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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file 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, 1997 - 11,651,776 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, 1997
and December 31, 1996 (Unaudited) 2 & 3
Consolidated Statements of Income - Three and Six Months
Ended June 30, 1997 and 1996 (Unaudited) 4
Consolidated Statements of Cash Flows - Six Months
Ended June 30, 1997 and 1996 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6, 7 & 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8, 9, 10 & 11
Part II. Other Information
Item 2. Changes in Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<TABLE>
<CAPTION>
Part I. Financial Information
------------------------------
Item 1. Financial Statements
--------------------
Otter Tail Power Company
Consolidated Balance Sheets
(Unaudited)
-Assets-
June 30, December 31,
1997 1996
------ ------
(Restated)
(Thousands of dollars)
Plant:
<S> <C> <C>
Electric plant in service $747,503 $742,065
Subsidiary companies 108,110 94,701
-------- --------
Total 855,613 836,766
Less accumulated depreciation and amortization 347,900 327,855
-------- --------
507,713 508,911
Construction work in progress 20,347 11,470
-------- --------
Net plant 528,060 520,381
-------- --------
Investments 21,302 19,880
-------- --------
Intangibles -- net 21,801 21,954
-------- --------
Other assets 6,589 6,553
-------- --------
Current assets:
Cash and cash equivalents 2,928 2,094
Temporary cash investments -- --
Accounts receivable:
Trade - net 35,764 32,603
Other 4,233 5,021
Materials and supplies:
Fuel 3,071 3,220
Inventory, materials and operating supplies 25,309 24,247
Deferred income taxes 4,780 4,550
Accrued utility revenues 3,337 5,349
Other 5,278 4,524
-------- --------
Total current assets 84,700 81,608
-------- --------
Deferred debits:
Unamortized debt expense and reacquisition premiums 4,044 4,270
Regulatory assets 5,777 5,866
Other 3,989 3,655
-------- --------
Total deferred debits 13,810 13,791
-------- --------
Total $676,262 $664,167
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
- 2 -
<TABLE>
<CAPTION>
Otter Tail Power Company
Consolidated Balance Sheets
(Unaudited)
-Liabilities-
June 30, December 31,
1997 1996
------ ------
(Restated)
(Thousands of dollars)
Capitalization:
Common shares, par value $5 per share - authorized
25,000,000 shares; outstanding 1997 -- 11,650,180;
and 1996 -- 11,372,298 shares $ 58,251 $ 56,861
Premium on common shares 32,856 30,683
Retained earnings 112,204 106,589
-------- --------
<S> <C> <C>
Total 203,311 194,133
Cumulative preferred shares - authorized 1,500,000
shares without par value; outstanding 1997
and 1996, 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 162,726 160,704
-------- --------
Total capitalization 404,868 393,668
-------- --------
Current liabilities:
Short-term debt 28,200 25,600
Sinking fund requirements and current maturities 46,449 42,218
Accounts payable 27,284 27,260
Accrued salaries and wages 3,168 3,847
Federal and state income taxes accrued 1,310 2,031
Other taxes accrued 8,491 12,048
Interest accrued 3,637 3,622
Other 3,334 2,822
-------- --------
Total current liabilities 121,873 119,448
-------- --------
Noncurrent liabilities 16,369 16,688
-------- --------
Deferred credits:
Accumulated deferred income taxes 98,498 98,498
Accumulated deferred investment tax credit 19,264 19,818
Regulatory liabilities 12,902 13,283
Other 2,488 2,764
-------- --------
Total deferred credits 133,152 134,363
-------- --------
Total $676,262 $664,167
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
- 3 -
<TABLE>
<CAPTION>
Otter Tail Power Company
Consolidated Statements of Income
(Unaudited)
Three months ended Six months ended
June 30 June 30
1997 1996 1997 1996
------ ------ ------ ------
(Restated) (Restated)
(Thousands of dollars) (Thousands of dollars)
Operating revenues:
<S> <C> <C> <C> <C>
Electric $ 45,426 $ 44,787 $103,826 $101,818
Health services 15,019 17,056 30,409 27,071
Manufacturing 20,482 17,556 35,185 33,726
Other business operations 10,169 12,117 15,965 19,111
-------- -------- -------- --------
Total operating revenues 91,096 91,516 185,385 181,726
Operating expenses:
