NORTHWESTERN CORPORATION
(Exact name of registrant as specified in its charter)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule12b2 of the Act). Yes ý No o

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: As of April 7, 2003, 37,396,762 shares of the registrant's common stock, par value $1.75 per shares were outstanding.

		Page
EXPLANATORY NOTE	2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	8
PART I. FINANCIAL INFORMATION	10
Item 1.	Financial Statements (Unaudited)	10
	Consolidated Balance Sheets—September 30, 2002 and December 31, 2001	10
	Consolidated Statements of Income—Three months and nine months ended September 30, 2002 and 2001	11
	Consolidated Statements of Cash Flows—Nine months ended September 30, 2002 and 2001	12
	Notes to Consolidated Financial Statements	13
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	38
Item 4.	Controls and Procedures	77
PART II. OTHER INFORMATION	79
Item 6.	Exhibits and Reports on Form 8-K	79
SIGNATURES	78

This Amendment No. 2 to the Quarterly Report on Form 10-Q/A of NorthWestern Corporation for the quarter ended September 30, 2002, or Amendment No. 2, is filed solely for the purpose of amending Items 1, 2, and 4 of Part I and Item 6 of Part II of the Quarterly Report on Form 10-Q of NorthWestern Corporation for the quarter ended September 30, 2002, as amended by Amendment No. 1 to such quarterly report.

The information contained in this Amendment No. 2 has been updated to reflect the matters described in this Explanatory Note. We have voluntarily updated for this Amendment No. 2 the information set forth herein under the caption "Special Note Regarding Forward-Looking Statements" and in Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, under the caption "Risk Factors," to the current date of this filing.

Unless the context requires otherwise, references to "we," "us," "our," "NorthWestern Corporation" and "NorthWestern" refer specifically to NorthWestern Corporation and its subsidiaries and references to "NorthWestern Energy LLC" refer to NorthWestern Energy, L.L.C., our wholly-owned subsidiary.

On April 1, 2003, we announced that we expected to restate our unaudited consolidated financial statements for the fiscal quarters ended March 31, 2002, June 30, 2002, and September 30, 2002. We have restated these unaudited quarterly financial statements principally to reflect the quarterly impact of certain adjustments, and to include additional disclosures in the appropriate period related to the following:

In connection with the restatement of our prior unaudited quarterly reported results for the reasons stated above, we also included the quarterly impacts to reflect the application of the appropriate purchase price allocation methodology for our February 2002 acquisition of the electric and natural gas transmission and distribution business of The Montana Power Company, the reversal of losses previously allocated to minority shareholders of our subsidiary Blue Dot Services Inc., or Blue Dot, a result of the appropriate purchase accounting for acquisitions made in 2002 and the quarterly impact of certain other adjustments.

This Amendment No. 2 should be read together with NorthWestern's Annual Report on Form 10-K for the year ended December 31, 2002 and the amended Quarterly Reports on Form 10-Q/A for the periods ended March 31, 2002 and June 30, 2002 filed with the U.S. Securities and Exchange Commission, or the SEC, on April 15, 2003. The Amended Quarterly Reports on Form 10-Q/A for the periods ended March 31, 2002, June 30, 2002 and September 30, 2002 filed with the SEC on April 15, 2003 are collectively referred to herein as the 2002 Amended Quarterly Reports.

billing complications throughout 2002, including an inability to produce bills in a timely manner with correct billing information, and an inability to produce reliable accounts receivable or collection information. In particular, Expanets identified certain maintenance billing issues that required reversal of previously recorded maintenance revenue. Additionally, management determined that additional adjustments were required to increase the allowance for uncollectible accounts. Adjustments impacting the three and nine months ended September 30, 2002 have been reflected in the restated financial statements included in this Amendment No. 2.

During our 2002 year-end closing process, it was determined that we were unable to provide adequate information to support recording certain revenues on a percentage of completion basis, and therefore, required adjustments to record projects on the completed contract revenue recognition methodology that was in place prior to 2002. Adjustments impacting the three and nine months ended September 30, 2002 have been reflected in the restated financial statements included in this Amendment No. 2.

As discussed in the section entitled Electric and Natural Gas—Purchase Accounting Adjustments below, we have restated prior financial statements for the appropriate purchase price allocation methodology for our Montana utility operations. Adjustments impacting the three and nine months ended September 30, 2002 have been reflected in the restated financial statements included in this Amendment No. 2 as if the purchase price allocation had been completed during the first quarter of 2002.

In addition, Expanets reduced cost of sales and selling, general, and administrative expenses that should have been recorded previously. These accruals related to vendor rebates, vendor settlements, bonus accruals and other items. Certain of these accruals should have been reduced during the first and second quarters of 2002. Such amounts that were appropriately recorded during the third quarter, based on circumstances occurring during the third quarter, have been described in the Management's Discussion and Analysis of Financial Condition and Results of Operations in each of the respective 2002 Amended Quarterly Reports under the caption "Communication Segment Operations".

There were also various other adjusting entries recorded during the fourth quarter of 2002 that have been reflected in the restated financial statements included in this Amendment No. 2 to the extent they should have been recorded during the three and nine month periods ended September 30, 2002. Such adjustments related to employee benefits, debt issuance costs, and other accrued expenses.

A description of the restatement adjustment categories relating to the restated financial statements included in this Amendment No. 2, on a segment by segment basis, is set forth below.

Billing Adjustments—Reducing Revenues. We have recorded a decrease in revenues for the three and nine months ended September 30, 2002, of $5.4 million and $33.8 million, respectively, to reflect the impact of estimated billing adjustments that should have been previously recorded in these periods. Accounts receivable, net was decreased by the same amounts.

Accounts Receivable Reserves. We have recorded an increase in selling, general and administrative expenses for the three and nine months ended September 30, 2002, of $6.3 million and $16.3 million, respectively, to recognize estimated additional bad debt expense for such periods. Accounts receivable, net was decreased by the same amounts.

contract method of accounting, which was used prior to 2002 for projects accounted for in the EXPERT system, rather than the percentage of completion method that was initially used in 2002. Expanets determined during our year-end closing process that we were unable to provide adequate information to support recording project revenues on a percentage-of-completion basis.

EXPERT Cost Capitalization. We have recorded an increase in selling, general and administrative expenses for the three and nine months ended September 30, 2002, of $2.6 million and $5.8 million, respectively, to reflect expenses associated with the EXPERT system that were originally capitalized during the second and third quarters of 2002. We determined that these costs should have been expensed in accordance with Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.

Reductions in Accruals. We have recorded an increase in selling, general and administrative expenses for the three months ended September 30, 2002, of $3.8 million, to reflect the reversal of adjustments to accruals related to vendor settlements, bonus accruals and other items that were made in the third quarter. These adjustments should have been reported in the first and second quarters of 2002. For the nine months ended September 30, 2002, previously reported selling, general and administrative expenses were not impacted by these adjustments.

Disclosure of reductions in accruals. We have included a description of additional items in the communications segment information of Management's Discussion and Analysis of Financial Condition and Results of Operations. The additional items relate to several accrued expense accounts that Expanets reduced against cost of sales and selling, general, and administrative expenses during the third quarter of 2002. These accruals related to a maintenance fee agreement, vendor rebates, vendor settlements, bonus accruals and other items.

Purchase accounting adjustments. In connection with the purchase accounting for the February 2002 acquisition of the electric and natural gas transmission and distribution assets of The Montana Power Company, we determined, based on certain regulatory considerations, the property, plant and equipment should have been recorded at historical book value less other adjustments which reduced these assets to amounts included in utility rate base. Further, we adjusted to fair value various other assets and liabilities, such as pension and other post-retirement benefit obligations, the qualifying facilities liability and regulatory assets and liabilities. As a result, we increased goodwill by $400 million, and decreased property, plant and equipment by $398 million. During the second quarter of 2002, we had preliminarily recorded the property, plant and equipment at appraised value and no portion was allocated to goodwill. The financial statements in this Amendment No. 2 have been restated to reflect application of the appropriate purchase price allocation methodology for each of the first three quarterly periods in 2002. The following summarizes the impact of these adjustments for the periods ended September 30:

	Increase (Decrease) in millions
	Three months		Nine months
Revenues	$	(0.9	)	$	(2.3	)
Cost of sales		(3.3	)		(3.3	)
Selling, general and administrative expenses		(0.1	)		(0.2	)
Depreciation expense		0.2			0.5
Interest expense		0.4			5.3

Capitalized Overhead. We have recorded an increase in selling, general and administrative expenses related to our Montana utility operations for the three and nine months ended September 30,

2002, of $2.0 million and $4.9 million, respectively, to reflect the application of the capitalization policy previously approved for our Montana utility operations by the Montana Public Service Commission, or the MPSC. During 2002, we recorded selling, general and administrative expenses for all of our utility operations, including our Montana utility operations that were acquired in February 2002, under a historical uniform capitalization policy that differed from the policy utilized by the former owner of our Montana utility operations. We subsequently determined, however, that we must continue certain predecessor policies for accounting for the Montana utility operations and that changes in the capitalization policy are subject to review by the MPSC, consistent with normal rate making procedures. We will continue to apply the MPSC approved policy for our Montana utility operation in future financial statements.

Employee benefit plan accrual. During the fourth quarter of 2002, we recorded an adjustment to increase our liability related to an employee benefit plan based on an actuarial review obtained during our year-end closing process. We have recorded an increase in selling, general and administrative expenses for the three and nine months ended September 30, 2002, of $1.5 million and $4.6 million, respectively to reflect this liability on a straight-line basis throughout the year.

Adjusting entries. We have recorded an increase in cost of sales for the three and nine months ended September 30, 2002, of $0.4 million and $1.1 million, respectively, to reflect adjustments that should have been recorded in these periods. We have recorded an increase in selling, general and administrative expenses for the nine months ended September 30, 2002, of $0.6 million to reflect previously unrecorded vehicle expenses. For the three months ended September 30, 2002, previously reported selling, general and administrative expenses were not affected.

Purchase Accounting Adjustment. During the second and third quarters of 2002, Blue Dot completed five acquisitions. The initial recording of the acquisitions consummated during the second quarter of 2002 included a preliminarily assigned value of $8.1 million to the common stock issued to the former owners. Losses during the second quarter had previously been allocated against the minority interest basis based on the assigned value of the common stock. We subsequently determined that no value should have been assigned to the common stock issued in connection with the 2002 second quarter acquisitions. The financial statements included in this Amendment No. 2 have been restated as if no value was assigned to the common stock upon issuance, which reduces losses allocated to minority interest shareholders by $8.1 million for the nine months ended September 30, 2002.

Adjusting entries. We subsequently identified adjustments which should have been recorded in the three and nine months ended September 30, 2002, for revenues and cost of sales related to certain contracts, write-offs of debt issue costs and selling, general and administrative expenses relating to various miscellaneous items. We have recorded a decrease in revenues and cost of sales for the nine months ended September 30, 2002, of $1.9 million and $1.1 million, respectively. We have also recorded an increase in selling, general and administrative expenses for the three months ended September 30, 2002, of $1.4 million due to these adjustments. We have recorded an increase in selling, general and administrative expenses and interest expense for the nine months ended September 30, 2002, of $2.8 million and $1.4 million, respectively, due to these adjustments.

The following tables sets forth a summary of the significant effects of the restatement adjustments described above, on a segment by segment basis, showing previously reported and restated amounts as

of and for the three and nine month periods ended September 30, 2002 (amounts in thousands, except per share amounts):

For additional information concerning the impact of the adjustments on our financial results, see our unaudited restated consolidated financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Items 1 and 2, respectively, of Part I of this Amendment No. 2.

On one or more occasions, we may make statements in this Amendment No. 2 to Quarterly Report on Form 10-Q/A, or Amendment No. 2, regarding our assumptions, projections, expectations, targets, intentions or beliefs about future events. All statements other than statements of historical facts included herein 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," "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 we 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 our expectations will be achieved. Factors that may cause such differences include:

We have attempted to identify, in context, certain of the factors that we believe may cause actual future experiences and results to differ materially from our current expectation regarding the relevant matter of 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 a part of the disclosure included in Item 2 of this Amendment No. 2 entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations."

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 and other materials released to the public. Although we believe that at the time made, the expectations reflected in all of these forward-looking statements are and will be reasonable, any or all of the forward-looking statements in this Amendment No. 2, our reports on Forms 10-K, 10-Q and 8-K, 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 inaccurate assumptions or as a consequence of known or unknown risks and uncertainties. Many factors discussed in this Amendment No. 2, 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 a forward-looking statement in this Amendment No. 2 or other public communications that we might make 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 annual and periodic reports filed with the Commission on Forms 10-K, 10-Q and 8-K and Proxy Statements on Schedule 14A.

NORTHWESTERN CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except per share amounts)

The accompanying notes to consolidated financial statements are an integral part of these statements.

NORTHWESTERN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)

The accompanying notes to consolidated financial statements are an integral part of these statements.

NORTHWESTERN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)

The accompanying notes to consolidated financial statements are an integral part of these statements.

(Reference is made to Notes to Financial Statements included in the Company's Annual Report)

The consolidated financial statements for the interim periods included herein have been prepared by NorthWestern Corporation (the "Corporation," "we" or "us"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). As described in Note 17, the consolidated financial statements herein have been restated from those previously filed with the SEC. In the opinion of the Corporation, all adjustments necessary for a fair presentation of the results of operations for the interim periods have been included. The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. Results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year, and these financial statements do not contain the detail or footnote disclosure concerning accounting policies and other matters that would be included in full fiscal year financial statements. Therefore, these financial statements should be read in conjunction with the financial statements and the notes thereto included in the Corporation's latest annual report to shareholders.

The Corporation is a service and solutions company providing integrated energy, communications, air conditioning, heating, ventilation, plumbing and related services and solutions to residential and business customers throughout North America. A division of the Corporation (NorthWestern Energy) is engaged in the regulated energy business of production, purchase, transmission, distribution and sale of electricity and the purchase and delivery of natural gas to customers located in the upper Midwest region of the United States. The Corporation has investments in Expanets, Inc. ("Expanets"), a leading provider of networked communications and data services and solutions to medium-sized businesses nationwide; Blue Dot Services, Inc. ("Blue Dot"), a national provider of air conditioning, heating, plumbing and related services ("HVAC"); and CornerStone Propane Partners, L.P. ("CornerStone"), a publicly traded Delaware master limited partnership, formed to engage in the retail propane and wholesale energy-related commodities distribution business throughout North America.

The accompanying consolidated financial statements include the accounts of the Corporation and all wholly and majority-owned or controlled subsidiaries. The financial position and results of operations of Expanets, Blue Dot, and CornerStone are included in the accompanying consolidated financial statements, and therefore included in references to "subsidiaries," by virtue of the voting and control rights. All significant intercompany balances and transactions have been eliminated from the consolidated financial statements. The operations of CornerStone and the Corporation's interest in CornerStone have been reflected in the consolidated financial statements as Discontinued Operations (see Note 4, Discontinued Operations, for further discussion).

Many of the Corporation's acquisitions at Expanets and Blue Dot have involved the issuance of common and junior preferred stock in those subsidiaries to the sellers of the acquired businesses. The Corporation's investments in Expanets and Blue Dot are principally in the form of senior preferred stock with voting control and a liquidation preference over the common and junior preferred stock. We are required to consolidate the financial results of Expanets and Blue Dot because of our voting control. The capital stock issued to third parties in connection with acquisitions may create minority interests which are junior to our preferred stock interests and against which certain operating losses have been allocated and potentially may be allocated in the future.

The income or loss allocable to minority interests will vary depending on the underlying profitability of the consolidated subsidiaries. Losses allocable to minority interests, which include the effect of dividends on the outstanding preferred stock owned by the Corporation and applicable allocations from the Corporation, are charged to minority interests. Losses are allocated to minority interests to the extent they do not exceed the minority interest in the equity capital of the subsidiary, after giving effect for any exchange agreements. Losses in excess of the minority interests are allocated to the Corporation.

Losses allocated to Minority Interests were $14.9 million and $111.0 million for the nine months ended September 30, 2002 and 2001, respectively. No losses were allocated to Minority Interests in the third quarter. Minority Interests balances were $10.3 million at September 30, 2002 and $30.1 million at December 31, 2001. The Corporation will recognize future losses of the subsidiaries to the extent these losses exceed the Minority Interest balance after any effects of exchange agreements. Accordingly, based on the capital structures of Expanets and Blue Dot at September 30, 2002, it is anticipated that all losses at Expanets and Blue Dot will be allocated to the Corporation. Also, see Note 3, Acquisitions, for further discussions related to the Blue Dot acquisitions.

On February 15, 2002 we completed the asset acquisition of The Montana Power Company's (Montana Power) energy transmission and distribution business for $478.0 million in cash and the assumption of $511.1 million in existing debt and mandatory redeemable preferred securities of subsidiary trusts (net of cash received). Acquisition costs were approximately $24.8 million. We completed this acquisition to expand our presence in the energy market. As a result of the acquisition, we are now a provider of natural gas and electricity to approximately 598,000 customers in Montana, South Dakota, and Nebraska and have the capacity to provide service to wider regions of the country. For accounting convenience, due to the burden of a mid-month closing, both parties agreed to an effective date for the sale of January 31, 2002. We obtained the services of a third-party to perform valuations and assist with the allocation of the purchase price. We determined, based on certain regulatory considerations, the property, plant and equipment should be recorded at historical book value less adjustments which reduce these assets to amounts included in the utility rate base. These adjustments include a net deferred tax liability of $135.0 million and deferred income tax credits of $12.7 million that existed as of the acquisition date. We also adjusted to fair value various other assets and liabilities, such as pension and other postretirement benefit obligations, the qualifying facilities liability, and regulatory assets and liabilities, The remaining excess purchase price was allocated to goodwill. Goodwill of $354.4 million is deductible for tax purposes.

Results of operations of Montana Power have been included in the accompanying consolidated financial statements since the effective date of acquisition. The following table summarizes the final fair

values of the assets acquired and liabilities assumed in connection with our acquisition of Montana Power:

During the second and third quarters of 2002, Blue Dot completed five acquisitions. Consideration paid to the sellers in these acquisitions included cash consideration of $15.6 million and the issuance of Blue Dot common stock. No value has been assigned to the common stock issued for these acquisitions. Maximum contingent payments totaling $15.9 million associated with our 2002 acquisitions may be required based on earnings contingencies over an extended period. To the extent these payments occur, they will be considered an additional cost of the acquired entity. The assets acquired and liabilities assumed have been recorded at their fair values as of the dates of acquisitions. The excess of the purchase price over the fair value of identifiable net assets acquired of approximately $9.7 million has been recognized as goodwill.

The following unaudited pro forma results of consolidated operations for the nine months ended September 30, 2002 give effect as if all acquisitions noted above had occurred as of January 1, 2002 (in thousands except per share amounts):

	Nine Months Ended September 30, 2002
Revenues	$	1,516,254
Net Loss	$	(110,164	)
Diluted earnings per share	$	(4.80	)

The proforma results are not necessarily indicative of what actually would have occurred if the acquisition had been completed as of the beginning of each fiscal year presented, nor are they necessarily indicative of future consolidated results.

Through October 31, 2002, the Corporation owned an effective 30% interest in CornerStone through subordinated units, a 2% aggregate general partner interest, 379,438 common units and all outstanding warrants. On January 18, 2002, the board of directors of the general partner of CornerStone announced that it had retained Credit Suisse First Boston Corporation to review strategic options, including the possible sale or merger of CornerStone. Accordingly, the Corporation has adopted discontinued operations accounting for its CornerStone interests, and as such, the assets, liabilities and results of operations of CornerStone and those representing the Corporation's interests in CornerStone are presented as discontinued operations in the consolidated financial statements. On August 5, 2002, CornerStone announced that it had elected not to make an interest payment aggregating approximately $5.6 million on three classes of its senior secured notes, which was due on July 31, 2002, and was continuing to review financial restructuring and strategic options, including the potential commencement of a Chapter 11 case under the United States Bankruptcy Code. After this announcement, the New York Stock Exchange announced that it had suspended trading in CornerStone's publicly traded partnership units and would seek to delist the partnership units due to their low price and CornerStone's decision not to make the scheduled interest payments.

During the first quarter of 2002, the Corporation recognized a loss from discontinued operations of $40.0 million, which was comprised of a write-down in its investment in CornerStone of $41.7 million and an offset of $1.7 million in respect of income, net of taxes and minority interests, from CornerStone. Subsequent losses of $5.1 million, net of taxes and minority interests, were recognized in the second quarter of 2002.

On October 31, 2002, CornerStone's board of directors approved amendments to the partnership's agreements, and the Corporation contributed to CornerStone its economic interests in the partnership effective November 1, 2002 thereby relinquishing its remaining equity interest to the partnership. As a result of these actions, the Corporation will no longer be required to consolidate CornerStone for financial reporting purposes after November 1, 2002. In connection with the events occurring in the third quarter and the Corporation's evaluation of its financial exposure to CornerStone, the Corporation recorded an additional after-tax charge of $55.9 million for the third quarter of 2002. The after tax charge included additional write-down and reserves related to the Corporation's investments in and advances to CornerStone of $49.6 million.

	September 30, 2002			December 31, 2001
Accounts receivable, net	$	19,043		$	121,843
Other current assets		67,803			59,854

Current assets of discontinued operations	$	86,846		$	181,697

Property, plant and equipment, net	$	301,342		$	322,126
Goodwill and other intangibles, net		305,811			339,058
Other noncurrent assets		36,024			34,013

Noncurrent assets of discontinued operations	$	643,177		$	695,197
Accounts payable		33,748			142,578
Debt		447,272			—
Other current liabilities		117,575			87,492

Current liabilities of discontinued operations	$	598,595		$	230,070

Long-term debt	$	—		$	424,524
Minority interests		139,239			153,245
Other noncurrent liabilities		—			27,556

Noncurrent liabilities and minority interests of discontinued operations	$	139,239		$	605,325

Partners' capital of discontinued operations	$	(7,811	)	$	41,449

	Three months ended
	September 30, 2002		September 30, 2001
Revenues	$	57,310		$	439,873
Loss before income taxes and minority interests	$	(60,339	)	$	(19,893	)
Loss from discontinued operations, net of income taxes and minority interests	$	(55,937	)	$	(3,798	)

	Nine months ended
	September 30, 2002		September 30, 2001
Revenues	$	398,969		$	2,013,710
Loss before income taxes and minority interests	$	(75,060	)	$	(14,813	)
Loss from discontinued operations, net of income taxes and minority interests	$	(101,023	)	$	(649	)

The Corporation had provided a guaranty of CornerStone's $50.0 million credit facility. CornerStone breached its covenants under this facility and through an amendment executed January 18, 2002, the facility was continued but CornerStone's ability to pay minimum quarterly distributions to its common unit holders was suspended for the remaining term of the facility. On August 5, 2002, CornerStone announced that it had elected not to make an interest payment

aggregating approximately $5.6 million on three classes of its senior secured notes, which was due on July 31, 2002, and was continuing to review financial restructuring and strategic options, including the potential commencement of a Chapter 11 case under the United States Bankruptcy Code. SYN, Inc., a majority owned subsidiary of the Corporation, extended a $9.0 million loan to CornerStone for immediate financing needs. On August 20, 2002, the Corporation purchased the lenders' interest in approximately $19.9 million of short-term debt, together with approximately $6.1 million in letters of credit, of CornerStone outstanding under CornerStone's credit facility, which the Corporation had previously guaranteed. No further drawings may be made under this facility. The financial exposures related to these events have been considered as of September 30, 2002, which resulted in the third quarter charge disclosed above.

