Company Quick10K Filing
Quick10K
Northwestern
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$69.70 51 $3,520
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-26 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-05-21 Regulation FD, Exhibits
8-K 2019-04-24 Shareholder Vote
8-K 2019-04-23 Earnings, Regulation FD, Exhibits
8-K 2019-03-20 Regulation FD, Exhibits
8-K 2019-02-11 Officers, Exhibits
8-K 2019-02-11 Earnings, Regulation FD, Exhibits
8-K 2018-12-13 Officers, Exhibits
8-K 2018-12-04 Regulation FD, Exhibits
8-K 2018-11-09 Regulation FD, Exhibits
8-K 2018-10-24 Earnings, Regulation FD, Exhibits
8-K 2018-09-27 Regulation FD, Exhibits
8-K 2018-09-12 Regulation FD, Exhibits
8-K 2018-09-04 Regulation FD, Exhibits
8-K 2018-07-23 Regulation FD, Exhibits
8-K 2018-07-19 Earnings, Regulation FD, Exhibits
8-K 2018-05-18 Regulation FD, Exhibits
8-K 2018-04-25 Shareholder Vote
8-K 2018-03-21 Regulation FD, Exhibits
8-K 2018-02-15 Other Events, Exhibits
8-K 2018-02-12 Officers, Exhibits
GPN Global Payments 22,960
KRC Kilroy Realty 7,730
ITRI Itron 2,430
PEBO Peoples Bancorp 678
SRRK Scholar Rock Holding 555
JCAP Jernigan Capital 436
CNAT Conatus Pharmaceuticals 30
ZZLL ZZLL Information Technology 0
AWIN Altegris Winton Futures Fund 0
STDY Steadymed 0
NWE 2019-03-31
Part 1. Financial Information
Item 1. Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits -
EX-31.1 ex311certificationq120.htm
EX-31.2 ex312certificationq120.htm
EX-32.1 ex321certificationq120.htm
EX-32.2 ex322certificationq120.htm

Northwestern Earnings 2019-03-31

NWE 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

(mark one)
 
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the quarterly period ended March 31, 2019
 
 
 
OR
 
 
 
o
 
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
logoa14.jpg
NORTHWESTERN CORPORATION
(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 Street, Sioux Falls, South Dakota
 
57108
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: 605-978-2900

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 Filer x
Accelerated Filer o
Non-accelerated Filer o  
Smaller Reporting Company o
Emerging Growth Company o

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. Yes o  No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o  No x
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
50,439,930 shares outstanding at April 19, 2019

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;
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 March 31,
 
 
2019
 
2018
 
Revenues
 
 
 
 
Electric
$
273,037

 
$
238,342

 
Gas
111,183

 
103,160

 
Total Revenues
384,220

 
341,502

 
Operating Expenses
 
 
 
 
Cost of sales
115,735

 
96,077

 
Operating, general and administrative
81,092

 
74,345

 
Property and other taxes
44,789

 
42,813

 
Depreciation and depletion
45,584

 
43,755

 
Total Operating Expenses
287,200

 
256,990

 
Operating Income
97,020

 
84,512

 
Interest Expense, net
(23,790
)
 
(22,970
)
 
Other Income (Expense), net
1,149

 
(1,129
)
 
Income Before Income Taxes
74,379

 
60,413

 
Income Tax Expense
(1,573
)
 
(1,914
)
 
Net Income
$
72,806

 
$
58,499

 
 
 
 
 
 
Average Common Shares Outstanding
50,381

 
49,416

 
Basic Earnings per Average Common Share
$
1.45

 
$
1.18

 
Diluted Earnings per Average Common Share
$
1.44

 
$
1.18

 
Dividends Declared per Common Share
$
0.575

 
$
0.550

 


See Notes to Condensed Consolidated Financial Statements
 

4



NORTHWESTERN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
(Unaudited)
 
(in thousands)
 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
Net Income
$
72,806

