NORTHWESTERN CORP [NWE] Filings

10-Q 1 nwe-20220630.htm 10-Q nwe-20220630

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 ended		June 30, 2022

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

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 Street

Sioux Falls

South Dakota

57108

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: 605-978-2900

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock	NWE	Nasdaq Stock Market LLC

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

☒

Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging 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, 56,150,050 shares outstanding at July 22, 2022

NORTHWESTERN CORPORATION

FORM 10-Q

INDEX


		Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		3
PART I. FINANCIAL INFORMATION		5
Item 1.	Financial Statements	5
	Condensed Consolidated Statements of Income — Three and Si x Months Ended June 30 , 2022 and 2021	5
	Condensed Consolidated Statements of Comprehensive Income — Three and Six Months Ended June 30 , 2022 and 2021	6
	Condensed Consolidated Balance Sheets — June 30 , 2022 and December 31, 2021	7
	Condensed Consolidated Statements of Cash Flows — Six Months Ended June 3 0 , 2022 and 2021	8
	Condensed Consolidated Statements of Shareholders ’ Equity — Three and Six Months Ended June 30 , 2022 and 2021	9
	Notes to Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53
Item 4.	Controls and Procedures	54
PART II. OTHER INFORMATION		55
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 6.	Exhibits	65
SIGNATURES		66

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 our 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, our 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 and natural disasters, such as the COVID-19 pandemic, geopolitical events, earthquake, flood, drought, lightning, weather, wind, and fire, could have a material effect on our liquidity, results of operations and financial condition;

•acts of terrorism, cybersecurity attacks, data security breaches, or other malicious acts that cause damage to our generation, transmission, or distribution facilities, information technology systems, or result in the release of confidential customer, employee, or Company information;

•supply chain constraints, recent high levels of inflation for product, services and labor costs, and their impact on capital expenditures, operating activities, and/or our ability to safely and reliably serve our customers;

•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 operating costs 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.

PART 1. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

NORTHWESTERN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(in thousands, except per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenues
Electric	$	243,418	$	241,440	$	515,145	$	511,511
Gas	79,586		56,777		202,341		187,509
Total Revenues	323,004		298,217		717,486		699,020
Operating expenses
Fuel, purchased supply and direct transmission expense (exclusive of depreciation and depletion shown separately below)	95,001		67,965		230,074		212,478
Operating and maintenance	53,337		51,518		106,131		103,315
Administrative and general	27,220		25,595		58,864		54,650
Property and other taxes	46,893		47,287		93,743		94,765
Depreciation and depletion	48,212		46,809		97,117		93,784
Total Operating Expenses	270,663		239,174		585,929		558,992
Operating income	52,341		59,043		131,557		140,028
Interest expense, net	(24,033)		(23,473)		(47,749)		(46,983)
Other income, net	2,913		3,032		7,634		8,606
Income before income taxes	31,221		38,602		91,442		101,651
Income tax expense	(1,435)		(1,365)		(2,546)		(1,343)
Net Income	$	29,786	$	37,237	$	88,896	$	100,308

Average Common Shares Outstanding	54,272		50,989		54,185		50,811
Basic Earnings per Average Common Share	$	0.55	$	0.72	$	1.64	$	1.97
Diluted Earnings per Average Common Share	$	0.54	$	0.72	$	1.62	$	1.96
Dividends Declared per Common Share	$	0.63	$	0.62	$	1.26	$	1.24

See Notes to Condensed Consolidated Financial Statements

NORTHWESTERN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net Income	$	29,786	$	37,237	$	88,896	$	100,308
Other comprehensive income, net of tax:
Foreign currency translation adjustment	1		21		(1)		(55)
Postretirement medical liability adjustment	(158)		(159)		(316)		(317)
Reclassification of net losses on derivative instruments	113		113		226		226
Total Other Comprehensive Loss	(44)		(25)		(91)		(146)
Comprehensive Income	$	29,742	$	37,212	$	88,805	$	100,162

See Notes to Condensed Consolidated Financial Statements

NORTHWESTERN CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share data)


