NORTHWESTERN CORPORATION

FORM 10-Q

INDEX

SPECIAL NOTE REGARDING FORWARD—LOOKING STATEMENTS

On one or more occasions, we may make statements in this Quarterly Report on Form 10-Q regarding our assumptions, projections, expectations, targets, intentions or beliefs about future events. All statements other than statements of historical facts, included or incorporated by reference 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. On September 14, 2003, NorthWestern Corporation filed a voluntary petition for relief under the provisions of Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. On May 4, 2004, our subsidiary, Netexit, Inc. (f/k/a Expanets, Inc.) filed a voluntary petition for relief under the provisions of Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware.

Words or phrases such as “anticipates,” “may,” “will,” “should,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “targets,” “will likely result,” “will continue” or similar expressions identify forward-looking statements. Forward-looking statements involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed. We caution that while we make such statements in good faith and 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 projections will be achieved. Factors that may cause such differences include but are not limited to:

Factors Relating to Our Bankruptcy

·       our ability to obtain and maintain normal terms with vendors and service providers;

·       the potential adverse impact of the Chapter 11 case on our liquidity or results of operations;

·       our ability to fund and execute our business plan;

·       the potential adverse impact of the Netexit Chapter 11 case on our liquidity;

·       our ability to avoid or mitigate an adverse rulingrulings as to Magten Asset Management Corporation’sCorporation (Magten) appeal of the order confirming our plan of reorganization, and its appeal of the order approving the memorandum of understanding to settle our securities class action litigation;litigation and Magten and Law Debenture Trust Company of New York’s (Law Debenture) adversary complaint filed April 15, 2005 seeking, among other relief, to revoke the Order confirming our plan of reorganization;

·       our ability to avoid or mitigate an adverse judgment against us in that certain lawsuit seeking to recover assets or damages on behalf of Clark Fork and Blackfoot, L.L.C.,LLC, one of our subsidiaries which we refer to as Clark Fork,CFB, filed by Magten Asset Management Corporation and Law Debenture, Trust Company of New York, which we refer to as the QUIPs Litigation;

·       our ability to avoid or mitigate an adverse judgment against us in that pending litigation styled as McGreevey et al v. The Montana Power Company, the shareholder class action lawsuit relating to the disposition of the generating and energy related assets by the entity formerly known as The Montana Power Company, excluding our acquisition of the electric and natural gas transmission and distribution business formerly held by The Montana Power Company, entity,which has been settled pending approval by our Bankruptcy Court, the bankruptcy court in the Touch America Holdings, Inc. proceedings, and the U.S. District Court in Montana where the litigation is pending, together with ERISA litigation regarding The Montana Power Company Employee Stock Ownership Plan and 401(k) plan,plan;

·       our ability to avoid or mitigate an adverse judgment against us in the In Re NorthWestern Derivative Litigation relating to the restatement of the Predecessor Company’s 2002 quarterly financial statements and other accounting and financial reporting matters, which has been settled pending

final approval byof the Bankruptcy Court andsettlement by the U.S. District Court in MontanaSouth Dakota where the litigation is pending;

·       our ability to avoid or mitigate an adverse judgment against us in the In Re NorthWestern Securities Litigation and Derivative Litigation relating to the restatement of our 2002 quarterly financial statements and other accounting and financial reporting matters, which has been settled pending approval by the U.S. District Court in South Dakota where the litigation is pending;

·       our ability to avoid or mitigate an adverse judgment against us in existing other shareholder and derivative litigation or any additional litigation and regulatory action, including the formal investigation initiated by the SEC,Securities and Exchange Commission (SEC), in connection with the restatement of ourthe Predecessor Company’s 2002 quarterly financial statements and other accounting and financial reporting matters, any of which could have a material adverse effect on our liquidity, results of operations and financial condition;

General Factors

·       unscheduled generation outages, maintenance or repairs which may reduce revenues and increase cost of sales or may require additional capital expenditures or other increased operating costs;

·       our ability to operate pursuant to the terms of our new credit facility and senior secured notes issued on November 1, 2004;

·unanticipated changes in availability of trade credit, usage, commodity prices, fuel supply costs or availability due to higher demand, shortages, weather conditions, transportation problems or other developments, in combination with reduced availability of trade credit, may reduce revenues or may increase operating costs, each of which would adversely affect our liquidity;

·       adverse changes in general economic and competitive conditions in our service territories;

