-----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, IcRpRT+g2HNVfZ13gYF6I/Cf7aek2nE98Y79hvE4EJvOp+plvW31vOlbWQs8tD05 kr2F5H+UHqjHjAHffr4Cuw== /in/edgar/work/0000075129-00-000013/0000075129-00-000013.txt : 20001115 0000075129-00-000013.hdr.sgml : 20001115 ACCESSION NUMBER: 0000075129-00-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OTTER TAIL POWER CO CENTRAL INDEX KEY: 0000075129 STANDARD INDUSTRIAL CLASSIFICATION: [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: 765771 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 0001.txt 10-Q SEPT 2000 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, 2000 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, 2000 - 23,852,102 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, 2000 (Unaudited) and December 31, 1999 2 & 3 Consolidated Statements of Income - Three and Nine Months Ended September 30, 2000 and 1999 (Unaudited) 4 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2000 and 1999 (Unaudited) 5 Notes to Consolidated Financial Statements (Unaudited) 6-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-16 Item 3. Quantitative and Qualitative Disclosures about Market Risk 17 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 17 SIGNATURES 17 PART I. FINANCIAL INFORMATION ------------------------------ Item 1. FINANCIAL STATEMENTS -------------------- OTTER TAIL POWER COMPANY CONSOLIDATED BALANCE SHEETS -ASSETS- SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------- ------------ (Unaudited) (Thousands of dollars) PLANT: Electric plant in service $ 789,681 $ 779,037 Diversified operations 115,927 99,558 --------- --------- TOTAL 905,608 878,595 Less accumulated depreciation and amortization 405,140 386,618 --------- --------- 500,468 491,977 Construction work in progress 13,469 10,979 --------- --------- NET PLANT 513,937 502,956 --------- --------- INVESTMENTS 18,356 19,502 --------- --------- INTANGIBLES -- NET 44,744 23,311 --------- --------- OTHER ASSETS 8,565 6,141 --------- --------- CURRENT ASSETS: Cash and cash equivalents 4,796 24,762 Accounts receivable: Trade - net 61,461 40,685 Other 5,210 5,616 Inventory, fuel, materials and operating supplies 39,322 30,137 Deferred income taxes 3,034 3,123 Accrued utility revenues 6,966 9,923 Other 7,170 5,690 --------- --------- TOTAL CURRENT ASSETS 127,959 119,936 --------- --------- DEFERRED DEBITS: Unamortized debt expense and reacquisition premiums 2,902 3,251 Regulatory assets 3,990 4,111 Other 1,148 1,580 --------- --------- TOTAL DEFERRED DEBITS 8,040 8,942 --------- --------- TOTAL $ 721,601 $ 680,788 ========= ========= See accompanying notes to consolidated financial statements - 2 -
OTTER TAIL POWER COMPANY CONSOLIDATED BALANCE SHEETS -LIABILITIES- SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------- ------------ (Unaudited) (Thousands of dollars) CAPITALIZATION Common shares, par value $5 per share authorized 50,000,000 shares; outstanding 2000 and 1999 -- 23,849,974 $ 119,250 $ 119,250 Premium on common shares - - Unearned compensation (226) (301) Retained earnings 137,019 126,744 ---------- ----------- TOTAL 256,043 245,693 Cumulative preferred shares authorized 1,500,000 shares without par value; outstanding 2000 and 1999 -- 335,000 shares Subject to mandatory redemption 18,000 18,000 Other 15,500 15,500 Cumulative preference shares - authorized 1,000,000 shares without par value; outstanding - none - - Long-term debt - net 187,251 176,437 ---------- ----------- TOTAL CAPITALIZATION 476,794 455,630 ---------- ----------- CURRENT LIABILITIES Short-term debt 15,562 - Sinking fund requirements and current maturities 8,287 5,948 Accounts payable 44,041 39,343 Accrued salaries and wages 8,759 6,197 Federal and state income taxes accrued 6,025 8,153 Other taxes accrued 8,706 10,818 Interest accrued 2,285 3,266 Other 3,287 3,589 ---------- ----------- TOTAL CURRENT LIABILITIES 96,952 77,314 ---------- ----------- NONCURRENT LIABILITIES 28,363 26,514 ---------- ----------- DEFERRED CREDITS Accumulated deferred income taxes 86,905 87,972 Accumulated deferred investment tax credit 15,431 16,295 Regulatory liabilities 10,845 11,359 Other 6,311 5,704 ---------- ----------- TOTAL DEFERRED CREDITS 119,492 121,330 ---------- ----------- TOTAL $ 721,601 $ 680,788 ========== =========== 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, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ (in thousands, except share and per share amounts) OPERATING REVENUES Electric $ 65,514 $ 60,860 $ 185,259 $ 178,811 Plastics 19,787 10,682 71,390 24,230 Health services 16,649 15,279 48,330 49,112 Manufacturing 20,036 15,568 50,559 46,453 Other business operations 21,648 21,230 56,580 48,895 ----------- ----------- ----------- ---------- Total operating revenues 143,634 123,619 412,118 347,501 OPERATING EXPENSES Production fuel 9,691 8,930 27,272 28,181 Purchased power 15,750 12,889 42,361 36,254 Other electric operation and maintenance expenses 19,471 19,182 53,896 53,975 Cost of goods sold 56,145 43,579 159,931 122,155 Other nonelectric expenses 13,743 11,000 43,425 28,438 Depreciation and amortization 7,030 6,326 20,651 18,835 Property taxes 2,610 2,852 7,888 8,510 ----------- ----------- ----------- ---------- Total operating expenses 124,440 104,758 355,424 296,348 OPERATING INCOME Electric 