SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended June 30, 1995 Commission File Number 1-3034
Northern States Power Company
(Exact name of registrant as specified in its charter)
Minnesota 41-0448030
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
414 Nicollet Mall, Minneapolis, Minnesota 55401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 330-5500
None
Former name, former address and former fiscal year, if changed since
last report
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
_____ _____
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 July 31, 1995
Common Stock, $2.50 par value 67,693,931 shares
<TABLE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Northern States Power Company (Minnesota) and Subsidiaries
Consolidated Statements of Income (Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
(Thousands of dollars) (Thousands of Dollars)
<S> <C> <C> <C> <C>
Utility operating revenues
Electric................................................. $519,617 $513,350 $1,016,931 $1,007,382
Gas...................................................... 70,056 68,613 233,909 258,044
Total.................................................. 589,673 581,963 1,250,840 1,265,426
Utility operating expenses
Fuel for electric generation............................. 80,598 84,720 163,937 160,724
Purchased and interchange power.......................... 68,478 67,576 120,211 124,043
Cost of gas purchased and transported.................... 40,312 41,826 139,613 163,631
Other operation.......................................... 79,368 74,094 158,476 152,233
Maintenance.............................................. 43,258 40,532 81,025 81,913
Administrative and general............................... 39,743 45,083 83,493 91,362
Conservation and energy management....................... 11,883 7,316 19,652 15,473
Depreciation and amortization............................ 72,069 68,366 143,899 135,711
Taxes: Property and general.............................. 62,073 58,447 124,352 118,376
Current income tax expense........................ 27,750 34,146 67,872 77,742
Deferred income tax expense....................... (1,784) (3,531) (3,074) (1,591)
Deferred investment tax credits recognized ....... (2,237) (2,138) (4,476) (5,513)
Total.................................................. 521,511 516,437 1,094,980 1,114,104
Utility operating income.................................. 68,162 65,526 155,860 151,322
Other income and expense
Allowance for funds used during construction - equity.... 1,859 984 3,198 2,192
Equity in earnings of unconsolidated investees........... 7,964 12,864 18,470 12,757
Other income (expense) - net............................. 13,076 (2,022) 12,498 1,243
Total Other income...................................... 22,899 11,826 34,166 16,192
Income before interest charges............................ 91,061 77,352 190,026 167,514
Interest charges
Interest on long-term debt............................... 27,682 22,465 55,042 45,291
Other interest and amortization.......................... 6,460 4,329 11,767 7,407
Allowance for funds used during construction - debt...... (2,892) (2,250) (4,785) (3,787)
Total.................................................. 31,250 24,544 62,024 48,911
Net Income ............................................... 59,811 52,808 128,002 118,603
Preferred stock dividends ................................ 3,125 3,057 6,327 6,113
Earnings available for common stock....................... $56,686 $49,751 $121,675 $112,490
Average number of common and equivalent
shares outstanding (000's).............................. 67,208 66,788 67,107 66,765
Earnings per average common share......................... $0.84 $0.74 $1.81 $1.68
Common dividends declared per share....................... $0.675 $0.660 $1.335 $1.305
Statements of Retained Earnings (Unaudited)
Balance at beginning of period............................ $1,203,982 $1,147,059 $1,183,191 $1,127,372
Net income for period..................................... 59,811 52,808 128,002 118,603
Dividends declared:
Cumulative preferred stock............................... (3,125) (3,057) (6,327) (6,113)
Common stock............................................. (45,163) (44,023) (89,361) (87,075)
Balance at end of period.................................. $1,215,505 $1,152,787 $1,215,505 $1,152,787
The Notes to Financial Statements are an integral part of the Statements of Income and Retained Earnings.
</TABLE>
<TABLE>
Northern States Power Company (Minnesota) and Subsidiaries
Consolidated Balance Sheets (Unaudited)
<CAPTION>
June 30, December 31,
1995 1994
(Thousands of dollars)
<S> <S> <S>
ASSETS
UTILITY PLANT
Electric...........................................................$6,456,240 $6,372,317
Gas................................................................ 687,963 677,233
Common............................................................. 287,969 262,506
Total.......................................................... 7,432,172 7,312,056
Accumulated provision for depreciation...........................(3,258,535) (3,116,811)
Nuclear fuel....................................................... 817,615 797,097
Accumulated provision for amortization........................... (731,599) (718,690)
Net utility plant.............................................. 4,259,653 4,273,652
CURRENT ASSETS
Cash and cash equivalents.......................................... 58,371 41,055
Short-term investments............................................. 93 892
Accounts receivable - net.......................................... 289,612 280,858
Accrued utility revenues........................................... 93,545 98,651
Federal income tax and interest receivable......................... 0 28,858
Fossil fuel inventory - at average cost............................ 41,836 56,960
Materials and supplies - at average cost........................... 105,379 101,878
Prepayments and other.............................................. 49,990 56,075
Total current assets............................................. 638,826 665,227
OTHER ASSETS
Regulatory assets.................................................. 357,328 357,576
Investments in non-regulated projects and other investments........ 266,021 201,329
External decommissioning fund........................ ............. 173,881 145,467
Non-regulated property - net....................................... 177,398 172,961
Federal income tax and interest receivable......................... 56,358 56,358
Intangible assets and other........................................ 74,414 81,001
Total other assets.............................................. 1,105,400 1,014,692
TOTAL.......................................................... $6,003,879 $5,953,571
LIABILITIES AND EQUITY
CAPITALIZATION
Common stock equity:
Common stock and premium - authorized 160,000,000
shares of $2.50 par value, issued shares:
1995, 67,506,638; 1994, 66,922,144............................. $739,499 $713,180
Retained earnings................................................ 1,215,505 1,183,191
Leveraged common stock held by ESOP.............................. (13,825) (2,990)
Currency translation adjustments - net.......................... 2,528 3,586
Total common stock equity...................................... 1,943,707 1,896,967
Cumulative preferred stock and premium - authorized
7,000,000 shares of $100 par value; outstanding
shares: 1995 and 1994, 2,400,000
without mandatory redemption..................................... 240,469 240,469
Long-term debt..................................................... 1,465,599 1,463,354
Total capitalization........................................... 3,649,775 3,600,790
CURRENT LIABILITIES
Long-term debt due within one year................................. 26,724 16,106
Other long-term debt potentially due within one year............... 141,600 141,600
Short-term debt - primarily commercial paper....................... 309,929 238,439
Accounts payable................................................... 181,631 234,905
Taxes accrued...................................................... 145,761 178,119
Interest accrued................................................... 28,107 28,164
Dividends payable on common and preferred stocks................... 48,469 47,283
Accrued payroll, vacation and other................................ 59,848 79,029
Total current liabilities...................................... 942,069 963,645
OTHER LIABILITIES
Deferred income taxes.............................................. 856,503 848,870
Deferred investment tax credits.................................... 168,599 173,838
Regulatory liabilities............................................. 214,495 200,517
Pension and other benefit obligations.............................. 97,083 92,514
Other long-term obligations and deferred income.................... 75,355 73,397
Total other liabilities........................................ 1,412,035 1,389,136
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 4)
TOTAL........................................................$6,003,879 $5,953,571
The Notes to Financial Statements are an integral part of the Balance Sheets.