·       potential additional adverse federal, state, or local legislation or regulation or adverse determinations by regulators including the final order of the Montana Public Service Commission, which we refer to as the MPSC, disallowing the recovery of $6.2 million of natural gas costs we incurred during the 2003 tracker year, and an interim order disallowing the recovery of approximately $4.6 million of natural gas costs during the 2004 tracker year, which has had and could continue to have a material adverse affect on our liquidity, results of operations and financial condition;

·       increases in interest rates, which will increase our cost of borrowing;

·       certain other business uncertainties related to the occurrence or threat of natural disasters, war, hostilities and terrorist actions;

·       our ability to attract, motivate and/or retain key employees;improve and

·       our ability to maintain an effective internal control structure.

We have attempted to identify, in context, certain of the factors that we believe may cause actual future experience and results to differ materially from our current expectation regarding the relevant matter or subject area. In addition to the items specifically discussed above, our business and results of operations are subject to the uncertainties described under the caption “Risk Factors” which is a part of the disclosure included in Item 2 of this Quarterly Report 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 quarterly report on Form 10-Q, our reports on Forms 10-K and 8-K, our Proxy Statements on Schedule 14A and any other public statements that are made by us may prove to be incorrect. This may occur as a result of inaccurate assumptions or as a consequence of known or unknown risks and uncertainties. Many factors discussed in this Quarterly Report on Form 10-Q, certain of which are beyond our control, will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from forward-looking statements. In light of these and other uncertainties, you should not

regard the inclusion of a forward-looking statement in this Quarterly Report on Form 10-Q 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 SEC on Forms 10-K, 10-Q and 8-K and Proxy Statements on Schedule 14A.

Unless the context requires otherwise, references to “we,” “us,” “our,” “NorthWestern Corporation”Corporation,” “NorthWestern Energy” and “NorthWestern” refer specifically to NorthWestern Corporation and its subsidiaries. “Predecessor Company” refers to us prior to emergence from bankruptcy (operations prior to October 31, 2004). “Successor Company” refers to us after emergence from bankruptcy (operations after November 1, 2004).

5

NORTHWESTERN CORPORATION A DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF LOSSINCOME
(Unaudited)
(in thousands, except per share amounts)

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

7

NORTHWESTERN CORPORATION A DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)

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

8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Reference is made to Notes to Financial Statements
included in NorthWestern Corporation'sCorporation’s Annual Report)

(1) Management's Statement

The consolidated financial statements for the interim periods included herein have been prepared by NorthWestern Corporation (the Corporation, Debtor or we), a debtor-in-possession, without audit, pursuant to the rules   Nature of Operations and regulations of the Securities and Exchange Commission (SEC). 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 disclosures 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 Annual Report on Form 10-K for the year ended December 31, 2003.

On September 14, 2003 (the Petition Date), we filed a voluntary petition for relief under the provisions of Chapter 11 of the Federal Bankruptcy Code (the Bankruptcy Code) in the United States Bankruptcy Court for the District of Delaware (Bankruptcy Court). Pursuant to Chapter 11 (as discussed further in Note 3), we retain control of our assets and are authorized to operate our business as a debtor-in-possession while being subject to the jurisdiction of the Bankruptcy Court. Included in the consolidated financial statements are subsidiaries that are not party to the Chapter 11 case and are not debtors. The assets and liabilities of such nondebtor subsidiaries are not considered to be material to the consolidated financial statements or are included in discontinued operations. In addition, in order to wind-down its affairs in an orderly manner, our subsidiary, Netexit, Inc. (f/k/a Expanets, Inc.) (Netexit) filed a voluntary petition for relief under the provisions of Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware on May 4, 2004.

Beginning in the third quarter of 2003, the consolidated financial statements have been prepared in accordance with the American Institute of Certified Public Accountants' Statement of Position (SOP) 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code,” and on a going concern basis, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the ordinary course of business. As a result of our Chapter 11 filing, the realization of assets and liquidation of liabilities are subject to uncertainty. Under SOP 90-7, certain liabilities existing prior to the Chapter 11 filing are classified as Liabilities Subject to Compromise on the Consolidated Balance Sheets. Additionally, certain items are reported as separate line items on the income statement.  These include professional fees and expenses directly related to the Chapter 11 proceeding entitled reorganization professional fees and expenses, interest income on funds accumulated during the Chapter 11 proceedings entitled reorganization interest income, and gains (losses) on the settlement of claims, which are entitled reorganization items. Finally, the extent to which our reported interest expense differs from the stated contractual interest is disclosed on the Consolidated Statements of Loss.

