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 June 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:
August 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 - June 30, 1995
and December 31, 1994 (Unaudited) 2 & 3
Consolidated Statements of Income - Three and Six
Months Ended June 30, 1995 and 1994 (Unaudited) 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1995 and 1994 (Unaudited) 5
Notes to Consolidated Financial Statements
(Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 & 8
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security
Holders 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements
OTTER TAIL POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
-ASSETS-
June 30, December 31,
1995 1994
(Thousands of Dollars)
PLANT:
<S> <C> <C>
Electric Plant in Service $703,538 $698,437
Other 44,997 36,221
_________ _________
Total 748,535 734,658
Less Accumulated Depreciation and Amortization 299,473 287,902
_________ _________
449,062 446,756
Construction Work in Progress 16,266 10,485
_________ _________
Net Plant 465,328 457,241
_________ _________
INVESTMENTS AND OTHER ASSETS: 48,307 43,944
_________ _________
CURRENT ASSETS:
Cash and Cash Equivalents 1,133 1,852
Temporary Cash Investments 357 391
Accounts Receivable:
Trade - Net 28,858 27,004
Other 3,704 5,172
Materials and Supplies:
Fuel 2,741 3,664
Inventory, Materials and Operating Supplies 18,494 15,794
Deferred Income Taxes 4,260 4,306
Accrued Utility Revenues 3,566 4,154
Other 4,282 3,041
_________ _________
Total Current Assets 67,395 65,378
_________ _________
DEFERRED DEBITS:
Unamortized Debt Expense and Reacquisition Premiums 4,923 5,174
Other 5,646 7,235
_________ _________
Total Deferred Debits 10,569 12,409
_________ _________
TOTAL $591,599 $578,972
========= =========
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
<CAPTION>
OTTER TAIL POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
-LIABILITIES-
June 30, December 31,
1995 1994
(Thousands of Dollars)
CAPITALIZATION:
Common Shares, Par Value $5 Per Share - Authorized
25,000,000 Shares; Outstanding 1995 and 1994,
<S> <C> <C>
11,180,136 Shares $55,901 $55,901
Premium on Common Shares 30,335 30,335
Retained Earnings 94,054 90,412
_________ _________
Total 180,290 176,648
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 167,656 162,196
_________ _________
Total Capitalization 386,777 377,675
_________ _________
CURRENT LIABILITIES:
Short-Term Debt 7,150 2,900
Sinking Fund Requirements and Current Maturities 13,466 8,739
Accounts Payable 18,632 22,542
Federal and State Income Taxes Accrued 1,054 2,095
Other Taxes Accrued 8,937 11,712
Interest Accrued 3,501 3,524
Other 5,126 6,369
_________ _________
Total Current Liabilities 57,866 57,881
_________ _________
NONCURRENT LIABILITIES: 10,679 8,245
_________ _________
DEFERRED CREDITS:
Accumulated Deferred Income Taxes 96,981 94,911
Accumulated Deferred Investment Tax Credit 21,584 22,171
Regulatory Liability 14,908 15,197
Other 2,804 2,892
_________ _________
Total Deferred Credits 136,277 135,171
_________ _________
TOTAL $591,599 $578,972
========= =========
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
<CAPTION>
OTTER TAIL POWER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
(Thousands of Dollars) (Thousands of Dollars)
OPERATING REVENUES
<S> <C> <C> <C> <C>
Electric $47,906 $46,881 $103,632 $101,770
Health Services 9,775 11,021 24,883 21,941
Manufacturing 8,065 3,400 15,875 5,793
Diversified Operations 8,061 7,615 13,380 12,849
_________ _________ _________ _________
Total Operating Revenues 73,807 68,917 157,770 142,353
