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, 2001
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 CORPORATION
(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)
Otter Tail Power Company
(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:
April 30, 2001 - 24,313,457 Common Shares ($5 par value)
OTTER TAIL CORPORATION
----------------------
INDEX
-----
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 2001
and December 31, 2000 (Unaudited) 2 & 3
Consolidated Statements of Income - Three Months
Ended March 31, 2001 and 2000 (Unaudited) 4
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 2001 and 2000 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 13
PART II. OTHER INFORMATION
Item 2. Changes in Securities 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 13
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
OTTER TAIL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
-ASSETS-
MARCH 31, DECEMBER 31,
2001 2000
---------- -------------
(Restated)
(Thousands of dollars)
CURRENT ASSETS:
Cash and cash equivalents $ 9,173 $ 1,259
Accounts receivable:
Trade - net 71,643 58,800
Other 6,013 6,037
Inventory, fuel, materials and supplies 45,740 41,815
Deferred income taxes 3,679 3,695
Accrued utility revenues 9,402 11,315
Other 7,157 6,703
--------- ---------
TOTAL CURRENT ASSETS 152,807 129,624
--------- ---------
INVESTMENTS 19,429 19,073
--------- ---------
INTANGIBLES -- NET 42,724 43,532
--------- ---------
OTHER ASSETS 11,594 10,126
--------- ---------
DEFERRED DEBITS:
Unamortized debt expense and reacquisition premiums 2,661 2,778
Regulatory assets 5,412 5,517
Other 1,381 1,183
--------- ---------
TOTAL DEFERRED DEBITS 9,454 9,478
--------- ---------
PLANT:
Electric plant in service 796,721 795,357
Diversified operations 128,931 127,219
--------- ---------
TOTAL PLANT 925,652 922,576
Less accumulated depreciation and amortization 421,113 414,892
--------- ---------
504,539 507,684
Construction work in progress 16,363 13,117
--------- ---------
NET PLANT 520,902 520,801
--------- ---------
TOTAL $ 756,910 $ 732,634
========= =========
See accompanying notes to consolidated financial statements
- 2 -
OTTER TAIL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
-LIABILITIES-
March 31, December 31,
2001 2000
----------- ------------
(Restated)
(Thousands of dollars)
CURRENT LIABILITIES
Short-term debt $ 20,680 $ -
Sinking fund requirements and current maturities 10,848 13,576
Accounts payable 53,213 51,620
Accrued salaries and wages 4,727 9,476
Accrued federal and state income taxes 7,369 3,243
Other taxes accrued 11,334 10,585
Other accrued liabilities 5,850 6,524
---------- ----------
TOTAL CURRENT LIABILITIES 114,021 95,024
---------- ----------
NONCURRENT LIABILITIES 30,801 30,181
---------- ----------
DEFERRED CREDITS
Accumulated deferred income taxes 86,199 86,327
Accumulated deferred investment tax credit 14,824 15,112
Regulatory liabilities 10,532 10,618
Other 8,544 6,850
---------- ----------
TOTAL DEFERRED CREDITS 120,099 118,907
---------- ----------
CAPITALIZATION
Long-term debt 193,381 194,623
---------- ----------
Cumulative preferred shares
authorized 1,500,000 shares without par value;
outstanding 2001 and 2000 -- 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 - -
Common shares, par value $5 per share
authorized 50,000,000 shares;
outstanding 2001 -- 24,308,834 and 2000 -- 24,303,918 121,544 121,520
Premium on common shares 27 49
Unearned compensation (151) (226)
Retained earnings 143,908 139,276
Accumulated other comprehensive income (220) (220)
---------- ----------
TOTAL 265,108 260,399
TOTAL CAPITALIZATION 491,989 488,522
---------- ----------
TOTAL $ 756,910 $ 732,634
========== ==========
See accompanying notes to consolidated financial statements
-3-
OTTER TAIL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
2001 2000
----------- ----------
(Restated)
(in thousands, except share
and per share amounts)
OPERATING REVENUES
Electric $ 82,631 $ 61,302
Plastics 13,961 26,363
Health services 17,900 16,645
Manufacturing 24,120 19,530
Other business operations 16,897 16,505
---------- ----------
Total operating revenues 155,509 140,345
OPERATING EXPENSES
Production fuel 11,505 8,421
Purchased power 26,391 13,921
Other electric operation and maintenance expenses 15,565 16,865
Cost of goods sold 53,802 53,849
Other nonelectric expenses 13,817 14,193
Depreciation and amortization 10,106 9,686
Property taxes 2,784 2,639
---------- ----------
Total operating expenses 133,970 119,574
OPERATING INCOME (LOSS)
Electric 20,372 13,543
Plastics (1,162) 4,750
Health services 1,754 1,048
Manufacturing 2,125 1,674
Other business operations (1,550) (244)
---------- ----------
Total operating income 21,539 20,771
OTHER INCOME AND (DEDUCTIONS) - NET 318 684
INTEREST CHARGES 4,085 4,081
---------- ----------
INCOME BEFORE INCOME TAXES 17,772 17,374
