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| OTTR > SEC Filings for OTTR > Form 10-Q on 7-Aug-2009 | All Recent SEC Filings |
7-Aug-2009
Quarterly Report
Three Months Ended Three Months Ended
(in thousands) June 30, 2009 June 30, 2008
Operating Revenues:
Electric $ 53 $ 89
Nonelectric 1,149 697
Cost of Goods Sold 1,186 599
Other Nonelectric Expenses 16 187
Electric
Three Months Ended
June 30, %
(in thousands) 2009 2008 Change Change
Retail Sales Revenues $ 61,273 $ 57,389 $ 3,884 6.8
Wholesale Revenues 3,272 6,221 (2,949 ) (47.4 )
Net Marked-to-Market Gain (Loss) 140 (31 ) 171 -
Other Revenues 5,978 5,087 891 17.5
Total Operating Revenues $ 70,663 $ 68,666 $ 1,997 2.9
Production Fuel 11,754 14,808 (3,054 ) (20.6 )
Purchased Power - System Use 11,877 10,156 1,721 16.9
Other Operation and Maintenance Expenses 28,959 27,757 1,202 4.3
Depreciation and Amortization 8,998 7,806 1,192 15.3
Property Taxes 2,255 2,563 (308 ) (12.0 )
Operating Income $ 6,820 $ 5,576 $ 1,244 22.3
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The main factors contributing to the increase in retail sales revenues are:
(1) a $2.2 million increase in Minnesota resource recovery rider revenues
related to generation from the electric utility's wind turbines constructed in
2007 and 2008, (2) a $1.5 million increase related to a Minnesota interim rate
revenue refund accrued in the second quarter of 2008 based on a granted rate
increase of 2.9% compared to an interim rate increase of 5.4% that went into
effect on November 30, 2007, (3) a $0.6 million increase in North Dakota interim
rates, and (4) a 1.3% increase in retail kilowatt-hour (kwh) sales, offset by a
decrease in Fuel Clause Adjustment (FCA) revenues related to a $0.7 million
reduction in fuel and purchased power costs for retail use.
Wholesale electric revenues from sales from company-owned generation were
$2.6 million for the quarter ended June 30, 2009 compared with $4.9 million for
the quarter ended June 30, 2008. Reduced plant availability and lower wholesale
prices resulted in
a 19.6% decrease in wholesale kwh sales and a 34.1% decrease in revenue per kwh
sold. Fuel costs related to wholesale sales decreased $0.6 million between the
quarters as a result of the decrease in wholesale kwh sales. Net gains from
energy trading activities, including net mark-to-market gains on forward energy
contracts, were $0.8 million for the quarter ended June 30, 2009 compared with
$1.2 million for the quarter ended June 30, 2008. The $0.9 million increase in
other electric operating revenues is due to an increase in revenues from
transmission permitting work of $1.3 million, partially offset by a $0.4 million
reduction in revenues from other transmission-related services.
The decrease in fuel costs reflects a 23.8% decrease in kwhs generated from the
electric utility's fossil fuel-fired plants, partially offset by a 4.1% increase
in the cost of fuel per kwh generated. The decrease in kwhs generated and the
increase in the average cost of fuel per kwh generated was due to a reduction in
the availability of company-owned generation mainly resulting from a six-week
scheduled maintenance shutdown of Coyote Station, the electric utility's lowest
cost generation unit in terms of fuel costs per kwh. Generation for retail sales
decreased 18.0% and generation used for wholesale electric sales decreased 19.6%
between the quarters.
The increase in purchased power - system use is due to a 92.3% increase in kwhs
purchased to make up for the reduction in the availability of company-owned
generation. Despite the 92.3% increase in kwh purchases, purchased power costs
increased by only 16.9% as a result of a 39.2% decrease in the cost per kwh
purchased. Decreases in natural gas prices, increased output from regional
hydroelectric plants, increased efficiency in wholesale electric markets and a
decline in industrial demand for electricity are factors that have contributed
to a significant decline in wholesale electric prices in 2009.
The increase in other operating and maintenance expenses mainly is due to a
$1.3 million increase in costs related to transmission permitting work performed
for other entities. The increase in depreciation expense mainly is due to the
addition of 32 wind turbines at the Ashtabula Wind Energy Center to utility
plant in service at the end of 2008. The decrease in property taxes is related
to reductions in valuations of utility property in Minnesota and on Big Stone
Plant in South Dakota.
