SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 0-692
NORTHWESTERN PUBLIC SERVICE COMPANY
A Delaware Corporation
IRS Employer Identification No. 46-0172280
33 Third Street SE
Huron, South Dakota 57350-1318
Telephone - 605-352-8411
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Common Stock, Par Value $1.75
17,842,524 shares outstanding at November 10, 1997
Company-Obligated Mandatorily Redeemable Preferred Securities
of Subsidiary Trust, Liquidation Amount $25.00
1,300,000 shares outstanding at November 10, 1997
INDEX
Page
Part I. Financial Information
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996
Consolidated Statements of Income -
Three months and nine months ended
September 30, 1997 and 1996
Consolidated Statements of Cash Flows
Nine months ended
September 30, 1997 and 1996
Notes to Consolidated Financial Statements
Management's Discussion of Financial Condition
and Results of Operations
Part II. Other Information
Signatures
NORTHWESTERN PUBLIC SERVICE COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30
1997 December 31,
ASSETS (unaudited) 1996
-------------- --------------
PROPERTY:
Electric $ 354,328 $ 350,419
Natural Gas 84,874 80,905
Propane 261,307 248,556
Manufacturing 2,241 2,142
-------------- --------------
702,750 682,022
Less-Accumulated depreciation (171,708) (162,909)
-------------- --------------
531,042 519,113
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents 10,176 36,790
Trade accounts receivable, net 98,629 89,259
Inventories 24,309 43,826
Deferred gas costs 843 7,007
Other 27,171 20,807
-------------- --------------
161,128 197,689
-------------- --------------
OTHER ASSETS:
Investments 129,994 159,333
Deferred charges and other 53,517 40,260
Goodwill and other intangibles, net 214,918 197,321
-------------- --------------
398,429 396,914
-------------- --------------
$ 1,090,599 $ 1,113,716
============== ==============
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock equity $ 163,833 $ 163,805
Nonredeemable cumulative preferred stock 2,600 2,600
Redeemable cumulative preferred stock 1,150 1,150
Company obligated mandatorily redeemable
security of trust holding solely
parent debentures 32,500 32,500
Long-term debt 161,350 183,850
-------------- --------------
361,433 383,905
Preferred stock of subsidiary - 2,500
Minority interest in subsidiaries 200,430 186,714
Long-term debt of subsidiaries 255,798 240,563
-------------- --------------
817,661 813,682
-------------- --------------
CURRENT LIABILITIES:
Long-term debt due within one year 5,580 1,244
Accounts payable 86,651 99,394
Accrued taxes 11,174 11,834
Other 35,263 40,295
-------------- --------------
138,668 152,767
-------------- --------------
DEFERRED CREDITS:
Accumulated deferred income taxes 68,761 70,894
Unamortized investment tax credits 9,039 9,460
Other 56,470 66,913
-------------- --------------
134,270 147,267
-------------- --------------
$ 1,090,599 $ 1,113,716
============== ==============
The accompanying notes to consolidated financial statements are
an integral part of these statements.