</TABLE>
<TABLE>
Northern States Power Company (Minnesota) and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<CAPTION>
Six Months Ended
June 30
1995 1994
(Thousands of dollars)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income............................................................. $128,002 $118,603
Adjustments to reconcile net income to cash from operating activities:
Depreciation and amortization........................................ 159,145 149,471
Nuclear fuel amortization............................................ 23,775 22,895
Deferred income taxes................................................ 2,223 (602)
Deferred investment tax credits recognized........................... (4,617) (5,668)
Allowance for funds used during construction - equity................ (3,198) (2,192)
Undistributed equity in earnings of unconsolidated investees......... (14,395) (12,757)
Gain from non-regulated contract termination......................... (29,850) 0
Cash provided by changes in certain working capital items............ (51,803) (53,774)
Conservation program expenditures - net of amortization.............. (7,421) (10,044)
Cash provided by changes in other assets and liabilities............. 23,942 (24,426)
Net cash provided by operating activities 225,803 181,506
Cash Flows from Investing Activities:
Capital expenditures .................................................. (166,708) (150,660)
Decrease in construction payables...................................... (19,611) (6,140)
Allowance for funds used during construction - equity.................. 3,198 2,192
Purchase(sale) of short-term investments - net......................... 799 (449)
Investment in external decommissioning fund............................ (14,571) (15,840)
Investments in non-regulated projects and other........................ (16,167) (83,041)
Net cash used for investing activities (213,060) (253,938)
Cash Flows from Financing Activities:
Change in short-term debt - net issuances (repayments)................. 71,489 195,316
Proceeds from issuance of long-term debt - net......................... 25,044 208,184
Loan to ESOP........................................................... (15,000) 0
Repayment of long-term debt (including reacquisition premium).......... (8,756) (265,317)
Proceeds from issuance of common stock - net........................... 26,298 491
Dividends paid......................................................... (94,502) (92,273)
Net cash provided by financing activities 4,573 46,401
Net increase (decrease) in cash and cash equivalents...................... 17,316 (26,031)
Cash and cash equivalents at beginning of period.......................... 41,055 57,812
Cash and cash equivalents at end of period................................ $58,371 $31,781
The Notes to Financial Statements are an integral part of the Statements of Cash Flows.
</TABLE>
Northern States Power Company (Minnesota) and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the financial
position of Northern States Power Company (Minnesota) (the Company) and its
subsidiaries (collectively, NSP) as of June 30, 1995 and December 31, 1994,
the results of its operations for the three and six months ended June 30, 1995
and 1994, and its cash flows for the six months ended June 30, 1995 and 1994.
Due to the seasonality of NSP's electric and gas sales, operating results on
a quarterly and year-to-date basis are not necessarily an appropriate base
from which to project annual results.
The accounting policies followed by NSP are set forth in Note 1 to NSP's
financial statements in the 1994 Form 10-K. The following notes should be
read in conjunction with such policies and other disclosures in the Form 10-K.
Certain reclassifications have been made to 1994 financial information
to conform with the 1995 presentation. These reclassifications had no effect
on net income or earnings per share as previously reported.
1. Proposed Business Combination
On April 28, 1995 NSP and Wisconsin Energy Corporation (WEC) entered into
an Agreement and Plan of Merger, which provides for a strategic business
combination involving NSP and WEC in a "merger-of-equals" transaction. See
further discussion of the proposed business combination at Part II, Item 5-
Other Information of this report. On July 10, 1995 NSP and WEC filed an
application and supporting testimony with the Federal Energy Regulatory
Commission seeking approval of the proposed merger to form Primergy
Corporation. The filing consisted of the merger application, a proposed joint
transmission tariff, and an amendment to the NSP Interchange Agreement.
Similar filings will be made later this year with regulatory agencies in
states where NSP and WEC provide utility services. Preliminary joint proxy
materials requesting shareholder approval of the merger have been submitted
to the Securities and Exchange Commission. When finalized the joint proxies
will be mailed to shareholders of NSP and WEC for their consideration at
meetings scheduled for September 13, 1995. The costs incurred associated with
the proposed merger are being deferred as a component of Regulatory Assets
based on NSP's current plan to request amortization and rate recovery over
future periods. At June 30, 1995, $5.5 million of costs associated with the
proposed merger had been deferred by NSP.
2. Rate Matters
In August 1994, the Company applied to the North Dakota Public Service
Commission (NDPSC) for an annualized electric rate reduction of $3.6 million
to reflect a correction in cost allocations to the North Dakota jurisdiction.
On November 9, 1994, the NDPSC approved the Company's request to make refunds
to customers, effectively implementing the reduction as of June 1, 1994.
These refunds were accrued in 1994 and paid in February 1995. On May 10,
1995, the NDPSC approved a retroactive refund to residential customers of
approximately $1.5 million for the period January 1, 1989 through June 1, 1994
to reflect corrections to cost allocations for that period. This refund was
accrued in 1994 and paid in June 1995. Also, the NDPSC approved an annualized
rate reduction of $750,000 for North Dakota commercial and industrial electric
customers, which was effective prospectively on June 1, 1995.
3. Business Developments
Non-regulated Developments - NRG, through wholly owned subsidiaries,
owns 45% of the San Joaquin Valley Energy Partnership (SJVEP), which owns four
power plants located near Fresno, California with a total capacity of 55
megawatts. Through February 1995, the plants operated under long-term
Standard Offer 4 (SO4) power sales contracts with Pacific Gas and Electric
(PG&E) which expire in 2017. On February 28, 1995 PG&E reached basic
agreements with SJVEP to acquire the SO4 contracts. The negotiated agreements
will result in cost savings for PG&E customers as well as economic benefits
for SJVEP. Under the terms of the agreements, PG&E has been released from its
contractual obligation to purchase power generated by SJVEP. Proceeds
received from PG&E under the agreements were used to repay SJVEP debt
obligations and recover investments in the facilities. SJVEP continues to own
and maintain the facilities and to evaluate opportunities to market power
without the prior costs incurred for plant depreciation and interest on debt.
All regulatory approvals for the agreements were received in the second
quarter of 1995. NRG's share of the pretax gain realized by SJVEP from this
transaction, which was recorded as a component of Other income (expense)-net
in June 1995, was approximately $30 million. Partially offsetting this gain
in the second quarter was a pretax write-down of approximately $5 million for
investments in another domestic energy project of NRG.
Nuclear Fuel Disposal - NSP is leading a consortium working with the
Mescalero Apache Tribe to establish a private facility for interim storage of
used nuclear fuel on the Tribe's reservation in New Mexico. On March 9, 1995,
the Mescalero Tribe in a second Tribal referendum voted in favor of proceeding
with a temporary used nuclear fuel storage site on the Tribe's reservation
land. In addition to the Mescalero Apache Tribe, a core group of more than
20 United States nuclear utilities has agreed to support the construction and
operation of the interim storage site. Work on the project is underway in
several areas, including environmental assessment, facility design, and
drawing up the detailed contracts that will govern the construction and
operation of the site. The necessary environmental and licensing work that
would lead to an application to the Nuclear Regulatory Commission for a
license to build and operate the site is expected to take 16 to 18 months.