Plastics
Three Months Ended
June 30, %
(in thousands) 2009 2008 Change Change
Operating Revenues $ 22,183 $ 40,645 $ (18,462 ) (45.4 )
Cost of Goods Sold 19,679 36,685 (17,006 ) (46.4 )
Operating Expenses 1,136 1,829 (693 ) (37.9 )
Depreciation and Amortization 717 723 (6 ) (0.8 )
Operating Income $ 651 $ 1,408 $ (757 ) (53.8 )
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Operating revenues and operating income for the plastics segment decreased as result of a 28.8% decrease in pounds of pipe sold. A 23.1% decrease in polyvinyl chloride (PVC) pipe prices also contributed to the decrease in operating revenues. The decrease in costs of goods sold was due to the decrease in pounds of pipe sold and a 30.7% decrease in costs per pound of PVC pipe sold. The decrease in operating expenses includes a $0.4 million reduction in sales commissions, salaries and other sales related expenses. Also, operating expenses in the second quarter of 2008 included $0.3 million in losses on asset sales. Significant reductions in new home construction in markets served by the plastic pipe companies have resulted in reduced demand and lower prices for PVC pipe products.
Manufacturing
Three Months Ended
June 30, %
(in thousands) 2009 2008 Change Change
Operating Revenues $ 76,843 $ 120,342 $ (43,499 ) (36.1 )
Cost of Goods Sold 59,908 99,377 (39,469 ) (39.7 )
Operating Expenses 10,364 10,213 151 1.5
Plant Closure Costs - 1,412 (1,412 ) -
Depreciation and Amortization 5,666 4,876 790 16.2
Operating Income $ 905 $ 4,464 $ (3,559 ) (79.7 )
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The decrease in revenues in our manufacturing segment relates to the following:
• Revenues at DMI Industries, Inc. (DMI) decreased $25.3 million due to a
42.1% decrease in volume of towers produced, mainly as a result of delays or
suspension of orders related to the economic recession and wind developers'
limited access to financing.
• Revenues at BTD Manufacturing, Inc. (BTD) decreased $7.6 million as a result of a $6.7 million decrease in sales volume and a $0.9 million decrease in scrap sales.
• Revenues at T.O. Plastics, Inc. (T.O. Plastics) decreased $1.8 million due to a decrease in sales volumes across product lines.
• Revenues at ShoreMaster, Inc. (ShoreMaster) decreased $8.8 million due to decreases in both residential and commercial sales related to the current economic recession and credit restraints affecting dealers and consumers.
The decrease in cost of goods sold in our manufacturing segment relates to the
following:
• Cost of goods sold at DMI decreased $26.9 million as a result of reductions
in production and sales of wind towers related to current economic
conditions. Also, cost of goods sold in the second quarter of 2008 included
$2.0 million in costs associated with the start up of DMI's Oklahoma plant.
• Cost of goods sold at BTD decreased $5.0 million as a result of reduced sales and lower productivity.
• Cost of goods sold at T.O. Plastics decreased $1.9 million mainly as a result of a decrease in volume of products sold.
• Cost of goods sold at ShoreMaster decreased $5.7 million mainly due to a decrease in sales of residential and commercial products.
The net increase in operating expenses in our manufacturing segment is due to
the following:
• Operating expenses at DMI decreased $0.2 million, reflecting a decrease in
repairs and maintenance expenses.
• Operating expenses at BTD decreased $0.3 million due to a reduction in bonuses and incentives directly related to the decrease in sales and revenue.
• Operating expenses at ShoreMaster increased $0.6 million as a result of additional costs related to a marina construction project.
• Operating expenses at T.O. Plastics increased by less than $0.1 million between the quarters.
The $1.4 million in plant closure costs in the second quarter of 2008 includes
employee-related termination obligations, asset impairment costs and a reserve
for additional expenses incurred related to the closing of ShoreMaster's
production facility in California following the completion of a major marina
project in the state in 2008.
Depreciation expense increased as a result of capital additions at DMI and the
acquisition of Miller Welding & Iron Works (Miller Welding) in May 2008.
Health Services
Three Months Ended
June 30, %
(in thousands) 2009 2008 Change Change
Operating Revenues $ 28,192 $ 30,740 $ (2,548 ) (8.3 )
Cost of Goods Sold 22,431 24,128 (1,697 ) (7.0 )
Operating Expenses 4,871 5,534 (663 ) (12.0 )
Depreciation and Amortization 972 1,013 (41 ) (4.0 )
Operating (Loss) Income $ (82 ) $ 65 $ (147 ) (226.2 )
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Revenues from scanning and other related services were down $1.7 million and revenues from equipment sales and servicing decreased $0.8 million for the three months ended June 30, 2009 compared with the three months ended June 30, 2008. The decrease in cost of goods sold was directly related to the decreases in sales revenue. The decrease in operating expenses is the result of measures taken to control and reduce operating expenses. Also, operating expenses in the second quarter of 2008 are net of a $0.4 million gain on the sale of fixed assets. The imaging side of the business continues to be affected by less than optimal utilization of certain imaging assets.
