-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, b06nZUPVFUgxx+3GEfYJX12i+sv763vAfxgVSC5esq+fsh8tEFTCFI+RLVed/y5V JQld7+xJlyWNnNg82LEgng== 0000073088-94-000007.txt : 19940331 0000073088-94-000007.hdr.sgml : 19940331 ACCESSION NUMBER: 0000073088-94-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWESTERN PUBLIC SERVICE CO CENTRAL INDEX KEY: 0000073088 STANDARD INDUSTRIAL CLASSIFICATION: 4931 IRS NUMBER: 460172280 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-10499 FILM NUMBER: 94518220 BUSINESS ADDRESS: STREET 1: 33 THIRD ST SE STREET 2: PO BOX 1318 CITY: HURON STATE: SD ZIP: 57350-1318 BUSINESS PHONE: 6053528411 10-K 1 1993 10K DOCUMENT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) ( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee required) For the fiscal year ended December 31, 1993 or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (No fee required) For the transition period from _______________ to _______________ Commission File No. 0-692 NORTHWESTERN PUBLIC SERVICE COMPANY (Exact name of registrant as specified in its charter) Delaware 46-0172280 (State of Incorporation) (IRS Employer Identification No.) 33 Third Street SE Huron, South Dakota 57350-1318 (Address of principal office) (Zip Code) 605-352-8411 (Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Act: Common Stock, $3.50 par value New York Stock Exchange (Title of each class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: Preferred Stock, Par Value $100 (Title of Class) 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( X ) State the aggregate market value of the voting stock held by nonaffiliated of the registrant: $203,924,265 as of February 23, 1994 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 $3.50 7,677,232 shares outstanding at February 23, 1994 DOCUMENTS INCORPORATED BY REFERENCE: 1993 Annual Report to Stockholders . . . . . . . . Parts I and II Proxy Statement for 1994 Annual Meeting . . . . . . . . Parts I and III 2 PART I ITEM 1. BUSINESS (a) GENERAL DEVELOPMENT OF BUSINESS Northwestern Public Service Company ("Company") is an electric and gas utility engaged in generating, transmitting, distributing, and selling electric energy in eastern South Dakota, where it furnishes electric service to 54,288 customers in more than 100 communities and adjacent rural areas. The Company also purchases, distributes, sells, and transports natural gas to 73,228 customers in four communities in Nebraska and 53 communities in eastern South Dakota. The Company, through its subsidiaries, is also engaged in certain nonutility operations as described on page 7. The Company was incorporated under the laws of the State of Delaware in 1923 and is qualified to do business in the states of South Dakota, Nebraska, Iowa, and North Dakota. The Company does not serve customers in North Dakota or Iowa. The Company has its principal office at 33 Third Street SE, Huron, South Dakota 57350-1318. Its telephone number is 605-352-8411. (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The information required by this item 1(b) is incorporated by reference to Note 11 of the "Notes to Consolidated Financial Statements" on page 28 of the Company's 1993 Annual Report to Stockholders, filed as an Exhibit hereto. (c) NARRATIVE DESCRIPTION OF BUSINESS Pursuant to the South Dakota Public Utilities Act, the South Dakota Public Utilities Commission ("PUC") assigned as the Company's electric service territory the communities and adjacent rural areas in which the Company provides electric service in South Dakota. The Company has the right to provide electric service to present and future electric customers in its assigned service territory for so long as the service provided is deemed adequate. Under the South Dakota Public Utilities Act, effective July 1, 1976, the Company is not required to obtain or renew municipal franchises to provide electric service within its assigned service territory. The Company has nonexclusive municipal franchises to provide gas service in the Nebraska and South Dakota communities in which it provides such service. The maximum term permitted under Nebraska law for such franchises is 25 years while the maximum term permitted under South Dakota law is 20 years. The Company's policy is to seek renewal of a franchise in the last year of its term. The franchises expire at various dates between 1994 and 2018. The Company has never been denied the renewal of any of these franchises and does not anticipate that any future renewals would be withheld. 3 CONSTRUCTION PROGRAM Construction expenditures in 1993 amounted to approximately $19,708,000. Of such sum, approximately $7,388,000 represents extensions and improvements to the Company's electric transmission and distribution systems, approximately $1,288,000 represents expenditures at the three large baseload plants in which the Company is a joint owner, and approximately $947,000 represents additions to the Company's internal generating units for peak load generating capacity. Approximately $6,796,000 represents extensions and improvements to the Company's gas distribution systems and approximately $832,000 represents additions to the Company's internal units for peak load gas production. The remaining amount represents expenditures for the Company's transportation vehicles, and for general use facilities. The Company's estimate of construction expenditures for 1994 is $17,900,000. Approximately $1,200,000 is expected to be spent for continuing improvements to the three major baseload plants in which the Company is a joint owner. Approximately $7,900,000 is budgeted for extensions and improvements to the Company's electric transmission and distribution lines, and approximately $2,900,000 represents extensions, improvements, and expansion of the gas distribution systems. Approximately $2,500,000 is budgeted for work on a combination warehouse and operations facility expected to provide cost savings and operating efficiencies. The remaining amount represents expenditures for the Company's transportation vehicles, general use facilities, and upgrades to computer software and equipment. Construction expenditures for the next five years are expected to approximate $72 million. Information relating to capital requirements and construction financing is incorporated by reference to "Management's Discussion and Analysis" on pages 16-18 of the Company's 1993 Annual Report to Stockholders, filed as an Exhibit hereto. ELECTRIC BUSINESS The Company shares in the ownership of the Big Stone Electric Generating Plant ("Big Stone"), located near Big Stone City in northeastern South Dakota. In North Dakota, the Company maintains transmission facilities to interconnect with electric transmission lines of other utilities and shares in the ownership of the Coyote I Electric Generating Plant ("Coyote I"), located near Beulah, North Dakota. In Iowa, the company shares in the ownership of Neal Electric Generating Unit #4 ("Neal #4"), located near Sioux City. FUEL SUPPLY. Lignite and sub-bituminous coal were utilized by the Company as fuel for virtually all of the electric energy generated during 1993. North Dakota lignite is the primary fuel at Big Stone and Coyote I. During 1993, the average heating value of lignite burned was 6,059 BTU per pound at Big Stone and 6,936 BTU per pound at Coyote I. The sulfur content of this lignite is typically between 0.80% and 1.2%. Neal #4 burns Wyoming sub-bituminous coal which had an average heating value of 8,421 BTU per pound during 1993. Typically, the sulphur content of this coal is between 0.30% and 0.40%. 4 The Company's fuel costs have remained relatively stable. The average costs of fuels burned are shown below for the periods indicated: Cost Per Million BTU % of 1993 Year Ended December 31 Megawatt Hours Fuel Type 1991 1992 1993 Generated --------- ---- ---- ---- -------------- Lignite - Big Stone $1.15 $1.16 $1.12 46% Lignite - Coyote I** .86 .81 .84 23% Sub-bituminous - Neal #4 .76 .77 .76 31% Natural Gas 2.14 2.62 2.37 * Oil 4.03 4.29 3.90 * *Less than one-half of one percent. **Includes pollution control reagent. During 1993, the average delivered cost per ton of lignite was $13.50 to Big Stone and $10.71 to Coyote I. The average cost for coal delivered to Neal #4 was $12.13 per ton for 1993. Such amounts include severance taxes imposed by the state of North Dakota on lignite and a production tax imposed by the state of Wyoming on other coal. While the effect on the Company's fuel costs of future changes in severance or production taxes cannot be predicted, any unforeseen changes in the Company's fuel costs may be passed on to its customers through the operation of the fuel adjustment clause. This feature of the Company's electric rates is more fully discussed in the section entitled "Regulation". The continued delivery of lignite and sub-bituminous coal to the three large steam generating units in which the Company is part owner is reasonably assured by contracts covering various periods of the operating lives of these units. The Big Stone contract provides for adequate supplies of lignite through purchases under the primary contract, which expires in 1995. The Company is evaluating several fuel supply sources for the Big Stone plant for the period 1995 through 1999 including North Dakota lignite and Wyoming sub-bituminous coal. The contract for delivery of lignite to the Coyote I plant, which expires in 2016, provides for an adequate fuel supply for the estimated economic life of that plant. Neal #4 receives Wyoming sub-bituminous coal under a long-term contract which expires in 1998. In 1994, the Company, along with the other owners of Neal #4, will begin to study options for the supply of coal for periods beyond the expiration date. Following test burns in 1990 and 1991, the owners of the Big Stone plant received approval from the South Dakota Department of Environment and Natural Resources to burn tire derived fuel ("TDF") and refuse derived fuel ("RDF"). The quantity of TDF and RDF that was burned in 1993 and that is expected to be burned in 1994 is insignificant when compared to total coal consumption at the plant. 5 The fossil fuel supplies for the Big Stone and Neal #4 plants are delivered via unit trains belonging to the respective plants' owners and locomotives of the Burlington Northern Railroad and the Chicago and Northwestern Railroad, respectively. The lignite supply for Coyote I is delivered via conveyor at this "mine-mouth" plant. While the Company has no firm contract for diesel fuel for its other electric generating plants, it has been able to purchase its diesel fuel requirements in recent years from local suppliers and currently has in storage an amount adequate to satisfy its normal requirements for such fuel. Additional information relating to jointly owned plants is incorporated by reference to Note 7 of the "Notes to Consolidated Statements" on page 26 of the Company's 1993 Annual Report to Stockholders filed as an Exhibit hereto. ELECTRIC SALES. The Company has relatively few large customers in its service territory. By customer category, 33% of 1993 total electric sales was from residential sales, 49% was from commercial and industrial sales, 1% was from street lighting and sales to public authorities, and 17% was from sales for resale. Sales for resale primarily include power pool sales to other utilities. Power pool sales fluctuate from year to year depending on a number of factors including the Company's availability of excess short-term generation and the ability to sell the excess power to other utilities in the power pool. The Company also sells power and energy at wholesale to certain municipalities for resale and to various governmental agencies. In 1993, these sales accounted for less than 1% of total electric sales. INTERCONNECTIONS AND POOLING AGREEMENTS. The Company has interconnections with the transmission facilities of Otter Tail Power Company ("Otter Tail"), Montana-Dakota Utilities Co. ("MDU"), Northern States Power Company ("NSP") and WAPA; and has emergency interconnections with transmission facilities of East River Electric Cooperative, Inc. and West Central Electric Cooperative. The Company is also a party to the Mid-Continent Area Power Pool ("MAPP") Agreement which forms a large area pool arrangement consisting of 45 utilities and power suppliers having transmission interconnections located in a 9-state area in the North Central region of the United States and in two Canadian provinces. The objective of MAPP is to accomplish coordination of planning and operation of generation and interconnecting transmission facilities to provide reliable and economical electric service to members' customers, consistent with reasonable utilization of natural resources and protection of the environment. While benefiting from the advantages of the planning, coordination, and operations of MAPP, each member has the right and obligation to own or otherwise provide the facilities to meet its own requirements. The MAPP Agreement was accepted for filing by the FERC. 6 These interconnections and pooling agreements enable the Company to arrange purchases or sales of substantial quantities of electric power and energy with other pool members and to participate in the benefits of pool arrangements. GAS BUSINESS The Company owns and operates natural gas distribution systems serving 34,941 retail customers in 53 communities in eastern South Dakota, for which it purchases gas from various gas marketing firms. The company has service agreements with Northern Natural Gas Company ("NNG") providing for firm transportation of natural gas. While NNG has eliminated nearly all of its gas supply activities, the Company has supply contracts in place and peak shaving capacity to meet its system needs. The Company owns and operates natural gas distribution systems serving 38,287 retail customers in the village of Alda and the cities of Grand Island, Kearney, and North Platte, Nebraska. It purchases much of its natural gas for these systems from KN Gas Supply Co. under a seven-year service agreement entered in 1993. The Company also purchases certain quantities of gas for its Nebraska customers from various gas marketing firms. Both NNG and KN Interstate Gas Transmission Co. ("KN") have completed restructuring proceedings with the FERC under Order 636 in which their transportation, sales, and storage services were changed. The Company has operated under the restructured environment during the winter of 1993-94. Both NNG and KN provide firm and interruptible transportation service on a nondiscriminatory basis. This allows gas distribution companies, such as the Company, and individual customers to purchase gas directly from producers, third parties, and various gas marketing entities and transport it through the NNG and KN pipelines. During 1993, the company purchased 6,823,000 mcf (or 88% of its total requirements in South Dakota) and 2,938,000 mcf (or 41% of its requirements in Nebraska) from such other sources for the Company's system supply. REGULATION The Company is a "public utility" within the meaning of the Federal Power Act and the South Dakota Public Utilities Act and, as such, is subject to the jurisdiction of, and regulation by, FERC with respect to issuance of securities, the PUC with respect to electric service territories, and both FERC and the PUC with respect to rates, service, accounting records, and in other respects. The State of Nebraska has no centralized regulatory agency which has jurisdiction over the Company's operations in that state; however, the Company's natural gas rates are subject to regulation by the municipalities in which it operates. 7 Under the South Dakota Public Utilities Act, enacted in 1975, a requested rate increase may be implemented by the Company 30 days after the date of its filing unless its effectiveness is suspended by the PUC and, in such event, can be implemented subject to refund with interest six months after the date of filing, unless sooner authorized by the PUC. The Company's electric rate schedules provide that it may pass along to all classes of customers qualified increases or decreases in the cost of fuel used in its generating stations and in the cost of fuel included in purchased power. A purchased gas adjustment provision in its gas rate schedules permits the company to pass along to gas customers increases or decreases in the cost of purchased gas. The Company had no major general rate cases pending in South Dakota or Nebraska during the three years ended December 31, 1993. EMPLOYEES At December 31, 1993, the Company had 473 employees. A three-year collective bargaining agreement which expires June 30, 1995, covers 272 operating and clerical employees. The Company has never experienced a work stoppage or strike and considers its relationship with its employees to be very good. NONUTILITY OPERATIONS The Company has three wholly owned subsidiaries. Grant, Inc., which holds title to property not used in the Company's utility business, was incorporated under the laws of the State of South Dakota in 1972 and is authorized to do business in the states of South Dakota and Nebraska. Northwestern Systems, Inc. (NSI) was incorporated under the laws of the State of South Dakota in 1986 to help market and develop the Company- designed Customer Service System. In December 1992, NSI acquired a 60% common stock ownership interest in a company that develops, manufacturers, and markets multi-image photographic printers, related equipment, and technologies. On October 1, 1993, NSI acquired the remaining 40% common stock interest in that company. Northwestern Networks, Inc. was also incorporated under the laws of South Dakota in 1986 for the purpose of investing in a privately held entity that offers entertainment and interactive information services to the lodging industry. Additional information relating to nonutility business is incorporated by reference to "Management's Discussion and Analysis" on pages 16-18 of the Company's 1993 Annual Report to Stockholders filed as an exhibit hereto. ENVIRONMENTAL MATTERS The Company is subject to regulation with regard to air and water quality, solid waste disposal, and other environmental considerations by Federal, state, and local government authorities. The application of governmental requirements to protect the environment involves or may involve review, certification, issuance of permits, or similar action by government agencies or authorities, including the United States 8 Environmental Protection Agency ("EPA"), the South Dakota Department of Water and Natural Resources, the North Dakota State Department of Health, and the Iowa Department of Environmental Quality, as well as compliance with decisions of the courts. Such requirements, particularly with regard to emissions into the air and water, may substantially increase the cost to the Company of construction and operation of electric generating facilities. Such requirements may also necessitate additional investments in new equipment at existing installations. CLEAN AIR ACT. The Clean Air Act Amendments of 1990 (the Clean Air Act) which stipulate limitations on sulfur dioxide and nitrogen oxide emissions from certain coal-fired power plants will require the purchase of additional emission allowances or a reduction in sulfur dioxide emissions beginning in the year 2000 from Big Stone. The Company believes Big Stone can most economically meet the sulfur dioxide emission requirements of the Clean Air Act by switching its fuel source from North Dakota lignite to low- sulfur western sub-bituminous coal available in the region. The Company's other baseload plants, Coyote I and Neal #4, are expected to comply with the sulfur dioxide emission limitations through the use of existing flue gas scrubbing and low sulfur coal without the need for additional emission allowances. With regard to the Clean Air Act's nitrogen oxide emission requirements, the Neal #4 wall-fired boiler is expected to meet the emission limitations for such boilers. The Clean Air Act does not yet specify nitrogen oxide limitations for boilers with cyclone burners such as those used at Big Stone and Coyote I because practical low-nitrogen oxide cyclone burner technology does not exist. It requires the EPA to establish nitrogen oxide emission limitations before 1997 for cyclone boilers including consideration that the cost to accomplish such limits be comparable to retrofitting low-nitrogen oxide burner technology to other types of boilers. In addition, it also requires future studies to determine what controls, if any, should be imposed on coal-fired boilers to control emissions of certain air toxics other than sulfur and nitrogen oxides. Because of the uncertain nature of cyclone boiler nitrogen oxide and air toxic emission limits, the Company cannot now determine the additional costs, if any, it may incur due to these provisions of the Clean Air Act. PCBs. EPA has issued rules which regulate the continued use of electrical equipment containing polychlorinated biphenyls (PCBs). In addition, in 1990 the South Dakota Board of Minerals and the Environment adopted regulations governing the treatment, storage, and disposal of PCBs. The Company will use some PCB-contaminated equipment for its remaining useful life, and the EPA and South Dakota regulations will govern the use and disposal of this equipment. STORAGE TANKS. In 1987, the South Dakota Water Management Board adopted regulations imposing requirements upon the owners and operators of aboveground and underground storage tanks. The Company's fuel oil storage facilities at its generating plants in South Dakota are affected by the aboveground tank regulations, and the Company has instituted procedures for compliance. 