INCOME TAXES 6,301 6,435
---------- ----------
NET INCOME 11,471 10,939
Preferred dividend requirements 469 469
---------- ----------
EARNINGS AVAILABLE FOR COMMON SHARES $ 11,002 $ 10,470
========== ==========
Basic earnings per average common share: $ 0.45 $ 0.43
========== ==========
Diluted earnings per average common share: $ 0.45 $ 0.43
========== ==========
Average number of common shares outstanding - basic 24,306,438 24,301,040
Average number of common shares outstanding - diluted 24,505,664 24,304,450
Dividends per common share $0.26 $0.255
See accompanying notes to consolidated financial statements
-4-
OTTER TAIL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
March 31,
2001 2000
-------- --------
(Restated)
(Thousands of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,471 $ 10,939
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,106 9,686
Deferred investment tax credit - net (288) (260)
Deferred income taxes (93) (800)
Change in deferred debits and other assets (1,730) 726
Change in noncurrent liabilities and deferred credits 2,314 364
Allowance for equity (other) funds used during construction (105) (88)
Losses from investments and disposal of noncurrent assets 173 21
Cash provided by (used for) current assets & current liabilities:
Change in receivables, materials and supplies (16,740) (13,523)
Change in other current assets 1,455 2,093
Change in payables and other current liabilities (2,085) (5,417)
Change in interest and income taxes payable 3,131 (1,117)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,609 2,624
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (9,354) (11,018)
Proceeds from disposal of noncurrent assets 333 360
Purchase of businesses, net of cash acquired - (31,377)
Change in temporary cash investments - (768)
Change in other investments (521) 1,979
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (9,542) (40,824)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit 20,680 19,340
Proceeds from issuance of common stock 2 -
Proceeds from issuance of long-term debt - 18,791
Payments for retirement of long-term debt (3,995) (2,990)
Dividends paid (6,840) (6,633)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 9,847 28,508
NET CHANGE IN CASH AND CASH EQUIVALENTS 7,914 (9,692)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,259 24,818
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,173 $ 15,126
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes:
Interest (net of amount capitalized) $ 4,840 $ 4,707
Income taxes $ 2,427 $ 7,311
See accompanying notes to consolidated financial statements
- 5 -
OTTER TAIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
Otter Tail Corporation (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, 2000, 1999, and 1998 included in the Company's 2000 Annual Report to the
Securities and Exchange Commission on Form 10-K. Because of seasonal and
other factors, the earnings for the three-month period ended March 31, 2001,
should not be taken as an indication of earnings for all or any part of the
balance of the year.
Acquisition
- -----------
On February 28, 2001, the Company acquired all of the outstanding common
stock of T.O. Plastics, Inc. in exchange for 451,066 newly issued shares
of the Company's common stock. T.O. Plastics, Inc. custom manufactures
returnable pallets, material and handling trays and horticultural
containers. It has three facilities in Minnesota and one facility in
South Carolina. This acquisition has been accounted for as a pooling-of-
interests. The Company's prior period consolidated financial statements
presented as part of this filing have been restated to include T.O.
Plastics, Inc.
The impact of this acquisition on the Company's consolidated statements
of income and cash flows for the three-month period ending March 31, 2000,
is presented in the table below:
Otter Tail T. O.
(in thousands) Corporation Plastics Combined
- --------------------------------------------------------------------------------------------
For the three months ended March 31, 2000:
Revenue $ 134,755 $ 5,590 $140,345
Operating income 19,771 1,000 20,771
Net income 10,417 522 10,939
Basic and diluted earnings per share 0.42 0.01 0.43
Net cash provided by operating activities 1,516 1,108 2,624
Net cash used in investing activities (40,712) (112) (40,824)
Net cash provided by (used in) financing activities 29,560 (1,052) 28,508
Common Shares and Earnings per Share
- ------------------------------------
On April 9, 2001 the Company's Board of Directors granted 550,000 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. All other options vest ratably over a four-year
period. The options expire ten years after the date of the grant. As of
April 9, 2001 a total of 1,339,384 options were outstanding and a total of
14,713 shares of restricted stock had been issued under the Incentive Plan.
