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 MARCH 31, 1996
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:
May 1, 1996 - 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 - March 31, 1996
(Unaudited) and December 31, 1995 2 & 3
Consolidated Statements of Income - Three
Months Ended March 31, 1996 and 1995
(Unaudited) 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31,1996 and 1995
(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 & 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 9
<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements
Otter Tail Power Company
Consolidated Balance Sheets
-Assets-
March 31, December 31,
1996 1995
(Unaudited)
(Thousands of dollars)
Plant:
<S> <C> <C>
Electric plant in service $716,908 $715,305
Subsidiary companies 56,967 54,266
________ ________
Total 773,875 769,571
Less accumulated depreciation and amortization 315,014 308,174
________ ________
458,861 461,397
Construction work in progress 20,345 16,285
________ ________
Net plant 479,206 477,682
________ ________
Investments 16,250 12,716
________ ________
Intangibles -- net 18,570 18,902
________ ________
Other assets 7,647 7,732
________ ________
Current assets:
Cash and cash equivalents 4,769 1,867
Temporary cash investments 1,106 2,208
Accounts receivable:
Trade - net 34,706 31,184
Other 5,453 8,276
Materials and supplies:
Fuel 3,232 3,322
Inventory, materials and operating supplies 19,024 19,408
Deferred income taxes 3,913 3,754
Accrued utility revenues 4,167 4,328
Other 7,332 4,427
________ ________
Total current assets 83,702 78,774
________ ________
Deferred debits:
Unamortized debt expense and reacquisition premiums 4,562 4,687
Regulatory assets 5,655 5,727
Other 1,852 2,976
________ ________
Total deferred debits 12,069 13,390
________ ________
Total $617,444 $609,196
======== ========
See accompanying notes to consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
Otter Tail Power Company
Consolidated Balance Sheets
-Liabilities-
March 31, December 31,
1996 1995
(Unaudited)
(Thousands of dollars)
Capitalization
Common shares, par value $5 per share - authorized
25,000,000 shares; outstanding 1996 and 1995,
11,180,136 shares $55,901 $55,901
Premium on common shares 30,335 30,335
Retained earnings 102,418 98,006
________ ________
<S> <C> <C>
Total 188,654 184,242
Cumulative preferred shares - authorized 1,500,000
shares without par value; outstanding 1996
and 1995, 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 170,428 168,261
________ ________
Total capitalization 397,913 391,334
________ ________
Current liabilities
Short-term debt -- --
Sinking fund requirements and current maturities 19,643 13,733
Accounts payable 20,128 27,828
Accrued salaries and wages 2,689 3,703
Federal and state income taxes accrued 6,430 393
Other taxes accrued 12,030 11,356
Interest accrued 1,861 3,509
Other 6,699 6,752
________ ________
Total current liabilities 69,480 67,274
________ ________
Noncurrent liabilities 13,912 13,498
________ ________
Deferred credits
Accumulated deferred income taxes 99,088 99,398
Accumulated deferred investment tax credit 20,700 20,994
Regulatory liabilities 14,309 14,500
Other 2,042 2,198
________ ________
Total deferred credits 136,139 137,090
________ ________
Total $617,444 $609,196
======== ========
See accompanying notes to consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
Otter Tail Power Company
Consolidated Statements of Income
(Unaudited)
Three months ended
March 31
1996 1995
(Thousands of dollars)
Operating revenues
<S> <C> <C>
Electric $57,031 $55,726
Health services 10,015 15,108
Manufacturing 14,350 7,810
Other business operations 6,994 5,319
________ ________
Total operating revenues 88,390 83,963
Operating expenses
Production fuel 8,592 9,212
Purchased power 7,107 7,780
Electric operation expenses 13,306 12,307
Electric maintenance 3,295 2,954
Cost of goods sold 21,662 17,560
Other nonelectric expenses 7,097 7,451
Depreciation and amortization 5,561 5,421
Property taxes 2,938 3,056
Income taxes 5,853 5,624
________ ________
Total operating expenses 75,411 71,365
________ ________
Operating income 12,979 12,598
Allowance for equity (other) funds used
