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 March 31, 1997
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
8,921,262 shares outstanding at May 7, 1997
Company-Obligated Mandatorily Redeemable Preferred Securities
of Subsidiary Trust, Liquidation Amount $25.00
1,300,000 shares outstanding at May 7, 1997
INDEX
Page
Part I. Financial Information
Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996
Consolidated Statements of Income -
Three months ended March 31, 1997 and 1996
Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and 1996
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 SHEETS
(In Thousands)
March 31
1997 December 31,
ASSETS (unaudited) 1996
-------------- --------------
PROPERTY:
Electric $ 351,878 $ 350,419
Natural Gas 82,271 80,905
Propane 243,824 248,556
Manufacturing 2,166 2,142
-------------- --------------
680,139 682,022
Less-Accumulated depreciation (166,563) (162,909)
-------------- --------------
513,576 519,113
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents 30,758 36,790
Trade accounts receivable, net 53,811 89,259
Inventories 29,322 43,826
Deferred gas costs 1,420 7,007
Other 26,892 20,807
-------------- --------------
142,203 197,689
-------------- --------------
OTHER ASSETS:
Investments 145,603 159,333
Deferred charges and other 40,583 40,260
Goodwill and other intangibles, net 208,825 197,321
-------------- --------------
395,011 396,914
-------------- --------------
$ 1,050,790 $ 1,113,716
============== ==============
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock equity $ 165,143 $ 163,805
Nonredeemable cumulative preferred stock 2,600 2,600
Redeemable cumulative preferred stock 1,150 1,150
Company obligated mandatorily redeemable
security of trust holding solely
parent debentures 32,500 32,500
Long-term debt 176,350 183,850
-------------- --------------
377,743 383,905
Preferred stock of subsidiary - 2,500
Minority interest in subsidiaries 192,562 186,714
Long-term debt of subsidiaries 231,319 240,563
-------------- --------------
801,624 813,682
-------------- --------------
CURRENT LIABILITIES:
Long-term debt due within one year 5,271 1,244
Accounts payable 42,247 99,394
Accrued taxes 13,616 11,834
Accrued interest 6,813 4,762
Other 42,630 35,533
-------------- --------------
110,577 152,767
-------------- --------------
DEFERRED CREDITS:
Accumulated deferred income taxes 68,262 70,894
Unamortized investment tax credits 9,320 9,460
Other 61,007 66,913
-------------- --------------
138,589 147,267
-------------- --------------
$ 1,050,790 $ 1,113,716
============== ==============
NORTHWESTERN PUBLIC SERVICE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended
March 31
1997 1996
------------- -------------
OPERATING REVENUES
Propane $ 220,754 $ 41,799
Electric 20,419 19,204
Natural gas 37,391 30,190
Manufacturing 5,842 6,026
------------- -------------
284,406 97,219
------------- -------------
OPERATING EXPENSES
Propane costs 178,164 21,012
Fuel and purchased power 4,568 3,756
Purchased natural gas sold 28,044 17,659
Manufacturing cost of goods sold 3,309 3,418
Other operating expenses 31,825 19,795
Maintenance 1,486 1,537
Depreciation and amortization 7,333 4,594
Property and other taxes 1,745 1,635
------------- -------------
256,474 73,406
------------- -------------
OPERATING INCOME
Propane 15,107 8,641
Electric 6,984 6,458
Natural gas 5,495 8,470
Manufacturing 346 244
------------- -------------
27,932 23,813
------------- -------------
Interest Expense, net (7,910) (3,952)
Investment Income and Other 1,669 637
------------- -------------
Income Before Income Taxes
and Minority Interest 21,691 20,498
Income Taxes (5,133) (7,190)
------------- -------------
Income Before Minority Interest 16,558 13,308
Minority Interest (6,035) -
------------- -------------
Net Income 10,523 13,308
Minority Interest on Preferred Securities
of Subsidiary Trust (660) (660)
Dividends on Preferred Stock (69) (140)
------------- -------------
Earnings on Common Stock $ 9,794 $ 12,508
============= =============
Average Shares Outstanding 8,921 8,920
Earnings per Average Common Share $ 1.10 $ 1.40
============= =============
Dividends Declared Per Average Common
Share $ 0.46 $ 0.44
============= =============
NORTHWESTERN PUBLIC SERVICE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended
March 31
----------------------------
1997 1996
------------- -------------
OPERATING ACTIVITIES:
Net income $ 10,523 $ 13,308
Items not affecting cash:
Depreciation and amortization 7,333 4,594
Deferred income taxes (341) (664)
Minority interest in net income of
consolidated subsidiaries 6,035 -
Investment tax credits (140) (141)
Changes in current assets and liabilities, net:
Accounts receivable 35,448 (3,835)
Inventories 14,504 1,601
Other current assets (498) 4,335
Accounts payable (57,147) (1,826)
Accrued taxes 1,782 8,620
Accrued interest 2,051 (2,286)
Other current liabilities (1,490) 1,358
Other, net (288) (2,667)
----------------------------
Cash flows from operating activities 17,772 22,397
----------------------------
INVESTMENT ACTIVITIES:
Property additions (4,221) (7,252)
Sale (Purchase) of noncurrent investments, net 7,088 (2,425)
Purchase of working capital, net - (2,955)
----------------------------
Cash flows from (for) investment activities 2,867 (12,632)
----------------------------
FINANCING ACTIVITIES:
Dividends on common and preferred stock (4,174) (4,065)
Minority interest on preferred securities of
subsidiary trust (660) (660)
Redemption of preferred stock of subsidiary (2,687) -
Issuance (repayment) of long-term debt and
nonrecourse subsidiary debt (11,650) 963
Repayment of long-term debt (7,500) (1,932)
Commercial paper repayments - (3,500)
----------------------------
Cash flows for financing activities (26,671) (9,194)
----------------------------
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS (6,032) 571
Cash and Cash Equivalents, beginning of period 36,790 4,552
----------------------------
CASH AND CASH EQUIVALENTS, end of period $ 30,758 $ 5,123
============================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 1,792 -
Interest $ 6,689 $ 5,534
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 or controlled 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 March 31, 1997 and 1996, allowance for equity funds was
$31,203 and $35,510. Allowance for borrowed funds was $69,451 and $30,264
for the quarters ended March 31, 1997 and 1996.
