SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 0-692
NORTHWESTERN PUBLIC SERVICE COMPANY
A Delaware Corporation
IRS Employer Identification No. 46-0172280
33 Third Street SE
Huron, South Dakota 57350-1318
Telephone - 605-352-8411
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Common Stock, Par Value $3.50
8,920,122 shares outstanding at August 9, 1996
Company-Obligated Mandatorily Redeemable Preferred Securities
of Subsidiary Trust, Liquidation Amount $25.00
1,300,000 shares outstanding at August 9, 1996
INDEX
Page
Part I. Financial Information
Consolidated Balance Sheet -
June 30, 1996 and December 31, 1995
Consolidated Statement of Income -
Three months and six months ended
June 30, 1996 and 1995
Consolidated Statement of Cash Flows
Three months and six months ended
June 30, 1996 and 1995
Notes to Consolidated Financial Statements
Management's Discussion of Financial Condition
and Results of Operations
Part II. Other Information
Signatures
NORTHWESTERN PUBLIC SERVICE COMPANY
CONSOLIDATED BALANCE SHEET
June 30 December 31,
1996 1995
ASSETS (unaudited)
-------------- --------------
[S] [C] [C]
PROPERTY:
Electric $ 345,126,770 $ 336,961,117
Gas 77,053,728 73,546,150
Propane 77,459,260 74,815,533
Manufacturing 2,086,607 2,048,725
-------------- --------------
501,726,366 487,371,525
Less-Accumulated depreciation (158,175,815) (150,469,310)
-------------- --------------
343,550,551 336,902,215
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents 3,396,902 4,551,913
Trade accounts receivable, net 23,720,714 28,190,389
Receivables related to acquisition 41,742,406 23,357,538
Inventories
Coal and fuel oil 2,571,490 3,600,474
Materials and supplies 4,883,571 4,097,484
Manufacturing 5,121,134 5,660,357
Propane 6,038,938 8,287,443
Deferred gas costs 610,679 2,925,865
Other 5,631,721 9,948,238
-------------- --------------
93,717,556 90,619,701
-------------- --------------
OTHER ASSETS:
Investments 54,118,680 51,907,141
Deferred charges and other 29,909,387 30,240,083
Goodwill and other intangibles, net 50,979,147 49,052,343
-------------- --------------
135,007,214 131,199,567
-------------- --------------
$ 572,275,321 $ 558,721,483
============== ==============
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock equity $ 161,051,505 $ 152,678,191
Nonredeemable cumulative preferred stock 2,600,000 2,600,000
Redeemable cumulative preferred stock 3,650,000 3,660,000
Company obligated mandatorily redeemable
securities of trust holding solely
parent debentures 32,500,000 32,500,000
Long-term debt
Utility 183,850,000 183,850,000
Nonrecourse debt of subsidiaries 28,609,681 28,990,224
-------------- --------------
412,261,186 404,278,415
-------------- --------------
CURRENT LIABILITIES:
Commercial paper 3,000,000 3,500,000
Long-term debt due within one year 570,000 570,000
Accounts payable 9,313,870 15,564,985
Accrued taxes 10,333,414 7,689,592
Accrued interest 4,759,645 4,738,243
Accrued liabilities related to acquisition 28,104,316 12,750,424
Other 13,210,366 13,947,990
-------------- --------------
69,291,611 58,761,234
-------------- --------------
DEFERRED CREDITS:
Accumulated deferred income taxes 41,277,781 43,666,229
Unamortized investment tax credits 9,739,819 10,021,519
Other 39,704,924 41,994,086
-------------- --------------
90,722,524 95,681,834
-------------- --------------
$ 572,275,321 $ 558,721,483
============== ==============
The accompanying notes to consolidated financial statements are
an integral part of these balance sheets.