12,392 11,581 37,191 35,603 Plastics 1,453 1,520 10,271 2,862 Health services 1,758 567 5,217 4,099 Manufacturing 1,460 1,047 3,085 3,210 Other business operations 2,131 4,146 930 5,379 ----------- ----------- ----------- ---------- 19,194 18,861 56,694 51,153 OTHER INCOME AND DEDUCTIONS - NET 358 651 1,565 1,323 INTEREST CHARGES 4,265 3,722 12,509 11,069 ----------- ----------- ----------- ---------- INCOME BEFORE INCOME TAXES 15,287 15,790 45,750 41,407 INCOME TAXES 4,685 5,410 15,571 14,632 ----------- ----------- ----------- ---------- NET INCOME 10,602 10,380 30,179 26,775 Preferred dividend requirements 470 579 1,409 1,758 ----------- ----------- ----------- ----------- EARNINGS AVAILABLE FOR COMMON SHARES $ 10,132 $ 9,801 $ 28,770 $ 25,017 =========== =========== =========== =========== Basic earnings per common share: $ 0.42 $ 0.41 $ 1.21 $ 1.05 Diluted earnings per common share: $ 0.42 $ 0.41 $ 1.20 $ 1.05 Average number of common shares outstanding - basic 23,849,974 23,849,753 23,849,974 23,824,920 Average number of common shares outstanding - diluted 23,923,312 23,892,506 23,897,705 23,844,824 Dividends per common share $0.255 $0.2475 $0.765 $0.7425 See accompanying notes to consolidated financial statements -4-
OTTER TAIL POWER COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 ---------- -------- (Thousands of dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 30,179 $ 26,775 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 27,597 26,608 Deferred investment tax credit - net (864) (870) Deferred income taxes (1,372) (1,910) Change in deferred debits and other assets (1,744) 687 Change in noncurrent liabilities and deferred credits 2,455 2,829 Allowance for equity (other) funds used during construction (262) (38) (Gains)/Losses from investments and disposal of noncurrent assets 492 (38) Cash provided by (used for) current assets & current liabilities: Change in receivables, materials and supplies (22,431) 284 Change in other current assets 3,322 5,641 Change in payables and other current liabilities 1,822 1,754 Change in interest and income taxes payable (3,109) 2,923 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 36,085 64,645 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (32,826) (26,170) Proceeds from disposal of noncurrent assets 1,383 1,099 Purchase of businesses, net of cash acquired (34,194) (16,000) Change in other investments 854 (813) -------- -------- NET CASH USED IN INVESTING ACTIVITIES (64,783) (41,884) CASH FLOWS FROM INVESTING ACTIVITIES: Change in short-term debt - net 15,562 (824) Proceeds from issuance of common stock - 1,719 Proceeds from issuance of long-term debt 18,905 13,752 Payments for retirement of long-term debt (5,832) (3,840) Redemption of preferred stock - (5,331) Dividends paid (19,903) (19,448) -------- -------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 8,732 (13,972) NET CHANGE IN CASH AND CASH EQUIVALENTS (19,966) 8,789 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 24,762 3,919 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,796 $ 12,708 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest and income taxes: Interest (net of amount capitalized) $ 11,488 $ 11,309 Income taxes $ 19,971 $ 13,601 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 consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes for the years ended December 31, 1999, 1998, and 1997 included in the Company's 1999 Annual Report to the Securities and Exchange Commission on Form 10-K. Because of seasonal and other factors, the earnings for the three- and nine-month periods ended September 30, 2000, should not be taken as an indication of earnings for all or any part of the balance of the year. Common Shares and Earnings per Share - ------------------------------------ On April 10, 2000 the Board of Directors granted 344,000 stock options to executives and key management employees and 16,000 stock options to outside directors under the 1999 Stock Incentive Plan (Incentive Plan). The exercise price of the stock options is equal to the fair market value per share at the date of the grant. The options granted to outside directors are exercisable immediately, and all other options vest ratably over a four-year period. The options expire ten years after the date of the grant. In addition 11,116 shares of restricted stock were issued under the Incentive Plan during the quarter ended March 31, 2000. As of September 30, 2000 a total of 794,212 options were outstanding and a total of 13,414 shares of restricted stock had been issued under the Incentive Plan. A total of 2,600,000 shares of the Company's common stock are available for granting of awards under the Incentive Plan. The Company accounts for the Incentive Plan under Accounting Principles Board Opinion No. 25. The Company issued 89,238 common shares for the nine months ended September 30, 1999 under its Automatic Dividend Reinvestment and Share Purchase Plan. The Company currently purchases the common shares needed for this plan from the open market instead of issuing new shares. Under the 1999 Employee Stock Purchase Plan (Purchase Plan) 53,630 common shares were purchased from the open market during 2000. The Purchase Plan allows eligible participants to purchase the Company's common shares at 85% of the