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, 1998
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 6, 1998 - 11,771,307 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, 1998 (Unaudited)
and December 31, 1997 2 & 3
Consolidated Statements of Income - Three Months
Ended March 31, 1998 and 1997 (Unaudited) 4
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1998 and 1997 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6 & 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8, 9, 10 & 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
<TABLE>
<CAPTION>
Part I. Financial Information
------------------------------
Item 1. Financial Statements
- ----------------------------
Otter Tail Power Company
Consolidated Balance Sheets
-Assets-
March 31, December 31,
1998 1997
------ ------
(Unaudited)
(Thousands of dollars)
<S> <C> <C>
Plant:
Electric plant in service $760,935 $758,551
Subsidiary companies 81,793 89,716
-------- --------
Total 842,728 848,267
Less accumulated depreciation and amortization 351,283 350,647
-------- --------
491,445 497,620
Construction work in progress 10,046 12,146
-------- --------
Net plant 501,491 509,766
-------- --------
Investments 20,535 20,048
-------- --------
Intangibles -- net 20,517 20,911
-------- --------
Other assets 3,847 5,932
-------- --------
Current assets:
Cash and cash equivalents 9,953 5,301
Temporary cash investments - -
Accounts receivable:
Trade - net 34,015 33,304
Other 4,912 6,796
Materials and supplies:
Fuel 3,236 3,425
Inventory, materials and operating supplies 27,187 24,160
Deferred income taxes 2,295 4,738
Accrued utility revenues 10,275 4,271
Other 5,498 3,795
-------- --------
Total current assets 97,371 85,790
-------- --------
Deferred debits:
Unamortized debt expense and reacquisition premiums 4,093 4,187
Regulatory assets 5,484 5,060
Other 2,441 3,747
-------- --------
Total deferred debits 12,018 12,994
-------- --------
Total $655,779 $655,441
======== ========
See accompanying notes to consolidated financial statements
</TABLE>
- 2 -
<TABLE>
<CAPTION>
Otter Tail Power Company
Consolidated Balance Sheets
-Liabilities-
March 31, December 31,
1998 1997
------ ------
(Unaudited)
(Thousands of dollars)
<S> <C> <C>
Capitalization
Common shares, par value $5 per share - authorized
25,000,000 shares; outstanding 1998 -- 11,765,598;
and 1997 -- 11,731,078 shares $ 58,828 $ 58,655
Premium on common shares 36,316 35,196
Retained earnings 115,477 115,942
Accumulated other comprehensive income 512 363
-------- --------
Total 211,133 210,156
Cumulative preferred shares - authorized 1,500,000
shares without par value; outstanding 1998
and 1997, 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 187,033 189,973
-------- --------
Total capitalization 436,997 438,960
-------- --------
Current liabilities
Short-term debt - 2,100
Sinking fund requirements and current maturities 18,197 12,324
Accounts payable 24,439 28,427
Accrued salaries and wages 2,574 3,835
Federal and state income taxes accrued 6,248 2,572
Other taxes accrued 11,791 11,122
Interest accrued 2,329 3,339
Other 3,193 2,980
-------- --------
Total current liabilities 68,771 66,699
-------- --------
Noncurrent liabilities 22,374 17,805
-------- --------
Deferred credits
Accumulated deferred income taxes 93,942 97,583
Accumulated deferred investment tax credit 18,372 18,666
Regulatory liabilities 11,930 12,121
Other 3,393 3,607
-------- --------
Total deferred credits 127,637 131,977
-------- --------
Total $655,779 $655,441
======== ========
See accompanying notes to consolidated financial statements
- 3 -
</TABLE>
<TABLE>
<CAPTION>
Otter Tail Power Company
Consolidated Statements of Income
(Unaudited)
Three months ended
March 31,
1998 1997
------ ------
(Thousands of dollars)
<S> <C> <C>
Operating revenues
Electric $ 56,546 $ 58,400
Manufacturing 18,131 14,703
Health services 15,299 15,390
Other business operations 6,933 5,796
-------- --------
Total operating revenues 96,909 94,289
Operating expenses
Production fuel 8,868 7,992
Purchased power 8,257 7,373
Other electric operation and maintenance expenses 18,970 16,545
Special charges 9,522 -