The Company accounts for the Incentive Plan under Accounting Principles
Board Opinion No. 25.
Under the 1999 Employee Stock Purchase Plan (Purchase Plan) 30,964 common
shares were purchased from the open market during the quarter ended March 31,
2001. The Purchase Plan allows eligible employees 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.
The Company currently purchases the commons shares needed for the Automatic
Dividend Reinvestment and Share Purchase Plan from the open market instead
of issuing new shares.
Basic earnings per common share are calculated by dividing earnings
available for common shares by the average number of common shares
outstanding during the period. Diluted earnings per common share are
calculated by adjusting outstanding shares, assuming conversion of all
potentially dilutive stock options.
Comprehensive Income
- --------------------
The only element of comprehensive income for the three-months ended
March 31, 2001 and March 31, 2000 was net income of $11.5 million and
$10.9 million, respectively.
Segment Information
- -------------------
The Company's business operations are broken down into five segments based
on products and services. Electric includes the electric utility only
operating in Minnesota, North Dakota, and South Dakota. Plastics consists
of businesses involved in the production of PVC pipe in the Upper Midwest
and Southwest regions of the United States. Health services 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 24 states.
Manufacturing consists of businesses involved in the production of wind
towers, agricultural equipment, frame-straightening equipment and
accessories for the auto body shop industry, custom plastic pallets,
material and handling trays, and horticultural containers, contract
machining, and metal parts stamping and fabrication located primarily in the
Upper Midwest. Other business operations consists of businesses in such
areas as electrical and telephone construction contracting, transportation,
telecommunications, entertainment, 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 (Loss)
-----------------------
Three months ended
March 31,
------------------
(in thousands) 2001 2000
- -------------------------------------------------------------
Electric $ 20,372 $ 13,543
Plastics (1,162) 4,750
Health services 1,754 1,048
Manufacturing 2,125 1,674
Other business operations (1,550) (244)
-------- --------
Total $ 21,539 $ 20,771
======== ========
Identifiable Assets
-------------------
As of As of
March 31, December 31,
(in thousands) 2001 2000
- -----------------------------------------------------------------
Electric $538,812 $531,778
Plastics 53,993 49,831
Health services 42,120 32,909
Manufacturing 60,133 54,056
Other business operations 61,852 64,060
-------- --------
Total $756,910 $732,634
======== ========
Substantially all sales and long-lived assets of the Company are within the
United States.
Reclassifications
- -----------------
Certain prior year amounts have been reclassified to conform to 2001
presentation. Such reclassifications had no impact on net income,
shareholders' equity, or cash flows from operations.
New Accounting Standard
- -----------------------
As of January 1, 2001, the Company adopted Statement of Financial Accounting
Standards (SFAS) 133, Accounting for Derivative Instruments and Hedging
Activities, as amended, which requires that all derivative instruments be
reported on the consolidated balance sheet at fair value. Adoption of this
standard, under the Company's interpretation of SFAS 133, did not have a
material effect on the consolidated financial position or results of
operations for the three months ended March 31, 2001. However, there are
certain electric utlity industry issues that have yet to be resolved by
the Financial Accounting Standard Board, which could affect the industry
and the Company's interpretations. The Company is in the process of
determining the effect of these issues.
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, impact of
the investment performance of the utility's pension plan, 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 26-28
of the Company's 2000 Annual Report to Shareholders, which is incorporated
by reference in the Company's Form 10-K for the fiscal year ended December 31,
2000. 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 $7.6 million as shown on the
Consolidated Statement of Cash Flows for the three months ended March 31,
2001, combined with cash on hand of $1.3 million as of December 31, 2000
allowed the Company to pay dividends and partially finance its capital
expenditures for first quarter of 2001. Net cash provided by operating
activities increased $5.0 million for the three months ended March 31, 2001,
compared with the three months ended March 31, 2000. Net cash used in
investing activities decreased $31.3 million between the periods due to the
acquisition of Vinyltech Corporation in January 2000. Net cash provided by
financing activities decreased $18.7 million. The decrease is primarily due
to the issuance of long-term debt to finance the Vinyltech acquisition
during the three months ended March 31, 2000. The Company has bank lines and
lines of credit totaling $38.0 million. As of March 31, 2001, $17.3 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
2001-2005 consolidated capital expenditures. Additional short-term or
long-term financing will be required in the period 2001-2005 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.
Trade accounts receivable increased $12.8 million with the majority of this
increase coming from the health services and manufacturing segments. This
increase reflects advance payments made to an equipment manufacturer for
health service businesses prior to completing the lease financing on the
equipment. These payments will be collected when the leases are funded.