9 COMPLIANCE. In addition to the Clean Air Act, the Company is also subject to other environmental regulations. The Company believes that it is in compliance with all presently applicable environmental protection requirements and regulations. However, the Company is unable to forecast the effect which future environmental regulations may ultimately have upon the cost of its facilities and operations. The Company is conducting an investigation of a former gas manufacturing site, and if waste materials are found, the Company plans to take remedial action. Recovery of any costs incurred will be sought from insurance carriers and through the regulatory process. No administrative or judicial proceedings involving the company are now pending or known by the Company to be contemplated under presently effective environmental protection requirements. SITING. The states of South Dakota, North Dakota, and Iowa have enacted laws with respect to the siting of large electric generating plants and transmission lines. The South Dakota PUC, the North Dakota Public Service Commission, and the Iowa Utilities Board have been granted authority in their respective states to issue site permits for nonexempt facilities. ITEM 2. PROPERTIES ELECTRIC PROPERTY The Company's electric properties consist of an interconnected and integrated system. The Company, Otter Tail, and MDU jointly own Big Stone, a 455,783 kilowatt ("kw") nameplate capacity lignite-fueled electric generating plant and related transmission facilities. Big Stone is operated by Otter Tail for the benefit of the owners. The Company owns 23.4% of the Big Stone Plant. The Company is one of four power suppliers which jointly own Coyote I, a 455,783 kw nameplate capacity lignite-fueled electric generating plant and related transmission facilities located near Beulah, North Dakota. The Company has a 10% interest in Coyote I, which is operated by MDU for the benefit of the owners. The Company is one of 14 power suppliers which jointly own Neal #4, a 639,999 kw nameplate capacity coal-fueled electric generating plant and related transmission facilities located near Sioux City, Iowa. Midwest Power Systems, Inc. is principal owner of Neal #4 and is the operator of the unit. The Company has an 8.7% interest in Neal #4. The Company has an undivided interest in these jointly owned facilities and is responsible for its proportionate share of the capital and operating costs while being entitled to its proportionate share of the power generated. Each participant finances its own investment. The Company's interest in each plant is reflected in the Consolidated Balance Sheet on a pro rata basis, and its share of operating expenses is reflected in the Consolidated Statement of Income and Retained Earnings. 10 In addition to its interest in Big Stone, Coyote I, and Neal #4, the Company owns and operates 19 oil and gas-fired units for peaking and reserve capacity. As of December 31, 1993, the aggregate nameplate capacity of all Company-owned electric generating units is 334,994 kw, with an aggregate net summer peaking capacity of 307,442 kw and a net winter peaking capacity of 328,210 kw. The Company's maximum peak hourly demand of 251,493 kw occurred on July 17, 1991. In 1993, the Company's peak hourly demand was 237,188 kw. The Company's interconnected transmission system consists of 318.5 miles operating at 115 kilovolts ("kv") and 894.8 miles operating at 69 kv and 34.5 kv. The Company also owns three segments of transmission line, which are not tied to its internal system, in connection with its joint ownership in the three large steam generating plants. These lines consist of 18.2 miles of 230 kv line from Big Stone, 25.4 miles of 345 kv line from Neal #4, and 23.1 miles of 345 kv line from Coyote I. In addition to these lines, the Company owns 1,701.7 miles of distribution lines serving customers in more than 100 communities and adjacent rural areas. The company owns 40 transmission substations with a total rated capacity of 1,128,917 kilovolt amperes ("kva"), two mobile substations with a total rated capacity of 5,500 kva and 78 distribution substations with a total rated capacity of 331,906 kva. GAS PROPERTY On December 31, 1993, the Company owned 888 miles of distribution mains and appurtenant facilities in South Dakota. The Company also owns propane-air facilities in Aberdeen, Brookings, Huron, and Mitchell, South Dakota, having a total rated capacity of 15,500 mcf per day, which are operated for standby and peak shaving purposes only. On December 31, 1993, the Company owned 631 miles of distribution mains and appurtenant facilities in Nebraska. The Company also owns propane-air facilities at Kearney and North Platte, Nebraska, having a total rated capacity of 11,500 mcf per day, which are operated for standby and peak shaving purposes only. ITEM 3. LEGAL PROCEEDINGS The Company is not currently involved in any pending major litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No issues were submitted to a vote of security holders during the last quarter of the period covered by this report. 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this Item 5 is shown in the table below. Common stock was registered in the names of 8,231 stockholders at December 31, 1993. The payment of dividends is subject to the restrictions described in Note 5 of the "Notes to Consolidated Financial Statements" on page 25 of the Company's 1993 Annual Report to Stockholders, filed as an Exhibit hereto. QUARTERLY COMMON STOCK INFORMATION 1993 High Low Dividends ---- ---- --- --------- First $29 1/2 $26 1/4 $.405 Second 31 1/2 28 3/4 .405 Third 33 1/2 29 1/4 .405 Fourth 32 1/2 28 1/2 .415 1992 High Low Dividends ---- ---- --- --------- First $28 3/4 $25 1/4 $.395 Second 27 1/2 24 5/8 .395 Third 28 1/4 23 1/2 .395 Fourth 28 1/4 25 1/4 .405 ITEM 6. SELECTED FINANCIAL DATA 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- (in thousands, except per share amounts) Operating Revenues $153,257 $119,197 $122,900 $115,980 $117,671 Net Income 15,191 13,721 14,815 17,506 16,123 Earnings Per Common Share 1.96 1.77 1.88 2.23 2.04 Dividends Per Common Share 1.630 1.590 1.535 1.475 1.415 Total Assets 343,574 308,194 297,761 283,073 272,260 Long-Term Debt 127,200 106,572 93,236 79,469 80,702 Redeemable Preferred Stock 70 100 2,990 3,185 3,380 Selected financial data includes the operating results and balance sheet amounts for Lucht Engineering, Inc. effective December 1, 1992, the date of acquisition. Additional information relating to Lucht Engineering, Inc. is incorporated by reference to "Management's Discussion and Analysis" on pages 16-18 of the Company's 1993 Annual Report to Stockholders, filed as an Exhibit hereto. 12 ITEM 7. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATION The information required by this Item 7 is incorporated by reference to "Management's Discussion and Analysis" on pages 16-18 and to Note 9 of the "Notes to Consolidated Financial Statements" on page 27 of the Company's 1993 Annual Report to Stockholders, filed as an Exhibit hereto. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item 8 is incorporated by reference to the Company's financial statements and related footnotes on pages 20-28 of the Company's 1993 Annual Report to Stockholders, filed as an Exhibit hereto. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in accountants or disagreements on accounting principles or practices or financial statement disclosures. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) IDENTIFICATION OF DIRECTORS The information regarding directors required by this Item 10 and paragraphs (a) and (e) of Item 401 of Regulation S-K is incorporated by reference to the information under "Election of Directors" in the Company's definitive Proxy Statement dated March 15, 1994, and filed with the Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120 days after the close of the Company's fiscal year ended December 31, 1993. (b) & (e) IDENTIFICATION AND BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS R. A. Wilkens, Chairman of the Board, age 65 Chairman of the Board of Directors since February 1994. Formerly Chief Executive Officer from 1990-1994; formerly President from 1980-1994. M. D. Lewis, President and Chief Executive, age 46 President and Chief Executive Officer since February 1994; formerly Executive Vice President-Corporate Services 1992-1994; formerly Vice President-Corporate Services 1987-1992; Assistant Vice President-Corporate Services 1985-1987. W. D. Craig, Vice President-Gas Operations, age 57 Vice President-Gas Operations since September 1988, formerly Assistant Vice President-Gas Operations June, 1988-September 1988; Manager-Gas Operations March 1988-June 1988. Joined the Company in 1988. Formerly President & COO of Hoosier Gas Corporation 1987-1988. Formerly Director-Gas Operations of SIGECO 1985-1987. A. D. Dietrich, Vice President-Legal, Corporate Secretary and Assistant Treasurer, age 43 Vice President-Legal since May 1990; Assistant Treasurer since December 1990; Corporate Secretary since October 1989. Formerly Assistant Corporate Secretary September 1989-October 1989; Corporate Attorney 1978-1989. A. R. Donnell, Vice President-Electric Operations, age 50 Vice President-Electric Operations since July 1987; formerly Assistant Vice President-Electric Operations June 1987-July 1987; Manager-Electric Distribution 1985-June 1987; Manager-Special Projects 1977-1985. T. A. Gulbranson, Vice President-Corporate Services, age 46 Vice President-Corporate Services since May 1993; formerly Vice President- Community Development 1988-1993; formerly Division Manager-Webster 1983- 1988. R. R. Hylland, Vice President-Finance and Corporate Development and Treasurer, age 33 Vice President-Finance and Corporate Development and Treasurer since May 1993; formerly Vice President-Finance and Treasurer 1991-1994; formerly Treasurer and Controller December 1990-April 1991; Controller and Assistant Treasurer November 1989-December 1990; Controller July 1989-November 1989. Joined the Company in July 1989. Formerly Senior Audit and Financial Consulting Manager with Arthur Andersen & Co. R. F. Leyendecker, Vice President-Rates & Regulation, age 48 Vice President-Rates & Regulation since 1987; formerly Assistant Vice President-Rates & Regulation 1985-1987. W. K. Lotsberg, Vice President-Consumer Affairs, age 51 Vice President-Consumer Affairs since March 1989; formerly Manager-Public Affairs from 1980 to 1989. D. C. Oberlander, Controller, age 48 Controller since April 1991; formerly Assistant Controller December 1990- April 1991; Manager-Information Systems 1979-1990. 14 All of the executive officers of the registrant serve at the discretion of the Board and are elected annually by the Board of Directors following the Annual Meeting of Stockholders except for the positions of Controller, Assistant Treasurer and Assistant Corporate Secretary, which are appointed by the Board of Directors. No family relationships exist between any officers of the Company. (c) IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES None (d) FAMILY RELATIONSHIPS None (f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS None (g) PROMOTERS AND CONTROL PERSONS None ITEM 11. EXECUTIVE COMPENSATION The information required by this Item 11 is incorporated by reference to the information under "Compensation of Directors and Executive Officers" in the Company's definitive Proxy Statement dated March 15, 1994, and filed with the Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120 days after the close of the Company's fiscal year ended December 31, 1993. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item 12 is incorporated by reference to the information under "Securities Ownership by Directors and Officers" in the Company's definitive Proxy Statement dated March 15, 1994, and filed with the Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120 days after the close of the Company's fiscal year ended December 31, 1993. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company has no relationships or transactions covered by this item. 15 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) DOCUMENTS FILED AS PART OF THIS REPORT 1. Financial Statements See Table of Contents on page 17. 2. Financial Statement Schedules See Table of Contents on page 17. 3. Exhibit Index See Exhibit Index on pages 24-34. (b) REPORTS ON FORM 8-K On October 21, 1993, the Company filed a report on Form 8-K, reporting under "Item 5 - Other Events" that LodgeNet Entertainment Corporation ("LEC") completed an initial public offering. LEC is a firm in which the Company's wholly owned subsidiary, Northwestern Networks, Inc., ("NNI") holds an investment. As a result of the initial public offering, NNI's convertible preferred stock was converted to 1,121,000 shares of LEC common stock, and NNI's 15% cumulative preferred stock was redeemed. (c) EXHIBITS See Exhibit Index on pages 24-34. 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 /s/ M. D. Lewis - --------------------------------------- M. D. Lewis, Director and President and Chief Executive Officer March 15, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ R. A. Wilkens - --------------------------------------- R. A. Wilkens, Chairman of the Board of Directors - --------------------------------------- /s/ M. D. Lewis M. D. Lewis, Director and President and Chief Executive Officer /s/ R. R. Hylland - --------------------------------------- R. R. Hylland, Vice President-Finance & Corporate Development & Treasurer (Principal Financial Officer) /s/ Don C. Oberlander - --------------------------------------- Don C. Oberlander, Controller (Principal Accounting Officer) /s/ Herman Lerdal - --------------------------------------- Herman Lerdal, Director /s/ Larry F. Ness - --------------------------------------- Larry F. Ness, Director /s/ A. D. Schmidt - --------------------------------------- A. D. Schmidt, Director /s/ Raymond M. Schutz - --------------------------------------- Raymond M. Schutz, Director /s/ Bruce I. Smith - --------------------------------------- Bruce I. Smith, Director /s/ Calvin Vaudrey - --------------------------------------- Calvin Vaudrey, Director /s/ W. W. Wood - --------------------------------------- W. W. Wood, Director 17 TABLE OF CONTENTS FINANCIAL STATEMENTS, SUPPLEMENTARY FINANCIAL DATA, SUPPLEMENTAL FINANCIAL SCHEDULES INCLUDED IN ANNUAL REPORT (FORM 10-K) FOR THE YEAR ENDED DECEMBER 31, 1993 The following items are included in this annual report by reference to the registrant's Annual Report to Stockholders for the year ended December 31, 1993: Page in Annual Report to Stockholders --------------- Financial Statements: Consolidated Statement of Income and Retained Earnings for the Three Years Ended December 31, 1993 20 Consolidated Statement of Cash Flows for the Three Years Ended December 31, 1993 21 Consolidated Balance Sheet, December 31, 1993 and 1992 22 Consolidated Statement of Capitalization, December 31, 1993 and 1992 23 Notes to Consolidated Statements 24-28 Quarterly Unaudited Financial Data for the Two Years Ended December 31, 1993 28 Report of Independent Public Accountants 19 The following supplemental financial data included herein should be read in conjunction with the financial statements referenced above: Page in Form 10-K --------- Report of Independent Public Accountants on Schedules 18 Supplemental Financial Schedules: Schedule I - Other Investments 19 Schedule V - Property, Plant and Equipment 20 Schedule VI - Accumulated Depreciation and Amortization of Property, Plant and Equipment 21 Schedule VIII - Valuation and Qualifying Accounts 22 Schedule IX - Short-Term Borrowings 23 Schedules other than those listed above are omitted because of the absence of the conditions under which they are required or because the information required is included in the financial statements or the notes thereto. 18 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Northwestern Public Service Company: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Northwestern Public Service Company's annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 1, 1994. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The supplemental financial information and schedules listed in the table of contents of financial statements are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. This information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen & Co. - --------------------------------------- Arthur Andersen & Co. Minneapolis, Minnesota, February 1, 1994 19 NORTHWESTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES SCHEDULE I - OTHER INVESTMENTS
Column A Column B Column C Column D Column E -------------- --------- ---------- ------------ ------------- Market Value Amount in Number of at Dec. 31, 1993 Name of Issuer Shares Cost Dec. 31, 1993 Balance Sheet -------------- --------- ---------- ------------ ------------- PREFERRED STOCK - --------------- Appalachian Power Co. 7.800% 3,732 $ 390,367 $ 401,657 $ 390,367 Atlantic City Electric 8.200% 10,000 1,025,718 1,100,000 1,025,718 Cincinnati Gas & Electric 7.375% 8,000 800,000 848,000 800,000 Cleveland Electric 8.800% 2,000 2,135,335 1,970,000 2,135,335 Connecticut Light & Power 9.000% 24,000 630,600 639,000 630,600 Delmarva Power & Light Co. 7.750% 18,100 494,583 486,438 494,583 Detroit Edison 7.750% 26,500 687,675 675,750 687,675 Duke Power Co. 6.375% 40,000 1,000,000 990,000 1,000,000 Duke Power Co. 7.040% 5,000 525,050 510,000 525,050 Duke Power Co. 7.120% 11,400 1,195,575 1,185,600 1,195,575 Duke Power Co. 7.850% 7,000 751,730 759,500 751,730 Duke Power Co. 7.500% 12,500 1,259,375 1,350,000 1,259,375 Duquesne Light Co. 7.500% 9,375 896,438 944,531 896,438 Florida Power & Light 8.625% 20,000 2,197,900 2,195,000 2,197,900 Houston Power & Light 8.500% 8,985 923,418 918,716 923,418 Jersey Central 8.480% 10,000 999,700 1,100,000 999,700 Jersey Central 8.650% 10,000 1,126,325 1,135,000 1,126,325 Louisiana Power & Light 8.000% 15,000 1,517,267 1,674,375 1,517,267 Montana Power Co. 6.875% 12,500 1,250,000 1,221,875 1,250,000 Morgan Stanley Group 7.375% 60,000 1,533,900 1,537,500 1,533,900 Northern Indiana Public Service 6.500% 7,500 763,295 796,875 763,295 Ohio Edison Co. 7.750% 50,000 1,302,500 1,268,750 1,302,500 Oklahoma Gas & Electric 4.800% 8,800 651,552 650,100 651,552 Oklahoma Gas & Electric 4.200% 11,900 771,596 766,063 771,596 PacifiCorp 7.700% 15,000 1,508,718 1,665,000 1,508,718 Pennsylvania Power & Light 7.000% 12,011 1,168,194 1,207,106 1,168,194 Philadelphia Electric Co. 7.480% 4,700 495,780 477,638 495,780 Public Service of Colorado 8.400% 8,774 882,840 890,561 882,840 Public Service Electric & Gas Co. 7.440% 5,000 559,400 561,250 559,400 Rochester Gas & Electric 8.250% 4,800 488,478 489,600 488,478 San Diego Gas & Electric 7.050% 43,500 1,133,775 1,196,250 1,133,775 Texas Utilities Electric Co. 6.980% 15,000 1,586,100 1,537,500 1,586,100 Virginia Electric & Power 7.300% 9,382 912,634 975,728 912,634 West Virginia Water Co. 9.500% 2,160 212,652 225,180 212,652 Western Massachusetts Electric 7.600% 12,316 288,687 321,756 288,687 ----------- ------------ ------------- 34,067,157 34,672,299 34,067,157 PRIVATELY HELD INVESTMENTS - -------------------------- LodgeNet Entertainment Corporation Common Stock 1,121,000 1,368,142 16,394,625 1,368,142 Subordinated Note, Variable Rate 6,000,000 6,000,000 6,000,000 Other Investments 3,416,435 3,416,435 3,416,435 ----------- ------------ ------------- $44,851,734 $ 60,483,359 $ 44,851,734 =========== ============ ============= The market value of LodgeNet Entertainment Corp. Common Stock is based on the year-end market price as quoted on the NASDAQ Exchange. The market value of the LodgeNet Entertainment Corporation Subordinated Note is not established through a public market. Further information related to these investments is incorporated by reference to "Management's Discussion and Analysis" on pages 16-18 and Note 1 of the "Notes to Consolidated Financial Statements" on page 24 of the Company's 1993 Annual Report to Stockholders, filed as an exhibit hereto.