Cost of goods sold 24,216 22,465
Other nonelectric expenses 12,157 10,740
Depreciation and amortization 6,488 6,335
Property taxes 2,873 3,098
-------- --------
Total operating expenses 91,351 74,548
Operating income
Electric 5,068 18,052
Manufacturing 1,265 1,439
Health services 2,127 1,272
Other business operations (2,902) (1,022)
-------- --------
Total operating income 5,558 19,741
Other income and deductions - net 442 1,122
Interest charges 3,949 4,542
-------- --------
Income before income taxes 2,051 16,321
Income taxes 112 5,631
-------- --------
Income before cumulative effect
of change in accounting principle 1,939 10,690
Cumulative effect of change
in accounting principle - net-of-tax 3,819 -
-------- --------
Net income 5,758 10,690
Preferred dividend requirements 590 589
-------- --------
Earnings available for common shares $ 5,168 $ 10,101
======== ========
Basic and diluted earnings per average common share:
Before cumulative effect of
change in accounting principle $ 0.12 $ 0.87
Cumulative effect of
change in accounting principle 0.32 -
-------- --------
Basic and diluted earnings per average common share - net $ 0.44 $ 0.87
======== ========
Average number of common shares outstanding 11,740,465 11,569,323
Dividends per common share $ 0.480 $ 0.465
See accompanying notes to consolidated financial statements
- 4 -
</TABLE>
<TABLE>
<CAPTION>
Otter Tail Power Company
Consolidated Statements of Cash Flows
(Unaudited)
Three months ended
March 31,
1998 1997
------ ------
(Thousands of dollars)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,758 $ 10,690
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization 9,018 9,878
Deferred investment tax credit - net (294) (294)
Deferred income taxes (1,917) (498)
Change in deferred debits and other assets 213 751
Change in noncurrent liabilities and deferred credits 605 (400)
Allowance for equity (other) funds used during construction (29) -
(Gains)/Losses from investments and disposal of noncurrent assets 195 (906)
Voluntary early retirement program charges 6,305 -
Asset impairment losses 3,217 -
Cash provided by (used for) current assets & current liabilities:
Change in receivables, materials and supplies (1,707) (3,101)
Change in other current assets (7,664) 649
Change in payables and other current liabilities (4,587) (3,710)
Change in interest and income taxes payable 2,665 3,021
-------- --------
Net cash provided by operating activities 11,778 16,080
Cash flows from investing activities:
Gross capital expenditures (3,592) (10,632)
Proceeds from disposal of noncurrent assets 1,078 485
Purchases of marketable securities - (5)
Proceeds from sales of marketable securities - 313
Change in other investments (408) 527
-------- --------
Net cash used in investing activities (2,922) (9,312)
Cash flows from financing activities:
Change in short-term debt - net (2,100) (8,400)
Proceeds from issuance of common stock 1,292 2,311
Proceeds from issuance of long-term debt 6,853 20,258
Payments for debt and common stock issuance expense (81) -
Payments for retirement of long-term debt (3,946) (13,092)
Dividends paid (6,222) (6,127)
-------- --------
Net cash used in financing activities (4,204) (5,050)
Net change in cash and cash equivalents 4,652 1,718
Cash and cash equivalents at beginning of year 5,301 2,094
-------- --------
Cash and cash equivalents at March 31 $ 9,953 $ 3,812
======== ========
Supplemental cash flow information
Cash paid for interest and income taxes:
Interest (net of amount capitalized) $ 4,691 $ 5,822
Income taxes $ 1,193 $ 1,846
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 1998 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, 1997, 1996, and 1995 included in the Company's
1997 Annual Report to the Securities and Exchange Commission on Form 10-K.
Because of seasonal and other factors, special charge items and the
cumulative effect of a change in accounting principle related to the
initial recording of unbilled revenue for the states of Minnesota and South
Dakota, the earnings for the three-month period ended March 31, 1998,
should not be taken as an indication of earnings for all or any part of the
balance of the year.