Production fuel 6,630 7,009 14,622 15,601
Purchased power 5,668 5,390 13,041 12,497
Other electric operation and maintenance expenses 18,663 15,879 35,208 32,480
Cost of goods sold 30,242 31,068 52,381 53,088
Other nonelectric expenses 11,261 10,950 22,328 19,374
Depreciation and amortization 6,349 5,618 12,684 11,190
Property taxes 2,485 3,061 5,583 5,999
-------- -------- -------- --------
Total operating expenses 81,298 78,975 155,847 150,229
Operating income:
Electric 6,637 8,545 24,689 25,446
Health services 225 1,106 1,497 1,666
Manufacturing 2,125 2,318 3,563 4,155
Other business operations 811 572 (211) 230
-------- -------- -------- --------
Total operating income 9,798 12,541 29,538 31,497
Other income and deductions - net 1,702 417 2,825 912
Interest charges 4,596 4,001 9,138 7,699
-------- -------- -------- --------
Income before income taxes 6,904 8,957 23,225 24,710
Income taxes 1,511 2,720 7,142 8,315
-------- -------- -------- --------
Net income 5,393 6,237 16,083 16,395
Preferred dividend requirements 590 589 1,179 1,179
-------- -------- -------- --------
Earnings available for common shares $ 4,803 $ 5,648 $ 14,904 $ 15,216
======== ======== ======== ========
Earnings per average common share $0.41 $0.50 $1.29 $1.34
======== ======== ======== ========
Average number of common shares outstanding 11,620,738 11,337,782 11,594,150 11,337,782
Dividends per common share $0.465 $0.45 $0.930 $0.90
</TABLE>
See accompanying notes to consolidated financial statements
- 4 -
<TABLE>
<CAPTION>
Otter Tail Power Company
Consolidated Statements of Cash Flows
(Unaudited)
Six months ended
June 30,
1997 1996
-------- --------
(Restated)
(Thousands of dollars)
Cash flows from operating activities:
<S> <C> <C>
Net income $ 16,083 $ 16,395
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization 19,895 16,265
Deferred investment tax credit - net (588) (588)
Deferred income taxes (1,523) (1,424)
Change in deferred debits and other assets (337) 4,109
Change in noncurrent liabilities and deferred credits (595) (779)
Allowance for equity (other) funds used during construction -- (143)
(Gains) from investments and disposal of noncurrent assets (1,620) (8)
Cash provided by (used for) current assets & current liabilities:
Change in receivables, materials and supplies (3,025) (3,962)
Change in other current assets 1,265 (1,324)
Change in payables and other current liabilities (3,330) (3,507)
Change in interest and income taxes payable (706) 1,288
-------- --------
Net cash provided by operating activities 25,519 26,322
Cash flows from investing activities:
Gross capital expenditures (22,108) (28,213)
Proceeds from disposal of noncurrent assets 909 1,294
Purchase of businesses, net of cash acquired -- (7,859)
Change in temporary cash investments -- 2,160
Purchases of marketable securities (5) --
Proceeds from sales of marketable securities 313 --
Change in other investments (1,131) (4,926)
-------- --------
Net cash used in investing activities (22,022) (37,544)
Cash flows from financing activities:
Change in short-term debt - net 2,600 12,750
Proceeds from issuance of common stock 3,578 --
Proceeds from issuance of long-term debt 40,866 53,643
Payments for retirement of long-term debt (37,477) (44,243)
Dividends paid (12,230) (11,404)
-------- --------
Net cash provided by (used in) financing activities (2,663) 10,746
Net change in cash and cash equivalents 834 (476)
Cash and cash equivalents at beginning of year 2,094 2,419
-------- --------
Cash and cash equivalents at June 30 $ 2,928 $ 1,943
Supplemental cash flow information
Cash paid for interest and income taxes:
Interest (net of amount capitalized) $ 8,710 $ 7,468
Income taxes $ 9,984 $ 9,591
</TABLE>
See accompanying notes to consolidated financial statements
- 5 -
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 1997 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, 1996, 1995, and 1994 included in the Company's
1996 Annual Report to the Securities and Exchange Commission on Form 10-K.
Because of seasonal and other factors, the earnings for the three-month and
six-month periods ended June 30, 1997, should not be taken as an indication
of earnings for all or any part of the balance of the year.