4. Commitments and Contingent Liabilities
Legislative Resource Commitments - In 1994, the Minnesota Legislature
established several energy resource and other commitments for NSP to fulfill
as part of its approval of NSP's Prairie Island temporary nuclear fuel storage
facility. As a step in fulfilling these commitments, NSP selected Zond
Systems, Inc. to supply 100 megawatts (Mw) of wind energy to the NSP system
by the end of 1996. The 100 Mw increment represents Phase II of NSP's
commitment to 425 Mw of wind generation resources to be under contract or in
place by the end of 2002 as required by the Minnesota Legislature. Currently,
25 Mw of wind generation are already in place. An additional step in
fulfilling the legislative commitments was taken on July 20, 1995 when NSP
filed documents with the Minnesota Environmental Quality Board (MEQB)
outlining two alternative Goodhue County sites to be considered for the
development of an interim used nuclear fuel storage facility, as the Minnesota
Legislature required. Once it determines the application is complete, the
MEQB will begin a 12 to 18 month public process to examine these sites and any
others that may be proposed.
Nuclear Insurance - The circumstances set forth in Note 17 to the
Company's financial statements contained in its 1994 Annual Report on Form 10-
K appropriately represent the current status of commitments and contingent
liabilities regarding public liability for claims resulting from any nuclear
incident.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
On April 28, 1995, the Company and WEC entered into an Agreement and
Plan of Merger which provides for a strategic business combination involving
the two companies in a "merger-of-equals" transaction. Further information
concerning this agreement and proposed transaction and pro forma financial
information with respect thereto is included in Part II of this report.
Results of Operations
Northern States Power Company's earnings per share for the second
quarter ended June 30, 1995, were $.84, up $.10 from the $.74 earned for the
same period a year ago.
In addition to items noted in the 1994 Form 10-K, the historical and
future trends of NSP's operating results have been and are expected to be
impacted by the following factors:
Non-regulated Business Results - Second quarter results include earnings
contributions from non-regulated businesses of $0.28 per share in 1995 and
$0.16 per share in 1994. For the six months ended June 30, non-regulated
businesses contributed earnings of $0.41 per share in 1995 and $0.19 per share
in 1994. Periods ending in 1995 include $0.22 per share from business
developments discussed in Note 3 to the Financial Statements.
Impact of Weather - NSP estimates sales levels under normal weather
conditions and analyzes the approximate effect of weather on actual sales
levels. The following summarizes the estimated impact of weather on actual
utility operating results (in relation to sales under normal weather
conditions):
Increase (Decrease)
1995 vs Normal 1994 vs Normal 1995 vs 1994
Earnings per Share
for Quarter Ended
June 30 $0.11 $0.04 $0.07
Earnings per Share
for Six Months Ended
June 30 $0.04 $0.13 ($0.09)
Rate Changes - On May 10, 1995, the North Dakota Public Service
Commission approved rate reductions for electric customers in North Dakota.
See Note 2 to the Financial Statements for further discussion of the impact
of such reductions on financial results.
Second Quarter 1995 Compared with Second Quarter 1994
Utility Operating Results
Electric revenues for the second quarter 1995 compared with the second
quarter 1994 increased $6.3 million or 1.2%. Retail revenues increased
approximately $11.5 million or 2.5% largely due to a 2.7% increase in retail
electric sales. This sales increase is due mainly to sales growth and warmer
June weather in 1995. On a weather-adjusted basis, sales growth for the
second quarter of 1995 was 1.7% higher than 1994. Although retail revenues
were impacted by increased cost recovery of conservation expenditures (as
discussed below), such price increases were offset by rate adjustments for
lower fuel costs. Offsetting the retail revenue increase was a decrease in
revenues from sales to other utilities of $4.5 million mainly due to decreases
in sales volume. This decrease in sales to other utilities reflects less
plant availability due to higher retail customer energy requirements and plant
outages in 1995.
Gas revenues for the second quarter 1995 increased $1.4 million or 2.1%
compared with the second quarter of 1994. Gas revenues increased due to a
16.2% increase in gas sales volume partially offset by a 12.8% average price
decrease. The sales volume increase is due primarily to weather impacts. The
price decrease is due to rate adjustments for decreased purchased gas costs
resulting from changes in natural gas supply and demand market conditions.
Fuel for electric generation and Purchased and interchange power
combined for a net decrease of $3.2 million or 2.1% for the second quarter of
1995 compared with the second quarter of 1994. Fuel expense for the second
quarter of 1995 decreased mainly due to lower 1995 generation levels as a
result of scheduled plant maintenance outages in 1995. The decreased fuel
expense was partially offset by higher purchases in 1995 due to less plant
availability as discussed previously.
Cost of gas purchased and transported for second quarter 1995 compared
with second quarter 1994 decreased $1.5 million or 3.6% due to lower per unit
cost of purchased gas, reflecting changes in market conditions. Partially
offsetting this cost decrease was higher gas sendout, reflecting the colder
than normal weather early in the second quarter of 1995.
Other operation, Maintenance and Administrative and general expenses
together increased $2.7 million or 1.7% compared with the second quarter 1994.
The higher costs are largely due to timing of scheduled plant maintenance
outages and tree trimming.
Conservation and energy management increased $4.6 million mainly due to
higher amortization levels, consistent with cost recovery under a new rate
adjustment clause approved by regulators effective May 1, 1995.
Depreciation and amortization increased $3.7 million or 5.4% compared
with the second quarter of 1994. The increase is mainly due to increased
plant in service between the two periods.
Property and general taxes for the second quarter 1995 compared with the
second quarter of 1994 increased $3.6 million or 6.2% due primarily to higher
property tax rates in the state of Minnesota.
Utility income taxes for the second quarter 1995 compared with the
second quarter 1994 decreased $4.7 million primarily due to lower pretax
operating income (after interest charges) between the two periods.
Other income (expense)-net increased mainly due to non-regulated items
discussed below. The portion related to utility operations increased $1.4
million to a net expense of $0.4 million in the second quarter of 1995
compared with the same period a year ago due mainly to costs incurred in
1994 for the Prairie Island fuel storage issue.
Interest Charges related to utility operations increased $6.5 million
to $29.3 million in 1995 largely due to long-term debt issues in 1994 and
higher interest rates in 1995.
Non-regulated Business Results
NSP's non-regulated operations include many diversified businesses, such
as independent power production, gas marketing, industrial heating and
cooling, and energy-related refuse-derived fuel production. NSP also has
investments in affordable housing projects and several income-producing
properties. The following discusses NSP's diversified business results in the
aggregate.
Operating Revenues and Expenses - The net results of non-regulated
businesses are reported in Other income(expense)-Net on the Consolidated
Statements of Income. Non-regulated operating revenues increased $19.3
million in 1995, to $75.5 million, largely due to increased gas marketing
sales by Cenergy, Inc. (Cenergy). Non-regulated operating expenses increased
$22.9 million in 1995 to $77.1 million due to higher gas costs corresponding
with Cenergy gas sales, a $5.0 million writedown of NRG's investment in a non-
regulated energy project, and fewer project development costs being
capitalized on pending projects in 1995.
Equity Income - NSP has a less-than-majority equity interest in several
non-regulated projects. Consequently, a large portion of NSP's non-regulated
earnings is reported as Equity in Earnings of Unconsolidated Investees on the
Consolidated Statements of Income. Equity income decreased in the second
quarter of 1995 by $4.9 million before taxes primarily due to the finalization
of NRG's energy project in Germany during the second quarter of 1994 resulting
in the recording of six months of project earnings in June 1994.
Non-Operating Gain - In June 1995, final regulatory approvals were
obtained for an agreement to terminate a power sales contract between an
energy project in which NRG is a 45% investor and an unrelated utility company
(See Note 3 to the Financial Statements). Other income (expense)-net includes
a pretax gain of $30 million for NRG's share of the termination settlement.