Special charges
- ---------------
In January 1998 the Company announced a voluntary early retirement program
for all nonunion employees age 55 and over. The offer of early retirement
was accepted by 55 of 67 eligible employees during the enrollment period
that ended March 23, 1998. Most of the costs of the program will be funded
through the Company's pension plan. The Company recorded a noncash charge
to operating expenses of $6,305,000 ($3,783,000 net-of-tax or $0.32 per
share) for special termination benefits and the recognition of previously
unrecognized prior service costs related to pension and postretirement
benefits. As a result of the reduction in the number of utility employees
through this program, the electric utility company will experience a
reduction in payroll costs in 1998 and future years.
In March 1998 the Company recorded a noncash accounting charge related to
the impairment of its Quadrant Co. waste incineration plant. Due to recent
developments which may require additional capital investment in the plant
to be in compliance with current air-pollution rules, recent reductions in
waste flows and related revenue, and increasing costs associated with
repairs and maintenance due to the age of the facility, Quadrant has not
been able to meet its interest payments on its debt. Since projected
future cash flows from this facility are now less than the carrying value
of the assets, an impairment loss has been recognized. The impaired assets
include buildings, machinery and equipment used to burn waste. The revised
carrying value of this group of assets was calculated on the basis of
discounted estimated future cash flows and resulted in a pre-tax noncash
charge of $2,500,000 ($1,500,000 net-of tax or $0.13 per share), which
includes $248,000 of estimated selling or disposal costs.
The recognition of this impairment is in accordance with the provisions of
Statement of Financial Accounting Standards No. 121 - Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. The $2,500,000 impairment loss is included in operating expenses under
the caption of special charges and in operating income from other business
operations on the Company's Statement of Income for the three months ended
March 31, 1998. Although the recognition of this impairment loss has no
cash flow impact, the reduction in future plant depreciation expense of
approximately $800,000 annually will have a positive impact on the
Company's net income and earnings per share in the remaining quarters of
1998 and in 1999 and 2000.
In the first quarter of 1998, as a result of an unfavorable court decision
related to the construction of a rail spur intended to serve Big Stone
Plant, the Company wrote off $717,000 ($430,000 net-of tax or $0.04 per
share) in project related costs.
Cumulative effect of change in accounting principle
- ---------------------------------------------------
In the first quarter of 1998 the Company changed its method of revenue
recognition in Minnesota and South Dakota from meter reading dates to
energy delivery dates, resulting in the accrual of estimated unbilled
revenue from sales of electricity through the end of the accounting period.
This change results in better matching of revenues and expenses and is
consistent with predominant industry practice. The change is also
consistent with the way the Company has been recording electric revenue
from its North Dakota customers since 1995 under an order from the North
Dakota Public Service Commission. The cumulative effect of recording
Minnesota and South Dakota unbilled revenue as of January 1, 1998,
increased 1998 first quarter net income by $3,819,000 (net of income taxes
of $2,545,000) or $0.32 per share. If the Company had been recording
Minnesota and South Dakota unbilled revenue in previous accounting periods,
its reported 1997 first quarter electric revenue would have been reduced by
$1,912,000 and its reported net income would have been reduced by
$1,147,000 or $0.10 per share.
Comprehensive income
- --------------------
Elements of comprehensive income for the three month period ended March 31,
1998, include net income of $5,758,000 and other comprehensive income of
$148,000 (net of $105,000 in deferred taxes) related to the recognition of
an additional $253,000 in unrealized gains on "available-for-sale"
securities held by a Company subsidiary. Elements of comprehensive income
for the three month period ended March 31, 1997, include net income of
$10,690,000 along with a $359,000 reduction in accumulated other
comprehensive income related to the reversal of previously recorded
unrealized gains on "available-for-sale" securities which were sold or
reclassified in the first quarter of 1997.
Common shares
- -------------
The Company issued 34,520 common shares in the first quarter of 1998 under
its Automatic Dividend Reinvestment and Share Purchase Plan.
