ALLETE
Aug 3, 2016

ALLETE, Inc. Reports Second Quarter 2016 Earnings

DULUTH, Minn.--(BUSINESS WIRE)-- ALLETE, Inc. (NYSE: ALE) today reported second quarter 2016 earnings of 50 cents per share on net income of $24.8 million and operating revenue of $314.8 million. Last year's results were 46 cents per share on net income of $22.5 million and operating revenue of $323.3 million, and included profit recognition of $1.5 million after-tax, or 3 cents per share, for the construction of a wind energy facility which was sold to Montana-Dakota Utilities in the fourth quarter of 2015. Net income in 2015 also included acquisition costs of $0.9 million, or 2 cents per share.

"We are encouraged by developments in the quarter that point to improved future production levels for Minnesota Power's taconite customers," said ALLETE Chairman, President and CEO Al Hodnik. "As expected, second quarter results were impacted by lower sales to taconite customers, and we continued to proactively manage the impact by utilizing the wholesale power markets and tightening operating and maintenance expenses."

ALLETE's Regulated Operations segment, which includes Minnesota Power, Superior Water, Light and Power, and the Company's investment in the American Transmission Co. (ATC), recorded net income of $22.6 million, a decrease of $0.7 million from 2015 second quarter net income. At Minnesota Power, lower industrial sales and higher depreciation and property tax expenses were partially offset by increased sales to other power suppliers and lower operating and maintenance expense. In addition, our equity earnings in ATC decreased $0.4 million after-tax, due to period over period changes in ATC's estimate of a refund liability related to Midwest Independent System Operator return on equity complaints.

ALLETE's Energy Infrastructure and Related Services businesses, which include ALLETE Clean Energy and U.S. Water Services, recorded net income of $2.6 million and $1.0 million, respectively. Earnings at ALLETE Clean Energy decreased $0.4 million primarily due to 2015 results including the previously mentioned profit recognition of $1.5 million after-tax for the construction and sale of a wind energy facility to Montana-Dakota Utilities in 2015. Net income at ALLETE Clean Energy in 2016 also included higher earnings from a full quarter of a wind energy facility acquired in July of 2015, and $0.9 million of lower acquisition costs. Earnings at U.S. Water Services increased $0.4 million reflecting lower amortization expense related to purchase accounting adjustments from the 2015 acquisition. 2016 also reflects increased investments in back office systems and support at U.S. Water Services as we create a platform for future growth.

The Corporate and Other segment, which includes BNI Energy and ALLETE Properties, posted a net loss of $1.4 million for the quarter, compared to a net loss of $4.4 million in 2015. The decreased loss was primarily the result of lower income tax expense compared to the second quarter of 2015.

ALLETE will host a conference call and webcast at 10 a.m. Eastern Time this morning to discuss details of its financial performance and earnings guidance. Interested parties may listen live by calling (877) 303-5852, or by accessing the webcast at www.allete.com. A replay of the call will be available through August 7, 2016 by calling (855) 859-2056, pass code 43088897. The webcast will be accessible for one year at www.allete.com.

ALLETE is an energy company headquartered in Duluth, Minn. In addition to its electric utilities, Minnesota Power and Superior Water, Light and Power of Wisconsin, ALLETE owns ALLETE Clean Energy, based in Duluth, U.S. Water Services headquartered in St. Michael, Minn., BNI Energy in Center, N.D., and has an eight percent equity interest in the American Transmission Co. More information about ALLETE is available at www.allete.com. ALE-CORP

The statements contained in this release and statements that ALLETE may make orally in connection with this release that are not historical facts, are forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements. These forward-looking statements involve risks and uncertainties and investors are directed to the risks discussed in documents filed by ALLETE with the Securities and Exchange Commission.

ALLETE's press releases and other communications may include certain non-Generally Accepted Accounting Principles (GAAP) financial measures. A "non-GAAP financial measure" is defined as a numerical measure of a company's financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP in the company's financial statements.

Non-GAAP financial measures utilized by the Company include presentations of earnings (loss) per share. ALLETE's management believes that these non-GAAP financial measures provide useful information to investors by removing the effect of variances in GAAP reported results of operations that are not indicative of changes in the fundamental earnings power of the Company's operations. Management believes that the presentation of the non-GAAP financial measures is appropriate and enables investors and analysts to more accurately compare the company's ongoing financial performance over the periods presented.

ALLETE, Inc.