Food Ingredient Processing
Three Months Ended
June 30, %
(in thousands) 2009 2008 Change Change
Operating Revenues $ 20,581 $ 15,913 $ 4,668 29.3
Cost of Goods Sold 14,781 12,717 2,064 16.2
Operating Expenses 787 828 (41 ) (5.0 )
Depreciation and Amortization 1,067 1,071 (4 ) (0.4 )
Operating Income $ 3,946 $ 1,297 $ 2,649 204.2
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The increase in food ingredient processing revenues is due to a 12.8% increase in pounds of product sold, combined with a 14.7% increase in the price per pound of product sold. Cost of goods sold increased as a result of the increase in sales and a 3.1% increase in the cost per pound of product sold.
Other Business Operations
Three Months Ended
June 30, %
(in thousands) 2009 2008 Change Change
Operating Revenues $ 29,597 $ 48,080 $ (18,483 ) (38.4 )
Cost of Goods Sold 19,706 31,927 (12,221 ) (38.3 )
Operating Expenses 11,577 14,053 (2,476 ) (17.6 )
Depreciation and Amortization 586 497 89 17.9
Operating (Loss) Income $ (2,272 ) $ 1,603 $ (3,875 ) (241.7 )
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The decrease in revenues in the other business operations segment relates to the
following:
• Revenues at Foley Company decreased $9.6 million due to a decrease in volume
of jobs in progress related to the current economic recession and increased
competition for available work.
• Revenues at Aevenia, Inc. (Aevenia), formerly Midwest Construction Services, Inc., decreased $6.1 million as a result of a decrease in jobs in progress, especially wind-energy projects, related to the current economic recession and tight credit.
• Revenues at E.W. Wylie Corporation (Wylie) decreased $2.8 million as a result of lower diesel fuel prices being passed through to customers and a 16.9% reduction in miles driven by company-owned trucks directly related to the current economic recession.
The decrease in cost of goods sold in the other business operations segment
relates to the following:
• Cost of goods sold at Foley Company decreased $8.2 million as a result of
decreases in construction activity and jobs in progress.
• Cost of goods sold at Aevenia decreased $4.0 million as a result of a reduction of jobs in progress.
The decrease in operating expenses in the other business operations segment is
due to the following:
• Operating expenses at Wylie decreased $1.9 million between the quarters.
Fuel costs decreased $2.3 million as a result of a 48.0% decrease in fuel
costs per gallon combined with the 16.9% decrease in miles driven by
company-owned trucks. Subcontractor expenses decreased $0.6 million as a
result of the decrease in fuel costs per gallon. The decreases in fuel costs
were partially offset by an increase in equipment repair expenses of $0.5
million and an increase in rent expenses of $0.4 million, mainly related to
additional equipment leases.
• Operating expenses at Aevenia decreased $0.5 million between the quarters directly related to initiatives to control costs and reduce expenses.
Corporate Corporate includes items such as corporate staff and overhead costs, the results of our captive insurance company and other items excluded from the measurement of operating segment performance. Corporate is not an operating segment. Rather it is added to operating segment totals to reconcile to totals on our consolidated statements of income.
Three Months Ended
June 30, %
(in thousands) 2009 2008 Change Change
Operating Expenses $ 3,691 $ 3,972 $ (281 ) (7.1 )
Depreciation and Amortization 97 138 (41 ) (29.7 )
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The decrease in corporate operating expenses reflects reductions in health care
benefit costs.
Comparison of the Six Months Ended June 30, 2009 and 2008
Consolidated operating revenues were $524.1 million for the six months ended
June 30, 2009 compared with $623.8 million for the six months ended June 30,
2008. Operating income was $14.8 million for the six months ended June 30, 2009
compared with $27.4 million for the six months ended June 30, 2008. The Company
recorded diluted earnings per share of $0.19 for the six months ended June 30,
2009 compared with $0.38 for the six months ended June 30, 2008.