 
$
58,499

 
Other comprehensive income, net of tax:
 
 
 
 
  Foreign currency translation
63

 
95

 
Reclassification of net losses on derivative instruments
112

 
113

 
Total Other Comprehensive Income
175

 
208

 
Comprehensive Income
$
72,981

 
$
58,707

 

See Notes to Condensed Consolidated Financial Statements
 

5



NORTHWESTERN CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
 
(Unaudited)

(in thousands, except share data)
 
March 31,
2019
 
December 31,
2018
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
3,959

 
$
7,860

Restricted cash
7,075

 
7,451

Accounts receivable, net
169,640

 
162,373

Inventories
47,555

 
50,815

Regulatory assets
50,131

 
38,431

Other
9,771

 
10,755

      Total current assets 
288,131

 
277,685

Property, plant, and equipment, net
4,537,909

 
4,521,318

Goodwill
357,586

 
357,586

Regulatory assets
457,207

 
437,581

Other noncurrent assets
59,822

 
50,206

      Total Assets 
$
5,700,655

 
$
5,644,376

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Current Liabilities:
 
 
 
Finance leases
2,341

 
2,298

Accounts payable
81,548

 
87,043

Accrued expenses and other
245,986

 
216,792

Regulatory liabilities
17,367

 
40,876

      Total current liabilities 
347,242

 
347,009

Long-term finance leases
19,320

 
19,915

Long-term debt
2,080,462

 
2,102,345

Deferred income taxes
415,073

 
394,618

Noncurrent regulatory liabilities
442,923

 
438,285

Other noncurrent liabilities
405,843

 
399,822

      Total Liabilities 
3,710,863

 
3,701,994

Commitments and Contingencies (Note 9)

 

Shareholders' Equity:
 
 
 
Common stock, par value $0.01; authorized 200,000,000 shares; issued and outstanding 53,996,070 and 50,439,765 shares, respectively; Preferred stock, par value $0.01; authorized 50,000,000 shares; none issued
540

 
539

Treasury stock at cost
(96,260
)
 
(95,546
)
Paid-in capital
1,502,993

 
1,499,070

Retained earnings
592,278

 
548,253

Accumulated other comprehensive loss
(9,759
)
 
(9,934
)
Total Shareholders' Equity 
1,989,792

 
1,942,382

Total Liabilities and Shareholders' Equity
$
5,700,655

 
$
5,644,376


See Notes to Condensed Consolidated Financial Statements

6




NORTHWESTERN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)
 
Three Months Ended March 31,
 
2019
 
2018
OPERATING ACTIVITIES:
 
 
 
Net income
$
72,806

 
$
58,499

Items not affecting cash:
 
 

Depreciation and depletion
45,584

 
43,755

Amortization of debt issue costs, discount and deferred hedge gain
1,157

 
1,171

Stock-based compensation costs
2,418

 
2,496

Equity portion of allowance for funds used during construction
(969
)
 
(618
)
(Gain) loss on disposition of assets
(164
)
 
15

Deferred income taxes
708

 
2,143

Changes in current assets and liabilities:
 
 
 
Accounts receivable
(7,267
)
 
12,012

Inventories
3,260

 
8,718

Other current assets
984

 
3,258

Accounts payable
3,954

 
(21,605
)
Accrued expenses
27,781

 
41,802

Regulatory assets
(11,700
)
 
13,208

Regulatory liabilities
(23,509
)
 
2,205

Other noncurrent assets
(1,216
)
 
(1,505
)
Other noncurrent liabilities
(2,403
)
 
7,474

Cash Provided by Operating Activities
111,424

 
173,028

INVESTING ACTIVITIES:
 
 
 
Property, plant, and equipment additions
(65,577
)
 
(52,005
)
Cash Used in Investing Activities
(65,577
)
 
(52,005
)
FINANCING ACTIVITIES:
 
 
 