<PAGE>
<TABLE>
NORTHWESTERN PUBLIC SERVICE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Propane $ 152,165 $ 17,690 $ 501,490 $ 78,211
Electric 21,223 19,966 58,872 56,174
Natural gas 7,249 6,038 58,846 51,211
Manufacturing 4,447 6,011 15,733 18,009
-------------- ------------- ------------- -------------
185,084 49,705 634,941 203,605
-------------- ------------- ------------- -------------
OPERATING EXPENSES
Propane costs 127,630 8,205 414,217 38,518
Fuel and purchased power 4,287 3,654 11,431 10,353
Purchased natural gas sold 4,307 6,516 42,031 35,089
Manufacturing cost of goods sold 2,871 3,685 9,892 11,188
Other operating expenses 29,949 16,019 87,511 51,171
Maintenance 1,562 1,439 4,795 4,435
Depreciation and amortization 8,726 3,960 23,413 13,150
Property and other taxes 1,719 1,575 5,189 4,799
-------------- ------------- ------------- -------------
181,051 45,053 598,479 168,703
-------------- ------------- ------------- -------------
OPERATING INCOME
Propane (3,051) 922 9,436 9,745
Electric 8,030 7,400 20,865 19,188
Natural gas (903) (4,158) 5,416 4,813
Manufacturing (43) 488 745 1,156
-------------- ------------- ------------- -------------
4,033 4,652 36,462 34,902
Interest Expense, net (7,755) (4,077) (23,625) (11,886)
Investment Income and Other 3,823 933 7,977 3,590
-------------- ------------- ------------- -------------
Income Before Income Taxes
and Minority Interest 101 1,508 20,814 26,606
Income Taxes (1,464) (207) (7,335) (8,643)
-------------- ------------- ------------- -------------
Income (Loss) Before Minority Interest (1,363) 1,301 13,479 17,963
Minority Interest 5,085 - 3,924 -
-------------- ------------- ------------- -------------
Net Income 3,722 1,301 17,403 17,963
Minority Interest on Preferred
Securities of Subsidiary Trust (660) (660) (1,980) (1,980)
Dividends on Preferred Stock (48) (141) (165) (423)
-------------- ------------- ------------- -------------
Earnings on Common Stock $ 3,014 $ 500 $ 15,258 $ 15,560
============== ============= ============= =============
Average Shares Outstanding 17,843 17,840 17,843 17,840
Earnings per Average Common Share $ 0.17 $ 0.03 $ 0.86 $ 0.87
============== ============= ============= =============
Dividends Declared Per Average Common
Share $ 0.23 $ 0.22 $ 0.69 $ 0.66
============== ============= ============= =============
The accompanying notes to consolidated financial statements are
an integral part of these statements.
</TABLE>
<PAGE>
NORTHWESTERN PUBLIC SERVICE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended
September 30
----------------------------
1997 1996
------------- -------------
OPERATING ACTIVITIES:
Net income $ 17,403 $ 17,963
Items not affecting cash:
Depreciation and amortization 23,413 13,150
Deferred income taxes (261) (671)
Minority interest in net income of
consolidated subsidiaries (3,924) -
Investment tax credits (421) (423)
Changes in current assets and liabilities, net:
Accounts receivable (8,825) 9,370
Inventories 19,782 2,166
Other current assets 6,164 2,883
Accounts payable (13,452) (5,388)
Accrued taxes (660) 1,926
Other current liabilities (11,741) (6,995)
Other, net 4,343 (7,289)
----------------------------
Cash flows from operating activities 31,821 26,692
----------------------------
INVESTMENT ACTIVITIES:
Property additions (19,086) (22,981)
Sale (Purchase) of noncurrent investments, net 21,003 (9,715)
Subsidiary acquisitions and formation (20,265) -
Purchase of working capital, net - 1,443
----------------------------
Cash flows for investment activities (18,348) (31,253)
----------------------------
FINANCING ACTIVITIES:
Dividends on common and preferred stock (12,476) (12,198)
Subsidiary payment of distributions (12,031) -
Minority interest on preferred securities of
subsidiary trust (1,980) (1,980)
Redemption of preferred stock of subsidiary (2,687) -
Issuance of nonrecourse subsidiary debt 19,131 1,846
Repayment of nonrecourse subsidiary debt (7,544) -
Repayment of long-term debt (22,500) -
Retirement of preferred stock - (10)
Commercial paper issuances - 17,500
Commercial paper repayments - (3,500)
----------------------------
Cash flows for financing activities (40,087) 1,658
----------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (26,614) (2,903)
Cash and Cash Equivalents, beginning of period 36,790 4,552
----------------------------
CASH AND CASH EQUIVALENTS, end of period $ 10,176 $ 1,649
============================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 8,815 $ 7,260
Interest $ 22,267 $ 12,047
The accompanying notes to consolidated financial statements are
an integral part of these statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Reference is made to Notes to Financial Statements
included in the Company's Annual Report)
(1) Management's Statement -
The financial statements included herein have been prepared by
Northwestern Public Service Company (the Company), without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. In
the opinion of the Company, all adjustments necessary for a fair
presentation of the results of operations for the interim periods have been
included. It is suggested that these financial statements be read in
conjunction with the financial statements and the notes thereto included in
the Company's latest annual report to stockholders.
