SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-368
OTTER TAIL POWER COMPANY
(Exact name of registrant as specified in its charter)
Minnesota 41-0462685
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
215 South Cascade Street, Box 496, Fergus Falls, Minnesota 56538-0496
(Address of principal executive offices) (Zip Code)
218-739-8200
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date:
November 1, 1995 - 11,180,136 Common Shares ($5 par value)
OTTER TAIL POWER COMPANY
INDEX
Part I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1995
and December 31, 1994 (Unaudited) 2 & 3
Consolidated Statements of Income - Three and Nine
Months Ended September 30, 1995 and 1994
(Unaudited) 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30,1995 and 1994
(Unaudited) 5
Notes to Consolidated Financial Statements
(Unaudited) 6 & 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7, 8 & 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements
OTTER TAIL POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
-ASSETS-
September 30, December 31,
1995 1994
(Thousands of Dollars)
PLANT:
<S> <C> <C>
Electric Plant in Service $707,394 $698,437
Other 46,948 36,221
_________ _________
Total 754,342 734,658
Less Accumulated Depreciation and Amortization 303,580 287,902
_________ _________
450,762 446,756
Construction Work in Progress 18,814 10,485
_________ _________
Net Plant 469,576 457,241
_________ _________
INVESTMENTS AND OTHER ASSETS: 58,024 43,944
_________ _________
CURRENT ASSETS:
Cash and Cash Equivalents 1,048 1,852
Temporary Cash Investments 353 391
Accounts Receivable:
Trade - Net 29,251 27,004
Other 4,098 5,172
Materials and Supplies:
Fuel 3,357 3,664
Inventory, Materials and Operating Supplies 17,260 15,794
Deferred Income Taxes 4,239 4,306
Accrued Utility Revenues 3,430 4,154
Other 4,256 3,041
_________ _________
Total Current Assets 67,292 65,378
_________ _________
DEFERRED DEBITS:
Unamortized Debt Expense and Reacquisition Premiums 4,804 5,174
Other 6,140 7,235
_________ _________
Total Deferred Debits 10,944 12,409
_________ _________
TOTAL $605,836 $578,972
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
- 2 -
<TABLE>
OTTER TAIL POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
-LIABILITIES-
September 30, December 31,
1995 1994
(Thousands of Dollars)
CAPITALIZATION:
Common Shares, Par Value $5 Per Share - Authorized
<S> <C> <C>
25,000,000 Shares; Outstanding 1995 and 1994,
11,180,136 Shares $55,901 $55,901
Premium on Common Shares 30,335 30,335
Retained Earnings 95,898 90,412
_________ _________
Total 182,134 176,648
Cumulative Preferred Shares - Authorized 1,500,000
Shares Without Par Value; Outstanding 1995
and 1994, 388,311 Shares:
Subject to Mandatory Redemption 18,000 18,000
Other 20,831 20,831
Cumulative Preference Shares - Authorized 1,000,000
Shares Without Par Value; Outstanding - None -- --
Long-Term Debt 166,352 162,196
_________ _________
Total Capitalization 387,317 377,675
_________ _________
CURRENT LIABILITIES:
Short-Term Debt 14,000 2,900
Sinking Fund Requirements and Current Maturities 13,970 8,739
Accounts Payable 20,452 22,542
Accrued Salaries and Wages 2,621 3,889
Federal and State Income Taxes Accrued 1,156 2,095
Other Taxes Accrued 10,821 11,712
Interest Accrued 1,875 3,524
Other 6,116 2,480
_________ _________
Total Current Liabilities 71,011 57,881
_________ _________
NONCURRENT LIABILITIES: 11,073 8,245
_________ _________
DEFERRED CREDITS:
Accumulated Deferred Income Taxes 97,921 94,911
Accumulated Deferred Investment Tax Credit 21,290 22,171
Regulatory Liability 14,763 15,197
Other 2,461 2,892
_________ _________
Total Deferred Credits 136,435 135,171
_________ _________
TOTAL $605,836 $578,972
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
-3-
<TABLE>
OTTER TAIL POWER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
(Thousands of Dollars) (Thousands of Dollars)
OPERATING REVENUES
<S> <C> <C> <C> <C>
Electric $49,537 $45,713 $153,169 $147,483
Health Services 9,901 12,724 34,784 34,665
Manufacturing 10,040 3,708 25,915 9,501
Diversified Operations 11,570 8,997 24,950 21,846
_________ _________ _________ _________
Total Operating Revenues 81,048 71,142 238,818 213,495
OPERATING EXPENSES