lower market price at either the beginning or the end of each six-month purchase period. A total of 400,000 shares of the Company's common stock are available for purchase by participants under the Purchase Plan. Basic earnings per common share are calculated by dividing earnings available for common shares by the average number of common shares outstanding during the year. Diluted earnings per common share are calculated by adjusting outstanding shares, assuming conversion of all potentially dilutive stock options using the treasury stock method. Comprehensive Income - -------------------- Net income of $10.6 million and $30.2 million was the only element of comprehensive income for the three and nine months ended September 30, 2000, respectively. Elements of comprehensive income for the three-month period ended September 30, 1999, include net income of $10.4 million along with a $610,000 (net of $401,000 in deferred taxes) reduction in accumulated other comprehensive income related to the reversal of previously recorded unrealized gains on "available-for-sale" securities which were sold during the third quarter of 1999. Comprehensive income for the nine-month period ended September 30, 1999, includes net income of $26.8 million along with a $297,000 (net of $210,000 in deferred taxes) reduction in accumulated other comprehensive income related to the reversal of previously recorded unrealized gains on "available- for-sale" securities which were sold during the third quarter of 1999. Arbitration Settlement - ---------------------- During the second quarter of 2000, the Minnesota, South Dakota and North Dakota utility regulatory agencies approved the accounting treatment of settlement proceeds related to the Knife River coal contract arbitration. The settlement proceeds of $3.2 million (including interest) had been recorded as a liability on the balance sheet since 1999 pending regulatory approval. The approval allowed the Company to recover arbitration costs of $1.0 million that had been previously expensed and to recognize as income $308,000 of fuel cost savings applicable to wholesale power pool sales. The remaining $1.9 million represents a reduction of fuel costs that are being returned to the Company's electric retail customers through the cost of energy adjustment clause from May 2000 through October 2000. Segment Information and Acquisitions - ------------------------------------ Effective January 1, 2000, the Company acquired the assets and operations of Vinyltech Corporation (Vinyltech) located in Phoenix, Arizona. Vinyltech is a manufacturer of polyvinyl chloride (PVC) pipe and produces approximately 90 million pounds of pipe annually. Annual revenues for 1999 were approximately $41 million. Effective June 1, 2000, the Company acquired the assets and operations of Portable X-Ray & EKG, Inc. (PXE) located in Minneapolis, Minnesota. PXE is a provider of mobile x-ray, EKG, ultrasound and echocardiogram services primarily to patients in long term care facilities in the Minneapolis/St. Paul market. Its 1999 annual revenues were approximately $2.8 million. These acquisitions were accounted for using the purchase method of accounting. The excess of the purchase price over the net assets acquired of approximately $24 million is being amortized over 15 years. The Company's business operations are broken down into five segments based on products and services. Electric operations include the electric utility only and are based in Minnesota, North Dakota, and South Dakota. Plastics operations consists of businesses involved in the production of PVC pipe in the Upper Midwest and Southwest regions of the United States. Health services operations consists of businesses involved in the sale, service, rental, refurbishing and operation of medical imaging equipment and the sale of related supplies and accessories to various medical institutions located in 20 states. Manufacturing operations are made up of businesses involved in the production of agricultural equipment, frame-straightening equipment and accessories for the auto body shop industry, contract machining, and metal parts stamping and fabrication located primarily in the Upper Midwest. Other business operations consists of businesses diversified in such areas as electrical and telephone construction contracting, transportation, telecommunications, energy services, natural gas marketing and corporate administrative and general expenses that are not allocated to other segments. The electrical and telephone construction contracting companies, and energy services and natural gas marketing business operate primarily in the Upper Midwest. The telecommunications companies operate in central and northeast Minnesota and the transportation company operates in 48 states and 6 Canadian provinces. The Company evaluates the performance of its business segments and allocates resources to them based on earnings contribution and return on total invested capital. Operating Income ---------------- Three months ended Nine months ended September 30, September 30, -------------------- -------------------- (in thousands) 2000 1999 2000 1999 - -------------------------------------------------------------------------- Electric $ 12,392 $ 11,581 $ 37,191 $ 35,603 Plastics 1,453 1,520 10,271 2,862 Health