The foregoing summary financial information with respect to CornerStone is unaudited and is subject to year-end audit adjustments by CornerStone. CornerStone adopted Statement of Financial Accounting Standards No. 142 during its fiscal year ended June 30, 2002. As noted in CornerStone's Current Report on Form 8-K dated September 11, 2002, filed with the Securities and Exchange Commission on September 12, 2002, CornerStone's preliminary evaluation of the impact of its adoption of SFAS No. 142 indicates that CornerStone is likely to have a material write-off of its goodwill and intangibles during such period. A provision for loss on discontinued operations as of September 30, 2002 has been recorded based on our best estimates as of September 30, 2002 of the amounts expected to be realized on the disposition of its investment in CornerStone. The amount the Corporation will ultimately realize could differ from the assumptions currently used in arriving at this anticipated loss.

The $65 million of 8.45% Cumulative Quarterly Income Preferred Securities, Series A (QUIPS) of Montana Power Capital I, which were assumed as part of the Montana Power acquisition, have been guaranteed by the Corporation. As guarantor, we provide an unconditional guarantee, on an unsecured junior subordinated basis, of payment on these securities. NorthWestern Energy LLC is in the process of transferring substantially all of its assets and liabilities to the Corporation, including all of the NorthWestern Energy LLC QUIPS obligations. Upon completion of these transfers, anticipated by the end of 2002, the Corporation will no longer be required to include the following information in the footnotes to its financial statements. The following presents condensed consolidating financial statements as of September 30, 2002 and for the three and nine months then ended.

Income Statement Consolidating Schedule
Three Months Ended September 30, 2002
(in thousands)

Income Statement Consolidating Schedule
Nine Months Ended September 30, 2002
(in thousands)

	Parent and Consolidated Subsidiaries			NorthWestern Energy LLC			Eliminations			Total
Assets
Cash	$	44,960		$	30,254		$	—		$	75,214
Accounts receivable, net		241,585			50,544			—			291,929
Accounts receivable, related		(40,797	)		40,797			—			—
Inventories		73,060			19,876			—			92,936
Other		68,092			12,931			—			81,023
Current assets of discontinued operations		86,846			—			—			86,846

Total current assets		473,546			154,402			—			627,948

Property, plant and equipment, net		499,004			890,404			—			1,389,408
Goodwill and other intangibles assets, net		648,454			400,095			—			1,048,549
Other:
Investments		56,552			26,705			—			83,257
Investments, related		590,351			—			(590,351	)		—
Other		89,054			106,709			—			195,763
Noncurrent assets of discontinued operations		643,177			—			—			643,177

Total assets	$	3,000,138		$	1,578,315		$	(590,351	)	$	3,988,102

Liabilities and Shareholders' Equity
Current maturities of long-term debt	$	6,431		$	18,933		$	—		$	25,364
Current maturities of long-term debt, nonrecourse		6,133			—			—			6,133
Short-term debt, nonrecourse		67,589			—			—			67,589
Accounts payable		56,251			24,176			—			80,427
Accrued expenses		245,081			150,460			—			395,541
Current liabilities of discontinued operations		598,595			—			—			598,595

Total current liabilities		980,080			193,569			—			1,173,649

Long-term debt		1,185,523			423,596			—			1,609,119
Long-term debt of subsidiaries, nonrecourse		56,670			—			—			56,670
Other noncurrent liabilities		83,069			307,218			—			390,287
Noncurrent liabilities & minority interests of discontinued operations		139,239			—			—			139,239

Total liabilities		2,444,581			924,383			—			3,368,964

Minority interests		10,333			—			—			10,333
Preferred stock, 4¹/2% series		—			—			—			—
Redeemable preferred stock, 6¹/2% series		—			—			—			—
Corporation obligated mandatorily redeemable preferred securities of subsidiary trusts		305,250			65,000			—			370,250

		305,250			65,000			—			370,250

Shareholders' equity:
Common stock		47,942			—			—			47,942
Paid-in capital		240,936			—			—			240,936
Treasury stock		(3,451	)		—			—			(3,451	)
Retained earnings		(50,733	)		590,351			(590,351	)		(50,733	)
Accumulated other comprehensive income (loss)		5,280			(1,419	)		—			3,861

Total shareholders' equity		239,974			588,932			(590,351	)		238,555

Total liabilities and shareholders' equity	$	3,000,138		$	1,578,315		$	(590,351	)	$	3,988,102

Cash Flow Statement Consolidating Schedule
Nine Months Ended September 30, 2002
(in thousands)

	Parent and Consolidated Subsidiaries			NorthWestern Energy LLC			Eliminations		Total
Operating Activities
Net income (loss)	$	(129,594	)	$	14,210		$	—	$	(115,384	)
Items not affecting cash:
Depreciation and amortization		59,082			33,386			—		92,468
Loss on discontinued operations		101,023			—			—		101,023
Extraordinary item, net of taxes		13,447			—			—		13,447
Deferred income taxes		(22,244	)		13,272			—		(8,972	)
Minority interests in net losses of consolidated subsidiaries		(14,914	)		—			—		(14,914	)
Changes in current assets and liabilities, net of acquisitions:
Accounts receivable		25,757			27,162			—		52,919
Inventories		6,156			(2,089	)		—		4,067
Other current assets		4,088			12,984			—		17,072
Accounts payable		(76,831	)		11,215			—		(65,616	)
Accrued expenses		39,938			(33,664	)		—		6,274
Other, net		31,072			(12,362	)		—		18,710
Change in net assets of discontinued operations		(51,713	)		—			—		(51,713	)

Cash flows provided by (used in) operating activities		(14,733	)		64,114			—		49,381

Investment Activities:
Property, plant and equipment additions		(9,069	)		(23,154	)		—		(32,223	)
Proceeds from sale of assets		22,482			—			—		22,482
Sale (purchase) of noncurrent investments and assets, net		(849	)		121			—		(728	)
Acquisitions and growth expenditures, net of cash received		(673,493	)		88,079			—		(585,414	)

Cash flows provided by (used in) investing activities		(660,929	)		65,046			—		(595,883	)

Financing Activities:
Dividends on common and preferred stock		(26,206	)		—			—		(26,206	)
Minority interest on preferred securities of subsidiary trusts		(17,054	)		(4,119	)		—		(21,173	)
Advances from (to) related parties		91,394			(91,394	)		—		—
Redemption of preferred stock		(3,750	)		—			—		(3,750	)
Issuance of long-term debt		719,118			—			—		719,118
Issuance of preferred securities of subsidiary trusts		117,750			—			—		117,750
Repayment of long-term debt		(155,294	)		(3,393	)		—		(158,687	)
Line of credit (repayments) borrowings, net		99,000			—			—		99,000
Financing costs		(35,266	)		—			—		(35,266	)
Subsidiary repurchase of minority interests		(16,499	)		—			—		(16,499	)
Line of credit repayments of subsidiaries, net		(12,863	)		—			—		(12,863	)
Issuance of subsidiary debt		20,179			—			—		20,179
Repayment of nonrecourse subsidiary debt		(121,943	)		—			—		(121,943	)
Proceeds from termination of hedge		24,898			—			—		24,898

Cash flows provided by (used in) financing activities		683,464			(98,906	)		—		584,558

Increase in Cash and Cash Equivalents		7,802			30,254			—		38,056
Cash and cash equivalents, beginning of period		37,158			—			—		37,158

Cash and cash equivalents, end of period	$	44,960		$	30,254		$	—	$	75,214

In March 2002, the Corporation retired the $720.0 million term loan, due February 2003, that was used for interim financing for the acquisition of Montana Power's energy distribution and transmission business. The recognition of deferred financing costs related to the interim financing resulted in an extraordinary loss of $13.4 million, net of related income taxes of $7.2 million, or $(0.49) basic and diluted earnings per share.

SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, with technical corrections," was issued in April 2002. SFAS No. 145 is effective for all fiscal years beginning after May 15, 2002. SFAS No. 145 eliminates the requirements to classify all gains and losses associated with debt extinguishments as extraordinary items. The Corporation will adopt SFAS No. 145 on January 1, 2003 and the extraordinary loss described above will be reclassified to interest expense in the comparative Consolidated Statements of Income.

In May and June 2002, Blue Dot, under sale-leaseback agreements, sold certain vehicles with a net book value of $16.7 million for $22.2 million cash. The gross gain of $6.3 million is being amortized over the expected lease terms while the gross loss of $0.8 million was recognized during the period in which the sale occurred. At September 30, 2002, the unamortized portion of the deferred gain of $5.4 million, which will be amortized beyond one year, was included in other noncurrent liabilities. In August and September 2002, Expanets, under sale-leaseback agreements, sold certain vehicles with a net book value of $0.3 million for $0.8 million cash. The gain of $0.5 million is being amortized over the expected lease terms. At September 30, 2002, the unamortized portion of the deferred gain which will be amortized beyond one year is included in other noncurrent liabilities.

The Financial Accounting Standards Board defines comprehensive income as all changes to the equity of a business enterprise during a period, except for those resulting from transactions with owners. For example, dividend distributions are excepted. Comprehensive income consists of net income and other comprehensive income. Net income may include such items as income from continuing operations, discontinued operations, extraordinary items, and cumulative effects of changes in accounting principles. Other comprehensive income may include foreign currency translations,

adjustments of minimum pension liability, and unrealized gains and losses on certain investments in debt and equity securities. Comprehensive income (loss) is calculated as follows (in thousands):

The Corporation recognized a restructuring charge of $24.9 million in the fourth quarter of 2001 relating to the Corporation's Operational Excellence Initiative, which is targeting selling, general and administrative cost reductions of approximately $150 million. The Board of Directors approved this initiative in November 2001. At December 31, 2001, $19.3 million remained as part of Accrued Expenses on the Consolidated Balance Sheet. The activity in the restructuring reserve was as follows for the nine months ended September 30, 2002:

For the purpose of providing segment information in accordance with Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," the Corporation's principal business segments are its electric, natural gas, communications and HVAC operations. The "All Other" category primarily consists of our other miscellaneous service activities which are not included in the other identified segments together with unallocated corporate costs and any reconciling or eliminating amounts.

The accounting policies of the operating segments are the same as the parent except that the parent allocates some of its operating expenses and interest expense 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, excluding the discontinued operations of CornerStone, are as follows (in thousands):

SFAS No. 141, "Business Combinations," issued in June 2001, requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. In addition, it requires that all identifiable intangible assets be separately recognized and the purchase price allocated accordingly, which will result in the recognition, in some instances, of substantially more categories of intangibles.

SFAS No. 142, "Goodwill and Other Intangible Assets," was also issued in June 2001 and eliminates amortization of goodwill and allows amortization of other intangibles only if the assets have a finite, determinable life. At adoption, and at least annually thereafter, companies must also perform an impairment analysis of intangible assets at the reporting unit level, to determine whether the carrying value exceeds the fair value of the assets. In instances where the carrying value is more than the fair value of the asset, an impairment loss must be recognized. Subsequent reversal of a previously recognized impairment loss is prohibited. SFAS No. 142 is effective for all fiscal years beginning after December 15, 2001, with early application permitted in some instances for entities with fiscal years beginning after March 15, 2001.

The Corporation adopted the provision effective January 1, 2002 and retained a third party to assist the Corporation in the analysis of fair value for compliance with SFAS No. 142 and determined no impairment charge was necessary. The Corporation has selected October 1 as the date for its annual goodwill impairment test as required by SFAS No. 142. Intangible assets consist of the following at September 30, 2002 (in thousands):

The excess of the cost of businesses acquired over the fair value of all tangible and intangible assets acquired, net of liabilities assumed, has been recorded as goodwill. Other amortized intangibles primarily consist of maintenance contracts, customer lists, and assembled workforce resulting from an asset acquisition, which are amortized over their estimated periods of benefit.

Intangible asset amortization expense for the quarter and nine months ended September 30, 2002 was $8.0 million and $21.9 million, respectively. Estimated amortization expense for each year 2003 - 2006, is $32.8 million, $29.6 million, $18.8 million and $14.1 million.

The changes in the carrying amount of goodwill for the nine months ended September 30, 2002 are as follows (in thousands):

The following tables present a reconciliation of net income and earnings per share as reported net of taxes and minority interest, to adjusted amounts which included the impact of the adoption of SFAS 142 for all periods presented.

Certain 2001 amounts have been reclassified to conform to the 2002 presentation. Such reclassifications have no impact on net income or shareholders' equity as previously reported.

Basic earnings per share is computed on the basis of the weighted average number of common shares outstanding. Diluted earnings per share is computed on the basis of the weighted average number of common shares outstanding plus the dilutive effect of the outstanding stock options and warrants. The following table presents the shares used in computing the basic and diluted earnings per share for 2002 and 2001:

Certain outstanding antidilutive options and warrants have been excluded from the earnings per share calculation. These options and warrants total 2,659,981 and 1,199,128 for the quarters ended September 30, 2002 and 2001, respectively. For the nine months ended September 30, 2002 and 2001, these options and warrants total 2,659,981 and 495,331, respectively.

In connection with the acquisition of NorthWestern Energy, L.L.C. ("NorthWestern Energy LLC"), which held the energy distribution and transmission business of Montana Power, the Corporation assumed the following environmental obligations:

The U.S. Environmental Protection Agency (the "EPA"), identified the Milltown Reservoir, which sits behind a hydroelectric dam the Corporation acquired in connection with the acquisition of NorthWestern Energy LLC, on its Superfund National Priority List in 1983 as a result of the collection from historical upstream mining activities of toxic heavy metals in the silts. The Atlantic Richfield Company ("ARCO") has been named as the party with responsibility for completing the remedial investigation and feasibility studies and conducting site cleanup, under the EPA's direction. The former owner of NorthWestern Energy LLC did not undertake any direct responsibility in that regard, in light of a special statutory exemption from liability under CERCLA in relation to the Milltown Dam. By virtue of its acquisition of The Montana Power Corporation's utility business and the dam, NorthWestern Energy LLC succeeded to similar protection under this statutory exception. ARCO has argued that the former owner of NorthWestern Energy LLC should be considered a Potentially Responsible Party ("PRP") and has threatened to challenge its exempt status, and ARCO and the former owner of NorthWestern Energy LLC entered into a settlement agreement to limit the former owner's and now NorthWestern Energy LLC's potential liability, costs and ongoing operating expenditures, provided that the EPA selects a remedy that leaves the dam and sediments in place in its final Record of Decision. The final Record of Decision is not expected to be issued until early to mid-2003. Depending on the outcome of that decision, the Corporation may be required to defend its exempt position. There can be no assurance that the Corporation will not incur costs or liabilities associated with the Milltown Dam site in the future, some of which could be significant. To mitigate the risk of a CERCLA release arising from a catastrophic failure of the dam caused by an act of God, the Corporation has secured a ten-year, $100 million environmental insurance policy from AIG, effective as of May 31, 2002.

In addition to the Milltown Dam liability, the Corporation assumed certain other environmental obligations of The Montana Power Company relating to the Corette and Colstrip electric generation stations, certain hydroelectric facilities, and former manufactured gas plant locations. In late October 2002, the Corporation received a detailed evaluation of these assumed non-Milltown Dam environmental obligations from its outside environmental consulting firm. The results of this evaluation have been factored into the Corporation's overall environmental reserve.

Under the terms of the acquisition of NorthWestern Energy LLC, the Corporation assumed the first $50 million of NorthWestern Energy LLC's pre-closing environmental liabilities, including these retained environmental liabilities. Touch America Holdings, Inc. assumed the next $25 million in costs. The Corporation and Touch America Holdings, Inc. agreed to equally split costs that fall between $75 and $150 million. If Touch America Holdings, Inc. is unable to satisfy indemnification obligations to the Corporation with respect to any such environmental liabilities, the Corporation may be required to pay costs in excess of its allocated share described in the foregoing sentence, and, depending upon the amount of such additional costs, the Corporation's financial condition may be adversely affected. Touch America Holdings, Inc.'s ability to satisfy its indemnity obligations depends on a number of factors, including its financial condition, over which the Corporation does not have control.

With respect to the Corporation's South Dakota and Nebraska utility operations, the Corporation is working with the relevant state agencies to investigate whether certain former manufactured gas plant

sites contain contaminants at levels that will require remediation of the soils and groundwater. The Corporation believes that the projected cost of any required environmental remediation is adequately reflected in its overall environmental reserve.

Environmental laws and regulations require the Corporation to incur certain costs, which could be substantial, to operate existing facilities, construct and operate new facilities and mitigate or remove the effect of past operations on the environment. Governmental regulations establishing environmental protection standards are continually evolving, and, therefore, the character, scope, cost and availability of the measures the Corporation may be required to take to ensure compliance with evolving laws or regulations cannot be accurately predicted. However, the Corporation believes that an appropriate amount of costs have been accrued and potential costs related to such environmental regulation and cleanup requirements are timely estimated and recorded. The Corporation has an overall environmental reserve of approximately $36.5 million as of September 30, 2002. To the extent the Corporation's environmental liabilities are greater than this reserve or the Corporation is unsuccessful in recovering anticipated insurance proceeds under the relevant policies, its results of operations and financial condition could be adversely affected.

The Corporation has provided guarantees for various credit facilities of majority owned subsidiaries, totaling $92.4 million. At September 30, 2002, $78.6 million outstanding under these facilities was subject to guaranty by the Corporation.

On October 8, 2002 the Corporation issued ten million shares of common stock at $8.75 per share. The Corporation received approximately $81.0 million in net proceeds from the offering, which the Corporation used to reduce short-term debt.

On October 22, 2002 the Corporation completed an offer to exchange $250.0 million aggregate principal amount of its ⁷/8% senior notes due 2007 and $470.0 million aggregate principal amount of its 8³/4% senior notes due 2012, which are registered under the Securities Act of 1933, as amended, for an equal amount of outstanding ⁷/8% senior notes due 2007 and 8³/4% senior notes due 2012, which were not registered under the Securities Act of 1933, as amended.

Management has determined that revenues and accounts receivable were misstated due to complications experienced at our subsidiary, Expanets, Inc., or Expanets. Expanets experienced numerous complications with its new EXPERT system, particularly with billings and collections. Expanets took several steps to manage the system complications, however, it continued to experience billing complications throughout 2002, including an inability to produce bills in a timely manner with correct billing information, and an inability to produce reliable accounts receivable or collection information. In particular, Expanets identified certain maintenance billing issues that required reversal of previously recorded maintenance revenue. Additionally, management determined that additional adjustments were required to increase the allowance for uncollectible accounts. Adjustments impacting the three and nine months ended September 30, 2002 have been reflected in the restated financial statements included in this Amendment No. 2.

Discussion and Analysis of Financial Condition and Results of Operations in each of the respective 2002 Amended Quarterly Reports under the caption "Communication Segment Operations".

The following table sets forth a summary of the significant effects of the restatement adjustment on a segment by segment basis, showing previously reported and restated amounts as of and for the

three and nine month periods ended September 30, 2002 (amounts in thousands except per share amounts):

The following is a description of the restatement adjustment categories presented in the tables above.

Billing Adjustment—Reducing Revenues. We have recorded a decrease in revenues for the three and nine months ended September 30, 2002, of $5.4 million and $33.8 million, respectively, to reflect the impact of estimated billing adjustments that should have been previously recorded in these periods. Accounts receivable, net was decreased by the same amount.

Contract Accounting. We have recorded a decrease in revenues and cost of sales for the three months ended September 30, 2002, of $1.6 million and $0.5 million, respectively. We have recorded a decrease in revenues and cost of sales for the nine months ended September 30, 2002, of $14.8 million and $7.2 million, respectively. The decreases in each case reflect the application of the completed contract method of accounting, which was used prior to 2002 for projects accounted for in the EXPERT system, rather than the percentage of completion method that was initially used in 2002. Expanets determined during our year-end closing process that we were unable to provide adequate information to support recording project revenues on a percentage-of-completion basis.

Reductions in Accruals. We have recorded an increase in selling, general and administrative expenses for the three months ended September 30, 2002, of $3.8 million, to reflect the reversal of

adjustments to accruals related to vendor settlements, bonus accruals and other items that were made in the third quarter. These adjustments should have been reported in the first and second quarters of 2002 based on information available to management during those quarters. For the nine months ended September 30, 2002, previously reported selling, general and administrative expenses were not impacted by these adjustments.

Purchase accounting adjustments. In connection with the appropriate purchase accounting for the February 2002 acquisition of the electric and natural gas transmission and distribution assets of The Montana Power Company, we determined, based on certain regulatory considerations, the property, plant and equipment should have been recorded at historical book value less other adjustments which reduce these assets to amounts included in utility rate base. Further, we adjusted to fair value various other assets and liabilities, such as pension and other post-retirement benefit obligations, the qualifying facilities liability and regulatory assets and liabilities. As a result, we increased goodwill by $400 million, and decreased property, plant and equipment by $398 million. During the second quarter of 2002, we had preliminarily recorded the property, plant and equipment at appraised value and no portion was allocated to goodwill. The financial statements in this Amendment No. 2 have been restated to reflect application of the appropriate purchase price allocation methodology for each of the first three quarterly periods in 2002. The following summarizes the impact of these adjustments for the periods ended September 30:

	Increase (Decrease) in millions
	Three months		Nine months
Revenues	$	(0.9	)	$	(2.4	)
Cost of sales		(3.3	)		(3.3	)
Selling, general and administrative expenses		(0.1	)		(0.2	)
Depreciation expense		0.2			0.4
Interest expense		0.4			5.3

Capitalized Overhead. We have recorded an increase in selling, general and administrative expenses related to our Montana utility operations for the three and nine months ended September 30, 2002, of $2.0 million and $4.9 million, respectively, to reflect the application of the capitalization policy previously approved for our Montana utility operations by the Montana Public Service Commission, or the MPSC. During 2002, we recorded selling, general and administrative expenses for all our utility operations, including our Montana utility operations that were acquired in February 2002, under a historical uniform capitalization policy that differed from the policy utilized by the former owner of our Montana utility operations. We subsequently determined, however, that we must continue certain predecessor policies for accounting for the Montana utility operations and that changes in the capitalization policy are subject to review by the MPSC, consistent with normal rate making procedures. We will continue to apply the MPSC approved policy for our Montana utility operation in future financial statements.

Employee benefit plan accrual. We have recorded an increase in selling, general and administrative expenses for the three and nine months ended September 30, 2002, of $1.5 million and $4.6 million,

respectively. We recorded an adjustment to increase our liability related to an employee benefit plan based on an actuarial review obtained during our year-end closing process.