(2) Subsidiaries and Principles of Consolidation -
The consolidated financial statements include the accounts of all
wholly and majority owned or controlled subsidiaries. All significant
intercompany transactions have been eliminated.
(3) Allowance for Funds Used During Construction -
The allowance for funds used during construction includes the costs of
equity and borrowed funds used to finance construction which are
capitalized in accordance with rules prescribed by the FERC. For the
quarters ended September 30, 1997 and 1996, allowance for equity funds was
$1,442 and $17,445. For the nine months ended September 30, 1997 and 1996,
allowance for equity funds was $29,342 and $65,523. Allowance for borrowed
funds was $3,211 and $15,470 for the quarters ended September 30, 1997 and
1996, and $65,309 and $56,880 for the nine months ended September 30, 1997
and 1996.
(4) Change in Accounting Policy for Natural Gas Demand Costs -
Effective January 1, 1997, the Company changed its method of
accounting for demand costs for natural gas supplies. Prior to 1997,
demand costs were recognized as incurred which are generally consistent and
stable throughout the course of a normal year. Beginning January 1, 1997
these costs are being recognized in proportion to natural gas volumes
purchased. The Company believes that this provides for better matching of
expenses with revenues. There is no significant effect from this change on
an annual basis, but this change does impact interim reporting periods. On
a pro forma basis, giving effect to this change, earnings per share would
have been $.16 for the three months ended September 30, 1996, while the
nine months ended September 30, 1996, would not have been affected.
(5) Reclassifications -
Certain 1996 amounts have been reclassified to conform to the 1997
presentation. Such reclassifications had no impact on net income or common
stock equity as previously reported. Shares outstanding and earnings per
share amounts have been adjusted to reflect the May 1997 stock split.
(6) Adoption of SFAS 128
Effective December 31, 1997, the Company will adopt Statement of
Financial Accounting Standards No. 128 (SFAS 128). SFAS 128 "Earnings Per
Share", establishes new accounting standards for the calculation of
earnings per share. Adoption of SFAS 128 will not have an effect upon the
Company's current period earnings per share.
<PAGE>
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Northwestern Public Service is a diversified energy distribution
company with operations engaged in the propane, electric, and natural gas
industries. The Company generates and distributes electric energy to
56,000 customers in eastern South Dakota. It also purchases and
distributes natural gas to 77,000 customers in eastern South Dakota and
central Nebraska.
Through the acquisitions of Synergy Group Incorporated (Synergy) and
Myers Propane Gas Company (Myers) in 1995 and Empire Energy Corporation
(Energy) and CGI Holdings, Inc. (Coast) in 1996, the Company is engaged in
retail propane distribution business located throughout the United States.
On December 17, 1996, the Company's propane distribution businesses of
Coast, Energy, Myers and Synergy were combined into Cornerstone Propane
Partners, L.P. (Cornerstone), a publicly traded Delaware limited
partnership, formed to acquire and operate these propane businesses and
assets. The Company through its majority owned subsidiaries retained
initially an effective 2% general partner interest and a 39% subordinated
limited partnership interest in Cornerstone. A wholly owned subsidiary of
the Company serves as the general partner of Cornerstone and manages and
operates Cornerstone's business.
The Company's manufacturing operations are comprised of Lucht Inc., a
wholly owned subsidiary that develops, manufactures and markets multi-image
photographic printers and other related equipment.
Weather
Weather patterns have a material impact on the Company's operating
performance. Because propane and natural gas are heavily used for
residential and commercial heating, the demand for these products depends
heavily upon weather patterns throughout the Company's market areas. With a
larger proportion of its operations related to seasonal propane and natural
gas sales in 1997, the distribution of the Company's quarterly operating
performance will be different than in historical periods. A greater portion
of the Company's future operating income is expected to be recognized in
the first and fourth quarters related to higher revenues from the heating
season which will be partially offset by the change in accounting policy
for natural gas demand costs discussed in Note 4 of Notes to Consolidated
Financial Statements.
