UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of earliest event reported: December 17, 1999
THE MONTANA POWER COMPANY
(Exact name of registrant as specified in its charter)
Montana 1-4566 81-0170530
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
40 East Broadway, Butte, Montana 59701-9394
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (406) 723-5421
Exhibit Index is found on page 14.
<PAGE>
ITEM 2. Disposition of Assets
On December 17, 1999, pursuant to an Asset Purchase Agreement dated as
of October 31, 1998 and amended on June 29, 1999 and October 29, 1999 (the
"Agreement"), we sold substantially all of our electric generating assets and
related contracts, and associated transmission assets totaling less than forty
miles, to PP&L Global, Inc. ("PP&L Global"), a subsidiary of PP&L Resources,
Inc. The properties transferred to PP&L Global, collectively referred to as
the "Assets," include 11 of our 12 hydroelectric facilities; a storage
reservoir; a coal-fired thermal generating plant at Billings, Montana; all of
our interest in three coal-fired thermal generating plants at Colstrip,
Montana; other related assets, including inventories associated with the power
plants; and certain power-purchase agreements. The total gross capacity of
the hydroelectric facilities and coal-fired thermal generating plants sold to
PP&L Global is 1,314.5 megawatts ("MWs").
The sale does not include our Milltown Dam near Missoula, Montana (gross
capacity of 3 MWs) or any of our power-purchase contracts with qualifying
facilities. It also does not include our leased share of the Colstrip Unit
No. 4 generation and transmission assets (our share of gross capacity equal to
241.5 MWs).
The cash proceeds received on December 17, 1999 for the sale of the
Assets, including related adjustments for such items as inventory and property
taxes, were approximately $757,600,000. For purposes of preparing our pro
forma financial position as of September 30, 1999, however, we adjusted cash
proceeds - net of $12,135,000 of transaction costs - to $749,018,000 to
reflect prepayments and accruals through September 30, 1999. We have recorded
$160,257,000 of regulatory liabilities on our pro forma balance sheet,
representing $749,018,000 in net cash realized from the sale, less (a)
$511,935,000 in the cost basis of the Assets and (b) $122,540,000 in current
income taxes, plus (c) $45,714,000 of other adjustments.
These regulatory liabilities reflect our willingness to share after-tax
proceeds in excess of the total cost basis of the Assets with our electric
customers. As part of our July 1999 Tier II Transition filing to the Montana
Public Service Commission ("MPSC"), we plan to deduct from the regulatory
liabilities approximately $39,700,000 of other generation-related transition
costs and approximately $66,100,000 of regulatory asset transition costs. The
other generation-related transition costs consist mainly of selling, general,
and administrative costs and costs to retire debt. The regulatory asset
transition costs consist mainly of capitalized conservation costs and carrying
charges associated with Colstrip Unit No. 3.
The Tier II filing addresses the recovery and treatment of the
qualifying facility power-purchase contract costs, which are above-market
costs; regulatory assets associated with our electric generating business; and
a review of the sale of the Assets, including the treatment of sales proceeds
in excess of the total cost basis of the Assets. We will file an updated Tier
II filing as a result of the closing of the sale, but do not expect an order
from the MPSC until late in the third quarter or early in the fourth quarter
of 2000.
PP&L Global is seeking to acquire 1,058 MWs of additional gross capacity
in Colstrip, Montana from Puget Sound Energy ("Puget") and Portland General
Electric ("Portland"). The Agreement provides that, if Puget and Portland
both close their transactions, we will receive an additional $152,000,000 from
PP&L Global for added value. The added value would arise from the controlling
interest in Colstrip Units Nos. 1, 2, and 3 that PP&L Global would hold as a
result of the combination of our former assets with those of Puget and
Portland. If either Puget or Portland - but not both - closes its respective
transaction, we will receive $117,000,000 from PP&L Global for the added value
<PAGE>
rather than the $152,000,000 referenced above. In any event, these additional
proceeds would be available to further reduce other transition costs.
If neither Puget or Portland closes its transaction, the Agreement
provides that PP&L Global - subject to the receipt of required regulatory
approvals - will purchase the portion of our 500-kilovolt-transmission system
not associated with Colstrip Unit No. 4. Our sales proceeds from PP&L Global
for these properties would be $97,100,000. None of these contingent receipts
- - $152,000,000, $117,000,000, or $97,100,000 - is included in the pro forma
financial information, nor is any return that we might have earned on the
sales proceeds.
Of the net pro forma cash proceeds of $749,018,000, we expect to use the
$511,935,000 relating to the total cost basis of the Assets for general
corporate purposes. We also expect to use the $66,061,300 used to settle
generation-related regulatory asset transition costs, available as described
above, for general corporate purposes. General corporate purposes comprise
funding utility and nonutility projects, including those involving our
telecommunications subsidiary, Touch America; reducing debt; and purchasing
shares of our common stock.
For more information on the Assets, the terms and events leading to the
sale, and the accounting and regulatory implications of the sale, see the
following sections of our 1998 Annual Report on Form 10-K: (a) Part II, Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Competitive Environment, Utility Changes, Electric Utility," and
(b) Part II, Item 8, "Financial Statements and Supplementary Data," Note 4,
"Deregulation and asset divestiture."
