-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D9elZydJwip9fnQv7EAYqYnenDeqX3OgFzc6gI3ShJqZOJBPMn89aJZKGIydSPVh xR7MmJFQyYAZGt7303YeBw== 0000075129-96-000027.txt : 19961115 0000075129-96-000027.hdr.sgml : 19961115 ACCESSION NUMBER: 0000075129-96-000027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: OTTER TAIL POWER CO CENTRAL INDEX KEY: 0000075129 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 410462685 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-00368 FILM NUMBER: 96661462 BUSINESS ADDRESS: STREET 1: 215 S CASCADE ST STREET 2: PO BOX 496 CITY: FERGUS FALLS STATE: MN ZIP: 56538-0496 BUSINESS PHONE: 2187398200 10-Q 1 10-Q SEPTEMBER 1996 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 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: November 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 - September 30, 1996 (Unaudited) and December 31, 1995 2 & 3 Consolidated Statements of Income - Three and Nine Months Ended September 30, 1996 and 1995 (Unaudited) 4 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1996 and 1995 (Unaudited) 5 Notes to Consolidated Financial Statements (Unaudited) 6 & 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7, 8, 9 & 10 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 11 Signatures 11 Part I. Financial Information Item 1. Financial Statements Otter Tail Power Company Consolidated Balance Sheets -Assets-
September 30, December 31, 1996 1995 (Unaudited) (Thousands of dollars) Plant: Electric plant in service $733,185 $715,305 Subsidiary companies 90,163 54,266 ________ ________ Total 823,348 769,571 Less accumulated depreciation and amortization 328,560 308,174 ________ ________ 494,788 461,397 Construction work in progress 21,522 16,285 ________ ________ Net plant 516,310 477,682 ________ ________ Investments 16,604 12,716 ________ ________ Intangibles -- net 21,329 18,902 ________ ________ Other assets 6,420 7,732 ________ ________ Current assets: Cash and cash equivalents 2,477 1,867 Temporary cash investments 47 2,208 Accounts receivable: Trade - net 30,822 31,184 Other 5,044 8,276 Materials and supplies: Fuel 2,770 3,322 Inventory, materials and operating supplies 22,268 19,408 Deferred income taxes 4,239 3,754 Accrued utility revenues 3,144 4,328 Other 8,523 4,427 ________ ________ Total current assets 79,334 78,774 ________ ________ Deferred debits: Unamortized debt expense and reacquisition premiums 4,334 4,687 Regulatory assets 5,512 5,727 Other 1,582 2,976 ________ ________ Total deferred debits 11,428 13,390 ________ ________ Total $651,425 $609,196 ======== ========
See accompanying notes to consolidated financial statements - 2 - Otter Tail Power Company Consolidated Balance Sheets -Liabilities-
September 30, 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 103,363 98,006 ________ ________ Total 189,599 184,242 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 187,391 168,261 ________ ________ Total capitalization 415,821 391,334 ________ ________ Current liabilities Short-term debt 20,350 -- Sinking fund requirements and current maturities 18,532 13,733 Accounts payable 26,408 27,828 Accrued salaries and wages 2,749 3,703 Federal and state income taxes accrued 395 393 Other taxes accrued 10,880 11,356 Interest accrued 2,001 3,509 Other 4,047 6,752 ________ ________ Total current liabilities 85,362 67,274 ________ ________ Noncurrent liabilities 15,121 13,498 ________ ________ Deferred credits Accumulated deferred income taxes 98,558 99,398 Accumulated deferred investment tax credit 20,113 20,994 Regulatory liabilities 13,928 14,500 Other 2,522 2,198 ________ ________ Total deferred credits 135,121 137,090 ________ ________ Total $651,425 $609,196 ======== ========
See accompanying notes to consolidated financial statements -3- Otter Tail Power Company Consolidated Statements of Income (Unaudited)
Three months ended Nine months ended September 30 September 30 1996 1995 1996 1995 (Thousands of dollars) (Thousands of dollars) Operating revenues Electric $45,261 $49,537 $147,079 $153,169 Health services 16,527 9,901 43,598 34,784 Manufacturing 15,356 10,040 45,334 25,915 Other business operations 15,722 11,570 34,833 24,950 _________ _________ _________ _________ Total operating revenues 92,866 81,048 270,844 238,818 Operating expenses Production fuel 6,031 7,090 21,632 24,072 Purchased power 6,513 7,822 19,010 23,326 Electric operation expenses 13,491 12,013 39,603 36,359 Electric maintenance 3,284 2,531 9,651 8,314 Cost of goods sold 32,620 20,049 85,294 53,321 Other nonelectric expenses 10,006 