RESULTS OF OPERATIONS:
Earnings Comparisons -
Earnings per share for the quarters ended September 30, 1997 and 1996,
were $.17 and $.03. Earnings per share on a pro forma basis, after giving
effect to the change in accounting for natural gas demand costs discussed
in Note 4 would have been $.16 for the quarter ended September 30, 1996.
The increase in earnings on a pro forma basis was due to warmer than normal
weather in the Company's electric operating areas offset partially by
decreased operating income in the propane market areas.
Earnings per share for the year to date through September 30, 1997,
was $.86 compared to $.87 for the nine months ended September 30, 1996.
Earnings per share on a pro forma basis, after giving effect to the change
in accounting for natural gas demand costs discussed in Note 4 would not
have been affected for the nine months ended September 30, 1996. The
decrease in earnings on a pro forma basis was due to substantially warmer
than normal weather in the Company's propane operating areas. Favorably
impacting earnings for the nine months ended were colder weather in the
Company's electric and natural gas operating areas during the first quarter
and warmer weather during the summer months of the third quarter in the
Company's electric operating areas.
Electric and Natural Gas -
Retail electric revenues and volumes increased by 4% for the three
months ended September 30 as compared to the same period of the prior year.
Natural gas revenues increased by 14% while volumes sold increased by 7%
for the three months ended September 30. The changes in electric
operations were impacted by periods of warmer weather as compared to the
same quarter of the prior year. Natural gas revenues were impacted by
periods of cooler weather as compared to the same quarter of the prior year.
Natural gas margins increased compared to the prior year due to the change
in accounting for natural gas demand costs, see Note 4 of the Notes to
Consolidated Financial Statements. This change in accounting will effect
interim periods but should have no effect on an annual basis.
Retail electric revenues and volumes both increased by 3% for the nine
months ended September 30 as compared to the same period of the prior year.
The increase in revenues reflects warmer weather during the summer months.
Natural gas revenues increased by 15% for the nine months ended while
volumes increased by 3% as compared to the same period of the prior year.
Natural gas revenues increased significantly due to substantial increases
in commodity market prices during the winter heating season. Natural gas
margins increased compared to the prior year due to increased volumes sold
during the winter heating season.
Propane -
Operating revenues from propane for the three months ended September
30 increased from $17.7 million in 1996 to $152.2 million in 1997. Gallons
also increased from 21.2 million in 1996 to 181.8 million in 1997.
Revenues and gallons both increased due to the acquisitions of two large
retail propane distributors in late 1996 followed by the formation of
Cornerstone in December 1996. The propane operations in 1997 have been
affected by weather that has been substantially warmer than normal. The
majority of propane revenues and operating income occur in the first and
fourth quarters when propane is heavily sold for residential and commercial
heating as compared to the second and third quarters which traditionally
are net loss periods in the industry.
Operating revenues from propane for the nine months ended September 30
increased from $78.2 million in 1996 to $501.5 million in 1997. Gallons
also increased from 75.0 million in 1996 to 437.6 million in 1997.
Revenues and gallons both increased due to the acquisitions and the
formation of Cornerstone in late 1996. The propane operations for the nine
months ended September 30, 1997, have been heavily impacted by weather that
has been 8% warmer than normal.
Manufacturing -
Manufacturing revenues are related to the Company's investment in
Lucht Inc., a firm that manufactures photographic processing and imaging
equipment used by high volume photo processing laboratories. Weaker
quarterly sales activity produced lower revenues for both the third quarter
and the year-to-date as compared to 1996. Favorably impacting earnings for
both the three months and nine months were improvements in operating
expenses.