Production Fuel 7,090 7,417 24,072 24,056
Purchased Power 7,822 6,504 23,326 20,621
Electric Operation Expenses 12,013 11,153 36,359 33,847
Electric Maintenance 2,531 3,843 8,314 10,800
Cost of Goods Sold 20,049 17,411 53,321 42,676
Other Nonelectric Expenses 7,998 4,432 22,688 15,473
Depreciation and Amortization 5,472 5,314 16,344 15,861
Property Taxes 2,924 2,921 8,936 8,858
Income Taxes 4,127 3,204 13,266 11,746
_________ _________ _________ _________
Total Operating Expenses 70,026 62,199 206,626 183,938
_________ _________ _________ _________
OPERATING INCOME 11,022 8,943 32,192 29,557
Allowance For Equity (Other) Funds Used
During Construction 119 49 125 116
Other Income and Deductions
and Applicable Taxes (116) 382 57 1,085
_________ _________ _________ _________
INCOME BEFORE INTEREST CHARGES 11,025 9,374 32,374 30,758
Interest Charges 3,875 3,491 11,277 10,150
Allowance For Borrowed Funds Used
During Construction - Credit 3 (22) (94) (50)
_________ _________ _________ _________
NET INCOME 7,147 5,905 21,191 20,658
Preferred Dividend Requirements 590 590 1,769 1,769
_________ _________ _________ _________
EARNINGS AVAILABLE FOR COMMON SHARES $6,557 $5,315 $19,422 $18,889
========= ========= ========= =========
Earnings Per Average Common Share $0.59 $0.48 $1.74 $1.69
========= ========= ========= =========
Average Number of Common Shares Outstanding 11,180,136 11,180,136 11,180,136 11,180,136
Dividends Per Common Share $0.44 $0.43 $1.32 $1.29
See Accompanying Notes to Consolidated Financial Statements
-4-
</TABLE>
<TABLE>
OTTER TAIL POWER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1995 1994
(Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $21,191 $20,658
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 21,221 18,937
Deferred Investment Tax Credit - Net (882) (924)
Deferred Income Taxes 713 1,390
Change in Deferred Debits and Other Assets 1,446 1,144
Change in Noncurrent Liabilities and Deferred Credits 2,397 1,425
Allowance for Equity (Other) Funds Used During Construction (125) (116)
Loss on Disposal of Noncurrent Assets 1,149 91
Cash Provided by (Used for) Current Assets & Current Liabilities:
Change in Receivables, Materials and Supplies 1,815 (4,286)
Change in Other Current Assets (427) 71
Change in Payables and Other Current Liabilities (3,893) 75
Change in Interest and Income Taxes Payable (2,677) (925)
________ ________
Net Cash Provided by Operating Activities 41,928 37,540
CASH FLOWS FROM INVESTING ACTIVITIES:
Gross Capital Expenditures (28,837) (24,589)
Proceeds from Disposal of Noncurrent Assets 2,169 2,220
Purchase of Subsidiaries, Net of Cash Acquired (1,634) (574)
Change in Temporary Cash Investments 38 (224)
Change in Marketable Securities and Other Investments (8,455) (1,132)
________ ________
Net Cash Used in Investing Activities (36,719) (24,299)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in Short-Term Debt - Net 11,100 4,100
Proceeds from Issuance of Long-Term Debt 37,970 5,710
Payments for Retirement of Long-Term Debt (38,556) (8,349)
Payments for Debt Issuance Expenses -- (56)
Dividends Paid (16,527) (16,191)
________ ________
Net Cash Used in Financing Activities (6,013) (14,786)
Net Change in Cash and Cash Equivalents (804) (1,545)
Cash and Cash Equivalents at Beginning of Year 1,852 3,808
________ ________
Cash and Cash Equivalents at September 30 $1,048 $2,263
======== ========
Supplemental Cash Flow Information
Cash Paid for Interest and Income Taxes:
Interest $11,952 $11,418
Income Taxes $14,066 $10,633
See Accompanying Notes to Consolidated Financial Statements
- 5 -
</TABLE>
OTTER TAIL POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company, in its opinion, has included all adjustments (including normal
recurring accruals) necessary for a fair presentation of the results of
operations for the periods. The financial statements for 1995 are subject
to adjustment at the end of the year when they will be audited by
independent accountants. The financial statements and notes thereto should
be read in conjunction with the financial statements and notes for the years
ended December 31, 1994, 1993, and 1992 included in the Company's 1994
Annual Report to the Securities and Exchange Commission on Form 10-K.
