-----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, Sz9DLrBuSSCCmjhCaPW+sg1UjLzHDhU/U/N+8YBTWjNplOWwH0FpO+YAmyObwfPk mMiay9i6BGh9qacR0S091A== 0000075129-98-000007.txt : 19980518 0000075129-98-000007.hdr.sgml : 19980518 ACCESSION NUMBER: 0000075129-98-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: SEC FILE NUMBER: 000-00368 FILM NUMBER: 98622931 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 MARCH 1998 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
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) 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
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Otter Tail Power Company Consolidated Balance Sheets -Liabilities- March 31, December 31, 1998 1997 ------ ------ (Unaudited) (Thousands of dollars) 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 -
Otter Tail Power Company Consolidated Statements of Income (Unaudited) Three months ended March 31, 1998 1997 ------ ------ (Thousands of dollars) 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 -
Otter Tail Power Company Consolidated Statements of Cash Flows (Unaudited) Three months ended March 31, 1998 1997 ------ ------ (Thousands of dollars) 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 -
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 ------------ EX-27 2
UT 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. 1,000 3-MOS DEC-31-1998 MAR-31-1998 PER-BOOK 451,217 95,173 97,371 12,018 0 655,779 58,828 36,316 115,989 211,133 18,000 20,831 187,033 0 0 0 18,197 0 0 0 200,585 655,779 96,909 112 91,351 91,463 5,446 442 5,888 3,949 5,758 590 5,168 5,633 3,843 11,778 0.44 0.44
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