Treasury stock activity
797

 
1,574

Dividends on common stock
(28,781
)
 
(26,945
)
  Line of credit repayments, net
(22,000
)
 

Line of credit borrowings

 
578,000

Line of credit repayments

 
(355,000
)
Repayments of short-term borrowings, net

 
(319,556
)
Financing costs
(140
)
 
(225
)
Cash Used in Financing Activities
(50,124
)
 
(122,152
)
Decrease in Cash, Cash Equivalents, and Restricted Cash
(4,277
)
 
(1,129
)
Cash, Cash Equivalents, and Restricted Cash, beginning of period
15,311

 
12,029

Cash, Cash Equivalents, and Restricted Cash, end of period 
$
11,034

 
$
10,900

Supplemental Cash Flow Information:
 
 
 
Cash paid during the period for:
 
 
 
Income taxes
$
68

 
$
55

Interest
13,278

 
12,172

Significant non-cash transactions:
 
 
 
Capital expenditures included in accounts payable
12,643

 
7,135

 
 
 
 

See Notes to Condensed Consolidated Financial Statements

7




NORTHWESTERN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)

(in thousands, except per share data)
 
Number  of Common Shares
 
Number of Treasury Shares
 
Common Stock
 
Paid in Capital
 
Treasury Stock
 
Retained Earnings
 
Accumulated Other Comprehensive Loss 
 
Total Shareholders' Equity
Balance at December 31, 2017
52,981

 
3,609

 
$
530

 
$
1,445,181

 
$
(96,376
)
 
$
458,352

 
$
(8,772
)
 
$
1,798,915

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 

 
58,499

 

 
58,499

Foreign currency translation adjustment

 

 

 

 

 

 
95

 
95

Reclassification of net losses on derivative instruments from OCI to net income, net of tax

 

 

 

 

 

 
113

 
113

Reclassification of certain tax effects from AOCL

 

 

 

 

 
2,143

 
(2,143
)
 

Stock-based compensation
71

 
(30
)
 
1

 
2,485

 
(669
)
 

 

 
1,817

Issuance of shares

 

 

 
956

 
1,173

 

 

 
2,129

Dividends on common stock ($0.55 per share)

 

 

 

 

 
(26,945
)
 

 
(26,945
)
Balance at March 31, 2018
53,052

 
3,579

 
$
531

 
$
1,448,622

 
$
(95,872
)
 
$
492,049

 
$
(10,707
)
 
$
1,834,623

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
53,889

 
3,566

 
$
539

 
$
1,499,070

 
$
(95,546
)
 
$
548,253

 
$
(9,934
)
 
$
1,942,382

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 

 
72,806

 

 
72,806

Foreign currency translation adjustment

 

 

 

 

 

 
63

 
63

Reclassification of net losses on derivative instruments from OCI to net income, net of tax

 

 

 

 

 

 
112

 
112

Stock-based compensation
86

 
25

 

 
2,406

 
(1,646
)
 

 

 
760

Issuance of shares
21

 
(35
)
 
1

 
1,517

 
932

 

 

 
2,450

Dividends on common stock ($0.575 per share)

 

 

 

 

 
(28,781
)
 

 
(28,781
)
Balance at March 31, 2019
53,996

 
3,556

 
$
540

 
$
1,502,993

 
$
(96,260
)
 
$
592,278

 
$
(9,759
)
 
$
1,989,792




See Notes to Condensed Consolidated Financial Statements


8



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 726,400 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 March 31, 2019, 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, 2018.

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, our estimated gross contractual payments aggregate approximately $164.9 million through 2024.

Accounting Standards Adopted

Leases - In February 2016, the Financial Accounting Standards Board (FASB) issued revised guidance requiring substantially all leases to be recognized on the balance sheet as right-of-use assets and lease liabilities. Leases with a term of 12 months or less may be excluded from the balance sheet and continue to be reflected in the income statement. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease.

