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 QUARTERLY PERIOD ENDED MARCH 31, 1998
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 1-8788
SIERRA PACIFIC RESOURCES
(Exact name of registrant as specified in its charter)
NEVADA 88-0198358
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 10100 (6100 Neil Road)
Reno, Nevada 89520-0400
(89511)
(Address of principal executive office) (Zip Code)
(702) 834-4011
(Registrant's telephone number, including area code)
Indicate by check mark whether 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 [_]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at May 12, 1998
Common Stock, $1.00 par value 30,941,219 Shares
===============================================================================
1
SIERRA PACIFIC RESOURCES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
CONTENTS
PART I - FINANCIAL INFORMATION
------------------------------
Page No.
--------
ITEM 1. FINANCIAL STATEMENTS
Report of Independent Accountants.................................................... 3
Condensed Consolidated Balance Sheets - March 31, 1998 and
December 31, 1997................................................................ 4
Condensed Consolidated Statements of Income - Three Months
Ended March 31, 1998 and 1997.................................................... 5
Condensed Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1998 and 1997.................................................... 6
Notes to Condensed Consolidated Financial Statements................................. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.................................................................. 9
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS.............................................................. 11
ITEM 5. OTHER INFORMATION.............................................................. 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................... 11
Signature Page............................................................................ 12
Appendix.................................................................................. 14
2
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
Sierra Pacific Resources
Reno, Nevada
We have reviewed the accompanying condensed consolidated balance sheet of Sierra
Pacific Resources and subsidiaries as of March 31, 1998, and the related
condensed consolidated statements of income and cash flows for the three-month
periods ended March 31, 1998 and 1997. 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 conducted 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 consolidated statements of
capitalization of Sierra Pacific Resources and subsidiaries as of December 31,
1997, and the related consolidated statements of income, retained earnings, and
cash flows for the year then ended (not presented herein); and in our report
dated January 30, 1998, 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 December 31, 1997,
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Reno, Nevada
April 23, 1998
3
SIERRA PACIFIC RESOURCES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
March 31, December 31,
1998 1997
---- ----
(unaudited)
ASSETS
Utility Plant at Original Cost:
Plant in service $ 2,079,796 $ 2,063,269
Less: accumulated provision for depreciation 680,484 664,490
--------------- --------------
1,399,312 1,398,779
Construction work-in-progress 198,792 202,036
--------------- --------------
1,598,104 1,600,815
--------------- --------------
Investments in subsidiaries and other property, net 50,733 49,614
--------------- --------------
Current Assets:
Cash and cash equivalents 33,067 8,901
Accounts receivable less provision for uncollectible accounts
1998-$1,398; 1997-$1,704 94,025 103,356
Materials, supplies and fuel, at average cost 27,772 25,255
Other 5,831 2,885
--------------- --------------
160,695 140,397
--------------- --------------
Deferred Charges:
Regulatory tax asset 66,548 66,563
Other regulatory assets 62,179 63,476
Other 15,957 15,015
--------------- --------------
144,684 145,054
--------------- --------------
$ 1,954,216 $ 1,935,880
=============== ==============
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholder's equity $ 645,552 $ 633,394
Preferred stock 73,115 73,115
Preferred stock subject to mandatory redemption:
SPPC-Obligated Mandatory Redeemable Preferred Securities of
SPPC's subsidiary trust, Sierra Pacific Power Capital I, holding
solely $50 million principal amount 8.6% junior subordinated
debentures of SPPC, due 2036 48,500 48,500
Long-term debt 627,116 627,224
--------------- --------------
1,394,283 1,382,233
--------------- --------------
Current Liabilities:
Short-term borrowings 85,000 75,000
Current maturities of long-term debt and preferred stock 10,570 10,566
Accounts payable 48,362 62,105
Accrued interest 14,501 6,910
Dividends declared 11,469 10,941
Other current liabilities 47,540 34,360
--------------- --------------
217,442 199,882
--------------- --------------
Deferred Credits:
Accumulated deferred federal income taxes 161,022 165,076
Accumulated deferred investment tax credit 39,382 39,873
Regulatory tax liability 40,554 40,767
Customer advances for construction 32,532 38,478
Accrued retirement benefits 38,131 37,456
Other 30,870 32,115
--------------- --------------
342,491 353,765
--------------- --------------
$ 1,954,216 $ 1,935,880
=============== ==============
The accompanying notes are an integral part of the financial statements.