ITEM 7. Financial Statements and Exhibits
(b) Unaudited Pro Forma Financial Information
We disclosed the execution of the Agreement on a Form 8-K filed with the
Securities and Exchange Commission on November 6, 1998, and we included the
Agreement as an exhibit to that filing. The amendments are included as
Exhibit 2a and Exhibit 2b. A press release related to the Agreement is
included as Exhibit 99a.
The following unaudited Pro Forma Consolidated Financial Information
illustrates the effects of the sale of Assets discussed in Item 2 on our
results of operations and financial position. The Pro Forma Consolidated
Statements of Income for the Year Ended December 31, 1998, and for the Nine
Months Ended September 30, 1999, were prepared as if the sale occurred on
January 1, 1998, but exclude nonrecurring items relating to the sale. The Pro
Forma Consolidated Balance Sheet at September 30, 1999, was prepared as if
the sale occurred on September 30, 1999. None of the Unaudited Pro Forma
Consolidated Financial Information includes any returns that we might have
earned on the sales proceeds.
The unaudited Pro Forma Consolidated Financial Information is presented
for illustrative purposes only and does not purport to (i) represent what our
results of operations or financial position would have been had the
transaction described in fact occurred at the beginning of the periods or on
the date indicated, or (ii) project our results of operations or financial
position for any future period or date. The pro forma disposition adjustments
are based upon available information that we believe is reasonable under the
circumstances.
The Assets were not part of a separately incorporated business unit, but
were integrated with our existing utility business. The following unaudited
Pro Forma Consolidated Financial Information, therefore, is dependent on the
assumptions described in the footnotes and should be read in conjunction with
<PAGE>
(a) our audited consolidated financial statements for the year ended
December 31, 1998, including footnotes, as contained in our 1998 Annual Report
on Form 10-K, and (b) our unaudited consolidated financial statements for the
nine months ended September 30, 1999, including footnotes, as contained in our
1999 third quarter report on Form 10-Q.
<PAGE>
<TABLE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
THE MONTANA POWER COMPANY AND SUBSIDIARIES
<CAPTION>
Year Ended December 31
Actual Pro Forma Pro Forma
1998 Adjustments Results
Thousands of Dollars
(except per share amounts)
<S> <C> <C> <C>
REVENUES (Note 1) $ 1,253,724 $ (71,372) $1,182,352
EXPENSES:
Operations (Note 2) 528,196 67,283 595,479
Maintenance (Note 2) 81,064 (14,252) 66,812
Selling, general, and administrative (Note 3) 128,741 (12,876) 115,865
Taxes other than income taxes (Note 4) 96,181 (16,833) 79,348
Depreciation, depletion, and
amortization (Note 5) 114,267 (18,475) 95,792
948,449 4,847 953,296
INCOME FROM OPERATIONS 305,275 (76,219) 229,056
INTEREST EXPENSE AND OTHER INCOME:
Interest (Note 6) 60,851 (24,774) 36,077
Distributions on mandatorily redeemable
preferred securities of subsidiary trust 5,492 - 5,492
Other income - net (4,862) - (4,862)
61,481 (24,774) 36,707
INCOME TAXES (Note 7) 78,174 (20,263) 57,911
NET INCOME (Note 8) 165,620 (31,182) 134,438
DIVIDENDS ON PREFERRED STOCK 3,690 - 3,690
NET INCOME AVAILABLE FOR COMMON STOCK (Note 8) $ 161,930 $ (31,182) $ 130,748
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (Basic) (Note 9) 109,962 (4,682) 105,280
BASIC EARNINGS PER SHARE OF COMMON STOCK $ 1.47 $ (0.23)* $ 1.24
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (Diluted) (Note 9) 110,156 (4,682) 105,474
DILUTED EARNINGS PER SHARE OF COMMON STOCK $ 1.47 $ (0.23)* $ 1.24
* The Earnings per Share of Common Stock ("EPS") figures indicated in the "Pro Forma
Adjustments" column represent the difference between the 1998 actual EPS amounts indicated in
the "Actual 1998" column and the adjusted EPS amounts indicated in the "Pro Forma Results"
column and do not represent the pro forma adjustments to net income of <$31,182,000> divided by
outstanding shares.