In January 1995 the Company acquired an additional manufacturing business
and three small diagnostic imaging companies. The total revenues of these
companies were $17,122,000 in 1994. These acquisitions were accounted for
under the purchase method of accounting. On October 1, 1995 the company
acquired another manufacturing business which had revenues of $23,378,000
for its fiscal year ended February 28, 1995. This acquisition will be
accounted for under the purchase method of accounting.
One of the Company's largest industrial customers has set a goal of reducing
its electric energy costs by up to 25% through self-generation of
electricity or by changing consumption patterns and implementing more
efficient processes requiring less energy. The Company has been working
with the customer toward the latter option. Though no financial impact to
the Company is expected in 1995, the collaborative efforts of the customer
and the Company may result in decreased electric sales to this customer in
excess of $1 million in 1996.
Quadrant Company's waste incineration contracts expire in September of 1996.
In June of 1997, new pollution rules will be in effect which will require
new operating permits and possible modifications to current plant operations
and equipment. The costs to comply with the new pollution rules will have
an impact on the negotiation of new waste incineration agreements and could
affect the economic viability of the plant.
In September of 1995, the Company recorded a $3.5 million passive investment
in the form of a delayed equity contribution to a limited liability company.
The $3.5 million obligation related to the investment is reflected in Other
Current Liabilities on the Company's balance sheet as of September 30, 1995.
The objective of this investment is not only to generate investment income
but also to promote economic development and increased electric sales in the
Company's service territory.
The breakdown of Cost of Goods Sold and Other Nonelectric Expenses by
business segments is as follows:
Three Months Ended September 30
Cost of Goods Sold Other Nonelectric Expenses
1995 1994 1995 1994
(in thousands)
Health Services $5,749 $9,595 $3,965 $2,128
Manufacturing 7,407 2,627 1,546 297
Diversified Operations 6,893 5,189 2,487 2,007
-------- -------- ------- -------
Total $20,049 $17,411 $7,998 $4,432
Nine Months Ended September 30
Cost of Goods Sold Other Nonelectric Expenses
1995 1994 1995 1994
(in thousands)
Health Services $20,427 $23,496 $12,085 $8,753
Manufacturing 19,526 6,728 3,681 832
Diversified Operations 13,368 12,452 6,922 5,888
-------- ------- ------- -------
Total $53,321 $42,676 $22,688 $15,473
Because of seasonal and other factors, the earnings for the three-month and
nine-month periods ended September 30, 1995, should not be taken as an
indication of earnings for all or any part of the balance of the year.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Material Changes in Financial Position
Cash provided by operating activities of $41,928,000 as shown on the
Consolidated Statement of Cash Flows for the nine months ended September 30,
1995, combined with funds on hand of $2,243,000 at December 31, 1994,
allowed the Company to pay dividends, invest in additional nonutility
businesses and passive investments, and finance the majority of its
construction expenditures. At September 30, 1995, the Company had
$27,175,000 available in unused lines of credit and $15,541,000 in
marketable securities included in Investments and Other Assets which will be
sold in the fourth quarter of 1995 to supplement cash needs. Proceeds from
Issuance of Long-Term Debt and Payments for Retirement of Long-Term Debt for
the nine months ended September 30, 1995, reflect refinancing activity by
the Company's subsidiaries.