20 NORTHWESTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
Column A Column B Column C Column D Column E Column F - --------------------------------------------- ------------- ------------ ------------ ------------- ------------- Balance Other Charges Beginning Additions Add (Deduct) Balance Classification of Period at Cost Retirements End of Period - --------------------------------------------- ------------- ------------ ------------ ------------- ------------- FOR THE YEAR ENDED DECEMBER 31, 1993 - ------------------------------------ UTILITY PLANT, at original cost: ELECTRIC- Production $ 135,985,240 $ 11,839,761 $ (762,332) $ (6,410) $ 147,056,259 Transmission 56,960,370 595,227 (81,155) 650,506 58,124,948 Distribution 72,269,961 4,711,271 (579,763) (646,928) 75,754,541 General 7,999,975 940,426 (204,926) (118,955) 8,616,520 Construction work in progress 3,542,403 928,432 0 0 4,470,835 Completed construction not classified 11,440,611 (8,483,882) 0 0 2,956,729 ------------- ------------ ------------ ------------- ------------- Total 288,198,560 10,531,235 (1,628,176) (121,787) 296,979,832 ------------- ------------ ------------ ------------- ------------- GAS- Manufactured gas production 2,072,304 25,233 (1,497) 98 2,096,138 Distribution 37,829,690 4,868,057 (136,088) 0 42,561,659 General 4,148,046 528,394 (68,937) (18,622) 4,588,881 Construction work in progress 1,156,189 1,257,135 0 2,413,324 Completed construction not classified 2,689,198 1,478,693 0 0 4,167,891 ------------- ------------ ------------ ------------- ------------- Total 47,895,427 8,157,512 (206,522) (18,524) 55,827,893 ------------- ------------ ------------ ------------- ------------- COMMON- General 14,798,045 1,518,620 (668,077) 140,311 15,788,899 Construction work in progress 926,277 (417,306) 0 0 508,971 ------------- ------------ ------------ ------------- ------------- Total 15,724,322 1,101,314 (668,077) 140,311 16,297,870 ------------- ------------ ------------ ------------- ------------- Total utility plant $ 351,818,309 $ 19,790,061 $ (2,502,775) $ 0 $ 369,105,595 ============= ============ ============ ============= ============= FOR THE YEAR ENDED DECEMBER 31, 1992 - ------------------------------------ UTILITY PLANT, at original cost: ELECTRIC- Production $ 135,510,143 $ 719,371 $ (244,274) $ 0 $ 135,985,240 Transmission 55,414,015 2,021,369 (354,638) (120,376) 56,960,370 Distribution 66,897,734 6,241,903 (990,052) 120,376 72,269,961 General 6,887,302 1,162,190 (31,752) (17,765) 7,999,975 Construction work in progress 6,497,046 (2,954,643) 0 0 3,542,403 Completed construction not classified 6,720,860 4,719,751 0 0 11,440,611 ------------- ------------ ------------ ------------- ------------- Total 277,927,100 11,909,941 (1,620,716) (17,765) 288,198,560 ------------- ------------ ------------ ------------- ------------- GAS- Manufactured gas production 2,062,144 11,044 (884) 0 2,072,304 Distribution 34,680,946 3,232,663 (83,919) 0 37,829,690 General 3,558,429 622,178 (54,289) 21,728 4,148,046 Construction work in progress 169,117 987,072 0 0 1,156,189 Completed construction not classified 1,974,855 714,343 0 0 2,689,198 ------------- ------------ ------------ ------------- ------------- Total 42,445,491 5,567,300 (139,092) 21,728 47,895,427 ------------- ------------ ------------ ------------- ------------- COMMON- General 14,457,220 645,244 (300,456) (3,963) 14,798,045 Construction work in progress 275,335 650,942 0 0 926,277 ------------- ------------ ------------ ------------- ------------- Total 14,732,555 1,296,186 (300,456) (3,963) 15,724,322 ------------- ------------ ------------ ------------- ------------- Total utility plant $ 335,105,146 $ 18,773,427 $ (2,060,264) $ 0 $ 351,818,309 ============= ============ ============ ============= ============= FOR THE YEAR ENDED DECEMBER 31, 1991 - ------------------------------------ UTILITY PLANT, at original cost: ELECTRIC- Production $ 134,748,824 $ 2,495,206 $ (1,699,570) $ (34,317) $ 135,510,143 Transmission 53,454,219 2,195,480 (337,579) 101,895 55,414,015 Distribution 62,787,254 5,195,027 (1,020,315) (64,232) 66,897,734 General 5,894,663 1,076,085 (93,289) 9,843 6,887,302 Construction work in progress 5,160,594 1,336,452 0 0 6,497,046 Completed construction not classified 1,400,569 5,320,291 0 0 6,720,860 ------------- ------------ ------------ ------------- ------------- Total 263,446,123 17,618,541 (3,150,753) 13,189 277,927,100 ------------- ------------ ------------ ------------- ------------- GAS- Manufactured gas production 2,053,346 9,398 (600) 0 2,062,144 Distribution 32,480,146 2,317,967 (117,167) 0 34,680,946 General 3,250,026 517,239 (211,748) 2,912 3,558,429 Construction work in progress 479,559 (310,442) 0 0 169,117 Completed construction not classified 0 1,974,855 0 0 1,974,855 ------------- ------------ ------------ ------------- ------------- Total 38,263,077 4,509,017 (329,515) 2,912 42,445,491 ------------- ------------ ------------ ------------- ------------- COMMON- General 14,134,649 1,253,483 (914,811) (16,101) 14,457,220 Construction work in progress 237,568 37,767 0 0 275,335 ------------- ------------ ------------ ------------- ------------- Total 14,372,217 1,291,250 (914,811) (16,101) 14,732,555 ------------- ------------ ------------ ------------- ------------- Total utility plant $ 316,081,417 $ 23,418,808 $ (4,395,079) $ 0 $ 335,105,146 ============= ============ ============ ============= ============= All Other Charges were property reclassifications.
21 NORTHWESTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
Column A Column B Column C Column D Column E Column F - --------------------------------- ------------- ------------ ------------ --------- ------------- Additions Balance Charged to Beginning Costs and Other Balance Description of Period Expenses Retirements Changes End of Period - --------------------------------- ------------- ------------ ------------ --------- ------------- FOR THE YEAR ENDED DECEMBER 31, 1993 - ------------------------------------ Electric plant $ 98,798,982 $ 9,261,801 $ (2,135,335) $ 0 $ 105,925,448 Gas plant 18,229,267 1,573,416 (299,933) 0 19,502,750 Common plant 4,445,279 677,268 (648,936) 0 4,473,611 Limited term utility investments 611,909 96,756 0 0 708,665 ------------- ------------ ------------ --------- ------------- $ 122,085,437 $ 11,609,241 $ (3,084,204) $ 0 $ 130,610,474 ============= ============ ============ ========= ============= FOR THE YEAR ENDED DECEMBER 31, 1992 - ------------------------------------ Electric plant $ 91,592,656 $ 8,896,493 $ (1,690,167) $ 0 $ 98,798,982 Gas plant 17,005,316 1,412,942 (188,991) 0 18,229,267 Common plant 4,086,031 659,403 (300,155) 0 4,445,279 Limited term utility investments 521,008 90,901 0 0 611,909 ------------- ------------ ------------ --------- ------------- $ 113,205,011 $ 11,059,739 $ (2,179,313) $ 0 $ 122,085,437 ============= ============ ============ ========= ============= FOR THE YEAR ENDED DECEMBER 31, 1991 - ------------------------------------ Electric plant $ 86,356,154 $ 8,401,014 $ (3,164,512) $ 0 $ 91,592,656 Gas plant 16,126,315 1,268,139 (389,138) 0 17,005,316 Common plant 4,215,079 689,391 (818,439) 0 4,086,031 Limited term utility investments 419,793 101,215 0 0 521,008 ------------- ------------ ------------ --------- ------------- $ 107,117,341 $ 10,459,759 $ (4,372,089) $ 0 $ 113,205,011 ============= ============ ============ ========= =============
22 NORTHWESTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E - ---------------------------- ----------- --------------------- --------- ----------- Additions --------------------- Balance Charged to Charged Balance Beginning Costs and to Other Deductions End Description of Period Expenses Expenses of Period - ---------------------------- --------- ---------- --------- --------- ----------- FOR THE YEAR ENDED DECEMBER 31, 1993 - ------------------------------------ RESERVES DEDUCTED FROM APPLICABLE ASSETS: Uncollectible accounts $ 300,000 $ 249,455 $ 0 $(149,455) $ 400,000 =========== ========= ======== ========= =========== OTHER DEFERRED CREDITS: Reserve for decommissioning $ 6,264,998 $ 504,633 $ 0 $ 0 $ 6,769,631 =========== ========= ======== ========= =========== FOR THE YEAR ENDED DECEMBER 31, 1992 - ------------------------------------ RESERVES DEDUCTED FROM APPLICABLE ASSETS: Uncollectible accounts $ 300,000 $ 93,033 $ 0 $ (93,033) $ 300,000 =========== ========= ======== ========= =========== OTHER DEFERRED CREDITS: Reserve for decommissioning $ 5,760,197 $ 504,801 $ 0 $ 0 $ 6,264,998 =========== ========= ======== ========= =========== FOR THE YEAR ENDED DECEMBER 31, 1991 - ------------------------------------ RESERVES DEDUCTED FROM APPLICABLE ASSETS: Uncollectible accounts $ 300,000 $ 156,871 $ 0 $(156,871) $ 300,000 =========== ========= ======== ========= =========== OTHER DEFERRED CREDITS: Reserve for decommissioning $ 5,262,242 $ 497,955 $ 0 $ 0 $ 5,760,197 =========== ========= ======== ========= =========== All deductions from reserves were for purposes for which such reserves were created.
23 NORTHWESTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES SCHEDULE IX - SHORT-TERM BORROWINGS
Column A Column B Column C Column D Column E Column F - --------------------- ---------- --------- ------------ ----------- --------- Average Weighted Weighted Maximum Amount Average Balance Average Amount Outstanding Interest Rate Category of Aggregate at End Interest Outstanding During 1993 During 1993 Short-Term Borrowings of Period Rate During 1993 - --------------------- ---------- --------- ------------ ----------- --------- FOR THE YEAR ENDED DECEMBER 31, 1993 - ------------------------------------ Commercial Paper $ 0 0.00% $ 10,000,000 $ 4,833,333 3.28% ========== ========= ============ =========== ========= Calculated using the average of month end balances. Calculated using the actual days and interest rates the commercial paper was outstanding.