Acquisitions
- ------------
On May 1, 1998, the Company acquired PAM Natural Gas, Inc. (PAM), for $1.8
million in stock purchased on the open market and an earn out amount to be
paid over seven years contingent upon the achievement of certain financial
results. PAM is a Sioux Falls, South Dakota based marketer of natural gas
to commercial and institutional customers in Iowa, South Dakota, North
Dakota and Minnesota.
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, governmental
and regulatory action, the competitive environment, economic factors,
weather conditions, and other factors discussed under "Factors affecting
future earnings" on pages 28-30 of the Company's 1997 Annual Report to
Shareholders, which is incorporated by reference in the Company's Form 10-K
for the fiscal year ended December 31, 1997. 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 $11,778,000 as shown on the
Consolidated Statement of Cash Flows for the three months ended March 31,
1998, combined with funds on hand of $5,301,000 at December 31, 1997,
allowed the Company to pay dividends, finance its capital expenditures, and
repay $2,100,000 of short-term debt outstanding at December 31, 1997, in
the first three months of 1998. The Company's initiative to reduce capital
expenditures is reflected in the $7,040,000 reduction in this category in
the first three months of 1998, as compared to the same period in 1997. At
March 31, 1998, the Company and its subsidiaries had $47.3 million
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 1998-2002 consolidated capital expenditures.
Additional short-term or long-term financing will be required in the period
1998-2002 in connection with the maturity of First Mortgage Bonds and other
long-term debt and 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.
Although the Company continues to make capital investments to improve and
enhance system reliability and customer service, the minor increase in
electric plant in service, commensurate with the decrease in construction
work in progress, reflects the Company's initiative to reduce capital
expenditures. The decrease in subsidiary companies plant is mainly due to
the $7.2 million ($2.25 million net of accumulated depreciation) impairment
write-down of the Quadrant Co. waste incineration plant.
The $2.1 million decrease in other assets reflects a $2.5 million reduction
in net pension assets related to the Company's voluntary early retirement
program. The decrease in other accounts receivable of $1.9 million is
mainly due to the timing of payments for the operation of Big Stone Plant
from the Plant's joint owners and the timing of advance payments to the
Coyote Plant operators. The $3.0 million increase in inventory, materials
and operating supplies reflects a build up at the Company's construction
and manufacturing subsidiaries in preparation for the summer construction
season and to accommodate increased sales. The $2.4 million decrease in
deferred income taxes and the $6.0 increase in accrued utility revenues are
related to the initial recording of Minnesota and South Dakota unbilled
revenues. The increase in other current assets of $1.7 million reflects an
increase in costs in excess of billings at one of the Company's
manufacturing subsidiaries on two major pieces of equipment scheduled for
installation at the customers plant sites in April and June. The write-off
of $717,000 in costs related to the Big Stone Plant rail spur project is
reflected in the reduction in other deferred debits.
The combined increase in common shares, par value and premium on common
shares of $1.3 million is due to the issuance of 34,520 shares of common
stock under the Company's Automatic Dividend Reinvestment and Share
Purchase Plan. The increase in sinking fund requirements and current
maturities reflects a normal seasonal increase in credit line usage at the
Company's manufacturing and construction subsidiaries. The decrease in
accounts payable, which is normal for the Company in the first quarter,
includes a $1.4 million decrease in payables to the Company's Big Stone and
Coyote Plant partners as a result of year-end reclassifications, and a
$1.05 million decrease in billings in excess of costs at the Company's
health services subsidiary. Accrued salaries and wages decreased as a
result of the payment of 1997 accrued employee incentives and the reduction
in accrued benefits to voluntary early retirement program participants.
The decrease in interest accrued is due to the timing of interest payments
on the Company's First Mortgage Bonds, the majority of which are due in the
first and third quarters of the year. The increase in federal and state
taxes accrued is related to the timing of estimated quarterly tax payments
due in December and April.
The increase in noncurrent liabilities of $4.6 million is due to the
recognition of special termination benefits and unrecognized prior service
costs related to pension and postretirement benefits as a result of the
Company's voluntary early retirement program. The $3.6 million decrease in
accumulated deferred income taxes is due to the $6.3 million expense
accrual for the Company's voluntary early retirement program and the
reversal of $1.0 million in deferred taxes related to the Quadrant Co.
waste incineration plant.