The Company estimates that funds internally generated, combined with funds
on hand, will be sufficient to meet all sinking fund payments for First
Mortgage Bonds in the next five years and to provide for the majority of its
1995-1999 construction program expenditures. Additional short- or long-term
financing will be required in the period 1995-1999 in connection with the
Company's construction program, maturity of First Mortgage Bonds and a
Long-Term Lease Obligation ($21,000,000), in the event the Company decides
to refund or retire early any of its presently outstanding debt or
cumulative preferred shares, complete its common stock repurchase program or
for other corporate purposes.
The bulk of the increases in Plant - Other, Accounts Receivable - Trade,
Inventory, Materials and Operating Supplies, Long-Term Debt, and Sinking
Fund Requirements and Current Maturities are due to the acquisitions of an
additional manufacturing company and three small diagnostic imaging
companies in the first quarter of fiscal 1995. Investments and Other Assets
increased as a result of investments held by the businesses acquired in the
first quarter and further passive investments.
The decrease in Accounts Receivable - Other is the result of the timing of
operating payments from the Big Stone Plant Partners. The increase in
Construction Work in Progress is due to new electric construction
principally in transmission, distribution, and general plant. The increase
in Other Current Assets reflects an increase in prepaid insurance resulting
from the timing of premium payments at one of the Company's health services
subsidiaries. The decrease in Other Deferred Debits is mainly due to the
amortization of previously deferred and currently recoverable Conservation
Improvement Program costs.
The increase in Short-Term Debt reflects the issuance of notes and
commercial paper to provide for current cash requirements. The decrease in
Accrued Salaries and Wages reflects the payment in 1995 of an employee
incentive plan liability accrued as of December 31, 1994. The decrease in
Federal and State Income Taxes Accrued was due to the timing of tax
payments. The reduction in Interest Accrued resulted from interest payments
on the Company's outstanding bonds, the majority of which are due in the
first and third quarters. The increase in Other Current Liabilities
reflects the recording of a $3.5 million obligation referred to in the Notes
to Consolidated Financial Statements.
Material Changes in Results of Operations
The 8.4% increase in Electric Operating Revenues for the quarter ended
September 30, 1995, as compared to the same period in 1994, was due to
increases in retail revenues of 6.4%, noncontractual power pool sales of
20.3% and contractual and wholesale power pool sales of 43%. The 3.9%
increase in Electric Operating Revenues for the nine months ended September
30, 1995 compared to the nine months ended September 30, 1994, was due to a
2.1% increase in retail revenues and a 29.1% increase in noncontractual
power pool sales. Noncontractual power pool sales increased for the quarter
as a result of greater sales opportunities due to warmer weather in the
summer of 1995 compared to 1994. Noncontractual power pool sales for the
nine months ended September 30, 1995, compared to the same period in 1994,
were higher due to the warmer summer weather and because the Company had
more energy to market due to a warmer winter season and greater plant
availability in 1995. In July of 1995, the Company entered into a firm
sales contract to sell 40 megawatts of power to a wholesale customer which
resulted in an increase in contractual and wholesale power pool sales for
the three months ended September 30, 1995, compared to the same period in
1994.
The increase in Purchased Power for the three and nine month periods ended
September 30, 1995, as compared to the same periods in 1994, was due to
increased kwh purchases for both system use and resale, which correlates to
the increases in retail and noncontractual power pool sales. The increase
in Electric Operation Expenses for both the quarter and nine months ended
September 30, 1995, as compared to the same periods in 1994, was primarily
due to a settlement with the Minnesota Public Utilities Commission. The
settlement required recovery of Conservation Improvement Program costs in
current rates starting in 1995. General wage and salary increases for
nonunion employees in April of 1995 and storm related expenses in the summer
of 1995 also contributed to the increases in Electric Operation Expenses.
