UNITED STATES 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 period ended May 31, 1995
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 number 1-3789
SOUTHWESTERN PUBLIC SERVICE COMPANY
(Exact name of registrant as specified in its charter)
New Mexico 75-0575400
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Tyler at Sixth, Amarillo, Texas 79101
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code (806) 378-2121
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. Yes X No __
As of July 11, 1995, 40,917,908 shares of the Company's common stock
were outstanding.
SOUTHWESTERN PUBLIC SERVICE COMPANY
FORM 10-Q
For the Quarter Ended May 31, 1995
TABLE OF CONTENTS
PART I. Financial Information
Condensed Consolidated Balance Sheets at May 31, 1995
and August 31, 1994
Condensed Consolidated Statements of Earnings for the three,
nine and twelve months ended May 31, 1995 and May 31, 1994
Condensed Consolidated Statements of Cash Flows for the
nine and twelve months ended May 31, 1995 and May 31, 1994
Notes to Condensed Consolidated Financial Statements
Independent Accountants' Report
Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. Other Information
Signatures
Exhibit 12. Statement of Computation of Ratio of Earnings
PART I. FINANCIAL INFORMATION
SOUTHWESTERN PUBLIC SERVICE COMPANY
Condensed Consolidated Balance Sheets
Assets
May 31, August 31,
1995 1994
(Unaudited)
(In Thousands)
Utility plant:
Utility plant in service $2,282,442 $2,280,126
Accumulated depreciation (832,399) (794,102)
Net plant in service 1,450,043 1,486,024
Construction work in progress 83,044 22,590
Net utility plant 1,533,087 1,508,614
Nonutility property and investments 53,421 41,868
Current assets:
Cash and temporary investments 27,671 20,782
Accounts receivable, net 56,577 69,357
Accrual for unbilled revenues 8,063 21,318
Materials and supplies, at average cost 19,904 18,238
Prepayments and other current assets 12,490 8,555
Total current assets 124,705 138,250
Deferred debits 128,459 132,503
Total assets $1,839,672 $1,821,235
Continued . . .
SOUTHWESTERN PUBLIC SERVICE COMPANY
Condensed Consolidated Balance Sheets
Capitalization and Liabilities
May 31, August 31,
1995 1994
(Unaudited)
(In Thousands)
Capitalization:
Common stock, $1 par value, authorized - 100,000,000 shares;
issued and outstanding - 40,917,908 shares $ 40,918 $ 40,918
Premium on capital stock 306,376 306,376
Retained earnings 343,980 348,878
Total common shareholders' equity 691,274 696,172
Preferred stock - redemption not required 72,680 72,680
Long-term debt 576,201 506,487
Total capitalization 1,340,155 1,275,339
Current liabilities:
Short-term debt - 14,994
Current maturities of long-term debt 325 16,741
Accounts payable 8,970 12,301
Liability for refunds to customers 2,107 3,804
Interest accrued 15,749 8,799
Fuel and purchased power expense accrued 32,506 40,884
Taxes accrued 20,188 30,359
Dividends payable on common stock 22,505 22,505
Other current liabilities 33,475 35,092
Total current liabilities 135,825 185,479
Deferred credits:
Deferred income taxes 346,449 339,456
Unamortized investment tax credits 6,116 6,303
Other 11,127 14,658
Total deferred credits 363,692 360,417
Total capitalization and liabilities $1,839,672 $1,821,235
See accompanying notes to condensed consolidated financial statements.