The consolidated financial statements have been prepared on a “going concern” basis in accordance with generally accepted accounting principles (GAAP). The “going concern” basis of presentation assumes that we will continue in operation for the foreseeable future and will be able to realize our assets and discharge our liabilities in the normal course of business. Because of the Chapter 11 case and the circumstances leading to the filing thereof, our ability to continue as a “going concern” is subject to substantial doubt and is dependent upon, among other things,  our ability to comply with the terms of our new credit facility and senior secured notes, and our ability to generate sufficient cash flows from

operations, asset sales and financing arrangements to meet our obligations. There can be no assurance that this can be accomplished and if it were not, our ability to realize the carrying value of our assets and discharge our liabilities would be subject to substantial uncertainty. Therefore, if the “going concern” basis were not used for the financial statements, then significant adjustments could be necessary to the carrying value of assets and liabilities, the revenues and expenses reported, and the balance sheet classifications used.

(2) Basis of Consolidation and Nature of Operations

We are one of the largest providers of electricity and natural gas in the Upper Midwest and Northwest, serving approximately 608,000617,000 customers in Montana, South Dakota and Nebraska. We have generated and distributed electricity in South Dakota and distributed natural gas in South Dakota and Nebraska since 1923 and have distributed electricity and natural gas in Montana since 2002 under the trade name “NorthWestern Energy.”

The consolidated financial statements for the periods included herein have been prepared by NorthWestern Corporation (NorthWestern, we or us), pursuant to the rules and regulations of the SEC. 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. The actual results for the interim periods are not necessarily indicative of the operating results to be expected for a full year or for other interim periods. Although management believes that the disclosures provided are adequate to make the information presented not misleading, management recommends that these unaudited consolidated financial statements be read in conjunction with audited consolidated financial statements and related footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2004 filed with the SEC on March 14, 2005.

On September 14, 2003 (the Petition Date), we filed a voluntary petition for relief under the provisions of Chapter 11 of the Federal Bankruptcy Code (the Bankruptcy Code) in the United States Bankruptcy Court for the District of Delaware (Bankruptcy Court). On October 19, 2004, the Bankruptcy Court entered an order confirming our Plan of Reorganization (Plan), which became effective on November 1, 2004.

Between September 14, 2003 and November 1, 2004, we operated as a debtor-in-possession under the supervision of the Bankruptcy Court. Our financial statements for reporting periods within that timeframe were prepared in accordance with the provisions of Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code. In accordance with SOP 90-7, we applied the principles of fresh-start reporting as of the close of business on October 31, 2004, resulting in the creation of a new reporting entity. “Predecessor Company” refers to us prior to emergence from bankruptcy (operations prior to October 31, 2004). “Successor Company” refers to us after emergence from bankruptcy (operations after November 1, 2004).

The accompanying consolidated financial statements include our accounts together with those of our wholly and majority-owned or controlled subsidiaries. The financial statements of Netexit, Inc. (Netexit) and Blue Dot Services, Inc. (Blue Dot) are included in the accompanying consolidated financial statements by virtue of the voting and control rights, and therefore included in references to “subsidiaries.” Netexit and Blue Dot were not party to our recently concluded Chapter 11 case, howevercase. However on May 4, 2004, Netexit filed a voluntary petition for relief under the provisions of Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. All significant intercompany balances and transactions have been eliminated from the consolidated financial statements. The operations of Netexit and Blue Dot and our interest in these subsidiaries have been reflected in the consolidated financial statements as Discontinued Operations (see Note 74 for further discussion). We continue to consolidate the operations and financial position of Netexit in our financial statements as we believe that the continued consolidation results in a more meaningful presentation due to our negative investment, our

expectation that the bankruptcy will be brief and our anticipated control of Netexit upon its emergence from bankruptcy.