during construction 62 2
Other income and deductions
and applicable taxes 682 (201)
________ ________
Income before interest charges 13,723 12,399
Interest charges 3,764 3,734
Allowance for borrowed funds used
during construction - credit (73) (42)
________ ________
Net income 10,032 8,707
Preferred dividend requirements 590 589
________ ________
Earnings available for common shares $9,442 $8,118
======== ========
Earnings per average common share $0.84 $0.73
======== ========
Average number of common shares outstanding 11,180,136 11,180,136
Dividends per common share $0.45 $0.44
See accompanying notes to consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
Otter Tail Power Company
Consolidated Statements of Cash Flows
(Unaudited)
Three months ended
March 31,
1996 1995
(Thousands of dollars)
Cash flows from operating activities:
<S> <C> <C>
Net income $10,032 $8,707
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization 7,583 7,020
Deferred investment tax credit - net (294) (294)
Deferred income taxes (898) 232
Change in deferred debits and other assets 1,662 1,850
Change in noncurrent liabilities and deferred credits 248 1,966
Allowance for equity (other) funds used during construction (62) (2)
Loss on disposal of noncurrent assets 11 713
Cash provided by (used for) current assets & current liabilities:
Change in receivables, materials and supplies 420 (1,605)
Change in other current assets (2,288) 57
Change in payables and other current liabilities (6,283) (2,835)
Change in interest and income taxes payable 4,389 1,988
________ ________
Net cash provided by operating activities 14,520 17,797
Cash flows from investing activities:
Gross capital expenditures (11,812) (8,058)
Proceeds from disposal of noncurrent assets 1,229 1,560
Purchase of businesses, net of cash acquired (221) (1,634)
Change in temporary cash investments 1,102 35
Change in marketable securities and other investments (4,070) (2,401)
________ ________
Net cash used in investing activities (13,772) (10,498)
Cash flows from financing activities:
Change in short-term debt - net -- (1,950)
Proceeds from issuance of long-term debt 24,572 4,570
Payments for retirement of long-term debt (16,797) (3,895)
Dividends paid (5,621) (5,509)
________ ________
Net cash provided by (used in) financing activities 2,154 (6,784)
Net change in cash and cash equivalents 2,902 515
Cash and cash equivalents at beginning of year 1,867 1,852
________ ________
Cash and cash equivalents at March 31 $4,769 $2,367
======== ========
Supplemental cash flow information
Cash paid for interest and income taxes:
Interest $5,217 $5,169
Income taxes $749 $1,182
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 1996 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, 1995, 1994, and 1993 included in the Company's 1995 Annual
Report to the Securities and Exchange Commission on Form 10-K. Because of
seasonal and other factors, the earnings for the three-month period ended
March 31, 1996, should not be taken as an indication of earnings for all or
any part of the balance of the year.
On February 1, 1996 a subsidiary of the Company acquired a Montana-based
supplier of X-ray supplies and accessories. On April 1, 1996 a Company
subsidiary closed on the purchase of a mobile medical diagnostic services
company located in Bemidji, Minnesota. As of May 1, 1996 FCC approval of
the acquisition of three radio stations in the Fargo, ND--Moorhead, MN
market by a Company subsidiary was still pending. The completed and pending
acquisitions will be accounted for under the purchase method of accounting.
Quadrant Co. continues to serve its two industrial steam customers under
agreements which can be terminated by either party to each agreement upon
one year's prior written notice and thirty days notice, respectively.
Quadrant also continues to burn municipal solid waste for five Minnesota
counties under contracts which expire in September of 1996. Quadrant is in
the process of negotiating new steam service and waste incineration
contracts with these customers. As of May 1, 1996 new pollution rules for
Minnesota municipal waste incinerators had not been published.