24 EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED DECEMBER 31, 1993 (3) ARTICLES OF INCORPORATION AND BY-LAWS 3(a)(1) Registrant's Restated Certificate of Incorporation, dated February 7, 1990, is incorporated by reference to Exhibit 3(a)(1) to Form 10-K for the year ended December 31, 1989, Commission File No. 0-692. 3(a)(2) Certificate of Retirement of Preferred Stocks, dated January 13, 1992, is incorporated by reference to Exhibit 3(a)(2) to Form 10-K for the year ended December 31, 1991, Commission File No. 0-692. 3(b) Registrant's By-Laws, as amended, dated December 1, 1990, are incorporated by reference to Exhibit 3(b) to Form 10-K for the year ended December 31, 1990, Commission File No. 0-692. (4) INDENTURES AND POLLUTION CONTROL FACILITY OBLIGATIONS 4(a)(1) Indenture, dated August 1, 1940, executed by the Company to The Chase Manhattan Bank (N.A.) and J. J. O'Connell, as Trustees, and supplemental and amendatory indentures thereto are incorporated by reference to Exhibit 2 to Form 12-K for the year ended December 31, 1970, Commission File No. 2-4472. 4(a)(2) Supplemental Indenture, dated August 1, 1972, executed by the Company to The Chase Manhattan Bank (N.A.) and J. J. O'Connell, as Trustees, is incorporated by reference to Exhibit 2 to Form 8-K for the month of August, 1972, Commission File No. 2-4472. 4(a)(3) Supplemental Indenture, dated July 1, 1973, executed by the Company to The Chase Manhattan Bank (N.A.) and J. J. O'Connell, as Trustees, is incorporated by reference to Exhibit 1 to Form 8-K for the month of July, 1973, Commission File No. 2-4472. 25 4(a)(4) Supplemental Indenture, dated November 14, 1974, executed by the Company to The Chase Manhattan Bank (N.A.) and J. J. O'Connell, as Trustees, is incorporated by reference to Exhibit 1 to Form 8-K for the month of November, 1974, Commission File No. 2-4472. 4(a)(5) Supplemental Indenture, dated May 1, 1975, executed by the Company to The Chase Manhattan Bank (N.A.) and J. J. O'Connell, as Trustees, is incorporated by reference to Exhibit 2 to Form 8-K for the month of May, 1975, Commission File No. 2-4472. 4(a)(6) Supplemental Indenture, dated June 1, 1977, executed by the Company to The Chase Manhattan Bank (N.A.) and J. J. O'Connell, as Trustees, is incorporated by reference to Exhibit 2(a)(34) to Registration Statement on Form S-7 (Reg. No. 2-58825). 4(a)(7) Supplemental Indenture, dated July 1, 1978, executed by the Company to The Chase Manhattan Bank (N.A.) and J. J. O'Connell, as Trustees, is incorporated by reference to Exhibit 2(a)(43) to Registration Statement on Form S-7 (Reg. No. 2-63083). 4(a)(8) Supplemental Indenture, dated December 1, 1978, executed by the Company to The Chase Manhattan Bank (N.A.) and J. J. O'Connell, as Trustees, is incorporated by reference to Exhibit 11 to Form 10-K for the year ended December 31, 1978, Commission File No. 0-692. 4(a)(9) Registrant's Supplemental Indenture, dated May 6, 1987, is incorporated by reference to Exhibit 3(a) to Form 10-Q for the quarter ended September 30, 1987, Commission File No. 0-692. 4(a)(10) Supplemental Indenture, dated November 1, 1989, executed by the Company to the Chase Manhattan Bank (N.A.) and Vincent J. Marino, as Trustees, is incorporated by reference to Exhibit 4(a)(10) to Form 10-K for the year ended December 31, 1989, Commission File No. 0-692. 26 4(a)(11)(i) Supplemental Indenture, dated July 15, 1991, executed by the Company to the Chase Manhattan Bank (N.A.) and C. J. Heinzelmann, as Trustees, is incorporated by reference to Exhibit 4(a)(11)(i) to Form 8-K, dated August 1, 1991, Commission File No. 0-692. 4(a)(12) Supplemental Indenture, dated November 15, 1991, is incorporated by reference to Exhibit 4(a)(12) to Form 10-K for the year ended December 31, 1991, Commission File No. 0-692. 4(a)(13) Supplemental Indenture, dated September 1, 1992, executed by the Company to the Chase Manhattan Bank (N.A.) and C. J. Heinzelmann, as Trustees, is incorporated by reference to Exhibit 4(a)(11)(i) to Form 8-K, dated September 18, 1992, Commission File No. 0-692. 4(a)(14) Underwriting Agreement dated August 16, 1993 among the Company, Morgan Stanley & Co. Incorporated, Lehman Brothers Inc. and NatWest Capital Markets Limited, is incorporated by reference to Exhibit 1 of Registrant's Report on Form 8-K, dated August 16, 1993, Commission File No. 0-692. 4(a)(15) General Mortgage Indenture and Deed of Trust dated as of August 1, 1993 from the Company to The Chase Manhattan Bank (National Association), as Trustee, is incorporated by reference to Exhibit 4(a) of Form 8-K, dated August 16, 1993, Commission File No. 0-692. 4(a)(16) Supplemental Indenture dated as of August 15, 1993 to the General Mortgage Indenture and Deed of Trust dated as of August 1, 1993 executed by the Company to The Chase Manhattan Bank (National Association), as Trustee, is incorporated by reference to Exhibit 4(b) of Form 8-K, dated August 16, 1993, Commission File No. 0-692. 4(a)(17) Supplemental Indenture dated August 15, 1993 to the Indenture dated August 1, 1940 from the Company to The Chase Manhattan Bank (National Association) and C. J. Heinzelmann, as successor Trustees, is incorporated by reference to Exhibit 4(c) of Form 8-K, dated August 16, 1993, Commission File No. 0-692. 27 4(b)(1) Copy of Sale Agreement between Company and Mercer County, North Dakota, dated June 1, 1993, related to issuance of Pollution Control Refunding Revenue Bonds (Northwestern Public Service Company Project) Series 1993, is incorporated by reference to Exhibit 4(b)(1) of Registrant's report on Form 10-Q for the quarter ending June 30, 1993, Commission File No. 0-692. 4(b)(2) Copy of Loan Agreement between Company and Grant County, South Dakota, dated June 1, 1993, related to issuance of Pollution Control Refunding Revenue Bonds (Northwestern Public Service Company Project) Series 1993A, is incorporated by reference to Exhibit 4(b)(2) of Registrant's report on Form 10-Q for the quarter ending June 30, 1993, Commission File No. 0-692. 4(b)(3) Copy of Loan Agreement between Company and Grant County, South Dakota, dated June 1, 1993, related to issuance of Pollution Control Refunding Revenue Bonds (Northwestern Public Service Company Project) Series 1993B, is incorporated by reference to Exhibit 4(b)(3) of Registrant's report on Form 10-Q for the quarter ending June 30, 1993, Commission File No. 0-692. 4(b)(4) Copy of Loan Agreement between Company and City of Salix, Iowa, dated June 1, 1993, related to issuance of Pollution Control Refunding Revenue Bonds (Northwestern Public Service Company Project) Series 1993, is incorporated by reference to Exhibit 4(b)(4) of Registrant's report on Form 10-Q for the quarter ending June 30, 1993, Commission File No. 0-692. (10) MATERIAL CONTRACTS 10(a)(1)(i) Copy of Big Stone Plant Agreement, an agreement between Otter Tail Power Company, Montana-Dakota Utilities Co. and Northwestern Public Service Company for sharing ownership of generating plant, dated January 7, 1970, is incorporated by reference to Exhibit 6 to Form 12-K for the year ended December 31, 1971, Commission File No. 2-4472. 10(a)(1)(ii) Copy of Supplemental Agreement No. 1 to Big Stone Plant Agreement, dated July 1, 1983, is incorporated by reference to Exhibit 10(a)(1)(ii) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(a)(1)(iii) Copy of Supplemental Agreement No. 2 to Big Stone Plant Agreement, dated March 1, 1985, is incorporated by reference to Exhibit 10(a)(1)(iii) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 28 10(a)(1)(iv) Copy of Supplemental Agreement No. 3 to Big Stone Plant Agreement, dated March 31, 1986, is incorporated by reference to Exhibit 10(a)(1)(iv) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(a)(2)(i) Copy of Big Stone Plant Coal Agreement between Otter Tail Power Company, Montana-Dakota Utilities Co., and Northwestern Public Service Company and Knife River Coal Mining Company, dated January 1, 1972, is incorporated by reference to Exhibit 5 to Form 10-K for the year ended December 31, 1980. 10(a)(2)(ii) Copy of Amendment to Big Stone Plant Coal Agreement, dated June 25, 1992, is incorporated by reference to Exhibit 10(a)(2)(ii) to Form 10-K for the year ended December 31, 1992, commission File No. 0-692. 10(a)(3)(i) Copy of Big Stone Plant Transmission Facilities Agreement between Otter Tail Power Company, Montana-Dakota Utilities Co., and Northwestern Public Service Company, dated April 3, 1972, is incorporated by reference to Exhibit 10(a)(3)(i) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(a)(3)(ii) Copy of Supplement No. 1 to Big Stone Plant Transmission Facilities Agreement, dated October 1, 1974, is incorporated by reference to Exhibit 10(a)(3)(ii) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(a)(3)(iii) Copy of Supplement No. 2 to Big Stone Plant Transmission Facilities Agreement, dated June 10, 1976, is incorporated by reference to Exhibit 10(a)(3)(iii) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(a)(3)(iv) Copy of Supplement No. 3 to Big Stone Plant Transmission Facilities Agreement, dated October 1, 1982, is incorporated by reference to Exhibit 10(a)(3)(iv) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 29 10(a)(3)(v) Copy of Supplement No. 4 to Big Stone Plant Transmission Facilities Agreement, dated October 1, 1982, is incorporated by reference to Exhibit 10(a)(3)(v) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(a)(3)(vi) Copy of Supplement No. 5 to Big Stone Plant Transmission Facilities Agreement, dated March 1, 1985, is incorporated by reference to Exhibit 10(a)(3)(vi) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(a)(3)(vii) Copy of Supplement No. 6 to Big Stone Plant Transmission Facilities Agreement, dated March 31, 1986, is incorporated by reference to Exhibit 10(a)(3)(vii) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(b)(1)(i) Copy of Amendment to Ownership Agreement for George Neal Generating Station Unit 4, dated October 30, 1975, to reflect Registrant's ownership interest of 50,000 KW (8.681%), is incorporated by reference to Exhibit 10 to Form 12-K for the year ended December 31, 1975, Commission File No. 2-4472. 10(b)(1)(ii) Copy of Second Amendment to Ownership Agreement for George Neal Generating Station Unit 4, dated October 30, 1975, is incorporated by reference to Exhibit 10(b)(1)(ii) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(b)(1)(iii) Copy of Third Amendment to Ownership Agreement for George Neal Generating Station Unit 4, dated December 31, 1984, is incorporated by reference to Exhibit 10(b)(1)(iii) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(b)(2)(i) Copy of Coal Sales and Purchase Agreement, between Iowa Public Service Company (as agent for the owners of the George Neal Generating Station Unit 4) and Carter Oil Company, dated September 29, 1977, is incorporated by reference to Exhibit 13 to Form 10-K for the year ended December 31, 1977, Commission File No. 0-692. 30 10(b)(2)(ii) Copy of Notice of Election to Extend Coal Contract with Carter Oil Company, dated November 2, 1978, is incorporated by reference to Exhibit 10(b)(2)(ii) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(b)(2)(iii) Copy of revised Exhibit "A", dated May 1, 1986 to Coal Sales and Purchase Agreement, dated September 29, 1977, is incorporated by reference to Exhibit 10(b)(2)(iii) to Form 10-K for the year ended December 31, 1990, Commission File No. 0-692. 10(b)(3)(i) Copy of Transmission Facilities and Operating Agreement for George Neal Generating Station Unit 4, entered by and between Iowa Public Service Company, Northwestern Public Service Company, & other plant owners, dated October 24, 1984, is incorporated by reference to Exhibit 10(b)(3)(i) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(b)(3)(ii) Copy of First Amendment to Transmission Facilities and Operating Agreement for George Neal Generating Station Unit 4, dated December 31, 1984, is incorporated by reference to Exhibit 10(b)(3)(ii) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(c)(1)(i) Copy of Agreement for Sharing Ownership of Generating Unit No. 1, Coyote Station, by and between Otter Tail Power Company, Minnkota Power Cooperative, Inc., Montana-Dakota Utilities Co., Minnesota Power & Light Company, & Northwestern Public Service Company, dated December 31, 1977, is incorporated by reference to Exhibit 15 to Form 10-K for the year ended December 31, 1978, Commission File No. 0-692. 10(c)(1)(ii) Copy of Supplemental Agreement No. 1 to Agreement for Sharing Ownership of Generating Unit No. 1, Coyote Station, dated December 31, 1977, is incorporated by reference to Exhibit 16 to Form 10-K for the year ended December 31, 1978, Commission File No. 0-692. 10(c)(1)(iii) Copy of Amendment No. 2 to Agreement for Sharing Ownership of Generating Unit No. 1, Coyote Station, Amendment No. 1 to Coyote 1 Station Transmission Facilities Agreement, and Amendment No. 2 to Coyote Plant Coal Agreement, dated March 1, 1981, is incorporated by reference to Exhibit 10(c)(1)(iii) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 31 10(c)(1)(iv) Copy of Amendment No. 3 to Agreement for Sharing Ownership of Generating Unit No. 1, Coyote Station, Amendment No. 2 to Coyote 1 Station Transmission Facilities Agreement, and Amendment No. 5 to Coyote Plant Coal Agreement, dated September 5, 1985, is incorporated by reference to Exhibit 10(c)(1)(iv) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(c)(2)(i) Copy of Coyote Plant Coal Agreement, by and between Otter Tail Power Company, Minnkota Power Cooperative, Inc., Montana-Dakota Utilities Co., Minnesota Power & Light Company, & Northwestern Public Service Company and Knife River Coal Mining Company, and Addendum to Coyote Plant Coal Agreement, both dated January 1, 1978, are incorporated by reference to Exhibit 17 to Form 10-K for the year ended December 31, 1979, Commission File No. 0-692. 10(c)(2)(ii) Copy of Addendum to Coyote Plant Coal Agreement, dated March 10, 1980, is incorporated by reference to Exhibit 10(c)(2)(ii) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(c)(2)(iii) Copy of Amendment to Coyote Plant Coal Agreement, dated May 28, 1981, is incorporated by reference to Exhibit 10(c)(2)(iii) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(c)(2)(iv) Copy of Fourth Amendment to Coyote Plant Coal Agreement, dated August 19, 1985, is incorporated by reference to Exhibit 10(c)(2)(iv) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(c)(3)(i) Copy of Coyote 1 Station Transmission Facilities Agreement, by and between Otter Tail Power Company, Minnkota Power Cooperative, Inc., Montana-Dakota Utilities Co., Minnesota Power Company, & Northwestern Public Service Company, dated November 30, 1978, is incorporated by reference to Exhibit 10(c)(3)(i) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(c)(3)(ii) Copy of Amendment No. 2 to Coyote Station Transmission Facilities Agreement, dated January 1, 1983, is incorporated by reference to Exhibit 10(c)(3)(ii) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 32 10(c)(3)(iii) Copy of System Interconnection Agreement, by and between Otter Tail Power Company, Montana-Dakota Utilities Co., & Northwestern Public Service Company, dated September 26, 1988, is incorporated by reference to Exhibit 10(c)(3)(iii) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(d) Mid-Continent Area Power Pool Agreement, dated March 31, 1972, as amended through January 1, 1991, is incorporated by reference to Exhibit 10(d) to Form 10-K for the year ended December 31, 1991, Commission File No. 0-692. 10(e)(1) Interconnection Contract between Registrant and Western Area Power Administration, dated April 1, 1984, is incorporated by reference to Exhibit 4 to Form 10-K for the year ended December 31, 1984, Commission File No. 0-692. 10(e)(2) Supplement No. 6 to Interconnection Contract between Registrant and Western Area Power Administration, dated February 5, 1987, is incorporated by reference to Exhibit 10(e)(2) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(e)(3) Supplement No. 5 to Interconnection Contract between Registrant and Western Area Power Administration, dated June 1, 1987, is incorporated by reference to Exhibit 10(e)(3) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(g)(1) Supplemental Income Security (Retirement) Plan for Directors, Officers and Managers, as amended July 1, 1986, is incorporated by reference to Exhibit 10(g)(1) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(g)(2) Deferred Compensation Plan for Non-employee Directors adopted November 6, 1985, is incorporated by reference to Exhibit 10(g)(2) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 33 10(g)(3) Form of Severance Agreement for Officers is incorporated by reference to Exhibit 5 to Form 10-Q for the quarter ended March 31, 1986, Commission File 0-692. 10(g)(4) Pension Equalization Plan, dated August 5, 1987, is incorporated by reference to Exhibit 10(g)(4) to Form 10-K for the year ended December 31, 1988, Commission File No. 0-692. 10(g)(5) Director Retirement Plan dated November 4, 1987, as amended February 2, 1994 (exhibit filed herewith). 10(g)(6) Annual Performance Incentive Plan for Officers, dated February 1, 1989, as amended February 2, 1994 (exhibit filed herewith). 