On January 2, 1997, the Company's telecommunications subsidiary, North
Central Utilities, Inc., acquired all of the outstanding common stock of
The Peoples Telephone Co. of Bigfork (Peoples) in exchange for 163,758
newly issued shares of the Company's common stock and $209,000 in cash in a
pooling of interests transaction. The acquisition has no significant pro
forma effect on the Company's balance sheet, operating revenues, net
income, or earnings per share for 1996. Therefore, the 1996 financial
statements included in this report have not been restated to reflect the
effect of the pooling. The following table shows the effect of the pooling
on the equity section of the Company's balance sheet on January 2, 1997:
Common Premium
Shares on Common Retained Total
Outstanding Par Shares Earnings Equity
----------- ------- ------- -------- --------
(dollars in thousands)
Otter Tail Power Company 11,372,298 $56,861 $30,683 $106,589 $194,133
Peoples 21 2,121 2,142
Shares Issued 163,758 819 819
Adjustments for:
Par value of new shares (21) (798) (819)
Cash paid for Peoples shares (209) (209)
---------- ------- ------- -------- --------
Combined 11,536,056 $57,680 $29,676 $108,710 $196,066
========== ======= ======= ======== ========
The net amount of cash used of ($209,000) and cash acquired of $36,000 in
the pooling is included in the Company's Statement of Cash Flows for the
six months ended June 30, 1997, under "Proceeds from issuance of common
stock."
On June 30, 1997, the Company's subsidiary, Mid-States Development, Inc,
acquired all of the outstanding common stock of Chassis Liner Corporation
(Chassis Liner) in exchange for 157,646 newly issued shares of the
Company's common stock. Chassis Liner is a manufacturer of auto and truck
frame straightening equipment with facilities in Alexandria and Lucan,
Minnesota. The acquisition has been accounted for as a pooling of
interests. Because the acquisition has a significant pro forma effect on
1996 results, the Company's prior period consolidated financial statements
presented herein have been restated to include Chassis Liner.
The impact of Chassis Liner on the Company's consolidated statements of
income and cash flows for the periods ending June 30, 1996, is presented in
the table below:
Otter Tail
Otter Tail Power
Power Chassis Company
(in thousands) Company Liner Combined
- ----------------------------------------------------------------------------
For the three months ended June 30, 1996:
Revenue $ 89,588 $ 1,928 $ 91,516
Operating Income $ 12,293 $ 248 $ 12,541
Net income $ 5,980 $ 257 $ 6,237
For the six months ended June 30, 1996:
Revenue $177,978 $ 3,748 $181,726
Operating Income $ 31,124 $ 373 $ 31,497
Net income $ 16,012 $ 383 $ 16,395
For the six months ended June 30, 1996:
Net cash provided by operating activities $ 26,182 $ 140 $ 26,322
Net cash used in investing activities (37,523) (21) (37,544)
Net cash provided by (used in)
financing activities 10,918 (172) 10,746
-------- ------- --------
Net change in cash and cash equivalents (423) (53) (476)
Cash and cash equivalents
at beginning of 1996 1,867 552 2,419
-------- ------- --------
Cash and cash equivalents at June 30, 1996 $ 1,444 $ 499 $ 1,943
Prior to the acquisition, Chassis Liner was an S Corporation and,
consequently, was not subject to federal or state income taxes. The pro
forma income tax provision for Chassis Liner that would have been reported
by the Company as an additional provision to its historical tax expense had
Chassis Liner not been an S Corporation prior to the acquisition is $99,000
and $103,000 for the three month periods ended June 30, 1997 and 1996,
respectively, and $281,000 and $153,000 for the six month periods ended
June 30, 1997 and 1996, respectively, based on a tax rate of 40%.
Additional common stock issuances in the first six months of 1997 include
80,933 shares issued under the Company's Automatic Dividend Reinvestment
and Share Purchase Plan, 30,561 shares issued to the Company's leveraged
employee stock ownership plan and 2,630 shares issued as a bonus to a
consultant.
Quadrant Co. is currently processing solid waste for three Minnesota
counties under the terms of a new waste incineration agreement. If the
anticipated volumes of waste needed to generate sufficient positive future
cash flows do not materialize, an impairment to the carrying value of the
Quadrant Plant is still possible in 1997.
Spring Storm and Floods
- -----------------------
An early Spring ice storm and blizzard which hit the Company's electric
service territory on April 5, 6 and 7 of 1997 causing approximately $4
million worth of damage to the Company's electric transmission and
distribution system did not have a significant impact on 1997 second
quarter operating income. A significant portion of the costs related to
replacement of damaged facilities are being capitalized to the extent such
replacements are an improvement to the system. Storm related outages in
portions of the Company's service territory resulted in some lost revenue,
however, the impact is not believed to be material. Flooding in the Red
River Valley was mostly concentrated in areas not served by the Company
and, therefore, is not expected to have a significant impact on future
earnings.