Interest Expense - Interest charges on the Consolidated Statements of
Income include interest expense related to non-regulated businesses of $1.9
million in 1995 and $1.7 million in 1994.
Income Taxes - Other Income and (expense)-Net reported on the
Consolidated Statements of Income includes income taxes related to non-
regulated businesses. Such income taxes for the second quarter of 1995 were
$11.1 million, a $8.7 million increase over the second quarter of 1994. The
increase in 1995 is due mainly to higher pretax income from non-regulated
businesses, as discussed above. NSP's management intends to reinvest the
earnings of international operations indefinitely. Accordingly, U.S. income
taxes and foreign withholding taxes have not been provided on the earnings of
international projects.
First Six Months of 1995 Compared with First Six Months of 1994
Utility Operating Results
Electric revenues for the first six months of 1995 compared with the
first six months of 1994 increased $9.5 million or 0.9%. Retail revenues
increased approximately $9.3 million or 1.0% largely due to electric sales
growth of 1.6%. Although June weather was warmer than normal in both 1995
and 1994, weather for the first six months of 1995 had a negative effect
on electric revenues in comparison to 1994. On a weather-adjusted basis,
retail sales growth for the first six months of 1995 was 2.4% higher than
1994. Also, although retail revenues were impacted by increased cost recovery
of conservation expenditures (as discussed below), such price increases
were offset by rate adjustments for North Dakota refund (See Note 2 to
Financial Statements) and lower power purchase costs.
Gas revenues for the first six months of 1995 decreased $24.1 million
or 9.4% compared with the first six months of 1994. Gas revenues decreased
due to a 1.2% decrease in gas sales volume and a 8.9% average price decrease.
The sales volume decrease is due primarily to a colder than normal winter
weather in early 1994. The price decrease is due to rate adjustments for
decreased purchased gas costs resulting from changes in natural gas supply and
demand market conditions.
Fuel for electric generation and Purchased and interchange power
combined for a net decrease of $0.6 million or 0.2% for the first six months
of 1995 compared with the first six months of 1994. Fuel expense for the
first six months of 1995 increased mainly due to electric sales growth and
higher 1995 generation levels as a result of scheduled plant maintenance
outages in 1994. The increased fuel expense was more than offset by lower
purchases in 1995 due to lower cost of available energy purchases, reflecting
market conditions.
Cost of gas purchased and transported for the first six months of 1995
compared with the first six months of 1994 decreased $24.0 million or 14.7%
due to a 11.9% decline in the per unit cost of purchased gas and a 3.2%
decrease in gas sendout. The lower cost of purchased gas reflects changes in
market conditions while the lower gas sendout reflects the warmer than normal
weather in early 1995 compared to colder than normal weather in early 1994.
Other operation, Maintenance and Administrative and general expenses
together decreased $2.5 million or 0.8% compared with the first six months of
1994. The lower costs are largely due to decreases in employee benefit costs.
Conservation and energy management increased $4.2 million due mainly to
higher amortization levels, consistent with cost recovery under a new rate
adjustment clause approved by regulators effective May 1, 1995.
Depreciation and amortization increased $8.2 million or 6.0% compared
with the first six months of 1994. The increase is mainly due to increased
plant in service between the two periods.
Property and general taxes for the first six months of 1995 compared
with the first six months of 1994 increased $6.0 million or 5.0% due primarily
to higher property tax rates in the state of Minnesota.
Utility income taxes for the first six months of 1995 compared with the
first six months of 1994 decreased $10.3 million primarily due to lower pretax
operating income (after interest charges) between the two periods.
Other income (expense)-net increased mainly due to non-regulated items
discussed below. The portion related to utility operations increased $0.8
million due to a net expense of $1.5 million in the first six months of 1995
compared with the same period a year ago due mainly to costs incurred in
1994 for the Prairie Island fuel storage issue.
Interest Charges related to utility operations increased $12.4 million
to $58.3 million in 1995 largely due to long-term debt issues in 1994, higher
interest rates, and higher short-term debt balances in 1995.
Non-regulated Business Results
Operating Revenues and Expenses - The net results of non-regulated
businesses are reported in Other income (expense)-net on the Consolidated
Statements of Income. Non-regulated operating revenues increased $53.1
million in 1995, to $158.2 million, largely due to increased gas marketing
sales by Cenergy. Non-regulated operating expenses increased $56.6 million
in 1995 to $155.8 million due to higher gas costs corresponding with Cenergy
gas sales, a $5.0 million writedown of NRG's investment in a non-regulated
energy project, and fewer project development costs being capitalized on
pending projects in 1995.
Equity Income - Equity income increased in the first six months of
1995 by $5.7 million before taxes primarily due to an NRG energy project in
Australia which did not provide earnings prior to the second quarter of 1994.
Non-Operating Gain - As discussed in the second quarter Non-regulated
Business Results section, Other income (expense)-net includes a pretax gain
of approximately $30 million for NRG's share of a contract termination
settlement.
Interest Expense - Interest charges on the Consolidated Statements of
Income include interest expense related to non-regulated businesses of $3.7
million in 1995 and $3.1 million in 1994. This increase is due mainly to long-
term debt on new affordable housing projects by Eloigne Company, a non-
regulated subsidiary of the Company.
Income Taxes - Income taxes related to non-regulated businesses for the
first six months of 1995 were $12.8 million, a $10.1 million increase over the
first six months of 1994. The increase in 1995 is due mainly to higher pretax
income from non-regulated businesses, as discussed above.
Liquidity and Capital Resources
The Company had $304 million in commercial paper debt outstanding as of
June 30, 1995. The Company plans to keep credit lines of at least 85% of the
highest anticipated level of commercial paper borrowings. Commercial banks
currently provide credit lines of approximately $286 million to the Company.
These credit lines make short-term financing available in the form of bank
loans and support for commercial paper sales. The Company has regulatory
approval for up to $446 million in short-term borrowing levels.
Commercial banks currently provide credit lines of $12 million to wholly
owned subsidiaries of the Company. Approximately $6 million of those credit
lines remained available at June 30, 1995.
In January 1995, stock options for the purchase of 277,977 shares were
awarded under the Company's Executive Long-Term Incentive Award Stock Plan
(the Plan). These options are not exercisable for approximately twelve months
after grant. As of June 30, 1995, a total of 1,028,345 stock options were
outstanding, which were considered as potential common stock equivalents for
earnings per share purposes. As of June 30, the Company has issued 16,762 new
shares of common stock in 1995 under the Plan pursuant to the exercise of
options and awards granted in prior years. In addition the Company has issued
159,260 shares of common stock under NSP's Dividend Reinvestment and Stock
Purchase Plan during the first six months of 1995.
On March 29, 1995 the Company loaned $15 million to the Employee Stock
Ownership Plan (ESOP) for the financing of stock purchases. The ESOP used the
loan proceeds to purchase 342,368 newly issued shares of Company common stock.
On April 3, 1995, the Company borrowed $15 million in unsecured debt to
finance the ESOP loan on a long-term basis. The interest rate on the
unsecured debt of the Company is variable (6.55% for the period April 20, 1995
through July 20, 1995), and is adjusted quarterly based on changes in London
Interbank Offered Rates (LIBOR). The approximate term of the loan is seven
years and will be repaid in quarterly installments. During 1995, the Company
has issued an additional 66,104 shares of new common stock to the ESOP for
dividends on Company shares held.