Increased sales within the manufacturing segment also contributed to the
increase in trade accounts receivable. The $3.9 million increase in
inventory, fuel, material and supplies is due to the build up of
inventory in the manufacturing segment to meet increased sales and an
increase in coal inventories at the electric utility's generating stations.
Normal seasonal increases in credit line usage at the Company's plastics and
manufacturing segments along with increased borrowing within the health
services segment led to the $20.7 million increase in short-term debt.
Accrued salaries and wages decreased $4.7 million as a result of the payment
of 2000 accrued employee incentives. The $4.1 million increase in accrued
federal and state income taxes is related to the timing of estimated
quarterly tax payments due in December and April.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
- -----------------------------------------
Comparison of the Three Months Ended March 31, 2001 and 2000
------------------------------------------------------------
Consolidated Results
--------------------
The Company recorded basic and diluted earnings per share of $0.45 for the
three months ended March 31, 2001, compared with $0.43 for the three months
ended March 31, 2000. Total operating revenues were $155.6 million for the
three months ended March 31, 2001, compared with $140.3 million for the
three months ended March 31, 2000. Operating income was $21.5 million for
the three months ended March 31, 2001, compared with $20.8 million for the
first three months of 2000. The improved results for the three months ended
March 31, 2001, compared with the three months ended March 31, 2000, is due
to strong results from the electric segment combined with growth in the
manufacturing and health services segments which helped to offset losses in
the plastics and other business operations segments.
Electric
--------
Three months ended
March 31, Percentage
(in thousands) 2001 2000 Change
- ------------------------------------------------------------------------------
Operating revenues $ 82,631 $ 61,302 34.8
Production fuel 11,505 8,421 36.6
Purchased power 26,391 13,921 89.6
Other operation and maintenance expenses 15,565 16,865 (7.7)
Depreciation and amortization 6,014 5,913 1.7
Property taxes 2,784 2,639 5.5
-------- -------- ----
Operating income $ 20,372 $ 13,543 50.4
======== ======== ====
The increase in electric operating revenues for the three months ended
March 31, 2001, compared with the three months ended March 31, 2000, is due
to a $15.6 million (176.9%) increase in revenues from wholesale power pool
sales, a $5.5 million (10.7%) increase in retail revenue and a $289,000
(17.1%) increase in other electric revenues.
The increase in revenues from wholesale power pool sales resulted from a
78.8% increase in revenue per kilowatt-hour (kwh) sold combined with a 54.9%
increase in kwh sold. Market prices for wholesale power pool sales were
higher due to more plants in the Mid-Continent Area Power Pool (MAPP) region
being down for maintenance and colder weather in the MAPP area. The colder
weather and regional plant outages had a direct impact on the increase in
kwh sold. Gross margins on wholesale power pool sales increased $1.7
million. The increase in retail revenues resulted from an 8.3% increase in
retail kwh sold combined with a 2.2% increase in revenue per kwh sold. The
increase in kwh sold which occurred in all customer categories except street
lighting can be attributed to colder weather and higher fossil fuel costs.
Heating degree days increased 15.3% between the first three months of 2001
compared to the three months ended March 31, 2000. Revenues per kwh sold
increased due to an increase in cost-of-energy revenues.
Production fuel expenses increased for the three months ended March 31,
2001, compared with the three months ended March 31, 2000, as a result of a
30.6% increase in kwh generated at the electric utility's coal-fired
generating stations combined with a 2.6% increase in cost per kwh generated.
During the three months ended March 31, 2000, both the electric utility's
Coyote Station and Hoot Lake Plant Unit 3 were off-line for maintenance
outages. The cost of purchased power increased due to a 60% increase in cost
per kwh purchased and a 66% increase in kwh purchased for resale offset by a
38.5% decrease in kwh purchased for system use. Since generation was higher
at the electric utility's generating stations, less power was purchased to
meet retail customers' demands. Other operation and maintenance expenses
decreased $1.3 million due to reductions in labor and employee benefit costs
and less contracted work for other utilities.
Plastics
--------
Three months ended
March 31, Percentage
(in thousands) 2001 2000 Change
- ---------------------------------------------------------------------------
Operating revenues $ 13,961 $ 26,363 (47.0)
Cost of goods sold 13,432 18,962 (29.2)
Operating expenses 873 1,866 (53.2)
Depreciation and amortization 818 785 4.2
-------- -------- -----
Operating income (loss) $ (1,162) $ 4,750 --
======== ======== =====
The decrease in operating revenues for the three months ended March 31,
2001, compared with the three months ended March 31, 2000, is due to a 24%
reduction in pounds of PVC pipe sold combined with a 30.3% decline in
average sales price per pound. The decrease in cost of goods sold reflects
the reduction in pounds of PVC pipe sold and a 6.7% decrease in the average
cost per pound of pipe sold. Operating expenses decreased primarily due to
a reduction in selling expenses. As initially reported in the last half of
2000, demand for PVC pipe products has softened and gross margins have
dropped. These trends have continued through the three months ended
March 31, 2001. The slowdown in the general economy, particularly in the
construction industry, has continued to have an adverse impact on this
segment's performance.