Adjusting entries. We have recorded an increase in cost of sales for the three and nine months ended September 30, 2002, of $0.3 million and $1.1 million, respectively, to reflect adjustments that should have been recorded in these periods. We have recorded an increase in selling, general and administrative expenses for the nine months ended September 30, 2002, of $0.6 million to reflect previously unrecorded vehicle expenses. For the three months ended September 30, 2002, previously reported selling, general and administrative expenses were not affected.

Purchase Accounting Adjustments. During the second and third quarters of 2002, Blue Dot completed five acquisitions. The initial recording of the acquisitions consummated during the second quarter of 2002 included a preliminarily assigned value of $8.1 million to the common stock issued to the former owners. Losses had previously been allocated against the minority interest basis based on the assigned value of the common stock. During our year-end closing process, we determined that no value should have been assigned to the common stock issued in connection with the 2002 second quarter acquisitions. The financial statements included in this Amendment No. 2 have been restated as if no value was assigned to the common stock upon issuance, which reduces losses allocated to minority interest shareholders by $8.1 million for the nine months ended September 30, 2002.

Adjusting entries. During our year-end closing process we identified adjustments which should have been recorded in the three and nine months ended September 30, 2002, for revenues and cost of sales related to certain contracts, write-offs of issue costs and selling, general and administrative expenses relating to various miscellaneous items. We have recorded a decrease in revenues and cost of sales for the nine months ended September 30, 2002, of $1.9 million and $1.1 million, respectively. We have recorded an increase in selling, general and administrative expenses for the three months ended September 30, 2002, of $1.0 million due to these adjustments. We have also recorded an increase in selling, general and administrative expenses and interest expense for the nine months ended September 30, 2002, of $2.8 million and $1.4 million, respectively, due to these adjustments.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As described in the Explanatory Note and in Note 17 of the Notes to the Consolidated Financial Statements, the results of operations for the three and nine month periods ended September 30, 2002 have been restated from the amounts previously reported. Management's Discussion and Analysis of Financial Condition and Results of Operations provided herein are based on the restated amounts reflected in this amended 10-Q/A for the period ended September 30, 2002.

Unless the context requires otherwise, references to "we," "us," "our" and "NorthWestern" refer specifically to NorthWestern Corporation and its subsidiaries and references to "NorthWestern Energy LLC" refers to NorthWestern Energy, L.L.C., our wholly-owned subsidiary, which was formerly known as The Montana Power, L.L.C.

We are a service and solutions company providing integrated energy, communications, heating, ventilation, air conditioning, plumbing and related services and solutions to residential and business customers throughout North America. We own and operate one of the largest regional electric and natural gas utilities in the upper Midwest of the United States. We distribute electricity in South Dakota and natural gas in South Dakota and Nebraska through our energy division, NorthWestern Energy, formerly NorthWestern Public Service, and electricity and natural gas in Montana through our wholly-owned subsidiary, NorthWestern Energy, L.L.C. (formerly The Montana Power, L.L.C.), hereafter referred to as NorthWestern Energy LLC. We are operating under the common brand "NorthWestern Energy" in all our service territories. On February 15, 2002, we completed the acquisition of the electric and natural gas transmission and distribution businesses of The Montana Power Company for $478 million in cash and the assumption of $511.1 million in existing debt and preferred stock, net of cash received. We transferred substantially all of the assets and liabilities of NorthWestern Energy LLC to NorthWestern Corporation on November 20, 2002 and operate its business as part of our NorthWestern Energy division. We believe the acquisition creates greater regional scale allowing us to more fully realize the value of our existing energy assets and provides a strong platform for future growth.

Our principal unregulated investment is in Expanets, Inc. ("Expanets"), a leading provider of networked communications and data services and solutions to medium-sized businesses nationwide. In addition, we own investments in Blue Dot Services, Inc. ("Blue Dot"), a nationwide provider of air conditioning, heating, plumbing and related services, and CornerStone Propane Partners L.P. ("CornerStone"), a publicly traded limited partnership (OTCBB: CNPP), in which we held a 30% interest as of September 30, 2002, and which we operate through one of our subsidiaries that serves as its managing general partner. CornerStone is a retail propane and wholesale energy-related commodities distributor. On January 18, 2002, the board of directors of the general partner of CornerStone announced it has retained Credit Suisse First Boston Corporation to pursue the possible sale or merger of CornerStone. We fully supported the board's action, as it is consistent with our strategy to focus our resources on our energy and communications platforms. A special committee of the board of directors of the managing general partner, composed of directors that are not officers of NorthWestern, has been formed to pursue strategic options. As a result, we have recharacterized our investment in CornerStone to reflect the results of operations of CornerStone as discontinued operations. Accordingly, the results of CornerStone's operations, for all periods reported, are presented separately below income from continuing operations. In conjunction with the adoption of discontinued operations accounting for CornerStone, the Corporation recorded a $45.1 million non-cash charge during the first half of 2002, and an additional $55.9 million non-cash charge for the third quarter of 2002 based on our current evaluation of our financial exposure to CornerStone.

On August 5, 2002, CornerStone announced that it had elected not to make an interest payment aggregating approximately $5.6 million on three classes of its senior secured notes, which was due on July 31, 2002, and was continuing to review financial restructuring and strategic options, including the potential commencement of a Chapter 11 case under the United States Bankruptcy Code. After this announcement, the New York Stock Exchange announced that it had suspended trading in CornerStone's publicly traded partnership units and would seek to delist the partnership units due to their low price and CornerStone's decision not to make the scheduled interest payments.

Recently, CornerStone's board of directors approved amendments to the partnership's agreements, and we contributed to CornerStone our economic interests in the partnership thereby relinquishing our remaining equity interest in the partnership. As a result of these actions, we are no longer required to consolidate CornerStone for financial reporting purposes after November 1, 2002. A provision for loss on discontinued operations as of September 30, 2002 has been included based on our best estimates of the amounts to be realized on the disposition of our investment. The amount we will ultimately realize could differ from the assumptions used in arriving at the anticipated loss.

The following is a summary of our results of operations for each of the three-month and nine-month periods ended September 30, 2002 and 2001.

Three-Month and Nine-Month Periods Ended September 30, 2002 Compared to Three-Month and Nine-Month Periods Ended September 30, 2001.

The following is a summary of our consolidated results of operations for the three-month and nine-month periods ended September 30, 2002 and September 30, 2001. Our consolidated results include the results of our divisions and subsidiaries constituting each of our business segments. This discussion is followed by a more detailed discussion of operating results by segment. Our "All Other" category primarily consists of our other miscellaneous service activities, which are not included in the other identified segments together with unallocated corporate costs. See "—Segment Information—All Other Operations" for a discussion of the items contained in our "All Other" category. Product and service category fluctuations highlighted at the consolidated level are more fully explained in the segment discussions.

Consolidated losses were $63.1 million in the third quarter of 2002, compared to consolidated earnings of $8.6 million in the third quarter of 2001. The decline in earnings is a result of $52.1 million of additional losses associated with CornerStone in the third quarter of 2002 compared to the third quarter of 2001 (see Note 4, Discontinued Operations, to the consolidated financial statements for further discussion regarding CornerStone), an $18.0 million decrease in earnings at Expanets, $16.3 million in additional losses in our All Other operations, which includes $6.1 million in increased distributions on trust preferred securities of our subsidiary trusts and on our preferred securities. These amounts were offset partially by $13.5 million of additional earnings within the electric and natural gas operations. Earnings from continuing operations decreased $13.5 million from $14.1 million in the third quarter of 2001 compared to $0.6 million for the third quarter of 2002. This was due principally to losses at Expanets and All Other operations offset partially by the addition of NorthWestern Energy LLC's Montana operations and the $5.8 million recognition of a change in tax valuation allowance. For the nine months ended September 30, 2002, consolidated losses were $136.9 million, a decline of $171.3 million, or 498.7%, from consolidated earnings of $34.3 million for the nine months ended September 30, 2001. The decline was a result of a $101.0 million charge for discontinued operations

relating to our planned divestiture of our interest in CornerStone for the nine months ended September 30, 2002, $61.6 million of losses at Expanets and an extraordinary loss of $13.4 million related to debt costs associated with the early extinguishment of debt.

Consolidated operating revenues were $501.4 million in the third quarter of 2002, an increase of $102.7 million, or 25.8%, from $398.7 million in the third quarter of 2001. The increase in consolidated revenues was primarily due to an increase in revenues from the electric and natural gas operations of $142.7 million as a result of the inclusion of NorthWestern Energy LLC's Montana operations and a $7.5 million increase in revenues from our All Other operations as a result of the addition of certain non- utility operations acquired with NorthWestern Energy LLC's Montana operations. HVAC revenues increased $20.7 million quarter to quarter of which $13.7 million was from acquisitions and $7.0 million was from a combination of favorable weather, price increases, and improved operating performance at certain locations. These increases were partially offset by decreases in revenues from our communications segment of $68.2 million as a result of continuing market softness and a change in the mix of revenues toward certain higher-margin activities. For the nine months ended September 30, 2002, revenues were $1,452.3 million as compared to $1,353.1 million for the first nine months of 2001, or an increase of $99.1 million. As with the third quarter, the increase in revenues was primarily a result of $324.5 million of additional revenues from the electric and natural gas operations during the nine months of 2002 compared to the similar period in 2001. All Other revenues also increased $20.6 million during the first nine months of 2002 compared to the similar period in 2001 due to NorthWestern Energy LLC's additional non-utility Montana operations, which include revenues from statutory conservation and low income assistance charges, gas stranded costs collected in rates under a securitization program, underground services location operations and other unregulated operations. HVAC revenues also increased $21.6 million as a result of acquisitions. These revenues were partially offset by a decline in revenues within our communications segment of $267.6 million during the first nine months of 2002 compared to the similar period in 2001.

Consolidated cost of sales was $257.3 million in the third quarter of 2002, an increase of $24.2 million, or 10.4%, from results in the third quarter of 2001. The increase was due to $52.4 million of increased costs in our electric and natural gas segments, primarily as a result of the addition of NorthWestern Energy LLC's Montana operations offset by a $41.6 million decrease in costs within the communications segment. Cost of sales in our HVAC segment also increased $13.1 million quarter to quarter while costs of sales in our All Other segment increased $0.3 million from NorthWestern Energy LLC's Montana operations. Cost of sales for the nine months ended September 30, 2002 of $781.7 million were $61.9 million lower than costs of sales for the first nine months of 2001. The decline was primarily due to a $179.8 million decrease in costs within our communications segment, while our natural gas operations also had a decrease in costs of $12.3 million in the first nine months of 2002 compared to the similar period in 2001. These decreases were partially offset by $109.5 million of increased costs of our electric operations during the first nine months of 2002 compared to the similar period in 2001 as a result of the addition of NorthWestern Energy LLC's Montana operations. Cost of sales in our HVAC segment increased $16.4 million during the first nine months of 2002 compared to the similar period in 2001, while cost of sales in the All Other segment increased $4.2 million.

Consolidated gross margin was $244.1 million in the third quarter of 2002, an increase of $78.5 million, or 47.4%, from results in the third quarter of 2001. Electric and natural gas operations gross margins increased by an aggregate of $90.4 million in the third quarter of 2002 compared to the third quarter of 2001 primarily as a result of the addition of NorthWestern Energy LLC's Montana operations. Communications gross margin declined $26.6 million quarter to quarter as a result of revenue decreases, yet improved as a percentage of revenues from 41.4% to 42.3%. HVAC gross

margins increased $7.6 million in the third quarter of 2002 over results for the third quarter of 2001 from acquisitions. All Other segment gross margin improved $7.1 million quarter to quarter due to the additional activity from NorthWestern Energy LLC's Montana operations. Consolidated gross margin as a percentage of revenues was 48.7% in the third quarter of 2002, compared to 41.5% in the third quarter of 2001. The improvement in consolidated gross margin was primarily a result of lower natural gas commodity prices, higher margin Montana natural gas operations, and margin improvement within the communications segment due to a better sales mix and additional higher-margin maintenance revenues. The improvement in consolidated gross margin was partially offset by a decline in margin percentages within the electric operations from decreased wholesale electric margins. For the nine months ended September 30, 2002, gross margins were $670.6 million, an increase of $161.0 million, or 31.6%, over gross margin of $509.6 for the nine months ended September 30, 2001. Electric and natural gas operations gross margins increased by an aggregate of $227.3 million during the first nine months of 2002 compared to the similar period in 2001 primarily as a result of the addition of NorthWestern Energy LLC's Montana operations. Communications gross margin declined $87.8 million period to period though it improved as a percentage of revenues from 36.6% to 38.5%, reflecting decreased revenues from continued market softness, offset in part by a change in the mix of revenues toward certain higher margin activities. HVAC gross margins increased $5.2 million primarily as a result of acquisitions. All Other gross margin improved $16.4 million during the first nine months of 2002 compared to the similar period in 2001 due to the additional activity from NorthWestern Energy LLC's Montana operations. Gross margin as a percentage of revenues was 46.2% for the nine months ended September 30, 2002, compared to 37.7% for the nine months ended September 30, 2001, principally due to lower natural gas commodity prices, improved communications margins and higher margins from NorthWestern Energy LLC's Montana operations.

Consolidated operating expenses were $220.8 million in the third quarter of 2002, an increase of $43.1 million, or 24.2%, from results in the third quarter of 2001. Operating expenses for the communications segment in the third quarter of 2002 were $35.7 million less than in the third quarter of 2001 primarily due to employee reductions, as well as vendor settlements regarding fees received under a maintenance agreement and disputed invoices. Electric and natural gas operating expenses in the third quarter of 2002 were $64.8 million more than similar expenses in the third quarter of 2001. Electric and natural gas operating expenses increased primarily due to the inclusion of NorthWestern Energy LLC's Montana operations, but were partially offset by a reduction in costs within the previously owned operations. HVAC operating expenses in the third quarter of 2002 increased $4.1 million over results in the third quarter of 2001. All Other expenses in the third quarter of 2002 increased $9.0 million over results for the third quarter of 2001 due to the addition of NorthWestern Energy LLC's Montana operations as corporate and other expenses within the previously owned operations declined. Expenses for the nine months ended September 30, 2002 of $619.5 million were $57.5 million, or 10.2%, higher than expenses for the nine months ended September 30, 2001 of $562.1 million. Operating expenses for the communications segment for the first nine months of 2002 were $123.1 million less than the equivalent period of 2001 due to the aforementioned cost reduction efforts. Electric and natural gas operating expenses in the first nine months of 2002 were $161.6 million more than similar expenses in the first nine months of 2001. Electric and natural gas operating expenses increased primarily due to the inclusion of NorthWestern Energy LLC's Montana operations, which was partially offset by a reduction in costs within the previously owned operations. HVAC operating expenses in the first nine months of 2002 increased $5.4 million over results for the similar period in 2001. All Other expenses during the first nine months of 2002 increased $13.6 million over results for the similar period in 2001 due to the addition of NorthWestern Energy LLC's Montana operations.

Consolidated operating income in the third quarter of 2002 was $23.3 million, an improvement of $35.4 million compared to losses of $12.1 million in the third quarter of 2001. Operating income in our communications segment increased $8.2 million in the third quarter of 2002 compared to the third

quarter of 2001, primarily due to employee reductions, as well as vendor settlements regarding fees received under a maintenance agreement, rebates and disputed invoices. Operating income in our electric and natural gas segments increased $25.6 million due primarily to the addition of NorthWestern Energy LLC's Montana operations. HVAC operating income in the third quarter of 2002 increased $3.5 million from results in the third quarter of 2001, while All Other operating losses decreased $1.9 million. For the first nine months of 2002, operating income rose $103.5 million to $51.1 million over results for the similar period in 2001. Operating income in our communications segment increased $35.3 million in the first nine months of September 30, 2002, compared to the similar period in 2001, primarily as a result of the reduction in operating expenses, while operating income in our electric and natural gas segments increased $65.7 million due to the addition of NorthWestern Energy LLC's Montana operations. All Other operating loss decreased $2.7 million as a result of lower expenses.

Consolidated interest expense in the third quarter of 2002 was $35.1 million, an increase of $23.5 million, over interest expense of $11.6 million in the third quarter of 2001. The increase was attributable principally to approximately $19.4 million of additional interest expense from the debt assumed with NorthWestern Energy LLC's Montana operations and the increased expense from the $720.0 million of financing obtained for NorthWestern Energy LLC's Montana operations acquisition. Interest expense for the nine months ended September 30, 2002 was $94.2 million, an increase of $58.5 million, or 164.0%, over interest expense of $35.7 million for the first nine months of 2001. As with the quarter, the increase was attributable primarily to the additional interest expense from the debt assumed with NorthWestern Energy LLC's Montana operations and the financing obtained for the Montana acquisition of approximately $49.9 million.

Consolidated investment income and other was $1.0 million in the third quarter of 2002, a decline of $0.3 million from results in the third quarter of 2001. The decline was primarily attributable to losses incurred for certain additional preferred stock investment impairments. Consolidated investment income and other was a $0.8 million loss for the nine months ended September 30, 2002, a decline of $4.9 million from results for the similar period in 2001. As with the quarter, the decline was primarily attributable to losses incurred for certain preferred stock investment impairments.

Consolidated income tax benefit was $11.4 million in the third quarter of 2002, a $10.1 million increase from a $1.2 million income tax benefit in the third quarter of 2001. The increase in the income tax benefit was principally due to a change in a tax valuation allowance resulting in a $5.8 million benefit. Consolidated income tax benefit was $28.1 million for the nine months ended September 30, 2002 versus a $13.1 million income tax benefit for the nine months ended September 30, 2001. The increase in consolidated income tax benefit was principally due to an increase of $12.3 million in the tax benefit within the communications segment resulting from additional pretax losses.

There were no minority interests in net loss of consolidated subsidiaries in the third quarter of 2002, a decline of $35.3 million of income from minority interests in the third quarter of 2001. The decline was due to a lack of minority basis against which to allocate losses in 2002. To the extent that future operating losses are incurred within the HVAC or communications segments, such losses will be allocated to us unless additional minority interest is created. For the nine months ended September 30, 2002, minority interests income was $14.9 million, a decline of $96.1 million from minority interests income of $111.0 million in the first nine months of 2001. As with the third quarter, the decline was due to a $94.3 million decline in allocations in the communications segment resulting from lower overall losses and a lack of minority basis against which to allocate losses and a $1.8 million decline in allocations within the HVAC segment. See "—Significant Accounting Policies-Minority Interest in Consolidated Subsidiaries" for a discussion of the allocation of income (loss) to minority interests and the changes in such allocations during the periods discussed.

Revenues from our electric utility operations in the third quarter of 2002 were $152.9 million, an increase of $126.8 million, or 486.6%, from results in the third quarter of 2001. The growth resulted primarily from the addition of NorthWestern Energy LLC's Montana operations effective February 1, 2002 which contributed $126.7 million of revenues for the period. Revenues for the nine months ended September 30, 2002 of $368.6 million were $283.0 million, or 330.7%, higher than revenues for the first nine months of 2001. As with the quarter, the growth was primarily attributed to the addition of NorthWestern Energy LLC's Montana operations in 2002, which added $298.5 million of revenues during the first nine months of 2002 compared to the first nine months of 2001. Partially offsetting these additional revenues was a decrease of $15.5 million in wholesale electric revenues within the previously owned South Dakota operations due to market price declines.

Cost of sales for our electric utility operations in the third quarter of 2002 were $55.6 million, an increase of $49.1 million, or 760.8%, from results in the third quarter of 2001. The increase was almost exclusively attributable to the addition of NorthWestern Energy LLC's Montana operations, which increased costs by $48.8 million. For the nine months ended September 30, 2002, cost of sales were $109.5 million higher than costs for the nine months ended September 30, 2001. As with the quarter, the addition of NorthWestern Energy LLC's Montana operations was responsible for the majority of the increase, adding $108.9 million in costs.

Gross margin for our electric utility operations in the third quarter of 2002 was $97.3 million, an increase of $77.7 million over gross margin in the third quarter of 2001. The increase in gross margin in the third quarter of 2002 was primarily due to the contribution of $77.9 million to gross margin by NorthWestern Energy LLC's Montana operations. Gross margin in our South Dakota operations decreased $0.2 million in the third quarter of 2002 from results in the third quarter of 2001, due to the substantial decrease in market prices for wholesale electricity. As a percentage of revenue, gross margin in the third quarter of 2002 was 63.6%, compared to 75.2% in the third quarter of 2001. The decline was the result of the substantial decline in wholesale electric margins from market price fluctuations and the influence of NorthWestern Energy LLC's lower margin Montana operations as compared to South Dakota. For the nine months ended September 30, 2002, margins of $241.8 million were $173.5 million, or 253.8%, higher than margins for the nine months ended September 30, 2001. The addition of NorthWestern Energy LLC's Montana operations generated the increased revenues, contributing $189.6 million, which was partially offset by a decrease of $16.1 million for our previously owned South Dakota operations from the wholesale electric declines. Margins as a percentage of revenues decreased from 79.9% for the nine months ended September 30, 2001, to 65.6% for the nine months ended September 30, 2002. Similar to the quarterly change, this is a result of the absence of the unusually high margin wholesale electric sales realized by the South Dakota operations in 2001 partially offsets the addition of NorthWestern Energy LLC's Montana operations.

Operating expenses for our electric utility operations in the third quarter of 2002 were $61.0 million, an increase of $52.3 million over results in the third quarter of 2001. Selling, general and administrative expenses in the third quarter of 2002 were $46.7 million, an increase of $41.3 million over results in the third quarter of 2001. Selling, general and administrative expenses for NorthWestern Energy LLC's Montana operations in the third quarter of 2002 contributed approximately $40.1 million. Depreciation in the third quarter of 2002 was $14.3 million, an increase of $11.1 million over depreciation in the third quarter of 2001 of $3.2 million. The selling, general and administrative expenses for the first nine months of 2002 were $122.3 million, or 447.3%, higher than expenses for the first nine months of 2001. This increase, as with the quarter, is mainly due to the addition of NorthWestern Energy LLC's Montana operations, which added $103.0 million of expenses, offset by decreases in the previously owned operations' expenses. Depreciation for the nine months ended

September 30, 2002 was $39.3 million, an increase of $29.6 million over depreciation for the nine months ended September 30, 2001, of $9.6 million. The increase in depreciation was due to the addition of NorthWestern Energy LLC's Montana operations.

Operating income for our electric utility operations in the third quarter of 2002 was $36.2 million, an increase of $25.3 million, or 231.6%, from $10.9 million in the third quarter of 2001. The increase was primarily attributable to the addition of approximately $26.8 million in operating income from NorthWestern Energy LLC's Montana operations. Income from the previously owned operations declined $1.5 million in the third quarter of 2002 from results in the third quarter of 2001 as a result of the decline in wholesale electric margins but was partially offset by operating expense savings. For the nine months ended September 30, 2002, operating income of $80.3 million was $43.9 million higher than operating income for the nine months ended September 30, 2001 of $36.3 million. As with the quarter, this increase was primarily due to the addition of $57.2 million from NorthWestern Energy LLC's Montana operations offset by lower South Dakota operating income from the absence of unusually high margin wholesale electric sales countered by lower operating expenses.