On July 7, 1995 the Company issued $250,000,000 of first mortgage bonds
due July 1, 2025 with an interest rate of 7 1/8%. The proceeds from these
bonds were added to the general funds of the Company and applied to the
redemption (on August 2, 1995) of $98,000,000 in principal amount of its 9
1/8% First Mortgage Bonds due July 1, 2019 at a redemption price of 106.388%
and to the redemption (on August 2, 1995) of $70,000,000 in principal amount
of its 9 3/8% First Mortgage Bond due June 1, 2020 at a redemption price of
107.032%. The balance of the net proceeds will be used to repay short-term
borrowings.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
As discussed in the Legal Proceedings section of Item 3 of the Company's
1994 Annual Report on Form 10-K, on July 22, 1993, a natural gas explosion
occurred on the Company's distribution system in St. Paul, MN. Sixteen
lawsuits have been filed against the Company in regard to the explosion,
including one proposed class action suit. In April 1995 the National
Transportation Safety Board concluded the City of St. Paul contractors were
largely responsible for the natural gas explosion. The report found little,
if any, fault with the actions taken by or conduct of the Company. A trial
to decide civil liability and the parties responsible for the explosion has
been scheduled for February 1997, with the damages portion of the trial
scheduled for six months thereafter.
As discussed in the Environmental Contingencies section of Note 17 to
the Company's financial statements in the 1994 Annual Report of Form 10-K, the
Environmental Protection Agency or state environmental agencies have
designated the Company as a "potentially responsible party" (PRP) at several
waste disposal sites to which the Company allegedly sent hazardous materials.
In June 1995, the Company agreed to pay approximately $70,000 of past expenses
which the Minnesota Pollution Control Agency incurred at one of these waste
disposal sites, (the University of Minnesota Rosemount Research Site) in order
to resolve state claims against the Company.
For a discussion of proceedings involving NSP's utility rates, see Note
2 to these Financial Statements.
Item 5. Other Information
MERGER AGREEMENT WITH WISCONSIN ENERGY CORPORATION
As previously reported in Northern States Power Company's Current Report
on Form 8-K, dated April 28, 1995 and filed on May 3, 1995, and Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995, Northern States
Power Company, a Minnesota corporation ("NSP"), Wisconsin Energy Corporation,
a Wisconsin corporation ("WEC"), Northern Power Wisconsin Corp., a Wisconsin
corporation and wholly owned subsidiary of NSP ("New NSP") and WEC Sub Corp.,
a Wisconsin corporation and wholly owned subsidiary of WEC ("WEC Sub"), have
entered into an Agreement and Plan of Merger (the "Merger Agreement"), which
provides for a strategic business combination involving NSP and WEC in a
"merger-of-equals" transaction (the "Transaction"). The Transaction, which
was unanimously approved by the Boards of Directors of the constituent
companies, is expected to close shortly after all of the conditions to the
consummation of the Transaction, including obtaining applicable regulatory
approvals, are met or waived. The regulatory approval process is expected to
take approximately 12 to 18 months from April 28, 1995.
In the Transaction, the holding company of the combined enterprise will
be registered under the Public Utility Holding Company Act of 1935, as
amended. The holding company will be named Primergy Corporation ("Primergy")
and will be the parent company of both NSP (which, for regulatory reasons,
will reincorporate in Wisconsin) and of WEC's present principal utility
subsidiary, Wisconsin Electric Power Company ("WEPCO") which will be renamed
"Wisconsin Energy Company." It is anticipated that, following the
Transaction, NSP's Wisconsin utility subsidiary, Northern States Power
Company, a Wisconsin corporation (NSP-W), will be merged into Wisconsin Energy
Company and that NSP's other subsidiaries will become subsidiaries of
Primergy.
As noted above, pursuant to the Transaction NSP will reincorporate in
Wisconsin for regulatory reasons. This reincorporation will be accomplished
by the merger of NSP into New NSP, with New NSP being the surviving
corporation and succeeding to the business of NSP as an operating public
utility. Following such merger, WEC Sub will be merged with and into New NSP,
with New NSP being the surviving corporation and becoming a subsidiary of
Primergy. Both New NSP and WEC Sub were created to effect the Transaction and
will not have any significant operations, assets or liabilities prior to such
mergers.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma financial information adjusts the
historical consolidated balance sheets and statements of income of NSP and WEC
after giving effect to their proposed business combination transaction (the
Transaction) to form Primergy and a new subsidiary structure. The unaudited
pro forma combined condensed balance sheets at June 30, 1995 give effect to
the Transaction as if it had occurred on that date. The unaudited pro forma
combined condensed statements of income for the periods ended June 30, 1995
and 1994 give effect to the Transaction as if it had occurred at the beginning
of the periods presented. These statements are prepared on the basis of
accounting for the Transaction as a pooling of interests and are based on the
assumptions set forth in the notes thereto.
The following pro forma financial information has been prepared from,
and should be read in conjunction with, the historical consolidated financial
statements and related notes thereto of NSP and WEC. The following
information is not necessarily indicative of the financial position or
operating results that would have occurred had the Transaction been
consummated on the date, or at the beginning of the periods, for which the
Transaction is being given effect nor is it necessarily indicative of future
operating results or financial position.
Primergy Pro Forma Information
The first set of pro forma financial information combines the historical
financial statements of NSP and WEC after giving effect to the Transaction to
form Primergy.
The WEC income statements for the six months ended June 30, 1994
(included in the Primergy pro forma statements herein) and the fiscal year
ended December 31, 1994 (included in the Primergy pro forma statements in
NSP's Form 10-Q for the quarter ended March 31, 1995) include a significant
one-time pretax charge of $73.9 million for revitalization costs recorded in
the first quarter of 1994. To provide a more representative recent twelve-
month period summarizing combined operating results, a pro forma Primergy
combined condensed statement of income for the twelve months ended June 30,
1995 is also presented.
New NSP Pro Forma Information
The second set of pro forma financial information adjusts the historical
financial statements of NSP after giving effect to the Transaction, including
the reincorporation of NSP in Wisconsin, the merger of NSP-W into WEC and
the transfer of ownership of all other current NSP subsidiaries to Primergy.