7,998 26,441 22,688 Depreciation and amortization 5,784 5,472 16,953 16,344 Property taxes 2,864 2,924 8,863 8,936 Income taxes 2,453 4,127 11,303 13,266 _________ _________ _________ _________ Total operating expenses 83,046 70,026 238,750 206,626 _________ _________ _________ _________ Operating income 9,820 11,022 32,094 32,192 Allowance for equity (other) funds used during construction 82 119 225 125 Other income and deductions and applicable taxes 605 (116) 1,883 57 _________ _________ _________ _________ Income before interest charges 10,507 11,025 34,202 32,374 Interest charges 4,397 3,875 12,248 11,277 Allowance for borrowed funds used during construction - credit (97) 3 (265) (94) _________ _________ _________ _________ Net income 6,207 7,147 22,219 21,191 Preferred dividend requirements 590 590 1,769 1,769 _________ _________ _________ _________ Earnings available for common shares $5,617 $6,557 $20,450 $19,422 ========= ========= ========= ========= Earnings per average common share $0.50 $0.59 $1.83 $1.74 ========= ========= ========= ========= Average number of common shares outstanding 11,180,136 11,180,136 11,180,136 11,180,136 Dividends per common share $0.45 $0.44 $1.35 $1.32 See accompanying notes to consolidated financial statements
-4- Otter Tail Power Company Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 1996 1995 (Thousands of dollars) Cash flows from operating activities: Net income $22,219 $21,191 Adjustments to reconcile net income to net cash Provided by operating activities: Depreciation and amortization 25,557 21,221 Deferred investment tax credit - net (882) (882) Deferred income taxes (2,609) 713 Change in deferred debits and other assets 4,578 1,446 Change in noncurrent liabilities and deferred credits 831 2,397 Allowance for equity (other) funds used during construction (225) (125) Losses from investments and disposal of noncurrent assets 496 1,149 Cash provided by (used for) current assets & current liabilities: Change in receivables, materials and supplies 4,310 1,815 Change in other current assets (975) (427) Change in payables and other current liabilities (2,469) (3,893) Change in interest and income taxes payable (1,797) (2,677) ________ ________ Net cash provided by operating activities 49,034 41,928 Cash flows from investing activities: Gross capital expenditures (50,613) (28,837) Proceeds from disposal of noncurrent assets 4,136 2,169 Purchase of businesses, net of cash acquired (7,859) (1,634) Change in temporary cash investments 2,161 38 Change in marketable securities and other investments (8,741) (8,455) ________ ________ Net cash used in investing activities (60,916) (36,719) Cash flows from financing activities: Change in short-term debt - net 20,350 11,100 Proceeds from issuance of long-term debt 90,930 37,970 Payments for retirement of long-term debt (81,926) (38,556) Dividends paid (16,862) (16,527) ________ ________ Net cash provided by (used in) financing activities 12,492 (6,013) Net change in cash and cash equivalents 610 (804) Cash and cash equivalents at beginning of year 1,867 1,852 ________ ________ Cash and cash equivalents at September 30 $2,477 $1,048 ======== ======== Supplemental cash flow information Cash paid for interest and income taxes: Interest (net of amount capitalized) $13,231 $11,952 Income taxes $14,494 $14,066
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 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 and nine-month periods ended September 30, 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. On June 1, 1996, the FCC approved the acquisition of two radio stations in the Fargo, ND--Moorhead, MN market by Mid-States Broadcasting, a subsidiary of the Company. On October 16, 1996, the FCC approved the acquisition of a third radio station in that market area in 1996. In August of 1996, Mid-States Broadcasting announced the purchase of another Fargo radio station. An application for approval of the purchase was filed with the FCC on September 19, 1996. This would bring to six the number of radio stations owned by the Company in the Fargo, ND--Moorhead, MN market, the maximum allowed in one market area under current FCC rules. The Company's telecommunications subsidiary acquired a cable TV system serving the community of Milbank, SD on July 1, 1996. These completed and pending acquisitions will be accounted for under the purchase method of accounting. The total price for the completed acquisitions was $10.2 million. The combined revenues of the acquired companies totaled approximately $24.3 million in 1995. On