NORTHWESTERN PUBLIC SERVICE COMPANY
CONSOLIDATED STATEMENT OF INCOME
(unaudited)
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
------------- ------------- ------------- -------------
OPERATING REVENUES:
Electric $ 17,003,839 $ 17,162,168 $ 36,207,757 $ 35,745,717
Gas 14,983,091 14,382,253 45,173,425 40,846,472
Propane 18,721,709 - 60,520,544 -
Manufacturing 5,972,232 8,562,801 11,998,538 14,269,448
------------- ------------- ------------- -------------
56,680,871 40,107,222 153,900,264 90,861,637
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Fuel and purchased power 2,942,863 3,114,941 6,698,816 6,914,281
Purchased gas sold 10,776,857 10,698,806 28,435,633 27,920,824
Other operating expenses 5,993,407 5,855,080 12,619,618 11,357,140
Propane costs 17,336,752 - 49,299,277 -
Manufacturing costs 5,412,903 7,395,248 11,050,192 12,558,258
Maintenance 1,596,399 1,597,713 3,133,598 2,900,273
Depreciation and amortization 4,595,460 3,223,406 9,189,050 6,432,935
Property and other taxes 1,589,741 1,666,032 3,224,334 3,339,674
------------- ------------- ------------- -------------
50,244,382 33,551,226 123,650,518 71,423,385
------------- ------------- ------------- -------------
OPERATING INCOME:
Electric 5,329,642 5,410,884 11,787,455 12,086,417
Gas 500,711 69,446 8,971,347 5,814,144
Propane 181,372 - 8,822,391 -
Manufacturing 424,764 1,075,666 668,553 1,537,691
------------- ------------- ------------- -------------
6,436,489 6,555,996 30,249,746 19,438,252
INVESTMENT INCOME AND OTHER 2,019,379 749,431 2,656,718 1,314,343
INTEREST EXPENSE, net (3,856,775) (2,491,547) (7,808,769) (5,081,827)
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES 4,599,093 4,813,880 25,097,695 15,670,768
INCOME TAXES (1,245,817) (1,765,137) (8,435,575) (5,519,391)
------------- ------------- ------------- -------------
NET INCOME 3,353,276 3,048,743 16,662,120 10,151,377
MINORITY INTEREST ON PREFERRED
SECURITIES OF SUBSIDIARY TRUST (660,156) - (1,320,312) -
DIVIDENDS ON CUMULATIVE PREFERRED STOCK (141,543) (29,775) (281,839) (59,550)
------------- ------------- ------------- -------------
EARNINGS ON COMMON STOCK $ 2,551,577 $ 3,018,968 $ 15,059,969 $ 10,091,827
============= ============= ============= =============
WEIGHTED AVERAGE SHARES 8,920,122 7,677,232 8,920,122 7,677,232
EARNINGS PER AVERAGE COMMON SHARE $ 0.29 $ 0.39 $ 1.69 $ 1.31
============= ============= ============= =============
DIVIDENDS PER AVERAGE COMMON SHARE $ 0.440 $ 0.425 $ 0.880 $ 0.850
============= ============= ============= =============
The accompanying notes to consolidated financial statements are
an integral part of these statements.
NORTHWESTERN PUBLIC SERVICE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
--------------- ------------- --------------- -------------
OPERATING ACTIVITIES:
Net income $ 3,353,276 $ 3,048,743 $ 16,662,120 $ 10,151,377
Items not affecting cash:
Depreciation and amortization 4,595,460 3,223,406 9,189,050 6,432,935
Deferred income taxes (8,499) 128,206 (672,665) 195,636
Investment tax credits (140,850) (141,300) (281,700) (282,600)
Changes in current assets and liabilities, net:
Accounts receivable 8,304,775 2,162,497 4,469,675 528,158
Inventories 3,745,248 266,388 5,345,812 1,572,687
Other current assets (18,991) 601,520 4,316,517 1,561,460
Accounts payable (4,344,626) (2,432,045) (6,251,115) (5,459,517)
Accrued taxes (5,975,943) (2,924,011) 2,643,821 1,821,582
Accrued interest 2,307,667 1,257,238 21,402 8,477
Other current liabilities (2,176,613) 278,727 (737,624) 674,477
Other, net (2,842,200) 603,193 (5,509,115) 1,764,088
--------------- ------------- --------------- -------------
Cash flows from operating activities 6,798,704 6,072,562 29,196,178 18,968,760
--------------- ------------- --------------- -------------
INVESTMENT ACTIVITIES:
Property additions (7,514,338) (5,757,800) (14,766,273) (10,734,845)
Sale or (Purchase) of noncurrent investments, net 213,756 (1,646,475) (2,211,539) (3,952,467)
Purchase of working capital, net (76,156) - (3,030,976) -
--------------- ------------- --------------- -------------
Cash flows for investment activities (7,376,738) (7,404,275) (20,008,788) (14,687,312)
--------------- ------------- --------------- -------------
FINANCING ACTIVITIES:
Dividends on common and preferred stock (4,066,395) (3,292,600) (8,131,546) (6,585,199)
Minority interest on preferred securities of
subsidiary trust (660,156) - (1,320,312) -
Issuance of long-term debt and nonrecourse
subsidiary debt 1,407,680 (692,500) 2,370,483 2,265,000
Repayment of long-term debt (818,976) - (2,751,026) (692,500)
Retirement of preferred stock (10,000) (30,000) (10,000) (30,000)
Commercial paper issuances 3,000,000 7,800,000 3,000,000 4,000,000
Commercial paper repayments - (3,800,000) (3,500,000) (3,800,000)
--------------- ------------- --------------- -------------
Cash flows for financing activities (1,147,847) (15,100) (10,342,401) (4,842,699)
--------------- ------------- --------------- -------------
DECREASE IN CASH AND CASH EQUIVALENTS (1,725,881) (1,346,813) (1,155,011) (561,251)
Cash and Cash Equivalents, beginning of period 5,122,783 3,338,174 4,551,913 2,552,612
--------------- ------------- --------------- -------------
CASH AND CASH EQUIVALENTS, end of period $ 3,396,902 $ 1,991,361 $ 3,396,902 $ 1,991,361
=============== ============= =============== =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 6,254,293 $ 3,510,900 $ 6,254,293 $ 3,511,200
Interest 947,307 865,903 6,480,840 4,260,730
The accompanying notes to consolidated financial statements are
an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Reference is made to Notes to Financial Statements
included in the Company's Annual Report)
(1) Management's Statement -
The financial statements included herein have been prepared by
Northwestern Public Service Company (the Company), without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. In
the opinion of the Company, all adjustments necessary for a fair
presentation of the results of operations for the interim periods have been
included. It is suggested that these financial statements be read in
conjunction with the financial statements and the notes thereto included in
the Company's latest annual report to stockholders.