4
SIERRA PACIFIC RESOURCES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
THREE MONTHS ENDED
MARCH 31,
---------
1998 1997
---- ----
(UNAUDITED)
OPERATING REVENUES:
Electric $ 142,139 $134,655
Gas 31,366 28,177
Water 9,217 9,026
Other 1,760 1,455
------------- -------------
184,482 173,313
------------- -------------
OPERATING EXPENSES:
Operation:
Purchased Power 38,375 31,878
Fuel for power generation 23,880 22,807
Gas purchased for resale 19,331 14,792
Other 31,017 34,489
Maintenance 4,696 6,049
Depreciation and amortization 16,921 15,378
Taxes:
Income taxes 12,385 12,289
Other than income 4,905 4,714
------------- -------------
151,510 142,396
------------- -------------
OPERATING INCOME 32,972 30,917
------------- -------------
OTHER INCOME:
Allowance for other funds used during construction 971 1,434
Other income - net 240 1,079
------------- -------------
1,211 2,513
------------- -------------
Total Income Before Interest Charges 34,183 33,430
------------- -------------
INTEREST CHARGES:
Long-term debt 10,263 10,588
Other 1,908 769
Allowance for borrowed funds used during construction and
capitalized interest (1,682) (1,168)
------------- -------------
10,489 10,189
------------- -------------
INCOME BEFORE OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES 23,694 23,241
Preferred dividend requirements of SPPC-obligated
mandatorily redeemable preferred securities (1,043) (1,043)
------------- -------------
INCOME BEFORE PREFERRED DIVIDENDS 22,651 22,198
Preferred Dividend requirements of Subsidiary (1,365) (1,365)
------------- -------------
NET INCOME $ 21,286 $ 20,833
============= =============
Net Income Per Share- Basic $ 0.69 $ 0.68
============= =============
- Diluted $ 0.69 $ 0.67
============= =============
Weighted Average Shares of Common Stock Outstanding - Basic 30,930,712 30,847,315
============= =============
Dividends Paid Per Share of Common Stock $ 0.310 $ 0.295
============= =============
The accompanying notes are an integral part of the financial statements.
5
SIERRA PACIFIC RESOURCES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Three Months Ended
March 31,
1998 1997
------ ------
(Unaudited)
Income before preferred dividends: $22,651 $22,198
Non-cash items included in income:
Depreciation and amortization 16,921 15,378
Deferred taxes and deferred investment tax credit (4,742) (487)
AFUDC and capitalized interest (2,653) (2,601)
Early retirement and severance amortization 1,054 1,257
Other non-cash 159 (476)
Changes in certain assets and liabilities:
Accounts receivable 9,331 7,553
Materials, supplies and fuel (2,517) 1,294
Other current assets (2,946) (1,243)
Accounts payable (13,743) (10,593)
Other current liabilities 20,771 (3,575)
Other - net (2,015) 7,450
---------- ----------
Net Cash Flows From Operating Activities 42,271 36,155
---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant (24,893) (28,498)
Non-cash charges to utility plant 2,726 2,668
Net customer refunds and contributions in aid of construction 4,644 2,484
---------- ----------
Net cash used for utility plant (17,523) (23,346)
Disposal of (investments in) subsidiaries and other property - net (1,140) 572
---------- ----------
Net Cash Used In Investing Activities (18,663) (22,774)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings 10,637 8,654
Reduction of long-term debt (113) (107)
Sale of common stock 935 1,550
Dividends paid (10,901) (10,456)
---------- ----------
Net Cash Provided (used in) From Financing Activities 558 (359)
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 24,166 13,022
Beginning balance in Cash and Cash Equivalents 8,901 4,949
---------- ----------
Ending balance in Cash and Cash Equivalents $33,067 $17,971
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During Period For:
Interest $5,281 $4,805
Income Taxes - -
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
NOTE 1. MANAGEMENT'S STATEMENT
- --------------------------------
In the opinion of the management of Sierra Pacific Resources, hereafter
known as the Company, the accompanying unaudited interim condensed consolidated
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the condensed consolidated
financial position, condensed consolidated results of operations and
consolidated cash flows for the periods shown. These condensed consolidated
financial statements do not contain the complete detail or footnote disclosure
concerning accounting policies and other matters which are included in full year
financial statements and therefore, they should be read in conjunction with the
Company's audited financial statements included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997. Deloitte & Touche LLP, the
Company's independent accountants, have performed a review of the unaudited
condensed consolidated financial statements, and their report has been included
in this report.