OPERATING EXPENSES
Production Fuel 7,770 7,981 16,982 16,639
Purchased Power 7,724 7,404 15,504 14,117
Electric Operation Expenses 12,039 10,991 24,346 22,694
Electric Maintenance 2,829 3,920 5,783 6,957
Cost of Goods Sold 15,712 13,638 33,272 25,265
Other Nonelectric Expenses 7,239 5,659 14,690 11,041
Depreciation and Amortization 5,451 5,314 10,872 10,547
Property Taxes 2,956 2,955 6,012 5,937
Income Taxes 3,515 2,788 9,139 8,542
_________ _________ _________ _________
Total Operating Expenses 65,235 60,650 136,600 121,739
_________ _________ _________ _________
OPERATING INCOME 8,572 8,267 21,170 20,614
Allowance For Equity (Other) Funds Used
During Construction 4 36 6 67
Other Income and Deductions
and Applicable Taxes 374 391 173 703
_________ _________ _________ _________
INCOME BEFORE INTEREST CHARGES 8,950 8,694 21,349 21,384
Interest Charges 3,668 3,311 7,402 6,659
Allowance For Borrowed Funds Used
During Construction - Credit (55) (14) (97) (28)
_________ _________ _________ _________
NET INCOME 5,337 5,397 14,044 14,753
Preferred Dividend Requirements 590 589 1,179 1,179
_________ _________ _________ _________
EARNINGS AVAILABLE FOR COMMON SHARES $4,747 $4,808 $12,865 $13,574
========= ========= ========= =========
Earnings Per Average Common Share $0.42 $0.43 $1.15 $1.21
========= ========= ========= =========
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 $0.88 $0.86
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
<CAPTION>
OTTER TAIL POWER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
1995 1994
________ ________
(Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $14,044 $14,753
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 14,098 12,603
Deferred Investment Tax Credit - Net (588) (616)
Deferred Income Taxes 534 1,187
Change in Deferred Debits and Other Assets 2,566 1,117
Change in Noncurrent Liabilities and Deferred Credits 2,346 785
Allowance for Equity (Other) Funds Used During Construction (6) (67)
Loss on Disposal of Noncurrent Assets 795 68
Cash Provided by (Used for) Current Assets & Current Liabilities:
Change in Receivables, Materials and Supplies 2,259 (5,004)
Change in Other Current Assets (598) 990
Change in Payables and Other Current Liabilities (7,676) (4,034)
Change in Interest and Income Taxes Payable (1,153) 1,804
________ ________
Net Cash Provided by Operating Activities 26,621 23,586
CASH FLOWS FROM INVESTING ACTIVITIES:
Gross Capital Expenditures (17,708) (16,169)
Proceeds from Disposal of Noncurrent Assets 1,635 1,579
Purchase of Subsidiaries, Net of Cash Acquired (1,634) (574)
Change in Temporary Cash Investments 34 122
Change in Marketable Securities and Other Investments (3,121) (618)
________ ________
Net Cash Used in Investing Activities (20,794) (15,660)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in Short-Term Debt - Net Issuances 4,250 800
Proceeds from Issuance of Long-Term Debt 23,380 2,917
Payments for Retirement of Long-Term Debt (23,158) (3,072)
Payments for Debt Issuance Expenses -- (56)
Dividends Paid (11,018) (10,794)
________ ________
Net Cash Used in Financing Activities (6,546) (10,205)
Net Change in Cash and Cash Equivalents (719) (2,279)
Cash and Cash Equivalents at Beginning of Year 1,852 3,808
________ ________
Cash and Cash Equivalents at June 30 $1,133 $1,529
======== ========
Supplemental Cash Flow Information
Cash Paid for Interest and Income Taxes:
Interest $6,486 $6,458
Income Taxes $9,590 $6,630
See Accompanying Notes to Consolidated Financial Statements
</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.