The following table reflects intercompany accounts receivable from (payable to) nondebtor subsidiaries,In December 2003, the FASB issued Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, or FIN 46R. FIN 46R was issued to replace FIN 46 and clarify the accounting for interests in variable interest entities. FIN 46R requires the consolidation of entities which are eliminated on consolidation (in thousands):

(3) Chapter 11 Filing

Asdetermined to be variable interest entities (VIEs) when the reporting company determines that it will absorb a resultmajority of our Chapter 11 filing, we operated our business through October 31, 2004the VIE’s expected losses, receive a majority of the VIE’s residual returns, or both. The company that is required to consolidate the VIE is called the primary beneficiary. Conversely, the reporting company would be required to deconsolidate VIEs that are currently consolidated when the company is not considered to be the primary beneficiary. Variable interests are contractual, ownership or other monetary interests in an entity that change as the fair value of the entity’s net assets exclusive of variable interests change. An entity is considered to be a VIE when its capital is insufficient to permit it to finance its activities without additional subordinated financial support or its equity investors, as a “debtor-in-possession”group, lack the characteristics of having a controlling financial interest. Certain long-term purchase power and tolling contracts may be considered variable interests under FIN 46R. We have various long-term purchase power contracts with other utilities and certain qualifying facility plants. After evaluation of these contracts, we believe one qualifying facility contract may constitute a variable interest entity under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of FIN 46R. While we have made exhaustive efforts, we have been unable to obtain the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure and applicable court orders. All vendors are being paid for all goods furnished and services provided after the Petition Date while we wereinformation necessary to further analyze this contract under the supervisionrequirements of the Bankruptcy Court. During the time we were a debtor-in-possession, we were authorized toFIN 46R. We will continue to operatemake appropriate efforts to obtain the necessary information from this qualifying facility in order to determine if it is a VIE and if so, whether we are the primary beneficiary. We continue to account for this qualifying facility contract as an ongoing business, but could not engage in

transactions outside the ordinary course of business without the approval of the Bankruptcy Court, after notice and an opportunity for a hearing.  The United States Trustee for the Bankruptcy Court appointed an Official Committee of Unsecured Creditors (Creditors’ Committee).  The Creditors’ Committee and its legal representatives had the right to be heard on all matters that came before the Bankruptcy Court.

The Chapter 11 filing triggered defaults, or termination events, on substantially all of our debt and lease obligations, and certain contractual obligations.  As such, we classified all of our secured debt as currentexecutory contract. Based on the balance sheet.  Subject to certain exceptions under the Bankruptcy Code,current contract terms with this qualifying facility, our Chapter 11 filing automatically enjoined, or stayed, the continuation of any judicial or administrative proceedings or other actions against us or our property to recover on, collect or secure a claim arising prior to the Petition Date.  Thus, for example, creditor actions to obtain possession of our property, or to create, perfect or enforce any lien against our property, or to collect on or otherwise exercise rights or remedies with respect to a prepetition claim were enjoined unless and until the Bankruptcy Court modified the automatic stay.estimated gross contractual payments aggregate approximately $586.7 million through 2025.

The Bankruptcy Court approved our first amended disclosure statement for our proposed plan of reorganization on May 26, 2004. Under the terms of our plan of reorganization, we would greatly reduce our debt burden through a debt-for-equity exchange. Holders of claims were required to submit their ballots accepting or rejecting our plan of reorganization by August 2, 2004. The result of the solicitation was overwhelming acceptance by our senior unsecured debtholders, general unsecured claimants and certain litigation claimants. The Bankruptcy Code defines acceptance of a plan of reorganization by a class of claims as acceptance by holders of at least two-thirds in dollar amount and more than one-half in number of the allowed claims of that class that have actually voted. Our plan of reorganization was rejected by the class of our creditors comprised of the holders of our junior subordinated trust preferred securities, which includes holders of our trust preferred securities, or TOPrS, and holders of our quarterly income preferred securities, or QUIPs, because the holders in that class that voted to reject our plan of reorganization held more than one-third in dollar amount of the total amount held by the creditors in that class that voted on our plan of reorganization.

On August 18, 2004, we and the Creditors Committee entered into an agreement with certain holders and representatives of the TOPrS and we filed our second amended and restated plan of reorganization and second amended and restated disclosure statement on August 18, 2004. On August 25, 2004, the Bankruptcy Court held a hearing to approve our second amended and restated disclosure statement and to confirm our plan of reorganization. As a result of the hearing, we revised the second amended and restated plan of reorganization and second amended and restated disclosure statement and filed revised versions with the Bankruptcy Court on August 31, 2004. An order was entered approving our second amended and restated disclosure statement on September 1, 2004.