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
THE MONTANA POWER COMPANY AND SUBSIDIARIES
<CAPTION>
Nine Months Ended
Actual
September 30, Pro Forma Pro Forma
1999 Adjustments Results
Thousands of Dollars
(except per share amounts)
<S> <C> <C> <C>
REVENUES (Note 1) $ 966,956 $ (63,896) $ 903,060
EXPENSES:
Operations (Note 2) 479,512 37,509 517,021
Maintenance (Note 2) 61,918 (12,311) 49,607
Selling, general, and administrative (Note 3) 100,222 (7,033) 93,189
Taxes other than income taxes (Note 4) 76,625 (11,594) 65,031
Depreciation, depletion,
and amortization (Note 5) 82,955 (13,984) 68,971
801,232 (7,413) 793,819
INCOME FROM OPERATIONS 165,724 (56,483) 109,241
INTEREST EXPENSE AND OTHER:
Interest (Note 6) 38,989 (18,580) 20,409
Distributions on company obligated mandatorily
redeemable preferred securities of subsidiary trust 4,119 - 4,119
Other (income) deductions - net (6,371) - (6,371)
36,737 (18,580) 18,157
INCOME TAXES (Note 7) 40,702 (14,929) 25,773
NET INCOME (Note 8) 88,285 (22,974) 65,311
DIVIDENDS ON PREFERRED STOCK 2,768 - 2,768
NET INCOME AVAILABLE FOR
COMMON STOCK (Note 8) $ 85,517 $ (22,974) $ 62,543
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - BASIC (000) (Note 9) 110,177 (4,682) 105,495
BASIC EARNINGS PER SHARE OF COMMON STOCK $ 0.78 $ (0.19)* $ 0.59
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - DILUTED (000) (Note 9) 110,984 (4,682) 106,302
DILUTED EARNINGS PER SHARE OF COMMON STOCK $ 0.77 $ (0.18)* $ 0.59
* The EPS figures indicated in the "Pro Forma Adjustments" column represent the difference
between the 1999 actual EPS amounts indicated in the "Actual September 30, 1999" column and the
adjusted EPS amounts indicated in the "Pro Forma Results" column and do not represent the pro
forma adjustments to net income of <$22,974,000> divided by outstanding shares.
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
THE MONTANA POWER COMPANY AND SUBSIDIARIES
ASSETS
<CAPTION>
Pro Forma
Actual Results
September 30, Pro Forma September 30,
1999 Adjustments 1999
Thousands of Dollars
<S> <C> <C> <C>
PLANT AND PROPERTY IN SERVICE:
UTILITY PLANT (includes $42,288 and $10,043 pro forma
plant under construction)
Electric (Note 10) $ 1,872,481 $ (820,469) $ 1,052,012
Natural gas 416,644 - 416,644
2,289,125 (820,469) 1,468,656
Less - accumulated depreciation and depletion (Note 10) 777,330 (313,241) 464,089
1,511,795 (507,228) 1,004,567
NONUTILITY PROPERTY (includes $91,064
property under construction) 968,963 - 968,963
Less - accumulated depreciation and depletion 336,436 - 336,436
632,527 - 632,527
2,144,322 (507,228) 1,637,094
MISCELLANEOUS INVESTMENTS (at cost):
Independent power investments 21,090 - 21,090
Reclamation fund 42,937 - 42,937
Other 91,409 - 91,409
155,436 - 155,436
CURRENT ASSETS:
Cash and temporary cash investments (Note 11) - 192,101 192,101
Accounts receivable 159,017 - 159,017
Prepaid income taxes (Note 12) 88,276 573 88,849
Materials and supplies (principally at avg. cost)(Note 10) 46,124 (6,755) 39,369
Prepayments and other assets (Note 10) 61,288 (5,255) 56,033
Deferred income taxes (Note 12) 25,206 (573) 24,633
379,911 180,091 560,002
DEFERRED CHARGES:
Advanced coal royalties 12,813 - 12,813
Regulatory assets related to income taxes (Note 12) 121,720 (38,222) 83,498
Regulatory assets - other 154,822 - 154,822
Other deferred charges 80,184 - 80,184
369,539 (38,222) 331,317
$ 3,049,208 $ (365,359) $ 2,683,849
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
THE MONTANA POWER COMPANY AND SUBSIDIARIES
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
Pro Forma
Actual Results
September 30, Pro Forma September 30,
1999 Adjustments 1999
Thousands of Dollars
<S> <C> <C> <C>
CAPITALIZATION:
Common shareholders' equity:
Common stock (240,000,000 shares authorized;
110,201,392 shares issued) $ 703,647 $ - $ 703,647
Treasury stock (at cost) (Note 9) - (144,872) (144,872)
Retained earnings and other shareholders' equity (Note 13) 449,642 14,900 464,542
Accumulated other comprehensive income (loss) (18,621) - (18,621)
Unallocated stock held by trustee for Retirement
Savings Plan (21,091) - (21,091)
1,113,577 (129,972) 983,605
Preferred stock 57,654 - 57,654
Company obligated mandatorily redeemable preferred
securities of subsidiary trust, which holds solely
company junior subordinated debentures 65,000 - 65,000
Long-term debt (Note 14) 650,433 (242,979) 407,454
1,886,664 (372,951) 1,513,713
CURRENT LIABILITIES:
Short-term borrowings 37,600 - 37,600
Long-term debt - portion due within one year (Note 14) 80,397 (45,108) 35,289
Dividends payable 22,757 - 22,757
Regulatory liability (Note 15) - 160,257 160,257
Other taxes 69,290 - 69,290
Accounts payable 103,015 - 103,015
Interest accrued 12,330 - 12,330
Other current liabilities (Note 16) 52,685 (6,335) 46,350
378,074 108,814 486,888
DEFERRED CREDITS:
Deferred income taxes (Note 12) 268,918 (91,515) 177,403
Investment tax credit (Note 13) 32,412 (9,707) 22,705
Accrued mining reclamation costs 133,553 - 133,553
Other deferred credits 349,587 - 349,587
784,470 (101,222) 683,248
$ 3,049,208 $ (365,359) $ 2,683,849
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The accompanying pro forma consolidated financial information of The
Montana Power Company for the twelve months ended December 31, 1998, the nine
months ended September 30, 1999, and at September 30, 1999, is unaudited. This
financial information does not contain the detail or footnote disclosure
concerning accounting policies and other matters that would be included in
full fiscal year financial statements.