Health Services
---------------
Three months ended
March 31, Percentage
(in thousands) 2001 2000 Change
- ---------------------------------------------------------------------------
Operating revenues $ 17,900 $ 16,645 7.5
Cost of goods sold 13,109 12,844 2.1
Operating expenses 2,306 1,931 19.4
Depreciation and amortization 731 822 (11.1)
-------- -------- -----
Operating income $ 1,754 $ 1,048 67.4
======== ======== =====
Health services operating revenues increased due to a 6.2% increase in the
number of scans performed, combined with a 0.3% increase in average fee per
scan during the three months ended March 31, 2001, compared with the same
period in 2000. Increases in equipment sales, services and supplies also
contributed to the increase in operating revenues. Cost of goods sold and
operating expenses increased in relationship to the increase in the number of
scans performed and the increase in sales.
Manufacturing
-------------
Three months ended
March 31, Percentage
(in thousands) 2001 2000 Change
- ---------------------------------------------------------------------------
Operating revenues $ 24,120 $ 19,530 23.5
Cost of goods sold 18,261 13,694 33.4
Operating expenses 2,599 3,268 (20.5)
Depreciation and amortization 1,135 894 27.0
-------- -------- -----
Operating income $ 2,125 $ 1,674 26.9
======== ======== =====
The increase in manufacturing operating revenues occurred at the
manufacturing subsidiary that produces wind towers and at the subsidiaries
that perform metal parts stamping and fabrication. The production and sale
of wind towers is a new product line that did not exist during the three
months ended March 31, 2000, and sales volumes have increased at the metal
parts stamping and fabrication companies. Offsetting the increases in
operating revenues was a decrease in sales of frame-straightening equipment
for the auto body shop industry. The number of units sold decreased 20%.
The increase in cost of goods sold follows the increase in operating
revenues. Overall gross margins in this segment increased 0.4% when
comparing the three months ended March 31, 2001 and March 31, 2000. The
decrease in operating expenses reflects a reduction in research and
development expenses.
Other Business Operations
-------------------------
Three months ended
March 31, Percentage
(in thousands) 2001 2000 Change
- ---------------------------------------------------------------------------
Operating revenues $ 16,897 $ 16,505 2.4
Cost of goods sold 9,000 8,349 7.8
Operating expenses 8,039 7,128 12.8
Depreciation and amortization 1,408 1,272 10.7
-------- -------- -----
Operating income (loss) $ (1,550) $ (244) --
======== ======== =====
Increases in operating revenues of approximately $3.7 million from the
energy services and transportation subsidiaries were offset by decreases in
revenues from the construction subsidiaries. Both operating revenues and
cost of goods sold increased significantly for the energy services company
due to the high cost of natural gas. Operating revenues and cost of goods
sold decreased for the construction companies due to cold weather and the
slowing economy. Increases in diesel fuel costs along with reductions in
freight volumes due to the slowing economy negatively affected the
transportation subsidiary.
Other Income and Deductions, Interest Charges, and Income Taxes
---------------------------------------------------------------
The decrease in other income and deductions of $366,000 (53.5%) reflects the
reduction in dividend income as the result of the redemption of an
investment during the three months ended March 31, 2000. Interest charges
increased $4,000 due to higher average debt outstanding offset by lower
interest rates. Income tax expense decreased $134,000 for the three months
ended March 31, 2001, compared with the three months ended March 31, 2000.
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
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Item 2. Changes in Securities
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On February 28, 2001, the Company issued 451,066 shares of common stock in
connection with the acquisition of T.O. Plastics, Inc. The issuance of such
shares did not involve a public offering and therefore was exempt from
registration pursuant to section 4(2) of the Securities Act of 1933, as
amended.
Item 6. Exhibits and Reports on Form 8-K.
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a) Exhibits: None
b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fiscal three months ended
March 31, 2001.
SIGNATURES
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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 CORPORATION
By: /s/Kevin G. Moug
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Kevin G. Moug
Chief Financial Officer and Treasurer
(Chief Financial Officer/Authorized Officer)
Dated: May 15, 2001
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