	June 30, 2022		December 31, 2021
ASSETS
Current Assets:
Cash and cash equivalents	$	8,117	$	2,820
Restricted cash	17,963		15,942
Accounts receivable, net	146,041		198,671
Inventories	99,020		80,614
Regulatory assets	106,506		115,541
Prepaid expenses and other	25,682		24,207
Total current assets	403,329		437,795
Property, plant, and equipment, net	5,411,690		5,247,232
Goodwill	357,586		357,586
Regulatory assets	697,236		690,686
Other noncurrent assets	50,456		47,144
Total Assets	$	6,920,297	$	6,780,443
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of finance leases	$	2,982	$	2,875
Accounts payable	121,197		115,237
Accrued expenses and other	243,235		233,351
Regulatory liabilities	18,275		28,179
Total current liabilities	385,689		379,642
Long-term finance leases	10,406		11,897
Long-term debt	2,519,996		2,541,478
Deferred income taxes	518,563		499,634
Noncurrent regulatory liabilities	648,941		638,760
Other noncurrent liabilities	372,182		369,319
Total Liabilities	4,455,777		4,440,730
Commitments and Contingencies (Note 10)
Shareholders' Equity:
Common stock, par value $0.01; authorized 200,000,000 shares; issued and outstanding 59,696,531 and 56,148,974 shares, respectively; Preferred stock, par value 0.01; authorized 50,000,000 shares; none issued	597		576
Treasury stock at cost	(98,765)		(98,248)
Paid-in capital	1,820,531		1,716,227
Retained earnings	749,558		728,468
Accumulated other comprehensive loss	(7,401)		(7,310)
Total Shareholders' Equity	2,464,520		2,339,713
Total Liabilities and Shareholders' Equity	$	6,920,297	$	6,780,443

See Notes to Condensed Consolidated Financial Statements

NORTHWESTERN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)


	Six Months Ended June 30,
	2022		2021
OPERATING ACTIVITIES:
Net income	$	88,896	$	100,308
Items not affecting cash:
Depreciation and depletion	97,117		93,784
Amortization of debt issuance costs, discount and deferred hedge gain	2,546		2,637
Stock-based compensation costs	4,002		4,538
Equity portion of allowance for funds used during construction	(6,653)		(4,562)
Gain on disposition of assets	(1)		(55)
Deferred income taxes	(3,394)		(641)
Changes in current assets and liabilities:

Accounts receivable	52,629		24,732
Inventories	(18,405)		(8,936)
Other current assets	(1,474)		(1,994)
Accounts payable	10,877		(15,042)
Accrued expenses and other	10,072		22,828
Regulatory assets	9,035		(50,353)
Regulatory liabilities	(9,904)		(30,235)
Other noncurrent assets	7,517		(3,800)
Other noncurrent liabilities	(9,967)		(28,689)
Cash Provided by Operating Activities	232,893		104,520
INVESTING ACTIVITIES:
Property, plant, and equipment additions	(234,438)		(182,194)

Investment in equity securities	(914)		(646)
Cash Used in Investing Activities	(235,352)		(182,840)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of issuance costs	99,903		56,311
Dividends on common stock	(67,806)		(62,821)
Issuance of long-term debt, net	—		99,915
Line of credit (repayments) borrowings, net	(21,000)		88,000

Repayments of short-term borrowings	—		(100,000)
Other financing activities, net	(1,320)		(583)
Cash Provided by Financing Activities	9,777		80,822
Increase in Cash, Cash Equivalents, and Restricted Cash	7,318		2,502
Cash, Cash Equivalents, and Restricted Cash, beginning of period	18,762		17,096
Cash, Cash Equivalents, and Restricted Cash, end of period	$	26,080	$	19,598
Supplemental Cash Flow Information:
Cash paid during the period for:
Income taxes	$	1,634	$	1,960
Interest	44,537		43,474
Significant non-cash transactions:
Capital expenditures included in accounts payable	24,116		25,955

See Notes to Condensed Consolidated Financial Statements

NORTHWESTERN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

(in thousands, except per share data)


	Three Months Ended June 30,
	Number of Common Shares	Number of Treasury Shares	Common Stock		Treasury Stock		Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders' Equity
Balance at March 31, 2021	54,238	3,563	$	542	$	(98,730)	$	1,517,355	$	702,058	$	(7,390)	$	2,113,835

Net income	—	—	—		—		—		37,237		—		37,237
Foreign currency translation adjustment, net of tax	—	—	—		—		—		—		21		21
Reclassification of net losses on derivative instruments from OCI to net income, net of tax	—	—	—		—		—		—		113		113
Postretirement medical liability adjustment, net of tax	—	—	—		—		—		—		(159)		(159)
Stock-based compensation	—	—	—		—		1,299		—		—		1,299
Issuance of shares	880	(5)	9		152		56,505		—		—		56,666
Dividends on common stock ($0.620 per share)	—	—	—		—				(31,697)		—		(31,697)
Balance at June 30, 2021	55,118	3,558	$	551	$	(98,578)	$	1,575,159	$	707,598	$	(7,415)	$	2,177,315