NOTE 1 - CERTAIN GENERATION-RELATED REVENUES
The $71,372,000 and $63,896,000 decreases in revenues for 1998 and the
nine months ended September 30, 1999 primarily reflect the discontinuance of
off-system revenues related to the Assets. We will supply our remaining
customers who require power until at least July 1, 2002 with power to be
purchased through a buyback contract entered into with PP&L Global as
described in Note 2. Coal revenues and Colstrip Unit No. 4 revenues resulting
from sales to PP&L Global, an unaffiliated entity - which revenues previously
had represented intercompany eliminations in our consolidated financial
statements - reduce the effects of the decreased consolidated revenues.
NOTE 2 - CERTAIN GENERATION-RELATED EXPENSES
The $67,283,000 and $37,509,000 increases in operations expenses for
1998 and the nine months ended September 30, 1999 reflect the discontinuance
of expenses related to the Assets and the discontinuance of expenses related
to a power-purchase contract transferred to PP&L Global. The adjustments
assume that, pursuant to the buyback contract with PP&L Global, we will
purchase from PP&L Global all power necessary to serve our remaining
customers for a price of $22.25/MWh. This price represents our net fully
allocated costs of service in current rates, replacing operations and
maintenance expense, depreciation expense, and return on investment. The
result of the buyback contract, therefore, is reflected as increased power-
supply expenses. The adjustments also assume that we will fulfill our
commitments to three other customers from market purchases.
The $14,252,000 and $12,311,000 decreases in maintenance expenses for
1998 and the nine months ended September 30, 1999 reflect the discontinuance
of maintenance expenses related to the Assets.
NOTE 3 - SELLING, GENERAL, AND ADMINISTRATIVE
The $12,876,000 and $7,033,000 decreases in selling, general, and
administrative expenses for 1998 and the nine months ended September 30, 1999
represent a reduction of direct general and administrative expenses associated
with the Assets. These expenses include items such as property insurance,
Federal Energy Regulatory Commission ("FERC") administrative costs, office
supplies, and employee-benefit costs. The adjustments also represent a
decrease of amortization expense associated with regulatory assets involving
conservation programs and carrying costs relating to Colstrip Unit No. 3.
NOTE 4 - TAXES OTHER THAN INCOME TAXES
The $16,833,000 and $11,594,000 decreases in taxes other than income
taxes for 1998 and the nine months ended September 30, 1999 principally
reflect decreased property taxes. The adjustments also include reductions to
electric energy licensing taxes.
<PAGE>
NOTE 5 - DEPRECIATION, DEPLETION, AND AMORTIZATION
The $18,475,000 and $13,984,000 decreases in depreciation, depletion,
and amortization expenses for 1998 and the nine months ended September 30,
1999 reflect decreased depreciation expense related to the Assets.
NOTE 6 - INTEREST EXPENSE
The $24,774,000 and $18,580,000 decreases in interest expenses for 1998
and the nine months ended September 30, 1999 primarily reflect decreased
interest expense as a result of the anticipated $255,938,000 debt repurchases
and redemptions described in Note 14. The adjustments also reflect decreased
interest expense for 1998 and the nine months ended September 30, 1999
resulting from the adjusted liabilities relating to the Kerr Project as a
result of our agreement with PP&L Global, as described in Note 14.
NOTE 7 - INCOME TAXES
The $20,263,000 and $14,929,000 decreases in income taxes for 1998 and
the nine months ended September 30, 1999 reflect lower overall net income
because of the items described above at our effective income tax rate of
approximately 39.39%.
NOTE 8 - NET INCOME AND NET INCOME AVAILABLE FOR COMMON STOCK
The $31,182,000 and $22,974,000 decreases in net income and net income
available for common stock for 1998 and the nine months ended September 30,
1999 reflect lower overall net income because of the items described above.
The adjustments do not reflect, however, any returns that we might have earned
on the cash proceeds or any income taxes that would have been assessed on
those returns.
NOTE 9 - AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
The decreases in common shares outstanding by 4,682,000 shares for 1998
and the nine months ended September 30, 1999 reflect the December 23, 1999
cash settlement for $144,872,000, including interest costs and commissions and
net of dividends, of our Forward Equity Acquisition Transaction program with a
bank pursuant to which we purchased shares of our stock that the bank had
acquired on our behalf. The adjustments assume that we did not reissue the
repurchased shares and, therefore, reflect decreased average number of common
shares outstanding for 1998 and 1999.
NOTE 10 - ASSETS SOLD
The decrease of $820,469,000 in electric plant represents the original
cost of utility property, plant, and equipment sold to PP&L Global consisting
of the following plant assets at September 30, 1999:
Intangibles $ 64,324,000
Steam 519,928,000
Hydro 190,552,000
Transmission 10,874,000
General 1,709,000
Kerr mitigation-related asset 1,055,000
Plant under construction 32,245,000
Computer allocation (218,000)
Total $820,469,000
The decrease of $32,245,000 in plant under construction includes the
costs of relicensing the nine Madison River and Missouri River hydroelectric
projects with a generating capacity of 292 MWs. We have referred to these
projects collectively as "Project 2188" in previous filings.