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 30-32 of the
Company's 1996 Annual Report to Shareholders, which is incorporated by
reference in the Company's Form 10-K for the fiscal year ended December 31,
1996. 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 $25,519,000 as shown on the
Consolidated Statement of Cash Flows for the six months ended June 30,
1997, combined with funds on hand of $2,094,000 at December 31, 1996,
allowed the Company to pay dividends and finance the majority of its
capital expenditures in the first six months of 1997. Additional cash
provided by the issuance of $2,600,000 in short-term debt and $3,578,000
in common stock at the electric utility combined with the net increase in
long-term debt of $3,383,000 at the subsidiaries provided the funds used to
finance the remainder of the capital expenditures in the first six months
of 1997. The Company's initiative to reduce capital expenditures resulted
in a $6.1 million reduction in this category for the six months ended June
30, 1997, compared to the six months ended June 30, 1996. At June 30,
1997, the Company had $12,453,000 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 its estimated 1997-2001 consolidated capital
project expenditures.
Additional short-term or long-term financing will be required in the period
1997-2001 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, or for other corporate purposes.
Standard and Poor's reaffirmed its AA- rating of the Company's senior debt,
however, it revised its ratings outlook on the Company from stable to
negative sighting growth in the level of nonutility earnings relative to
overall Company earnings as a reason for the revision. Moody's Investors
Service reaffirmed its Aa3 rating of the Company's First Mortgage Bonds and
Duff and Phelps reaffirmed its AA rating, while Fitch Investors Service has
downgraded its rating from AA to AA-.
The acquisition of Peoples provided $7,088,000 of the increase in
subsidiary companies plant. Capital additions of $3,559,000 in the
manufacturing segment and $1,064,000 at the telecommunications companies
accounted for most of the remaining increase in subsidiary companies plant.
The increase in construction work in progress is due to new construction
and capital expenditures at the electric utility, mainly in the production,
transmission and general plant areas including approximately $1.9 million
for the replacement of storm damaged facilities.
The increase in trade receivables reflects an increase in receivables in
the manufacturing segment as a result of one of the manufacturing companies
delivering product to its customers on a delayed payment plan. The
decrease in other receivables is due to the timing of payments received
from the Company's Big Stone Plant partners. The decrease in accrued
utility revenues is reflective of a normal seasonal decline in the use of
electricity in the Company's service area in June compared to December.
The increase in other current assets is due to an increase in prepaid
expenses in the health services segment.
The net increase in common shares, par value and premium on common shares
is mainly due to the issuance of the 114,124 shares of common stock under
the Company's stock plans as described above. The increase in long-term
debt is due to the acquisition of Peoples. The increase in sinking fund
requirements and current maturities is related to increased debt combined
with a shift in debt from long-term to current maturities at the subsidiary
companies, mainly in the manufacturing segment where payments to certain
suppliers were accelerated to take advantage of discounts not previously
offered. Accrued salaries and wages decreased as a result of the payment
of 1996 accrued employee incentives. The decrease in other taxes accrued is
mainly due to the timing of property tax payments, most of which are paid
to the State of Minnesota, with half due in the month of May. Part of the
decrease in other taxes accrued is due to an adjustment to Minnesota
property taxes accrued related to a reduction in statutory rates for
commercial and industrial property and reduced valuations of utility
property.
Material Changes in Results of Operations
- -----------------------------------------
The 2.0% increase in electric operating revenues for the six months ended
June 30, 1997, as compared to the six months ended June 30, 1996, is due to
increases of 3.0% in retail revenues and 38.6% in other electric revenue
offset by a 31.2% decrease in revenue from noncontractual power pool sales.
The increase in retail revenue is mainly due to a 6.2% increase in kwh
sales to industrial customers and increases in cost-of-energy revenue
related to recovery of the costs of power purchased for sale to retail
customers in early 1997. The increase in other electric revenue reflects
the recognition of Minnesota Conservation Improvement Program (CIP) lost
margins recovery approved by the Minnesota Public Utilities Commission
(MNPUC) in the second quarter of 1997. Increases in transmission service
charge revenue and electric property rental income also contributed to the
increase in other electric revenue. The decrease in revenue from
noncontractual power pool sales is the result of the Company having less
energy to market as a result of delayed coal shipments caused by the
blizzards of 1997 and to the shutdown of the Coyote Plant for its first
scheduled major overhaul in three years that lasted from March 27, 1997,
until June 6, 1997.