Services 1,758 567 5,217 4,099 Manufacturing 1,460 1,047 3,085 3,210 Other Business Operations 2,131 4,146 930 5,379 -------- -------- -------- -------- Total $ 19,194 $ 18,861 $ 56,694 $ 51,153 ======== ======== ======== ======== Identifiable Assets ------------------- As of As of September 30, December 31, (in thousands) 2000 1999 - ------------------------------------------------------------- Electric $ 520,828 $ 524,012 Plastics 56,759 15,979 Health Services 32,729 29,542 Manufacturing 44,474 30,853 Other Business Operations 66,811 80,402 --------- --------- Total $ 721,601 $ 680,788 ========= ========= Substantially all sales and long-lived assets of the Company are within the United States. Intangible assets - ----------------- The majority of the Company's intangible assets consist of goodwill, net of amortization, associated with the acquisition of subsidiaries. The Company periodically evaluates the recovery of intangible assets. Due to changing market conditions the Company is currently evaluating the assets of a subsidiary acquired by Otter Tail Energy Services in 1998. The net amount of goodwill related to this acquisition as of September 30, 2000 was $1.9 million. Should the review indicate that a portion of the goodwill is not recoverable, the Company's carrying value of the goodwill would be reduced. Reclassifications - ----------------- Certain prior year amounts have been reclassified to conform to 2000 presentation. Such reclassification had no impact on net income, shareholders' equity or cash flows provided from operations. New Accounting Standard - ----------------------- In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements." SAB 101 summarized the SEC's view in applying generally accepted accounting principles to selected revenue recognition issues. The Company is required to apply SAB 101 in the fourth quarter of 2000 retroactively to the first quarter of 2000. The Company continues to review SAB 101 and at this time does not expect the adoption of SAB 101 to have any effect on its financial position or results of operations. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities". In June 2000, the FASB issued SFAS No. 138, which amends certain provisions of SFAS 133 to clarify four areas causing difficulties in implementation. The amendment included expanding the normal purchase and sale exemption for contracts. The Company will adopt SFAS 133 and the corresponding amendments under SFAS 138 on January 1, 2001 and is currently determining the impact of SFAS 133. The implementation team is in the process of inventorying potential derivatives and addressing other SFAS 133 issues. It appears that most potential derivatives would qualify as normal purchase and sale contracts. All necessary documentation will be completed by the implementation date. Although all of the steps to implement SFAS 133 have not yet been completed, the Company does not expect a material impact on consolidated results of operations and financial position. This statement should have no impact on consolidated cash flows. 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 Company's ongoing involvement in diversification efforts, the timing and scope of deregulation and open competition, growth of electric revenues, changes in the economy of the Upper Midwest, governmental and regulatory action, fuel and purchased power costs, environmental issues, weather conditions, and other factors discussed under "Factors affecting future earnings" on pages 24-25 of the Company's 1999 Annual Report to Shareholders, which is incorporated by reference in the Company's Form 10-K for the fiscal year ended December 31, 1999. 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 $36.1 million as shown on the Consolidated Statement of Cash Flows for the nine months ended September 30, 2000, combined with cash on hand of $24.8 million as of December 31, 1999 allowed the Company to pay dividends, finance its capital expenditures and partially fund acquisitions. Net cash provided by operating activities decreased $28.6 million for the nine months ended September 30, 2000 as compared to the nine months ended September 30, 1999. This decrease reflects the increase in accounts receivable due to increased sales, primarily within the plastics and electric segments, and changes in other working capital items. Most of the $22.9 million increase in net cash used in investing activities was due to the acquisitions. Net cash provided by financing activities increased by $22.7 million as a result of increased line of credit borrowings and debt to finance acquisitions. The Company and its subsidiaries have bank lines of credit totaling $59.0 million. As of September 30, 2000, $43.4 million was available in unused lines of credit, which could be used to supplement cash needs. The Company estimates that funds internally generated net of forecasted dividend payments, combined with funds on hand, will be sufficient to meet sinking fund payments on First Mortgage Bonds and preferred stock redemption requirements in the next five years and to provide for its estimated 2000-2004 consolidated capital expenditures. Additional short-term or long-term financing will be required in the period 2000-2004 in connection with the maturity of long-term debt, in the event the