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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(mark one)  
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedJune 30, 2020
OR
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to          

Commission File Number: 1-10499
nwe-20200630_g1.jpg
NORTHWESTERN CORP
(Exact name of registrant as specified in its charter)
Delaware 46-0172280
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
3010 W. 69th StreetSioux FallsSouth Dakota 57108
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: 605-978-2900

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stockNWENYSE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non- accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated FilerNon-accelerated FilerSmaller Reporting CompanyEmerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock, Par Value $0.01, 50,576,049 shares outstanding at July 24, 2020
1


NORTHWESTERN CORPORATION
 
FORM 10-Q
 
INDEX
 Page
 
 
 
 
2


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

On one or more occasions, we may make statements in this Quarterly Report on Form 10-Q regarding our assumptions, projections, expectations, targets, intentions or beliefs about future events. All statements other than statements of historical facts, included or incorporated by reference in this Quarterly Report, relating to management's current expectations of future financial performance, continued growth, changes in economic conditions or capital markets and changes in customer usage patterns and preferences are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

Words or phrases such as “anticipates, “may, “will, “should, “believes, “estimates, “expects, “intends, “plans, “predicts, “projects, “targets, “will likely result, “will continue or similar expressions identify forward-looking statements. Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed. We caution that while we make such statements in good faith and believe such statements are based on reasonable assumptions, including without limitation, management’s examination of historical operating trends, data contained in records and other data available from third parties, we cannot assure you that we will achieve our projections. Factors that may cause such differences include, but are not limited to:

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;
the impact of extraordinary external events, such as the outbreak of the novel coronavirus (COVID-19) pandemic 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.

We have attempted to identify, in context, certain of the factors that we believe may cause actual future experience and results to differ materially from our current expectation regarding the relevant matter or subject area. In addition to the items specifically discussed above, our business and results of operations are subject to the uncertainties described under the caption “Risk Factors” which is part of the disclosure included in Part II, Item 1A of this Quarterly Report on Form 10-Q.

From time to time, oral or written forward-looking statements are also included in our reports on Forms 10-K, 10-Q and 8-K, Proxy Statements on Schedule 14A, press releases, analyst and investor conference calls, and other communications released to the public. We believe that at the time made, the expectations reflected in all of these forward-looking statements are and will be reasonable. However, any or all of the forward-looking statements in this Quarterly Report on Form 10-Q, our reports on Forms 10-K and 8-K, our other reports on Form 10-Q, our Proxy Statements on Schedule 14A and any other public statements that are made by us may prove to be incorrect. This may occur as a result of assumptions, which turn out to be inaccurate, or as a consequence of known or unknown risks and uncertainties. Many factors discussed in this Quarterly Report on Form 10-Q, certain of which are beyond our control, will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of any of our forward-looking statements in this Quarterly Report on Form 10-Q or other public communications as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such forward-looking statements.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made on related subjects in our subsequent reports filed with the Securities and Exchange Commission (SEC) on Forms 10-K, 10-Q and 8-K and Proxy Statements on Schedule 14A.

Unless the context requires otherwise, references to “we,” “us,” “our,” “NorthWestern Corporation,” “NorthWestern Energy,” and “NorthWestern” refer specifically to NorthWestern Corporation and its subsidiaries.

3


PART 1. FINANCIAL INFORMATION
 
ITEM 1.FINANCIAL STATEMENTS (UNAUDITED)
 

NORTHWESTERN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
(Unaudited)
 
(in thousands, except per share amounts)
 
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Revenues  
Electric$217,938  $219,659  $462,563  $492,696  
Gas51,422  51,060  142,052  162,243  
Total Revenues269,360  270,719  604,615  654,939  
Operating Expenses 
Cost of sales61,043  55,744  152,315  171,479  
Operating, general and administrative71,715  80,826  150,720  161,918  
Property and other taxes46,981  44,310  91,480  89,099  
Depreciation and depletion44,782  41,016  90,047  86,600  
Total Operating Expenses224,521  221,896  484,562  509,096  
Operating Income44,839  48,823  120,053  145,843  
Interest Expense, net(24,287) (23,511) (48,621) (47,301) 
Other Income (Expense), net224  124  (1,758) 1,273  
Income Before Income Taxes20,776  25,436  69,674  99,815  
Income Tax Benefit718  22,226  2,524  20,653  
Net Income $21,494  $47,662  $72,198  $120,468  
Average Common Shares Outstanding50,570  50,441  50,538  50,441  
Basic Earnings per Average Common Share$0.43  $0.94  $1.43  $2.39  
Diluted Earnings per Average Common Share$0.43  $0.94  $1.43  $2.38  
Dividends Declared per Common Share$0.60  $0.575  $1.20  $1.15  
See Notes to Condensed Consolidated Financial Statements
 
4


NORTHWESTERN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
(Unaudited)
 
(in thousands)
 