<TABLE>
PRIMERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS
JUNE 30, 1995
(In thousands)
<CAPTION>
NSP WEC Pro Forma Pro Forma
(As Reported) (As Reported) Adjustments Combined
<S> <C> <C> <C> <C>
Pro Forma Balance Sheet
ASSETS
UTILITY PLANT
Electric $6,456,240 $4,598,068 $11,054,308
Gas 687,963 475,853 1,163,816
Other 287,969 39,700 327,669
Total 7,432,172 5,113,621 0 12,545,793
Accumulated provision for depreciation (3,258,535) (2,222,972) (5,481,507)
Nuclear fuel - net 86,016 56,873 142,889
Net utility plant 4,259,653 2,947,522 0 7,207,175
CURRENT ASSETS
Cash and cash equivalents 58,371 14,424 72,795
Accounts receivable - net 289,612 124,606 414,218
Accrued utility revenues 93,545 98,360 191,905
Fossil fuel inventories 41,836 84,466 126,302
Material & supplies inventories 105,379 70,854 176,233
Prepayments and other 50,083 90,150 140,233
Total current assets 638,826 482,860 0 1,121,686
OTHER ASSETS
Regulatory Assets 357,328 287,654 644,982
External decommissioning fund 173,881 253,657 427,538
Investments in non-regulated projects and other investments 266,021 116,746 382,767
Non-regulated property - net 177,398 101,457 278,855
Intangible assets and other (Note 4) 130,772 251,148 (137,514) 244,406
Total other assets 1,105,400 1,010,662 (137,514) 1,978,548
TOTAL ASSETS $6,003,879 $4,441,044 ($137,514) $10,307,409
LIABILITIES AND EQUITY
CAPITALIZATION
Common stock equity:
Common stock (Note 1) $168,767 $1,098 ($167,669) $2,196
Other stockholders' equity (Note 1) 1,774,940 1,803,154 167,669 3,745,763
Total common stock equity 1,943,707 1,804,252 0 3,747,959
Cumulative preferred stock and premium 240,469 30,451 270,920
Long-term debt 1,465,599 1,253,148 2,718,747
Total capitalization 3,649,775 3,087,851 0 6,737,626
CURRENT LIABILITIES
Current portion of long-term debt 168,324 52,879 221,203
Short-term debt 309,929 240,821 550,750
Accounts payable 181,631 70,039 251,670
Taxes accrued 145,761 10,104 155,865
Other accrued liabilities 136,424 103,174 239,598
Total current liabilities 942,069 477,017 0 1,419,086
OTHER LIABILITIES
Deferred income taxes (Note 4) 856,503 480,367 (137,514) 1,199,356
Deferred investment tax credits 168,599 91,913 260,512
Regulatory liabilities 214,495 167,638 382,133
Other liabilities and deferred credits 172,438 136,258 308,696
Total other liabilities 1,412,035 876,176 (137,514) 2,150,697
TOTAL CAPITALIZATION AND LIABILITIES $6,003,879 $4,441,044 ($137,514) $10,307,409
See accompanying notes to unaudited pro forma combined condensed financial statements.
</TABLE>
<TABLE>
PRIMERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1995
(In thousands, except per share amounts)
<CAPTION>
NSP WEC Pro Forma Pro Forma
(As Reported) (As Reported) Adjustments Combined
<S> <C> <C> <C> <C>
Utility Operating Revenues
Electric $1,016,931 $691,196 $1,708,127
Gas 233,909 176,275 410,184
Steam 8,744 8,744
Total Operating Revenues 1,250,840 876,215 0 2,127,055
Utility Operating Expenses
Electric Production-Fuel and Purchased Power 284,148 166,636 450,784
Cost of Gas Sold & Transported 139,613 105,339 244,952
Other Operation 261,621 195,619 457,240
Maintenance 81,025 59,212 140,237
Depreciation and Amortization 143,899 90,148 234,047
Taxes Other Than Income Taxes 124,352 36,537 160,889
Revitalization Charges 0
Income Taxes 60,322 65,304 125,626
Total Operating Expenses 1,094,980 718,795 0 1,813,775
Utility Operating Income 155,860 157,420 0 313,280
Other Income (Expense)
Equity Earnings of Unconsolidated Investees 18,470 18,470
Other Income and Deductions - Net 15,696 12,591 28,287
Total Other Income (Expense) 34,166 12,591 0 46,757
Income before Interest Charges
and Preferred Dividends 190,026 170,011 0 360,037
Interest Charges 62,024 55,280 117,304
Preferred Dividends of Subsidiaries 6,327 602 6,929
Net Income $121,675 $114,129 $0 $235,804
Average Common Shares Outstanding (Note 1) 67,107 109,352 42,009 218,468
Earnings Per Common Share $1.81 $1.04 $1.08
See accompanying notes to pro forma combined condensed financial statements.
</TABLE>
<TABLE>
PRIMERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1994
(In thousands, except per share amounts)
<CAPTION>
NSP WEC Pro Forma Pro Forma
(As Reported) (As Reported) Adjustments Combined
<S> <C> <C> <C> <C>
Utility Operating Revenues
Electric $1,007,382 $694,514 $1,701,896
Gas 258,044 206,081 464,125
Steam 9,426 9,426
Total Operating Revenues 1,265,426 910,021 0 2,175,447
Utility Operating Expenses
Electric Production-Fuel and Purchased Power 284,767 165,595 450,362
Cost of Gas Sold & Transported 163,631 128,438 292,069
Other Operation 259,068 207,670 466,738
Maintenance 81,913 63,936 145,849
Depreciation and Amortization 135,711 87,389 223,100
Taxes Other Than Income Taxes 118,376 40,415 158,791
Revitalization Charges 73,900 73,900
Income Taxes 70,638 35,388 106,026
Total Operating Expenses 1,114,104 802,731 0 1,916,835
Utility Operating Income 151,322 107,290 0 258,612
Other Income (Expense)
Equity Earnings of Unconsolidated Investees 12,757 12,757
Other Income and Deductions - Net 3,435 13,034 16,469
Total Other Income (Expense) 16,192 13,034 0 29,226
Income before Interest Charges
and Preferred Dividends 167,514 120,324 0 287,838
Interest Charges 48,911 53,323 102,234
Preferred Dividends of Subsidiaries 6,113 749 6,862
Net Income $112,490 $66,252 $0 $178,742
Average Common Shares Outstanding (Note 1) 66,765 107,525 41,795 216,085
Earnings Per Common Share $1.68 $0.62 $0.83
See accompanying notes to pro forma combined condensed financial statements.
</TABLE>
<TABLE>
PRIMERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
12 MONTHS ENDED JUNE 30, 1995
(In thousands, except per share amounts)
<CAPTION>
NSP WEC Pro Forma Pro Forma
(As Reported) (As Reported) Adjustments Combined
<S> <C> <C> <C> <C>
Utility Operating Revenues
Electric $2,076,194 $1,400,244 $3,476,438
Gas 395,768 294,543 690,311
Steam 13,599 13,599
Total Operating Revenues 2,471,962 1,708,386 0 4,180,348
Utility Operating Expenses
Electric Production-Fuel and Purchased Power 570,257 329,526 899,783
Cost of Gas Sold & Transported 239,425 176,412 415,837
Other Operation 538,725 386,960 925,685
Maintenance 169,257 119,878 289,135
Depreciation and Amortization 281,990 180,373 462,363
Taxes Other Than Income Taxes 240,540 72,157 312,697
Revitalization Charges 0
Income Taxes 118,912 129,677 248,589
Total Operating Expenses 2,159,106 1,394,983 0 3,554,089
Utility Operating Income 312,856 313,403 0 626,259
Other Income (Expense)
Equity Earnings of Unconsolidated Investees 41,576 41,576
Other Income and Deductions - Net 18,770 26,522 45,292
Total Other Income (Expense) 60,346 26,522 0 86,868
Income before Interest Charges
and Preferred Dividends 373,202 339,925 0 713,127
Interest Charges 120,328 109,976 230,304
Preferred Dividends of Subsidiaries 12,578 1,204 13,782
Net Income $240,296 $228,745 $0 $469,041
Average Common Shares Outstanding (Note 1) 67,004 108,931 41,945 217,880
Earnings Per Common Share $3.59 $2.10 $2.15
See accompanying notes to pro forma combined condensed financial statements.
</TABLE>
PRIMERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS
1. The pro forma combined condensed financial statements reflect the
conversion of each share of NSP common stock outstanding ($2.50 par
value) into 1.626 shares of Primergy Common Stock ($.01 par value) and
the continuation of each share of WEC Common Stock outstanding as one
share of Primergy common stock ($.01 par value), as provided in the
Merger Agreement. The pro forma combined condensed financial statements
are presented as if the companies were combined during all periods
included therein.