The decreases in Electric Maintenance Expenses for the three and nine months
ended September, 30, 1995, compared to the same periods in 1994, were
primarily due to significant reductions in production plant maintenance
expenses. Most of the reductions in the third quarter were attributable to
Hoot Lake Plant Unit #2 which was out of service for major repairs through
all of July and most of August of 1994. Coyote plant, which had a major
overhaul in the Spring of 1994 but no major overhaul or repairs during 1995,
contributed significantly to the reduction in Electric Maintenance Expenses
in the first nine months of 1995 compared to the same period in 1994.
Health Services Operating Revenues decreased in the third quarter of 1995
compared to the third quarter of 1994 as a result of the timing of
production and delivery of product from the supplier. Increases in Other
Health Services Expenses for the three and nine months ended September 30,
1995, compared to the same periods in 1994, were due to the acquisition of
three additional diagnostic imaging companies and increased sales efforts in
1995. The decrease in Cost of Health Services Sold for the third quarter of
1995, compared to the third quarter of 1994, corresponds to the decrease in
Health Services Operating Revenues for the same comparative period.
The increase in Manufacturing Operating Revenues for the three and nine
month periods ended September 30, 1995, as compared to the same periods in
1994, resulted mainly from the acquisition of a new company in January of
1995, as well as continued expansion of existing product lines. The
increases in Manufacturing Cost of Goods Sold and Other Manufacturing
Expenses for the same comparative periods were directly related to the
acquisition and expanded product lines.
The increase in revenues from Diversified Operations for the three and nine
months ended September 30, 1995, compared to the same periods in 1994, was
the result of increased construction revenues in the summer of 1995 which
was primarily reflective of increased material costs billed on larger
projects. Increases in Costs of Goods Sold and Other Nonelectric Expenses
from Diversified Operations for the quarter and nine months ended September
30, 1995, compared to the same periods in 1994, were directly related to
increased construction revenues for the same comparative periods.
The increase in Income Taxes for the quarter and nine months ended September
30, 1995 compared to same periods in 1994, was related primarily to
increases in Operating Income before Income Taxes for the same comparative
periods.
The decrease in Other Income and Deductions and Applicable Taxes for the
three and nine months ended September 30, 1995, as compared to the same
periods in 1994, primarily resulted from losses on investments in marketable
securities related to the Company's preferred stock investment program.<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits:
27 Financial Data Schedule
b) Report on Form 8-K.
No reports on Form 8-K were filed during the fiscal quarter ended
September 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OTTER TAIL POWER COMPANY
By: Jeff Legge
Jeff Legge
Controller
(Chief Accounting Officer/Authorized Officer)
Dated: November 13, 1995
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of September 30, 1995, and the Consolidated
Statement of Income for the nine months ended September 30, 1995, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 437,583
<OTHER-PROPERTY-AND-INVEST> 90,017
<TOTAL-CURRENT-ASSETS> 67,292
<TOTAL-DEFERRED-CHARGES> 10,944
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 605,836
<COMMON> 55,901
<CAPITAL-SURPLUS-PAID-IN> 30,335
<RETAINED-EARNINGS> 95,898
<TOTAL-COMMON-STOCKHOLDERS-EQ> 182,134
18,000
20,831
<LONG-TERM-DEBT-NET> 166,352
<SHORT-TERM-NOTES> 5,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 9,000
<LONG-TERM-DEBT-CURRENT-PORT> 13,970
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 190,549
<TOT-CAPITALIZATION-AND-LIAB> 605,836
<GROSS-OPERATING-REVENUE> 238,818
<INCOME-TAX-EXPENSE> 13,266
<OTHER-OPERATING-EXPENSES> 193,360
<TOTAL-OPERATING-EXPENSES> 206,626
<OPERATING-INCOME-LOSS> 32,192
<OTHER-INCOME-NET> 182
<INCOME-BEFORE-INTEREST-EXPEN> 32,374
<TOTAL-INTEREST-EXPENSE> 11,183
<NET-INCOME> 21,191
1,769
<EARNINGS-AVAILABLE-FOR-COMM> 19,422
<COMMON-STOCK-DIVIDENDS> 14,758
<TOTAL-INTEREST-ON-BONDS> 10,820
<CASH-FLOW-OPERATIONS> 41,928
<EPS-PRIMARY> 1.74
<EPS-DILUTED> 1.74
</TABLE>