10(g)(7) Long-term Incentive Compensation Plan ("Phantom Stock Unit Plan") for Directors and Officers, dated February 1, 1989, as amended February 2, 1994 (exhibit filed herewith) 10(g)(8) Supplemental Pension Agreement for W. D. Craig, dated May 3, 1989, is incorporated by reference to Exhibit 10(g)(9) to Form 10-K for the year ended December 31, 1989, Commission File No. 0-692. (13) REPORT FURNISHED TO SECURITY HOLDERS 13(a) Annual Report for fiscal year ended December 31, 1993, furnished to stockholders of record on March 1, 1994 (exhibit filed herewith). (21) SUBSIDIARIES OF REGISTRANT 21(a) Grant, Inc., a South Dakota corporation, is a wholly owned subsidiary of Registrant which does business under the name of Grant, Inc. 21(b) Northwestern Systems, Inc., a South Dakota corporation, is a wholly owned subsidiary of Registrant which does business under the name of Northwestern Systems, Inc. 34 21(c) Northwestern Networks, Inc., a South Dakota corporation, is a wholly owned subsidiary of Registrant which does business under the name of Northwestern Networks, Inc. (22) OTHER DOCUMENTS OR STATEMENTS TO SECURITY HOLDERS 22(a) Proxy materials dated March 15, 1994, furnished to common stockholders of record on March 7, 1994 (exhibit filed with SEC on March 18, 1994). EX-13.A 2 ANNUAL REPORT TO STOCKHOLDERS EXHIBIT 13(a) ANNUAL REPORT TO STOCKHOLDERS PAGE 16 MANAGEMENT'S DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES The Company has a strong liquidity position through the generation of significant cash flows, the availability of substantial cash reserves, and a sound capital structure. The Company also has adequate capacity for additional financing and has maintained favorable bond and commercial paper ratings. During the three years ended 1993, the Company has generated significant operating cash flows while continuing to maintain substantial cash reserves in the form of marketable securities. In the years ended 1993, 1992, and 1991, cash flows from operating activities were $24.0 million, $23.1 million, and $24.9 million, respectively. Cash equivalents and marketable securities totaled $39.1 million, $25.6 million, and $29.9 million at December 31, 1993, 1992, and 199l, respectively. Working capital and other financial resources are also provided by unused lines of credit, which are generally used to support commercial paper borrowings, a primary source of short-term financing. At December 31, 1993, unused short-term lines of credit totaled $12 million. The Company currently has outstanding bonds issued under two indentures; the 1940 Mortgage Indenture and the 1993 General Mortgage Indenture. The 1940 indenture provides a first lien on substantially all utility property as security for outstanding bonds. The 1993 indenture provides a junior lien on all of the Company's utility properties that are covered under the previously existing indenture as security for outstanding bonds. The 1993 indenture junior lien will become a first lien when all bonds issued under the 1940 indenture are retired. The provisions of the 1993 indenture result in an increase in the amount of bonds that can be issued on the basis of bonded property as well as increased financing flexibility. In June 1993, the Company issued $7,550,000 of 5.85% and $13,800,000 of 5.90% Pollution Control Refunding Revenue Bonds, due 2023. The proceeds were used to redeem $21,350,000 of 6 3/8%, 6 7/8% and 7.2% Pollution Control Revenue Bonds which would have matured between 1994 and 2009. In August 1993, the Company sold $55,000,000 of General Mortgage Bonds, 7% Series, due 2023. The net proceeds were used for the redemption of the Company's First Mortgage Bonds Series 6 1/4%, 8%, 8 1/4% and 8.8% which totaled $36,500,000. The proceeds were also used to reduce short-term commercial paper borrowings and for general corporate purposes. The Company will continue to review the economics of retiring or refunding long-term debt and preferred stock to minimize long-term financing costs. The Company's financial coverages are at levels in excess of those required for the issuance of debt and preferred stock. CAPITAL REQUIREMENTS The Company's primary capital requirements include the funding of its utility construction and expansion programs, the funding of debt and preferred stock retirements and sinking fund requirements, 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 and reliability capabilities through system replacement, expand its current customer base, and provide for the reliability of energy supply. Expenditures for construction activities for the years 1993, 1992, and 1991 were $19.7 million, $18.5 million, and $23.0 million, respectively. Construction expenditures during the last three years included the installation of an additional 43 mw of internal peaking capacity, and the expansion of the Company's natural gas system into 26 additional communities in eastern South Dakota. Construction expenditures for 1994 are estimated to be $17.9 million. Over half of these projected expenditures will be spent on enhancements of the electric distribution system. The Company also projects spending modest amounts on the Company's continuing gas expansion program. Estimated construction expenditures for the years 1994 through 1998 are expected to be $72 million. ANNUAL REPORT TO STOCKHOLDERS PAGE 17 Capital requirements for the mandatory retirement of long-term debt and mandatory preferred stock sinking fund redemption totaled $180,000, $513,000, and $1.4 million, for the years ended 1993, 1992, and 1991, respectively. It is expected that such mandatory retirements will be $630,000 in 1994 and 1995, $610,000 in 1996, $600,000 in 1997, and $20.6 million in 1998. The Company anticipates that future capital requirements will be met by both internally generated cash flows and available external financing. RESULTS OF OPERATIONS EARNINGS COMPARISONS Earnings per share of common stock were $1.96 in 1993 compared to $1.77 in 1992 and $1.88 in 1991. The increase in 1993 was due to more normal weather patterns and to proceeds received by one of the Company's subsidiaries, Northwestern Networks, Inc. (NNI), for payment of accumulated dividends and interest related to its investment in LodgeNet Entertainment Corporation (LEC) after LEC sold shares of common stock through an initial public offering. NNI recorded after-tax gains of $1,727,000 in 1993 related to the transaction. The Company's more normal weather patterns in 1993 occurred during the first quarter and third quarter, contributing to higher operating revenues. Offsetting earnings in 1993 was a $1,750,000 restructuring charge to operating expenses related to implementation of certain cost containment and efficiency programs. The decrease in earnings per share in 1992 from 1991 was primarily due to warmer weather patterns during the first quarter of 1992 and cooler weather during the summer of 1992 which resulted in a significant decrease in operating revenues. OPERATING REVENUES As indicated by degree day information, weather has the greatest influence on the comparison of revenues from year to year. In 1993, retail electric kwh sales increased by 7.9%, while sales to wholesale customers, representing primarily kwh sales to other utilities in the power pool, increased by 19.6%. In 1992, retail kwh sales decreased by 4.5%, but were somewhat offset by an 18.3% increase in sales to wholesale customers. Colder weather patterns during the 1993 heating season resulted in a 20.1% increase in mcf sales of gas. In 1992, warmer weather was responsible for the 7.0% decrease in total mcf sales of gas over 1991. The following table summarizes the factors affecting the variations in revenues between years: Variation from prior year ------------------------- 1993 1992 ---- ---- (in thousands) Electric Revenue: Variation in kwh sales $ 5,441 $(2,817) Changes in rates, fuel cost recovery, and other (964) 487 ------- ------- $ 4,477 $(2,330) ======= ======= Gas Revenue: Variation in mcf sales $10,349 $(3,925) Changes in rates, gas cost recovery, and other 2,453 1,199 ------- ------- $12,802 $(2,726) ======= ======= OPERATING EXPENSES More favorable weather patterns in 1993 resulted in comparable increases in electric fuel-related costs and purchased gas sold. Other operating expenses, excluding the $1.7 million related to a restructuring charge referred to above, increased over 1992 primarily due to higher gas distribution and customer accounts expenses. Additionally, operating expenses in 1992 were benefited due to the receipt of insurance proceeds related to employee benefits. Maintenance increased due primarily to expenditures at the Company's baseload plants. Depreciation increases can be attributed to an increase in construction activity. Property and other taxes increased primarily because South Dakota property taxes were unusually low in 1992 related to reduced property tax assessments. Income taxes increased as a result of higher taxable income. The increase in interest charges is due to the issuance of $55 million of General Mortgage Bonds in August 1993, offset by the redemption of the 6 1/4%, 8%, 8 1/4% and 8.8% Series of First Mortgage Bonds which totaled $36.5 million. ANNUAL REPORT TO STOCKHOLDERS PAGE 18 In 1992, the significant weather-related decrease in revenues resulted in comparable decreases in electric fuel-related costs and purchased gas sold. Property and other taxes were unusually low in 1992 due to reduced property tax assessments, and income taxes decreased related to lower taxable income. Interest expense increased in 1992 due to the issuance of $25 million of First Mortgage Bonds in September 1992, offset by the redemption of 9.85% and 9 5/8% Series First Mortgage Bonds. FUTURE EARNINGS AND CASH FLOW VARIABLES The Company's future earnings and cash flow performance are dependent on numerous factors including, among others, the unpredictable midwestern weather patterns, the effects of regulation on the Company's utility operations, the Company's ability to maintain and expand its electric and gas revenue base, the prudent containment of operating expenses, and the performance of its corporate development and investment programs. Although the Company will continue to aggressively pursue opportunities to expand its gas and electric revenue base, it is not expected that high levels of growth in electric and gas customer demand will occur in the Company's service territory during the next several years. The anticipation that growth in customer demand will not be at high levels in 1994, or the near future, increases the importance of the Company's expansion programs and cost containment activities to maintain and enhance operating income from utility operations. Future utility operating income will also be impacted by regulatory decisions affecting the Company's electric and gas operations. In addition to factors affecting electric and gas utility operations, the Company's future earnings are also dependent on income generated from corporate development and investment activities. A large portion of such investment activities in 1993 included participation in preferred stock investment programs that involve substantial liquidity and provide a flow of current income, much of which is tax advantaged. During the next several years, the Company will seek utility or utility-related investment opportunities that meet the goal of expanding the Company's current utility operations. Additionally, the Company may also pursue, where appropriate, nonutility investments in privately held entities and ventures that provide the potential of increased long-term investment returns. Such privately held investments can involve increased principal and liquidity risk when compared to the Company's preferred stock investments or its utility operations. NONUTILITY OPERATIONS In addition to the Company's investment portfolio of preferred stock investments, the Company holds interests in two nonutility businesses. At December 31, 1992, Northwestern Networks, Inc. (NNI), one of the Company's wholly owned subsidiaries, held investments in LodgeNet Entertainment Corporation (LEC), consisting of LEC common stock and $12.9 million of LEC 15% cumulative preferred stock. During 1993, NNI converted all of its LEC common stock to $3.8 million of convertible preferred stock and provided additional funding to LEC in the form of $6 million of 12% subordinated debt. On October 21, 1993, LEC sold 5,175,000 shares of common stock through an initial public offering at a price of $13.50 per share. Proceeds from the initial public offering were used to retire loans under LEC's credit facility and to redeem the 15% cumulative preferred stock held by NNI at face value plus accumulated dividends. In addition, NNI received payment of accrued interest on the subordinated note. The balance of the proceeds will be used by LEC in its future business operations. In connection with the public offering, the convertible preferred stock held by NNI was converted to 1,121,000 shares of LEC common stock, and NNI exchanged the 12% subordinated note for a new $6,000,000 subordinated note with a coupon rate of 2% over the LEC credit facility rate. LEC's common stock is now traded on NASDAQ under the symbol LNET. NNI recorded after- tax income of $1,727,000 in 1993 related to dividends and interest received following the initial public offering. In December 1992, one of the Company's subsidiaries, Northwestern Systems, Inc. (NSI), acquired a 60% ownership interest in Lucht Engineering, Inc. (Lucht), a firm that develops, manufactures, and markets multi-image photographic printers and other related equipment. On October 1, 1993, NSI acquired the remaining 40% common stock interest in Lucht. This investment contributed $.10 per share to the Company's earnings in 1993. ANNUAL REPORT TO STOCKHOLDERS PAGE 19 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF NORTHWESTERN PUBLIC SERVICE COMPANY: We have audited the accompanying consolidated balance sheet and consolidated statement of capitalization of NORTHWESTERN PUBLIC SERVICE COMPANY (a Delaware corporation) AND SUBSIDIARIES as of December 31, 1993 and 1992, and the related consolidated statement of income and retained earnings and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Northwestern Public Service Company and Subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. /s/ Arthur Andersen & Co. Minneapolis, Minnesota February 1, 1994. ANNUAL REPORT TO STOCKHOLDERS PAGE 20 CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS Years ended December 31 1993 1992 1991 ------------ ------------ ------------ Operating Revenues: Electric $ 70,104,822 $ 65,627,621 $ 67,957,685 Gas 65,017,964 52,216,333 54,942,474 Other 18,134,456 1,352,600 0 ------------ ------------ ------------ 153,257,242 119,196,554 122,900,159 ------------ ------------ ------------ Operating Expenses: Fuel for electric generation 12,731,558 12,072,833 12,247,112 Purchased power 1,229,748 841,356 1,293,204 Purchased gas sold 48,153,861 38,186,237 39,850,574 Other operating expenses 23,285,277 19,871,923 19,450,481 Manufacturing costs 16,543,662 1,345,966 0 Maintenance 6,368,346 5,889,310 5,835,969 Depreciation 11,558,839 11,061,520 10,506,102 Property and other taxes 6,139,613 5,118,469 6,269,088 Income taxes 6,940,374 5,234,602 7,101,524 ------------ ------------ ------------ 132,951,278 99,622,216 102,554,054 ------------ ------------ ------------ Operating Income 20,305,964 19,574,338 20,346,105 Investment Income and Other, net of taxes (Note 1) 3,829,693 2,252,177 1,712,096 Interest Expense, net (8,944,584) (8,105,109) (7,243,605) ------------ ------------ ------------ Net Income 15,191,073 13,721,406 14,814,596 Dividends on Cumulative Preferred Stock (121,463) (143,267) (370,081) ------------ ------------ ------------ Net Income Available for Common Stock 15,069,610 13,578,139 14,444,515 Retained Earnings, beginning of year 50,318,050 48,986,426 46,326,463 Dividends on Common Stock (12,513,888) (12,206,799) (11,784,552) Premium on Preferred Stock Retirement 0 (39,716) - ------------ ------------ ------------ Retained Earnings, end of year $ 52,873,772 $ 50,318,050 $ 48,986,426 ============ ============ ============ Earnings Per Average Common Share based on 7,677,232 shares $ 1.96 $ 1.77 $ 1.88 ============ ============ ============ Dividends Declared Per Common Share $ 1.63 $ 1.59 $ 1.535 ============ ============ ============ See Notes to Consolidated Financial Statements ANNUAL REPORT TO STOCKHOLDERS PAGE 21 CONSOLIDATED STATEMENT OF CASH FLOWS Years ended December 31 1993 1992 1991 ------------ ------------ ------------ Operating Activities: Net income $ 15,191,073 $ 13,721,406 $ 14,814,596 Items not requiring cash: Depreciation 11,558,839 11,061,520 10,506,102 Deferred income taxes, net (1,398,578) (47,328) (946,920) Investment tax credit (566,498) (568,655) (597,347) Changes in current assets and liabilities: Accounts receivable (2,145,693) (1,049,603) (613,278) Inventories (111,703) 352,866 (756,876) Other current assets (1,056,726) (1,246,370) 1,857,160 Accounts payable (1,565,245) 2,499,414 (1,943,154) Accrued taxes 2,393,850 (579,660) 2,491,591 Accrued interest 193,772 143,992 548,811 Other current liabilities 898,638 424,523 473,264 Other, net 604,591 (1,655,673) (959,195) ------------ ------------ ------------ Cash flows from operating activities 23,996,320 23,056,432 24,874,754 ------------ ------------ ------------ Investment Activities: Additions to utility plant (19,707,593) (18,510,018) (22,996,064) Sale (purchase) of noncurrent investments, net (6,923,488) 3,872,766 (648,713) Acquisition of net assets (2,850,000) (4,122,180) - ------------ ------------ ------------ Cash flows for investment activities (29,481,081) (18,759,432) (23,644,777) ------------ ------------ ------------ Financing Activities: Common and preferred stock dividends paid (12,635,351) (12,350,066) (12,154,633) Issuance of long-term debt 76,453,842 26,072,200 15,000,000 Repayment of long-term debt (58,900,200) (12,736,000) (1,233,000) Retirement of preferred stock (30,000) (3,085,000) (195,000) Commercial paper repayments 0 (2,000,000) (2,500,000) ------------ ------------ ------------ Cash flows from (for) financing activities 4,888,291 (4,098,866) (1,082,633) ------------ ------------ ------------ Increase (Decrease) in Cash and Cash Equivalents (596,470) 198,134 147,344 Cash and Cash Equivalents, 3,695,563 3,497,429 3,350,085 beginning of year ------------ ------------ ------------ Cash and Cash equivalents, end of year $ 3,099,093 $ 3,695,563 $ 3,497,429 ============ ============ ============ SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the year for: Income taxes $ 6,338,293 $ 6,129,541 $ 6,620,863 Interest 8,771,595 7,442,176 6,098,910 See Notes to Consolidated Financial Statements ANNUAL REPORT TO STOCKHOLDERS PAGE 22 CONSOLIDATED BALANCE SHEET December 31 1993 1992 ASSETS ------------ ------------ Utility Plant, at original cost: Electric $292,508,996 $284,656,157 Gas 53,414,571 46,739,238 Common 15,788,899 14,798,045 ------------ ------------ Utility plant in service 361,712,466 346,193,440 Less-Accumulated depreciation 130,610,474 122,085,437 ------------ ------------ 231,101,992 224,108,003 Construction work in progress 7,393,129 5,624,869 ------------ ------------ 238,495,121 229,732,872 ------------ ------------ Current Assets: Cash and cash equivalents 3,099,093 3,695,563 Accounts receivable, net 11,197,920 9,052,227 Fuel, at average cost 4,040,170 3,337,294 Inventories, materials and supplies 9,150,841 9,742,014 Deferred gas costs 4,121,591 4,035,067 Other 2,343,183 1,372,981 ------------ ------------ 33,952,798 31,235,146 ------------ ------------ Other Assets: Investments 44,851,734 37,928,246 Deferred charges and other 26,274,440 9,298,109 ------------ ------------ 71,126,174 47,226,355 ------------ ------------ $343,574,093 $308,194,373 ============ ============ CAPITALIZATION AND LIABILITIES Capitalization: Common stock equity $109,666,931 $107,111,209 Nonredeemable cumulative preferred stock 2,600,000 2,600,000 Redeemable cumulative preferred stock 70,000 100,000 Long-term debt 126,600,000 106,422,200 ------------ ------------ 238,936,931 216,233,409 ------------ ------------ Commitments and Contingencies (Notes 1,7,8,9) 0 0 ------------ ------------ Current Liabilities: Long-term debt due within one year 600,000 150,000 Accounts payable 10,440,263 12,005,508 Accrued taxes 8,227,610 5,833,760 Accrued interest 2,946,075 2,752,303 Other 5,617,740 4,719,102 ------------ ------------ 27,831,688 25,460,673 ------------ ------------ Deferred Credits: Accumulated deferred income taxes 35,683,509 37,055,175 Unamortized investment tax credits 11,149,631 11,716,129 Other 29,972,334 17,728,987 ------------ ------------ 76,805,474 66,500,291 ------------ ------------ $343,574,093 $308,194,373 ============ ============ See Notes to Consolidated Financial Statements ANNUAL REPORT TO STOCKHOLDERS PAGE 23 CONSOLIDATED STATEMENT OF CAPITALIZATION December 31 1993 1992 ------------------- ------------------- Common Stock Equity: Common stock, $3.50 par value, 20,000,000 shares authorized; 7,677,232 shares outstanding $ 26,870,312 $ 26,870,312 Additional paid-in capital 29,922,847 29,922,847 Retained earnings 52,873,772 50,318,050 ------------------- ------------------- 109,666,931 46% 107,111,209 50% ------------------- ------------------- Cumulative Preferred Stock: $100 par value, 300,000 shares authorized; outstanding: Nonredeemable- 4 1/2% Series 2,600,000 2,600,000 Redeemable- 5 1/4% Series 70,000 100,000 ------------------- ------------------- 2,670,000 1% 2,700,000 1% ------------------- ------------------- Long-Term Debt: Series Due -------- ----- First mortgage bonds- 6 1/4% 1996 0 3,500,000 8.824% 1998 15,000,000 15,000,000 8.9% 1999 7,500,000 7,500,000 8% 2002 0 6,000,000 6.99% 2002 25,000,000 25,000,000 8 1/4% 2003 0 15,000,000 8.8% 2007 0 12,000,000 General mortgage bonds- 7% 2023 55,000,000 - ------------------- ------------------- 102,500,000 84,000,000 ------------------- ------------------- Pollution control obligations (Note 4) - 5.85%, Mercer Co., ND 2023 7,550,000 7,550,000 5.90%, Salix, IA 2023 4,000,000 4,000,000 5.90%, Grant Co., SD 2023 9,800,000 9,950,000 ------------------- ------------------- 21,350,000 21,500,000 ------------------- ------------------- 123,850,000 105,500,000 Other long-term debt 3,350,000 1,072,200 Less-Due within one year 600,000 150,000 ------------------- ------------------- 126,600,000 53% 106,422,200 49% ------------------- ------------------- Total Capitalization $238,936,931 100% $216,233,409 100% =================== =================== See Notes to Consolidated Financial Statements ANNUAL REPORT TO STOCKHOLDERS PAGE 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SIGNIFICANT ACCOUNTING POLICIES - BASIS OF CONSOLIDATION: The accompanying consolidated financial statements include the accounts of Northwestern Public Service Company and its wholly owned subsidiaries. The Company's regulated businesses are subject to various state and federal agency regulation. The accounting policies followed by these businesses are generally subject to the Uniform System of Accounts of the Federal Energy Regulatory Commission (FERC). These accounting policies differ in some respects from those used by its nonregulated businesses. All significant intercompany balances and transactions have been eliminated from the consolidated financial statements. The accompanying Consolidated Statement of Income and Retained Earnings includes the operating results of Lucht Engineering, Inc. effective December 1, 1992, the date of acquisition. REVENUE RECOGNITION: Electric and gas revenue is based on billings rendered to customers rather than on meters read or energy delivered. Customers are billed monthly on a cycle basis. 