Revenues for our natural gas utility operations in the third quarter of 2002 were $28.7 million, an increase of $15.9 million, or 125.1%, from results in the third quarter of 2001. Revenues for the period reflect the inclusion of NorthWestern Energy LLC's Montana operations, which contributed $16.0 million in revenues. The increase was offset by a drop in commodity prices reflected within the previously owned operations during the third quarter of 2002 compared to the third quarter of 2001, and a decrease in volumes as a result of warmer weather in the Nebraska and South Dakota service territories. For the nine months ended September 30, 2002, revenues were $160.1 million, or $41.5 million higher than revenues for the first nine months of 2001 of $118.6 million. The Montana operations contributed $75.8 million to the increased revenues, while the previously owned operations experienced a decline of $34.3 million in revenues as a result of substantially lower commodity prices and warmer weather during the periods.

Cost of sales for our natural gas utility operations in the third quarter of 2002 was $12.0 million, an increase of $3.2 million, or 36.6%, from results in the third quarter of 2001. Cost of sales for the period reflect the inclusion of NorthWestern Energy LLC's Montana operations, which contributed $3.0 million in cost of sales and an increase in cost of sales for previously owned operations of $0.2 million. For the nine months ended September 30, 2002, cost of sales was $87.0 million, a decrease of $12.3 million as compared to the first nine months of 2001. Costs within the previously owned operations decreased $34.2 during the first nine months of 2002 compared to the first nine months of 2001 as a result of lower commodity prices and reduced retail volumes from warmer weather while NorthWestern Energy LLC's Montana operations increased costs by $21.9 million.

Gross margin for our natural gas utility operations in the third quarter of 2002 was $16.7 million, an increase of $12.7 million over gross margin in the third quarter of 2001. The growth was primarily attributable to the addition of NorthWestern Energy LLC's Montana operations, which added $13.0 million in margin. Gross margin for previously owned operations decreased $0.3 million in the third quarter of 2002 compared to the third quarter of 2001. As a percentage of revenues, gross margin improved from 30.9% in the third quarter of 2001 to 58.1% in the third quarter of 2002, primarily as a result of the significant decrease in commodity prices within Nebraska/South Dakota operations and the higher margin impact from operations in Montana. Margins for the nine months ended September 30, 2002 were $73.2 million, or $53.8 million higher than the first nine months of 2001. NorthWestern Energy LLC's Montana operations accounted for the increase. As with the quarter, margin percentages increased, rising from 16.3% for the first nine months of 2001 to 45.7% for the first nine months of 2002. This reflects the impact of lower commodity prices within the Nebraska/South Dakota operations and the higher margin NorthWestern Energy LLC's Montana operations.

Operating expenses for our natural gas utility operations in the third quarter of 2002 were $16.7 million, an increase of $12.4 million from results in the third quarter of 2001. Selling, general and administrative expenses increased $11.9 million in the third quarter of 2002 to $15.3 million compared to the third quarter of 2001, primarily due to $11.6 million in additional expenses attributable to NorthWestern Energy LLC's Montana operations, while selling, general and administrative expenses at previously owned operations declined due to operational efficiencies. Depreciation was $1.4 million in the third quarter of 2002, an increase of $0.6 million over depreciation during the third quarter of 2001. This increase was primarily due to the addition of NorthWestern Energy LLC's Montana operations. Operating expenses for the nine months ended September 30, 2002, were $46.0 million, an increase of $32.0 million from results in the first nine months of 2001. Selling, general and administrative expenses grew $29.3 million in the nine month period ended September 30, 2002 to $40.77 million compared to the nine months ended September 30, 2001 when such expenses were $11.4 million, primarily due to $30.17 million in additional expenses attributable to NorthWestern Energy LLC's Montana operations, while selling, general and administrative expenses at previously owned operations declined similar to the quarter changes.

Depreciation was $5.3 million for the nine months ended September 30, 2002, an increase of $2.7 million over depreciation during the first nine months of 2001. This increase was primarily due to the addition of NorthWestern Energy LLC's Montana operations.

Operating loss for our natural gas utility operations in the third quarter of 2002 was $0.1 million, compared to an operating loss of $0.4 million in the third quarter 2001. NorthWestern Energy LLC's Montana operations were $0.3 million higher in the third quarter of 2002 while the operating expense reductions in the previously owned operations more than offset the revenue shortfalls in these operations resulting in break even operating income For the nine months ended September 30, 2002, operating income of $27.2 million was $21.8 million higher than operating income for the nine months ended September 30, 2001, with NorthWestern Energy LLC's Montana operations contributing $20.5 million in income.

Revenues for the communications segment in the third quarter of 2002 were $176.3 million, a decline of $68.2 million, or 27.9%, from revenues of $244.4 million in the third quarter of 2001. The decline was due to overall market softness in the technology and communication segments of the industry partially offset by a change in the mix of revenues toward certain higher margin activities. For the nine months ended September 30, 2002, revenues were $546.9 million, or $267.6 million lower than revenues for the nine months ended September 30, 2001. The decline in revenue was the result of a downturn in the economy generally and the telecommunications equipment market specifically, a focus on higher margin revenues and challenges with Expanets' EXPERT system implementation that have contributed to erosion of Expanets' customer base. For the nine months ended September 30, 2002, Expanets recorded a reduction in revenues of $33.8 million for estimated billing adjustments.

Cost of sales in the third quarter of 2002 were $101.7 million, a decline of $41.6 million from cost of sales in the third quarter of 2001 of $143.3 million. The decrease in cost of sales principally resulted from the lower sales volumes and efforts to continue to improve the revenue mix by reducing cost intensive equipment sales and increasing lower cost and higher margin service sales. In addition, a new technical assistance call center agreement signed with Avaya in March 2002 resulted in $10.1 million of reduced costs during the quarter ended September 30, 2002. During the third quarter of 2002, Expanets also recognized vendor rebates of $5.0 million, which had previously been accrued pending settlement with the vendor. Cost of sales for the first nine months of 2002 decreased 34.8% to $336.5 million when compared to cost of sales for the first nine months of 2001. As with the quarter, the nine month decrease is also due primarily to the lower sales volumes, sales mix changes and renegotiated terms with Avaya.

Gross margin in the third quarter of 2002 was $74.5 million, a decline of $26.6 million compared to gross margin in the third quarter of 2001. The decrease in gross margin dollars resulted from the overall decline in sales volumes noted above. As a percentage of revenues, gross margin improved from 41.4% in the third quarter of 2001 to 42.3% in the third quarter of 2002. The improvement was principally a result of changes in sales mix by increasing higher margin maintenance and service revenues as compared to lower margin equipment sales. Additionally, the aforementioned new technical assistance call center agreement with Avaya reduced cost of sales and thereby also improved margin percentages. For the nine months ended September 30, 2002, gross margins were $210.4 million as compared to $298.2 million for the nine months ended September 30, 2001. This decrease is attributable to the lower sales volumes and Expert system challenges mentioned above, offset in part by the new agreement with Avaya and the change toward certain higher margin activities. Gross margin percentage for the nine month period in 2002 increased to 38.5% as compared to 36.6% for 2001 for similar reasons as noted in the quarter fluctuations.

Operating expenses in the third quarter of 2002 were $85.2 million, a decrease of $34.7 million or 29.0%, from results in the third quarter of 2001. Selling, general and administrative expenses in the third quarter of 2002 were $71.2 million, a decrease of $36.0 million or 33.6%, from results in the third quarter of 2001. This decrease was primarily a result of a reduction of approximately 1,300 team member positions during the fourth quarter of 2001. In addition, the company receives payments from Avaya under a maintenance fee agreement, which is calculated based on Avaya's maintenance contract customer base. Monthly payments are based on estimated experience, and a true-up payment is made annually based on Avaya's actual experience. This agreement expires in March of 2005. Amounts recognized related to this agreement reduced selling, general and administrative expenses by $15.3 million in third quarter of 2002 as compared to $4.8 million in the third quarter of 2001. Included in the amount recognized in the third quarter of 2002, was a true-up payment of $2.4 million from Avaya and an additional $5.6 million that had previously been deferred, pending the determination of Avaya's actual experience. Also contributing to the decrease in SG&A expenses during the third quarter of 2002 was the reversal of $5.4 million of accrued expenses based on settlements with vendors during the third quarter. This decrease was partially offset by $6.3 million bad debt expense and other receivable related charges and $3.5 million of additional expense associated with information technology costs for the operation and repair of the EXPERT system. Depreciation expense increased approximately $2.7 million in the third quarter of 2002 primarily as a result of depreciating the EXPERT system costs. Amortization expense decreased $1.4 million in the third quarter of 2002 compared to the third quarter of 2001 due to the implementation of SFAS No. 142, which resulted in discontinuance of amortization of a portion of the intangibles. For the nine months ended September 30, 2002, operating expenses decreased $123.1 million from the nine months ended September 30, 2001. Selling, general and administrative expenses declined $126.1 million for the nine months ended September 30, 2002 to $218.0 million from $344.1 million for the same period in 2001. Amounts recognized related to the Avaya maintenance agreement totaled $34.6 million and $16.3 million, for the nine months ended September 30, 2002 and 2001, respectively. The other primary reasons for the change in expenses are the items noted above for the quarter, as well as reduced discretionary spending, lower headcount levels and renegotiated vendor contracts. For the nine months ended September 30, 2002, as compared to 2001, depreciation expense increased $9.0 million to $17.6 million from continued capital expenditures. Amortization expense decreased $6.1 million to $21.6 million, again as a result of the SFAS No. 142 implementation.

Operating losses in the third quarter of 2002 were $10.6 million, compared to operating losses of $18.8 million in the third quarter of 2001. The reduction in losses resulted from the substantial decline in operating expenses. Operating losses for the nine months ended September 30, 2002 of $46.8 million represents a $35.3 million decrease when compared to operating losses of $82.1 million for the nine month period ended September 30, 2001. The primary reason for this turnaround is the substantial decline in operating expenses.

Revenues in our HVAC division in the third quarter of 2002 were $131.9 million, an increase of $20.7 million, or 18.6%, from results in the third quarter of 2001. Revenues from locations acquired subsequent to September 2001 contributed approximately $13.7 million to the increase in third quarter 2002 results, while revenues from existing locations increased $7.0 million from results in the third quarter of 2001. The increase in existing location revenues is the result of a combination of favorable weather, price increases, and improved operating performance at certain locations. For the nine-month period ended September 30, 2002, revenues reached $344.2 million, a 6.7% growth over the first nine months of 2001. Revenues from locations acquired subsequent to September 2001 contributed approximately $25.9 million to the increase in 2002 results, while revenues from existing locations declined $4.3 million. The decrease in existing location revenues is a result of poor market conditions, mild weather in the first three months of the year, an overall economic downturn, as well as several locations closing down certain divisions to improve overall profitability.

Cost of sales in the third quarter of 2002 was $84.9 million, an increase of $13.1 million, or 18.2%, from results in the third quarter of 2001. Costs of sales for newly acquired locations added approximately $8.7 million of costs in the third quarter of 2002 compared to the third quarter of 2001 while cost of sales within existing locations increased $4.4 million in the third quarter of 2002 compared to the third quarter of 2001. The increase in costs was primarily the result of increased sales volume, offset by cost efficiencies in the field. For the nine months ended September 30, 2002, costs of sales reached $219.5 million, a $16.4 million increase over costs for the first nine months of 2001. Cost of sales from locations acquired subsequent to September 30, 2001, contributed approximately $16.1 million, while cost of sales within existing locations increased $0.3 million. This decrease is due primarily to the reduced sales activity mentioned above net of price increases for labor and materials.

Gross margin in the third quarter of 2002 was $47.0 million, an increase of $7.6 million from results in the third quarter of 2001. Gross margin from acquired locations contributed $4.9 million in the third quarter of 2002, while gross margin within existing locations increased by $2.7 million in the third quarter of 2002 compared to the third quarter of 2001. This increase is a result of the revenue increase, offset in part by the increased cost of sales noted above. As a percentage of revenues, gross margins increased from 35.5% in the third quarter of 2001 to 35.7% in the third quarter of 2002. Gross margin for the nine months ended September 30, 2002 increased $5.2 million to $124.6 million over margins for the nine months ended September 30, 2001. As with the quarterly results, subsequent acquisitions account for $9.8 million of growth, but were offset by a decrease in gross margin for existing locations of $4.6 million. As a percentage of revenues, gross margins for the nine-month periods ending September 30, 2001 and 2002 declined from 37.0% to 36.2%, respectively, due mainly to cost pressures.

Operating expenses in the third quarter of 2002 were $44.6 million, an increase of $4.1 million, or 10.0%, compared to third quarter of 2001. Selling, general and administrative expenses increased $6.9 million in the third quarter of 2002 from results in the third quarter of 2001. Acquired locations added approximately $3.4 million of costs in the third quarter of 2002 while expenses within the existing locations also increased $3.4 million, or 9.5% in the third quarter of 2002. The increase is primarily attributable to operating leases for our service vehicles and increased corporate expenses for professional services, new hire relocations and increased travel. Depreciation expense of $1.4 million for the quarter decreased $1.0 million as compared to the third quarter of 2001. During the second quarter of 2002, the company entered into a vehicle sale-leaseback agreement contributing primarily to the depreciation expense decrease in the third quarter of 2002 as compared to the third quarter of 2001. Amortization expense decreased $1.8 million during the third quarter of 2002 from results in the third quarter of 2001. This decrease is primarily attributable to lower amortization due to implementation of SFAS No. 142, which has resulted in the discontinuance of the amortization of a portion of the intangibles. For the nine months ended September 30, 2002, operating expenses were

$124.8 million, an increase of $5.4 million, or 4.5%. Selling, general and administrative expenses increased $11.5 million for the nine months ended September 30, 2002 from the first nine months of 2001. Acquired locations added approximately $7.0 million of costs for the nine months ended September 30, 2002, while expenses within the previously owned operations increased $4.5 million, or 3.6%. Depreciation expense declined between the periods by $1.1 million, due to the sale-leaseback agreement mentioned above. Amortization expense for the nine months ended September 30, 2002, was $5.1 million less than the same period in 2001, as a result of the SFAS No. 142 implementation.

Operating income in the third quarter of 2002 was $2.5 million, an increase of $3.5 million from an operating loss of $1.1 million in the third quarter of 2001. The increase in operating income is attributable to increased gross margin from increases in sales volume and greater operating cost controls, as well as the elimination of amortization expense due to SFAS No. 142. Operating loss for the nine months ended September 30, 2002 was $0.2 million as compared to a breakeven operating result for the nine months ended September 30, 2001.

All Other primarily consists of our other miscellaneous service activities which are not included in the other identified segments, together with the unallocated corporate costs and investments, and any reconciling or eliminating amounts. The miscellaneous service activities principally include non-utility businesses engaged in underground locating services, and a portfolio of services to residential and business customers, including product sales and maintenance contracts in areas such as home monitoring devices and appliances.

Revenues for the quarter increased $7.5 million to $11.7 million compared to the third quarter of 2001. This growth is attributable to the addition of non-utility operations acquired with NorthWestern Energy LLC's Montana operations, which include revenues from statutory conservation and low income assistance charges, gas stranded costs collected in rates under a securitization program, underground locating services and other unregulated operations, offset by declines in the previously owned operations from reduced sales activity. For the nine months ended September 30, 2002, revenues were $32.5 million, a $20.6 million increase over revenues in the nine-month period ended September 30, 2001. As with the quarter, the increase was primarily a result of the addition of NorthWestern Energy LLC's Montana operations, which added $25.9 million in revenues.

Cost of sales in the third quarter of 2002 was $3.1 million, an increase of $0.3 million over results in the third quarter of 2001. NorthWestern Energy LLC's Montana non-utility operations added $2.5 million in costs during the third quarter of 2002 while the previously owned operations decreased $1.4 million compared to the third quarter of 2001 due to lower sales levels. Cost of sales for the nine months ended September 2002 increased $4.2 million, or 54.8%, as compared to cost of sales for the first nine months of 2001. This increase was, as with revenues, due to the addition of NorthWestern Energy LLC's Montana operations.

Gross margin in the third quarter of 2002 was $8.6 million, an increase of $7.1 million over gross margins in the third quarter of 2001. NorthWestern Energy LLC's Montana non-utility operations added $8.6 million in margins while the reduced sales in third quarter 2002 pushed down margins in previously owned operations. As a percentage of revenues, gross margin increased from 35.0% to 73.7% from the higher margin NorthWestern Energy LLC's Montana operations. Gross margin for the nine months of 2002 was $20.5 million, or 390.9% higher than gross margin for the same period of 2001. All of the growth was due to the addition of NorthWestern Energy LLC's Montana operations with a partial offset from a decrease within previously owned operations. Similarly, gross margin percentages increased from 35.2% for 2001 to 63.3% for 2002 due to the influence of the higher margin NorthWestern Energy LLC's Montana operations.

Operating expenses in the third quarter of 2002 were $13.3 million, an increase of $9.0 million over results in the third quarter of 2001. NorthWestern Energy LLC's Montana non-utility operations added $6.0 million in costs. Operating expenses for the nine months ended September 30, 2002, were $29.9 million as compared to $16.3 million for the nine months ended September 30, 2001. NorthWestern Energy LLC's Montana operations added $14.7 million in costs while corporate and other expenses decreased $1.1 million.

Operating loss of $4.7 million in the third quarter of 2002 was an increase of $1.8 million from losses of $2.9 million in the third quarter of 2001. This is a result of reduced volumes within the previously owned operations. For the nine months ended September 30, 2002, operating losses were $9.4 million, a decline of $2.7 million from losses of $12.1 million for the nine months ended September 30, 2001. The declines resulted primarily from reduced operating expenses within the corporate and previously owned operations with a $4.6 million contribution from NorthWestern Energy LLC's Montana operations.

On January 18, 2002, the board of directors of the general partner of CornerStone announced that it had retained Credit Suisse First Boston Corporation to review strategic options, including the possible sale or merger of CornerStone. At September 30, 2002, we were the largest unit holder of CornerStone, owning a 30% interest in CornerStone, and we own all of the stock of CornerStone's managing general partner. As a result, we have recharacterized our investment in CornerStone to reflect the results of operations of CornerStone as discontinued operations. Accordingly, the results of CornerStone's operations, for all periods reported, are presented separately below income from continuing operations. In conjunction with the adoption of discontinued operations accounting for CornerStone $45.1 million was recorded as a non-cash charge during the first half of 2002 and $55.9 million was recorded as a non-cash charge during the third quarter of 2002.

On August 20, 2002 NorthWestern purchased the lenders' interest in approximately $19.9 million of short-term debt, together with approximately $6.1 million in letters of credit, of CornerStone outstanding under CornerStone's credit facility, which NorthWestern had previously guaranteed. These amounts remain unpaid. No further drawings may be made under that facility. NorthWestern's holding in CornerStone short-term debt and letters of credit ranks equally with CornerStone's senior outstanding debt. During the first quarter of 2002, the Corporation recognized a loss from discontinued operations of $40.0 million, which was comprised of a write-down in its investment in CornerStone of $41.7 million and an offset of $1.7 million in respect of income, net of taxes and minority interests, from CornerStone. Subsequent losses of $5.1 million, net of taxes and minority interests, were recognized in the second quarter of 2002.

On October 31, 2002, CornerStone's board of directors approved amendments to the partnership's agreements, and NorthWestern contributed to CornerStone its economic interests in the partnership effective November 1, 2002 thereby relinquishing its remaining equity interest to the partnership. As a result of these actions, NorthWestern will no longer be required to consolidate CornerStone for financial reporting purposes after November 1, 2002. In connection with the events occurring in the third quarter and NorthWestern's evaluation of its financial exposure to CornerStone, NorthWestern

recorded an additional after-tax charge of $55.9 million for the third quarter of 2002. A provision for loss on discontinued operations as of September 30, 2002 has been recorded based on management's best estimate of the amounts expected to be realized on the disposition of its investment in CornerStone. The amount NorthWestern will ultimately realize could differ from the assumptions used in arriving at the anticipated loss.

We generate cash to fund our operations through a combination of cash flows from current operations, the sale of our securities and our borrowing facilities. We realized net positive cash inflows from continuing operations of $101.1 million and $106.0 million in the nine months ended September 30, 2002 and 2001, respectively.

Cash flows used in investing activities were $595.9 million in the first nine months of 2002 compared to $95.2 million in the first nine months of 2001. The increase was principally due to the acquisition of NorthWestern Energy LLC's Montana operations during 2002 which accounted for approximately $515.0 million, offset partially by proceeds of $23.0 million from the sale-leaseback transactions executed during second and third quarter of 2002, and continued maintenance and growth capital expenditures. Maintenance capital expenditures are capital expenditures incurred in order to maintain our business as it exists at that time. Growth capital expenditures are capital expenditures incurred in order to grow our business in any respect. Cash flows provided by financing activities were $584.6 million in the first nine months of 2002 compared to $13.2 million in the first nine months of 2001. The increase was primarily due to proceeds received from our $720.0 million senior notes offering discussed below, which was used to pay our acquisition term loan used to finance the acquisition of NorthWestern Energy LLC's Montana operations, and the trust preferred securities offerings discussed below.

Our cash, cash equivalents, investments and marketable securities and other non-current investments totaled $158.5 million as of September 30, 2002, as compared to $100.1 million as of December 31, 2001. The increased balance is primarily from the addition of the NorthWestern Energy LLC's Montana operations. During 2002, we raised cash proceeds from the following offerings of our securities and new debt facilities.

On January 15, 2002, NorthWestern Capital Financing II sold 270,000 shares of its 8¹/4% trust preferred securities pursuant to an over allotment option. We received approximately $6.5 million in net proceeds from the offering, which we used for general corporate purposes and to repay a portion of the amounts outstanding under our old credit facility. The 8¹/4% trust preferred securities will be redeemed either at maturity on December 15, 2031, or upon early redemption.

On January 31, 2002, NorthWestern Capital Financing III sold 4.0 million shares of its 8.10% trust preferred securities, and on February 5, 2002, sold an additional 440,000 shares of its 8.10% trust preferred securities pursuant to an overallotment option. We received approximately $107.4 million in net proceeds from the offering, which we used for general corporate purposes and to repay a portion of the amounts outstanding under our old credit facility. The 8.10% trust preferred securities will be redeemed either at maturity on January 15, 2032, or upon early redemption.

On February 15, 2002, in connection with our acquisition of The Montana Power Company's energy distribution and transmission business, we assumed $511.1 million of debt and preferred stock net of cash received from The Montana Power Company and we drew down a $720.0 million term loan and $19.0 million swing line commitment under our $280.0 million revolving credit facility to fund our acquisition costs and repay borrowings of $132.0 million outstanding under our existing recourse bank credit facility. The $511.1 million of assumed debt and preferred stock includes various series of mortgage bonds, pollution control bonds and notes that bear interest rates of between 5.90% to 8.95%. These include both secured and unsecured obligations with maturities that range from 2003 to 2026.