(4) Change in Accounting Policy for Natural Gas Demand Costs -
Effective January 1, 1997, the Company changed its method of
accounting for demand costs for natural gas supplies. Prior to 1997,
demand costs were recognized as incurred which are generally consistent and
stable throughout the course of a normal year. Beginning January 1, 1997
these costs are being recognized in proportion to natural gas volumes
purchased. The Company believes that this provides for better matching of
expenses with revenues. There is no significant effect from this change on
an annual basis, but this change does impact interim reporting periods. On
a pro forma basis, giving effect to this change, earnings per share would
have been $1.09 for the three months ended March 31, 1996.
(5) Reclassifications -
Certain 1996 amounts have been reclassified to conform to the 1997
presentation. Such reclassifications had no impact on net income and
common stock equity as previously reported.
(6) Adoption of SFAS 128
Effective December 31, 1997, the Company will adopt Statement of
Financial Accounting Standards No. 128 (SFAS 128). SFAS 128 "Earnings Per
Share", establishes new accounting standards for the calculation of
earnings per share. Adoption of SFAS 128 will not have an effect upon the
Company's current period earnings per share.
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Northwestern Public Service is a diversified energy distribution
company with operations engaged in the propane, electric, and natural gas
industries. The Company generates and distributes electric energy to
56,000 customers in eastern South Dakota. It also purchases and
distributes natural gas to 78,000 customers in eastern South Dakota and
central Nebraska.
Through the acquisitions of Synergy Group Incorporated (Synergy) and
Myers Propane Gas Company (Myers) in 1995 and Empire Energy Corporation
(Energy) and CGI Holdings, Inc. (Coast) in 1996, the Company is engaged in
retail propane distribution business located throughout the United States.
On December 17, 1996, the Company's propane distribution businesses of
Coast, Energy, Myers and Synergy were combined into Cornerstone Propane
Partners, L.P. (Cornerstone), a publicly traded Delaware limited
partnership, formed to acquire and operate these propane businesses and
assets. The Company through its majority owned subsidiaries retained an
effective 2% general partner interest and a 39% subordinated limited
partnership interest in Cornerstone. A wholly owned subsidiary of the
Company serves as the general partner of Cornerstone and manages and
operates Cornerstone's business.
The Company's manufacturing operations are comprised of Lucht Inc., a
wholly owned subsidiary that develops, manufactures and markets multi-image
photographic printers and other related equipment.
Weather
Weather patterns have a material impact on the Company's operating
performance. Because propane and natural gas are heavily used for
residential and commercial heating, the demand for these products depends
heavily upon weather patterns throughout the Company's market areas. With a
larger proportion of its operations related to seasonal propane and natural
gas sales in 1997, the distribution of the Company's quarterly operating
performance will be different than in historical periods. A greater portion
of the Company's future operating income is expected to be recognized in
the first and fourth quarters related to higher revenues from the heating
season which will be partially offset by the change in accounting policy
for natural gas demand costs discussed in Note 4 of Notes to Consolidated
Financial Statements.
RESULTS OF OPERATIONS:
Earnings Comparisons -
Earnings per share for the quarter ended March 31, 1997, were $1.10
compared to $1.40 for the quarter ended March 31, 1996. Earnings per share
on a pro forma basis, giving effect to the change in accounting for natural
gas demand costs discussed in Note 4 would have been $1.09 for the quarter
ended March 31, 1996. The increase in earnings on a pro forma basis was
due to colder than normal weather in the Company's electric and natural gas
operating areas offset by substantially warmer than normal weather in the
Company's propane operating areas.
Electric and Natural Gas -
Retail electric sales and revenues both increased by 6%. Retail
natural gas sales volume increased by 5% while revenues increased 24%.