Forward Looking Information - Safe Harbor Statement
Under the Private Securities Litigation Reform Act of 1995
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 (the "Act"), the Company has filed cautionary
statements identifying important factors that could cause the Company's
actual results to differ materially from those discussed in forward-looking
statements made by or on behalf of the Company. When used in this Form 10-Q
and in future filings by the Company with the Securities and Exchange
Commission, in the Company's press releases and in oral statements, words
such as "may", "will", "expect", "anticipate", "continue", "estimate",
"project", "believes" or similar expressions are intended to identify
forward-looking statements within the meaning of the Act. Factors that
might cause such differences include, but are not limited to, the factors
discussed under "Factors affecting future earnings" on pages 29-31 of the
Company's 1995 Annual Report to Shareholders, which is incorporated by
reference in the Company's Form 10-K for the fiscal year ended December 31,
1995. These factors are in addition to any other cautionary statements,
written or oral, which may be made or referred to in connection with any
such forward-looking statement or contained in any subsequent filings by the
Company with the Securities and Exchange Commission.
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 $14,520,000 as shown on the
Consolidated Statement of Cash Flows for the three months ended March 31,
1996, combined with funds on hand of $4,075,000 at December 31, 1995,
allowed the Company to finance its construction program, pay dividends, and
invest in an additional nonutility business. At March 31, 1996, the Company
had $38,339,000 available in unused lines of credit which could be used to
supplement cash needs. 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 1996-2000 construction program expenditures.
Additional short-term or long-term financing will be required in the period
1996-2000 in connection with a portion of the Company's construction
program, 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, or for other corporate purposes. Proceeds from the issuance of
long-term debt net of payments for the retirement of long-term debt of
$7,775,000, for the three months ended March 31, 1996, were used to finance
equipment purchases at the Company's medical and manufacturing subsidiaries
and also reflect increases in subsidiary credit line balances required to
meet first quarter operating needs due to seasonal fluctuations in cash
flows.
The increase in construction work in progress is due to new construction and
capital expenditures in all electric utility plant areas: production,
transmission, distribution, and general. The net increase in cash, cash
equivalents and temporary cash investments along with the increase in
investments reflects the accumulation of funds and securities to be used in
acquisitions pending on March 31, 1996.
The increase in trade receivables is the result of increased electric sales
by the utility due to colder than normal weather in March of 1996 as
compared to December of 1995, and increased sales at the company's
manufacturing subsidiaries. The decrease in other receivables is due to the
timing of payments received from the Company's Big Stone Plant partners.
The increase in other current assets reflects production and material costs
incurred on construction and manufacturing jobs ahead of allowable billing
schedules. The decrease in other deferred debits reflects increased
allocation of deferred overhead costs to electric construction activity in
the first quarter of 1996.
The increase in sinking fund requirements and current maturities reflects
financing of equipment purchases at the Company's medical and manufacturing
subsidiaries along with increases in subsidiary credit line balances to meet
first quarter operating needs. Accounts payable decreased due to a normal
seasonal decline at the electric utility and payment for the medical
equipment delivered in December 1995. Accrued salaries and wages decreased
as a result of payment of 1995 accrued employee incentives. The increase in
federal and state income taxes accrued resulted from the timing of first
quarter estimated tax payments which are not due until April. The reduction
in interest accrued was caused by the timing of bond interest payments, the
majority of which are due in the first and third quarters.
Material Changes in Results of Operations
The 2.3% increase in electric operating revenues for the quarter ended March
31, 1996, as compared to the quarter ended March 31, 1995, was due to a 5.7%
increase in retail sales offset by a 29% decrease in noncontractual power
pool sales. Retail sales increased because of colder weather in 1996.
Noncontractual power pool sales decreased because the Company had less
energy to market due to the colder weather and its obligation to meet the
needs of its retail customers. Lower plant availability in 1996 related to
a scheduled outage for repairs at Hoot Lake Unit 3 in February and March
also contributed to the decrease.
Production fuel expense decreased 6.7%, while generation at the Company's
plants increased by 2.7%, for the three months ended March 31, 1996, as
compared to the same period a year ago, mainly as a result of Big Stone
Plant switching from lignite to subbituminous coal in August of 1995. The
decrease in purchased power for the quarter ended March 31, 1996, as
compared to the same period in 1995, was due to a 32% decrease in kwh
purchased for resale, offset by a 20% increase in kwh purchased for retail
sales. The decrease in purchases for resale correlates to the decrease in
noncontractual power pool sales.