On March 13, 2002, we issued $250.0 million of our 7⁷/8% senior notes due March 15, 2007, and $470.0 million of our 8³/4% senior notes due March 15, 2012, which resulted in net proceeds to us of $714.1 million. We have applied these net proceeds together with available cash to fully repay and terminate the $720.0 million term loan portion of our credit facility. On March 28, 2002, we entered into two fair value hedge agreements, each of $125.0 million, to effectively swap the fixed interest rate on our $250.0 million five-year senior notes to floating interest rates at the three-month LIBOR plus spreads of 2.32% and 2.52%, effective as of April 3, 2002. These fair value hedge agreements were settled on September 17, 2002 resulting in $17.0 million proceeds and unrecognized gain to the Corporation. The unrecognized gain is recorded in Other Non-Current Liabilities and will be recognized as a reduction of interest expense over the remaining life of the notes. On the nine remaining coupon payments on the five-year notes, the amortization of the gain equates to a $1.9 million interest saving per coupon payment, effectively lowering the annual interest rate to 6.3%. On October 22, 2002 we completed our offer to exchange $250.0 million aggregate principal amount of our 7⁷/8% senior notes due 2007 and $470.0 million aggregate principal amount of our 8³/4% senior notes due 2012, which are registered under the Securities Act of 1933, as amended, for an equal amount of our outstanding 7⁷/8% senior notes due 2007 and our 8³/4% senior notes due 2012, which were not registered under the Securities Act.

On July 31, 2002, we redeemed all 26,000 outstanding shares of our 4¹/2% series preferred stock at $110.75 per share, resulting in a cash outlay of $2.9 million. On August 15, 2002, we repurchased all 11,500 outstanding shares of our 6¹/2% series redeemable preferred stock at $101.35 per share, resulting in a cash outlay of $1.1 million.

On October 8, 2002, we issued 10 million shares of common stock at $8.75 per share. We received approximately $81 million in net proceeds from the offering, which we used to reduce short-term debt.

We and our subsidiaries had the following longterm and shortterm debt, mandatorily redeemable preferred securities and other commitments outstanding as of September 30, 2002:

Since we have accounted for CornerStone as a discontinued operation, the above table does not include $410.0 million of 7.33%, 7.53%, 8.08%, 8.27% and 10.26% senior secured notes of CornerStone and $34.0 million of notes payable and capital lease obligations of CornerStone, which are nonrecourse to us, all of which was outstanding at September 30, 2002. $41.8 million of CornerStone's senior secured notes mature in 2003 and $152.2 million of CornerStone's senior secured notes mature in 2004 through 2006. On August 5, 2002, CornerStone announced that it had elected not to make an interest payment aggregating approximately $5.6 million on three classes of its senior secured notes, which was due on July 31, 2002, and was continuing to review financial restructuring and strategic options, including the potential commencement of a Chapter 11 case under the United States Bankruptcy Code. On August 20, 2002, NorthWestern purchased the lenders' interest in approximately $19.9 million of shortterm debt, together with approximately $6.1 million in letters of credit, of CornerStone outstanding under CornerStone's credit facility, which NorthWestern had previously guaranteed. These amounts remain unpaid and no further drawings may be made under that facility. Recently, CornerStone's board of directors approved amendments to the partnership's agreements, and NorthWestern contributed to CornerStone its economic interests in the partnership thereby relinquishing its remaining equity interest to the partnership. As a result of these actions, NorthWestern will no longer be required to consolidate CornerStone for financial reporting purposes as of November 1, 2002.

The following is certain additional information relating to our debt facilities listed in the above table.

The Mortgage Bonds are three series of general obligation bonds we issued, that are secured by substantially all of our electric and natural gas assets. As reflected in the table above, these bonds mature in 2002, 2005 and 2023.

The Senior Unsecured Debt is a general obligation that matures in 2028. We issued this debt in November 1998, and the proceeds were used to repay shortterm indebtedness and for general corporate purposes.

The Pollution Control Obligations are three obligations we issued in 1993 that are secured by substantially all of our electric and gas assets.

Our $280.0 million revolving credit facility bears interest at a variable rate tied to the London Interbank Offered Rate plus a spread of 1.5% based on our current credit ratings and accrued interest at 3.35% per annum as of September 30, 2002. As of November 11, 2002, we had $175.0 million of outstanding borrowings under our $280.0 million credit facility and $84.4 million available after consideration of letters of credit issued. Our revolving credit facility expires on February 14, 2003, although we may convert up to $225.0 million of the aggregate amount outstanding as of February 11, 2003 into a term loan on a nonrevolving basis that matures on February 14, 2004. The credit agreement with respect to our revolving credit facility contains a number of representations and warranties and imposes a number of restrictive covenants that, among other things, limit our ability to incur

indebtedness and make guarantees, create liens, make capital expenditures, pay dividends and make investments in other entities. In addition, we are required to maintain certain financial ratios, including:

We were in compliance with all ratios for the quarters ended March31, June30 and September 30, 2002. As of September 30, 2002, our net worth was $770.2 million, our debttocapital ratio was 69.2% and our ratio of utility business EBITDA to consolidated recourse interest expense was 2.28 to 1.00 (2.21 to 1.00 when including noncash imputed interest on the regulatory liabilities related to qualified facilities contracts assumed in connection with the acquisition of our Montana operations. The debttoequity ratio calculations for the fourth quarter will incorporate our equity offering completed October 8, 2002).

The NorthWestern Energy LLC First Mortgage Bonds are four series of bonds that The Montana Power Company issued, that are secured by substantially all of the electric and natural gas assets of NorthWestern Energy LLC. These bonds mature in 2005, 2006, 2007 and 2022.

The NorthWestern Energy LLC Pollution Control Obligations are three obligations that The Montana Power Company issued in 1993 that are secured by substantially all of the electric and natural gas assets of NorthWestern Energy LLC. These bonds mature in 2023.

The NorthWestern Energy LLC Secured Medium Term Notes are two obligations that The Montana Power Company issued, that are secured by substantially all of the electric and natural gas assets of NorthWestern Energy LLC. These bonds mature in 2003 and 2008.

The NorthWestern Energy LLC Unsecured Medium Term Notes are three general obligations that The Montana Power Company issued. These bonds mature in 2006 and 2026.

The NorthWestern Energy LLC Natural Gas Transition Bonds were issued by the Montana Power Company and are secured by substantially all of the electric and natural gas assets of NorthWestern Energy LLC. These bonds mature in 2012.

The Expanets facility represents a short-term line of credit provided to Expanets by Avaya for the purpose of financing purchases of Avaya products. This facility was amended to extend the repayment term through December 31, 2002 and had an outstanding balance of $40.1 million as of November 11, 2002. We expect to continue to reduce the balance of this facility on a monthly basis in the ordinary course of business. Amounts repaid under this facility may not be reborrowed. If Expanets defaults on this facility, we may be obligated to purchase inventory and accounts from Avaya in an amount equal to the outstanding balance of the facility. As of September 30, 2002, the effective interest rate of this loan was 15%.

Montana Megawatts I, LLC, one of our wholly-owned subsidiaries, was a party to a 365-day term loan facility providing for loans in an aggregate principal amount of $55.0 million with ABN AMRO Bank N.V. and Bank of Scotland to finance the purchase of certain equipment and related expenses for a 260 megawatt natural gasfired generation project currently under construction in Great Falls, Montana. The loans bore interest at LIBOR plus 1.00% on the first $27.5 million outstanding and LIBOR plus 1.50% on amounts outstanding in excess of $27.5 million and matured one-half on September 28, 2002 and one-half on October 18, 2002. We paid $27.5 million of the loan on September 28, 2002 and repaid the remaining $27.5 million outstanding on October 18, 2002.

On August 30, 2002, Blue Dot closed on a $20.0 million working capital line provided by US Bank, which is secured by substantially all of the assets of Blue Dot. As of September 30, 2002, the working capital line is fully drawn; of which $17.0 million was used to reimburse NorthWestern for certain liabilities owed and the remaining $3.0 million was used for Blue Dot working capital purposes. In order to maintain the working capital line's current size, Blue Dot must generate a certain level of monthly cash flows in the ordinary course of business and maintain certain levels of accounts receivable and inventory, as well as meet certain levels of EBITDA and fixed charge coverage. In addition, the working capital line contains certain covenants and restrictions, which, if violated, could trigger an acceleration of repayment requirements. The credit facility has various implicit interest rates depending on annual EBITDA, which range from Prime plus 1.00% to Prime plus 0.25%. Blue Dot's current implicit rate is Prime plus 0.75%, while the effective rate as of September 30, 2002 was 5.50% (4.75% base rate+0.75%). Under the current facility agreement, the revolving loan facility shall terminate on August 31, 2005. Subsequent to September 30, 2002, Blue Dot paid down the working capital line by $4.0 million.

The Other Debt includes a $35.0 million subordinated note payable to Avaya. In April 2000, Expanets completed a transaction to purchase the Lucent GEM business and, as part of the transaction, Expanets issued Avaya a $35.0 million subordinated note and a $15.0 million convertible note. The $15.0 million note converted into Series D Preferred Stock of Expanets prior to the end of 2001. The $35.0 million subordinated note, which matures on March 31, 2005, is discounted at September 30, 2002, to $28.9 million, as it is noninterest bearing.

The capital lease obligations are principally used to finance equipment purchases and capital leases and notes payable assumed by our subsidiaries in connection with their respective acquisitions of other businesses.

NorthWestern has a financial commitment related to certain vehicles under operating leases by Expanets and Blue Dot, in the event of default and subsequent failure to cure the default by Expanets

or Blue Dot. At September 30, 2002 the amount of this financial commitment is approximately $24.2 million.

We expect to fund our day-to-day operations through our operating cash flows, our current cash and cash equivalents, and our borrowing facilities. Our principal capital requirements include continued funding for growth of existing business segments; funding new corporate investment and development ventures; funding maintenance and expansion programs; funding debt and preferred stock retirements, sinking fund requirements, and the payment of dividends to our common shareholders, all of which may require us to incur additional debt or sell or issue additional equity securities.

Maintenance capital expenditures for property, plant and equipment for the nine months ended September 30, 2002 and 2001 were $29.9 million and $33.1 million, respectively. We estimate that our maintenance capital expenditures for 2002 and 2003 will be $57.4 million and $75.5 million, respectively. Our maintenance capital expenditures are continually examined and evaluated and may be revised in light of changing business operating conditions, variations in sales, investment opportunities and other business factors.

As of September 30, 2002, debt facilities totaling $104.0 million were maintained by us or our subsidiaries and will mature in 2002 and 2003 and will need to be repaid or extended, including:

In addition, on August 20, 2002 NorthWestern purchased the lenders' interest in approximately $19.9 million of short-term debt, together with approximately $6.1 million in letters of credit, of CornerStone outstanding under CornerStone's credit facility, a portion of which was outstanding on June 30, 2002 and which NorthWestern had previously guaranteed. Such amounts remain unpaid. No further drawings may be made under this facility.

We intend to reduce and/or refinance the outstanding balance of these obligations through a combination of the issuance of additional equity securities, (through one or more public offerings and/or private placements), refinancing credit facilities or other indebtedness arrangements, and/or applying a portion of our free cash flow and/or the net proceeds from sales of noncore assets. However, there can be no assurance that we will be successful in our refinancing endeavors. See "Risk Factors—Our growth strategy is subject to risks and uncertainties, including those related to the integration of acquired businesses" and "Risk Factors—We will need significant additional capital to refinance our indebtedness that is scheduled to mature and for other working capital purposes, which we may not be able to obtain."

Several of the maturing obligations are obligations of our subsidiaries. If the subsidiaries are unable to secure alternate financing, we may need to provide them with additional financing to repay these maturing obligations and to fund their operations.

Blue Dot has expanded its operations by acquiring existing complementary businesses. These acquisitions have been funded primarily by NorthWestern, but also, in part, through Blue Dot's prior credit facility. Future growth will primarily be from organic opportunities rather than acquisitions. Blue Dot obtained a $20.0 million revolving line of credit on August 30, 2002, which matures in 2005. As of September 30, 2002, the line was fully utilized. We may need to provide Blue Dot with additional funding for general operating or other purposes.

Expanets is in the process of seeking an asset-backed commercial credit facility to replace the Avaya line of credit and to provide operating capital to fund its day-to-day operations. If Expanets is unable to secure an acceptable facility, it will be likely that we will need to provide Expanets with additional funding for general operating purposes. Additionally, Expanets is in the process of enhancing the operational capabilities of its new enterprise software system, which it calls the EXPERT system. We expect that Expanets will invest additional funds in the EXPERT system to enable further operating efficiencies. We have in the past, and may need to in the future, provide Expanets with funding for other working capital purposes until Expanets refinances the Avaya line of credit.

We will continue to review the economics of extending the maturity dates or refinancing short-term debt and retiring or refunding remaining long-term debt and preferred stock to provide financial flexibility and minimize long-term financing costs. We may continue to make investments in Blue Dot and Expanets. We have made $363.6 million in aggregate preferred stock investments in Expanets and $384.3 million in aggregate preferred stock investments in Blue Dot through September 30, 2002. Additionally, we had intercompany advances and loans to Expanets totaling $191.2 million outstanding as of September 30, 2002. We anticipate repayment of these amounts commencing in 2003 depending on the terms of the asset-backed facility that Expanets is negotiating. Pursuant to our growth strategy, we have evaluated, and expect to continue to evaluate, possible acquisitions in related and other industries on an ongoing basis and at any given time may be engaged in discussion or negotiations with respect to possible acquisitions. Some of these acquisitions may be significant and might require us to raise additional equity and/or incur debt financings, which are subject to certain risks and uncertainties. See "Risk Factors—Our growth strategy is subject to risks and uncertainties, including those related to the integration of acquired businesses."

The preparation of our financial statements includes the application of several significant accounting policies. Understanding these policies is critical to comprehending our financial statements. The following is a discussion of the most significant policies we apply. Additional policies are described in Note 2 of our unaudited quarterly consolidated financial statements included elsewhere herein.

Revenues are recognized differently depending on the type of revenue. Electric and natural gas utility revenues are recognized when customers are billed on a monthly basis, rather than on the basis of meters read or energy delivered. Communications and HVAC revenues are recognized when goods are delivered to customers or services are performed, except for revenues for services performed under material installation or service contracts, which are recognized in any given period based on the percentage of costs incurred to date in relation to total estimated costs to complete the contracts. Certain judgments affect the application of our revenue recognition policy, primarily percentage of project completion. Revenue estimates in these areas are difficult to predict, and any shortfall in revenue or delay in recognizing revenue could cause our operating results to vary significantly from quarter to quarter and could materially impact future operating results.

Our regulated operations are subject to the provisions of SFAS No. 71, Accounting for the Effects of Certain Types of Regulations. Our regulatory assets are the probable future revenues associated with certain costs to be recovered from customers through the ratemaking process. Regulatory liabilities are the probable future reductions in revenues associated with amounts to be credited to customers through the ratemaking process. If any part of our operations become no longer subject to the provisions of SFAS No. 71, the probable future recovery of or reduction in revenue with respect to the related regulatory assets and liabilities would need to be evaluated. In addition, we would need to determine if there was any impairment to the carrying costs of deregulated plant and inventory assets. While we believe that our assumption regarding future regulatory actions is reasonable, different assumptions could materially affect our results.

Many of our acquisitions at Expanets and Blue Dot have involved the issuance of common or preferred stock in those subsidiaries to the sellers of the acquired businesses. In connection with certain acquisitions of Expanets and Blue Dot, the sellers can elect to exchange the stock of Expanets and Blue Dot for cash at a predetermined exchange rate. Our investments in Expanets and Blue Dot are principally in the form of senior preferred stock with voting control and a liquidation preference over the common stock. We are required to consolidate the financial results of Expanets and Blue Dot because of our voting control. The common and junior preferred stock issued to third parties in connection with acquisitions may create minority interests, which are junior to our preferred stock interests. Operating losses at Expanets and Blue Dot have been allocated first to the junior shareholders of each subsidiary in proportion to their respective equity ownership to the extent the allocation does not exceed the minority interest of such shareholders in the equity capital of the subsidiary after giving effect to any put options or exchange agreements, and thereafter is allocated to the senior preferred shareholders of each subsidiary in the order of priority equal to the liquidation preference of each series of preferred stock.

In connection with its issuance of shares of Class C common stock, Blue Dot has entered into certain call option agreements and call and put option agreements giving Blue Dot the right to repurchase these shares. The call and put option agreements also give the holders of the Class C common stock the right to put these shares to Blue Dot at their adjusted book value if there has not been an initial public offering, or IPO, of shares of Blue Dot's common stock by a specified date. In addition, certain of the call and put option agreements give the holders of shares received in the IPO the right to put the these shares to Blue Dot at the lesser of the IPO price and the market price at the time of the put.

Certain Class C holders may also be entitled to receive certain payments under earn out arrangements that were put in place at the time the Class C common stock was issued. The earn out payments can vary depending upon the performance of the designated operating unit associated with the shares. In each case, the maximum earn out payment that may be required to be paid equals or exceeds the original issuance price of the Class C common stock. These earn out arrangements provide for payments in cash, cash and preferred stock of Blue Dot, and/or shares of NorthWestern stock that have been registered for resale. The preferred stock that is issued in connection with these arrangements may be exchanged by the holder for cash, or, at the election of NorthWestern, shares of NOR stock, at a predetermined exchange rate at the holder's election.

Exchange agreements totaling $6.0 million and $6.0 million for Expanets and $3.9 million and $8.6 million for Blue Dot remained outstanding and were included in minority interests as of

September 30, 2002 and December 31, 2001, respectively. The equity held by third parties of these entities is as follows:

The Minority Interests in Net Loss of Consolidated Subsidiaries contained in our consolidated statements of income is the income (loss) of our subsidiaries, which is allocable to minority interests. In order to determine the allocation of income (loss) to minority interests, preferred dividends and corporate services allocations are deducted from the income (loss) before minority interests reported in our segment disclosures in order to arrive at the Minority Interests in Net Loss of Consolidated Subsidiaries contained in our consolidated statements of income. The corporate services allocations relate to certain services NorthWestern provides to, and is reimbursed from, its subsidiaries for management services, including insurance, administrative support for employee benefits, transaction structuring, financial analysis and information technology. These services are discussed in Note1 "Significant Accounting Policies-Related Party Transactions" to NorthWestern's annual consolidated financial statements. The preferred dividends relate to dividends on our 12% coupon Preferred Stock of Expanets and our 11% coupon Preferred Stock of Blue Dot. The preferred dividends and corporate services allocations are eliminated in consolidation. The net income (loss) before minority interests and net income (loss) available to common equity holders reported in our segment disclosures includes the portion of interest expense on our $51.4 million loan to Expanets which is allocable to third party minority interests.

The following tables demonstrate the reconciliation of income (loss) before minority interests reported in NorthWestern's segment disclosures for its communications and HVAC segments, the only two segments which have Minority Interest, to Minority Interests in Net Loss of Consolidated Subsidiaries contained in its consolidated statements of income for the periods indicated. All amounts in boxes are reflected directly within NorthWestern's consolidated financial statements. All other amounts support the derivation of those numbers.

Preferred dividends for the nine months ended September 30, 2002 of $32.4 and $29.2 million for Expanets and Blue Dot, respectively, represent increases of $8.5 million and $9.4 million, respectively, which reflect increased investments by NorthWestern in the preferred stock of each entity. Corporate allocations for the nine months ended September 30, 2002 of $3.1 and $2.1 million for Expanets and Blue Dot, respectively, represent decreases of $3.6 million and $0.2 million, respectively, for Expanets and Blue Dot. The decrease at Expanets is primarily due to reduced services provided by NorthWestern related to the transition and integration expenses related to the acquisition of the Lucent GEM assets. The decrease at Blue Dot is due to a reduction of corporate services provided by NorthWestern.

During the second quarter and third quarters of 2002, Blue Dot completed five acquisitions. Consideration paid to the sellers in these acquisitions included cash consideration of $15.6 million and the issuance of Blue Dot common stock. No value has been assigned to the common stock for these acquisitions.

As of September 30, 2002, no remaining minority interest basis existed against which to allocate losses. Accordingly, if such subsidiaries incur operating losses in the future, unless additional minority interest is created, our share of any such losses will be recognized in our operating results. Different capital structures in the future or unanticipated future operating results, either positive or negative, could result in materially different results.

As of September 30, 2002, our common stock basis in Expanets and Blue Dot was zero as a result of losses applicable to common stock of those entities that was allocated to us based on our common stock ownership. As of September 30, 2002, our preferred stock basis in Expanets and Blue Dot was $335.7 million and $328.6 million, respectively. In addition, we also had intercompany advances and loans to Expanets totaling $191.2 million outstanding at September 30, 2002. We anticipate repayment of these amounts commencing in 2003, depending upon the terms of the asset-backed facility that Expanets is negotiating. We had an intercompany advance to Blue Dot totaling $3.6 million as of September 30, 2002, which we anticipate is likely to be repaid in 2003.

We have entered into commodity futures contracts for natural gas to attempt to reduce the risk of future price fluctuations. Any increase or decrease in the values of these contracts is reported as gains and losses in our consolidated statements of income. The fair value of fixed-price commodity contracts are estimated based on market prices of natural gas, natural gas liquids and crude oil for the periods covered by these contracts.

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, requires every derivative instrument, including certain derivative instruments embedded in other contracts, to be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires any changes in the derivative's fair value to be currently recognized in earnings, unless specific hedge accounting criteria are met. We adopted the provisions of SFAS No. 133, as amended, effective July 1, 2000, consistent with the timing of CornerStone's adoption of SFAS No. 133. See "Risk Factors—Changes in commodity prices may increase our cost of producing and distributing electricity and distributing natural gas or decrease the amount we receive from selling electricity and natural gas, adversely affecting our financial performance and condition."

SFAS No. 142, which was issued during 2001 and is effective for all fiscal years beginning after December 15, 2001, eliminates amortization of goodwill and allows amortization of other intangibles only if the assets have a finite, determinable life. Based on SFAS No. 142, we are required to perform an impairment analysis of intangible assets at the reporting unit level, at least annually, to determine whether the carrying value exceeds the fair value. In instances where the carrying value is less than the fair value of the asset, an impairment loss must be recognized.

The Corporation adopted SFAS No. 142 effective January 1, 2002, retained an independent appraiser to determine whether an impairment charge was necessary at the date of adoption, and such independent appraiser determined that no impairment charge was required at the date of adoption. We have selected October 1 as the date for our annual goodwill impairment test. The annual valuations are currently in process for all reporting units. CornerStone adopted SFAS No. 142 during its fiscal year ended June 30, 2001. As noted in CornerStone's Current Report on Form 8K dated September 11, 2002, filed with the Securities and Exchange Commission on September 12, 2002, CornerStone's preliminary evaluation of the impact of adopting SFAS No. 142 indicates that CornerStone is likely to have a material writeoff of its goodwill and intangibles. Amortization of goodwill totaled $11.3 million, $19.8 million and $7.0 million for the years ended December 31, 2001, 2000 and 1999, respectively, excluding CornerStone. Had we adopted the provisions of SFAS No. 142 in those years, it would have resulted in an increase to earnings on common stock, net of taxes and minority interests, of $8.6 million, $6.3 million and $20,000 for the years ended December 31, 2001, 2000 and 1999, respectively. Basic earnings per share would have increased $0.35 and $0.27 for 2001 and 2000, respectively, with no impact for 1999. Diluted earnings per share would have increased by $0.36 and $0.27 for 2001 and 2000, respectively, with no impact for 1999.