2. The allocation between NSP and WEC and their customers of the estimated
cost savings, resulting from the Transaction, net of the costs incurred
to achieve such savings, will be subject to regulatory review and
approval. Transaction costs are currently estimated to be approximately
$30 million (including fees for financial advisors, accountants,
attorneys, filings and printing). None of the estimated cost savings,
the costs to achieve such savings, or the transaction costs have been
reflected in the pro forma combined condensed financial statements.
3. Intercompany transactions (including purchased and exchanged power
transactions) between NSP and WEC during the periods presented were not
material and, accordingly, no pro forma adjustments were made to
eliminate such transactions.
4. A pro forma adjustment has been made to conform the presentation of
noncurrent deferred income taxes in the pro forma combined condensed
balance sheet into one net amount. All other report presentation and
accounting policy differences are immaterial and have not been adjusted
in the pro forma combined condensed financial statements.
<TABLE>
NEW NSP
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
JUNE 30, 1995
(In thousands)
<CAPTION>
NSP Pro Forma Pro Forma
(As Reported) Adjustments New NSP
<S> <C> <C> <C>
ASSETS
UTILITY PLANT
Electric $6,456,240 ($846,685) $5,609,555
Gas 687,963 (202,881) 485,082
Other 287,969 (57,810) 230,159
Total 7,432,172 (1,107,376) 6,324,796
Accumulated provision for depreciation (3,258,535) 430,069 (2,828,466)
Nuclear fuel - net 86,016 0 86,016
Net utility plant 4,259,653 (677,307) 3,582,346
CURRENT ASSETS
Cash and cash equivalents 58,371 (47,916) 10,455
Accounts receivable - net 289,612 (53,457) 236,155
Accrued utility revenues 93,545 (12,103) 81,442
Fossil fuel inventories 41,836 (4,696) 37,140
Material & supplies inventories 105,379 (10,280) 95,099
Prepayments and other 50,083 (18,181) 31,902
Total current assets 638,826 (146,633) 492,193
OTHER ASSETS
Regulatory assets 357,328 (33,349) 323,979
External decommissioning fund 173,881 0 173,881
Investments in non-regulated projects and other
investments 266,021 (247,247) 18,774
Non-regulated property - net 177,398 (149,985) 27,413
Intangible assets and other 130,772 (55,320) 75,452
Total other assets 1,105,400 (485,901) 619,499
TOTAL ASSETS $6,003,879 ($1,309,841) $4,694,038
LIABILITIES AND EQUITY
CAPITALIZATION
Common stock $168,767 $0 $168,767
Other stockholders' equity 1,774,940 (663,377) 1,111,563
Total common stock equity 1,943,707 (663,377) 1,280,330
Cumulative preferred stock and premium 240,469 0 240,469
Long-term debt 1,465,599 (357,355) 1,108,244
Total capitalization 3,649,775 (1,020,732) 2,629,043
CURRENT LIABILITIES
Current portion of long-term debt 168,324 (6,839) 161,485
Short-term debt 309,929 (32,128) 277,801
Accounts payable 181,631 (27,740) 153,891
Taxes accrued 145,761 (14,304) 131,457
Other accrued liabilities 136,424 (18,270) 118,154
Total current liabilities 942,069 (99,281) 842,788
OTHER LIABILITIES
Deferred income taxes 856,503 (121,018) 735,485
Deferred investment tax credits 168,599 (24,093) 144,506
Regulatory liabilities 214,495 (17,197) 197,298
Other liabilities and deferred credits 172,438 (27,520) 144,918
Total other liabilities 1,412,035 (189,828) 1,222,207
TOTAL LIABILITIES AND EQUITY $6,003,879 ($1,309,841) $4,694,038
See accompanying notes to unaudited pro forma New NSP condensed financial statements.
</TABLE>
<TABLE>
NEW NSP
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1995
(In thousands)
<CAPTION>
NSP Pro Forma Pro Forma
(As Reported) Adjustments New NSP
<S> <C> <C> <C>
Utility Operating Revenues
Electric $1,016,931 ($57,143) $959,788
Gas 233,909 (50,870) 183,039
Total Operating Revenues 1,250,840 (108,013) 1,142,827
Utility Operating Expenses
Electric Production-Fuel and Purchased Power 284,148 21,149 305,297
Cost of Gas Sold & Transported 139,613 (26,547) 113,066
Other Operation 261,621 (24,071) 237,550
Maintenance 81,025 (9,831) 71,194
Depreciation and Amortization 143,899 (16,874) 127,025
Taxes Other Than Income Taxes 124,352 (7,997) 116,355
Income Taxes 60,322 (13,248) 47,074
Total Operating Expenses 1,094,980 (77,419) 1,017,561
Utility Operating Income 155,860 (30,594) 125,266
Other Income (Expense)
Equity Earnings of Unconsolidated Investees 18,470 (18,470) 0
Other Income and Deductions - Net 15,696 (13,116) 2,580
Total Other Income (Expense) 34,166 (31,586) 2,580
Income before Interest Charges 190,026 (62,180) 127,846
Interest Charges 62,024 (15,479) 46,545
Net Income 128,002 (46,701) 81,301
Preferred Dividends 6,327 0 6,327
Earnings Available for Common Stockholders $121,675 ($46,701) $74,974
See accompanying notes to unaudited pro forma New NSP condensed financial statements.
</TABLE>
<TABLE>
NEW NSP
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1994
(In thousands)
<CAPTION>
NSP Pro Forma Pro Forma
(As Reported) Adjustments New NSP
<S> <C> <C> <C>
Utility Operating Revenues
Electric $1,007,382 ($59,447) $947,935
Gas 258,044 (53,154) 204,890
Total Operating Revenues 1,265,426 (112,601) 1,152,825
Utility Operating Expenses
Electric Production-Fuel and Purchased Power 284,767 20,545 305,312
Cost of Gas Sold & Transported 163,631 (29,787) 133,844
Other Operation 259,068 (24,438) 234,630
Maintenance 81,913 (10,394) 71,519
Depreciation and Amortization 135,711 (15,599) 120,112
Taxes Other Than Income Taxes 118,376 (7,830) 110,546
Income Taxes 70,638 (13,752) 56,886
Total Operating Expenses 1,114,104 (81,255) 1,032,849
Utility Operating Income 151,322 (31,346) 119,976
Other Income (Expense)
Equity Earnings of Unconsolidated Investees 12,757 (12,757) 0
Other Income and Deductions - Net 3,435 (2,608) 827
Total Other Income (Expense) 16,192 (15,365) 827
Income before Interest Charges 167,514 (46,711) 120,803
Interest Charges 48,911 (13,183) 35,728
Net Income 118,603 (33,528) 85,075
Preferred Dividends 6,113 0 6,113
Earnings Available for Common Stockholders $112,490 ($33,528) $78,962
See accompanying notes to unaudited pro forma New NSP condensed financial statements.
</TABLE>
NEW NSP
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
1. The pro forma balance sheet has been adjusted to reflect the
cancellation of NSP common stock with a $2.50 par value and its
replacement with $2.50 par value common stock of New NSP which will be
issued to Primergy.