August 8, 1996, the Company's telecommunications subsidiary signed a letter of intent to acquire The Peoples Telephone Company ("Peoples") of Bigfork, MN, subject to negotiation of a definitive purchase agreement, completion of a due diligence investigation, and approval by regulatory authorities and by the Boards of Directors of both companies. Peoples, with 1,862 access lines serving five communities in northern Minnesota, had 1995 revenues of $1.5 million. The Company anticipates that, if completed, this business combination will be accounted for under the pooling of interests method. Quadrant Co. continues to provide primary service to one of its two steam customers under an agreement which can be terminated by either party upon one year's prior written notice. Quadrant is currently providing backup service to its other steam customer under an agreement that commenced on June 1, 1996 and terminates on May 31, 1998, subject to earlier termination by either party upon 90 days' written notice. Quadrant also continues to burn municipal solid waste for three Minnesota counties under a contract extension which will expire in April of 1997. Two Minnesota counties, representing about 30% of Quadrant's waste volume, did not renew or extend their contracts for waste incineration which expired in September of 1996. Quadrant is in the process of negotiating a new waste incineration agreement with the representative of the remaining counties. New pollution rules for Minnesota municipal waste incinerators have recently been issued. The impact of these rules on Quadrant Co. operations is currently being evaluated. The costs to comply with new pollution rules combined with a decline in future revenues from decreased steam sales and the loss of two waste customers threaten the economic viability of the plant, which had a net undepreciated book value of approximately $3.4 million on September 30, 1996. The Company is an investor in a North Dakota limited liability company constructing a food processing plant. A letter of credit established in September of 1995 providing for $3.5 million in capital commitment payments to the limited liability company and set to expire on August 1, 1996, has been extended to February 1, 1997. Management expects the remaining commitment, $1.1 million at September 30, 1996, to be drawn by December 31, 1996. Under Statement of Financial Accounting Standards No. 87, employers are required to recognize liabilities and expenses associated with pension plans based on actuary valuations. In the second quarter of 1996, the Company requested restated actuary reports for its Executive Survivor and Supplemental Retirement Program amended July 1, 1994, based on revised assumptions regarding expected retirement age and projected benefits under the July 1, 1994 plan amendment, which expanded the plan to include non- officer upper level management employees. The restatement will result in a one-time expense adjustment of $2.59 million for the year 1996, along with a $711,000 reduction in the $1,426,000 additional minimum liability reflected on the Company's December 31, 1995 balance sheet. The Company recognized $864,000 of the expense adjustment as additional operating expense in the third quarter of 1996. Under Statement of Financial Accounting Standards No. 106, employers are required to accrue the expected cost of providing postretirement benefits other than pensions during the years qualifying employees provide service to the employer. During the second quarter of 1996 actuary valuations for postretirement benefits other than pensions were computed to reflect a change in assumptions related to group life insurance. The change in actuarial assumptions will result in a $1.26 million reduction in 1996 expenses related to a reduction in expected postretirement benefit obligations. 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 $49,034,000 along with net proceeds from the issuance of short-term debt of $20,350,000 as shown on the Consolidated Statement of Cash Flows for the nine months ended September 30, 1996, combined with funds on hand of $4,075,000 at December 31, 1995, allowed the Company to finance its capital expenditures and pay dividends, and provided for a majority of its investment in additional nonutility businesses. At September 30, 1996, the Company had $28,252,000 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 electric utility 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 estimated capital project expenditures, 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 $9,004,000, for the nine months ended September 30, 1996, were used to finance equipment purchases at the Company's medical and manufacturing subsidiaries and to finance a portion of the investment in additional nonutility businesses. Debt repayments and financing activities at the subsidiary level in the third quarter of 1996 resulted in a shift of approximately $6 million in debt from current to long-term status. On August 30, 1996, the Company filed a shelf registration statement with the Securities and Exchange Commission for the issuance of up to $50,000,000 of its debt securities, which may be sold from time to time in one or more series, the proceeds of which will be used to repay short-term and other indebtedness, to redeem one or more of the outstanding series of the Company's First Mortgage Bonds, and for general corporate purposes. On August 30, 1996, the Company also filed a shelf registration statement with the Securities and Exchange Commission for the issuance of up to 1,000,000 Common Shares pursuant to the Company's Automatic Dividend Reinvestment and Share Purchase Plan, which will permit shares purchased by shareholders, employees, or customers who participate in the plan to be either new issue Common Shares or Common Shares purchased on the open market. Proceeds from newly issued Common Shares will be used for general corporate purposes. Business acquisitions in the first nine months of 1996 accounted for: $17,861,000 of the $35,897,000 increase in subsidiary companies plant, the entire increase in intangible assets, $12,791,000 of the $19,130,000 increase in long-term debt, and $4,793,000 of the $4,799,000 increase in sinking fund requirements and current maturities. The remainder of the increase in subsidiary companies plant reflects plant and equipment purchases in all segments of subsidiary operations. The increases in electric plant in service and construction work in progress for the first nine months of 1996 are due to new construction and capital expenditures in all electric utility plant areas: production, transmission, distribution, and general. The increase in investments includes $1.3 million invested in limited partnerships that invest in tax- credit qualifying affordable housing projects, and $2.1 million related to business acquisitions and the reclassification of a note receivable. The decrease in other receivables is due to the timing of payments received from the Company's jointly-owned plant partners, the reclassification of a note receivable from current to long-term status, and the sale of two large notes to a finance company by the Company's health services subsidiary. The increase in inventory is related to purchases of medical equipment for new installations and increased sales at the Company's manufacturing subsidiaries. The increase in other current assets includes $1,758,000 in proceeds from the sale of Big Stone Plant's steel coal cars. The funds are being held by the trustee for the Company's First Mortgage Bonds and are expected to be released in the fourth quarter of 1996. The remainder of the increase in other current assets is mainly due to material and production costs incurred on construction jobs ahead of allowable billing schedules. The decrease in other deferred debits reflects increased allocation of deferred overhead costs related to normal seasonal fluctuations in electric construction activity. The decrease in accounts payable is mainly due to a normal seasonal decline in sales at the electric utility. The decrease in interest accrued is due to the timing of bond interest payments, the majority of which are due in the first and third quarters of the calendar year. The reduction in other current liabilities reflects payments of $2.7 million in capital commitments during the first nine months of 1996. The increase in noncurrent liabilities reflects increases in employee benefit provisions resulting mainly from the restatement of the Executive Survivor and Supplemental Retirement Program. Material Changes in Results of Operations The 8.6% decrease in electric operating revenues for the quarter ended September 30, 1996, as compared to the same period in 1995, is the combined result of a 3.0% decrease in retail revenue, an 83.8% decrease in contractual power pool sales revenue and a 46.5% decrease in noncontractual power pool sales revenue. While retail revenue decreased 3.0% for the three month period ended September 30, 1996, as compared to the same period in 1995, retail kwh sales remained relatively stable. The decrease in retail