Accounting & Tax

Utility, SEC Settle over Restatement

Commission alleged that NorthWestern Corp. ''materially misstated'' its financial position and misrepresented or did not disclose required informat...
Stephen TaubMarch 8, 2007

NorthWestern Corp. disclosed that it has settled an administrative proceeding with the Securities and Exchange Commission stemming from its restatement for the first three quarters of 2002.

According to the SEC, the Sioux Falls, South Dakota-based utility filed reports for that period that “materially misstated” its financial position. The commission also alleged that NorthWestern’s reports also misrepresented or did not disclose required information about its non-utility businesses: Expanets, a communications and data provider, and Blue Dot Services, which offers air conditioning, heating, plumbing, and related services.

The regulator alleged that NorthWestern overstated its income from continuing operations by about 176 percent for the first quarter of 2002, 618 percent for the second quarter, and 109 percent for the third due to improper accounting for accounts receivable, adjustments to customers’ bills, and allocation of losses to minority interests.

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“NorthWestern also misrepresented or did not disclose, among other things, the effects of significant problems with Expanets’ new information technology system, the material impact of Expanets’ reserve reductions and its receipt of non-compete payments on Expanets’ income, large intercompany advances NorthWestern made to support Expanets and Blue Dot, and the timing of anticipated payments from the sale of certain utility assets,” the commission elaborated.

Through those financial misstatements, misrepresentations, and omissions, alleged the SEC, NorthWestern “obscured the continuing poor performance” of its subsidiaries at a time when it was publicly relying on their operations to strengthen its financial condition.

When NorthWestern restated its results, the utility cited billing adjustments that reduced revenues, as well as increases in accounts receivable reserves and write-offs resulting from significant deficiencies in its billing and collection system. The company also acknowledged that it had inadequate data to record certain revenues on a percentage-of-completion basis and would need to use the completed-contract revenue recognition methodology.

Without admitting or denying the SEC allegations, NorthWestern agreed to cease and desist from future violations of the securities laws. The commission did not assess any fine or penalty, the company added.

“We have cooperated fully with the commission’s investigation and will continue to do so,” said chief executive officer Mike Hanson, in a statement. “We are pleased to put the SEC investigation behind us and consider the settlement an important step in our transformation process.”

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