(2) Subsidiaries and Principles of Consolidation -
The consolidated financial statements include the accounts of all
wholly and majority owned subsidiaries. All significant intercompany
transactions have been eliminated.
(3) Allowance for Funds Used During Construction -
The allowance for funds used during construction includes the costs of
equity and borrowed funds used to finance construction which are
capitalized in accordance with rules prescribed by the FERC. For the
quarters ended June 30, 1996 and 1995, allowance for equity funds was
$12,568 and $27,852. For the six months ended June 30, 1996, and 1995,
allowance for equity funds was $48,078 and $48,109. Allowance for borrowed
funds was $11,145 and $75,305 for the quarters ended June 30, 1996 and
1995, and $41,409 and $130,071 for the six months ended June 30, 1996 and
1995.
(4) Reclassifications -
Certain 1995 amounts have been reclassified to conform to the 1996
presentation. Such reclassifications had no impact on net income and
common stock equity as previously reported.
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Northwestern Public Service is an energy distribution company with
core operations engaged in the electric, natural gas, and propane
businesses. The Company generates and distributes electric energy to
55,000 customers in eastern South Dakota. It also purchases and
distributes natural gas to 77,000 customers in eastern South Dakota and
four communities in Nebraska.
In August 1995, the Company acquired Synergy Group, Inc., a retail
propane distributor in the eastern and south-central regions of the United
States. Since the acquisition of Synergy, smaller acquisitions in Ohio,
North Carolina, and Oklahoma added 7.5 million gallons to the Company's
propane business. The Company's propane operations serve more than 180,000
customers in 17 states.
Weather
Weather patterns have a material impact on the Company's operating
performance. Because natural gas and propane are heavily used for
residential and commercial heating, the demand for these products depends
upon weather patterns throughout the Company's service area. With a larger
proportion of its operations related to seasonal natural gas and propane
sales in 1996, the distribution of the Company's quarterly operating
performance will be different than in historical periods. A significantly
greater portion of the Company's operating income is expected to be
recognized in the first and fourth quarters related to higher revenues from
the heating season. Operating income for the second and third quarters is
expected to be substantially less than historical periods.
RESULTS OF OPERATIONS:
Earnings Comparisons -
Earnings per share for the quarter ended June 30, 1996 was $.29
compared to $.39 for the quarter ended June 30, 1995. The decrease in
earnings was primarily due to seasonality of the Company's propane
operations acquired in August 1995. Because propane is heavily used for
residential and commercial heating, demand is the highest during the five-
month season of November - March. Consequently, a greater portion of the
Company's operating income is now recognized in the first and fourth
quarters related to higher revenues from the heating season. Operating
income for the second and third quarters will typically be less than
historical periods.
Favorably impacting earnings for the quarter ended June 30, 1996 was
increased investment income related to the sale of a portion of the
Company's LodgeNet common stock investment. Related to propane
acquisitions, the Company issued 1.2 million additional shares of common
stock in 1995 and earnings per share for the second quarter of 1996 reflect
a 16% increase in average shares outstanding.
Earnings per share for the year to date ended June 30, 1996 were $1.69
compared to $1.31 for the six months ended June 30, 1995. The increase in
earnings was primarily due to the propane acquisitions discussed above,
improved returns from natural gas sales, slightly colder weather in the
first quarter, and increased investment income related to the sale of
LodgeNet common stock.