Balance at March 31, 2022	57,693	3,556	$	577	$	(98,986)	$	1,719,070	$	753,677	$	(7,357)	$	2,366,981

Net income	—	—	—		—		—		29,786		—		29,786
Foreign currency translation adjustment, net of tax	—	—	—		—		—		—		1		1
Reclassification of net losses on derivative instruments from OCI to net income, net of tax	—	—	—		—		—		—		113		113
Postretirement medical liability adjustment, net of tax	—	—	—		—		—		—		(158)		(158)
Stock-based compensation	—	—	—		—		1,230		—		—		1,230
Issuance of shares	2,004	(8)	20		221		100,231		—		—		100,472

Dividends on common stock ($0.630 per share)	—	—	—		—		—		(33,905)		—		(33,905)
Balance at June 30, 2022	59,697	3,548	$	597	$	(98,765)	$	1,820,531	$	749,558	$	(7,401)	$	2,464,520


	Six Months Ended June 30,
	Number of Common Shares	Number of Treasury Shares	Common Stock		Treasury Stock		Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders' Equity
Balance at December 31, 2020	54,145	3,558	$	541	$	(98,075)	$	1,513,787	$	670,111	$	(7,269)	$	2,079,095

Net income	—	—	—		—		—		100,308		—		100,308
Foreign currency translation adjustment, net of tax	—	—	—		—		—		—		(55)		(55)
Reclassification of net losses on derivative instruments from OCI to net income, net of tax	—	—	—		—		—		—		226		226
Postretirement medical liability adjustment, net of tax	—	—	—		—		—		—		(317)		(317)
Stock-based compensation	93	17	1		(970)		4,510		—		—		3,541
Issuance of shares	880	(17)	9		467		56,862		—		—		57,338
Dividends on common stock ($1.240 per share)	—	—	—		—		—		(62,821)		—		(62,821)
Balance at June 30, 2021	55,118	3,558	$	551	$	(98,578)	$	1,575,159	$	707,598	$	(7,415)	$	2,177,315

Balance at December 31, 2021	57,606	3,546	$	576	$	(98,248)	$	1,716,227	$	728,468	$	(7,310)	$	2,339,713

Net income	—	—	—		—		—		88,896		—		88,896
Foreign currency translation adjustment, net of tax	—	—	—		—		—		—		(1)		(1)
Reclassification of net losses on derivative instruments from OCI to net income, net of tax	—	—	—		—		—		—		226		226
Postretirement medical liability adjustment, net of tax	—	—	—		—		—		—		(316)		(316)
Stock-based compensation	87	16	1		(911)		3,976		—		—		3,066
Issuance of shares	2,004	(14)	20		394		100,328		—		—		100,742

Dividends on common stock ($1.260 per share)	—	—	—		—		—		(67,806)		—		(67,806)
Balance at June 30, 2022	59,697	3,548	$	597	$	(98,765)	$	1,820,531	$	749,558	$	(7,401)	$	2,464,520

See Notes to Condensed Consolidated Financial Statements

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 753,600 customers in Montana, South Dakota, Nebraska and Yellowstone National Park.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires us 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 our opinion, 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, 2022 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, we believe that the condensed disclosures provided are adequate to make the information presented not misleading. We recommend 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, 2021.

Reclassification

In 2021, we renamed the line item "Cost of sales" as previously shown on the Consolidated Statements of Income, and used elsewhere within our filing, to "Fuel, purchased supply and direct transmission expense." Additionally, we disaggregated the line item "Operating, general and administrative" as previously shown on the Consolidated Statements of Income, and used elsewhere within our filing, to two line items, "Operating and maintenance" and "Administrative and general." These reclassifications were done in an effort to better convey the nature of these costs and did not impact reported operating income or net income.

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):


	June 30,		December 31,		June 30,		December 31,
	2022		2021		2021		2020
Cash and cash equivalents	$	8,117	$	2,820	$	5,942	$	5,811
Restricted cash	17,963		15,942		13,656		11,285
Total cash, cash equivalents, and restricted cash shown in the Condensed Consolidated Statements of Cash Flows	$	26,080	$	18,762	$	19,598	$	17,096

Goodwill

We completed our annual goodwill impairment test as of April 1, 2022 and no impairment was identified. We calculate the fair value of our reporting units by considering various factors, including valuation studies based primarily on a discounted cash flow analysis, with published industry valuations and market data as supporting information. Key assumptions in the determination of fair value include the use of an appropriate discount rate and estimated future cash flows. In estimating cash flows, we incorporate expected long-term growth rates in our service territory, regulatory stability, and commodity prices (where appropriate), as well as other factors that affect our revenue, expense and capital expenditure projections.