We adopted this standard on January 1, 2019, using the modified retrospective method of adoption. Adoption of this standard had minimal impact on our Condensed Consolidated Financial Statements and disclosures. We elected a package of practical expedients that allow us to carry forward historical conclusions related to (1) whether any expired or existing contract is a lease or contains a lease, (2) the lease classification of any expired or existing leases and easements, and (3) the initial direct costs for any existing leases. In addition, as our easements are entered into in perpetuity, they do not meet the definition of a

9



lease in accordance with this guidance. We did not restate comparative periods upon adoption. We had one finance lease that was already included on our balance sheets prior to adoption of the lease standard, consistent with previous guidance for capital leases. The initial recognition of right-of-use assets and lease liabilities for operating leases increased our assets and liabilities by approximately $3.3 million and are classified in the Condensed Consolidated Balance Sheets as follows (in thousands):
 
Affected Line Item in the
Condensed Consolidated Balance Sheets
March 31, 2019
Operating lease assets
Other noncurrent assets
$
3,262

 
 
 
Operating lease liabilities, current
Accrued expenses and other
1,413

Operating lease liabilities, noncurrent
Other noncurrent liabilities
1,849

Total operating lease liabilities
 
$
3,262



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):
 
March 31,
December 31,
March 31,
December 31,
 
2019
2018
2018
2017
 
 
 
 
 
Cash and cash equivalents
$
3,959

$
7,860

$
4,742

$
8,473

Restricted cash
7,075

7,451

6,158

3,556

Total cash, cash equivalents, and restricted cash shown in the Condensed Consolidated Statements of Cash Flows
$
11,034

$
15,311

$
10,900

$
12,029





10



(2) Regulatory Matters

Montana General Electric Rate Case

In September 2018, we filed an electric rate case with the Montana Public Service Commission (MPSC) requesting an annual increase to electric rates of approximately $34.9 million, which represents an approximate 6.6% increase in annual base revenues. Our request is based on a return on equity of 10.65% and an overall rate of return of 7.42% (except for Colstrip Unit 4, which the MPSC previously set for the life of the facility at a 10% return on equity and an 8.25% rate of return), based on approximately $2.35 billion of electric rate base and a capital structure of 51% debt and 49% equity.  

We also requested that approximately $13.8 million of the proposed rate increase be approved on an interim basis effective November 1, 2018. In March, 2019, the MPSC issued an order approving an increase in rates of approximately $10.5 million on an interim and refundable basis effective April 1, 2019. On April 5, 2019, we filed rebuttal testimony, which responded to intervenor testimony and included certain known and measurable adjustments. This testimony reflects a request for an annual increase of $30.7 million, an approximately $4.2 million reduction from our original request.

A hearing is scheduled to commence on May 13, 2019. Interim rates will remain in effect on a refundable basis until the MPSC issues a final order.

Montana QF Tariff Filing

Under the Public Utility Regulatory Policies Act, electric utilities are required, with certain exceptions, to purchase energy and capacity from independent power producers that are QFs. In May 2016, we filed an application for approval of a revised tariff for standard rates for small QFs (3 MW or less). In November 2017, the MPSC issued an order (QF Order) approving new rates that were substantially lower than the previous rates and reducing the maximum contract term from 25 to 15 years. In the QF Order, the MPSC also ordered that it would apply the same 15-year contract term to our future owned and contracted electric supply resources. We, as well as Cypress Creek Renewables, LLC, Vote Solar, and Montana Environmental Information Center (collectively, Vote Solar), sought judicial review of the QF Order before the Montana State District Court.