<PAGE>
The decrease of $313,241,000 in accumulated depreciation and depletion
consists of the following at September 30, 1999:
Intangibles $ 4,444,000
Steam 247,674,000
Hydro 57,292,000
Transmission 2,859,000
General 972,000
Total $313,241,000
Other assets sold consist of (a) $6,755,000 in materials and supplies,
and (b) $5,255,000 of other prepayments, consisting principally of prepaid
FERC administrative fees, land rentals, and the current portion of employee
compensated absences.
NOTE 11 - NET CASH PROCEEDS
The increase of $192,101,000 in cash represents the pro forma cash
proceeds of $749,018,000, net of transaction costs of $12,135,000, less cash
used for debt repurchases and redemptions of $255,938,000; cash used for stock
repurchases of $144,872,000; and cash used for income tax payments of
approximately $156,107,000, of which approximately $33,567,000 relates to
deferred tax liability.
NOTE 12 - INCOME TAXES
The increase of $573,000 in prepaid income taxes and the corresponding
decrease in deferred income taxes represents a reclassification between
prepaid and deferred income taxes. The decrease of $38,222,000 in regulatory
assets related to income taxes results from the sale of the Assets. The
$91,515,000 decrease in deferred income tax liability represents $71,788,000
of Statement of Financial Accounting Standards No. 109 deferred taxes related
to the Assets and $23,045,000 related to the gain on the sale, less $3,318,000
associated with the reversed interest expense of the Kerr Project settlement.
NOTE 13 - RETAINED EARNINGS AND INVESTMENT TAX CREDITS
The increase of $14,900,000 in Retained Earnings reflects credits to
Retained Earnings of $9,707,000 in Investment Tax Credits ("ITCs").
Unamortized ITCs associated with the Assets are not transferable to PP&L
Global, but flow to income as a result of the sale. Because these items
constitute a one-time event resulting from the sale, we have credited Retained
Earnings on the pro forma balance sheet for $9,707,000 in ITCs but have not
reflected this amount on the pro forma income statement.
The adjustment to Retained Earnings also includes credits of
approximately $5,193,000, net of deferred income taxes. Most of this
adjustment represents the reversal of interest expense associated with the
Kerr Project settlement. (See Note 6 and Note 14.)
NOTE 14 - LONG-TERM DEBT
The decreases of $242,979,000 in long-term debt and $45,108,000 in the
current portion of long-term debt primarily reflect the repurchase or
redemption of $255,938,000 of debt expected to occur during 2000. Our pro
forma financial information does not reflect any costs that we might incur to
repurchase or redeem this debt. The remaining decrease in debt includes the
result of our agreement with PP&L Global regarding the allocation of Kerr
Project liabilities. Some of this adjustment relates to long-term debt and
some relates to the current portion of long-term debt.
<PAGE>
NOTE 15 - REGULATORY LIABILITIES RELATED TO THE GENERATION SALE
The regulatory liabilities of $160,257,000 represent our willingness to
share after-tax proceeds in excess of the total cost basis of the Assets with
our electric customers. The adjustment results from $749,018,000 in net cash
realized from the sale, less (a) $511,935,000 in the cost basis of the Assets
and (b) $122,540,000 in current income taxes, plus (c) $45,714,000 of other
adjustments.
NOTE 16 - OTHER CURRENT LIABILITIES
The decrease of $6,335,000 in other current liabilities represents
liabilities assumed by PP&L Global at September 30, 1999.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
This Form 8-K may contain forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934. Forward-looking
statements should be read with the cautionary statements and important factors
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998, at Item 7, "Management's Discussion and Analysis of
Financial Conditions and Results of Operations - Safe Harbor for Forward-
Looking Statements." Forward-looking statements are all statements other than
statements of historical fact, including, without limitation, those that are
identified by the use of the words "expects," "believes," "anticipates," and
similar expressions.
<PAGE>
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, a duly authorized signatory.
THE MONTANA POWER COMPANY
(Registrant)
By /s/ J. P. Pederson
J. P. Pederson
Vice President and Chief Financial
Officer
Dated: January 3, 2000
<PAGE>
Exhibit Index
Exhibits
2a Amendment No. 1 to the Asset Purchase Agreement dated as of October 31,
1998 by and between PP&L Global Inc. and The Montana Power Company
2b Amendment No. 2 to the Asset Purchase Agreement dated as of October 31,
1998 and amended on June 29, 1999 by and between PP&L Global, Inc. and
The Montana Power Company
99a Press Release "PP&L Global and Montana Power Company Finalize PP&L's
Acquisition of Generation Assets in Montana"
Exhibits Incorporated by Reference
Previous
Previous Exhibit
Filing Designation
2 Asset Purchase Agreement 1-4566 2(a)
Form 8-K Dated
November 6, 1998
<PAGE>
Amendment No. 1 to the Asset Purchase Agreement
dated as of October 31, 1998 by and between
PP&L Global Inc. and The Montana Power Company
This Amendment No. 1 dated as of June 29, 1999 (this "Amendment"),
between PP&L Global Inc., a Pennsylvania corporation ("Purchaser"), and The
Montana Power Company, a Montana corporation ("Seller"), amends that certain
Asset Purchase Agreement dated as of October 31, 1998 between Purchaser and
Seller (the "Asset Purchase Agreement"). Capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed to them in the Asset
Purchase Agreement.