The results of operations for the three month period ended March 31, 1998
are not necessarily indicative of the results to be expected for the full year.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Sierra Pacific Power Company (SPPC),
Tuscarora Gas Pipeline Company (TGPC), Sierra Gas Holding Company (formerly
Sierra Energy Company), Sierra Energy Company dba e.three (e.three), Sierra
Pacific Energy Company (SPE), Lands of Sierra (LOS), and Sierra Water
Development Company (SWDC). All significant intercompany transactions and
balances have been eliminated in consolidation.
Reclassifications
-----------------
Certain items previously reported for years prior to 1998 have been
reclassified to conform with the current year's presentation. Net income and
shareholder's equity were not affected by these reclassifications.
NOTE 2. RECENT PRONOUNCEMENTS OF THE FASB
- -------------------------------------------
On June 30, 1997, the FASB issued SFAS 131 entitled "Disclosure About
Segments of an Enterprise and Related Information". This statement establishes
additional standards for segment reporting in the financial statements and is
effective for fiscal years beginning after December 15, 1997. Management has
not determined the effect of this statement on its financial statement
disclosure.
In February 1998, the FASB issued SFAS 132 entitled "Employers' Disclosures
about Pensions and Other Postretirement Benefits". This statement revises
employers' disclosures about pension and other postretirement benefit plans for
fiscal years beginning after December 15, 1997. The statement does not change
the measurement or recognition of those plans. Therefore, management believes
this statement will not have a material impact on the financial statements of
the Company.
NOTE 3. EARNINGS PER SHARE
- ----------------------------
The Company adopted SFAS No. 128, "Earnings Per Share" for the period ended
December 31, 1997. This pronouncement supersedes APB Opinion No. 15, "Earnings
Per Share" and establishes new standards for computing and presenting EPS.
Previously reported primary and fully diluted EPS are replaced with basic and
diluted EPS. The difference between Basic EPS and Diluted EPS is due to common
stock equivalent shares resulting from stock options, employee stock purchase
plan, performance shares and a non-employee director stock plan. Common stock
equivalents were determined using the treasury stock method. Prior period EPS
have been restated to conform with the new statement.
7
The following provides a reconciliation of Basic EPS and Diluted EPS.
Three Months
Ended March 31,
----------------
1998 1997
---- ----
Basic EPS
Numerator
---------
Income available to common
stockholders ($000) $ 21,286 $ 20,833
--------- --------
Denominator
-----------
Weighted average number of shares
outstanding 30,930,712 30,847,315
---------- ----------
Per-Share Amount $0.69 $0.68
----------------
========== ==========
Diluted EPS
Numerator
---------
Income available to common
stockholders ($000) $21,286 $20,833
---------- ----------
Denominator
-----------
Weighted average number of shares
outstanding before dilution 30,930,712 30,847,315
Stock options 32,184 27,557
Executive long term incentive plan
- performance shares 15,226 32,904
Non-employee stock plan 5,573 5,573
Employee stock purchase plan 1,313 1,100
---------- ----------
30,985,008 30,914,449
---------- ----------
Per-Share Amount $0.69 $0.67
---------------- ========== ==========
NOTE 4. LONG-TERM DEBT
- ------------------------
The Company redeemed $10 million of senior notes, Series C on April 1, 1998.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIERRA PACIFIC POWER COMPANY (SPPC)
- -----------------------------------
Management Discussion and Analysis of SPPC is contained in its Quarterly
Report on Form 10-Q for the three months ended March 31, 1998, which is attached
as an appendix.
TUSCARORA GAS PIPELINE COMPANY
- ------------------------------
For the three months ended March 31, 1998, Tuscarora Gas Pipeline Company
contributed net income of $.5 million compared to $.3 million for the comparable
period in 1997 due to higher firm transportation revenues and interruptible
transportation revenue.
LANDS OF SIERRA
- ---------------
For the three months ended March 31, 1998, Lands of Sierra incurred a net
loss of $.02 million compared to $.10 million net income in 1997. The 1997
income resulted from commercial property sales.