Electric and Natural Gas:
The following tables summarize the factors affecting the variations in
electric and natural gas revenues between years:
Variation from Variation from
Prior Year Prior Year
Three Months Six Months
Ended June 30 Ended June 30
------- ------- ------- -------
1996 1995 1996 1995
------- ------- ------- -------
(thousands of dollars)
Electric:
Variation in kwh sales $ 311 $ 528 $1,153 $ (3)
Changes in rates, fuel cost
recovery, and other (469) (199) $ (691) $ (348)
------- ------- ------- -------
$ (158) $ 329 $ 462 $ (351)
======= ======= ======= =======
Natural Gas:
Variation in mmbtu sales $ 460 $2,738 $3,758 $ (483)
Changes in rates, gas cost
recovery, and other 141 319 569 (307)
------- ------- ------- -------
$ 601 $3,057 $4,327 $ (790)
======= ======= ======= =======
For the quarter ended June 30, 1996, changes in electric fuel-related
costs were comparable to changes in electric revenues and purchased gas
costs increased due to increased sales. Other operating expenses increased
due to growth-related costs in expanded energy services and marketing
functions.
For the six months ended June 30, 1996, the favorable first quarter
weather pattern impact on natural gas revenue resulted in comparable
increases in purchased gas costs. The increase in other operating expenses
reflects growth-related costs in expanded energy services and marketing
functions, higher employee benefit expense, and higher costs related to the
leasing of certain computer equipment rather than making capital
investments. Maintenance expense increases are primarily related to higher
expenditures at the base-load generating plants and electric distribution
line facilities.
Propane:
Operating revenue from propane sales for the second quarter of 1996
was $18.7 million on sales of 16.7 million gallons. For the six months
ended June 1996, operating revenue was $60.5 million on sales of 57.4
million gallons. During the first quarter of 1996, weather was 2% colder
than normal. Since the majority of propane is sold during the months of
November - March related to residential and commercial heating, the second
quarter is traditionally a net loss period in the industry.
Manufacturing:
Manufacturing revenues are related to the Company's investment in
Lucht Inc., a firm that manufactures photographic processing and imaging
equipment used by high volume photo processing laboratories. Weaker
quarterly sales activity produced lower revenues for the second quarter and
for the year-to-date as compared to 1995. Also impacting the decline in
operating income were higher expenses related to international marketing.
Other Income Statement Items:
Other income, net, increased for the second quarter and for the year
to date as compared to 1995, primarily due to higher investment income
related to the sale of 125,000 shares of the Company's LodgeNet common
stock investment. The increase in depreciation reflects primarily the
addition of propane to depreciable plant. The increase in interest expense
is primarily related to the issuance of $60 million general mortgage bonds
in August 1995 as a part of the Synergy acquisition financing and a short-
term line of credit related to propane operations. Year-to-date income
taxes increased as a result of higher taxable income while income taxes for
the three months ended June 30, 1996 decreased as a result of lower taxable
income. The increase in preferred dividends and the addition of minority
interest on preferred securities is related to the issuance of preferred
securities to finance the propane transactions.
Liquidity and Capital Resources -
The Company has a high degree of long-term liquidity through the
generation of operating cash flows, the availability of substantial
marketable securities, and a sound capital structure. In addition, the
Company has adequate capacity for additional financing and has maintained
its liquidity position through favorable bond ratings.
The Company has generated significant operating cash flows while
continuing to maintain substantial cash and investment balances in the form
of marketable securities. Cash flows from operating activities during the
three months ended June 30, 1996 and 1995 were $6.8 million and $6.1
million, and $29.2 million and $19.0 million for the six months ended June
30, 1996 and 1995. The increase was primarily due to growth in the
Company's operating performance and propane acquisitions. Cash equivalents
and investment securities totaled $40.6 million and $40.4 million at June
30, 1996 and 1995.
Working capital and other financial resources are also provided by
lines of credit, which are generally used to support commercial paper
borrowings, a primary source of short-term financing. At June 30, 1996,
unused short-term lines of credit totaled $24.0 million. In addition, the
Company's nonregulated businesses maintain nonrecourse credit agreements
with various banks for revolving and term loans.
Capital Requirements -
The Company's primary capital requirements include the funding of its
energy business construction and expansion programs, the funding of debt
and preferred stock retirements and sinking fund requirements, and the
funding of its corporate development and investment activities.
The emphasis of the Company's construction activities is to undertake
those projects that most efficiently serve the expanding needs of its
customer base, enhance energy delivery capabilities, expand its current
customer base, and provide for the reliability of energy supply.