2. Subsidiary assets, liabilities, equity and results of operations have
been eliminated from consolidated NSP amounts to reflect the merger of
NSP-W into WEC and the transfer of ownership and control of all other
subsidiaries from NSP to Primergy. The New NSP stock issued to Primergy
is assumed to reflect the reduction in net assets related to the merger
of NSP-W into WEC and transfer of investments in other subsidiaries
from NSP to Primergy.
3. NSP financing of subsidiary capital and cash flow requirements has been
adjusted to reflect the transfer of such items to Primergy. Pro forma
adjustments reflect the elimination of (a) notes receivable and advances
from subsidiaries; (b) NSP debt incurred to finance the notes and
advances; (c) interest income earned on the notes and advances; and (d)
interest expense accrued on the debt incurred to finance the notes and
advances.
4. After the Transaction, NSP will not retain ownership of subsidiaries
currently being consolidated. Consequently, intercompany transactions
between NSP and its current subsidiaries have not been eliminated in the
pro forma financial statements.
The most significant intercompany transactions are power sales to and
purchases from NSP-W pursuant to an interchange agreement with NSP. The
interchange pricing and cost sharing arrangements are expected to be
restructured as a result of the Transaction. However, at this time the
amount of any changes to interchange power purchases or sales cannot be
estimated. Consequently, no pro forma adjustments have been made to
operating revenues, operating expenses, or accounts receivable from (or
payable to) associated companies for the effects of interchange
restructuring.
5. The Merger Agreement provides that certain gas utility properties and
operations in Wisconsin (currently owned by NSP-W) may be transferred
to New NSP as part of the Transaction. The specific assets, liabilities
and amounts thereof have not yet been determined. Consequently, pro
forma adjustments have not been made for this potential transfer. The
properties which may be transferred include utility plant with a net
book value of approximately $18 million.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following Exhibits are filed with this report:
10.01 Acknowledgement of Amendment to Terms and Conditions of Employment
of James J. Howard.
27.01 Financial Data Schedule for the six months ended June 30, 1995.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed either during the three months
ended June 30, 1995, or between June 30, 1995 and the date of this report:
April 28, 1995 (Filed May 3, 1995) - Item 5. Other Events. Disclosure of an
agreement and plan of merger between the Company and Wisconsin Energy
Corporation, subject to approval by stockholders and regulatory agencies.
June 27, 1995 - Item 7. Financial Statements and Exhibits. Disclosure of Pro
forma Condensed Financial Statements reflecting Northern States Power Company
after the merger between the Company and Wisconsin Energy Corporation.
June 28, 1995 (Filed June 29, 1995) - Item 5 and 7. Other Events and Financial
Statements and Exhibits. Disclosure of the Company entering into an
underwriting agreement and filed with the Securities and Exchange Commission
a prospectus supplement relating to $250,000,000 in aggregate principal amount
of the Company's First Mortgage Bonds, Series due July 1, 2025.
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.
NORTHERN STATES POWER COMPANY
(Registrant)
(Roger D. Sandeen)
Roger D. Sandeen
Vice President, Controller and
Chief Information Officer
(Gary R. Johnson)
Gary R. Johnson
Vice President and General Counsel
Date: August 3, 1995
Exhibit 10.01
ACKNOWLEDGEMENT OF AMENDMENT TO TERMS
AND CONDITIONS OF EMPLOYMENT OF
JAMES J. HOWARD
WHEREAS, Northern States Power Company, a Minnesota corporation ("NSP")
and James J. Howard ("Howard") are parties to an agreement, effective February
1, 1987, relating to the employment of Howard by NSP ("Agreement"); and
WHEREAS, on August 24, 1994, the Corporate Management Committee
("Committee") of NSP's Board of Directors ("Board") concluded that the manner
in which Howard's pension benefits under the Agreement coordinate with the
benefits he earned from Ameritech tends to discourage Howard from working past
age 60; and
WHEREAS, the Committee recommended to the Board that it amend Howard's
contract to eliminate this disincentive to Howard's continued employment and
bring the agreement more in line with the parties' original intention; and
WHEREAS, the Board approved the amendment proposed by the Committee; and
WHEREAS, a written acknowledgement of the Board's action on August 24,
1994, is deemed necessary and advisable:
NOW, THEREFORE, Howard and the undersigned officer of NSP acknowledge
that the Board, with Howard's consent, has amended the final sentence of
Paragraph 13 of the Agreement to read as follows:
"If Howard works past age 60, NSP will determine his combined
benefits from the Northern States Power Company Pension Plan and
supplemental NSP payments, as though he had completed 30 years of
service; provided, however, that those combined benefits shall be
reduced by the excess, if any, of the annual retirement benefits
of $151,296 he earned from Ameritech over the annual retirement
benefit that the Pension Plan's actuaries reasonably estimate is
equivalent to the accumulated value, at the time Howard's pension
benefit payments begin, of the monthly benefit payments he would
have received prior to that time if monthly benefit payments had
commenced at the end of the month following the month he attained
age 60."
IN WITNESS WHEREOF, the parties have executed this acknowledgement this
12th day of May, 1995.
NORTHERN STATES POWER COMPANY
(James J. Howard) By (Cynthia L. Lesher)
James J. Howard Cynthia L. Lesher
Vice President, Human Resources
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> UT EXHIBIT 27
Exhibit 27.01
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statements of Income, Consolidated Balance Sheets and Consolidated
Statements of Cash Flows and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUN-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,259,653
<OTHER-PROPERTY-AND-INVEST> 617,300
<TOTAL-CURRENT-ASSETS> 638,826
<TOTAL-DEFERRED-CHARGES> 357,328
<OTHER-ASSETS> 130,772
<TOTAL-ASSETS> 6,003,879
<COMMON> 168,767
<CAPITAL-SURPLUS-PAID-IN> 570,732
<RETAINED-EARNINGS> 1,215,505
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,943,707<F1>
0
240,469
<LONG-TERM-DEBT-NET> 1,465,599
<SHORT-TERM-NOTES> 5,829
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 304,100
<LONG-TERM-DEBT-CURRENT-PORT> 168,324
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,864,554<F1>
<TOT-CAPITALIZATION-AND-LIAB> 6,003,879
<GROSS-OPERATING-REVENUE> 1,250,840
<INCOME-TAX-EXPENSE> 73,575<F2>
<OTHER-OPERATING-EXPENSES> 1,034,658
<TOTAL-OPERATING-EXPENSES> 1,094,980
<OPERATING-INCOME-LOSS> 155,860
<OTHER-INCOME-NET> 47,419<F2>
<INCOME-BEFORE-INTEREST-EXPEN> 190,026
<TOTAL-INTEREST-EXPENSE> 62,024
<NET-INCOME> 128,002
6,327
<EARNINGS-AVAILABLE-FOR-COMM> 121,675
<COMMON-STOCK-DIVIDENDS> 89,361
<TOTAL-INTEREST-ON-BONDS> 55,042
<CASH-FLOW-OPERATIONS> 225,803
<EPS-PRIMARY> $1.81
<EPS-DILUTED> 0
<FN>
<F1>$(11,297) thousand of Common Stockholders' Equity is classified as Other
Items-Capitalization and Liabilities. This represents the net of leveraged
common stock held by the Employee Stock Ownership Plan and the currency
translation adjustments.
<F2>$13.253 million of non-operating income taxes are classified as Income Tax
Expense. The financial statement presentation includes them as a component of
Other Income and Deductions - Net.
</FN>
</TABLE>