On April 2, 2019, the Montana State District Court (Court) reversed the MPSC’s decisions to reduce the contract term to 15 years and apply that term to our supply resources. In addition, the Court found that the MPSC approved rates were too low to reflect avoided cost and ordered the MPSC to provide new calculations to the Court within 20 days. While the Court's decision regarding application of maximum contract length to our future owned and contracted resources is consistent with our initial request for judicial review, we appealed the portion of the Court's decision to increase standard rates to the Montana Supreme Court. In addition, we filed a joint motion along with the MPSC and Montana Consumer Counsel to stay the requirement to provide calculations to the Court. Vote Solar filed a motion to amend the District Court’s decision to address inconsistencies in the order. Our QF purchased power expenses are tracked through the Power Cost and Credits Adjustment Mechanism (PCCAM), so any future increases in rates paid to QFs will be reflected through the application of that mechanism.

Cost Recovery Mechanisms

Montana Electric Tracker - We submitted electric tracker filings for recovery of supply costs for the 12-month periods ended June 30, 2016 and 2017, which are subject to a prudency review. The MPSC approved interim rates for these tracker periods, but has not established a schedule for adjudication of these filings.

(3) Income Taxes
 
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 due to the regulatory impact of flowing through the federal and state tax benefit of repairs deductions, state tax benefit of accelerated tax depreciation deductions (including bonus depreciation when applicable) and production tax credits. The regulatory accounting treatment of these deductions requires immediate income recognition for temporary tax differences of this type, which is referred to as the flow-through method. When the flow-through method of accounting for temporary differences is reflected in regulated revenues, we record deferred income taxes and establish related regulatory assets and liabilities.

The following table summarizes the significant differences in income tax expense based on the differences between our effective tax rate and the federal statutory rate (in thousands):

11



 
Three Months Ended March 31,
 
2019
 
2018
Income Before Income Taxes
$
74,379

 
 
 
$
60,413

 
 
 
 
 
 
 
 
 
 
Income tax calculated at federal statutory rate
15,620

 
21.0
 %
 
12,687

 
21.0
 %
 
 
 
 
 
 
 
 
Permanent or flow-through adjustments:
 
 
 
 
 
 
 
State income, net of federal provisions
928

 
1.2

 
732

 
1.2

Flow-through repairs deductions
(7,935
)
 
(10.7
)
 
(6,586
)
 
(10.9
)
Production tax credits
(4,432
)
 
(6.0
)
 
(3,888
)
 
(6.4
)
Plant and depreciation of flow-through items
(1,523
)
 
(2.0
)
 
(916
)
 
(1.6
)
Amortization of excess deferred income tax
(1,376
)
 
(1.8
)
 
(384
)
 
(0.6
)
Share-based compensation
186

 
0.3

 
275

 
0.5

Other, net
105

 
0.1

 
(6
)
 

 
(14,047
)
 
(18.9
)
 
(10,773
)
 
(17.8
)
 
 
 
 
 
 
 
 
Income Tax Expense
$
1,573

 
2.1
 %
 
$
1,914

 
3.2
 %

 
 
 
 
 
 
 
 
Uncertain Tax Positions

We recognize tax positions that meet the more-likely-than-not threshold as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. We have unrecognized tax benefits of approximately $55.7 million as of March 31, 2019, including approximately $47.5 million that, if recognized, would impact our effective tax rate. It is reasonably possible that our unrecognized tax benefits may decrease by up to approximately $20 million in the next 12 months.

Our policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. During the three months ended March 31, 2019, and 2018, we recognized $0.4 million and $0.3 million, respectively, of expense for interest and penalties in the Condensed Consolidated Statements of Income. As of March 31, 2019 and December 31, 2018, we had $3.1 million and $2.7 million, respectively, of interest accrued in the Condensed Consolidated Balance Sheets.

Our federal tax returns from 2000 forward remain subject to examination by the Internal Revenue Service.