Three Months Ended June 30,Six Months Ended
June 30,
 2020201920202019
Net Income $21,494  $47,662  $72,198  $120,468  
Other comprehensive income, net of tax:
  Foreign currency translation adjustment(8) (87) 93  (24) 
Reclassification of net losses on derivative instruments113  113  226  225  
Total Other Comprehensive Income105  26  319  201  
Comprehensive Income$21,599  $47,688  $72,517  $120,669  

See Notes to Condensed Consolidated Financial Statements
 
5


NORTHWESTERN CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
 
(Unaudited)

(in thousands, except share data)
 June 30,
2020
December 31,
2019
ASSETS  
Current Assets:  
Cash and cash equivalents$7,464  $5,145  
Restricted cash8,949  6,925  
Accounts receivable, net125,104  167,405  
Inventories61,224  53,925  
Regulatory assets47,520  54,432  
Other13,325  13,895  
      Total current assets 263,586  301,727  
Property, plant, and equipment, net4,784,017  4,700,924  
Goodwill357,586  357,586  
Regulatory assets501,487  484,131  
Other noncurrent assets65,099  66,334  
      Total Assets $5,971,775  $5,910,702  
LIABILITIES AND SHAREHOLDERS' EQUITY  
Current Liabilities:  
Current maturities of finance leases$2,569  $2,476  
Short term borrowings100,000    
Accounts payable69,400  96,690  
Accrued expenses211,452  202,021  
Regulatory liabilities45,445  33,080  
      Total current liabilities 428,866  334,267  
Long-term finance leases16,155  17,439  
Long-term debt2,157,740  2,233,281  
Deferred income taxes462,522  447,986  
Noncurrent regulatory liabilities461,924  451,483  
Other noncurrent liabilities391,012  387,152  
      Total Liabilities 3,918,219  3,871,608  
Commitments and Contingencies (Note 10)
Shareholders' Equity:  
Common stock, par value $0.01; authorized 200,000,000 shares; issued and outstanding 54,144,775 and 50,573,976 shares, respectively; Preferred stock, par value 0.01; authorized 50,000,000 shares; none issued
541  541  
Treasury stock at cost(98,438) (96,015) 
Paid-in capital1,513,510  1,508,970  
Retained earnings647,272  635,246  
Accumulated other comprehensive loss(9,329) (9,648) 
Total Shareholders' Equity 2,053,556  2,039,094  
Total Liabilities and Shareholders' Equity$5,971,775  $5,910,702  

See Notes to Condensed Consolidated Financial Statements
6


NORTHWESTERN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 Six Months Ended June 30,
 20202019
OPERATING ACTIVITIES:  
Net income$72,198  $120,468  
Items not affecting cash: 
Depreciation and depletion90,047  86,600  
Amortization of debt issuance costs, discount and deferred hedge gain2,371  2,317  
Stock-based compensation costs4,195  3,597  
Equity portion of allowance for funds used during construction(2,318) (2,318) 
Loss (gain) on disposition of assets3  (176) 
Deferred income taxes  (16,547) 
Changes in current assets and liabilities:
Accounts receivable42,301  36,348  
Inventories(7,299) (966) 
Other current assets570  (437) 
Accounts payable(7,319) (19,683) 
Accrued expenses9,382  (20,781) 
Regulatory assets6,912  (13,106) 
Regulatory liabilities12,365  (23,652) 
Other noncurrent assets(3,694) (3,059) 
Other noncurrent liabilities(495) (3,992) 
Cash Provided by Operating Activities219,219  144,613  
INVESTING ACTIVITIES:  
Property, plant, and equipment additions(176,482) (147,027) 
Investment in equity securities(37)   
Cash Used in Investing Activities(176,519) (147,027) 
FINANCING ACTIVITIES:  
Treasury stock activity(2,076) 999  
Dividends on common stock(60,172) (57,562) 
Issuance of long-term debt150,000  50,000  
  Line of credit (repayments) borrowings, net(225,000) 7,000  
Issuance of short-term borrowings100,000    
Financing costs(1,109) (875) 
Cash Used in Financing Activities(38,357) (438) 
Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash4,343  (2,852) 
Cash, Cash Equivalents, and Restricted Cash, beginning of period12,070  15,311  
Cash, Cash Equivalents, and Restricted Cash, end of period $16,413  $12,459  
Supplemental Cash Flow Information:  
Cash paid during the period for:  
Income taxes$55  $68  
Interest42,115  42,100  
Significant non-cash transactions:  
Capital expenditures included in accounts payable13,835  13,543  
See Notes to Condensed Consolidated Financial Statements
7



NORTHWESTERN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

(in thousands, except per share data)