Upon entry of the order approving the second amended and restated disclosure statement, we resolicited acceptances and or rejections to the second amended and restated plan of reorganization from holders of our senior unsecured notes and trade vendor claims in excess of $20,000 and holders of TOPrS and QUIPs. A final hearing to consider confirmation of the second amended and restated plan was held by the Bankruptcy Court on October 6, 2004. The Bankruptcy Court entered a written order confirming our plan of reorganization on October 20, 2004, and the plan became effective on November 1, 2004.  Under the terms of our plan of reorganization distributions, in general, were:

·       Holders of our senior unsecured notes received 28.3 million shares of new common stock in exchange for $898.3 million in allowed claims;

·       Holders of TOPrS received 2.3 million shares of new common stock and warrants for an additional 4.4 million shares of common stock in exchange for $321.1 million in allowed claims.  The warrants may be exercised for a period of three years from the effective date;

·       Holders of QUIPs, based on their choices, received either a pro rata share of 0.5 million shares of new common stock, plus warrants with the same terms as the warrants distributed to the TOPrS, in exchange for their claims, including any litigation claims, or they will continue the litigation against us generally referred to as the QUIPs Litigation and will receive a distribution, if any, based only upon final resolution of the QUIPs Litigation;

·       we established a reserve of approximately 4.4 million shares of common stock from the shares allocated to holders of our trade vendor claims in excess of $20,000 and holders of senior unsecured notes. The shares held in this reserve will be distributed pro rata to holders of allowed trade vendor and general unsecured claims in excess of $20,000, and may be used to resolve various outstanding litigation matters, such as the QUIPs Litigation, certain litigation with PPL Montana and other unliquidated litigation claims;

·       Secured debt was not impaired and has been reinstated; and

·       Common stock existing prior to November 1, 2004 was cancelled and there were no distributions to prior shareholders.

On November 1, 2004, in connection with the consummation of our plan of reorganization, we replaced the DIP Facility with a new $125 million revolver. In addition, we closed on a new term loan facility and issued $225 million of senior secured notes to refinance our existing term loan facility (see Note 16, Subsequent Events).

(4)(2)   Asset Retirement Obligations

We have identified, but have not recognized, asset retirement obligation, or ARO, liabilities related to our electric and natural gas transmission and distribution assets. Many of these assets are installed on easements over property not owned by us. The easements are generally perpetual and only require remediation action upon abandonment or cessation of use of the property for the specified purpose. The ARO liability is not estimable for such easements as we intend to utilize these properties indefinitely. In the event we decide to abandon or cease the use of a particular easement, an ARO liability would be recorded at that time.

Our regulated utility operations have, however, previously recognized removal costs of transmission and distribution assets as a component of depreciation in accordance with regulatory treatment. These amounts do not represent Statement of Financial Accounting Standards (SFAS) No. 143 legal retirement obligations. As of September 30, 2004March 31, 2005 and December 31, 2003,2004, we have recognized accrued removal costs of $132.6$135.5 million and $124.9$132.9 million, respectively, which are included in noncurrent regulatory liabilities. In addition, related to our nonregulated electric operations, we have recognized accrued removal costs of $2.1 million and $2.0 million as of March 31, 2005 and December 31, 2004, respectively.

For our generation properties, we have accrued decommissioning costs since the generating units were first put into service in the amount of $12.2$12.5 million and $11.9$12.3 million as of September 30, 2004March 31, 2005 and December 31, 2003,2004, respectively, which is classified as a noncurrent regulatory liability. These amounts also do not represent SFAS No. 143 legal retirement obligations.

(5) Stock-based Compensation

We have a nonqualified stock option and incentive plan that provides for the issuance of options to officers, key employees and directors. Unless established differently by the Compensation Committee of our Board of Directors, the per share option exercise price is equal to the fair market value of our common stock at the date of grant. We follow Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees’ to account for stock option plans. Accordingly, no compensation expense is recognized as options granted under the plan have an exercise price equal to the market value of the underlying stock on the date of grant. All existing options and restricted shares were cancelled upon the consummation of our plan of reorganization.

The following table illustrates the effect on net loss and loss per share if we had applied the fair value recognition provisions of Financial Accounting Standards Board (FASB) No. 123, Accounting for Stock-Based Compensation,” (in thousands except per share amounts):

(6)(3)   Goodwill

There were no changes in our goodwill during the ninethree months ended September 30, 2004.March 31, 2005. Goodwill relates entirely to the Montana operations acquired in 2002 included in our Electric and Natural Gasby segment and totals $375.8 million as of September 30, 2004March 31, 2005 and December 31, 2003.2004 is as follows (in thousands):

(7)(4)   Discontinued Operations

During the second quarter of 2003, we committed to a plan to sell or liquidate our interest in Netexit and Blue Dot. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,, we classified the results of operations of Netexit and Blue Dot as discontinued operations.