Property, plant and equipment, and intangibles that may be amortized pursuant to SFAS No. 142 are depreciated and amortized over their useful lives. The useful life of an asset is based on our estimate of the period that the asset will provide benefit. Pursuant to SFAS No. 144, we review all long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable as measured by the future undiscounted cash flows expected to be generated by the asset. While management currently believes that estimated future cash flows will be sufficient to recover such assets, there can be no assurance that such estimates will be achieved. If estimated future cash flows are not achieved, we may need to record impairment charges on these assets in future periods. If such an asset is considered impaired, the impairment recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

SFAS No. 141, Business Combinations, issued in June 2001, requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method. In addition, it requires that all identifiable intangible assets be separately recognized and the purchase price allocated

accordingly. In some cases, this will result in the recognition of substantially more categories of intangibles.

SFAS No. 143, Accounting for Asset Retirement Obligations, was issued in August2001. It addresses financial accounting and reporting for obligations associated with the retirement of tangible longlived assets and the associated asset retirement costs. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The impact on our results of operations and financial position is currently under review by management.

SFAS No. 144, Accounting for the Impairment or Disposal of Long Lived Assets, was issued in October 2001. It establishes a single accounting model for longlived assets to be disposed of by sale. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. We adopted SFAS No. 144 effective January 1, 2002.

SFAS No. 145, Rescission of FASB Statements No.4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections, was issued in April 2002. It eliminates the requirement that gains and losses from the extinguishments of debt be aggregated and classified as extraordinary items, net of the related income tax. It also requires saleleaseback treatment for certain modifications of a capital lease that result in the lease being classified as an operating lease. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. We will adopt SFAS No. 145 on January 1, 2003. As a result of the adoption, effective January 1, 2003, the Corporation will be required to reflect the extraordinary loss on debt extinguishments of $13.5 million, net of tax, incurred in 2002 as part of operations.

SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, was issued in June 2002. It requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan, including lease termination costs and certain employee termination benefits that are associated with a restructuring, discontinued operation, plant closing or other exit or disposal activity. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The impact of the statement on our results of operations and financial position is currently under review by management.

In order to provide a recruitment and retention incentive, NorthWestern adopted a longterm equity incentive program in September 1999 in which certain key executives of NorthWestern and key team members of NorthWestern Growth Corporation, which initiates strategic investments for NorthWestern, were provided the opportunity to make personal investments. The investment entity was structured as a limited liability company, is controlled and substantially owned by NorthWestern, and enables the investors to participate in longterm capital appreciation resulting from increases in the value of NorthWestern's interests in Blue Dot, Expanets and CornerStone above benchmark rates of return to NorthWestern approved by the independent Compensation Committee of NorthWestern's Board of Directors. Participants benefit in any such capital appreciation on a pro rata basis with the other holders of equity interests in such entities after achievement of the benchmark rate of return to NorthWestern. The interest of NorthWestern executives in the limited liability company upon formation collectively represented a less than 0.5% interest in each of Blue Dot, Expanets and CornerStone. The limited liability company has no indebtedness and is consolidated in NorthWestern's financial statements. No losses of these subsidiaries have been allocated to the minority interest owned by the limited liability company. NorthWestern has the right to acquire the limited liability company interests of the investors under specified circumstances, including termination of employment. In the year ended December 31, 2001, the following executive officers of NorthWestern received distributions in respect of the transfer to NorthWestern of a portion of their vested interests: M. Lewis, chief executive officer, $1.1 million; R. Hylland, president, $0.8 million; D. Newell, senior vice president, $0.8 million; E. Jacobsen, senior vice president, $0.4 million; and K. Orme, chief financial officer, $0.1 million. This

recruitment and retention program is no longer being utilized to provide longterm equity incentives and is no longer open to new participants, although the preexisting interests of the participants remain outstanding.

In December 1999, The Montana Power Company, now known as Touch America Holdings, Inc. completed the sale of its electric generation assets to PPL Montana. On August 16, 2001, eight individuals filed a lawsuit in Montana State District Court, naming Montana Power, all of its outside directors and certain officers, PPL Montana, and Goldman Sachs as defendants (the "Litigation"), alleging that Montana Power and its directors and officers and investment bankers had a legal obligation and/or a fiduciary duty to obtain shareholder approval before consummating the sale of the electric generation assets to PPL Montana. The plaintiffs further allege that because the Montana Power shareholders did not vote to approve the sale, the sale of the generation assets is void and PPL Montana is holding these assets in constructive trust for the shareholders. Alternatively, the plaintiffs allege that Montana Power shareholders should have been allowed to vote on the sale of the generation assets and, if an appropriate majority vote was obtained in favor of the sale, the objecting shareholders should have been given dissenters' rights. The plaintiffs have amended the complaint to add Milbank Tweed, The Montana Power, L.L.C., Touch America Holdings, Inc. and the purchasers of the energy-related assets and have claimed that MPC and the other defendants engaged in a series of integrated transactions to sell all or substantially all of its assets and deprive the shareholders of a vote.

Upon plaintiffs' motion the court has certified a class consisting of shareholders of record as of December 1999. The defendants' motions to dismiss the complaint were denied by the court. Recently, the court has also granted plaintiffs' motion to add Northwestern Energy LLC as a successor to The Montana Power Company and has required the substitution of an additional party if NorthWestern proceeds with the transfer of substantially all of the assets and liabilities from NorthWestern Energy LLC to NorthWestern. NorthWestern will be added as an additional defendant. It is the position of all defendants that The Montana Power Company and its former directors and officers have fully complied with their statutory and fiduciary duties and no shareholder vote was required. Accordingly, all defendants are defending the suit vigorously.

Effective February 13, 2002, Montana Power restructured into a holding company structure to facilitate the sale of its utility business. Under this restructuring, Montana Power merged into The Montana Power, L.L.C. (the predecessor to NorthWestern Energy LLC), which then transferred its telecommunications subsidiaries to Touch America, leaving The Montana Power, L.L.C. as a subsidiary of Touch America that held Montana Power's former utility operations. On February 15, 2002, NorthWestern purchased all of the membership interests in NorthWestern Energy LLC (then known as The Montana Power, L.L.C.) from Touch America. NorthWestern Energy LLC and NorthWestern believe that no shareholder vote was required for any of the transactions in question and that the shareholders had an opportunity to vote on the Touch America restructuring and NorthWestern's acquisition, which was fully approved by a supermajority of The Montana Power Company's shareholders in September 2001. We also believe to the extent there is any liability on behalf of The Montana Power Company or its officers and directors that such liability is borne by Touch America. In the event that NorthWestern Energy LLC or NorthWestern faces liability, we believe that we have an indemnification claim against Touch America for adverse consequences resulting from that liability. We believe that we have both substantive and procedural defenses to this action and accordingly, we will vigorously defend against any assertion to the effect that NorthWestern Energy LLC or NorthWestern has any liability in this matter. At this early stage, however, we cannot predict the ultimate outcome of this matter or how it may affect our combined financial position, results of operations or cash flows.

In 1999, Montana Power entered into an Asset Purchase Agreement with PPL Montana pursuant to which Montana Power agreed to sell, among other assets, its portion of the 500kilovolt transmission

system associated with Colstrip Units 1, 2, and 3 for $97.1 million, subject to the receipt of required regulatory approvals. As part of the Touch America reorganization described above, The Montana Power, L.L.C. acquired Montana Power's rights under the Asset Purchase Agreement. In September 2002, NorthWestern Energy LLC brought suit in Montana State District Court to compel PPL Montana to perform its obligations under the Asset Purchase Agreement and to recover damages. The case has been removed to the Federal District Court in Butte, Montana. NorthWestern believes our claims are meritorious and we intend to vigorously prosecute this litigation. At this early stage of the litigation, however, we cannot predict the ultimate outcome of this matter or how it may affect our financial position, results of operations, or cash flows.

A former officer of Expanets has brought claims that he was improperly dismissed or constructively discharged by Expanets in November 1999. The matter is currently scheduled for a private arbitration in February 2003. Although Expanets believes that it has meritorious defenses to the claims, if Expanets is unsuccessful in the arbitration, we believe that a significant portion of any potential claim payment would be in the form of a capital transaction involving the repurchase of capital stock held by the officer, and that an adequate reserve has been established for the portion of any such claim that would not be a capital transaction.

You should carefully consider the risk factors described below, as well as other information included in this Amendment No. 2, before making an investment in our common stock or other securities. The risks and uncertainties described below are not the only ones facing us. This risk factors section has been updated to the date of this Amendment No. 2. Certain of these risks, namely the following, relate in whole or in part to facts that occurred or circumstances that we discovered or that came into existence after the filing of our Form 10-Q for the period ended September 30, 2002.

The disclosures set for the under the captions "Liquidity & Capital Resources," "Capital Requirements," and "Significant Accounting Policies" are written based upon circumstances that existed at the time that we filed our Form 10-Q for the period ended September 30, 2002. For a current discussion relating to our turnaround plan, current liquidity, capital requirements and other matters relating to NorthWestern, please refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2002. Additional risks and uncertainties not presently known or that we currently believe to be less significant may also adversely affect us.

We have substantial indebtedness, which could adversely affect our financial condition.

We had total consolidated indebtedness, including indebtedness with respect to mandatorily redeemable preferred securities of subsidiary trusts, of approximately $2.2 billion outstanding as of March 31, 2003.

This indebtedness could have important consequences to you. For example, it could:

In addition, our failure to comply with any of the covenants contained in the instruments governing our indebtedness could result in an event of default which, if not cured or waived, could result in the acceleration of other outstanding indebtedness. We may not have sufficient working capital to satisfy our debt obligations in the event of an acceleration of all or a significant portion of our outstanding indebtedness.

Our ability to implement our turnaround plan is subject to many impediments and uncertainties. A failure to completely implement our turnaround plan could have a material adverse affect on our results of operations and liquidity.

Management is implementing a turnaround plan that includes these principal elements:

Absent proceeds from the sale of noncore assets or significant improvements in the operating results of our nonenergy businesses, we will not have the ability to materially reduce our debt. Therefore, our ability to implement this plan is subject to many impediments and uncertainties including:

The success of our turnaround plan is dependent upon reducing our debt. Absent the receipt of significant proceeds from the sale of noncore assets, the raising of additional capital or a restructuring of our debt, we will not have the ability to reduce our debt or meet our significant maturing debt obligations beginning in 2005. Our senior secured term loan contains restrictions on the sale or disposition of assets, including non-core assets, and on the prepayment of the senior secured term loan and other indebtness. Therefore, even if we are able to generate funds through the sale of non-core assets or equity, or cash flow from operations, we may not be able to prepay any of the debt in a timely manner.

We will need significant additional capital to refinance our indebtedness as it matures. If we cannot sell sufficient assets or borrow new indebtedness sufficient to repay our indebtedness as it matures in future periods, our ability to fund our operations and service our substantial indebtedness will be adversely affected, and we will default on such maturing indebtedness as well as all other indebtedness that is cross-defaulted to such indebtedness thereby materially and adversely affecting our financial condition and results of operations.

We will be required to obtain significant additional capital to meet debt obligations maturing in 2005 and beyond. Absent proceeds from the sale of non-core assets or significant improvements in the operating results of our non-energy businesses, which historically have not been cash flow contributors, we will have limited ability to reduce our debt. To the extent we do not sell sufficient assets to pay down debt as it matures, we will need to borrow money. The market for indebtedness is volatile and our ability to raise capital is dependent on a number of factors including our creditworthiness, legal proceedings we are and may be involved in, the ratings of our indebtedness, the cash flow we have available to service the interest expense relating to any new borrowings, and our ability to implement our turnaround. If we are unable to refinance our indebtedness as it matures we will default on such indebtedness and all other indebtedness that is cross-defaulted to such indebtedness. Blue Dot is in default under its credit agreement. If such defaults continue or new defaults by any of our subsidiaries occur under applicable debt instruments, then such entity could seek protection under the bankruptcy law, or its creditors could institute involuntary proceedings against such entities, and we could lose our remaining investment in such entity. Any default by us on our indebtedness will have a material and adverse affect on our financial condition and results of operations.

In addition, we may not be able to generate enough cash flow to fund our operations and meet our debt service obligations. If we can not obtain additional capital to meet such obligations, we will default on such indebtedness and all other indebtedness that is cross-defaulted to such indebtedness.

We have advised our Audit Committee that, in the course of preparing our financial statements for the year ended December 31, 2002 and in connection with the corresponding audit, we noted deficiencies in internal controls relating to:

These weaknesses led to the restatement of our financial statements for the first three quarters of 2002. In addition, we have experienced weaknesses in procedures and documentation relating to intercompany transactions, including lapses in documenting loans or advances to our subsidiaries, which could adversely affect our ability to collect such amounts and could force us to subordinate the collection of such amounts in certain circumstances. If we are unable to substantially improve our internal controls our ability to report our financial results on a timely and accurate basis will continue to be adversely affected which could have a substantial adverse affect on our ability to operate our business.

We are one of several defendants in a class action lawsuit brought in connection with dispositions of energy assets by The Montana Power Company, including the acquisition of our Montana utility. If we do not successfully resolve this lawsuit, or enforce our indemnification claims against The Montana Power Company, our operations and financial condition may be materially harmed.

We are one of several defendants in a class action lawsuit entitled McGreevey, et al. v. The Montana Power Company, et al. The lawsuit, which was filed by shareholders of TouchAmerica Holdings,Inc., the successor to The Montana Power Company, in connection with the disposition of energy assets by The Montana Power Company, contends, among other things, that the shareholders of The Montana Power Company have dissenters' rights under applicable state law and are entitled to damages. We believe our substantive and procedural defenses are meritorious, but we cannot predict the outcome of any such litigation. If we are held liability for any damages in this lawsuit, our operations and financial condition may be severely and materially harmed.

The impact of ongoing class action litigation may be material. We are also subject to the risk of additional litigation and regulatory action in connection with the restatement of our 2002 quarterly financial statements and the potential liability from any such litigation or regulatory action could harm our business.

On April 1, 2003, we announced that we would restate our consolidated financial statements for the fiscal quarters ended March 31, 2002, June 30, 2002, and September 30, 2002. We have recorded significant charges in our full year 2002 results.

We, and certain of our present and former officers and directors, are defendants in a purported class action litigation pending in the United States District Court for the Central District of South Dakota, Southern Division, entitled Dana Ross, et al. v. Merle D. Lewis, et al.; Case No. CIV034049, brought on behalf of shareholders of NorthWestern. The plaintiffs are seeking unspecified compensatory damages, rescission, and attorneys fees and costs as well as accountants and experts fees based on allegations that the defendants misrepresented NorthWestern's business operations and financial performance, overstated NorthWestern's revenue and earnings by, among other things, maintaining insufficient reserves for accounts receivables at Expanets, failing to disclose billing problems and lapses and data conversion problems, and failing to make full disclosures of problems (including the billing and data conversion issues) arising from the implementation of Expanets' EXPERT system. The lawsuit was recently filed and has not yet been served. We cannot currently predict the impact or resolution of this litigation, which could be material, and the initiation of this lawsuit may harm our business and financial condition.

As a result of the restatement of our quarterly results for the first three quarters of 2002 we could become subject to additional class action or other securities litigation. In addition, regulatory agencies, such as the SEC, the FERC, the MPSC, and/or the New York Stock Exchange could commence a formal investigation relating to the restatement of our quarterly results. As of the date hereof, we are not aware of any additional litigation or investigation having been commenced against us related to these matters, but we cannot predict whether or not any such litigation or regulatory investigation will be commenced or, if it is, the outcome of any such litigation or investigation. If any such investigation were to result in a regulatory proceeding or action against us, our business and financial condition could be harmed. The initiation of any additional securities litigation, together with the lawsuit described above, may also harm our business and financial condition. Until such investigation, proceeding or litigation is resolved, it may be more difficult to raise additional capital or favorably refinance or restructure our debt or other obligations. If an unfavorable result occurred in any such action, our business and financial condition could be further harmed. In addition, we are likely to incur substantial expenses in connection with any such litigation or investigation, including substantial fees for attorneys and other professional advisors. We may also be obligated to indemnify officers and directors

named as defendants in such action. These expenses, to the extent not covered by available insurance, would adversely affect our cash position.

There are a number of business challenges Expanets must address during 2003. If Expanets is not able to resolve these issues effectively, its performance will continue to be adversely affected.

The downturn in the economy has impacted the telecommunications sector in particular. Expanets continues to see a soft market for the communications and Information Technology product industry. At the same time, Expanets plans to market a number of new solutions based on Internet protocol, or IP, technology, which is gaining more general acceptance and momentum in the market. However, Expanets can provide no specific assurance that the market will accept these solutions, which could adversely affect its performance.

Expanets believes that its relationship with Avaya as currently structured is positive for both companies. However, a change in its relationship with Avaya or a change in Avaya's competitive position could adversely affect Expanets' performance.

Expanets must address and resolve negative customer satisfaction issues stemming from the performance deficiencies and billing inaccuracies of the EXPERT system, which has contributed significantly toward higher than anticipated erosion of Expanets' maintenance revenue and customer base. Further delays in this process could have a significant negative effect on Expanets' operations and cash flow. In addition, management has made its best estimates of billing adjustments on which our current and ongoing reserves for accounts receivable writeoffs are based. If these estimates are not accurate, and our reserves are not sufficient, our results of operations or financial condition could be harmed. If the estimates are not accurate, it could have a material effect on the business, the accuracy of periodic financial reporting and negatively impact its ability to obtain third party financing or accomplish a sale of the business.

Expanets believes that it has identified many of the numerous performance and reporting deficiencies of the EXPERT system and has established alternative procedures and processes to rely on. However, there are several modules and system information flows in the EXPERT system that have not yet been studied as a result of more pressing issues with the EXPERT system, the study of which may lead to the identification of additional material weaknesses within the EXPERT system. Expanets currently does not have the capital resources and may not have the ability to analyze these systems and processes and make necessary improvements, which could have an adverse effect on operations and negatively impact its ability to obtain third party financing or accomplish a sale of the business.

The EXPERT system continues to require additional improvement and expense to fully realize the cost savings and functionality designed into the system. Expanets' management and consultants have identified a number of system, process and procedure improvements needed to enhance internal controls and assure functional performance and reporting accuracy. Expanets currently does not have the capital resources and ability to make these improvements. Further delays in resolving performance issues of the EXPERT system and the costs of system repairs, or the delays and costs of adopting an alternative information management system, could have a material adverse effect on Expanets' operations and cash flow and could impede NorthWestern's efforts to pursue strategic alternatives for Expanets, including the sale or disposition of the business or its assets.

If the MPSC disallows the recovery of the costs incurred in entering into default supply portfolio contracts while we are required to act as the "default supplier," we may not be able to fully recover the costs incurred in procuring default supply contracts, which could adversely affect our net income and financial condition.

The 1997 Montana Restructuring Act provided that customers be able to choose their electricity supplier during a transition period ending on June 30, 2007. NorthWestern Energy is required to act as

the "default supplier" for customers who have not chosen an alternate supplier. The Restructuring Act provided for full recovery of costs incurred in procuring a default supply portfolio of electric power and required the default supplier to propose a "cost recovery mechanism" for electrical supply procurement costs before March 30, 2002. On October 29, 2001, the former owner of NorthWestern Energy LLC filed with the MPSC its initial default supply portfolio, containing a mix of long and shortterm contracts from new and existing generators. On April 25, 2002, the MPSC approved NorthWestern Energy LLC's proposed "cost recovery mechanism" in the form filed.

On June 21, 2002, the MPSC issued a final order approving contracts meeting approximately 60% of the default supply winter peak load and approximately 93% of the annual energy requirements. As a result of the order, NorthWestern Energy has implemented a procurement strategy that involves supplying the remainder of the default supply portfolio through open market purchases. Currently, NorthWestern Energy is making shortterm purchases to fill intermediate and peak electricity needs. These short-term purchases, along with the MPSC approved base load supply, are being fully recovered through our annual electricity cost tracking process pursuant to which rates are based on estimated electricity loads and electricity costs for the upcoming tracking period and are annually reviewed and adjusted by the MPSC for any differences in the previous tracking year's estimates to actual information. This process is similar to the cost recovery process that has been successfully utilized for more than 20 years in Montana, South Dakota and other states for natural gas purchases for residential and commercial customers. The MPSC further stated that NorthWestern Energy has an ongoing responsibility to prudently administer its supply contracts and the energy procured pursuant to those contracts for the benefit of ratepayers. The MPSC could, in any particular year, disallow the recovery of a portion of the default supply costs if it makes a determination that NorthWestern Energy acted imprudently with respect to implementation of its open market purchase strategy or that the approved supply contracts were not prudently administered. A failure to recover such costs could adversely affect our net income and financial condition.

We are subject to extensive governmental regulations that could impose significant costs or change rates of our operations and changes in existing regulations and future deregulation may have a detrimental effect on our business and could increase competition.

Our operations and the operations of our subsidiary entities are subject to extensive federal, state and local laws and regulations concerning taxes, service areas, tariffs, issuances of securities, employment, occupational health and safety, protection of the environment and other matters. In addition, we are required to obtain and comply with a wide variety of licenses, permits and other approvals in order to operate our facilities. In the course of complying with these requirements, we may incur significant costs. If we fail to comply with these requirements, we could be subject to civil or criminal liability and the imposition of liens or fines. In addition, existing regulations may be revised or reinterpreted, new laws and regulations may be adopted or become applicable to us or our facilities and future changes in laws and regulations may have a detrimental effect on our business.

Our utility businesses are regulated by certain state commissions. As a result, these commissions have the ability to access the regulated utility's books and records. This ability to review our books and records could result in prospective negative adjustments to our rates.

The United States electric utility and natural gas industries are currently experiencing increasing competitive pressures as a result of consumer demands, technological advances, deregulation, greater availability of natural gasfired generation and other factors. Competition for various aspects of electric and natural gas services is being introduced throughout the country that will open these markets to new providers of some or all of traditional electric utility and natural gas services. Competition is likely to result in the further unbundling of electric utility and natural gas services as has occurred in Montana for electricity and Montana, South Dakota and Nebraska for natural gas. Separate markets may emerge for generation, transmission, distribution, meter reading, billing and other services currently provided by

electric utility and natural gas providers as a bundled service. As a result, significant additional competitors could become active in the generation, transmission and distribution segments of our industry.

Proposals have been introduced in Congress to repeal the Public Utility Holding Company Act of 1935, or PUHCA. To the extent competitive pressures increase and the pricing and sale of electricity assume more characteristics of a commodity business, the economics of domestic independent power generation projects may come under increasing pressure.

We may not be able to fully recover transition costs, which could adversely affect our net income and financial condition.