In June of 1995, the original ten-year terms of the steam sales contracts
between the Company's subsidiary, Quadrant Co., and Quadrant's two
industrial steam customers expired. The contracts provide that they shall
continue to remain in effect until terminated by either party upon one
year's prior written notice. As of August 1, 1995, none of the parties had
provided notice of termination. Quadrant is in the process of negotiating
new steam sales contracts with these two customers while continuing to sell
steam under terms of the original contracts
The breakdown of Cost of Goods Sold and Other Nonelectric Expenses by
business segments are as follows:
Three Months Ended June 30
Cost of Goods Sold Other Nonelectric Expenses
1995 1994 1995 1994
(in thousands)
Health Services $5,399 $7,077 $3,833 $3,401
Manufacturing 5,894 2,315 1,125 280
Diversified Operations 4,419 4,246 2,281 1,978
-------- -------- ------- -------
Total $15,712 $13,638 $7,239 $5,659
======== ======== ======= ======
Six Months Ended June 30
Cost of Goods Sold Other Nonelectric Expenses
1995 1994 1995 1994
(in thousands)
Health Services $14,678 $13,901 $8,120 $6,625
Manufacturing 12,119 4,101 2,135 535
Diversified Operations 6,475 7,263 4,435 3,881
-------- -------- ------- -------
Total $33,272 $25,265 $14,690 $11,041
======== ======== ======= =======
Because of seasonal and other factors, the earnings for the three-month and
six-month periods ended June 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 $26,621,000 as shown on the
Consolidated Statement of Cash Flows for the six months ended June 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 June 30, 1995, the Company had $36,140,000 available in
unused lines of credit and $17,742,000 in marketable securities included in
Investments and Other Assets which could be used to supplement cash needs.
Proceeds from Issuance of Long-Term Debt and Payments for Retirement of
Long-Term Debt for the six months ended June 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 most of its
1995-1999 construction program expenditures (including allowance for funds
used during construction). Additional short- or long-term financing will be
required in the period 1995-1999 in connection with the 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, Investments and Other Assets,
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. In
addition, Investments and Other Assets also increased because of further
passive investments. The decrease in Accounts Receivable - Other is the
result of the timing of operating payments from the Big Stone Plant
Partners. Inventory, Materials and Operating Supplies also increased to
support increased summer construction activity and expanded operations at
one of the manufacturing companies. The increase in Construction Work in
Progress is due to new electric construction principally in transmission,
distribution, and general plant. 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 short term cash requirements. The decrease
in Accounts Payable reflects a reduction in purchases by the electric
utility in June of 1995 compared to December of 1994. The decrease in
Federal and State Income Taxes Accrued was due to the timing of tax
payments. The reduction in Other Taxes Accrued is mainly due to the timing
of property tax payments.
Material Changes in Results of Operations
The 2.2% increase in Electric Operating Revenues for the quarter ended June
30, 1995, as compared to the same period in 1994, was due to increases in
retail revenues of 3.7% and noncontractual power pool sales of 8.2% offset
by a 91.3% decrease ($883,000) in contractual and wholesale power pool
sales. The 1.8% increase in Electric Operating Revenues for the six months
ended June 30, 1995 compared to the six months ended June 30, 1994, was
primarily due to a 32.3% increase in noncontractual power pool sales offset
by an 81.3% decrease in contractual and wholesale power pool sales.
Noncontractual power pool sales increased for both the three and six month
periods because the Company had more energy to market due to a warmer winter
season and greater plant availability in 1995. In May and June of 1994, the
Company had a firm contract to sell 40 megawatts of power to a wholesale
customer. In 1995, the Company had no firm sales contracts which resulted
in the decrease in contractual and wholesale power pool sales for the three
and six month periods ended June 30, 1995, compared to the same periods in
1994.
The increase in Purchased Power for the six months ended June 30, 1995, as
compared to the same period in 1994, was due to increased kwh purchases for
resale of 24.7% which correlates to the increase in noncontractual power
pool sales. The increase in Electric Operation Expenses for both the
quarter and six months ended June 30, 1995, as compared to the same periods
in 1994, is 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 June of 1995 also contributed to the increases in
Electric Operation Expenses. The decrease in Electric Maintenance Expenses
for the three and six months ended June, 30, 1995, compared to the same
periods in 1994, is primarily due to significant reductions in production
plant maintenance expenses. Most of these reductions are attributable to
the Coyote plant which had a major overhaul in the Spring of 1994 but had no
major overhaul during the first half of 1995.