revenue is the result of lower fuel costs at Big Stone Plant being passed on to customers through the Fuel Adjustment Clause and lower rates charged to one of the Company's largest industrial customers under the Company's recently developed Large General Service Time of Use Rider. The decrease in contractual power pool sales revenue reflects a 40MW firm power sale in the summer of 1995 while there was no similar sale in 1996. The 4.0% decrease in electric operating revenues for the nine months ended September 30, 1996 compared to the nine months ended September 30, 1995, is primarily due to a 42.6% decrease in noncontractual power pool sales. A number of factors have contributed to the decreases in noncontractual power pool sales for both the three and nine month periods. Midcontinent Area Power Pool (MAPP) line loading relief procedures have resulted in schedule cuts. The summer of 1996 was milder than the summer of 1995. In addition, high water levels in the summer of 1996 furnished MAPP's hydro generators with an excess of low-priced electricity to market. Many utilities within and outside of MAPP have renegotiated and lowered their freight and fuel costs making power marketing more competitive. Many utilities have increased the time span between unit maintenance outages and shifted outage times away from traditional overhaul periods, resulting in increases in on-line availability. MAPP transmission service charges have made it less economical to ship energy over longer distances. In addition, lower plant availability in 1996 related to a scheduled outage for repairs at Hoot Lake Unit 3 in February and March contributed to the decrease in noncontractual power pool sales in the first nine months of 1996. Production fuel expense decreased for the three and nine month periods ended September 30, 1996, as compared to the same periods in 1995, by 14.9% and 10.1%, respectively. Fuel costs and generation declined at all three of the Company's major power plants for the three and nine month periods ended September 30, 1996, compared to the same periods in 1995, except for year-to-date generation at Big Stone Plant. Big Stone Plant's fuel costs for the quarter and nine months ended September 30, 1996, compared to the same periods in 1995, are down 11.4% and 10.7%, respectively, while generation decreased only 6.5% for the quarter and showed an increase of 2.5% for the nine months ended September 30, 1996, compared to the same periods in 1995. The price variances at Big Stone Plant are the result of switching from lignite to subbituminous coal in August of 1995. Two factors contributing to the decrease in system-wide generation are lower demand as a result of fewer opportunity sales, and maintenance shutdowns at Hoot Lake Plant in early 1996 and at Big Stone, which began a scheduled ten-week major overhaul on September 6, 1996. The decreases in purchased power for the quarter and nine months ended September 30, 1996, as compared to the same periods in 1995, reflect decreases in kwh purchases for resale of 47% and 43% for the respective periods. The decreases in purchases for resale correlate to the decreases in noncontractual power pool sales. The increases in electric operation expenses for the three and nine month periods ended September 30, 1996, as compared to the three and nine month periods ended September 30, 1995, are due to expenses related to coal contract and freight negotiations, increased benefit costs resulting from revised actuarial assumptions for the Company's Executive Survivor and Supplemental Retirement Plan, and increased payments for contracted services in 1996. The increases in electric maintenance expenses for the three and nine month periods ended September 30, 1996, as compared to the same periods a year ago, are due to increased production plant maintenance expenses, especially at Hoot Lake Unit 3 which was down for scheduled maintenance in February and March of 1996 and had a turbine rebuild and steam chest replacement in July of 1996. Big Stone Plant showed an increase in maintenance expenses for the quarter as a result of beginning a major overhaul on September 6, 1996. Transmission and distribution plant maintenance expenses are up significantly in the third quarter of 1996, as compared to the third quarter of 1995, due to increased expenditures for tree trimming to enhance system reliability. The breakdown of cost of goods sold and other nonelectric expenses by business segments other than electric are as follows: Three months ended September Cost of goods sold Other nonelectric