Montana law required the Montana Public Service Commission, or the MPSC, determine the value of net unmitigable transition costs associated with the transformation of the former The Montana Power Company utility business from a vertically integrated electric service company to a utility providing only default supply and transmission and distribution services. The MPSC was also obligated to set a competitive transition charge, or CTC, to be included in distribution rates to collect those net transition costs. The majority of these transition costs relate to outofmarket power purchase contracts, which run through 2032, that the former owner of NorthWestern Energy LLC was required to enter into with certain "qualifying facilities" as established under the Public Utility Regulatory Policies Act of 1978. The former owner of NorthWestern Energy LLC estimated the pretax net present value of its transition costs over the approximate 30year period to be approximately $304.7 million in a filing with the MPSC on October 29, 2001. On January 31, 2002, the MPSC issued an Order establishing a CTC that would recover $244.7 million on a net present value basis. While the CTC is designed to adjust and compensate for future changes in sales volumes or other factors affecting actual cost recoveries, the CTC runs through the year 2029 and therefore we cannot predict with certainty the actual recovery of transition costs. Changes in the recovery of transition costs could affect our net income and financial condition.

Further downgrades in our credit rating could negatively affect our ability to access capital.

S&P, Moody's and Fitch rate our senior, unsecured debt at "BB+" on CreditWatch with negative implications, "Ba1" with a negative outlook and "BB+," respectively. Credit ratings are dependent on a number of quantitative and qualitative factors. Although we are not aware of any current plans of S&P, Moody's or Fitch to further lower their respective ratings on our debt, we cannot assure you that our credit ratings will not be downgraded if we do not reduce our leverage. Although none of our debt instruments contain acceleration and repayment provisions in the event of a downgrade in our debt ratings by S&P, Moody's or Fitch, if such a downgrade were to occur, our ability to access the capital markets and utilize trade credit may be adversely affected and our borrowing costs would increase which would adversely impact our results and condition. We may also be required to provide credit support for certain major purchases (e.g., electricity supply contracts, natural gas supply contracts, etc.) In addition, we would likely be required to pay a higher interest rate in future financings and our potential pool of investors and funding sources could decrease.

In general, the financial markets have been weak and the availability and cost of capital for our business and that of our competitors has been adversely affected. Events such as the bankruptcy of several large energy and telecommunications companies have specifically contributed to this weak environment. Such economic environment, if sustained, could constrain the capital available to our industry and would adversely affect our access to funding for our operations, including the funding necessary to refinance or restructure our substantial indebtedness. In addition, the disruption on the capital markets due, in large part, to the capital structure of energy companies, could adversely impact

our ability to realize cash from the sale of the Montana First Megawatts project. If our ability to access capital becomes significantly constrained, our financial condition and future results of operations could be significantly adversely affected.

Our revenues and results of operations are subject to risks that are beyond our control, including but not limited to future terrorist attacks or related acts of war.

The cost of repairing damage to our facilities due to storms, natural disasters, wars, terrorist acts and other catastrophic events, in excess of reserves established for such repairs, may adversely impact our results of operations, financial condition and cash flows. Generation and transmission facilities, in general, have been identified as potential terrorist targets. The occurrence or risk of occurrence of future terrorist activity may impact our results of operations, financial condition and cash flows in unpredictable ways. These actions could also result in adverse changes in the insurance markets and disruptions of power and fuel markets. The availability of insurance covering risks we and our competitors typically insure against may decrease. In addition, the insurance we are able to obtain may have higher deductibles, higher premiums and more restrictive policy terms. In addition, our electric transmission and distribution, electric generation, natural gas distribution and pipeline and gathering facilities could be directly or indirectly harmed by future terrorist activity.

The occurrence or risk of occurrence of future terrorist attacks or related acts of war could also adversely affect the United States economy. A lower level of economic activity could result in a decline in energy consumption, which could adversely affect our revenues and margins and limit our future growth prospects. Also, these risks could cause instability in the financial markets and adversely affect our ability to access capital.

Our electric and gas utility business and, to a lesser extent, Blue Dot's HVAC business are seasonal businesses and weather patterns can have a material impact on their operating performance. Because natural gas is heavily used for residential and commercial heating, the demand for this product depends heavily upon weather patterns throughout our market areas and a significant amount of natural gas revenues are recognized in the first and fourth quarters related to the heating season. Demand for electricity is often greater in the summer and winter months associated with cooling and heating. Similarly, Blue Dot's business is subject to seasonal variations in certain areas of its service lines, with demand for residential HVAC services generally higher in the second and third quarters. Accordingly, our operations have historically generated less revenues and income when weather conditions are milder in the winter and cooler in the summer. In the event that we experience that unusually mild winters or summers in the future, our results of operations and financial condition could be adversely affected.

Our announcement that we are considering strategic alternatives for, and do not intend to make additional significant investments in, Blue Dot or Expanets, together with other liquidity issues confronting Blue Dot and Expanets, may materially and adversely affect the operations and value of those entities.

We are considering strategic alternatives for Blue Dot and Expanets, including a sale or disposition of such businesses or their assets, and we do not intend to make additional significant investments in Blue Dot or Expanets while we examine strategic alternatives for these businesses. In connection with approval of our $390 million senior secured term loan, the Montana Public Service Commission has restricted our ability to make additional investments or commitments to our nonregulated businesses to $10 million in the aggregate unless we obtain prior approval. These initiatives, together with other liquidity issues confronting Blue Dot and Expanets, present a substantial risk of serious disruption to

the businesses of Blue Dot and Expanets and may materially and adversely affect the value of those entities.

Each of Blue Dot and Expanets has limited cash to meet its obligations and will have to locate its own independent source of funds should it require additional financing. If either company is unable to obtain necessary financing or to maintain adequate bonding capacity, it may default on one or more of its obligations, which could result in a serious disruption in its business and materially and adversely impair its value. Neither of those companies has sufficient working capital to satisfy its debt obligations as they mature or in the event of an acceleration of all or a significant portion of its outstanding indebtedness. In addition, Blue Dot is currently in default under its existing credit facility and certain other material payment obligations to it minority stockholders, prohibited as a result of the defaults under its credit facility from paying certain other outstanding obligations. NorthWestern Growth Corporation may be required to purchase or cause the purchase of certain shares of Blue Dot stock in an amount sufficient to permit Blue Dot to effect its exchange obligations under its exchange agreements with respect to its Series A Preferred Stock and honor its payment obligations under certain call and put option agreements and certain related earnout obligations with respect to its Class C Common Stock under certain circumstances; however, NorthWestern subsequently indicated that no additional funds will be provided to Blue Dot while NorthWestern pursues strategic alternatives for Blue Dot, including the sale or disposition of the business or its assets. Blue Dot's credit facility prohibits the Blue Dot from performing its obligations under its exchange agreements or any call and put agreements unless the funds or stock used to satisfy such obligations are provided to Blue Dot by NorthWestern. The existing defaults under the credit facility also prevent Blue Dot from making payments of principal and interest on certain subordinated debt and may result in defaults under other indebtedness that is cross defaulted to the credit facility. As a result of these events, Blue Dot defaulted on up to $4.1 million of the obligations under its exchange and call and put option agreements on March 31, 2003. Approximately $4.4 million is required to be paid under call and put option agreements on June 30 2003, approximately $0.5 million may be required to be paid under exchange agreements on September 30, 2003. In addition, approximately $0.5 million in principal payments plus related interest on subordinated indebtedness is scheduled to become due in 2003. Blue Dot is attempting to negotiate extensions, repayment terms or other arrangements to satisfy these obligations with certain of the involved parties. Blue Dot's failure to pay these obligations has resulted in additional defaults under its credit facility, which is nonrecourse to us.

These defaults and the failure of Blue Dot to pay these obligations could result in a serious disruption in Blue Dot's business and materially and adversely impact Blue Dot's value. The impacted key managers and other personnel from the impacted units might leave Blue Dot and certain stockholders may institute securities or other litigation against Blue Dot and NorthWestern Growth Corporation seeking immediate payment of these or similar obligations or other damages. In addition, other key managers from other operating units, including managers who are under similar arrangements, may leave Blue Dot or become disengaged and cause further significant disruption of the organization.

Substantial uncertainty and concern may also develop on the part of the employees, suppliers and customers of Blue Dot and Expanets. Existing employees, including key managers, and customers may elect to leave those businesses because of these issues or in anticipation of a sale of the business or its assets and it may be difficult to attract replacements. In some cases we may not have non-competition agreements or only limited ability to enforce such agreements with respect to such departing employees. Certain key employees of Blue Dot may, in particular, be dissatisfied because of the deferrals of certain incentive compensation payments. Suppliers may elect to eliminate, restrict, reduce or impose more burdensome terms on credit, which would increase Blue Dot's and Expanets' cost of goods and create additional liquidity issues.

Substantial uncertainty and concern may also develop on the part of the employees, suppliers and customers of Blue Dot and Expanets. Existing employees, including key managers, and customers may elect to leave those businesses because of these issues or in anticipation of a sale of the business or its assets and it may be difficult to attract replacements. Certain key employees of Blue Dot may, in particular, be dissatisfied because of the deferrals of certain incentive compensation payments. Suppliers may elect to eliminate, restrict, reduce or impose more burdensome terms on credit, which would increase Blue Dot's and Expanets' cost of goods and create additional liquidity issues.

Changes in commodity prices and availability of supply may increase our cost of producing and distributing electricity and distributing natural gas or decrease the amount we receive from selling electricity and natural gas, adversely affecting our financial performance and condition.

To the extent not covered by long-term fixed price purchase contracts, we are exposed to changes in the price and availability of coal because most of our generating capacity is coal-fired. Changes in the cost of coal and changes in the relationship between those costs and the market prices of power may affect our financial results. In addition, natural gas and electricity are commodities; the market price of which can be subject to volatile changes in response to changes in the world crude oil market, refinery operations, power plant outages, weather conditions, supply or other market conditions. Because state regulatory authorities set the rates at which we sell electricity and natural gas, and may modify the costs that we may pass through the fuel and gas cost adjustments, we may not be able to immediately pass on to our retail customers rapid increases in the wholesale cost of coal and natural gas, which could reduce our profitability.

We do not own any natural gas reserves and do not own electric generation assets to service our Montana operations. We own interests in generation assets that substantially cover our electric supply requirements in South Dakota. As a result, we are required to procure our entire natural gas supply and all of our Montana electricity supply pursuant to contracts with third party suppliers. In light of this reliance on third party suppliers, we are exposed to certain risks in the event a third party supplier is unable to satisfy its contractual obligation.

We do not intend to pay dividends on our common stock, and our ability to pay dividends on our common stock is limited.

Consistent with our turnaround plan to increase liquidity and reduce debt, the Board of Directors decided to terminate the historical practice of paying an annual cash dividend. We do not anticipate paying any cash dividends for the foreseeable future.

In addition, we are currently prohibited from paying dividends on our common stock under Delaware law. The Delaware General Corporation Law, or the DGCL, allows the Company to pay dividends only out of its surplus (as defined and computed in accordance with the provisions of the DGCL) or if the Company has no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. We will be unable to pay dividends on or redeem any of our capital stock until such time as we again have available surplus or net profits.

Our senior credit facility also prohibits the payment of dividends during any period of default under the agreement. To the extent that payment of a cash dividend on our common stock becomes permissible under Delaware law, we would only be able to pay a cash dividend on our common stock to the extent that all required distributions on our mandatorily redeemable preferred securities of trusts had been made.

We have established four wholly owned, special-purpose business trusts, NWPS Capital Financing I, NorthWestern Capital Financing I, NorthWestern Capital Financing II and NorthWestern Capital Financing III, to issue common and preferred securities and hold subordinated debentures that we issue and The Montana Power Company established Montana Power Capital I (Trust) as a wholly

owned business trust to issue common and preferred securities and hold subordinated debentures that it issued. We assumed the obligations of The Montana Power Company under the subordinated debentures that it issued to Montana Power Capital I November 15, 2002. The sole assets of these trusts are the investments in subordinated debentures, which are interest bearing. We have the right, on one or more occasions, to defer interest payments in the subordinated debentures for up to 20 consecutive quarterly periods unless a default under the subordinated debentures has occurred and is continuing. If we defer interest payments on the subordinated debentures, cash distributions on our trust preferred securities will also be deferred. During any period in which we defer interest payments on the subordinated debentures, we will not, with some exceptions, be permitted to pay any dividends or distributions in respect of our capital stock. Given our significant debt, our board of directors will review the appropriateness of each periodic interest payment under the subordinated debentures in light of, among other factors, the progress of our turnaround plan and our liquidity needs.

Our utility business is subject to extensive environmental regulations and potential environmental liabilities, which could result in significant costs and liabilities.

Our utility business is subject to extensive regulations imposed by federal, state and local government authorities in the ordinary course of daytoday operations with regard to the environment, including environmental regulations relating to air and water quality, solid waste disposal and other environmental considerations. Many of these environmental laws and regulations create permit and license requirements and provide for substantial civil and criminal fines which, if imposed, could result in material costs or liabilities. We regularly monitor our operations to prevent adverse environmental impacts and to assess potential environmental liabilities. We may be required to make significant expenditures in connection with the investigation and remediation of alleged or actual spills and the repair and upgrade of our facilities in order to meet future requirements under environmental laws.

Environmental laws and regulations require NorthWestern to incur certain costs, which could be substantial, to operate existing facilities, construct and operate new facilities, and mitigate or remove the effect of past operations on the environment. Governmental regulations establishing environmental protection standards are continually evolving, and, therefore, the character, scope, cost and availability of the measures NorthWestern may be required to take to ensure compliance with evolving laws or regulations cannot be predicted. However, NorthWestern believes that an appropriate amount of costs have been accrued and potential costs related to such environmental regulation and cleanup requirements are timely estimated and recorded. To this extent that our environmental liabilities are greater than our reserves or we are unsuccessful in recovering anticipated insurance proceeds under the relevant policies, our results of operations and financial condition could be adversely affected.

Certain subsidiaries may be subject to potential rescission rights held by their minority shareholders.

Over the past several years, Expanets and Blue Dot issued shares of their capital stock as part of the consideration offered to owners of various companies that they acquired. None of these shares were registered under the Securities Act of 1933, as amended, in the belief that the issuance of these shares was exempt from the registration requirements of the Securities Act. It is possible that the exemptions from registration on which Expanets and Blue Dot relied were not available, and that these shares may have been issued in violation of the Securities Act. As a result, the persons who received these shares upon the sale of their companies to Expanets or Blue Dot may have the right to seek recovery from Expanets or Blue Dot damages as prescribed by applicable securities laws.

Expanets may be ordered by the Securities and Exchange Commission or a court to register one or more classes of its capital stock under the Securities Exchange Act of 1934 and may be unable to do so. As a result, we and/or Expanets may be subject to liability under the Securities Exchange Act and this may materially and adversely affect our financial condition and results of operations.

Expanets has not registered under the Securities Exchange Act of 1934, as amended, one or more classes of its capital stock issuable pursuant to certain options granted over the past several years. Expanets may be ordered to register one or more classes of stock under the Securities Exchange Act by the Securities and Exchange Commission or a court and be unable to comply or have potential liability with respect to any shares of its capital stock, if any, issued with respect to such options. The failure to comply with any order for registration could subject Expanets and us to liability under the Securities Exchange Act and materially and adversely affect our financial position and results of operations.

In the event stockholders have derivitive claims against Arthur Andersen, it is unlikely that they will be able to exercise effective remedies or collect judgments against Arthur Andersen and we may incur material expenses or delays in financings or SEC filings because we changed auditors.

Arthur Andersen LLP served as our independent accountants since 1932. On March 14, 2002, Arthur Andersen was indicted by a federal grand jury on obstruction of justice charges arising from the government's investigation of Enron Corp. We dismissed Arthur Andersen as our independent public accounting firm and retained Deloitte & Touche LLP in their stead on May 16, 2002, although Arthur Andersen has audited consolidated financial statements for the year ended December 31, 2000 contained in this Annual Report on Form 10K. Deloitte & Touche LLP has audited our consolidated financial statements for the fiscal years ended December 31, 2001 and 2002, which are included in this Annual Report on Form 10K. On June 15, 2002, a jury in Houston, Texas found Arthur Andersen LLP guilty of obstructing justice. In light of the jury verdict and the underlying events, Arthur Andersen has ceased practicing before the SEC. Because it is unlikely that Arthur Andersen will survive, stockholders are unlikely to be able to exercise effective remedies or collect judgments against them.

If we are required to purchase inventory and receivables from Avaya upon a default by Expanets, we may not have sufficient cash available for the purpose.

In 2004, Expanets will be required to repay its outstanding borrowings from Avaya, which currently total $27.1 million. We have no intention of providing additional funds to Expanets, and are prohibited by our agreements with the Montana Public Service Commission from making advances of more than $10 million in the aggregate to our non-regulated businesses without their prior consent. If we are unable to sell Expanets in a transaction that includes a release of this obligation to Avaya, we may not have sufficient funds to satisfy this obligation. A default under this obligation could result in a default under our various credit agreements.

(a) Within the 90-day period prior to the date of this Amendment No. 2, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 (the "Exchange Act"). As a result of this review and evaluation, which was conducted in the course of preparing our financial statements for the year ended December 31, 2002 and in connection with the corresponding audit by our independent auditors, Deloitte & Touche LLP, management determined that our internal controls have not meet our expectations and goals.

In particular, the EXPERT enterprise software system used by our subsidiary, Expanets, has significantly failed to provide the intended functionality and information. We were unable to identify billing problems and related accounting problems in a timely manner during 2002. Expanets experienced severe complications with its EXPERT enterprise software system throughout 2002, including order entry and customer fulfillment, billing and collection functions, an inability to provide timely and complete billing detail for a majority of Expanets' customers, numerous reporting deficiencies that prevented management from receiving critical accounts receivable and cash application data in a timely manner and problems relating to data migration from Avaya's system, some of which were due to underlying problems with the Avaya database and faulty data migration scripting performed by Expanets utilized in the migration. Expanets was forced to resort to manual journal entries in many instances. Throughout 2002, Expanets has made continuing efforts to correct deficiencies in the EXPERT system. As a result of these efforts, which are ongoing, Expanets identified certain maintenance billing problems with its EXPERT system and manual journal entries that required reversal of previously recorded maintenance revenue. Further, we determined that our revenues, accounts receivable reserves and write-offs and billing adjustments reserves were not correctly stated in previously reported unaudited quarterly results. In the course of preparing our financial statements for the year ended December 31, 2002 and in connection with the corresponding audit, we also determined that certain costs related to the EXPERT system were inappropriately capitalized and that certain accounting procedures being used with respect to revenue recognition and account receivable reserve methodology were not appropriate for Expanets.

In addition, our financial reporting infrastructure has been significantly challenged as a result of our dramatic growth, from annual revenues of approximately $200 million in 1997 to annual revenues of approximately $2 billion in 2002. We have experienced a lack of continuity and retention of qualified accounting personnel, and have had difficulties in hiring an adequate number of qualified replacements on a timely basis. We have determined that the absence of a functioning internal auditing department and integrated information systems have limited our ability to adequately review subsidiary financial information. We may have experienced inconsistent application of and adherence to our policies and procedures by certain personnel. These factors have made it clear to management that the depth and training of its accounting staff needs improvement.

We have advised our Audit Committee of our Board of Directors that, in the course of preparing our year-end 2002 financial statements and in undergoing our 2002 audit, we noted the deficiencies in internal controls described above relating to:

Our independent auditors, Deloitte & Touche LLP, has advised the Audit Committee that these internal control deficiencies constitute reportable conditions and, collectively, a material weakness as

defined in Statement on Auditing Standards No. 60. Immediately prior to the filing of our Annual Report on Form 10-K for the year ended December 31, 2002, we filed amended Quarterly Reports on Form 10-Q/A for the periods ended March 31, 2002, June 30, 2002, and September 30, 2002, including this Amendment No. 2. The amended Quarterly Reports principally restate prior reported results and include additional disclosures in the appropriate period as a result of the foregoing weaknesses in our internal controls.

With the assistance of our advisors, we continue to evaluate methods to improve our internal controls and procedures. We have taken or plan to take corrective actions, such as the following, as necessary:

We have also performed substantial additional procedures designed to ensure that these disclosure and internal control deficiencies did not result in material misstatements in our consolidated financial statements contained in this Amendment No. 2 and in our Annual Report on Form 10-K for the year ended December 31, 2002 and do not result in material mistatements in our future consolidated financial results.

(b) Other than as described above, there have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date we carried out our evaluation.

We filed a Current Report on Form 8-K with the SEC on August 2, 2002 to file as an exhibit a July 31, 2002 press release announcing that the we were reviewing CornerStone Propane Partners, L.P.'s announcement that it elected to delay making an interest payment on its debt and is continuing to review financial restructuring and strategic opportunities. In addition, we reaffirmed our fullyear earnings target of $2.30 to $2.55 per share from continuing operations.

We filed a Current Report on Form 8-K with the SEC on August 8, 2002 to file as an exhibit a press release discussing second quarter 2002 results.

We filed a Current Report on Form 8-K with the SEC on August 14, 2002 to file as exhibits the sworn statements of each of the Principal Executive Officer, Merle D. Lewis, and Principal Financial Officer, Kipp D. Orme, of NorthWestern Corporation pursuant to SEC Order No. 4460.

We filed a Current Report on Form 8-K with the SEC on August 16, 2002 to file as an exhibit the Annual Report on Form 10K for the year ended December 31, 2001 of NorthWestern Energy, L.L.C., our wholly-owned subsidiary, in order to permit us to incorporate the exhibit into our Registration Statement on Form S4 (File No. 33386888) for the registration under the Securities Act of 1933, as amended, of $250 million aggregate principal amount of our 7⁷/8% Notes due March 15, 2007 and $470 million aggregate principal amount of our 8³/4% Notes due March 15, 2012, issuable in exchange for $250 million aggregate principal amount of our 7⁷/8% Notes due March 15, 2007 and $470 million aggregate principal amount of our 8³/4% Notes due March 15, 2012, respectively, which were offered and sold on March 13, 2002 in a transaction exempt from registration under the Securities Act.

We filed a Current Report on Form 8-K with the SEC on September 20, 2002 to file as exhibits its financial statements as of and for the year ended December 31, 2001, as audited by Deloitte & Touche LLP, our new auditors, our press release announcing the reaudit of our financial statements by Deloitte & Touche LLP and the consent of Deloitte & Touche LLP to the incorporation by reference of their report on out December 31, 2001 audited financial statements into our effective registration statements on Forms S3.