WHEREAS, Purchaser and Seller both find it in their respective
interests to amend the Asset Purchase Agreement;
WHEREAS, Purchaser has determined that it does not want to have
assigned to it the BPA Peak/Energy Exchange, which is Exhibit L to the Power
Sales Agreement, dated as of August 27, 1982, as amended by Revisions
effective June 30, 1985 and April 14, 1997 between Seller and the United
States of America, Department of Energy, acting by and through the Bonneville
Power Administration (the "BPA Exchange Agreement");
WHEREAS, Seller has no objection to Purchaser's request that the
BPA Exchange Agreement be removed from the definition of "Power
Purchase/Exchange Agreements" under the Asset Purchase Agreement and not be
assigned to Purchaser, and since it will not be so assigned, Seller intends to
pursue terminating the BPA Exchange Agreement, and Purchaser acknowledges it
has no objection if the BPA Exchange Agreement is terminated;
WHEREAS, Purchaser and Seller agree that there will be no
adjustment to the Purchase Price as a result of not assigning the BPA Exchange
Agreement to Purchaser; and
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained in this Amendment, the parties hereto agree
as follows:
1. The definition of "Power Purchase/Exchange Agreements"
included in Section 12.01 of the Asset Purchase Agreement is hereby amended by
deleting it in its entirety and replacing it with the following:
"Power Purchase/Exchange Agreements" means (i) the
Power Purchase Agreement, effective as of May 13, 1994,
between Seller and Basin Electric Power Cooperative; and
(ii) the Exchange Agreement, dated as of August 18, 1993,
between Seller and Idaho Power Company.
2. Notwithstanding the inclusion of the BPA Exchange Agreement
on any schedule or exhibit of the Asset Purchase Agreement, the BPA Exchange
Agreement shall be deemed an Excluded Asset for all purposes hereunder as if
it were listed in Section 1.01(b) of the Asset Purchase Agreement and any
obligation under the BPA Exchange Agreement shall be a Retained Liability for
all purposes hereunder as if it were listed in Section 1.02(b) of the Asset
Purchase Agreement.
3. All references to the Asset Purchase Agreement shall be
deemed to refer to the Asset Purchase Agreement as amended by this Amendment.
4. Except as specifically amended hereby, the original
provisions of the Asset Purchase Agreement remain in full force and effect.
<PAGE>
5. This Amendment may be executed in counterparts, each of
which shall be deemed as original, but all of which shall constitute the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment on the first date above written.
THE MONTANA POWER COMPANY
By _____________________________
Name:
Title:
PP&L GLOBAL, INC.
By _____________________________
Name:
Title:
<PAGE>
Amendment No. 2 to the Asset Purchase Agreement
dated as of October 31, 1998 and amended on June 29, 1999 by and between
PP&L Global, Inc. and The Montana Power Company
This Amendment No. 2 dated as of October 29, 1999 (this
"Amendment"), between PP&L Global, Inc., a Pennsylvania corporation
("Purchaser"), and The Montana Power Company, a Montana corporation
("Seller"), amends that certain Asset Purchase Agreement dated as of October
31, 1998 and amended on June 29, 1999 between Purchaser and Seller (as
amended, the "Asset Purchase Agreement"). Capitalized terms used herein and
not otherwise defined herein shall have the meanings ascribed to them in the
Asset Purchase Agreement.
WHEREAS, Amendment No. 1 to the Asset Purchase Agreement removed
the BPA Peak/ Energy Exchange (which is Exhibit L to Power Sales Agreement,
dated August 27, 1982, between Seller and United States of America, Department
of Energy, acting by and through the Bonneville Power Administration) from the
definition of "Power Purchase/Exchange Agreements" under the Asset Purchase
Agreement;
WHEREAS, Purchaser and Seller both find it in their respective
interests to further amend the Asset Purchase Agreement to remove the Exchange
Agreement, dated as of August 18, 1993, between the Seller and Idaho Power
Company (the "Idaho Exchange Agreement") from the definition of "Power
Purchase/Exchange Agreements" under the Asset Purchase Agreement and, thus,
provide that Seller will not assign the Idaho Exchange Agreement to Purchaser;
WHEREAS, Seller intends to terminate the Idaho Exchange Agreement
at the earliest possible date, which in accordance with the terms of the Idaho
Exchange Agreement is December 31, 2003, or such earlier date that Seller, in
its sole discretion, is able to obtain from Idaho Power;
WHEREAS, until the Idaho Exchange Agreement can be terminated,
Purchaser and Seller have agreed to enter into an Agency Agreement,
substantially in the form of Exhibit A hereto (the "Idaho Exchange Agency
Agreement"), pursuant to which Purchaser (or its assignee) will act as agent
for Seller under the Idaho Exchange Agreement in certain respects provided
therein; and
WHEREAS, Purchaser and Seller agree that there will be no
adjustment to the Purchase Price as a result of not assigning the Idaho
Exchange Agreement to Purchaser;
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained in this Amendment, the parties hereto agree
as follows:
1. The definition of "Power Purchase/Exchange Agreements"
included in Section 12.01 of the Asset Purchase Agreement is hereby amended by
deleting it in its entirety and replacing it with the following:
"Power Purchase/Exchange Agreement" means the Power
Purchase Agreement, effective as of May 13, 1994, between
Seller and Basin Electric Power Cooperative.