Company decides to refund or retire early any of its presently outstanding debt or cumulative preferred shares, to fund additional acquisitions, or for other corporate purposes. Diversified operations plant increased $16.4 million as a result of the acquisitions, purchases of tractors and trailers by the transportation company and increased investments in plant at the manufacturing and plastics companies. Goodwill associated with the acquisitions during 2000 is the reason for the $21.4 million increase in intangibles. The $2.4 million increase in other assets reflects a growing pension asset related to the recognition of net periodic pension credits under Statement of Financial Accountant Standard No. 87 - Employers' Accounting for Pensions (SFAS 87). Increased sales in the plastic, manufacturing and electric segments led to most of the $20.8 million increase in trade accounts receivable. The $9.2 million increase in inventory, fuel, materials and operating supplies primarily reflects an increase in inventory within the plastics and manufacturing segments due to increases in raw material prices and predicted sales volumes. The $3.0 million decrease in accrued utility revenues reflects the reduction in unbilled utility revenues due to the seasonal change in weather. The $13.2 million increase in long-term debt, sinking fund requirements and current maturities primarily reflects the financing for acquisitions. Normal seasonal increases in credit line usage at the Company's plastics, manufacturing and construction subsidiaries led to the $15.6 million increase in short-term debt. The acquisition of Vinyltech is the primary reason for the $4.7 million increase in accounts payable. The accrual of employee benefits and incentives led to the $2.6 million increase in accrued salaries and wages. The $2.1 million decreases in both federal and state income taxes accrued and other taxes accrued are the result of the timing of tax payments. MATERIAL CHANGES IN RESULTS OF OPERATIONS - ----------------------------------------- Comparison of the Quarters Ended September 30, 2000 and 1999 ------------------------------------------------------------ Consolidated Results -------------------- The Company recorded diluted earnings per share of $0.42 for the quarter ended September 30, 2000 as compared to diluted earnings per share of $0.41 for the quarter ended September 30, 1999. Total operating revenues were $143.6 million for the quarter ended September 30, 2000, up $20.0 million from $123.6 million recorded for the quarter ended September 30, 1999. Operating income increased $333,000 from $18.9 million reported for the third quarter of 1999 to $19.2 million for the third quarter of 2000. The favorable third quarter results can be primarily attributed to strong results in the health services and electric segments offset by decreased operating income from other business operations. Electric Operations ------------------- Three months ended September 30, -------------------- Percentage (in thousands) 2000 1999 Change - ----------------------------------------------------------------------------- Operating revenues $ 65,514 $ 60,860 7.6 Production fuel 9,691 8,930 8.5 Purchased power 15,750 12,889 22.2 Other operation and maintenance expenses 19,471 19,182 1.5 Depreciation and amortization 5,600 5,427 3.2 Property taxes 2,610 2,851 (8.5) -------- -------- ----- Operating income $ 12,392 $ 11,581 7.0 ======== ======== ===== The increase in electric operating revenues for the three months ended September 30, 2000, as compared to the same period in 1999, is due to a $2.8 million (17.1%) increase in revenues from power pool sales, a $1.1 million (108.6%) increase in other electric revenue and a $747,000 (1.7%) increase in retail revenue. The increase in revenues from power pool sales resulted from a 66% increase in kilowatt-hours (kwh) sold offset by a 33% decrease in revenue per kwh sold. Gross margins from power pool sales increased 2.7% for the third quarter of 2000 as compared to the third quarter of 1999. As a result of higher availability and increased generation from the Company's steam plants, the Company was able to increase the gross margins from power pool sales despite milder weather and less volatile sales prices in the MAPP area during the summer of 2000. The increase in other electric revenue primarily reflects an increase in MAPP transmission service revenues resulting from the recording of a $530,000 FERC-ordered refund of certain transmission service charges in July 1999. The increase in retail revenue is primarily the result of a 1.7% increase in revenue per kwh sold. Kwh sold to retail customers were essentially the same between the quarters. Increases in kwh sales to residential and small commercial customers offset a decrease in kwh sales to industrial customers and also resulted in the slight increase in revenue per kwh sold as compared to the prior year's quarter, offset by the refund of fuel costs as part of the arbitration settlement discussed above in the notes to consolidated financial statements. Production fuel expenses increased in the three months ended September 30, 2000, as compared to the three months ended September 30, 1999, as a result of a 16.4% increase in kwh generated at the Company's steam plants, combined with