Delaware (State or other jurisdiction of incorporation) | 1-10499 (Commission File Number) | 46-0172280 (IRS Employer Identification No.) | ||
3010 W. 69th Street Sioux Falls, South Dakota (Address of principal executive offices) | 57108 (Zip Code) | |||
(605) 978-2900 (Registrant's telephone number, including area code) |
Emerging Growth Company o |
Item 2.02 | Results of Operations and Financial Condition |
Item 9.01 | Financial Statements and Exhibits. |
EXHIBIT NO. | DESCRIPTION OF DOCUMENT |
99.1* | Press Release dated July 25, 2017 |
99.2* | Investor Call Presentation, dated July 26, 2017 |
NORTHWESTERN CORPORATION | |||
By: | /s/ Timothy P. Olson | ||
Timothy P. Olson | |||
Corporate Secretary |
EXHIBIT NO. | DESCRIPTION OF DOCUMENT |
99.1* | Press Release dated July 25, 2017 |
99.2* | Investor Call Presentation, dated July 26, 2017 |
NorthWestern Corporation d/b/a NorthWestern Energy 3010 W. 69th Street Sioux Falls, SD 57108 www.northwesternenergy.com |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
(in thousands, except per share amounts) | 2017 | 2016 | 2017 | 2016 (2) | |||||||||||
Revenues | $ | 283,859 | $ | 293,120 | $ | 651,171 | $ | 625,659 | |||||||
Cost of Sales | 84,000 | 81,693 | 203,817 | 197,127 | |||||||||||
Gross Margin (1) | 199,859 | 211,427 | 447,354 | 428,532 | |||||||||||
Operating, General and Administrative Expense | 75,188 | 72,579 | 156,150 | 152,440 | |||||||||||
Property and Other Taxes | 39,481 | 35,208 | 79,409 | 70,629 | |||||||||||
Depreciation and depletion | 41,495 | 39,898 | 82,956 | 79,788 | |||||||||||
Total Operating Expenses | 156,164 | 147,685 | 318,515 | 302,857 | |||||||||||
Operating Income | 43,695 | 63,742 | 128,839 | 125,675 | |||||||||||
Interest Expense, net | (23,408 | ) | (26,421 | ) | (46,808 | ) | (50,930 | ) | |||||||
Other Income | 2,123 | 1,195 | 3,623 | 4,297 | |||||||||||
Income Before Income Taxes | 22,410 | 38,516 | 85,654 | 79,042 | |||||||||||
Income Tax Expense | (580 | ) | (2,947 | ) | (7,257 | ) | (3,606 | ) | |||||||
Net Income | $ | 21,830 | $ | 35,569 | $ | 78,397 | $ | 75,436 | |||||||
Basic: Average Shares Outstanding | 48,451 | 48,309 | 48,418 | 48,275 | |||||||||||
Earnings per Share - Basic | $ | 0.45 | $ | 0.74 | $ | 1.62 | $ | 1.57 | |||||||
Diluted: Average Shares Outstanding | 48,581 | 48,386 | 48,548 | 48,352 | |||||||||||
Earnings per Share - Diluted | $ | 0.44 | $ | 0.73 | $ | 1.61 | $ | 1.55 | |||||||
Dividends Declared per Common Share | $ | 0.525 | $ | 0.500 | $ | 1.05 | $ | 1.00 | |||||||
(1) Gross Margin is a non-GAAP financial measure. See "Non-GAAP Financial Measures" section below for more information. | |||||||||||||||
(2) During the fourth quarter of 2016, we early adopted the provisions of Accounting Standards Update No. 2016-09 (ASU 2016-09), Improvements to Employee Share-Based Payment Accounting, revising certain elements of the accounting for share-based payments. As a result of this adoption, during the fourth quarter of 2016, excess tax benefits of $1.8 million related to vested share-based compensation awards were recorded as a decrease in income tax expense in the Condensed Consolidated Statement of Income. The guidance also requires that in future filings that include the previously issued interim financial information, the interim financial information is presented on a recast basis to reflect the adoption of ASU 2016-09 as of January 1, 2016. The Condensed Consolidated Financial Statements for the Six Months Ended June 30, 2016 have been recast to reflect this adoption, resulting in an increase in net income and earnings per share. |