The cutbacks in generation due to the delays in coal shipments and the
shutdown of the Coyote Plant were also the main factors contributing to the
decreases in production fuel expense and increases in purchased power for
the three and six month periods ended June 30, 1997, as compared to the
same periods in 1996. The increases in electric operation and maintenance
expenses for the three and six month periods ended June 30, 1997, as
compared to the three and six month periods ended June 30, 1996, are mainly
related to the Coyote Plant overhaul which lasted three weeks longer than
originally scheduled.
The breakdown of cost of goods sold and other nonelectric expenses by
business segments other than electric are as follows:
Three months ended June 30
Cost of goods sold Other nonelectric expenses
------------------ --------------------------
1997 1996 1997 1996
------ ------ ------ ------
(in thousands)
Health services $ 8,759 $10,461 $ 5,903 $ 5,342
Manufacturing 15,869 12,612 2,339 2,499
Other business operations 5,614 7,995 3,019 3,109
------- ------- ------- -------
Total $30,242 $31,068 $11,261 $10,950
======= ======= ======= =======
Six months ended June 30
Cost of goods sold Other nonelectric expenses
------------------ --------------------------
1997 1996 1997 1996
------ ------ ------ ------
(in thousands)
Health services $16,739 $15,730 $11,909 $ 9,399
Manufacturing 26,821 24,706 4,503 4,610
Other business operations 8,821 12,652 5,916 5,365
------- ------- ------- -------
Total $52,381 $53,088 $22,328 $19,374
======= ======= ======= =======
Reclassifications of $1,100,000 and $1,869,000 in health services cost of
goods sold to health services other nonelectric expenses were made for the
three and six month periods ended June 30, 1996, respectively, related to
the medical imaging services companies acquired in 1996 in order to report
these costs and expenses in a manner consistent with previously acquired
medical imaging services companies.
The decreases in health services operating revenue of 11.9% and cost of
goods sold of 16.3% for the three months ended June 30, 1997, as compared
to the same period in 1996, is due to a reduction in sales of medical
equipment at Diagnostic Medical Systems attributed to increased
competition in this industry segment. The increase in other nonelectric
expenses in the health services segment for the three months ended June 30,
1997, as compared to the same period in 1996, is related to increased sales
efforts at the medical imaging services companies.
The increase in health services operating revenue for the six month period
ended June 30, 1997, as compared to the same period a year ago reflects
additional revenues in 1997 related to the acquisitions of Radiographic
Supply in February 1996, and Northern Medical Imaging (NMI) in April 1996.
While revenue from health services is up 12.3%, the cost of goods sold in
this segment shows an increase of only 6.4% for the six months ended June
30, 1997, as compared to the same period in 1996, due to an increase in the
proportion of revenues related to diagnostic imaging services compared to
equipment sales mainly as a result of the acquisition of NMI. The 27%
increase in health services other nonelectric expenses in the first half of
1997 over the first half of 1996 is primarily associated with the 1996
acquisitions.
The increases in manufacturing operating revenue of 16.7% and 4.3% for the
three and six month periods ended June 30, 1997, as compared to the three
and six month periods ended June 30, 1996, are mainly due to increased
sales at two of the Company's manufacturing subsidiaries offset by a
decrease in recorded sales at a third manufacturing subsidiary due to the
delayed shipment of finished goods to a major customer of this subsidiary
in order to accommodate that customer's delivery and production schedule.
This third manufacturing company maintained its production schedule in
order to optimize the use of its plant capacity. Manufacturing cost of
goods sold increased in the three and six month periods ended June 30,
1997, as compared to the same periods in 1996, mainly as a result of
increased prices for resins used in the manufacture of PVC pipe. The
increases in manufacturing cost of goods sold more than offset the
increases in manufacturing revenues and decreases in manufacturing other
nonelectric expenses resulting in the decreases in manufacturing operating
income for both the three and six month periods ended June 30, 1997, as
compared to the same periods in 1996.
The decreases in other business operations revenue for the quarter and six
months ended June 30, 1997, as compared to the quarter and six months ended
June 30, 1996, are due to a decline in revenue and reductions in material
cost pass through billings at the Company's construction subsidiaries
offset slightly by increases in media and telecommunications revenue due to
the acquisitions of several radio stations in 1996 and Peoples in January
1997. The decreases in construction activity and material cost pass
through billings are the main factors contributing to the decreases in cost
of goods sold from other business operations for the comparable periods.