Other Income Statement Items -
Other operating expenses for both the three months and nine months
ended September 30 increased in 1997 as compared to 1996 primarily due to
the acquisition of two large retail propane distributors in October and
December 1996. Other income increased during both the three months and
nine months ended September 30 due to higher investment income in 1997 as
compared to 1996. The increase in depreciation reflects the increase in
depreciable propane assets when compared to the same periods of the prior
year. The increase in interest expense is related to the issuance of $220
million nonrecourse notes by Cornerstone in December 1996 as part of the
Cornerstone partnership formation. The increase in interest expense is
partially offset in the third quarter by the redemption of the 8.9% series
general mortgage bonds of $7.5 million in March 1997 and the redemption of
the 8.824% series general mortgage bonds of $15 million in July 1997. The
decrease in income taxes is due to the minority interest effect upon the
Company's consolidated net income.
Liquidity and Capital Resources -
The Company has a high degree of long-term liquidity through the
generation of operating cash flows, the availability of substantial
marketable securities, and a sound capital structure. In addition, the
Company has adequate capacity for additional financing and has maintained
its liquidity position through favorable bond ratings.
The Company has generated significant operating cash flows while
continuing to maintain substantial cash and investment balances in the form
of marketable securities. Cash flows from operating activities during the
nine months ended September 30, 1997 and 1996 were $31.8 million and $26.7
million. The increase is primarily due to increased cash flows from
electric and natural gas operations. Cash equivalents and investment
securities totaled $120.1 million and $37.9 million at September 30, 1997
and 1996. In July 1997 the company retired early the $15 million
outstanding of the 8.824% series general mortgage bonds. In March 1997 the
Company retired early the $7.5 million outstanding of the 8.9% series
general mortgage bonds.
Working capital and other financial resources are also provided by
lines of credit, which are generally used to support commercial paper
borrowings, a primary source of short-term financing. At September 30,
1997, unused short-term lines of credit totaled $32.0 million. In
addition, the Company's nonregulated businesses maintain nonrecourse credit
agreements with various banks for revolving and term loans.
Capital Requirements -
The Company's primary capital requirements include the funding of its
energy business construction and expansion programs, the funding of debt
retirements, and the funding of its corporate development and investment
activities.
The emphasis of the Company's construction activities is to undertake
those projects that most efficiently serve the expanding needs of its
customer base, enhance energy delivery capabilities, expand its current
customer base, and provide for the reliability of energy supply.
Expenditures for construction activities during the nine months ended
September 30, 1997 and 1996 were $19.1 and $23.0 million. Included in such
construction activities were nonregulated capital expenditures of $6.5
million and $2.3 million during the nine months ended September 30, 1997
and 1996 which includes both growth and maintenance capital expenditures.
Capital expenditures for 1997, excluding propane, are estimated to be $16.9
million with a large portion of expenditures to be spent on enhancements of
the electric and natural gas distribution systems. Electric and natural
gas related capital expenditures for the years 1997 through 2001 are
estimated to be $64.6 million. Nonregulated maintenance capital
expenditures for 1997 are estimated to be $4.8 million. Estimated
nonregulated maintenance capital expenditures for the years 1997 through
2001 are estimated to be $18.8 million.
Capital requirements for the mandatory retirement of long-term debt
including nonrecourse debt of subsidiaries will be $6.5 million in 1998,
$38.2 million in 1999, $6.5 million in 2000, and $6.5 million in 2001.
The Company anticipates that future capital requirements will be met
by significant liquid investments on hand, internally generated cash flows
and available external financing.
<PAGE>
NORTHWESTERN PUBLIC SERVICE COMPANY
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently involved in any pending major litigation.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 - Financial Data Schedule UT (SEC only)
(b) Reports on Form 8-K
None
<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 thereunto duly authorized.
NORTHWESTERN PUBLIC SERVICE COMPANY
-----------------------------------
(Registrant)
Date: November 14, 1997 /s/ D. A. Monaghan
------------------------------------
Controller and Treasurer
Date: November 14, 1997 /s/ A. D. Dietrich
-----------------------------------
Vice President-Administration
and Corporate Secretary
<TABLE> <S> <C>
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