Consolidated Statement of Income

Millions Except Per Share Amounts - Unaudited

   
Quarter Ended Six Months Ended
June 30, June 30,
    2016   2015   2016   2015
   
Operating Revenue   $314.8     $323.3     $648.6     $643.3  
Operating Expenses
Fuel and Purchased Power 78.1 80.1 155.0 166.1
Transmission Services 16.1 11.3 32.9 26.2
Cost of Sales 33.4 52.3 66.7 83.5
Operating and Maintenance 82.0 85.4 160.1 165.1
Depreciation and Amortization 48.7 41.3 96.8 80.3
Taxes Other than Income Taxes   14.3     13.4     28.1     26.2  
Total Operating Expenses 272.6 283.8 539.6 547.4
Operating Income   42.2     39.5     109.0     95.9  
Other Income (Expense)
Interest Expense (17.4 ) (16.2 ) (34.3 ) (31.3 )
Equity Earnings in ATC 4.1 4.7 8.9 8.6
Other   0.6     0.7     1.6     1.8  
Total Other Expense   (12.7 )   (10.8 )   (23.8 )   (20.9 )
Income Before Non-Controlling Interest and Income Taxes 29.5 28.7 85.2 75.0
Income Tax Expense   4.7     6.4     14.0     12.6  
Net Income   24.8     22.3     71.2     62.4  
Less: Non-Controlling Interest in Subsidiaries       (0.2 )   0.5      
Net Income Attributable to ALLETE   $24.8     $22.5     $70.7     $62.4  
Average Shares of Common Stock
Basic 49.3 48.6 49.2 47.7
Diluted   49.5     48.7     49.3     47.8  
Basic Earnings Per Share of Common Stock $0.50 $0.46 $1.44 $1.31
Diluted Earnings Per Share of Common Stock $0.50 $0.46 $1.43 $1.30
Dividends Per Share of Common Stock   $0.52     $0.505     $1.04     $1.01  
 

Consolidated Balance Sheet

Millions - Unaudited

         
Jun. 30, Dec. 31, Jun. 30, Dec. 31,
    2016   2015       2016   2015
Assets Liabilities and Shareholders' Equity
Cash and Cash Equivalents $91.9 $97.0 Current Liabilities $271.6 $274.8
Other Current Assets 262.4 274.0 Long-Term Debt 1,498.9 1,556.7
Property, Plant and Equipment - Net 3,631.3 3,669.1 Deferred Income Taxes 595.1 579.8
Regulatory Assets 359.1 372.0 Regulatory Liabilities 94.6 105.0
Investment in ATC 129.0 124.5 Defined Benefit Pension & Other 204.5 206.8
Other Investments 72.3 74.6 Other Non-Current Liabilities 340.8 349.0
Goodwill and Intangibles - Net 212.7 215.2 Shareholders' Equity 1,852.1 1,822.4
Other Non-Current Assets   98.9   68.1            
Total Assets   $4,857.6   $4,894.5   Total Liabilities and Shareholders' Equity   $4,857.6   $4,894.5
 
  Quarter Ended   Six Months Ended
ALLETE, Inc. June 30, June 30,
Income (Loss)   2016   2015   2016   2015
Millions    
Regulated Operations $22.6 $23.3 $65.0 $64.3
 
Energy Infrastructure and Related Services

ALLETE Clean Energy

2.6

3.0

8.7

5.5

U.S. Water Services 1.0 0.6

0.5

0.5

 
Corporate and Other   (1.4 )  

(4.4

)

  (3.5 )   (7.9 )
Net Income Attributable to ALLETE   $24.8     $22.5     $70.7     $62.4  
Diluted Earnings Per Share   $0.50     $0.46     $1.43     $1.30  
 
Statistical Data                
Corporate
Common Stock
High $64.69 $52.98 $64.69 $59.73
Low $53.47 $46.27 $48.26 $46.27
Close $64.63 $46.39 $64.63 $46.39
Book Value $37.51 $36.37 $37.51 $36.37
 
Kilowatt-hours Sold                
Millions
Regulated Utility
Retail and Municipal
Residential 237 227 566 583
Commercial 339 331 707 715
Municipal 187 187 406 420
Industrial   1,513     1,575     3,107     3,525  
Total Retail and Municipal 2,276 2,320 4,786 5,243
Other Power Suppliers   1,185     1,113     2,315     2,004  
Total Regulated Utility Kilowatt-hours Sold   3,461     3,433     7,101     7,247  
 
Regulated Utility Revenue                
Millions
Regulated Utility Revenue
Retail and Municipal
Residential $24.9 $24.1 $57.8 $59.1
Commercial 31.5 31.5 64.0 65.1
Municipal 15.3 14.5 31.2 30.5
Industrial   96.6     104.2     196.5     218.9  
Total Retail and Municipal 168.3 174.3 349.5 373.6
Other Power Suppliers 44.2 37.6 86.4 71.3
Other   22.4     18.1     51.3     47.9  
Total Regulated Utility Revenue   $234.9     $230.0     $487.2     $492.8  

ALLETE, Inc.
Investor Contact:
Vince Meyer, 218-723-3952
vmeyer@allete.com

Source: ALLETE, Inc.

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