We filed an Amendment No. 1 to Current Report on Form 8-K/A with the SEC on September 24, 2002 to file as exhibits a copy of the report of Deloitte & Touche LLP relating to their audit of our December 31, 2001 financial statements that states the date of issuance of such report, a refilled copy of the report of our prior independent auditors, Arthur Andersen LLP, that contained revisions to the introductory legend to such report and to file corrected copies of documents originally filed as exhibits to the September 20, 2002 Form 8-K.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the transition period from to

Delaware (State or other jurisdiction of incorporation or organization)		46-0172280 (I.R.S. Employer Identification No.)
125 S. Dakota Avenue, Sioux Falls, South Dakota (Address of principal executive offices)		57104 (Zip Code)

					Restatement Adjustment by Segment
Three Months Ended September 30, 2002		As Previously Reported			Communications (Expanets)		Total Electric and Natural Gas		HVAC (Blue Dot)		All Other		As Restated
		(unaudited)
Operating revenues		$	509,300		(7,020	)	(879	)	—		—		$	501,401
Cost of sales			260,696		(517	)	(3,273	)	369		—			257,275
Selling, general and administrative			170,950		12,799		3,385		—		1,351			188,485
Depreciation			24,124		—		225		—		—			24,349
Interest expense			(34,715	)	—		(370	)	—		—			(35,085	)
Income taxes			2,804		7,431		611		142		379			11,367
Income (loss) from Continuing Operations			14,620		(11,871	)	(975	)	(227	)	(972	)		575
Net Income (loss)			(41,317	)	(11,871	)	(975	)	(227	)	(972	)		(55,362	)
Earnings (Loss) on Common Stock			(49,086	)	(11,871	)	(975	)	(227	)	(972	)		(63,131	)
Earnings (Loss) Per Average Common Share
	Continuing operations	$	0.25										$	(0.26	)
	Discontinued operations		(2.04	)										(2.04	)
	Extraordinary item		—											—

	Basic	$	(1.79	)									$	(2.30	)

	Continuing operations	$	0.25										$	(0.26	)
	Discontinued operations		(2.04	)										(2.04	)
	Extraordinary item		—											—

	Diluted	$	(1.79	)									$	(2.30	)

					Restatement Adjustment by Segment
Nine Months Ended September 30, 2002		As Previously Reported			Communications (Expanets)		Total Electric and Natural Gas		HVAC (Blue Dot)		All Other		As Restated
		(unaudited)
Operating revenues		$	1,505,065		(48,558	)	(2,344	)	—		(1,872	)	$	1,452,291
Cost of sales			792,127		(7,155	)	(3,273	)	1,104		(1,095	)		781,708
Selling, general and administrative			491,931		22,415		9,247		619		2,831			527,043
Depreciation			70,083		—		474		—		—			70,557
Interest expense			(87,464	)	—		(5,337	)	—		(1,392	)		(94,193	)
Income taxes			(4,273	)	24,571		5,440		663		1,713			28,114
Minority interests in Net Loss of consolidated subsidiaries			23,014		—		—		(8,100	)	—			14,914
Income (loss) from Continuing Operations			59,469		(39,247	)	(8,689	)	(9,160	)	(3,287	)		(914	)
Net Income (loss)			(55,001	)	(39,247	)	(8,689	)	(9,160	)	(3,287	)		(115,384	)
Earnings (Loss) on Common Stock			(76,565	)	(39,247	)	(8,689	)	(9,160	)	(3,287	)		(136,948	)
Earnings (Loss) Per Average Common Share
	Continuing operations	$	1.38										$	(0.82	)
	Discontinued operations		(3.69	)										(3.69	)
	Extraordinary item		(0.49	)										(0.49	)

	Basic	$	(2.80	)									$	(5.00	)

	Continuing operations	$	1.38										$	(0.82	)
	Discontinued operations		(3.69	)										(3.69	)
	Extraordinary item		(0.49	)										(0.49	)

	Diluted	$	(2.80	)									$	(5.00	)

	As previously reported		Adjustments			As restated
Balance sheet accounts as of September 30, 2002
Accounts receivable, net	$	359,002	$	(67,073	)	$	291,929

Inventories		85,791		7,145			92,936

Property, plant and equipment, net		1,798,334		(408,926	)		1,389,408

Goodwill and other intangible assets, net		656,554		391,995			1,048,549

Other noncurrent assets		82,461		(1,393	)		81,068

Accrued expenses		415,750		(20,209	)		395,541

Other noncurrent liabilities		387,947		2,340			390,287

Retained earnings (deficit)		9,650		(60,383	)		(50,733	)

			September 30, 2002			December 31, 2001
			(As restated, see Note 17)
ASSETS
Current Assets:
	Cash and cash equivalents		$	75,214		$	37,158
	Accounts receivable, net			291,929			260,486
	Inventories			92,936			79,719
	Other			81,023			69,486
	Current assets of discontinued operations			86,846			181,697

		Total current assets		627,948			628,546

Property, Plant, and Equipment, Net				1,389,408			496,241
Goodwill and Other Intangible Assets, Net				1,048,549			640,590
Other:
	Investments			83,257			62,959
	Regulatory assets			94,125			20,415
	Deferred tax asset			20,570			17,374
	Other			81,068			73,413
	Noncurrent assets of discontinued operations			643,177			695,197

		Total assets	$	3,988,102		$	2,634,735

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
	Current maturities of long-term debt		$	25,364		$	155,000
	Current maturities of long-term debt of subsidiaries—nonrecourse			6,133			22,817
	Short-term debt of subsidiaries—nonrecourse			67,589			178,628
	Accounts payable			80,427			122,266
	Accrued expenses			395,541			216,345
	Current liabilities of discontinued operations			598,595			230,070

		Total current liabilities		1,173,649			925,126

Long-term Debt				1,609,119			373,350
Long-term Debt of Subsidiaries—nonrecourse				56,670			37,999
Other Noncurrent Liabilities				390,287			75,040
Noncurrent Liabilities and Minority Interests of Discontinued Operations				139,239			605,325

Total liabilities				3,368,964			2,016,840

Minority Interests				10,333			30,067

	Preferred Stock, Preference Stock, and Preferred Securities:
	Preferred stock—4¹/2% series			—			2,600
	Redeemable preferred stock—6¹/2% series			—			1,150
	Preference stock			—			—
	Corporation obligated mandatorily redeemable preferred securities of subsidiary trusts			370,250			187,500

	Total preferred stock, preference stock and preferred securities			370,250			191,250

Shareholders' Equity:
	Common stock, par value $1.75; authorized 50,000,000 shares; issued and outstanding 27,396,762			47,942			47,942
	Paid-in capital			240,936			240,797
	Treasury stock, at cost			(3,451	)		(3,681	)
	Retained earnings			(50,733	)		112,307
	Accumulated other comprehensive income (loss)			3,861			(787	)

		Total shareholders' equity		238,555			396,578

		Total liabilities and shareholders' equity	$	3,988,102		$	2,634,735

		Three Months Ended September 30						Nine Months Ended September 30
		2002			2001			2002			2001
		(As restated, see Note 17)						(As restated, see Note 17)
OPERATING REVENUES		$	501,401		$	398,705		$	1,452,291		$	1,353,143
COST OF SALES			257,275			233,108			781,708			843,564

GROSS MARGIN			244,126			165,597			670,583			509,579

OPERATING EXPENSES
	Selling, general and administrative		188,485			156,153			527,043			499,694
	Depreciation		24,349			10,350			70,557			29,077
	Amortization of intangibles		7,981			11,228			21,911			33,279

			220,815			177,731			619,511			562,050

OPERATING INCOME (LOSS)			23,311			(12,134	)		51,072			(52,471	)
Interest Expense, Net			(35,085	)		(11,597	)		(94,193	)		(35,679	)
Investment Income and Other			982			1,274			(821	)		4,127

Income (Loss) Before Income Taxes and Minority Interests			(10,792	)		(22,457	)		(43,942	)		(84,023	)
Benefit (Provision) for Income Taxes			11,367			1,222			28,114			13,115

Income (Loss) Before Minority Interests			575			(21,235	)		(15,828	)		(70,908	)
Minority Interests in Net Loss of Consolidated Subsidiaries			—			35,305			14,914			110,998

Income (loss) from Continuing Operations			575			14,070			(914	)		40,090
Discontinued Operations, Net of Taxes and Minority Interests			(55,937	)		(3,798	)		(101,023	)		(649	)

Income (Loss) before Extraordinary Item			(55,362	)		10,272			(101,937	)		39,441
Extraordinary Item, Net of Tax of $7,241			—			—			(13,447	)		—

Net Income (Loss)			(55,362	)		10,272			(115,384	)		39,441
Minority Interests on Preferred Securities of Subsidiary Trusts			(7,474	)		(1,650	)		(21,173	)		(4,950	)
Dividends and Redemption Premium on Preferred Stock			(295	)		(48	)		(391	)		(144	)

Earnings (Loss) on Common Stock		$	(63,131	)	$	8,574		$	(136,948	)	$	34,347

Average Common Shares Outstanding			27,397			23,706			27,397			23,604
Earnings (Loss) per Average Common Share:
	Continuing operations	$	(0.26	)	$	0.52		$	(0.82	)	$	1.48
	Discontinued operations		(2.04	)		(0.16	)		(3.69	)		(0.03	)
	Extraordinary item		—			—			(0.49	)		—

	Basic	$	(2.30	)	$	0.36		$	(5.00	)	$	1.45

	Continuing operations	$	(0.26	)	$	0.52		$	(0.82	)	$	1.47
	Discontinued operations		(2.04	)		(0.16	)		(3.69	)		(0.03	)
	Extraordinary item		—			—			(0.49	)		—

	Diluted	$	(2.30	)	$	0.36		$	(5.00	)	$	1.44

(in thousands)		February 1, 2002
Cash		$	70,601
Restricted cash			30,000
Other current assets			109,094
Property, plant and equipment			908,544
Regulatory assets			172,917
Other			49,149
Goodwill			400,095

	Total assets acquired	$	1,740,400

Current liabilities		$	218,772
Regulatory liabilities			94,301
Long-term debt			427,711
Mandatorily redeemable preferred securities of subsidiary trusts			65,000
Other			355,974

	Total liabilities assumed		1,161,758

Net assets acquired		$	578,642

	Parent and Consolidated Subsidiaries			NorthWestern Energy LLC			Eliminations		Total
Operating Revenues	$	347,749		$	153,652		$	—	$	501,401
Cost of Sales		202,944			54,331			—		257,275

Gross Margin		144,805			99,321			—		244,126
Selling, general, & administrative		133,310			55,175			—		188,485
Depreciation		11,987			12,362			—		24,349
Amortization of intangibles		7,981			—			—		7,981

Operating income (loss)		(8,473	)		31,784			—		23,311
Interest expense		(13,023	)		(22,062	)		—		(35,085	)
Investment income and other		122			860			—		982

Income before taxes and minority interests		(21,374	)		10,582			—		(10,792	)
Benefit (provision) for taxes		14,332			(2,965	)		—		11,367
Income (loss) before minority interests		(7,042	)		7,617			—		575
Minority interests		—			—			—		—

Income (loss) from continuing operations		(7,042	)		7,617			—		575
Discontinued operations, net of taxes and minority interests		(55,937	)		—			—		(55,937	)
Net income (loss)		(62,979	)		7,617			—		(55,362	)
Minority interest on preferred securities of subsidiary trusts		(6,099	)		(1,375	)		—		(7,474	)
Dividends on cumulative preferred stock		(295	)		—			—		(295	)

Earnings (loss) on common stock	$	(69,373	)	$	6,242		$	—	$	(63,131	)

	Parent and Consolidated Subsidiaries			NorthWestern Energy LLC			Eliminations		Total
Operating Revenues	$	1,052,075		$	400,216		$	—	$	1,452,291
Cost of Sales		644,237			137,471			—		781,708

Gross Margin		407,838			262,745			—		670,583
Selling, general, & administrative		379,962			147,081			—		527,043
Depreciation		37,171			33,386			—		70,557
Amortization of intangibles		21,911			—			—		21,911

Operating income (loss)		(31,206	)		82,278			—		51,072
Interest expense		(38,996	)		(55,197	)		—		(94,193	)
Investment income and other		(2,803	)		1,982			—		(821	)

Income (loss) before taxes and minority interests		(73,005	)		29,063			—		(43,942	)
Benefit (provision) for taxes		39,303			(11,189	)		—		28,114
Income (loss) before minority interests		(33,702	)		17,874			—		(15,828	)
Minority interests		14,914			—			—		14,914

Income (loss) from continuing operations		(18,788	)		17,874			—		(914	)
Discontinued operations, net of taxes and minority interests		(101,023	)		—			—		(101,023	)

Income (loss) before extraordinary item		(119,811	)		17,874			—		(101,937	)
Extraordinary item, net of tax $7,241		(13,447	)		—			—		(13,447	)

Net income (loss)		(133,258	)		17,874			—		(115,384	)
Minority interest on preferred securities of subsidiary trusts		(17,509	)		(3,664	)		—		(21,173	)
Dividends on cumulative preferred stock		(391	)		—			—		(391	)

Earnings (loss) on common stock	$	(151,158	)	$	14,210		$	—	$	(136,948	)

	December 31, 2001		Payments			September 30, 2002
Employee termination benefits	$	11,932	$	(6,907	)	$	5,025
Facilities		4,745		(1,934	)		2,811
Other		2,662		(2,662	)		—

	$	19,339	$	(11,503	)	$	7,836

	Three Months Ended September 30, 2002
	Total Parent Company
	Total Electric and Natural Gas			All Other			Total Parent Company			Communications			HVAC			Total
Operating Revenues	$	181,551		$	11,662		$	193,213		$	176,263		$	131,925		$	501,401
Cost of Sales		67,616			3,071			70,689			101,725			84,861			257,275

Gross Margin		113,935			8,589			122,524			74,538			47,064			244,126
Selling, general, & administrative		62,019			12,112			74,131			71,223			43,131			188,485
Depreciation		15,729			1,211			16,940			6,017			1,392			24,349
Amortization of intangibles		—			1			1			7,920			60			7,981

Operating income (loss)		36,187			(4,735	)		31,452			(10,622	)		2,481			23,311
Interest expense		(22,473	)		(4,390	)		(26,863	)		(8,113	)		(109	)		(35,085	)
Investment income and other		962			83			1,045			(111	)		48			982

Income (loss) before taxes and minority interests		14,676			(9,042	)		5,634			(18,846	)		2,420			(10,792	)
Benefit (provision) for taxes		4,429			(6,428	)		(1,999	)		14,167			(801	)		11,367

Income (loss) before minority interests	$	19,105		$	(15,470	)	$	3,635		$	(4,679	)	$	1,619		$	575

Total Assets	$	1,773,678		$	323,163		$	2,096,841		$	746,696		$	414,542		$	3,258,079
Maintenance Capital Expenditures	$	15,631		$	—		$	15,631		$	497		$	707		$	16,835

Growth Capital Expenditures	$	5,567		$	3,829		$	9,396		$	1,678		$	—		$	11,074

	Three Months Ended September 30, 2001
	Total Parent Company
	Total Electric and Natural Gas			All Other			Total Parent Company			Communications			HVAC			Total
Operating Revenues	$	38,806		$	4,205		$	43,011		$	244,442		$	111,252		$	398,705
Cost of Sales		15,264			2,733			17,997			143,325			71,786			233,108
Gross Margin		23,542			1,472			25,014			101,117			39,466			165,597

Selling, general, & administrative		8,876			3,784			12,660			107,250			36,243			156,153
Depreciation		4,105			478			4,583			3,352			2,415			10,350
Amortization of intangibles		—			66			66			9,288			1,874			11,228

Operating income (loss)		10,561			(2,856	)		7,705			(18,773	)		(1,066	)		(12,134	)

Interest expense		(2,236	)		(4,053	)		(6,289	)		(4,420	)		(888	)		(11,597	)
Investment income and other		62			1,030			1,092			129			53			1,274

Income (loss) before taxes and minority interests		8,387			(5,879	)		2,508			(23,064	)		(1,901	)		(22,457	)
Benefit (provision) for taxes		(2,794			4,025			1,231			—			(9	)		1,222

Income (loss) before minority interests	$	5,593		$	(1,854	)	$	3,739		$	(23,064	)	$	(1,910	)	$	(21,235	)

Total Assets	$	344,663		$	166,189		$	510,852		$	802,252		$	378,318		$	1,691,422

Maintenance Capital Expenditures	$	3,417		$	987		$	4,237		$	6,631		$	1,755		$	12,623

Growth Capital Expenditures	$	202		$	17		$	219		$	16,638		$	—		$	16,857

	Three Months Ended September 30
	2002					2001
	Electric		Natural Gas			Electric		Natural Gas
Operating Revenues	$	152,854	$	28,697		$	26,058	$	12,748
Cost of Sales		55,591		12,025			6,458		8,806
Gross Margin		97,263		16,672			16,944		3,942
Selling, general & administrative		46,734		15,285			14,117		3,429
Depreciation		14,281		1,448			3,221		884

Operating Income	$	36,248	$	(61	)	$	10,932	$	(371	)

Income (loss) before minority interests	$	23,369	$	(15,429	)	$	7,940	$	(74,739	)	$	(4,109	)	$	(70,908	)

Total Assets	$	344,663	$	166,189		$	510,852	$	802,252		$	378,318		$	1,691,422

Maintenance Capital Expenditures	$	9,378	$	1,065		$	10,443	$	16,246		$	6,420		$	33,109

Growth Capital Expenditures	$	1,386	$	625		$	2,011	$	38,686		$	508		$	41,205

		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortized intangible assets:
	Other	$	236,444	$	(79,287	)	$	157,157
Unamortized intangible assets:
	Goodwill		791,237		(31,558	)		822,795
	Other, primarily Dealer Agreements		72,446		(3,849	)		68,597

Total Intangible Assets		$	1,100,127	$	(114,694	)	$	1,048,549

	Communications		HVAC		Electric and Natural Gas		All Other		Total
Balance as of December 31, 2001	$	141,908	$	259,443	$	—	$	4,383	$	405,734
Goodwill acquired		80		9,418		400,095		7,468		417,061

Balance as of September 30, 2002	$	141,988	$	268,861	$	400,095	$	11,851	$	822,795

		Restatement Adjustments by Segment
		As Previously Reported			Communications /Expanets		Electric and Natural Gas		HVAC/Blue Dot		All Other		As Restated
		(unaudited)
Three Months Ended September 30, 2002
Operating revenues		$	509,300		(7,020	)	(879	)	—		—		$	501,401
Cost of sales			260,696		(517	)	(3,273	)	369		—			257,275
Selling, general and administrative			170,950		12,799		3,385		—		1,351			188,485
Depreciation			24,124		—		225		—		—			24,349
Interest expense			(34,715	)	—		(370	)	—		—			(35,085	)
Income taxes			2,804		7,431		611		142		379			11,367
Income (loss) from Continuing Operations			14,620		(11,871	)	(975	)	(227	)	(972	)		575
Net Income (loss)			(41,317	)	(11,871	)	(975	)	(227	)	(972	)		(55,362	)
Earnings (loss) on Common Stock			(49,086	)	(11,871	)	(975	)	(227	)	(972	)		(63,131	)
Earnings (Loss) Per Average Common Share
	Continuing operations	$	0.25										$	(0.26	)
	Discontinued operations		(2.04	)										(2.04	)
	Extraordinary item		—											—

	Basic	$	(1.79	)									$	(2.30	)

	Continuing operations	$	0.25										$	(0.26	)
	Discontinued operations		(2.04	)										(2.04	)
	Extraordinary item		—											—

	Basic	$	(1.79	)									$	(2.30	)

Nine Months Ended September 30, 2002
Operating revenues		$	1,505,065		(48,558	)	(2,344	)	—		(1,872	)	$	1,452,291
Cost of sales			792,127		(7,155	)	(3,273	)	1,104		(1,095	)		781,708
Selling, general and administrative			491,931		22,415		9,247		619		2,831			527,043
Depreciation			70,083		—		474		—		—			70,557
Interest expense			(87,464	)	—		(5,337	)	—		(1,392	)		(94,193	)
Income taxes			(4,273	)	24,571		5,440		663		1,713			28,114
Minority interests in Net Loss of consolidated subsidiaries			23,014		—		—		(8,100	)	—			14,914
Income (loss) from Continuing Operations			(59,469	)	(39,247	)	(8,689	)	(9,160	)	(3,287	)		(914	)
Net Income (loss)			(55,001	)	(39,247	)	(8,689	)	(9,160	)	(3,287	)		(115,384	)
Earnings (Loss) on Common Stock			(76,565	)	(39,247	)	(8,689	)	(9,160	)	(3,287	)		(136,948	)
Earnings (Loss) Per Average Common Share
	Continuing operations	$	1.38										$	(0.82	)
	Discontinued operations		(3.69	)										(3.69	)
	Extraordinary item		(0.49	)										(0.49	)

	Basic	$	(2.80	)									$	(5.00	)

	Continuing operations	$	1.38										$	(0.82	)
	Discontinued operations		(3.69	)										(3.69	)
	Extraordinary item		(0.49	)										(0.49	)

	Basic	$	(2.80	)									$	(5.00	)

		Total			2002		2003		2004-2006
		(in thousands)
Recourse Debt:
Senior Notes, 7⁷/8% and 8³/4%		$	720,000		$	—	$	—	$	—
Discount on Notes			(827	)		—		—		—
Mortgage Bonds, 7.00% & 7.10%			115,000			—		—		60,000
Senior Unsecured Debt, 6.95%			105,000			—		—		—
Pollution Control Obligations, 5.85% & 5.90%			21,350			—		—		—
Credit facility(1)			231,000			—		6,000		225,000
NorthWestern Energy LLC Debt—
	First Mortgage Bonds, 7.30%, 8.25%, 8.95 and 7.00%		157,197			—		—		155,386
	Discount on Bonds		(3,308	)		—		—		—
	Pollution Control Obligations, 6.125% & 5.90%		170,205			—		—		—
	Secured Medium Term Notes, 7.25% & 7.23%		28,000			—		15,000		—
	Unsecured Medium Term Notes, 7.07%, 7.96 & 7.875%		40,000			—		—		15,000
	Natural Gas Transition Bonds, 6.20%		50,866			—		4,364		13,508
	8.45% mandatorily redeemable preferred securities of subsidiary trust		65,000			—		—		—
Nonrecourse Debt:
Montana Megawatts facility, LIBOR+1.50%(2)(3)			27,500			27,500		—		—
Blue Dot facility			20,000			—		—		20,000
Expanets facility(4)			40,088			40,088		—		—
Other debt, various			28,858			323		916		27,619
Capital and Operating Leases:
Capital leases			13,946			5,683		4,146		4,117
Future minimum operating lease payments			323,256			22,569		49,475		120,609
Mandatorily Redeemable Preferred Securities of Subsidiary Trusts:
8.125% mandatorily redeemable preferred securities of subsidiary trust			32,500			—		—		—
7.20% mandatorily redeemable preferred securities of subsidiary trust			55,000			—		—		—
8¹/4% mandatorily redeemable preferred securities of subsidiary trust			106,750			—		—		—
8.10% mandatorily redeemable preferred securities of subsidiary trust			111,000			—		—		—
Total		$	2,458,381		$	96,163	$	79,901	$	641,239

	Third Party Equity Reflected as Minority Interests
			At December 31,
	At September 30, 2002		At December 31,
	At September 30, 2002		2001		2000
	(in thousands)
Expanets	$	5,972	$	17,124	$	140,390
Blue Dot		3,868		12,439		51,691
Other		493		504		751
Total	$	10,333	$	30,067	$	192,832

		NORTHWESTERN CORPORATION
Date: April 15, 2003		By:	/s/ KIPP D. ORME Kipp D. Orme Vice President Chief Financial Officer

Exhibit Number		Description
99.1		Certification of Chief Executive Officer Pursuant to 18 United States Code Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
99.2		Certification of Chief Financial Officer Pursuant to 18 United States Code Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*