• | $14.2 million decrease due to the inclusion of deferred revenues recognized in 2016 as a result of a MPSC final order in our tracker filings regarding prior period lost revenues; |
• | $1.4 million decrease in electric retail volumes due primarily to milder spring weather offset by customer growth; |
• | $0.8 million adjustment in 2016 in the disallowance of modeling costs based on an MPSC final order; |
• | $0.1 million lower gas production margin; and |
• | $0.7 million decrease in other miscellaneous margin items |
• | $1.3 million increase in natural gas retail volumes due primarily to colder spring weather in our Montana and South Dakota jurisdictions and customer growth; |
• | $0.4 million higher demand to transmit energy across our transmission lines due to market conditions and pricing; and |
• | $0.4 million decrease in QF related supply costs based on actual QF pricing and output. |
• | $3.2 million increase in revenues for property taxes included in trackers offset by increased property tax expense; and |
• | $0.4 million increase in natural gas production gathering fees offset by higher gathering fees included in operating expenses. |
• | $0.9 million higher labor costs due primarily to compensation increases and more time spent by employees on maintenance projects (which are expensed) rather than capital projects; |
• | $0.6 million higher bad debt expense; |
• | $0.5 million higher maintenance costs at our Dave Gates Generating Station and Colstrip Unit 4; |
• | $0.4 million increase in the value of non-employee directors deferred compensation due to changes in our stock price (offset by changes in other income with no impact on net income); and |
• | $0.4 million higher natural gas production gathering expense (offset by higher gathering fees discussed above). |
(in millions) | Three Months Ended June 30, | |||||||||||
2017 | 2016 | |||||||||||
Income Before Income Taxes | $ | 22.4 | $ | 38.5 | ||||||||
Income tax calculated at 35% federal statutory rate | 7.8 | 35.0 | % | 13.5 | 35.0 | % | ||||||
Permanent or flow-through adjustments: | ||||||||||||
State income, net of federal provisions | (0.5 | ) | (2.2 | )% | (1.0 | ) | (2.7 | )% | ||||
Flow-through repairs deductions | (4.7 | ) | (21.2 | )% | (7.0 | ) | (18.1 | )% | ||||
Production tax credits | (1.4 | ) | (6.5 | )% | (2.3 | ) | (6.0 | )% | ||||
Plant and depreciation of flow-through items | (0.7 | ) | (3.1 | )% | (0.3 | ) | (0.6 | )% | ||||
Prior year permanent return to accrual adjustments | — | — | % | (0.1 | ) | (0.3 | )% | |||||
Other, net | 0.1 | 0.6 | % | 0.1 | 0.4 | % | ||||||
Subtotal | (7.2 | ) | (32.4 | )% | (10.6 | ) | (27.3 | )% | ||||
Income Tax Expense | $ | 0.6 | 2.6 | % | $ | 2.9 | 7.7 | % |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
($millions, except EPS) | Pre-tax Income | Net (1) Income | Diluted EPS | Pre-tax Income | Net (1) Income | Diluted EPS | |||||||||
2016 reported | $38.5 | $35.6 | $0.73 | $79.0 | $75.4 | $1.55 | |||||||||
Gross Margin | |||||||||||||||
Lost revenue adjustment mechanism | (14.2 | ) | (8.7 | ) | (0.18 | ) | (14.2 | ) | (8.7 | ) | (0.18 | ) | |||
Electric retail volumes | (1.4 | ) | (0.9 | ) | (0.02 | ) | 7.2 | 4.4 | 0.10 | ||||||