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. In the years ended 1993, 1992, and 1991, allowance for equity funds was $32,000, $105,000, and $228,000. Allowance for borrowed funds for the years ended 1993, 1992, and 1991 was $50,000, $158,000, and $184,000. CASH EQUIVALENTS: The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. GAS COSTS: The commodity cost portion of gas purchased from wholesale suppliers but not yet billed to customers is charged to deferred gas costs. This account is subsequently credited in future periods as customers are billed for gas used in prior periods. This method has the approximate effect of matching gas costs with gas revenues in any financial reporting period. The demand cost portion of gas costs, which is comprised of numerous components, is expensed as incurred. The Company has various long-term gas supply agreements with its pipeline suppliers for the purchase of natural gas in the normal course of its gas operations. DEPRECIATION AND MAINTENANCE: Depreciation is computed using the straight-line method based on the estimated useful lives of the various classes of property. Depreciation provisions, as a percentage of the average balance of depreciable plant in service, were 3.31% in 1993, 3.32% in 1992, and 3.34% in 1991. Depreciation rates include a provision for the Company's share of the estimated costs to decommission three coal-fired generating plants at the end of the useful life of each plant. The annual provision for such costs is included in depreciation expense, while the accumulated provisions are included in other deferred credits. The costs of maintenance, repairs, and replacements of minor property items are charged to maintenance expense accounts. Costs of renewals and betterments of property units are charged to utility plant accounts. The costs of units of property removed from service, net of removal costs and salvage, are charged to accumulated depreciation. No profit or loss is recognized in connection with ordinary retirements of depreciable utility property. INVESTMENTS: The Company's investments consist primarily of corporate preferred and common stocks. In addition, the Company has investments in privately held entities and ventures, safe harbor leases, and various money market and tax exempt investment programs. Preferred stocks were recorded at a cost basis of $34.1 million on December 31, 1993. At December 31, 1992, Northwestern Networks, Inc. (NNI), one of the Company's wholly owned subsidiaries, held investments in LodgeNet Entertainment Corporation (LEC), consisting of LEC common stock and $12.9 million of LEC 15% cumulative preferred stock. During 1993, NNI converted all of its LEC common stock to $3.8 million of convertible preferred stock and provided additional funding to LEC in the form of $6 million of 12% subordinated debt. On October 21, 1993, LEC sold 5,175,000 shares of common stock through an initial public offering at a price of $13.50 per share. Proceeds from the initial public offering were used to retire loans under LEC's credit facility and to redeem the 15% cumulative preferred stock held by NNI at face value plus accumulated dividends. In addition, NNI received payment of accrued interest on the subordinated note. NNI recorded after-tax income of $1,727,000 in 1993 related to dividends and interest received upon the closing of the initial public offering. In connection with the initial public offering, the convertible preferred stock held by NNI was converted to 1,121,000 shares of LEC common stock, and NNI exchanged the 12% subordinated note for a new $6,000,000 subordinated note with a coupon rate of 2% over the LEC credit facility rate. Effective December 1, 1992, Northwestern Systems, Inc. (NSI), one of the Company's wholly owned subsidiaries, acquired a 60 percent common stock ownership interest in Lucht Engineering, Inc. (Lucht). The acquisition was accounted for under the purchase method of accounting. On October 1, 1993, NSI acquired the remaining 40 percent common stock interest in Lucht. ANNUAL REPORT TO STOCKHOLDERS PAGE 25 In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities." The Company will adopt SFAS 115 in 1994. It is anticipated that adoption will primarily affect balance sheet disclosures and will not have a material effect on operating results. INCOME TAXES: Deferred income taxes relate primarily to the difference between book and tax methods of depreciating property, taxable income derived from safe harbor leases, the difference in the recognition of revenues for book and tax purposes, and to gas costs which are deferred for book purposes but expensed currently for tax purposes. The cumulative net amount of tax provisions related to deferred gas costs are recorded as a current liability in the balance sheet since the related deferred gas costs are classified as a current asset. For book purposes, investment tax credits are deferred and amortized as a reduction of income tax expense over the useful lives of the property which generated the credits. RECLASSIFICATIONS: Certain 1992 and 1991 amounts have been reclassified to conform to the 1993 presentation. Such reclassifications had no impact on net income and common stock equity as previously reported. (2) SHORT-TERM BORROWINGS - The Company may issue short-term debt in the form of bank loans and commercial paper as interim financing for general corporate purposes. The bank loans may be obtained under short-term lines of credit which totaled $12 million at December 31, 1993. The Company pays an annual fee equivalent to 1/4% of the unused lines. There were no borrowings outstanding at December 31, 1993 and 1992. (3) FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount of the Company's cash equivalents and certain money market fund investments approximate fair value due to the short-term maturity of those instruments. In addition to cash equivalents, the Company's preferred stock portfolio, recorded at a cost basis of $34.1 million, had an estimated fair value of $34.7 million at December 31, 1993. The fair value of preferred stocks is estimated based on quoted market prices for these and similar investment securities. The carrying value of the Company's investment in LodgeNet Entertainment Corporation common stock is $1.4 million. The investment had a market value of approximately $16.4 million at December 31, 1993, based on the year-end market price for LEC common stock. Based on current market rates for debt of similar credit quality and remaining maturities or quoted market prices for certain issues, the face value of the Company's long-term debt approximates its market value. (4) LONG-TERM DEBT - Substantially all of the Company's utility plant is subject to the lien of the indentures securing its first mortgage bonds, general mortgage bonds, and pollution control obligations. General mortgage bonds of the Company may be issued in amounts limited by property, earnings, and other provisions of the mortgage indenture. In June 1993, the Company issued $7,550,000 of 5.85% and $13,800,000 of 5.90% Pollution Control Refunding Revenue Bonds, due 2023. The net proceeds were used to redeem $21,350,000 of 6 3/8%, 6 7/8% and 7.2% Pollution Control Revenue Bonds which would have matured between 1994 and 2009. In August 1993, the Company sold $55,000,000 of General Mortgage Bonds, 7% Series due 2023 which were issued under the Company's General Mortgage Indenture and Deed of Trust dated as of August 1, 1993. The net proceeds were used to redeem the outstanding 6 1/4%, 8%, 8 1/4% and 8.8% Series First Mortgage Bonds in the amount of $36,500,000, to reduce short- term commercial paper borrowings, and for general corporate purposes. The only scheduled retirements of the Company's long-term bond debt during the next five years are $20,000,000 in 1998. Lucht Engineering, Inc. has a credit agreement with a bank whereby it may borrow up to $7 million in revolving and term loans. A balance of $3,350,000 was outstanding under the revolving and term loan as of December 31, 1993 at an interest rate of 6.75%. Borrowings under the agreement are collateralized by all receivables, inventories, property, and other assets of Lucht. Scheduled retirements of the Lucht long-term debt are $600,000 during each of the years 1994 through 1998. (5) CAPITAL STOCK TRANSACTIONS AND RETAINED EARNINGS AVAILABILITY - There were no common stock transactions during the three years ended December 31, 1993. In 1992, the Company retired all of the 7 5/8% and 8% cumulative preferred stock with a total par value of $3,055,000. Other preferred stock transactions for the three years ended December 31, 1993, have been limited to redemptions to satisfy mandatory sinking fund requirements. At December 31, 1993, $39,962,000 of retained earnings was available for payment of dividends on common stock under the most restrictive of various provisions which limit the payment of dividends on common stock. ANNUAL REPORT TO STOCKHOLDERS PAGE 26 (6) INCOME TAXES - Income tax expense is comprised of the following (in thousands): 1993 1992 1991 ---- ---- ---- Federal income - Current tax expense $7,541 $4,915 $8,209 Deferred tax benefit (530) 602 (993) Investment tax credit (566) (568) (597) State income 495 286 483 ------ ------ ------ Total charged to operations 6,940 5,235 7,102 Federal income - nonoperating 628 438 122 ------ ------ ------ $7,568 $5,673 $7,224 ====== ====== ====== The following table reconciles the Company's effective federal income tax rate to the federal statutory rate: 1993 1992 1991 ---- ---- ---- Federal statutory rate 35% 34% 34% Amortization of investment tax credit (2) (3) (3) Dividends received deduction (2) (2) (2) Other, net - (1) 1 --- --- --- Effective federal income tax rate 31% 28% 30% === === === The components of the net deferred federal income tax liability recognized in the Company's Consolidated Balance Sheet is comprised of the following at December 31 (in thousands): Deferred Tax Asset (Liability) ------------------------------ 1993 1992 ---- ---- Excess tax depreciation $(22,671) $(20,402) Safe harbor leases (9,171) (9,778) Property basis and life differences (8,312) (9,022) Asset sales (5,171) (6,173) Regulatory asset (4,477) (4,648) Regulatory liability 4,189 4,393 Unbilled revenue 3,901 3,257 Unamortized investment tax credit 3,491 3,575 Other, net 2,537 1,743 -------- -------- Total $(35,684) $(37,055) ======== ======== On January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." The cumulative and current period effect on net income of adopting SFAS 109 was not material as the significant items were regulatory related. As a result of adopting SFAS 109, the Company recognized regulatory assets and associated deferred tax liabilities of $13.7 million related primarily to book and tax property basis differences. In addition, the Company recognized regulatory liabilities and associated deferred tax assets of $12.9 million related primarily to unamortized investment tax credits and previously recorded deferred income taxes in excess of the existing statutory tax rate of 34 percent, which are anticipated to be returned to customers over the estimated remaining useful lives of the utility property. (7) JOINTLY OWNED PLANTS - The Company has an ownership interest in three major electric generating plants, all of which are operated by other utility companies. The Company has an undivided interest in these facilities and is responsible for its proportionate share of the capital and operating costs while being entitled to its proportionate share of the power generated. The Company's interest in each plant is reflected in the Consolidated Balance Sheet on a pro rata basis, and its share of operating expenses is reflected in the Consolidated Statement of Income and Retained Earnings. The participants finance their own investment. The Company has long-term coal contracts for delivery of lignite coal to Coyote I and sub-bituminous coal to Neal #4. The lignite coal contract for Big Stone expires in 1995, and the plant owners are negotiating with coal suppliers for a contract from that year forward. Contracts for Big Stone and Coyote I are total requirements contracts with a minimum obligation of 30,000 tons per week except during scheduled or forced outages. Neal #4 has a contract for delivery of sub-bituminous coal with an annual minimum purchase requirement of 1.8 million tons. Information relating to the Company's ownership interest in these facilities at December 31, 1993, is as follows: Big Stone Neal #4 Coyote I --------- ------- -------- (dollars in thousands) Utility plant in service $46,640 $34,972 $45,320 Accumulated depreciation $23,436 $14,134 $15,551 Construction work in progress $ 303 $ 155 $ 234 Total plant capacity - mw 452 624 426 Company's share 23.4% 8.7% 10.0% In-service date 1975 1979 1981 Coal contract expiration date 1995 1998 2016 ANNUAL REPORT TO STOCKHOLDERS PAGE 27 (8) EMPLOYEE RETIREMENT BENEFITS - The Company maintains a noncontributory defined benefit pension plan covering substantially all employees. The benefits to which an employee is entitled under the plan are derived using a formula based on the number of years of service and compensation levels during the last few years of service before retirement. The Company determines the annual funding for its plan using the frozen initial liability cost method. The Company's annual contribution is funded in accordance with the requirements of ERISA. The assets of the plan are comprised primarily of debt and equity securities. The components of net periodic pension cost for the years ended December 31, 1993, 1992, and 1991 were as follows (in thousands): 1993 1992 1991 ---- ---- ---- Service cost $ 985 $ 966 $ 910 Interest cost on projected benefit obligation 3,048 2,951 2,834 Actual return on assets (2,970) (5,779) (6,435) Net amortization and deferral (886) 2,283 3,539 ----- ------- ------- Net periodic pension cost $ 177 $ 421 $ 848 ===== ======= ======= The following table reflects the funded status of the Company's pension plan as of December 31, 1993, 1992, and 1991 (in thousands): 1993 1992 1991 ---- ---- ---- Actuarial present value of: Accumulated benefit obligation - Vested $34,052 $33,058 $28,343 Nonvested 1,528 1,131 1,183 ------- ------- ------- 35,580 34,189 29,526 Provision for future pay increases 5,515 5,234 6,406 ------- ------- ------- Projected benefit obligation 41,095 39,423 35,932 Plan assets at fair value 46,912 45,366 41,084 ------- ------- ------- Projected benefit obligation less than plan assets (5,817) (5,943) (5,152) Unrecognized transition obligation (1,856) (2,011) (2,165) Unrecognized net gain 6,941 7,910 7,545 ------- ------- ------- (Prepaid) accrued pension cost $ (732) $ (44) $ 228 ======= ======= ======= The assumptions used in calculating the projected benefit obligation for 1993, 1992, and 1991 were as follows: 1993 1992 1991 ---- ---- ---- Discount rate 8% 8% 8 1/2% Expected rate of return on assets 8 1/2% 8 1/2% 8 1/2% Long-term rate of increase in compensation levels 5% 5% 6% (9) ENVIRONMENTAL MATTERS - The Company is subject to environmental regulations from numerous entities. The Clean Air Act Amendments of 1990 (the Act) stipulate limitations on sulfur dioxide and nitrogen oxide emissions from coal-fired power plants. The Company believes it can economically meet the Act's sulfur dioxide emission requirements at its generating plants by the required compliance dates. The Act also requires the EPA to study cyclone boiler nitrogen oxide and air toxic emissions. In addition to the Clean Air Act, the Company is also subject to other environmental regulations including matters related to utility processing sites. Due to the uncertain nature of the results of such studies and regulations, the Company cannot now determine the additional costs, if any, or the regulatory treatment which may occur related to specific environmental provisions. (10) CUMULATIVE PREFERRED STOCK AND PREFERENCE STOCK - All series of the Company's cumulative preferred stock, except the 41/2% Series, are subject to mandatory redemption at par through an annual sinking fund requirement, as defined for each series. On January 2, 1992, the Company's 7 5/8% and 8% cumulative preferred stock was retired with a total par value of $3,055,000. All cumulative preferred stock may be redeemed in whole or in part at the option of the Board of Directors at any time upon at least 30 days notice at the per share prices noted below, plus accrued dividends: Redemption Prices ----------------------------------------- Series Present Through Subsequent - ------ ------- ------- ---------- 4 1/2% $110.00 - - 5 1/4% 100.53 May 31, 1994 $100.35-$100.00 In the event of involuntary dissolution, all preferred stock outstanding would have a preferential interest of $100 per share, plus accumulated dividends, before any distribution to common stockholders. The Company is also authorized to issue a maximum of 200,000 shares of preference stock at a par value of $50 per share. No preference shares have ever been issued. ANNUAL REPORT TO STOCKHOLDERS PAGE 28 (11) SEGMENTS OF BUSINESS - The Company's principal business segments consist of the following (in thousands): 1993 1992 1991 ---- ---- ---- Operating Revenues: Electric $ 70,105 $ 65,628 $ 67,958 Gas 65,018 52,216 54,942 Other 18,134 1,353 - Operating Income: Electric 16,999 17,712 17,708 Gas 2,480 1,856 2,638 Other 827 6 - Depreciation Expense: Electric 9,841 9,504 9,079 Gas 1,718 1,558 1,427 Construction Expenditures: Electric 11,225 12,605 18,162 Gas 8,483 5,905 4,834 Assets: Identifiable - Electric 206,962 204,206 200,492 Gas 45,296 37,814 32,776 Other assets 91,316 66,174 64,493 -------- -------- -------- $343,574 $308,194 $297,761 ======== ======== ======== Identifiable assets include all assets that are used directly in each business segment. Other assets consist principally of cash, accounts receivable, prepayments, and investments. (12) QUARTERLY FINANCIAL DATA (UNAUDITED) - First Second Third Fourth ----- ------ ----- ------ (thousands except per share amounts) 1993: Operating revenues $51,137 $33,783 $29,775 $38,562 Operating income 8,211 4,216 4,720 3,159 Net income 6,574 2,344 2,468 3,805 Earnings per average common share .85 .30 .32 .49 ======= ======= ======= ======= 1992: Operating revenues $37,041 $25,664 $22,012 $34,480 Operating income 5,981 3,870 3,954 5,769 Net income 4,677 2,478 2,349 4,217 Earnings per average common share .61 .32 .30 .54 ======= ======= ======= ======= EX-10.G.5 3 DIRECTORS RETIREMENT PLAN EXHIBIT 10(g)(5) NORTHWESTERN PUBLIC SERVICE COMPANY DIRECTORS' RETIREMENT PLAN WHEREAS, Northwestern Public Service Company (the "Company") desires to recognize the service of certain persons who have acted as outside Directors of the Company and to provide for the security of such Directors after their service with the Company ends; and WHEREAS, the Board of Directors of Northwestern Public Service Company did on November 4, 1987, adopt the Directors' Retirement Plan (the "Plan"); and WHEREAS, on February 1, 1989, the Board of Directors adopted Amendment No. 1, which amended the benefit reduction provisions of the Plan, effective May 3, 1989; and WHEREAS, on August 7, 1991, the Board of Directors adopted Amendment No. 2, which amended and clarified the method of payment of benefits under the Plan; WHEREAS, on February 2, 1994, the Board of Directors adopted Amendment No. 3, which amended the retirement benefit provisions, effective May 1, 1994. NOW THEREFORE, the Northwestern Public Service Company Directors' Retirement Plan provides as follows: ARTICLE I DEFINITIONS The following words and phrases as used herein shall have the meanings indicated below, unless a different meaning is required by the context: 1.01 "Board" means the Board of Directors of the Company as constituted from time to time. 1.02 "Committee" means the Northwestern Public Service Company Board of Directors' Nominating and Compensation Committee. 