SOUTHWESTERN PUBLIC SERVICE COMPANY
Condensed Consolidated Statements of Earnings
(Unaudited)
Three Months Ended Nine Months Ended Twelve Months Ended
5-31-95 5-31-94 5-31-95 5-31-94 5-31-95 5-31-94
(In Thousands, Except Per Share Amounts)
Operating revenues $205,187 $196,173 $574,251 $588,636 $829,063 $833,108
Operating expenses:
Operation:
Fuel 95,054 95,723 262,702 285,162 380,74 399,644
Purchased power 1,069 997 3,399 3,432 4,572 4,627
Other 25,717 26,778 77,129 77,433 106,990 106,795
Maintenance 7,261 7,908 23,207 21,513 29,970 28,043
Depreciation and amortization 15,292 14,448 45,871 45,681 60,741 60,927
Taxes other than property and
income taxes 4,389 4,536 14,055 14,310 19,216 19,386
Property taxes 6,074 5,765 17,935 16,703 23,700 22,799
Income taxes (note 2) 14,294 10,964 36,043 35,122 58,779 55,813
Total operating expenses 169,150 167,119 480,341 499,356 684,714 698,034
Operating income 36,037 29,054 93,910 89,280 144,349 135,074
Other income, net:
Income taxes (note 2) (857) (575) (2,074) (1,828) (778) (2,213)
Other, net 2,202 1,513 5,709 5,933 3,179 7,739
Total other income, net 1,345 938 3,635 4,105 2,401 5,526
Earnings before interest charges 37,382 29,992 97,545 93,385 146,750 140,600
Interest charges 10,953 10,213 31,270 30,189 41,504 40,367
Net earnings 26,429 19,779 66,275 63,196 105,246 100,233
Dividends and premiums on cumu-
lative preferred stock 1,219 1,219 3,658 3,658 4,878 5,261
Earnings applicable to
common stock $ 25,210 $ 18,560 $ 62,617 $ 59,538 $100,368 $ 94,972
Earnings per common share* $ 0.62 $ 0.45 $ 1.53 $ 1.46 $ 2.45 $ 2.32
Weighted average shares
outstanding 40,918 40,918 40,918 40,918 40,918 40,918
Dividends declared per
common share $ 0.55 $ 0.55 $ 1.65 $ 1.65 $ 2.20 $ 2.20
( ) Denotes deduction.
*Based on weighted average shares outstanding.
See accompanying notes to condensed consolidated financial statements.
SOUTHWESTERN PUBLIC SERVICE COMPANY
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended Twelve Months Ended
5-31-95 5-31-94 5-31-95 5-31-94
(In Thousands)
Operating Activities:
Cash received from customers $ 597,886 $ 617,666 $ 831,822 $ 835,958
Cash paid to suppliers and employees (384,192) (397,076) (523,734) (530,830)
Interest paid (24,420) (24,022) (39,967) (39,081)
Income taxes paid (36,663) (36,098) (47,691) (48,986)
Taxes other than income taxes paid (35,294) (35,291) (41,391) (44,417)
Other operating cash receipts and payments, net 4,495 3,439 13,808 9,188
Net cash provided by operating activities 121,812 128,618 192,847 181,832
Investing Activities:
Construction expenditures (70,501) (74,164) (88,125) (90,187)
Nonutility property and investments (11,553) (9,411) (14,906) (11,369)
Net cash used in investing activities (82,054) (83,575) (103,031) (101,556)
Financing Activities:
Issuance of long-term debt 70,000 - 70,000 -
Retirement of long-term debt (16,702) (25,200) (17,046) (25,459)
Change in short-term debt (14,994) 49,000 (49,000) 49,000
Dividends paid (common and preferred) (71,173) (71,173) (94,898) (95,280)
Net cash used in financing activities (32,869) (47,373) (90,944) (71,739)
Net Increase (Decrease) in Cash and Temporary Investments 6,889 (2,330) (1,128) 8,537
Cash and Temporary Investments at Beginning of Period 20,782 31,129 28,799 20,262
Cash and Temporary Investments at End of Period $ 27,671 $ 28,799 $ 27,671 $ 28,799
Reconciliation of Net Earnings to Net Cash Provided
by Operating Activities:
Net earnings $ 66,275 $ 63,196 $ 105,246 $ 100,233
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 45,871 45,681 60,741 60,927
Deferred income taxes 8,586 8,507 11,644 10,158
Investment tax credits (188) (188) (250) (250)
Allowance for equity funds used during construction (219) (571) (207) (1,067)
Total 120,325 116,625 177,174 170,001
Cash flows impacted by changes in:
Accounts receivable 12,780 17,576 (716) 950
Accrual for unbilled revenues 13,255 11,965 3,594 5,163
Materials and supplies (1,666) (933) (2,228) (1,336)
Accounts payable (3,331) (1,480) (779) 60
Fuel and purchased power expense accrued (8,378) (9,633) 949 1,585
Taxes accrued (10,171) (11,664) 6,105 176
Liability for refunds to customers (1,697) 232 839 (2,226)
Other, net 695 5,930 7,909 7,459
Net cash provided by operating activities $ 121,812 $ 128,618 $ 192,847 $ 181,832
See accompanying notes to condensed consolidated financial statements.