Other nonelectric expenses for other business operations increased for the
six months ended June 30, 1997, as compared to the same period a year ago,
as a result of the radio stations and Peoples acquisitions.
The increases in depreciation and amortization expense for the three and
six month periods ended June 30, 1997, as compared to the same periods in
1996, are related to electric utility property additions including upgrades
made to Big Stone Plant in 1996, increased depreciation at Quadrant Co. and
the acquisition of Peoples in 1997.
The decreases in property taxes for the three and six month periods ended
June 30, 1997, as compared to the same periods in 1996, are due to
reductions in Minnesota property taxes accrued as a result of legislative
action affecting Minnesota commercial and industrial property class rates
for 1997, and lower assessed values on Minnesota utility property.
The increase in other income and deductions - net for the quarter and six
months ended June 30, 1997, as compared to the quarter and six months ended
June 30, 1996, reflects the recognition of $250,000 in realized gains on
the sale of marketable securities classified as available-for-sale and the
recognition of $360,000 in unrealized gains on marketable securities
classified as trading in the first quarter of 1997, the recognition of
$880,000 in compensation for the abandonment of certain microwave
frequencies licensed to the Company, and an increase in revenue recognition
of $405,000 related to Minnesota CIP financial incentives.
The increases in interest charges for the three and six month periods ended
June 30, 1997, as compared to the three and six month periods ended June
30, 1996, is directly related to the increase in the level of short-term
debt at the parent company and increases in long-term debt and current
maturities at the subsidiary companies.
PART II. OTHER INFORMATION
--------------------------
Item 2. Changes in Securities
---------------------
On June 30, 1997, the Company issued 157,646 shares of common stock in
connection with the acquisition of Chassis Liner. The issuance of such
shares did not involve a public offering and therefore was exempt from
registration pursuant to section 4(2) of the Securities Act of 1933, as
amended (the "Act").
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
The annual meeting of Shareholders of the Company was held on April 14,
1997, for the purpose of electing three nominees to the Board of Directors
with terms expiring in 2000 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
- --------------------- --------- ------------------
Thomas M. Brown 9,740,050 126,065
Maynard D. Helgaas 9,755,451 110,663
Robert M. Spolum 9,755,221 110,893
Shares Shares Shares
Approval of Auditors Voted For Voted Against Voted Abstain
- -------------------- --------- ------------- -------------
Deloitte & Touche LLP 9,688,556 68,286 109,291
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
a) Exhibits:
27 Financial Data Schedule
b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fiscal quarter ended
June 30, 1997.
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 14, 1997
---------------
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of June 30, 1997, and the Consolidated
Statement of Income for the six months ended June 30, 1997, 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-31-1997
<PERIOD-END> JUN-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 456,082
<OTHER-PROPERTY-AND-INVEST> 121,670
<TOTAL-CURRENT-ASSETS> 84,700
<TOTAL-DEFERRED-CHARGES> 13,810
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 676,262
<COMMON> 58,251
<CAPITAL-SURPLUS-PAID-IN> 32,856
<RETAINED-EARNINGS> 112,204
<TOTAL-COMMON-STOCKHOLDERS-EQ> 203,311
18,000
20,831
<LONG-TERM-DEBT-NET> 162,726
<SHORT-TERM-NOTES> 2,400
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 25,800
<LONG-TERM-DEBT-CURRENT-PORT> 46,449
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<CAPITAL-LEASE-OBLIGATIONS> 0
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<OTHER-ITEMS-CAPITAL-AND-LIAB> 196,745
<TOT-CAPITALIZATION-AND-LIAB> 676,262
<GROSS-OPERATING-REVENUE> 185,385
<INCOME-TAX-EXPENSE> 7,142
<OTHER-OPERATING-EXPENSES> 155,847
<TOTAL-OPERATING-EXPENSES> 162,989
<OPERATING-INCOME-LOSS> 22,396
<OTHER-INCOME-NET> 2,825
<INCOME-BEFORE-INTEREST-EXPEN> 25,221
<TOTAL-INTEREST-EXPENSE> 9,138
<NET-INCOME> 16,083
1,179
<EARNINGS-AVAILABLE-FOR-COMM> 14,904
<COMMON-STOCK-DIVIDENDS> 10,637
<TOTAL-INTEREST-ON-BONDS> 8,414
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<EPS-PRIMARY> 1.29
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