MPSC 2016 disallowance (adjustment) | (0.8 | ) | (0.5 | ) | (0.01 | ) | 9.5 | 5.8 | 0.12 | ||||||
Natural gas production | (0.1 | ) | (0.1 | ) | — | (0.7 | ) | (0.4 | ) | (0.01 | ) | ||||
Natural gas retail volumes | 1.3 | 0.8 | 0.02 | 7.3 | 4.5 | 0.09 | |||||||||
Electric transmission | 0.4 | 0.2 | — | 0.2 | 0.1 | — | |||||||||
Electric QF adjustment | 0.4 | 0.2 | — | 0.4 | 0.2 | — | |||||||||
South Dakota electric rate increase | — | — | — | 1.2 | 0.7 | 0.02 | |||||||||
Other | (0.7 | ) | (0.4 | ) | (0.01 | ) | 1.3 | 0.8 | 0.02 | ||||||
Subtotal: Margin Items Impacting Net Income | (15.1 | ) | (9.4 | ) | (0.20 | ) | 12.2 | 7.4 | 0.16 | ||||||
Property taxes recovered in trackers | 3.2 | 1.9 | 0.04 | 6.3 | 3.9 | 0.08 | |||||||||
Gas production gathering fees | 0.4 | 0.2 | — | 0.4 | 0.2 | — | |||||||||
Subtotal: Margin Items Not Impacting Net Income (2) | 3.6 | 2.1 | 0.04 | 6.7 | 4.1 | 0.08 | |||||||||
Total Gross Margin | (11.5 | ) | (7.3 | ) | (0.16 | ) | 18.9 | 11.5 | 0.24 | ||||||
OG&A Expense | |||||||||||||||
Labor | (0.9 | ) | (0.6 | ) | (0.01 | ) | (1.4 | ) | (0.9 | ) | (0.02 | ) | |||
Bad debt expense | (0.6 | ) | (0.4 | ) | (0.01 | ) | (1.9 | ) | (1.2 | ) | (0.03 | ) | |||
Maintenance costs | (0.5 | ) | (0.3 | ) | (0.01 | ) | (2.0 | ) | (1.2 | ) | (0.03 | ) | |||
Non-employee directors deferred compensation | (0.4 | ) | (0.2 | ) | — | 1.3 | 0.8 | 0.02 | |||||||
Natural gas production gathering expense | (0.4 | ) | (0.2 | ) | — | (0.4 | ) | (0.2 | ) | — | |||||
Insurance reserves | — | — | — | 1.0 | 0.6 | 0.01 | |||||||||
Other miscellaneous expense | 0.2 | 0.1 | — | (0.4 | ) | (0.2 | ) | — | |||||||
Total OG&A Expense | (2.6 | ) | (1.6 | ) | (0.03 | ) | (3.8 | ) | (2.3 | ) | (0.05 | ) | |||
Other items | |||||||||||||||
Property and other taxes | (4.3 | ) | (2.6 | ) | (0.05 | ) | (8.8 | ) | (5.4 | ) | (0.11 | ) | |||
Depreciation and depletion expense | (1.6 | ) | (1.0 | ) | (0.02 | ) | (3.2 | ) | (2.0 | ) | (0.04 | ) | |||
Interest expense | 3.0 | 1.8 | 0.04 | 4.1 | 2.5 | 0.05 | |||||||||
Other income (incl. offset to Non-employee compensation above) | 0.9 | 0.6 | 0.01 | (0.7 | ) | (0.4 | ) | (0.01 | ) | ||||||
Permanent and flow-through adjustments to income tax | — | (3.7 | ) | (0.08 | ) | — | (0.9 | ) | (0.01 | ) | |||||
Impact of higher share count & other | — | — | — | 0.2 | — | (0.01 | ) | ||||||||
Total Other items | (2.0 | ) | (4.9 | ) | (0.10 | ) | (8.4 | ) | (6.2 | ) | (0.13 | ) | |||
Total impact of above items | (16.1 | ) | (13.8 | ) | (0.29 | ) | 6.7 | 3.0 | 0.06 | ||||||
2017 reported | $22.4 | $21.8 | $0.44 | $85.7 | $78.4 | $1.61 | |||||||||
(1) Income Tax Benefit (Expense) calculation on reconciling items assumes normal effective tax rate of 38.5%. | |||||||||||||||
(2) These items are offset in in related operating expenses and have no impact to net income. |
(in millions, except EPS) | ||||||
Three Months Ended June 30, 2017 | ||||||
Pre-tax Income | Net(1) Income | Diluted EPS | ||||
2017 Reported GAAP | $22.4 | $21.8 | $0.44 | |||
Non-GAAP Adjustments: | ||||||
Add back unfavorable weather | 2.0 | 1.2 | 0.03 | |||
2017 Adjusted Non-GAAP | $24.4 | $23.0 | $0.47 | |||
Three Months Ended June 30, 2016 | ||||||
Pre-tax Income | Net(1) Income | Diluted EPS | ||||
2016 Reported GAAP | $38.5 | $35.6 | $0.73 | |||
Non-GAAP Adjustments: | ||||||
Add back unfavorable weather | 5.7 | 3.5 | 0.07 | |||