2. Notwithstanding the inclusion of the Idaho Exchange
Agreement on any schedule or exhibit of the Asset Purchase Agreement, the
Idaho Exchange Agreement shall be deemed an Excluded Asset for all purposes
hereunder as if it were listed in Section 1.01(b) of the Asset Purchase
<PAGE>
Agreement and any obligation under the Idaho Exchange Agreement shall be a
Retained Liability for all purposes hereunder as if it were listed in Section
1.02(b) of the Asset Purchase Agreement.
3. The following items are hereby deleted in their entirety
from Section 6.06 of the Disclosure Schedule and Section 7.06 of the
Disclosure Schedule:
"26. Exchange Agreement, dated August 18, 1993
between Idaho Power Company and Seller.
27. Exhibit L to Power Sales Contract (DE-MS79-
81BP90427), dated August 27, 1982 as amended by
Revisions effective June 30, 1985 and April 14, 1997
between United States of America Department of
Energy, acting by and through the Bonneville Power
Administration, and Seller."
4. The effectiveness of this Amendment is subject to
satisfaction of the following conditions:
(a) Purchaser (or its assignee) and Seller shall have executed
the Idaho Exchange Agency Agreement; and
(b) FERC shall have accepted this Amendment and the Idaho
Exchange Agency Agreement.
5. All references to the Asset Purchase Agreement shall be
deemed to refer to the Asset Purchase Agreement as amended by this Amendment.
6. Except as specifically amended hereby, the original
provisions of the Asset Purchase Agreement remain in full force and effect.
7. This Amendment may be executed in counterparts, each of
which shall be deemed as original, but all of which shall constitute the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment on the first date above written.
THE MONTANA POWER COMPANY
By _____________________________
Name:
Title:
PP&L GLOBAL, INC.
By _____________________________
Name:
Title:
<PAGE>
FROM: MONTANA POWER COMPANY Contact: Cort Freeman
40 East Broadway 406-497-2368
Butte, Montana 59701 FAX: 406-497-2535
WEB: http://www.mtpower.com
PP&L Contact: George Biechler
406-869-5100
December 17, 1999
PP&L Global and Montana Power Company Finalize PP&L's Acquisition of
Generation Assets in Montana
BILLINGS, Mont. - PP&L Global, a subsidiary of PP&L Resources (NYSE:
PPL) of Allentown, Pa., and The Montana Power Company (NYSE: MTP) today
(12/17) signed the final agreement to transfer to PP&L Montana LLC, an
indirect subsidiary of PP&L Global, eleven hydroelectric power plants, one
storage reservoir and interests in four coal-fired power plants and other
related assets, totaling 1,315 megawatts. Other assets, in part, included
inventories associated with the power plants. The purchase price is $757
million. It is the largest acquisition ever for a PP&L Resources company.
Roger L. Petersen, PP&L Montana's president and chief executive officer,
and Robert P. Gannon, president of Montana Power, were on hand for a signing
ceremony held today in Billings.
Petersen said, "We are enthusiastic about serving the people and
businesses of the Northwest with competitive, reliable supplies of
electricity, just as PP&L companies have done in Pennsylvania for nearly eight
decades and have been doing in recent years in Latin America, Europe, and
England."
Gannon said the completion of the sale ends 87 years of Montana Power's
involvement in the regulated generation business. The company will continue
to focus on the telecommunications activities of its Touch America subsidiary
and on the energy delivery activities of Montana Power. He praised the
exceptional work of generation employees, who have operated the plants over
the years; of the many continuing employees, who have worked to make the
closing a success; and all other employees, who have maintained a positive
attitude through a long transition process.
Gannon said, "The extensive experience of the PP&L Resources family of
companies in the operation of power plants will serve the people of Montana
well. The PP&L name is associated with a strong heritage of community
involvement and environmental commitment, and PP&L Montana will be a welcome
addition to community life and the business climate in our state."
"We are pleased to welcome the employees of Montana Power who are
joining PP&L Montana and the broader PP&L Resources family of companies," said
William F. Hecht, chairman, president and chief executive officer of PP&L
Resources.
With this acquisition, PP&L Montana becomes one of the largest companies
in Montana, with 538 employees. Petersen said there will be no layoffs as a
result of the acquisition. Montana Power's generation employees will continue
operating the assets as employees of PP&L Montana.
PP&L also has acquired the electricity marketing operation of Montana
Power. Petersen said the energy marketing operation will become part of PP&L
EnergyPlus Co., LLC, PP&L's marketing company. PP&L's energy marketing
operation will remain in Butte, located 240 miles west of the corporate office
in Billings, and will sell electricity in both the wholesale and retail
markets in Montana and throughout the Northwest.