a 4.9% increase in fuel cost per kwh generated, offset by a reduction in fuel costs due to the arbitration settlement. The cost of purchased power increased due to a 24.2% increase in kwh purchased offset slightly by a 1.6% decrease in cost per kwh purchased. Due to continued favorable investment results from the electric utility's funded pension plan, the Company recognized during the third quarter of 2000 a credit to expense of approximately $1.1 million for net periodic pension cost under SFAS 87. This credit to expense partially offset the increases in other electric operation and maintenance expenses related to increased labor costs. Plastics Operations ------------------- Three months ended September 30, ------------------- Percentage (in thousands) 2000 1999 Change - ---------------------------------------------------------- Operating revenues $ 19,787 $ 10,682 85.2 Cost of goods sold 16,422 8,169 101.0 Operating expenses 1,912 993 92.5 -------- -------- ------ Operating income $ 1,453 $ 1,520 (4.4) ======== ======== ====== The acquisition of Vinyltech on January 1, 2000 is the primary driver behind the increases in operating revenues, cost of goods sold, and operating expenses for the three months ended September 30, 2000 as compared to the same period in 1999. Operating revenues increased as a result of an increase in pounds of PVC pipe sold combined with an increase in average sales price per pound. During the third quarter of 2000, the plastics operations experienced a general slowing of the economy and a reduction of both resin and pipe prices which resulted in a decrease in demand and gross margins compared to the first half of the year. The Company also believes the reduction in short-term demand is due in part to our distributors reluctance to purchase pipe for inventory while pipe prices are declining. Health Services Operations -------------------------- Three months ended September 30, ------------------- Percentage (in thousands) 2000 1999 Change - ---------------------------------------------------------- Operating revenues $ 16,649 $ 15,279 9.0 Cost of goods sold 12,432 12,631 (1.6) Operating expenses 2,459 2,081 18.2 -------- -------- ------- Operating income $ 1,758 $ 567 210.1 ======== ======== ======= Health services operating revenues increased due to a 20.0% increase in the number of scans performed, combined with a 1.8% increase in average fee per scan during the quarter ended September 30, 2000 as compared to the same quarter in 1999. Operating revenues related to the sale and servicing of diagnostic medical imaging equipment declined 4.4%. Cost of goods sold declined as a result of the reduction in equipment sales and services offset by increased costs due to more scans. Operating expenses increased as a result of the increase in sales volume and reflects the acquisition of PXE on June 1, 2000. Manufacturing Operations ------------------------ Three months ended September 30, ------------------- Percentage (in thousands) 2000 1999 Change - ---------------------------------------------------------- Operating revenues $ 20,036 $ 15,568 28.7 Cost of goods sold 15,413 11,461 34.5 Operating expenses 3,163 3,060 3.4 -------- -------- ------ Operating income $ 1,460 $ 1,047 39.4 ======== ======== ====== Operating revenues for the manufacturing operations increased at all four of the manufacturing subsidiaries for the quarter ended September 30, 2000, as compared to the same quarter in 1999, due in part to sales volume increases. The increases in cost of goods sold and operating expenses reflect the cost increases resulting from higher sales volumes. Other Business Operations ------------------------- Three months ended September 30, ------------------- Percentage (in thousands) 2000 1999 Change - ---------------------------------------------------------- Operating revenues $ 21,648 $ 21,230 2.0 Cost of goods sold 11,878 11,318 4.9 Operating expenses 7,639 5,766 32.5 -------- -------- ------ Operating income $ 2,131 $ 4,146 (48.6) ======== ======== ====== Increased operating revenues from the transportation and energy services subsidiaries offset the decreases in operating revenues from the construction and telecommunication subsidiaries and the lost revenues from the radio stations which were sold in October, 1999. The increase in cost of goods sold reflects increased sales volumes at the energy services subsidiary offset by decreases at the construction subsidiaries. Increased operating expenses at the transportation subsidiary offset by the absence of operating expenses from the radio stations were the main causes of the increase in operating expenses. The increases in operating revenues and expenses from the transportation subsidiary are a result of the acquisition that occurred September 1, 1999. The increase in expenses is also due to the significant increase in fuel costs during 2000 as compared to 1999. The increases in revenues and costs of goods sold for the energy services subsidiary is due to increased sales from its lighting division. The decrease in revenues from the telecommunication subsidiary reflects the gain from the sale of certain investments during the third quarter of 1999. The decrease in operating revenues and cost of goods sold for the construction subsidiaries reflects the lower