Material Changes in Results of Operations
- -----------------------------------------
The 3.2% decrease in electric operating revenue for the quarter ended March
31, 1998, as compared to the same period in 1997, is due to a 6.9% decrease
in retail revenue partially offset by a 40% increase in power pool sales
and a 51% increase in other electric revenue. The decrease in retail
revenue is mainly due to a combination of two factors: (1) retail mwh sales
are down 3.9% as a result of significantly milder weather in the first
three months of 1998 -- heating degree days were down 19.4% from the first
quarter of 1997 and (2) cost-of-energy revenues were $2,263,000 lower in
the first quarter of 1998 than in the first quarter of 1997 as a result of
the Company having to purchase replacement power during the overhaul shut
down of Big Stone Plant in November 1996. The recovery of fuel and
purchased power costs through the cost-of-energy adjustment mechanism in
retail rates lags two to four months behind the incurring of those costs.
Had the Company been recording unbilled revenue for Minnesota and South
Dakota prior to 1998, electric revenues in the first quarter of 1997 would
have been $1,912,000 less than reported.
The increase in power pool sales is related to an increase in energy
available for sale due to the milder winter, and increased sales efforts.
Increases in wheeling revenues, Midcontinent Area Power Pool transmission
service charges, Minnesota conservation improvement program incentive
accruals, and integrated transmission system deficiency payments from other
utilities all contributed to the increase in other electric revenue.
Production fuel expenses increased 11.0% in the three months ended March
31, 1998, as compared to the three months ended March 31, 1997, as a result
of a 13.5% increase in mwhs generated. Purchased power expenses increased
by 12.0% over the same comparable periods despite a decrease in mwhs
purchased. The increase in mwhs generated provided for the increase in
power pool sales. The inverse relationship of decreased revenues and
increased fuel and purchased power costs is due to three factors: (1)
timing differences between the recognition of costs and revenues related to
the cost-of-energy adjustment mechanism, (2) timing differences related to
Minnesota and South Dakota unbilled revenues not being recorded at year-end
1996, and (3) an increase in the cost per mwh of purchased power.
The increase in other electric operation and maintenance expenses for the
quarter ended March 31, 1998, as compared to the same period in 1997, is
primarily due to four factors: a 3.5% average general wage increase, an
increase in outside service expenditures, a decrease in labor
capitalization related to a decrease in construction activity, and a change
in accounting related to the capitalization of administrative and general
(A&G) expenses. In the first quarter of 1997, $560,000 of A&G expenses were
transferred to capital. In 1998 the Company discontinued the
capitalization of certain A&G expenses on capital projects. This change in
A&G accounting treatment is being made to reduce future fixed utility costs
in response to industry deregulation.
The $9,522,000 in special charges recorded in the first quarter of 1998
represents three items: (1) a noncash charge of $6,305,000 associated with
a voluntary early retirement program offered by the Company, (2) a
$2,500,000 impairment loss associated with the Quadrant Co. waste
incineration plant, and (3) the write-off of $717,000 in accumulated costs
related to a rail spur project at Big Stone Plant. (See "Special charges"
in notes to financial statements on page 6 for further information
including the net-of-tax and earnings per share impact of these charges.)
The breakdown of cost of goods sold and other nonelectric expenses by
business segments other than electric are as follows:
Three months ended March 31
Cost of goods sold Other nonelectric expenses
------------------ --------------------------
1998 1997 1998 1997
------ ------ ------ ------
(in thousands)
Manufacturing $14,043 $10,951 $ 2,695 $ 2,164
Health services 6,867 8,307 6,189 5,680
Other business operations 3,306 3,207 3,273 2,896
------- ------- ------- -------
Total $24,216 $22,465 $12,157 $10,740
======= ======= ======= =======
Four of the Company's six manufacturing subsidiaries recorded increased
revenues on increased sales for the three months ended March 31, 1998, as
compared to the three months ended March 31, 1997. However, increases in
manufacturing costs of goods sold and other nonelectric expenses combined
with decreased revenue from the two other manufacturing subsidiaries for
the same comparable periods resulted in a $174,000 decrease in
manufacturing operating income.