1.03 "Company" means Northwestern Public Service Company. 1.04 "Director" means a duly elected and qualified member of the Board who either: (a) on his Termination Date has never been an employee of the Company; or (b) has been an employee of the Company, but on his Termination Date is not an employee of the Company and has then completed ten Years of Service as a member of the Board after the date of his termination of employment with the Company. 1.05 "Effective Date" means January 1, 1988. 1.06 "Participant" means an individual who serves actively as a Director at any time on or after the Effective Date and who has completed at least five Years of Service as a Director on or prior to his Termination Date. 1.07 "Plan" means the Northwestern Public Service Company Directors' Retirement Plan. 1.08 "Plan Year" means the calendar year. 1.09 "Retainer Portion" means the portion of the fee paid to a Director for his service as such that is paid without regard to his attendance at meetings of the Board. 1.10 "Retirement Benefit" means the series of monthly payments made to a Participant in accordance with the provisions of Section 2.01 or 2.02. 1.11 "Termination Date" means the date on which a Participant ceases to be a Director for any reason other than death. 1.12 "Years of Service" means the number of Plan Years (computed to the nearest one-twelfth) during which a person has been a Director, including Plan Years before the Effective Date. For purposes of making the foregoing computation, a Director's Years of Service need not be consecutive and all periods of service as a Director shall be aggregated. 1.13 "Quarter" means the three-month period May-July, August-October, November-January, or February-April. ARTICLE II RETIREMENT BENEFITS 2.01 NORMAL RETIREMENT BENEFIT. The amount of the annual Normal Retirement Benefit payable to a Participant shall be equal to the annual Retainer Portion of the fee the Participant was receiving from the Company for his services as a Director at the time Termination Date occurs. 2.02 EARLY RETIREMENT BENEFIT. A Participant whose Termination Date occurs before the date he attains the age of seventy years shall be entitled to receive an annual Early Retirement Benefit from the Company, reduced as provided in the next sentence. The amount of the annual Early Retirement Benefit payable to a Participant hereunder shall be equal to the annual Normal Retirement Benefit that would have been payable under Section 2.01, reduced by five percent for each year, or part thereof, up to a maximum of twenty-five percent by which the Participant's age at his Termination Date is less than sixty-five years. 2.03 TIME AND METHOD OF PAYMENT. A Retirement Benefit payable to a Participant pursuant to Section 2.01 or 2.02 shall be payable in monthly installments commencing the first month of the quarter immediately following the later to occur of his Termination Date and the date he attains the age of sixty-five years and ending the month in which the Participant has received benefits under the Plan for the same number of months as he served as a Director. Should a Participant die before such benefits have been fully paid, a surviving spouse of such Participant shall receive the remaining benefits under the Plan until the earlier to occur of the death of such surviving spouse or the termination of benefits according to the prior sentence. In no event is any Retirement Benefit payable to or with respect to a Participant prior to the later to occur of his Termination Date and the date he attains the age of sixty-five years. A Retirement Benefit is payable only in the form of an annuity as described in this Section and may not be paid in any optional form. 2.04 FACILITY OF PAYMENT. Whenever, in the Committee's opinion, a Participant is under a legal disability or is incapacitated in any way so as to be unable to manage his financial affairs, the Committee may make payments of his Retirement Benefit to the Participant or to his legal representative or to a relative or friend of the Participant for his benefit, or the Committee may apply the same for the benefit of the Participant in such manner as the Committee considers advisable. Any payment of a Benefit or installment thereof in accordance with the provisions of this Section shall be a complete discharge of any liability for the making of such payment under the provisions of the Plan. ARTICLE III ADMINISTRATION 3.01 COMPANY'S OBLIGATION. The Company's obligation hereunder at any time is to pay Retirement Benefits under the Plan as they become due to Participants in accordance with the terms of the Plan. The Company need not segregate any of its assets or otherwise fund in advance for obligations likely to be incurred hereunder. Retirement Benefits specified under the Plan shall be payable from the general assets of the Company at the time they are due. 3.02 COMMITTEE. (a) The Plan shall be administered by the Committee, which shall have such duties and powers as may be necessary to discharge its duties under the Plan, including but not limited to the following: (i) To construe and interpret the Plan, to decide all questions of eligibility, and to determine the amount, manner, and time of payment of any Retirement Benefits hereunder. (ii) To appoint or employ individuals to assist in the administration of the Plan and any other agents deemed advisable, including legal counsel. (iii) To prescribe procedures to be followed by Participants for filing applications for Retirement Benefits. (iv) To receive from the Company and from Participants and such information as shall be necessary for the proper administration of the Plan. (b) The Committee shall have no power to add to, subtract from, or modify any of the terms of the Plan, or to change or add to any Retirement Benefits provided by the Plan, or to waive or fail to apply any requirements of eligibility for a Retirement Benefit under the Plan. 3.03 EXPENSES. Reasonable expenses of the Committee incurred in the administration of the Plan shall be reimbursed by the Company. The members of the Committee shall receive no compensation for their services in connection with the administration of the Plan. 3.04 COMMITTEE MEMBER AS PARTICIPANT. A member of the Committee may also be a Participant, but may not make any discretionary decision or take any action affecting his own interest as a Participant under the Plan unless that decision or action is upon a matter that affects all other Participants similarly situated and confers no special right, benefit, or privilege not simultaneously conferred upon all other such Participants. 3.05 INDEMNIFICATION OF COMMITTEE MEMBERS. The members of the Committee shall be indemnified by the Company against any and all liabilities arising by reason of any act or failure to act in good faith in connection with the Plan, including expenses reasonably incurred in the defense of any claim relating thereto. ARTICLE IV AMENDMENT AND TERMINATION 4.01 AMENDMENT AND VOLUNTARY TERMINATION. The Company reserves the right at any time and from time to time to modify or amend in whole or in part any or all of the provisions of the Plan, or to terminate the Plan. Except as provided below, no such modification, amendment, or termination, however, shall have the effect of reducing the amount of the Retirement Benefit that a Participant has received prior to, is receiving on, or would become entitled to (except for adjustments to such amounts following the date a Participant terminates his service as a Director as provided in Section 2.01) if his Termination Date occurred on, the effective date of such modification, amendment, or termination. For any Participant who was serving on the Board of Directors at the time of the adoption of Amendment No. 3, when benefits become payable under Section 2.03 the Participant shall elect, upon retirement, to receive the lifetime benefit payable under the Plan prior to the adoption of such Amendment or the limited term and surviving spouse survivorship benefit payable under the Amendment. 4.02 CORPORATE SUCCESSORS. The Plan shall not be terminated by a transfer or sale of assets of the Company or by the merger or consolidation of the Company into or with any other corporation or other entity. ARTICLE V MISCELLANEOUS 5.01 NO GUARANTEE. Nothing contained in this Plan shall be construed as a contract of employment between the Company and any Director or as a right of any Director to be continued in such capacity by the Company or as a guarantee by the Company that any Director shall be continued in such capacity. 5.02 INTEREST NONTRANSFERABLE. Benefits payable under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, including any such liability that is for alimony or other payments for the support of a spouse or former spouse, or for any other relative of the person entitled to such benefits hereunder, prior to actual receipt by such person. Any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge, or otherwise dispose of any right to benefits payable hereunder shall be void. 5.03 EXCLUSIONS AND SEPARABILITY. Each provision hereof shall be independent of each other provision hereof, and, if any provision of this Plan proves to be, or is held by any court, or tribunal, board, or authority of competent jurisdiction to be void or invalid with respect to a Participant, such provision shall be disregarded and shall be deemed to be null and void and not part of this Plan with respect to such Participant. The invalidation of any such provision, however, shall not otherwise impair or affect the Plan or any of the other provisions or terms hereof. 5.04 UNCLAIMED FUNDS. Each Participant shall keep the Committee informed of his current address. Neither the Company nor the Committee shall be obligated to search for the whereabouts of any person. If the location of a Participant is not made known to the Committee within three years after the date on which the first payment of the Participant's Retirement Benefit is to be made, the Participant will be deemed to have died at the end of the three-year period and the Retirement Benefit will be forfeited. Notwithstanding the foregoing, if the Participant subsequently makes a claim for any Retirement Benefit that has been forfeited under this Section, such Retirement Benefit shall be reinstated, without interest. 5.05 FEDERAL TAX STATUS. The Plan is not intended to be qualified or tax exempt under Section 401 or Section 501(a), respectively, of the Internal Revenue Code of 1986. 5.06 GOVERNING LAW. The provisions of the Plan shall be construed, administered, and governed under the laws of South Dakota. 5.07 SUCCESSORS. Subject to Article IV, the Plan shall be binding upon and inure to the benefit of any successors of the Company. 5.08 GENDER AND NUMBER. Except when otherwise required by the context, any masculine terminology in this document shall include the feminine and any singular terminology shall include the plural. 5.09 HEADINGS. The headings in this Plan are inserted for convenience of reference only and are not to be considered in construction of the provisions hereof. IN WITNESS WHEREOF, the Company has executed this Amendment No. 3 to the Directors' Retirement Plan as of the 2nd day of February, 1994. NORTHWESTERN PUBLIC SERVICE COMPANY By: /s/ M. D. Lewis ------------------------------------ M. D. Lewis President & CEO By: /s/ Bruce I. Smith ------------------------------------ Bruce I. Smith, Chairman Nominating and Compensation Committee EX-10.G.6 4 ANNUAL PERFORMANCE INCENTIVE PLAN EXHIBIT 10(g)(6) NORTHWESTERN PUBLIC SERVICE COMPANY ANNUAL PERFORMANCE INCENTIVE PLAN WHEREAS, the Board of Directors has established a Performance Incentive Plan; and WHEREAS, the Board of Directors of Northwestern Public Service Company ("Company") desires to amend such Plan by changing its name to Annual Performance Incentive Plan ("Plan") and to provide market competitive compensation to a broader management group; NOW THEREFORE, the Annual Performance Incentive Plan, as amended, provides as follows: I. OBJECTIVE The Northwestern Public Service Company Annual Performance Incentive Plan ("Plan") is established to accomplish the following objectives: (1) to motivate and reward outstanding performance by Northwestern Public Service Company (the "Company") and its management employees by providing additional compensation to officers and managers who influence the profitability of the Company; (2) to compare the Company's performance with a group of regional utilities; (3) to compare the Company's performance to established annual objectives; (4) to compare individual performance to established annual objectives; (5) to focus on stockholder and ratepayer interests and (6) to support long-term objectives by achieving short-term goals. II. ADMINISTRATION The Plan shall be administered by the Company. The Compensation Committee ("Committee") of the Company's Board of Directors ("Board"), shall have responsibility and authority with respect to the Plan, including the following: (1) approving performance measures, the measurement scale used, and the comparison utilities selected; (2) reviewing eligibility for Plan participation; (3) approving the size of the performance fund ("Performance Fund") and individual levels of award opportunities; and (4) reviewing and recommending awards for all Participants to the Board, which shall have final approval of awards. III. ELIGIBILITY FOR PARTICIPATION Employees eligible to participate in the Plan are those members of the Management Group set forth on Exhibit I attached hereto ("Participants"). The Chief Executive Officer of the Company shall determine for each calendar year the identity of employees assigned to the Management Group and may add additional employees to, and remove employees from, the Management Group during each calendar year. All decisions of the Chief Executive Officer relating to participation shall be subject to review and change by the Committee. All Participants will be eligible to participate in the Plan for that calendar year unless any of the following circumstances occur: (a) The Participant at any time is discharged from employment with the Company for cause ("Cause"). "Cause" shall mean (i) a Participant's conviction of any criminal violation involving dishonesty, fraud, or breach of trust, or (ii) a Participant's willful engagement in any misconduct in the performance of his duty that materially injures the Company, or (iii) failure to adequately perform his duties; or (b) The Participant's employment with the Company has terminated for any reason other than death, permanent disability, or retirement on or after the age of sixty-five (65) years or such earlier date as the Board, in its discretion, shall designate. For the purposes of this Section, a Participant will be considered to terminate employment by reason of "permanent disability" if, in the determination of the Board, he is subject to a physical or mental condition which is expected to render the Participant unable to perform his usual duties or any comparable duties for the Company. In the event that an eligible Participant is not employed for an entire plan year, his award shall be pro-rated to reflect the proportionate part of the plan year during which he was actually employed. IV. DETERMINATION OF PERFORMANCE AWARD AMOUNTS (a) A Performance Award ("Award") shall be awarded under the Plan to each Participant based on performance for the applicable calendar year which shall be determined by reference to the measures of performance for that year and weighting as set forth on Exhibit II attached hereto and detailed as follows: (i) Company Performance vs. Peer Utilities (50% weight) The Company will compare itself against peer utilities set forth on Exhibit II for (1) Change in Average Rates, defined as total retail revenues, divided by retail sales in kilowatt-hours, for electric operations, and total revenue from ultimate customers, divided by volume of gas sold to ultimate customers, for gas operations, and for (2) Change in Operating Expenses, defined as total operating expenses per unit of energy furnished to customers. The results of both electric and gas computations, in relation to a peer group, will be weighted in proportion to the Company's operating income from each source. The Company will rank itself percentile-wise against the peer utilities in terms of each of the above two measures. The average percentile ranking will determine the overall degree of achievement of peer-based goals and the degree to which this portion of the annual incentive is earned. If the average