Amounts presented in the segment tables that follow for operating revenues, cost
of goods sold and other nonelectric operating expenses for the six month periods
ended June 30, 2009 and 2008 will not agree with amounts presented in the
consolidated statements of income due to the elimination of intersegment
transactions. The amounts of intersegment eliminations by income statement line
item are listed below:
Six Months Ended Six Months Ended
(in thousands) June 30, 2009 June 30, 2008
Operating Revenues:
Electric $ 115 $ 173
Nonelectric 2,086 1,184
Cost of Goods Sold 2,026 1,065
Other Nonelectric Expenses 175 292
Electric
Six Months Ended
June 30, %
(in thousands) 2009 2008 Change Change
Retail Sales Revenues $ 140,328 $ 144,689 $ (4,361 ) (3.0 )
Wholesale Revenues 8,035 9,805 (1,770 ) (18.1 )
Net Marked-to-Market Gain 1,174 2,219 (1,045 ) (47.1 )
Other Revenues 9,667 9,543 124 1.3
Total Operating Revenues $ 159,204 $ 166,256 $ (7,052 ) (4.2 )
Production Fuel 30,413 34,712 (4,299 ) (12.4 )
Purchased Power - System Use 29,250 29,142 108 0.4
Other Operation and Maintenance Expenses 55,889 54,500 1,389 2.5
Depreciation and Amortization 17,986 15,514 2,472 15.9
Property Taxes 4,745 5,187 (442 ) (8.5 )
Operating Income $ 20,921 $ 27,201 $ (6,280 ) (23.1 )
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The main reason for the decline in retail sales revenue was an $11.1 million
decrease in fuel cost recovery revenues mainly related to a decrease in costs
per kwh for fuel and purchased power between the periods and a $0.5 million
increase in a Minnesota interim rate refund payable in the first quarter of
2009. These revenue decreases were partially offset by: (1) a $3.9 million
increase in Minnesota resource recovery rider revenues, (2) $2.1 million in
revenues related to a North Dakota effective interim rate increase of 3.04% in
2009 (reduced from 4.1% in June 2009) and (3) a $1.7 million increase in North
Dakota resource recovery rider revenues.
Wholesale electric revenues from sales from company-owned generation were
$7.0 million for the six months ended June 30, 2009 compared with $9.1 million
for the six months ended June 30, 2008 as a result of a 35.3% decrease in the
average price per kwh sold, partially offset by a 19.5% increase in wholesale
kwh sales. Fuel costs related to wholesale sales decreased $0.2 million between
the quarters despite the increase in wholesale kwh sales as a result of
reductions in fuel costs and generation at the electric utility's combustion
turbine peaking plants. Reductions in industrial consumption of electricity,
declining natural gas prices and increased generation from renewable wind and
hydroelectric resources have driven down prices for electricity in the wholesale
market. Net gains from energy trading activities, including net mark-to-market
gains on forward energy contracts, were $2.2 million for the six months ended
June 30, 2009 compared with $2.9 million for the six months ended June 30, 2008
as a result of a reduction in volume of energy trades and energy trading
activity between the periods.
The decrease in fuel costs reflects a 14.8% decrease in kwhs generated from the
electric utility's fossil fuel-fired plants, partially offset by a 2.9% increase
in the cost of fuel per kwh generated at those plants. A 9.3% increase in the
average cost of fuel per kwh of generation at the electric utility's coal-fired
plants was partially offset by a 61.1% decrease in the average cost of fuel per
kwh of generation at the electric utility's natural gas and fuel-oil-fired
combustion turbines. Fuel costs were also reduced as a result of wind turbines
owned by the electric utility providing 9.7% of total kwh generation in the
first six months of 2009 compared with 3.3% in the first six months of 2008.
Generation for retail sales decreased 11.4% while generation used for wholesale
electric sales increased 19.5% between the periods.
The increase in purchased power - system use is due to a 64.7% increase in kwhs
purchased, mostly offset by a 39.0% reduction in the cost per kwh purchased. The
increase in kwh purchases for system use is related to a reduction in the
availability of company-owned generation resulting from maintenance outages at
Big Stone Plant and a six-week scheduled maintenance shutdown of Coyote Station
in the second quarter of 2009. The decrease in the cost per kwh of purchased
power reflects a significant decrease in fuel and purchased power costs across
the Mid-Continent Area Power Pool region as a result of recent reductions in
industrial consumption of electricity related to the current economic recession,
declining natural gas prices and the availability of increased generation from
renewable wind and hydroelectric sources.
The increase in other operating and maintenance expenses mainly is due to a
$0.8 million increase in incentive accruals and wage increases for union
employees. The increase in depreciation expense mainly is due to the addition of
32 wind turbines at the Ashtabula Wind Energy Center to utility plant in service
at the end of 2008. The decrease in property taxes is related to reductions in
valuations of utility property in Minnesota and on Big Stone Plant in South
Dakota.
Plastics
Six Months Ended
June 30, %
(in thousands) 2009 2008 Change Change
Operating Revenues $ 35,713 $ 62,995 $ (27,282 ) (43.3 )
Cost of Goods Sold 35,031 55,621 (20,590 ) (37.0 )
Operating Expenses 2,511 3,267 (756 ) (23.1 )
Depreciation and Amortization 1,433 1,518 (85 ) (5.6 )
Operating (Loss) Income $ (3,262 ) $ 2,589 $ (5,851 ) (226.0 )
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Operating revenues and operating income for the plastics segment decreased as result of a 25.3% decrease in pounds of pipe sold. A 23.9% decrease in PVC pipe prices also contributed to the decrease in operating revenues. The decrease in costs of goods sold was due to the decrease in pounds of pipe sold and a 21.2% decrease in costs per pound of PVC pipe sold. The decrease in operating expenses includes a $0.4 million reduction in sales commissions, salaries and other sales . . .
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