As discussed in Sierra Pacific Resources' Annual Report on Form 10-K for
1997, Lands of Sierra owns several parcels of commercial property at Lake Tahoe
where it was determined that there has been soil and groundwater contamination
from fuel storage tanks. Remediation, which began in December 1997, involves an
enhanced biologic treatment process. A Request for Closure is tentatively
scheduled for submission to the State of California in December 1998. Lands of
Sierra has an accrued contingency of $773,000, which management considers to be
adequate.
E.THREE
- -------
For the three months ended March 31, 1998, e.three incurred a net loss of
$.4 million and $.2 million in 1997. The increase in losses was due to the
continuation of start-up activities, primarily staffing requirements.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
----------------------------------------------------
During the first three months of 1998, the Company earned $22.7 million in
income before preferred dividends and declared a common stock divided of
approximately $10 million. On the same date, SPPC's Board declared both common
($19 million) and preferred ($1.4 million) dividends, payable May 1 and June 1,
1998.
The Company redeemed $10 million of Senior Notes, Series C, in April, 1998.
CONSTRUCTION EXPENDITURES AND FINANCING
- ---------------------------------------
Substantially all capital expenditures relate to SPPC. A description of
construction expenditures and financing of SPPC is contained in its Quarterly
Report Form 10-Q for the period ended march 31, 1998, attached as an appendix.
MERGER
- ------
As reported in Sierra Pacific Resources (SPR) Report on Form 8-K dated
April 29, 1998, SPR and Nevada Power Company entered into an Agreement and Plan
of Merger, dated as of April 29, 1998, providing for a merger of equals
transaction among the companies. Pursuant to the Merger Agreement, LAKE Merger
Sub ( a wholly-owned subsidiary of SPR) will first merge into SPR, with SPR
being the surviving corporation. Immediately thereafter, Nevada Power will
merge in DESERT Merger Sub ( a wholly-owned subsidiary of SPR), with DESERT
Merger Sub being the surviving corporation and continuing as a wholly-owned
subsidiary of SPR.
9
The Mergers are subject to certain customary closing conditions, including,
without limitation, the receipt of the required stockholder approvals of SPR and
Nevada Power. Additionally, the mergers require the receipt of all necessary
governmental approvals, including the Federal Regulatory Commission and the
Public Utilities Commission of Nevada. Approvals from the common shareholders
will be sought at meetings which are expected to be held in the third quarter of
1998. The companies anticipate the regulatory approval process can be completed
in about one year. Nevada has a 180-day approval process by statute.
The merger will be accounted for using the purchase method of accounting.
Each stockholder of SPR will have the opportunity to elect to receive 1.44
shares of the combined company's common stock per share or $37.55 in cash per
share. Each stockholder of Nevada Power will have the right to receive 1.00
shares of the combined company's common stock or $26.00 in cash per share. To
fund the cash portion of the consideration paid to both the SPR and Nevada Power
stockholders, the combined company intends to borrow approximately $450 million.
Net merger savings of approximately $350 million are estimated to be achieved in
the ten-year period following the consummation of the merger.
See the Form 8-K for additional details relating to the terms of the
proposed merger and Merger Agreement.
10
PART II
-------
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed with this Form 10-Q:
(15) Letter of independent accountants acknowledging awareness
regarding unaudited interim financial information of the Company.
(27) The Financial Data Schedule containing summary financial
information extracted from the condensed consolidated financial
statements on Form 10-Q for the period ended March 31, 1998, for
Sierra Pacific Resources, and is qualified in its entirety by
reference to such financial statements.
(b) Reports on Form 8-K:
Filed January 15, 1998 Item 5, Other Events.
Reported that Malyn K. Malquist was named President and Chief Executive
Officer of Sierra Pacific Resources and Sierra Pacific Power Company. Also
reported the departure of Walter M. Higgins, who held the positions Mr. Malquist
is assuming.
11
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.
Sierra Pacific Resources
-----------------------------
(Registrant)
Date: May 15, 1998 By: /s/ Mark A. Ruelle________
------------------------ -----------------------------
Mark A. Ruelle
Senior Vice President
Chief Financial Officer
(Principal Financial Officer)
(Principal Accounting Officer)
12