Electric and natural gas volumes increased due to colder weather in the
Company's electric and natural gas service areas as compared to the prior
year (7% on a weighted average basis). Natural gas revenues increased
significantly due to substantial increases in commodity market prices
during the winter heating season. Natural gas margins decreased compared
to the prior year due to a change in accounting for natural gas demand
costs. This change in accounting will effect interim periods but should
have no effect on an annual basis.
Propane -
Operating revenues increased significantly from $41.8 million in 1996
to $220.8 million in 1997. Gallons sold also increased from 40.7 million
in 1996 to 155.4 million in 1997. Revenues and gallons both increased due
to the acquisitions of two large retail propane distributors in late 1996
followed by the formation of Cornerstone in December 1996. The propane
operations for 1997 were effected by 13% warmer than normal weather
conditions during the principal winter heating months. The majority of
propane revenues and operating income occur in the first and fourth
quarters when propane is heavily sold for residential and commercial
heating as compared to the second and third quarters which traditionally
are net loss periods 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. For the first
quarter, manufacturing revenues decreased 3% from the first quarter of
1996, while operating income increased slightly. Slightly lower than
anticipated sales were offset by improvements in selling and engineering
expenses.
Other Income Statement Items -
Other operating expenses increased primarily due to the acquisition of
two large retail propane distributors in October and December 1996. Other
income increased in the first quarter of 1997 over 1996 primarily due to
higher investment income. The increase in depreciation reflects the
increase in depreciable propane assets when compared to the prior year.
The increase in interest expense is primarily related to the issuance of
$220 million nonrecourse notes by Cornerstone in December 1996 as part of
the Cornerstone partnership formation. The decrease in income taxes is due
to the minority interest effect upon the Company's consolidated net income.
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 March 31, 1997 and 1996 were $17.8 million and $22.4
million. The decrease was primarily due to working capital changes related
to larger propane operations in 1997 which was somewhat offset by increased
cash flows from propane operations. Cash equivalents and investment
securities totaled $162.2 million and $41.4 million at March 31, 1997 and
1996.
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 March 31, 1997,
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
retirements, 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 ended
March 31, 1997 and 1996 were $4.2 and $7.3 million. Included in such
construction activities were nonregulated capital expenditures of $1.2
million and $1.4 million during the three months ended March 31, 1997 and
1996. Capital expenditures for 1997, excluding propane, are estimated to
be $14.5 million with a large portion of expenditures to be spent on
enhancements of the electric and natural gas distribution systems.
Electric and natural gas related capital expenditures for the years 1997
through 2001 are estimated to be $69.1 million. Nonregulated maintenance
capital expenditures for 1997 are estimated to be $4.8 million. Estimated
nonregulated maintenance capital expenditures for the years 1997 through
2001 are estimated to be $18.8 million.
Capital requirements for the mandatory retirement of long-term debt
and mandatory preferred stock sinking fund redemptions totaled $5,271,000
during the year ended March 31, 1997, and it is expected that such
mandatory retirements will be $21.5 million in 1998, $14.0 million in 1999,
$6.5 million in 2000, and $6.5 million in 2001.
The Company anticipates that future capital requirements will be met
by significant liquid investments on hand, 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 III 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 7, 1997, the three
nominees were elected, receiving the following votes: Aelred J. Kurtenbach
7,915,509, M. D. Lewis 7,925,684, Gary Olson 7,912,596. Also submitted to
the common and preferred stockholders were two proposals to amend the
Company's Restated Certificate of Incorporation. Proposals 1 and 2 were
both approved. The results of the voting were as follows:
1. To increase the authorized shares of Common Stock to 50,000,000 shares
and to reduce the par value of the Common Stock to $1.75 per share.
6,864,727 For 1,051,607 Against 294,141 Abstain
2. To eliminate a provision (in Article Seventh) which states that
Directors need not be stockholders of the Company.
7,176,983 For 730,569 Against 280,857 Abstain
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(3) ARTICLES OF INCORPORATION AND BY-LAWS
Exhibit 3(i) - Certificate of Amendment of Restated Certificate
of Incorporation, dated May 7, 1997.
Exhibit 3(ii) - Registrant's By-Laws, as amended, dated May 7,
1997.
(10) MATERIAL CONTRACTS
Exhibit 10(i) - Long-term Incentive Compensation Plan (Phantom
Stock Unit Plan) for Directors and Officers, dated February 1,
1989, as amended May 7, 1997.
Exhibit 10(ii) - Form of Employment Agreement for Executive
Officers, including Change of Control Agreement and
Noncompetition Agreement, dated May 7, 1997.
Exhibit 10(iii) - NorthSTAR Incentive Plan for all eligible
employees, as amended May 7, 1997.
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: May 15, 1997 /s/ D. A. Monaghan
------------------------------------
Controller and Treasurer
Date: May 15, 1997 /s/ A. D. Dietrich
-----------------------------------
Vice President-Administration
and Corporate Secretary