expenses 1996 1995 1996 1995 (in thousands) Health services $10,661 $5,749 $4,229 $3,965 Manufacturing $11,606 $7,407 $2,204 $1,546 Other business operations $10,353 $6,893 $3,573 $2,487 ------- ------- ------- ------ Total $32,620 $20,049 $10,006 $7,998 ======= ======= ======= ====== Nine months ended September 30 Cost of goods sold Other nonelectric expenses 1996 1995 1996 1995 (in thousands) Health services $28,260 $20,427 $11,759 $12,085 Manufacturing $34,029 $19,526 $5,744 $3,681 Other business operations $23,005 $13,368 $8,938 $6,922 ------- ------- ------- ------- Total $85,294 $53,321 $26,441 $22,688 ======= ======= ======= ======= The increases in health services revenue and cost of goods sold for both the three and nine month periods ended September 30, 1996, as compared to the same periods in 1995, are due to the acquisitions of two health services companies: one on February 1, 1996, and a second more significant acquisition on April 1, 1996. The decrease in health services other nonelectric expenses for the nine months ended September 30, 1996, compared to the nine months ended September 30, 1995, reflects decreased sales activity in the first quarter of 1996. Health services other nonelectric expenses increased in both the third and second quarters of 1996 over the same periods in 1995, by $264,000 and $409,000, respectively, as a result of the April 1, 1996 acquisition. However, these increases were not significant enough to offset a $999,000 decrease in this category in the first quarter of 1996, as compared to the first quarter of 1995, as a result of the decreased sales activity in 1996. The increases in manufacturing operating revenue for the three and nine month periods ended September 30, 1996, as compared to the same periods in 1995, reflect revenues from Northern Pipe Products, which was acquired in October of 1995, and increased sales at BTD Manufacturing. The increases in manufacturing cost of goods sold and other nonelectric expenses for both the three and nine month periods ended September 30, 1996, as compared to the same periods in 1995, are directly related to the increases in manufacturing revenue. The increases in other business operations revenue for the quarter and nine months ended September 30, 1996, as compared to the quarter and nine months ended September 30, 1995, reflect material cost pass through billings by the Company's construction subsidiaries on material intensive jobs in 1996, and 1996 inaugural season revenues from the Fargo-Moorhead RedHawks baseball franchise. The increases in material costs billed are also reflected in increased cost of goods sold from other business operations for the same comparable periods. Increases in other business operations other nonelectric expenses for the three and nine month periods ended September 30, 1996, as compared to the same periods in 1995, are due to increased construction activity, RedHawks first-season operations, and 1996 radio station acquisitions. The increases in other income and deductions and applicable taxes for the three and nine month periods ended September 30, 1996, as compared to the same periods in 1995, reflect increases in miscellaneous revenue from the subsidiaries in 1996, the initial recording of affordable housing tax credits in 1996, and losses on marketable securities recognized in 1995 related to the Company's preferred stock investment program which ended in October of 1995. The increases in interest charges for the three and nine month periods ended September 30, 1996, as compared to the same periods in 1995, are related to increased debt at the Company's subsidiaries due to acquisitions and growth and to an increase in the use of short-term debt at the parent company level in the first nine months of 1996 compared to the first nine months 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 September 30, 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: November 13, 1996 EX-27 2 FINANCIAL DATA SCHEDULE
UT This schedule contains summary financial information extracted from the Consolidated Balance Sheet as of September 30, 1996, and the Consolidated Statement of Income for the nine months ended September 30, 1996, and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1996 SEP-30-1996 PER-BOOK 449,718 110,945 79,334 11,428 0 651,425 55,901 30,335 103,363 189,599 18,000 20,831 187,391 0 0 0 18,532 0 0 0 217,072 651,425 270,844 11,303 227,447 238,750 32,094 2,108 34,202 11,983 22,219 1,769 20,450 15,093 11,751 49,034 1.83 1.83
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