Three Months Ended June 30,
Number  of Common SharesNumber of Treasury SharesCommon StockTreasury StockPaid in CapitalRetained EarningsAccumulated Other Comprehensive Loss Total Shareholders' Equity
Balance at March 31, 201953,996  3,556  $540  $(96,260) $1,502,993  $592,278  $(9,759) $1,989,792  
Net income          47,662    47,662  
Foreign currency translation adjustment, net of tax            (87) (87) 
Reclassification of net losses on derivative instruments from OCI to net income, net of tax            113  113  
Stock-based compensation        1,169      1,169  
Issuance of shares  (3)   82  128      210  
Dividends on common stock ($0.575 per share)
          (28,781)   (28,781) 
Balance at June 30, 201953,9963,553$540  $(96,178) $1,504,290  $611,159  $(9,733) $2,010,078  
Balance at March 31, 202054,1453,578$541  $(98,644) $1,512,148  $655,865  $(9,434) $2,060,476  
Net income          21,494    21,494  
Foreign currency translation adjustment, net of tax            (8) (8) 
Reclassification of net losses on derivative instruments from OCI to net income, net of tax            113  113  
Stock-based compensation        1,139      1,139  
Issuance of shares  (7)   206  223      429  
Dividends on common stock ($0.600 per share)
          (30,087)   (30,087) 
Balance at June 30, 202054,1453,571$541  $(98,438) $1,513,510  $647,272  $(9,329) $2,053,556  

8









Six Months Ended June 30,
Number  of Common SharesNumber of Treasury SharesCommon StockTreasury StockPaid in CapitalRetained EarningsAccumulated Other Comprehensive Loss Total Shareholders' Equity
Balance at December 31, 201853,889  3,566  $539  $(95,546) $1,499,070  $548,253  $(9,934) $1,942,382  
Net income          120,468    120,468  
Foreign currency translation adjustment, net of tax            (24) (24) 
Reclassification of net losses on derivative instruments from OCI to net income, net of tax            225  225  
Stock-based compensation86  25    (1,646) 3,575      1,929  
Issuance of shares21  (38) 1  1,014  1,645      2,660  
Dividends on common stock ($1.15 per share)
          (57,562)   (57,562) 
Balance at June 30, 201953,9963,553$540  $(96,178) $1,504,290  $611,159  $(9,733) $2,010,078  
Balance at December 31, 201953,9993,547$541  $(96,015) $1,508,970  $635,246  $(9,648) $2,039,094  
Net income          72,198    72,198  
Foreign currency translation adjustment, net of tax            93  93  
Reclassification of net losses on derivative instruments from OCI to net income, net of tax            226  226  
Stock-based compensation146  35    (2,740) 4,170      1,430  
Issuance of shares  (11)   317  370      687  
Dividends on common stock ($1.20 per share)
          (60,172)   (60,172) 
Balance at June 30, 202054,1453,571$541  $(98,438) $1,513,510  $647,272  $(9,329) $2,053,556  

See Notes to Condensed Consolidated Financial Statements

9


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Reference is made to Notes to Financial Statements included in NorthWestern Corporation’s Annual Report)
(Unaudited)

(1) Nature of Operations and Basis of Consolidation
 
NorthWestern Corporation, doing business as NorthWestern Energy, provides electricity and/or natural gas to approximately 734,800 customers in Montana, South Dakota and Nebraska.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period. Actual results could differ from those estimates. The unaudited Condensed Consolidated Financial Statements (Financial Statements) reflect all adjustments (which unless otherwise noted are normal and recurring in nature) that are, in the opinion of management, necessary to fairly present our financial position, results of operations and cash flows. The actual results for the interim periods are not necessarily indicative of the operating results to be expected for a full year or for other interim periods. Events occurring subsequent to June 30, 2020, have been evaluated as to their potential impact to the Financial Statements through the date of issuance.

The Financial Statements included herein have been prepared by NorthWestern, without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations; however, management believes that the condensed disclosures provided are adequate to make the information presented not misleading. Management recommends that these Financial Statements be read in conjunction with the audited financial statements and related footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2019.

Variable Interest Entities

A reporting company is required to consolidate a variable interest entity (VIE) as its primary beneficiary, which means it has a controlling financial interest, when it has both the power to direct the activities of the VIE that most significantly impact the VIE's economic performance, and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. An entity is considered to be a VIE when its total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support, or its equity investors, as a group, lack the characteristics of having a controlling financial interest. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance.

Certain long-term purchase power and tolling contracts may be considered variable interests. We have various long-term purchase power contracts with other utilities and certain qualifying co-generation facilities and qualifying small power production facilities (QF). We identified one QF contract that may constitute a VIE. We entered into a 40-year power purchase contract in 1984 with this 35 megawatt (MW) coal-fired QF to purchase substantially all of the facility’s capacity and electrical output over a substantial portion of its estimated useful life. We absorb a portion of the facility’s variability through annual changes to the price we pay per megawatt hour (MWH). After making exhaustive efforts, we have been unable to obtain the information from the facility necessary to determine whether the facility is a VIE or whether we are the primary beneficiary of the facility. The contract with the facility contains no provision which legally obligates the facility to release this information. We have accounted for this QF contract as an executory contract. Based on the current contract terms with this QF, as of June 30, 2020 our estimated gross contractual payments aggregate approximately $130.1 million through 2024.

Supplemental Cash Flow Information

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows (in thousands):
10


June 30, December 31,June 30, December 31,
2020201920192018
Cash and cash equivalents$7,464  $5,145