SOUTHWESTERN PUBLIC SERVICE COMPANY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Interim periods. The results of operations for the interim periods are
not necessarily an indication of the expected results for the fiscal year due
to the seasonal nature of Southwestern Public Service Company's (the Company)
business. The unaudited condensed consolidated financial statements included
herein were prepared from the books of the Company in accordance with
generally accepted accounting principles and reflect all adjustments (none of
which are other than normal recurring adjustments) which are, in the opinion
of management, necessary to provide a fair statement of the results of
operations and financial position for the interim periods. Such financial
statements generally conform to the presentation reflected in the Company's
Annual Report to Shareholders. The current interim periods reported herein
are included in the fiscal year subject to independent audit at the end of
the year.
(2) Income taxes. The components of income tax expense (benefit) are as
follows:
Three Months Ended Nine Months Ended Twelve Months Ended
5-31-95 5-31-94 5-31-95 5-31-94 5-31-95 5-31-94
(In Thousands)
Taxes on operating income:
Federal-current $10,675 $ 5,440 $26,165 $25,008 $45,035 $43,356
Federal-deferred 3,266 5,213 8,963 9,156 12,195 10,854
Investment tax credits (63) (62) (188) (188) (250) (250)
State-current 416 373 1,103 1,146 1,799 1,853
14,294 10,964 36,043 35,122 58,779 55,813
Taxes on other income:
Federal-current 1,097 558 2,430 2,476 1,309 2,910
Federal-deferred (249) 17 (377) (648) (552) (697)
State-current 9 - 21 - 21 -
857 575 2,074 1,828 778 2,213
Total income taxes $15,151 $11,539 $38,117 $36,950 $59,557 $58,026
(3) Long-term debt. The Company issued $70 million of First Mortgage Bonds
(Bonds) on February 22, 1995. The proceeds from the Bonds were applied
primarily to the retirement of short-term debt.
(4) Rate and regulatory matters. On December 19, 1989, the FERC issued its
order regarding the 1985 rate case (see Note 10 in Form 10-K for fiscal years
1985 and 1989), and on October 18, 1990, denied rehearing of that order. The
Company appealed certain portions of the order that related to recognition in
rates of the reduction of the federal income tax rate from 46% to 34%. The
United States Court of Appeals for the District of Columbia Circuit remanded
the case, directing the FERC to reconsider the Company's claim of an
offsetting cost and limiting the FERC's actions. The FERC issued its Order on
Remand in July, 1992, required filings were made and a hearing was completed
in February 1994. In October 1994, the administrative law judge issued a
favorable initial decision that, if approved by the FERC, would result in a
substantial recovery by the Company. Negotiated settlements with the
Company's partial requirements customers and Texas-New Mexico Power Company
were approved by the FERC in July 1993 and September 1993, respectively, and
totaled $2.8 million. In May 1995, a settlement with the Company's New Mexico
cooperative customers amounting to $6.9 million, including interest, was
filed with the FERC and an order accepting this settlement is expected in
August 1995. Resolutions with the remaining wholesale customers, Golden
Spread member cooperatives and Lyntegar Electric Cooperative have not been
reached. Until a final order is issued by the FERC, the Company is unable to
accurately estimate the remaining amount recoverable from these proceedings.
A Public Utility Commission of Texas (PUCT) substantive rule requires
periodic examination of the Company's fuel and purchased power costs, the
efficiency of the use of such fuel and purchased power, fuel acquisition and
management policies and purchase power commitments (see Item 1. Business -
Fuel Supply and Purchased Power in the Company's 1994 Form 10-K). On May 1,
1995, the Company filed with the PUCT, a petition for a fuel reconciliation
for the months of January 1992 through December 1994. The Commission has
scheduled hearings to begin September 6, 1995.