<PAGE>
With this acquisition, PP&L Global now has investments and commitments
totaling more than $3.1 billion. The company, formed in 1995 by PP&L
Resources, is acquiring or developing power plants in Maine, Arizona,
Connecticut and eastern Pennsylvania. It also has ownership interests in
electric distribution companies in the United Kingdom, Chile, and El Salvador,
as well as investments in Argentina, Peru, Spain, Portugal, Bolivia, and
Brazil.
This purchase, combined with other projects under development, increases
PP&L Resources' total domestic generating capacity to about 12,000 megawatts.
PP&L Resources plans to increase its U.S. generating capacity to about 20,000
megawatts within the next five years.
Petersen said PP&L Montana will strive to be an important part of the
business community throughout the state, "not just in the cities where we have
operations. We are looking forward to establishing ourselves as one of the
premier corporate citizens in Montana."
"This acquisition provides PP&L Resources with a solid, strategic entry
into an entirely new region of the country, consistent with its objective of
becoming a major supplier of electricity in key markets throughout the United
States," said Hecht.
As for the newly acquired hydroelectric plants, Petersen said, "We have
no plans to change the operation of the hydroelectric plants. People who use
the rivers where the facilities are located should see the same strong
commitment with respect to river management, environmental sensitivity, and
recreational uses."
The transfer of operating licenses covers the following hydroelectric
power plants: Black Eagle, Cochrane, Kerr, Hauser, Holter, Madison,
Morony, Mystic, Rainbow, Ryan, and Thompson Falls. The purchase also includes
Montana Power's investments in the coal-fired Colstrip Generation Station and
in the coal-fired Corette plant and the Hebgen storage reservoir.
PP&L Montana also is in the process of acquiring about 1,000 megawatts
of additional generating assets in Colstrip, Montana, owned by Puget Sound
Energy of Bellevue, Wash. and Portland General Electric of Portland, Ore.
Pending the closing of these transactions, Montana Power could receive up to
an additional $150 million for added value resulting from Montana Power's
generating assets being combined with those of Puget Sound and Portland.
Montana Power's 241.5-megawatt leased interest in Colstrip Unit 4 was
not included in the final agreement. Unit 4's long-term contracts will
continue to be managed by Montana Power, but PP&L Montana hopes to reach an
agreement in the future with Montana Power regarding this asset.
"We will use the proceeds from the generation sale for additional
investments in Touch America's plans for a 23,000-mile fiber-optic network, as
well as for developing its wireless communications licenses from the Pacific
Northwest to the Upper Midwest and as far south as Colorado," Gannon said. "We
also have the opportunity to repurchase a portion of the company's outstanding
common stock, to reduce corporate indebtedness and to evaluate and invest in
activities related to our other businesses."
PP&L Global, located in Fairfax, Va., is PP&L Resources' second-largest
subsidiary. The largest, PP&L, Inc., generates electricity; provides electric
delivery services to 1.3 million customers in eastern and central
Pennsylvania; and trades or markets wholesale energy in the United States and
Canada.
Other PP&L Resources' subsidiaries are: PP&L EnergyPlus Co., LLC, which
sells competitively priced energy and energy services to newly deregulated
<PAGE>
markets; Penn Fuel Gas, Inc., which sells and distributes natural gas and
propane in Pennsylvania and Maryland; and PP&L Spectrum, Inc., Burns
Mechanical, Inc., H.T. Lyons, Inc., McCarl's Inc., McClure Company and Western
Mass. Holdings, Inc., which provide energy-management and mechanical
contracting and engineering services to businesses.
See our Internet home page, at www.pplresources.com, for recent news
releases and other information about PP&L Resources.
The Montana Power Company was formed in 1912 through the merger of four
small regional electric companies. Through an evolutionary expansion into
related businesses, the company now operates or invests in businesses in North
America, Europe, and Asia, supplying energy - non-regulated electricity,
natural gas, oil and coal -- and providing energy and telecommunications
services.
The company's utility business in the western two-thirds of Montana is
transmission and distribution of electricity and natural gas, serving 285,000
electric customers and 148,000 natural gas customers. Its nonutility
businesses are primarily natural gas exploration, production, and marketing;
coal mining; and an independent power group, which develops, owns, and
operates nonutility electric generation facilities under the name Continental
Energy Services.
Montana Power's growth business is focused around Touch America, its
telecommunications subsidiary, presently with a 12,000-mile fiber system in
the United States and with plans to have a 18,000-mile continental fiber
footprint by 2000 and a 23,000-mile network by 2001.
For additional information about Montana Power and its activities visit
the company's web site at www.mtpower.com.
Certain statements contained in this news release, including statements
with respect to future generating capacity, are "forward-looking statements"
within the meaning of the federal securities laws. Although PP&L Resources,
Inc. believes that the expectations reflected in such statements are
reasonable, there can be no assurance that the expected results will be
achieved. For additional information concerning certain assumptions, risks,
and uncertainties involved in the forward-looking statements contained herein,
please refer to PP&L Resources, Inc.'s reports on file with the SEC.