(4) Comprehensive Income (Loss)

The following tables display the components of Other Comprehensive Income (Loss), after-tax, and the related tax effects (in thousands):
 
Three Months Ended
 
March 31, 2019
 
March 31, 2018
 
Before-Tax Amount
 
Tax Expense
 
Net-of-Tax Amount
 
Before-Tax Amount
 
Tax Expense
 
Net-of-Tax Amount
Foreign currency translation adjustment
$
63

 
$

 
$
63

 
$
95

 
$

 
$
95

Reclassification of net losses on derivative instruments
153

 
(41
)
 
112

 
153

 
(40
)
 
113

Other comprehensive income (loss)
$
216

 
$
(41
)
 
$
175

 
$
248

 
$
(40
)
 
$
208

 
 
 
 
 
 
 
 
 
 
 
 


12



Balances by classification included within accumulated other comprehensive loss (AOCL) on the Condensed Consolidated Balance Sheets are as follows, net of tax (in thousands):
 
March 31, 2019
 
December 31, 2018
Foreign currency translation
$
1,511

 
$
1,448

Derivative instruments designated as cash flow hedges
(11,521
)
 
(11,633
)
Postretirement medical plans
251

 
251

Accumulated other comprehensive loss
$
(9,759
)
 
$
(9,934
)


The following tables display the changes in AOCL by component, net of tax (in thousands):
 
 
 
Three Months Ended
 
 
 
March 31, 2019
 
Affected Line Item in the Condensed Consolidated Statements of Income
 
Interest Rate Derivative Instruments Designated as Cash Flow Hedges
 
Pension and Postretirement Medical Plans
 
Foreign Currency Translation
 
Total
Beginning balance
 
 
$
(11,633
)
 
$
251

 
$
1,448

 
$
(9,934
)
Other comprehensive income before reclassifications
 
 

 

 
63

 
63

Amounts reclassified from AOCL
Interest Expense
 
112

 

 

 
112

Net current-period other comprehensive income
 
 
112

 

 
63

 
175

Ending balance
 
 
$
(11,521
)
 
$
251

 
$
1,511

 
$
(9,759
)
 
 
 
Three Months Ended
 
 
 
March 31, 2018
 
Affected Line Item in the Condensed Consolidated Statements of Income
 
Interest Rate Derivative Instruments Designated as Cash Flow Hedges
 
Pension and Postretirement Medical Plans
 
Foreign Currency Translation
 
Total
Beginning balance
 
 
$
(9,981
)
 
$
31

 
$
1,178

 
$
(8,772
)
Other comprehensive income before reclassifications
 
 

 

 
95

 
95

Amounts reclassified from AOCL
Interest Expense
 
113

 

 

 
113

Net current-period other comprehensive income
 
 
113

 

 
95

 
208

Reclassification of certain tax effects from AOCL
 
 
(2,150
)
 
7

 

 
(2,143
)
Ending balance
 
 
$
(12,018
)
 
$
38

 
$
1,273

 
$
(10,707
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


13




(5) Segment Information
 
Our reportable business segments are primarily engaged in the electric and natural gas business. The remainder of our operations are presented as other, which primarily consists of unallocated corporate costs and unregulated activity.

We evaluate the performance of these segments based on gross margin. The accounting policies of the operating segments are the same as the parent except that the parent allocates some of its operating expenses to the operating segments according to a methodology designed by management for internal reporting purposes and involves estimates and assumptions.

Financial data for the business segments are as follows (in thousands):
Three Months Ended
 
 
 
 
 
 
 
 
 
March 31, 2019
Electric
 
Gas
 
Other
 
Eliminations
 
Total
Operating revenues
$
273,037

 
$
111,183

 
$

 
$

 
$
384,220

Cost of sales
76,994

 
38,741

 

 

 
115,735

Gross margin
196,043

 
72,442

 

 

 
268,485

Operating, general and administrative
57,783

 
21,008

 
2,301

 

 
81,092

Property and other taxes
35,047

 
9,740

 
2

 

 
44,789

Depreciation and depletion
38,051

 
7,533

 

 

 
45,584

Operating income (loss)
65,162

 
34,161

 
(2,303
)
 