(5) General. See note (1) of Notes to Consolidated Financial Statements in
the Company's 1994 Annual Report on Form 10-K for a summary of the Company's
significant accounting policies.
Independent Accountants' Report
Southwestern Public Service Company:
We have reviewed the accompanying condensed consolidated balance sheet of
Southwestern Public Service Company and subsidiaries as of May 31, 1995, and
the related condensed consolidated statements of earnings for the three-
month, nine-month and twelve-month periods ended May 31, 1995 and 1994, and
cash flows for the nine-month and twelve-month periods ended May 31, 1995 and
1994. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet and statement of capitalization of
Southwestern Public Service Company and subsidiaries as of August 31, 1994,
and the related consolidated statements of income, stockholders' equity, and
cash flows for the year then ended (not presented herein); and in our report
dated October 7, 1994, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of August 31,
1994, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
Deloitte & Touche LLP
July 11, 1995
Dallas, Texas
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Operating Revenues and Kilowatt-Hour Sales
Substantially all of the Company's operating revenues result from the sale
of electric energy. The principal factors determining revenues are the amount
and price per unit of energy sold. The following table describes the
principal components of changes in revenues.
Increase (Decrease) From Corresponding Prior Period
Three Months Nine Months Twelve Months
Ended Ended Ended
5-31-95 5-31-95 5-31-95
(Dollars In Thousands)
Estimated effect on revenues of variations in:
Kilowatt-hour (kwh) sales * $ 10,744 $ 13,287 $ 33,906
Rates 2,387 1,470 (3,154)
Fuel and purchased power cost recovery (2,615) (16,469) (19,511)
Subtotal 10,516 (1,712) 11,241
Non-firm kwh sales (1,502) (12,673) (15,286)
Total revenue increase (decrease) $ 9,014 $(14,385) $ (4,045)
Increase in kwh sales* (in millions) 315 409 872
Decrease in non-firm kwh sales (in millions) (26) (449) (521)
*Comprised of retail and wholesale excluding economy and interruptible (non-firm) wholesale kwh sales.
Variations in Kwh Sales. The revenue increases in all periods are
attributable primarily to increased wholesale sales to rural electric
cooperatives (RECs). These increases are principally due to sales to Cap Rock
Electric Cooperative that began in February 1994 and increased to 100% of Cap
Rock's requirements on February 15, 1995. Increased irrigation resulting from
dry weather also contributed to greater REC sales. Sales in the twelve-month
period were also favorably impacted by record-breaking hot weather in June
and July 1994. Improved economic conditions also caused increases in retail
kwh sales in all periods.
Variations in Rates. Revenues increased in the three- and nine-month
periods due primarily to contractually set demand charges for certain
wholesale customers. Although firm wholesale kwh sales declined, the average
revenue per kwh sold increased due to such contractual demand charges. The
decline in the twelve-month period is due primarily to the effects of the
retail rate reductions in Texas and New Mexico. In Texas reduced rates
totaling approximately $13 million annually were implemented October 15,
1993. In New Mexico an approximate
$4 million annual reduction became effective April 1, 1994.
Variations in Fuel and Purchased Power Cost Recovery. Revenue decreases are
due to lower natural gas prices in all periods. Marginally lower coal costs
also contributed to the decline in the twelve-month period.
Variations in Non-Firm Kwh Sales. The amount of revenues arising from non-
firm sales is dependent, in large part, upon the availability of
hydroelectric power from the Northwest and competing generation from major
plants in the West. Lower non-firm sales in all periods were due primarily to
available power from these major western plants and excess hydroelectric
power in the Northwest. Mild weather throughout the region also contributed
to the decline in the three- and nine-month periods.
Operating Expenses and Non-Operating Items
Fuel and purchased power expense comprised 56.8%, 55.4% and 56.3% of total
operating expenses for the three, nine and twelve months ended May 31, 1995,
respectively. When compared to the corresponding periods last year, these
expenses decreased $0.6 million or 0.6%, $22.5 million or 7.8% and $19.0
million or 4.7%, respectively. Fuel expense (excluding purchased power
expense), per net kwh generated, decreased from 1.90 to 1.81 cents, from 1.89
to 1.76 cents, and from 1.89 to 1.77 cents for the respective three-, nine-
and twelve-month periods because of lower spot-market prices for natural gas
in all periods and lower coal costs in the twelve-month period.
