated gross margin for the six months ended June 30, 2016 was $428.5 million compared with $424.7 million for the same period of 2015.

Operating, General and Administrative Expenses
Consolidated operating, general and administrative expenses for the three months ended June 30, 2016 were $72.6 million compared with $61.7 million for the same period in 2015. The $10.9 million increase was primarily due to:

These increases were offset in part by:

Consolidated operating, general and administrative expenses for the six months ended June 30, 2016 was $152.4 million compared with $142.8 million for the same period of 2015.

Property and Other Taxes
Property and other taxes were $35.2 million for the three months ended June 30, 2016, as compared with $32.5 million in the same period of 2015. This increase was primarily due to plant additions and higher estimated property valuations in Montana, offset in part by a $0.3 million decrease from the conveyance of Kerr to the CSKT in September 2015. We estimate property taxes throughout each year and update to the actual expense when we receive our Montana property tax bills in November. In addition, under Montana law, we are allowed to track the increases in the actual level of state and local taxes and fees and recover these amounts. The MPSC has authorized recovery of approximately 60% of the estimated increase in our local taxes and fees (primarily property taxes) as compared to the related amount included in rates during our last general rate case.

Property and other taxes for the six months ended June 30, 2016 was $70.6 million compared with $65.2 million for the same period of 2015.

Depreciation and Depletion Expense
Depreciation and depletion expense was $39.9 million for the three months ended June 30, 2016, as compared with $35.7 million in the same period of 2015. This increase was primarily due to plant additions, including approximately $1.4 million of depreciation associated with the Beethoven wind project acquisition.

Depreciation and depletion expense for the six months ended June 30, 2016 was $79.8 million compared with $71.6 million for the same period of 2015.

Operating Income
Consolidated operating income for the three months ended June 30, 2016 was $63.7 million, as compared with $61.1 million in the same period of 2015. This increase was primarily due to the increase in gross margin offset in part by higher operating costs as discussed above.

Consolidated operating income for the six months ended June 30, 2016 was $125.7 million compared with $145.0 million for the same period of 2015.

Interest Expense
Consolidated interest expense for the three months ended June 30, 2016 was $26.4 million, as compared with $22.9 million in the same period of 2015. This increase was primarily due to $2.9 million interest accrued during the quarter associated with the MPSC disallowance of the 2013 Colstrip outage costs, increased debt outstanding associated with the September 2015 Beethoven wind project acquisition, and lower capitalization of allowance for funds used during construction (AFUDC).

Consolidated interest expense for the six months ended June 30, 2016 was $50.9 million compared with $46.1 million for the same period of 2015.

Other Income
Consolidated other income for the three months ended June 30, 2016, was $1.2 million, as compared with $1.0 million in the same period of 2015. This increase was primarily due to a $1.6 million increase in the value of deferred shares held in trust for non-employee directors deferred compensation (which, as discussed above, is offset by a corresponding increase to operating, general and administrative expenses). This is partially offset by lower capitalization of AFUDC.

Consolidated other income for the six months ended June 30, 2016 was $4.3 million compared with $1.7 million for the same period of 2015.

Income Tax
Consolidated income tax expense for the three months ended June 30, 2016 was $2.9 million, as compared with $8.2 million in the same period of 2015. Our effective tax rate for the three months ended June 30, 2016 was 7.7% as compared with 21.0% for the same period of 2015. We currently expect our 2016 effective tax rate to range between 6% – 10%.

 

We compute income tax expense for each quarter based on the estimated annual effective tax rate for the year, adjusted for certain discrete items. Our effective tax rate typically differs from the federal statutory tax rate of 35% primarily due to the regulatory impact of flowing through federal and state tax benefits of repairs deductions, state tax benefit of accelerated tax depreciation deductions (including bonus depreciation when applicable) and production tax credits.

Consolidated income tax expense for the six months ended June 30, 2016 was $5.4 million compared with $18.2 million for the same period of 2015.

Net Income
Consolidated net income for the three months ended June 30, 2016 was $35.6 million as compared with $31.0 million for the same period in 2015. This increase was primarily due to improved gross margin, due to the recognition of deferred revenue and the South Dakota electric rate increase, and lower income tax expense, partly offset by higher operating expenses due to the insurance recovery included in our 2015 results and higher interest expense.

Consolidated net income for the six months ended June 30, 2016 was $73.6 million compared with $82.4 million for the same period of 2015.

 

Liquidity and Capital Resources
As of June 30, 2016, our total net liquidity was approximately $102.2 million, including $9.0 million of cash and $93.2 million of revolving credit facility availability.  This compares to total net liquidity one year ago at June 30, 2015 of $163.0 million.

Dividend Declared
NorthWestern’s Board of Directors declared a quarterly common stock dividend of $0.50 per share, payable September 30, 2016 to common shareholders of record as of September 15, 2016.

Significant Items Not Contemplated in Guidance
A reconciliation of items not factored into our 2016 and final 2015 adjusted (non-GAAP) earnings guidance of $3.20 – $3.35 and $3.10 – $3.25 per diluted share, respectively, are summarized below. The amount below represents an after-tax (using a 38.5% effective tax rate) non-GAAP measure that may provide users of this financial information with additional meaningful information regarding the impact of certain items on our expected earnings.  More information on this measure can be found in the “Non-GAAP Financial Measures” section below.

 

2016 Earnings Guidance Reaffirmed
NorthWestern reaffirms its 2016 adjusted (non-GAAP) earnings guidance range of $3.20 – $3.35 per diluted share based upon, but not limited to, the following major assumptions and expectations:

Company Hosting Investor Conference Call
NorthWestern will host an investor conference call and webcast today, July 22, 2016, at 11:00 a.m. Eastern time to review its financial results for the quarter ending June 30, 2016.  The conference call will be webcast live on the Internet at www.northwesternenergy.com under the “Our Company / Investor Relations / Presentations and Webcasts” heading or by visiting www.webcaster4.com/Webcast/Page/1050/15807.  To participate, please go to the site at least 10 minutes in advance of the webcast to register.  An archived webcast will be available shortly after the call and remain active for one year.

A telephonic replay of the call will be available for one month, beginning at 6:00 p.m. Eastern time on July 22, 2016, at (888) 203-1112 access code 2437706.

About NorthWestern Energy (NYSE: NWE)
NorthWestern Corporation, doing business as NorthWestern Energy, provides electricity and natural gas to approximately 701,000 customers in Montana, South Dakota and Nebraska. More information on NorthWestern Energy is available on the company’s Web site at www.northwesternenergy.com.

Non-GAAP Financial Measures
This press release includes financial information prepared in accordance with GAAP, as well as other financial measures, such as Gross Margin and Adjusted Non-GAAP Diluted EPS, that are considered “non-GAAP financial measures.”  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 and depletion from the measure.  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.  Adjusted Non-GAAP Diluted EPS is another non-GAAP measure.  The Company believes the presentation of Adjusted Non-GAAP Diluted EPS is more representative of our normal earnings than the GAAP EPS due to the exclusion (or inclusion) of certain impacts that are not reflective of ongoing earnings.

The presentation of these non-GAAP measures is intended to supplement investors’ understanding of our financial performance and not to replace other GAAP measures as an indicator of actual operating performance.  Our measures may not be comparable to other companies’ similarly titled measures.

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 “Significant Items Not Contemplated in Guidance” and “2016 Earnings Guidance Updated”.  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:

Our 2015 Annual Report on Form 10-K, recent and forthcoming Quarterly Reports on Form 10-Q, recent 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.

 

SOURCE NorthWestern Corporation

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