volumes of contracted work between the periods. Interest Charges and Income Taxes --------------------------------- The $543,000 (14.6%) increase in interest charges is due to an increase in long-term debt, higher average borrowing levels under the line of credit and higher interest rates on the line of credit between the periods. The decrease in income taxes of $725,000 (13.4%) for the quarter ended September 30, 2000, as compared to the quarter ended September 30, 1999 is largely due to lower income before taxes for the same comparable periods. Comparison of the Nine Months Ended September 30, 2000 and 1999 --------------------------------------------------------------- Consolidated Results -------------------- The Company recorded diluted earnings per share of $1.20 for the nine months ended September 30, 2000 as compared to diluted earnings per share of $1.05 for the nine months ended September 30, 1999. Total operating revenues were $412.1 million for the nine months ended September 30, 2000, up $64.6 million from the $347.5 million recorded for the nine months ended September 30, 1999. Operating income increased $5.5 million from $51.2 million for the first nine months of 1999 to $56.7 million for the comparable period of 2000. Increased earnings from plastic operations, primarily due to the Company's January 2000 acquisition of Vinyltech, along with an increase in gross margins from health services and power pool sales in electric operations, more than offset the reduction in the operating income from manufacturing and other business operations segments. Electric Operations ------------------- Nine months ended September 30, -------------------- Percentage (in thousands) 2000 1999 Change - ----------------------------------------------------------------------------- Operating revenues $ 185,259 $ 178,811 3.6 Production fuel 27,272 28,181 (3.2) Purchased power 42,361 36,254 16.8 Other operation and maintenance expenses 53,896 53,975 (.1) Depreciation and amortization 16,652 16,291 2.2 Property taxes 7,887 8,507 (7.3) --------- --------- ----- Operating income $ 37,191 $ 35,603 4.5 ========= ========= ===== The increase in electric operating revenues for the nine months ended September 30, 2000, as compared to the same period in 1999, is due to a $2.5 million (6.2%) increase in revenues from power pool sales, a $2.3 million (1.7%) increase in retail revenue, and a $1.7 million (38.3%) increase in other electric revenue. The increase in revenues from power pool sales resulted from a 9.0% increase in kwh sold offset by a 2.5% decrease in revenue per kwh sold. Gross margins from power pool sales increased 19.6% for the nine months ended September 30, 2000 as compared to the same period in 1999. Although weather was milder and there was less price volatility in the MAPP area during 2000 as compared to 1999, the Company was able to increase the gross margins from power pool sales by increasing our marketing activities in the wholesale power market. An increase of 1.8% in retail kwh sales led to the increase in retail revenues. Revenue per kwh sold was essentially the same for the comparable nine-month periods. The increases in retail kwh sales came from the small commercial and industrial category. The $1.7 million increase in other electric revenue reflects an increase in MAPP transmission services revenues resulting from the recording of a FERC-ordered refund of certain transmission service charges in July 1999, combined with an increase in contract work done during 2000 for other utilities and revenue recorded related to the arbitration settlement discussed above in the notes to consolidated financial statements. Despite a 6.0% increase in fuel cost per kwh produced, production fuel expenses decreased due to a 2.7% reduction in generation at the Company's plants related to maintenance outages early in the year and the effect of recording the arbitration settlement. The cost of purchased power increased $6.1 million as a result of a 13.1% increase in the volume of electricity purchased combined with a 3.3% increase in the cost per kwh purchased. The increase in purchased power was to supplement Company generation during maintenance outages in the first half of 2000. During the first nine months of 2000 other electric operation and maintenance expenses reflect a credit of approximately $3.0 million for net periodic pension cost. In addition other electric operation and maintenance expenses reflects a credit of $1.0 million as part of the arbitration settlement that recovered previously recorded arbitration expenses. These credits to expense offset increases in other electric operation and maintenance expenses, primarily increased labor costs and plant maintenance costs due to scheduled overhauls. Plastics Operations ------------------- Nine months ended September 30, ------------------- Percentage (in thousands) 2000 1999 Change - ---------------------------------------------------------- Operating revenues $ 71,390 $ 24,230 194.6 Cost of goods sold 54,457 18,648 192.0 Operating expenses 6,662 2,720 144.9 -------- -------- ------- Operating income $ 10,271 $ 2,862 258.9 ======== ======== ======= The acquisition of Vinyltech on January 1, 2000 is the primary driver behind the increases in operating revenues, cost of goods sold, operating