(2) Regulatory Matters

Montana Community Renewable Energy Projects (CREPs)

As further discussed in Note 3 - "Regulatory Matters" of our Annual Report on Form 10-K for the year ended December 31, 2021, we have been involved in litigation associated with our past progress towards meeting obligations to acquire renewable energy projects, as mandated by the recently repealed Montana CREP requirement. Although we had been granted waivers by the Montana Public Service Commission (MPSC) and the CREP requirement was subsequently repealed by the Montana legislature, on May 9, 2022, the Montana District Court imposed a $2.5 million penalty against us, payable to the Universal Low Income Assistance Fund in Montana, in connection with the petition filed by the Montana Environmental Information Center challenging the MPSC's decision granting our waiver requests from CREP compliance in 2015 and 2016. The expense associated with this penalty has been accrued for within our second quarter 2022 results. We intend to file an appeal with the Montana Supreme Court.

Federal Energy Regulatory Commission (FERC) Financial Audit

We are subject to FERC’s jurisdiction and regulations with respect to rates for electric transmission service in interstate commerce and electricity sold at wholesale rates, the issuance of certain securities, and incurrence of certain long-term debt, among other things. The Division of Audits and Accounting in the Office of Enforcement of FERC initiated a routine audit of NorthWestern Corporation for the period of January 1, 2018 to October 31, 2021 to evaluate our compliance with FERC accounting and financial reporting requirements. In May 2022, we received the final audit report from FERC and have determined that the resolution of the identified audit findings and recommendations will not have a material financial impact on our Financial Statements.

(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 differences between our effective tax rate and the federal statutory rate (in thousands):


	Three Months Ended June 30,
	2022				2021
Income before income taxes	$	31,221			$	38,602

Income tax calculated at federal statutory rate	6,554		21.0	%	8,107		21.0	%

Permanent or flow-through adjustments:
State income tax, net of federal provisions	431		1.4		222		0.6
Flow-through repairs deductions	(3,313)		(10.6)		(4,227)		(11.0)
Production tax credits	(2,558)		(8.2)		(2,262)		(5.9)
Amortization of excess deferred income tax	(162)		(0.5)		(143)		(0.4)
Plant and depreciation of flow-through items	398		1.3		(184)		(0.5)


Other, net	85		0.2		(148)		(0.4)
	(5,119)		(16.4)		(6,742)		(17.6)

Income tax expense	$	1,435	4.6	%	$	1,365	3.4	%


	Six Months Ended June 30,
	2022				2021
Income before income taxes	$	91,442			$	101,651

Income tax calculated at federal statutory rate	19,200		21.0	%	21,347		21.0	%

Permanent or flow through adjustments:
State income, net of federal provisions	831		0.9		277		0.3
Flow-through repairs deductions	(10,114)		(11.1)		(12,080)		(11.9)
Production tax credits	(6,382)		(7.0)		(6,569)		(6.5)
Amortization of excess deferred income tax	(573)		(0.6)		(408)		(0.4)
Share-based compensation	(253)		(0.3)		(261)		(0.3)
Plant and depreciation of flow through items	143		0.2		(524)		(0.5)


Other, net	(306)		(0.3)		(439)		(0.4)
	(16,654)		(18.2)		(20,004)		(19.7)

Income tax expense	$	2,546	2.8	%	$	1,343	1.3	%

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 had unrecognized tax benefits of approximately $31.2 million as of June 30, 2022, including approximately $28.0 million that, if recognized, would impact our effective tax rate. We do not anticipate that total unrecognized tax benefits will significantly change due to the settlement of audits or the expiration of statutes of limitation within the next twelve months.

Our policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. As of June 30, 2022, we have accrued $0.9 million for the payment of interest and penalties on the Condensed Consolidated Balance Sheets. As of December 31, 2021, we had accrued $0.5 million for the payment of interest and penalties on the Condensed Consolidated Balance Sheets.

Tax years 2018 and forward remain subject to examination by the Internal Revenue Service and state taxing authorities.

(4) Comprehensive (Loss) Income

The following tables display the components of Other Comprehensive (Loss) Income, after-tax, and the related tax effects (in thousands):


	Three Months Ended
	June 30, 2022						June 30, 2021
	Before-Tax Amount		Tax Expense		Net-of-Tax Amount		Before-Tax Amount		Tax Expense	Net-of-Tax Amount
Foreign currency translation adjustment	$	1	$	—	$	1	$	21	$