As previously discussed in our Annual Report on Form 10-K for the year ended December 31, 2003, we sold substantially all the assets and business of Expanets, Inc. to Avaya, Inc. (Avaya) and retained certain specified liabilities.  Thereafter, Expanets, Inc. was renamed Netexit, Inc.  On February 24, 2004, Avaya submitted its proposed final calculation of the post-closing working capital adjustment required under the sale agreements claiming that Avaya should retain $44.6 million in held-back proceeds plus an additional $4.2 million.  Netexit disputed this calculation. As a result of negotiations between Netexit and Avaya, the parties entered into a settlement on April 27, 2004 resulting in additional cash proceeds of $17.5 million paid by Avaya to Netexit.  We recorded a gain related to this settlement of $11.5 million in the second quarter of 2004.

In order to wind-down its affairs in an orderly manner, Netexit and its subsidiaries filed for bankruptcy protection on May 4, 2004. On June 30, 2004, Netexit filed schedulescurrently holds approximately $66 million in cash, which is included in current assets of discontinued operations on our consolidated financial statements. We have agreed to and statements of financial affairs with the Bankruptcy Court setting forth, among other things, the assetshas ordered mediation with Netexit’s official committee of unsecured creditors and liabilitiesanother Netexit claimant in an attempt to resolve outstanding issues related to Netexit’s liquidating plan of Netexit.  The schedules, which were prepared by NorthWestern management and are unaudited, list total assets of approximately $67.6 million (primarily cash and short-term investments) and total liabilities of approximately $237.9 million as of May 4, 2004, of which, approximately $237.7 million (including contractual interest of $13.7 million)reorganization. Additionally, Netexit’s creditors committee has indicated that NorthWestern’s claims against Netexit may be subject to avoidance and/or subordination under operative provisions of the total liabilities represent intercompany obligations byBankruptcy Code. We intend to vigorously defend against any efforts to invalidate or subordinate our claims against Netexit, but we cannot currently predict the resolution of any litigation with respect to NorthWestern. the validity of NorthWestern’s claims against Netexit. Netexit willmay incur significant additional expenses related to the bankruptcy filing and may incur additional losses related to the resolution of open claims. Netexit has not yet proposed a plan of reorganization, but anticipates doing so during the second quarter of 2005. Pending the resolution of open claims toby Netexit creditors, the proceeds from the sale remain at Netexit and distributions to NorthWestern willcould be delayed until the Netexit bankruptcy proceedings are resolved.effective date of Netexit’s liquidating plan of reorganization.

As of September 30, 2004March 31, 2005 and December 31, 2003,2004, Netexit had current assets of $66.8$67.2 million and $59.9$66.3 million and current liabilities of $8.1$15.8 million and $11.8$15.6 million, respectively.

Summary financial information for the discontinued Netexit operations is as follows (in thousands):

Netexit’s income before income taxes for the nine months ended September 30, 2003, includes a gain on debt extinguishment of $27.3 million.

Blue Dot has one remaining business. As of September 30,March 31, 2005 and December 31, 2004, Blue Dot had two remaining businesses.current assets of $3.5 million and $4.8 million and current liabilities of $1.6 million and $2.8 million, respectively. As of November 1,March 31, 2005 and December 31, 2004, oneBlue Dot had noncurrent assets of these businesses was sold. Cash proceeds from business sales remain at Blue Dot.$0.04 million and noncurrent liabilities of $0.4 million.

Summary financial information for the discontinued Blue Dot operations is as follows (in thousands):

During the second and third quarters of 2003, we also sold our interest in two other subsidiaries, One Call Locators, Ltd. and NorCom Advanced Technologies, Inc. We have classified the results of these subsidiaries in discontinued operations.  There were no revenues from these operations for the three months ended September 30, 2003. For the nine months ended September 30, 2003, revenues from these operations were $19.5 million. For the three and nine months ended September 30, 2003, losses net of income taxes were $0.1 million and $9.0 million, respectively.

(8)(5)   Other Comprehensive LossIncome

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.excluded. 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 lossincome is calculated as follows (in thousands):