 
97,020

Interest expense
(19,535
)
 
(1,510
)
 
(2,745
)
 

 
(23,790
)
Other (expense) income
(561
)
 
(477
)
 
2,187

 

 
1,149

Income tax (expense) benefit
(1,809
)
 
1,079

 
(843
)
 

 
(1,573
)
Net income (loss)
$
43,257

 
$
33,253

 
$
(3,704
)
 
$

 
$
72,806

Total assets
$
4,544,043

 
$
1,151,929

 
$
4,683

 
$

 
$
5,700,655

Capital expenditures
$
52,307

 
$
13,270

 
$

 
$

 
$
65,577


Three Months Ended
 
 
 
 
 
 
 
 
 
March 31, 2018
Electric
 
Gas
 
Other
 
Eliminations
 
Total
Operating revenues
$
238,342

 
$
103,160

 
$

 
$

 
$
341,502

Cost of sales
57,273

 
38,804

 

 

 
96,077

Gross margin
181,069

 
64,356

 

 

 
245,425

Operating, general and administrative
54,648

 
21,219

 
(1,522
)
 

 
74,345

Property and other taxes
33,493

 
9,318

 
2

 

 
42,813

Depreciation and depletion
36,153

 
7,594

 
8

 

 
43,755

Operating income
56,775

 
26,225

 
1,512

 

 
84,512

Interest expense
(19,520
)
 
(1,854
)
 
(1,596
)
 

 
(22,970
)
Other income (expense)
490

 
108

 
(1,727
)
 

 
(1,129
)
Income tax (expense) benefit
(498
)
 
(2,226
)
 
810

 

 
(1,914
)
Net income (loss)
$
37,247

 
$
22,253

 
$
(1,001
)
 
$

 
$
58,499

Total assets
$
4,319,798

 
$
1,065,103

 
$
15,517

 
$

 
$
5,400,418

Capital expenditures
$
42,898

 
$
9,107

 
$

 
$

 
$
52,005



 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



14



(6)  Revenue from Contracts with Customers

Nature of Goods and Services

We provide retail electric and natural gas services to three primary customer classes. Our largest customer class consists of residential customers, which include single private dwellings and individual apartments. Our commercial customers consist primarily of main street businesses, and our industrial customers consist primarily of manufacturing and processing businesses that turn raw materials into products.

Electric Segment - Our regulated electric utility business primarily provides generation, transmission, and distribution services to our customers in our Montana and South Dakota jurisdictions. We recognize revenue when electricity is delivered to the customer. Payments on our tariff based sales are generally due in 20-30 days after the billing date.

Natural Gas Segment - Our regulated natural gas utility business primarily provides production, storage, transmission, and distribution services to our customers in our Montana, South Dakota, and Nebraska jurisdictions. We recognize revenue when natural gas is delivered to the customer. Payments on our tariff based sales are generally due in 20-30 days after the billing date.

Disaggregation of Revenue

The following tables disaggregate our revenue by major source and customer class (in millions):
 
Three Months Ended
 
March 31, 2019
                                         
March 31, 2018
 
Electric
 
Natural Gas
 
Total
 
Electric
 
Natural Gas
 
Total
Montana
$
94.1

 
$
45.6

 
$
139.7

 
$
87.2

 
$
40.9

 
$
128.1

South Dakota
18.0

 
13.1

 
31.1

 
18.7

 
11.4

 
30.1

Nebraska

 
9.6

 
9.6

 

 
11.4

 
11.4

   Residential
112.1

 
68.3

 
180.4

 
105.9

 
63.7

 
169.6

Montana
86.7

 
23.0

 
109.7

 
83.6

 
20.6

 
104.2

South Dakota
23.2

 
9.2

 
32.4

 
24.0

 
7.9

 
31.9

Nebraska

 
5.3

 
5.3

 

 
6.1

 
6.1

   Commercial
109.9

 
37.5