Expenditures for construction activities during the three months and six
months ended June 30, 1996 and 1995 were $7.5 million and $5.8 million and
$14.8 million and $10.7 million, respectively. Included in such
construction activities were nonregulated capital expenditures of $1.3
million and $.1 million during the three months ended June 30, 1996 and
1995 and $2.7 million and $.3 million for the six months ended June 30,
1996 and 1995. Capital expenditures for 1996, excluding propane, are
estimated to be $20.0 million with a large portion of expenditures to be
spent on enhancements of the electric and natural gas distribution systems
and new customer growth. Electric and natural gas related capital
expenditures, including new customer development expenses, for the years
1996 through 2000 are estimated to be $78.0 million. Nonregulated capital
expenditures for 1996 are estimated to be $6.5 million. Estimated
nonregulated capital expenditures for the years 1996 through 2000 are
estimated to be $20.5 million.
Capital requirements for the mandatory retirement of long-term debt
and mandatory preferred stock sinking fund redemptions totaled $580,000
during the six months ended June 30, 1996, and it is expected that such
mandatory retirements will be $570,000 in 1997, $20.6 million in 1998,
$12.8 million in 1999, and $5.0 million in 2000.
The Company anticipates that future capital requirements will be met
by both internally generated cash flows and available external financing.
NORTHWESTERN PUBLIC SERVICE COMPANY
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently involved in any pending major litigation.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The election of three Directors to Class II of the Board of Directors
was submitted to stockholders in the Company's proxy statement. At the
annual meeting of common stockholders held on May 1, 1996 and completed
following an adjournment to May 8, 1996, the three nominees were elected,
receiving the following votes: R. R. Hylland 6,043,577, Jerry W. Johnson
6,051,148, Larry F. Ness 6,032,345. Also submitted to the common and
preferred stockholders were six proposals to amend the Company's Restated
Certificate of Incorporation. Proposals 1, 3, 4, 5, and 6 were approved,
but proposal 2 failed to receive a majority of the outstanding shares of
common stock. The results of the voting were as follows:
1. To increase to 1,000,000 the number of authorized shares of the
Company's Preference Stock, par value $50 per share.
Common Stock
4,621,337 For 975,433 Against 285,038 Abstain
2. To eliminate the ability of stockholders or a vice president or the
secretary of the Company to call a special meeting of stockholders.
Common Stock
4,431,850 For 1,126,901 Against 307,608 Abstain
Cumulative Preferred Stock
27,454 For 893 Against 1,128 Abstain
3. To increase to 1,000,000 the number of authorized shares of the
Company's Cumulative Preferred Stock, par value $100 per share.
Common Stock
4,560,860 For 1,009,045 Against 313,854 Abstain
Cumulative Preferred Stock
27,454 For 893 Against 1,128 Abstain
4. To eliminate the income coverage requirement which must be satisfied to
issue additional Cumulative Preferred Stock without obtaining approval of
the holders of at least two-thirds of the outstanding Cumulative Preferred
Stock.
Common Stock
4,533,628 For 591,126 Against 398,980 Abstain
Cumulative Preferred Stock
26,839 For 1,137 Against 1,313 Abstain
5. To eliminate the requirement that the approval of the holders of a
majority of the outstanding Cumulative Preferred Stock be obtained for the
Company to issue or assume unsecured indebtedness securities in an
aggregate amount exceeding 25% of the Company's capitalization.
Common Stock
4,531,442 For 576,350 Against 417,090 Abstain
Cumulative Preferred Stock
27,027 For 673 Against 1,589 Abstain
6. To eliminate the restrictions which apply to dividends or other
distributions on, and to purchases or other acquisitions of, the Company's
Common Stock when the Company's Common Stock equity is less than prescribed
percentages of the Company's total capitalization, unless approval of at
least two-thirds of the outstanding shares of the Cumulative Preferred
Stock is obtained.
Common Stock
4,913,384 For 307,708 Against 302,101 Abstain
Cumulative Preferred Stock
27,103 For 822 Against 1,364 Abstain
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 3 - Certificate of Amendment of Restated Certificate of
Incorporation
Exhibit 27 - Financial Data Schedule UT (SEC only)
(b) Reports on Form 8-K
None
SIGNATURES
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.
NORTHWESTERN PUBLIC SERVICE COMPANY
-----------------------------------
(Registrant)
Date: __________, 1996 /s/ R. A. Thaden
------------------------------------
Treasurer
Date: ___________, 1996 /s/ A. D. Dietrich
-----------------------------------
Vice President-Administration
and Corporate Secretary