MPSC electric tracker disallowance of costs related to years prior to 2016 (adjustment and interest accrual) | 2.1 | 1.3 | 0.03 | |||
Remove Lost Revenue Adjustment Mechanism (LRAM) benefit related to years prior to 2016 | (14.2 | ) | (8.7 | ) | (0.18 | ) |
2016 Adjusted Non-GAAP | $32.1 | $31.7 | $0.65 | |||
(1) Income Tax Benefit (Expense) calculation on reconciling items assumes normal effective tax rate of 38.5%. |
(in millions, except EPS) | Estimated to Meet Guidance | |||||||||||||||||||
Six Months Ended June 30, 2017 | EPS Q3-Q4 2017 | EPS Full Year 2017 | ||||||||||||||||||
Pre-tax Income | Net(1) Income | Diluted EPS | Low | - | High | Low | - | High | ||||||||||||
2017 Reported GAAP | $85.6 | $78.4 | $1.61 | |||||||||||||||||
Non-GAAP Adjustments: | ||||||||||||||||||||
Remove favorable weather | (1.2 | ) | (0.8 | ) | (0.01 | ) | ||||||||||||||
2017 Adjusted Non-GAAP | $84.4 | $77.6 | $1.60 | $1.70 | - | $1.90 | $3.30 | - | $3.50 | |||||||||||
Six Months Ended June 30, 2016 | Q3-Q4 2016 | Full Year 2016 | ||||||||||||||||||
Pre-tax Income | Net(1) Income | Diluted EPS | Pre-tax Income | Net(1) Income | Diluted EPS | Pre-tax Income | Net(1) Income | Diluted EPS | ||||||||||||
2016 Reported GAAP | $79.0 | $75.4 | $1.55 | $77.5 | $88.8 | $1.84 | $156.5 | $164.2 | $3.39 | |||||||||||
Non-GAAP Adjustments: | ||||||||||||||||||||
Add back unfavorable weather | 12.8 | 7.9 | 0.16 | 2.4 | 1.4 | 0.03 | 15.2 | 9.3 | 0.19 | |||||||||||
MPSC electric tracker disallowance of costs related to years prior to 2016 | 12.2 | 7.5 | 0.16 | — | — | — | 12.2 | 7.5 | 0.16 | |||||||||||
Remove Lost Revenue Adjustment Mechanism (LRAM) benefit related to years prior to 2016 | (14.2 | ) | (8.7 | ) | (0.18 | ) | — | — | — | (14.2 | ) | (8.7 | ) | (0.18 | ) | |||||
Remove generation repairs income tax benefit related to years prior to 2016 | — | — | — | — | (12.5 | ) | (0.26 | ) | — | (12.5 | ) | (0.26 | ) | |||||||
2016 Adjusted Non-GAAP | $89.8 | $82.1 | $1.69 | $79.9 | $77.7 | $1.61 | $169.7 | $159.8 | $3.30 | |||||||||||
(1) Income Tax Benefit (Expense) calculation on reconciling items assumes normal effective tax rate of 38.5%. |
• | Normal weather in our electric and natural gas service territories; |
• | A consolidated income tax rate of approximately 7%-11% of pre-tax income; and |
• | Diluted average shares outstanding of approximately 48.6 million. |
• | adverse determinations by regulators, as well as potential adverse federal, state, or local legislation or regulation, including costs of compliance with existing and future environmental requirements, could have a material effect on our liquidity, results of operations and financial condition; |
• | changes in availability of trade credit, creditworthiness of counterparties, usage, commodity prices, fuel supply costs or availability due to higher demand, shortages, weather conditions, transportation problems or other developments, may reduce revenues or may increase operating costs, each of which could adversely affect our liquidity and results of operations; |
• | unscheduled generation outages or forced reductions in output, maintenance or repairs, which may reduce revenues and increase cost of sales or may require additional capital expenditures or other increased operating costs; and |
• | adverse changes in general economic and competitive conditions in the U.S. financial markets and in our service territories. |
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