percentile ranking is fifty percent (50%), the target award level will be earned on the peer-based measures. If the Company ranks first among peers in terms of both measures (100th percentile), then the maximum award will be earned. If the average percentile ranking is twenty-five percent (25%), then the threshold award level will be earned with respect to the peer- based portion of the annual incentive. A ranking below the twenty-fifth percentile will eliminate this portion of the bonus. (ii) Company Performance vs. Annual Objectives (25% Weight) At the beginning of each year, Company management will establish two overall Company objectives for approval by the Compensation Committee of the Board. The first objective is Customer Service Quality, which will be measured each year by a customer service survey of the overall quality of the Company's service from the viewpoint of customers. The second objective, Earnings Per Share, will be the primary earnings per share of the Company as it appears in the approved budget for the Company. Company management will develop schedules for translating results of the above two objectives into threshold, target and maximum achievement levels. These schedules must be approved by the Compensation Committee. (iii) Performance vs. Individual Objectives (25% Weight) Each year, Participants will establish three or four major individual and department goals for review and approval by the Chief Executive Officer. At the end of each year, Participants will provide to the Chief Executive Officer an explanation regarding the degree to which each goal has been achieved. The Chief Executive Officer will review the Participant's explanations and will then determine the achievement level for each Participant. (b) At the end of each calendar year, percentages will be computed and totaled for each Participant for each of the Measures of Performance in Exhibit II. Each Participant will receive an Award for the applicable calendar year equal to a percentage of his base salary as shown on Exhibit I. Threshold is defined as a composite twenty-five percentage level, Target as a composite fifty percentage level, and Maximum as a composite one hundred percentage level. The total amount of all awards made to Participants shall not exceed three and one-half percent (3.5%) of the Company's net after tax income for that year. (c) All Awards shall be reviewed, and must be approved, by the Compensation Committee and the Board. (d) Annual base salary adjustments, as appropriate, will continue to be made by the Company to individual employees predicated on merit, performance, cost-of-living and such other factors as the Company normally has considered without regard to Awards awarded under the Plan. (e) Awards shall be paid to each Participant in a single sum as promptly as practicable after the end of each calendar year. V. PARTICIPANT'S DEATH (a) In the event of the death of the Participant, any unpaid Award held for the Participant shall be paid as promptly as practicable in a single sum to the Participant's designated Beneficiary. (b) In the event the Participant has not designated a Beneficiary, or if no designated Beneficiary is living at the date of death of the Participant, the unpaid Award shall be paid as promptly as practicable in a single sum to the duly appointed executor or administrator of the Participant's estate. (c) For purposes of this Section, "Beneficiary" shall mean any individual, corporation, partnership, association, trust or unincorporated organization designated by a Participant in writing filed with the Company as the recipient of the Participant's Award in the event of the Participant's death prior to its payment. Such designation may be changed by the Participant at any time in writing filed with the Company without the consent of or notice to any Beneficiary previously designated. VI. CONTINUITY OF THE PLAN Although it is the present intention of the Company to continue the Plan in effect for an indefinite period of time, the Board reserves the right to terminate the Plan in its entirety as of the end of any calendar year or other fiscal year of the Company or to modify the Plan as it exists from time to time, provided that no such action shall adversely affect any Awards previously awarded under the Plan. VII. MISCELLANEOUS PROVISIONS (a) No Award payable under the Plan shall be subject in any manner to transfer, assignment, pledge, or hypothecation in any manner by operation of law or otherwise, other than by will or by the laws of descent and distribution nor be subject to execution, attachment or similar process. (b) Neither the Plan nor any action taken hereunder shall be construed as giving any Participant any right to be retained in the employ of the Company. (c) The Plan shall at all times be entirely unfunded and no provision shall at any time be made with respect to segregating assets of the Company for payment of any Awards hereunder. No Participant or any other person shall have any interest in any particular assets of the Company by reason of the right to receive an Award under the Plan and any such Participant or any other person shall have only the rights of a general unsecured creditor of the Company with respect to any rights under the Plan. (d) Except when otherwise required by the context, any masculine terminology in this document shall include the feminine, and any singular terminology shall include the plural. (e) This Plan shall be governed by the laws of the State of South Dakota. IN WITNESS WHEREOF, the Company has executed this revised Annual Performance Incentive Plan as of the 1st day of January, 1994. NORTHWESTERN PUBLIC SERVICE COMPANY By: /s/ M. D. Lewis ------------------------------------ M. D. Lewis President & CEO By: /s/ Bruce I. Smith ------------------------------------ Bruce I. Smith, Chairman Nominating and Compensation Committee EXHIBIT I January 1, 1994 Management Group Range of Award Opportunities (% of Base Salary) ---------------------------- Position Threshold Target Maximum - -------- --------- ------ ------ Group I: President & CEO 15% 20% 25% Group II: Other Executive Officers 10% 15% 20% Group III: Manager Level Employees 5% 10% 15% EXHIBIT II January 1, 1994 MEASURES OF PERFORMANCE Performance will be measured in the following three ways for purposes of determining awards under the Plan, with weightings placed on each as indicated. 1. Company performance vs. peer utilities* (50% weight) 2. Company performance vs. annual objectives (25% weight) 3. Individual performance vs. objectives (25% weight) * Peer Utility Companies Black Hills Corporation IES Industries, Inc. Interstate Power Company Madison Gas & Electric Company MDU Resources Group, Inc. Midwest Resources Minnesota Power Otter Tail Power Company St. Joseph Light & Power Company Southern Indiana Gas & Electric Company EX-10.G.7 5 PHANTOM STOCK UNIT PLAN EXHIBIT 10(g)(7) NORTHWESTERN PUBLIC SERVICE COMPANY PHANTOM STOCK UNIT PLAN 1. OBJECTIVES The objective of the Northwestern Public Service Company Phantom Stock Unit Plan (the "Plan") is to assist officers and directors ("Eligible Individuals") in building financial security through capital accumulation by providing them with deferred remuneration based upon the award of Phantom Stock Units, the value of which is related to the value of the common stock ("Common Stock") of Northwestern Public Service Company ("Company"). The Plan is also intended to: (1) create incentives to participating Eligible Individuals related to the long-term performance of the Common Stock, (2) encourage continued employment with, or service on the Board of Directors ("Board") of, the Company, and (3) promote awareness of the performance of the Common Stock. 2. ADMINISTRATION The Plan shall be administered by the Company. Subject to the provisions of the Plan, the Board shall have exclusive power to select the Eligible Individuals to be granted Phantom Stock Units, to determine the number of Phantom Stock Units to be granted as described in Section 3, to determine the time or times when Phantom Stock Units will be granted and to determine such terms and conditions, in addition to the terms and conditions set forth in the Plan, that shall apply to the grant of Phantom Stock Units. The authority granted to the Board by the preceding sentence will be exercised based upon annual recommendations received from the Nominating and Compensation Committee ("Committee") of the Board. In determining the number of Phantom Stock Units to be granted to an Eligible Individual, the Board shall consider an Eligible Individual's position and responsibilities, the nature and value to the Company of an Eligible Individual's services, an Eligible Individual's present and potential contribution to the Company's success, and the Company's financial performance. Determinations by the Board shall be made by majority vote and shall be final and binding on all parties with respect to all matters relating to the Plan. The Committee shall have authority to interpret the Plan, to adopt and revise rules and regulations relating to the Plan, and to make any other determinations which it believes necessary or advisable for the administration of the Plan. 3. GRANTS Eligible Individuals to whom Phantom Stock Units are granted shall hereafter be referred to as "Participants." Phantom Stock Units shall be granted at the meeting of the Board in May, 1989, and at the May meeting each year thereafter, to and including May, 1999, to Participants who are Executive Officers of the Company in such amounts as the Board shall determine based on the recommendations of the Committee. The Committee shall recommend awards, in amounts based upon the criteria set forth in paragraph 2 above, up to a maximum of 25% of base salary for the Chairman of the Board and the President and Chief Executive Officer and up to a maximum of 15% of base salary for the other Executive Officer Participants. The award shall be made in Phantom Stock units at the closing price of the Company's Common Stock on the date of the award. Annual awards of 200 units shall be made to each of the Director Participants who are not Executive Officers of the Company. 4. PHANTOM STOCK UNITS AND DIVIDEND EQUIVALENTS (a) Phantom Stock Units granted to a Participant shall be credited to a Phantom Stock Unit Account ("Account") established and maintained for such Participant on the books of the Company. The Account of a Participant, which shall be the record of Phantom Stock Units granted to him under the Plan, and dividend equivalents related thereto, is solely for accounting purposes and shall not require a segregation of any Company assets. Each grant of Phantom Stock Units under the Plan to a Participant shall be communicated by the Board in writing to the Participant within thirty (30) days after the date of grant. (b) Additional credits will be made to each Participant's Account in amounts equal to the dividends the Participant would have received from time to time had he been the owner on the record dates with respect thereto of the number of shares of Common Stock equal to the number of Phantom Stock Units in his Account on such dates. Such dividend credit amounts shall be converted to Phantom Stock Units at the closing price of the Common Stock on the New York Stock Exchange on the date that dividends are paid. 5. VESTING (a) A Participant shall have a nonforfeitable right to the Phantom Stock Units granted in a given year and dividend equivalents thereon on the date five years following the date that such Phantom Stock Units were granted (the "Fifth Anniversary Date"). (b) Notwithstanding the provisions of paragraph (a) next above, a Participant shall have a nonforfeitable right to one hundred percent (100%) of the Phantom Stock Units and other amounts credited to his Account upon the Participant's termination of employment with the Company due to death, permanent disability or retirement on or after the age of sixty-five (65) years. (c) For purposes of this Section 5 a Participant will be considered to terminate employment by reason of "permanent disability" if, in the determination of the Board, he is subject to a physical or mental condition which is expected to render the Participant unable to perform his usual duties or any comparable duties for the Company. 6. PAYMENT FOR PHANTOM STOCK UNITS (a) Upon a Fifth Anniversary Date the Participant shall be entitled to receive from the Company an amount equal to the sum of (1) the total value (as determined by the Board pursuant to Section 7) of the Phantom Stock Units credited to his Account that vest on such Date and (2) related reinvested dividend equivalents credited to his Account pursuant to Section 4 as of such Date. Upon the date the Participant vests in 100% of the Phantom Stock Units and related amounts credited to his Account pursuant to Section 5(b) (the "Automatic Vesting Date"), the Participant shall be entitled to receive from the Company an amount equal to the sum of (1) the total value (as determined by the Board pursuant to Section 7) of the Phantom Stock Units credited to the Participant's Account as of the Automatic Vesting Date, and (2) the value of dividend equivalents thereon credited to his Account pursuant to Section 4, as of the Automatic Vesting Date. (b) Payment to a Participant of any amount set forth in paragraph (a) next above shall be made in cash in a lump sum within thirty (30) days after the applicable Fifth Anniversary Date or the Automatic Vesting Date. (c) Notwithstanding any other provision of the Plan, all Phantom Stock Units and other amounts credited to the Account of a Participant, and all right to any payment hereunder to the Participant, will be forfeited, and the Company will have no further obligation hereunder to such Participant, if any of the following circumstances occur: (i) The Participant at any time is discharged from employment with the Company for cause ("Cause"). "Cause" shall mean (A) a Participant's conviction of any criminal violation involving dishonesty, fraud, or breach of trust, or (B) a Participant's willful engagement in any misconduct in the performance of his duty that materially injures the Company, or (C) failure to adequately perform his duties; or (ii) The Participant at any time prior to the Fifth Anniversary Date or the Automatic Vesting Date voluntarily terminates employment with the Company. The Board shall have sole discretion with respect to the application of the provisions of this paragraph (c) and such exercise of discretion shall be conclusive and binding upon the Participant, and all other persons. 7. VALUATION OF PHANTOM STOCK UNITS For all purposes of the Plan other than for the purposes of Section 4(b), the value of a Phantom Stock Unit upon a Fifth Anniversary Date or the Automatic Vesting Date for purposes of Section 6 will be an amount equal to the average of the closing prices of the Common Stock on the Composite Tape of the New York Stock Exchange for the ten (10) consecutive trading days immediately preceding such Date; or 8. CHANGES IN CAPITAL AND CORPORATE STRUCTURE In the event of any change in the outstanding shares of Common Stock of the Company by reason of an issuance of additional shares, recapitalization, reclassification, reorganization, stock split, reverse stock split, combination of shares, stock dividend or similar transaction, the Board shall proportionately adjust, in an equitable manner, the number of Phantom Stock Units held by Participants under the Plan. The foregoing adjustment shall be made in a manner that will cause the relationship between the aggregate appreciation in outstanding Common Stock and earnings per share of the Company and the increase in value of each Phantom Stock Unit granted hereunder to remain unchanged as a result of the applicable transaction. 9. NON-TRANSFERABILITY Phantom Stock Units granted under the Plan, and other amounts credited to a Participant's Account, and any rights and privileges pertaining thereto, may not be transferred, assigned, pledged or hypothecated in any manner, by operation of law or otherwise, other than by will or by the laws of descent and distribution, and shall not be subject to execution, attachment or similar process. 10. DEATH OF A PARTICIPANT In the event of a Participant's death, payment of any amount due under the Plan shall be made to the Participant's designated Beneficiary. In the event the Participant has not designated a Beneficiary, or if no designated Beneficiary is living at the date of death of the Participant, payment of any amount due under the Plan shall be paid as promptly as practicable to the duly appointed and qualified executor or administrator of the Participant's estate. "Beneficiary" shall mean the individual, corporation, partnership, association, trust or unincorporated organization designated by a Participant in writing filed with the Company as the recipient of any payment to be made to a Participant hereunder in the event of the Participant's death prior to payment. Such designation may be changed by a Participant at any time by writing filed with the Company without the consent of or notice to any Beneficiary previously designated. 11. WITHHOLDING The Company shall have the right to deduct from all amounts paid pursuant to the Plan any taxes required by law to be withheld with respect to such amounts. 12. VOTING AND DIVIDEND RIGHTS Except as provided in Sections 4, 6, and 8, no Participant shall be entitled to any voting rights or to receive any dividends or other distributions with respect to the Common Stock of the Company as a result of his participation in the Plan. 13. MISCELLANEOUS PROVISIONS (a) No Participant or other person shall have any claim or right to be granted an award under the Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any Participant any right to be retained in the employ of the Company or to continue to serve as a member of the Board. (b) The Plan shall at all times be entirely unfunded and no provisions shall at any time be made with respect to segregating assets of the Company for payment of any benefits hereunder. No Participant or other person shall have any interest in any particular assets of the Company by reason of the right to receive a benefit under the Plan and any such Participant or other person shall have only the rights of a general unsecured creditor of the Company with respect to any rights under the Plan. (c) Except when otherwise required by the context, any masculine terminology in this document shall include the feminine, and any singular terminology shall include the plural. (d) This Plan shall be governed by the laws of the State of South Dakota. 14. EFFECTIVENESS AND TERM OF PLAN The effective date of the Plan shall be May 3, 1989, and the Plan shall terminate with awards made in May, 1999. No Phantom Stock Units shall be granted pursuant to the Plan after the date of termination of the Plan, although after such date payments shall be made with respect to Phantom Stock Units granted prior to the date of termination. IN WITNESS WHEREOF, the Company has executed this Plan as of the 2nd day of February, 1994. NORTHWESTERN PUBLIC SERVICE COMPANY By /s/ M. D. Lewis ------------------------------------ M. D. Lewis President & CEO By /s/ Bruce I. Smith ------------------------------------ Bruce I. Smith, Chairman Nominating and Compensation Committee -----END PRIVACY-ENHANCED MESSAGE-----