The increase in electric operation expenses for the three months ended March
31, 1996, as compared to the three months ended March 31, 1995, was due to
expenses related to coal contract and freight negotiations and increased
labor costs related to wage and compensation increases. The increase in
electric maintenance expenses for the quarter ended March 31, 1996, as
compared to the same period a year ago, was due to increased production
plant maintenance expenses. Production plant maintenance expenses decreased
significantly in fiscal 1995 from fiscal 1994 levels due to the timing of
major overhauls and repairs.
The breakdown of cost of goods sold and other nonelectric expenses by
business segments other than electric are as follows:
3 months ended
Cost of goods sold Other nonelectric expenses
1996 1995 1996 1995
(in thousands)
Health services $6,038 $9,279 $3,288 $4,287
Manufacturing $10,967 $6,139 $1,553 $1,010
Other business operations $4,657 $2,142 $2,256 $2,154
------- ------- ------ ------
Total $21,662 $17,560 $7,097 $7,451
The decrease in health services operating revenue for the quarter ended
March 31, 1996, as compared to the same period a year ago, reflects the sale
of three scanners in the first quarter of 1995 and increased deliveries of
medical equipment in December of 1995 which resulted in reduced sales in the
first quarter of 1996. The decrease in health services cost of goods sold
and other nonelectric expenses was commensurate with the decrease in
revenue.
The increase in manufacturing operating revenue for the three months ended
March 31, 1996, as compared to the three months ended March 31, 1995, was
mainly due to the acquisition of Northern Pipe Products in October of 1995,
supplemented by increased sales at another manufacturing subsidiary. The
increases in manufacturing cost of goods sold and other nonelectric expenses
were directly related to the increase in revenue.
The increase in other business operations revenue for the quarter ended
March 31, 1996, as compared to the quarter ended March 31, 1995, was mainly
the result of material cost pass through billings by the Company's
construction subsidiaries on material intensive jobs, offset by minor
decreases in revenues from other businesses. The increased material costs
billed are also reflected in increased cost of goods sold from other
business operations for the comparable period.
The increase in other income and deductions and applicable taxes for the
quarter ended March 31, 1996, as compared to the quarter ended March 31,
1995, reflects increases in miscellaneous revenue from subsidiaries in 1996,
and losses on marketable securities in 1995 related to the Company's
preferred stock investment program which ended in October of 1995.
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 March
31, 1996.
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: May 13, 1996
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of March 31, 1996, and the Consolidated
Statement of Income for the three months ended March 31, 1996, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 440,439
<OTHER-PROPERTY-AND-INVEST> 81,234
<TOTAL-CURRENT-ASSETS> 83,702
<TOTAL-DEFERRED-CHARGES> 12,069
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 617,444
<COMMON> 55,901
<CAPITAL-SURPLUS-PAID-IN> 30,335
<RETAINED-EARNINGS> 102,418
<TOTAL-COMMON-STOCKHOLDERS-EQ> 188,654
18,000
20,831
<LONG-TERM-DEBT-NET> 170,428
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 19,643
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 199,888
<TOT-CAPITALIZATION-AND-LIAB> 617,444
<GROSS-OPERATING-REVENUE> 88,390
<INCOME-TAX-EXPENSE> 5,853
<OTHER-OPERATING-EXPENSES> 69,558
<TOTAL-OPERATING-EXPENSES> 75,411
<OPERATING-INCOME-LOSS> 12,979
<OTHER-INCOME-NET> 744
<INCOME-BEFORE-INTEREST-EXPEN> 13,723
<TOTAL-INTEREST-EXPENSE> 3,691
<NET-INCOME> 10,032
590
<EARNINGS-AVAILABLE-FOR-COMM> 9,442
<COMMON-STOCK-DIVIDENDS> 5,031
<TOTAL-INTEREST-ON-BONDS> 3,668
<CASH-FLOW-OPERATIONS> 14,520
<EPS-PRIMARY> 0.84
<EPS-DILUTED> 0.84
</TABLE>