expenses and operating income for the nine months ended September 30, 2000 as compared to the same period in 1999. Strong demand within the PVC pipe industry during the first half of the year also led to increased pipe sales at the Company's other pipe subsidiary. The average sales price per pound of pipe between the periods increased 43.9%. Health Services Operations -------------------------- Nine months ended September 30, ------------------- Percentage (in thousands) 2000 1999 Change - ---------------------------------------------------------- Operating revenues $ 48,330 $ 49,112 (1.6) Cost of goods sold 36,448 38,892 (6.3) Operating expenses 6,665 6,121 8.9 -------- -------- ------ Operating income $ 5,217 $ 4,099 27.3 ======== ======== ====== Operating revenues and cost of goods sold decreased for the nine months ended September 30, 2000 as compared to the nine months ended September 30, 1999 due to the decline in equipment installations between the periods. Offsetting the decline in equipment installations was a 10.2% increase in the number of imaging scans performed. The increase in the number of scans completed is due to the addition of more routes. The average fee per scan increased 1.1% between the two periods. Operating expenses increased as a result of the increase in sales volume and reflects the acquisition of PXE on June 1, 2000. Manufacturing Operations ------------------------ Nine months ended September 30, ------------------- Percentage (in thousands) 2000 1999 Change - ---------------------------------------------------------- Operating revenues $ 50,559 $ 46,453 8.8 Cost of goods sold 38,882 35,121 10.7 Operating expenses 8,592 8,122 5.8 -------- -------- ----- Operating income $ 3,085 $ 3,210 (3.9) ======== ======== ===== The depressed agricultural economy is responsible for the overall decline in manufacturing operating income for the nine months ended September 30, 2000 as compared to the same period in the prior year. Increased operating income for the manufacturing subsidiaries involved in metal stamping and the production of products for the auto body industry helped to offset the decline in operating income from the agricultural equipment manufacturing subsidiary. Volume increases in sales are responsible for the increase in operating income at the metal stamping subsidiary and an increase in the average sales price per unit in the product produced for the auto body industry led to the increase in operating income for that subsidiary. Other Business Operations ------------------------- Nine months ended September 30, ------------------- Percentage (in thousands) 2000 1999 Change - ------------------------------------------------------------ Operating revenues $ 56,580 $ 48,895 15.7 Cost of goods sold 30,144 29,494 2.2 Operating expenses 25,506 14,022 81.9 -------- -------- ------- Operating income $ 930 $ 5,379 (82.7) Increased operating revenues from the transportation and energy services subsidiaries offset the decreases in operating revenues from the construction and telecommunication subsidiaries and the lost revenues from the radio stations which were sold in October 1999. The majority of the revenue increase for the nine months ended September 30, 2000, as compared to the nine months ended September 30, 1999, is the result of the acquisition of a transportation company in September 1999. The increase in operating expense is due to the acquisition of the transportation company and an increase in unallocated corporate administrative and general expenses offset by the absence of expenses from the radio stations. Interest Charges and Income Taxes --------------------------------- The $1.4 million (13.0%) increase in interest charges is due to an increase in long-term debt, higher average borrowing levels under the line of credit and higher interest rates on the line of credit between the periods. The increase in income taxes of $939,000 (6.4%) for the nine months ended September 30, 2000, as compared to the nine months ended September 30, 1999 is primarily due to the $4.3 million (10.5%) increase in income before taxes for the same comparable periods. Item 3. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- The Company does not have material market risk exposure related to foreign currency exchange rate risk, commodity price risk or interest rate risk. 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 September 30, 2000. 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: /S/John Erickson ---------------------------------- John Erickson Executive Vice President, Chief Financial Officer, and Treasurer (Chief Financial Officer/Authorized Officer) Dated: November 14, 2000 ----------------- EX-27 2 0002.txt
UT This schedule contains summary financial information extracted from the Consolidated Balance Sheet as of September 30, 2000, and the Consolidated Statement of Income for the nine months ended September 30, 2000, and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-2000 SEP-30-2000 PER-BOOK 447,807 137,795 127,959 8,040 0 721,601 119,250 (226) 137,019 256,043 18,000 15,500 187,251 15,562 0 0 8,287 0 0 0 220,958 721,601 412,118 15,571 355,424 370,995 41,123 1,565 42,688 12,509 30,179 1,409 28,770 18,245 12,257 36,085 1.21 1.20
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