Total operating expenses, excluding fuel and purchased power, increased
$2.6 million or 3.7%, $3.5 million or 1.7%, and $5.6 million or 1.9%, for the
respective three-, nine- and twelve-month periods. The increases for the
nine- and twelve-month periods resulted primarily from scheduled power plant
maintenance. The rise in the three-month period is due primarily to increased
income taxes as a result of higher income. Property taxes were greater in all
periods due to continuing escalation of ad valorem taxes in the state of
Texas related to school funding. Increased utility plant also contributed to
the rise in property taxes. Management does not expect significant increases
in the future related to such Texas school funding.
An increase in "other income" for the three-month period is due to
increased subsidiary income and allowance for funds used during construction
(AFUDC). A decline in "other income" in the twelve-month period is due to
previously reported nonrecurring expenses.
Earnings
Current operating income and earnings applicable to common stock increased
for all periods due principally to the increased kwh sales to RECs.
Assuming normal weather conditions, earnings for the 1995 fiscal year are
expected to improve. Additionally, settlement of the 1985 FERC rate case with
the New Mexico wholesale cooperative customers (see note 4) is expected to
add approximately $4.5 million, including interest, (after tax) or 11 cents
per share to earnings in the fourth quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's demand for capital is primarily related to the construction
of utility plant and equipment. Cash construction expenditures excluding
AFUDC for the three, nine and twelve months ended May 31, 1995, were $25.9
million, $70.5 million and $88.1 million, respectively. The Company cannot
accurately forecast the portion of capital expenditures to be provided from
internally generated funds, but expects that it will be approximately 70% in
fiscal 1995.
The Company issued $70 million of 8.5% First Mortgage Bonds (Bonds) on
February 22, 1995. The proceeds from such Bonds were applied to the
retirement of short-term debt. The Company has effective a shelf registration
under which remains an aggregate of $130 million of Bonds and Cumulative
Preferred Stock that may be issued (a maximum of $40 million Preferred Stock
is issuable thereunder).
PART II. OTHER INFORMATION
Item 5. Other Information.
The Company's ratio of earnings to fixed charges for the twelve months
ended May 31, 1995, was 4.70. The ratio of earnings to fixed charges and
preferred dividend requirements combined was 4.01 for such period.
The Company has agreed in principle to purchase TUCO, Inc., (TUCO) a
wholly owned subsidiary of Cabot Corporation, for $75 million. TUCO owns the
coal inventory maintained at the Company's Harrington and Tolk generating
stations. It also administers contracts with coal mines, railroads and the
coal-handling operator at the two coal-fueled power plants. This purchase is
expected to lower fuel costs. Regulatory approval is required.
On June 9, 1995, Central and Southwest Corporation (CSW) terminated its
merger agreement with El Paso Electric Company (EPE), and revoked EPE's
Modified Third Amended Plan of Reorganization. On June 23, 1995, the Company
filed a motion with the FERC requesting that the Section 211 application for
a mandatory transmission order filed by CSW and EPE be dismissed as moot.
(See Item 1. Business - Other in the Company's 1994 Form 10-K.)
On May 31, 1995, the Company filed applications with the FERC for
approval of proposed Open Access Transmission Service Tariffs and Market
Based Generation Power Sales Rates. Approval of these tariffs and rates will
enable the Company to participate in the increasingly competitive wholesale
power markets. The Company's proposed transmission service tariffs are
designed to meet the Commission's recently announced standards for comparable
open access transmission services.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
4 Supplemental Indenture dated February 15, 1995, to the Indenture
of Mortgage and Deed of Trust dated August 1, 1946
12 Statement showing computations of ratio of earnings for the twelve
months ended May 31, 1995
15 Letter of Deloitte & Touche LLP regarding unaudited condensed
consolidated interim financial information
(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.
SOUTHWESTERN PUBLIC SERVICE COMPANY
Doyle R. Bunch II
Executive Vice-President
Accounting and Corporate Development
DATE: July 11, 1995