A reclassification of $326,000 to health services cost of goods sold from
health services other nonelectric expenses was made for the three months
ended March 31, 1997, related to the medical imaging services company
acquired in April 1996 in order to report these costs and expenses in a
manner consistent with previously acquired medical imaging services
companies.
The decrease in health services cost of goods sold for the three months
ended March 31, 1998, as compared to the same period in 1997, is related to
inventory cost adjustments in the first quarter of 1997 and decreased sales
of medical equipment in the first quarter of 1998. The increase in health
services other nonelectric expenses is related to an increase in medical
imaging services delivered in the first quarter of 1998, as compared to the
first quarter of 1997. The increased service revenue offset most of the
decrease in revenue from sales of medical imaging equipment and, in
combination with the decrease in cost of goods sold, resulted in an
$855,000 increase in health services operating income.
In other business operations, the Company's construction, media and
telecommunications subsidiaries all reported increased revenue in the first
quarter of 1998, as compared to the first quarter of 1997. Excluding the
Quadrant Co. impairment loss, increased revenues from other business
operations well in excess of the increases in cost of goods sold and other
nonelectric expenses for this business segment would have resulted in an
increase in other business operations operating income of $620,000.
The decrease in property taxes for the three months ended March 31, 1998,
as compared to the same period in 1997, is due to reductions in Minnesota
commercial and industrial property class rates and lower assessed values on
Minnesota utility property. Although the lower class rates and assessed
values were effective for 1997 property taxes, the changes occurred after
the first quarter of 1997.
The $680,000 decrease in other income and deductions - net for the quarter
ended March 31, 1998, as compared to the quarter ended March 31, 1997, is
related to the sale and reclassification of investments held by the
Company's telecommunications subsidiary, Midwest Information Systems, Inc.
The decrease in interest charges for the three months ended March 31, 1998,
as compared to the same period in 1997, is a direct result of the reduction
of debt related to a $16 million sale/leaseback transaction entered into by
Mid-States' medical imaging services subsidiary in November 1997. Mid-
States' refinancing of various subsidiary fixed and variable interest rate
debt with $22.5 million in 7.8% fixed rate debt in November 1997, along
with a decrease in the need for short-term financing to fund operations in
the first quarter of 1998, also contributed to the decrease in interest
charges.
The decrease in income taxes for the three months ended March 31, 1998, as
compared to the three months ended March 31, 1997, is primarily due to the
decrease in income before taxes for the same comparable periods.
PART II. OTHER INFORMATION
--------------------------
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
March 31, 1998.
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 15, 1998
------------
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of March 31, 1998, and the Consolidated
Statement of Income for the three months ended March 31, 1998, 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-31-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 451,217
<OTHER-PROPERTY-AND-INVEST> 95,173
<TOTAL-CURRENT-ASSETS> 97,371
<TOTAL-DEFERRED-CHARGES> 12,018
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 655,779
<COMMON> 58,828
<CAPITAL-SURPLUS-PAID-IN> 36,316
<RETAINED-EARNINGS> 115,989
<TOTAL-COMMON-STOCKHOLDERS-EQ> 211,133
18,000
20,831
<LONG-TERM-DEBT-NET> 187,033
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 18,197
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 200,585
<TOT-CAPITALIZATION-AND-LIAB> 655,779
<GROSS-OPERATING-REVENUE> 96,909
<INCOME-TAX-EXPENSE> 112
<OTHER-OPERATING-EXPENSES> 91,351
<TOTAL-OPERATING-EXPENSES> 91,463
<OPERATING-INCOME-LOSS> 5,446
<OTHER-INCOME-NET> 442
<INCOME-BEFORE-INTEREST-EXPEN> 5,888
<TOTAL-INTEREST-EXPENSE> 3,949
<NET-INCOME> 5,758
590
<EARNINGS-AVAILABLE-FOR-COMM> 5,168
<COMMON-STOCK-DIVIDENDS> 5,633
<TOTAL-INTEREST-ON-BONDS> 3,843
<CASH-FLOW-OPERATIONS> 11,778
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