Health Services Operating Revenues decreased in the second quarter of 1995
compared to the second quarter of 1994 due to a decrease in sales volume.
The increase in Health Services Operating Revenues for the six months ended
June 30, 1995, as compared to the same period a year ago, resulted
principally from the acquisition of three additional mobile imaging
companies and the sale of three scanners in the first quarter of 1995.
Increases in Cost of Health Services Sold and Other Health Services Expenses
for the first six months of 1995, compared to the same period in 1994,
correspond to the increase in operating revenue for the same period, while
the decrease in Cost of Health Services Sold for the second quarter of 1995,
compared to the second 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 six month
periods ended June 30, 1995, as compared to the same periods in 1994,
resulted chiefly from an acquisition of a new company, 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 Income Taxes for the quarter and six months ended June 30,
1995 compared to same periods in 1994, is 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 six
months ended June 30, 1995, as compared to the first six months of 1994,
primarily resulted from the timing of the realization of net investment
earnings in marketable securities owned by the Company.<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of Shareholders of the Company was held on April
10, 1995, for the purpose of electing three nominees to the Board of
Directors with terms expiring in 1998 and approving the appointment of
auditors. Proxies for the meeting were solicited pursuant to Section
14(a) of the Securities Exchange Act of 1934, as amended, and there
was no solicitation in opposition to management's solicitations. All
nominees for directors as listed in the proxy statement were elected.
The voting results were as follows:
Shares Shares Voted
Election of Directors Voted For Withheld Authority
Dayle Deitz 9,683,716 96,051
John C. MacFarlane 9,701,972 77,795
Arvid R. Liebe 9,634,840 144,927
Shares Shares Shares
Approval of Auditors Voted For Voted Against Voted Abstain
Deloitte & Touche LLP 9,577,593 55,088 147,086
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 June
30, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OTTER TAIL POWER COMPANY
By: Jeff Legge
Jeff Legge
Controller
(Chief Accounting Officer/Authorized Officer)
Dated: August 10, 1995
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of June 30, 1995, and the Consolidated Statement
of Income for the six months ended June 30, 1995, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 434,353
<OTHER-PROPERTY-AND-INVEST> 79,282
<TOTAL-CURRENT-ASSETS> 67,395
<TOTAL-DEFERRED-CHARGES> 10,569
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 591,599
<COMMON> 55,901
<CAPITAL-SURPLUS-PAID-IN> 30,335
<RETAINED-EARNINGS> 94,054
<TOTAL-COMMON-STOCKHOLDERS-EQ> 180,290
18,000
20,831
<LONG-TERM-DEBT-NET> 167,656
<SHORT-TERM-NOTES> 4,150
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 3,000
<LONG-TERM-DEBT-CURRENT-PORT> 13,466
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 184,206
<TOT-CAPITALIZATION-AND-LIAB> 591,599
<GROSS-OPERATING-REVENUE> 157,770
<INCOME-TAX-EXPENSE> 9,139
<OTHER-OPERATING-EXPENSES> 127,461
<TOTAL-OPERATING-EXPENSES> 136,600
<OPERATING-INCOME-LOSS> 21,170
<OTHER-INCOME-NET> 179
<INCOME-BEFORE-INTEREST-EXPEN> 21,349
<TOTAL-INTEREST-EXPENSE> 7,305
<NET-INCOME> 14,044
1,179
<EARNINGS-AVAILABLE-FOR-COMM> 12,865
<COMMON-STOCK-DIVIDENDS> 9,839
<TOTAL-INTEREST-ON-BONDS> 7,180
<CASH-FLOW-OPERATIONS> 26,621
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
</TABLE>
