Exhibit 99.1
| NEWS RELEASE |
| Media contact: | Michael J. Olsen, Sr. Vice President of Corporate Communications, (701) 451-3580 or (866) 410-8780 |
| Investor contact: | Loren Hanson, Manager of Investor Relations, (218) 739-8481 or (800) 664-1259 |
For release: May 9, 2011 | Financial Media |
Otter Tail Corporation Announces First Quarter Earnings; Sale of Idaho Pacific Holdings, Inc.; Updates Earnings Guidance
FERGUS FALLS, Minnesota - Otter Tail Corporation (NASDAQ: OTTR) today announced financial results for the quarter ended March 31, 2011.
Summary:
| · | Consolidated revenues from continuing operations were $286.7 million compared with $243.7 million for the first quarter of 2010 |
| · | Consolidated operating income from continuing operations was $13.2 million compared with $14.0 million for the first quarter of 2010 |
| · | Consolidated net income from continuing operations was $3.9 million compared with $3.3 million for the first quarter of 2010 |
| · | Consolidated net income, from continuing and discontinued operations, totaled $5.7 million compared with $4.7 million for the first quarter of 2010 |
| · | Diluted earnings per share from continuing operations totaled $0.10 compared with $0.09 for the first quarter of 2010 |
| · | Diluted earnings per share, from continuing and discontinued operations, totaled $0.15 compared with $0.13 for the first quarter of 2010 |
CEO Overview
“For a third consecutive quarter, we witnessed the impact of an improved economy within several of our operating segments. During the first quarter of 2011, four out of six operating segments showed improved performance compared to the same period last year. As a diversified company, we are pleased to have sustained this momentum into the new year,” said John Erickson, president and chief executive officer of Otter Tail Corporation.
“Our Wind Energy segment continues to face near-term challenges as we focus on serving the industry’s top wind-turbine manufacturers. Driving this business segment toward improved performance is a top priority. At DMI Industries, Inc., our wind tower manufacturing company, productivity is not at the level where it needs to be. We are committed to a broad range of initiatives to boost performance, including working with our customers to expand throughput, selectively adding resources to help accelerate production and enhancing our efficiency. These initiatives are expected to incrementally improve performance at DMI throughout the remainder of 2011. Additionally, the other business in our Wind Energy segment, E.W. Wylie, realized the impact of shipping losses during the quarter on a major wind component delivery contract.”
1
Erickson continued, “We are pleased to have completed the sale of Idaho Pacific Holdings and expect to recognize a significant gain on the transaction. This sale provides us the opportunity to use the proceeds to further improve our financial position, as well as refine our portfolio of businesses in a fashion that reduces our risk profile and best supports our long-term diversification strategy.
“Our Electric segment continues to perform well and anchor our corporation. This solid performance is especially noteworthy in light of the substantial investments we’ve made in wind energy and transmission opportunities over the past several years. These investments provide growth in our Electric segment and we remain confident in the long-term potential for solid returns from these investments to the benefit of all of our stakeholders. Execution on our capital expenditure plan is expected to significantly grow our rate base over the next several years which will result in increased utility earnings.”
Erickson concluded, “Beyond our utility business, I am optimistic about our nonelectric segments and confident that the performance of a number of our businesses will also strengthen in 2012 and 2013. Our efforts over the past year to boost efficiency and bring cost structures in line with recessionary demand levels should give us the ability to take advantage of the revenue growth that further economic recovery can provide.”
Cash Flow from Operations and Liquidity
In the first quarter of 2011 the corporation’s consolidated cash flow from continuing operations was $4.2 million, compared with cash used in operations of $21.2 million in the first quarter of 2010, mainly as a result of a $21.7 million decrease in cash used for working capital items between the quarters.
On March 31, 2011 Otter Tail Corporation and Otter Tail Power Company had $250.3 million available under existing credit facilities to provide for working capital requirements and help fuel future growth initiatives.
Board of Directors Declared Quarterly Dividends
On May 5, 2011 the Board of Directors declared a quarterly common stock dividend of $0.2975 per share. This dividend is payable June 10, 2011 to shareholders of record on May 13, 2011. The Board also declared quarterly dividends on the corporation’s four series of preferred stock, payable June 1, 2011 to shareholders of record on May 13, 2011.
2
Sale of Idaho Pacific Holdings, Inc. (IPH)
On May 6, 2011 the corporation completed the sale of IPH to affiliates of Novacap Industries III, L.P., for approximately $87.0 million in cash. The proceeds from the sale, net of $3.0 million deposited in an escrow account, were used to pay down borrowings under the corporation’s line of credit facility. The results of operations, financial position and cash flows of IPH are reported as discontinued operations in the corporation’s attached consolidated financial statements.
Segment Performance Summary
Electric
Electric revenues and net income were $91.6 million and $11.1 million, respectively, compared with $91.5 million and $7.5 million for the first quarter of 2010. Retail electric revenues increased $1.5 million as a result of:
| · | a $1.9 million increase in revenues due to a 3.5% increase in kilowatt-hour (kwh) sales driven by colder weather in the first quarter of 2011, |
| · | a $1.3 million increase from interim rates implemented in Minnesota in June 2010, |
| · | a $0.9 million increase in estimated Minnesota Conservation Improvement Program (MNCIP) incentives, |
| · | a $0.6 million increase in MNCIP surcharge revenues, |
| · | $0.4 million related to recovery of the North Dakota portion of Otter Tail Power Company’s abandoned Big Stone II project costs, |
offset by:
| · | a $2.3 million reduction in revenue related to a Minnesota interim rate refund accrued in the first quarter of 2011 for excess amounts collected under interim rates in effect since June 2010, |
| · | a $0.8 million decrease in resource recovery and transmission rider revenues, and |
| · | a $0.5 million reduction in retail revenues related to the recovery of fuel and purchased power costs. |
Wholesale electric revenues from company-owned generation decreased $1.3 million mainly as a result of a 30.2% decrease in revenue per wholesale kwh sold. Net gains from energy trading activities, including net mark-to-market gains on forward energy contracts decreased $1.8 million as a result of a reduction in mark-to-market gains on open energy contracts combined with a reduction in the volume of long-term forward energy contracts entered into in 2011. Other electric operating revenues increased $1.7 million as a result of:
| · | a $1.1 million payment received by Otter Tail Energy Services Company (OTESCO) in the first quarter of 2011 for access rights to construct a transmission line through an OTESCO wind farm development site, and |
| · | a $0.6 million increase in transmission tariff and services revenues. |
Fuel costs decreased $1.3 million as a result of a 10.2% decrease in kwhs generated from Otter Tail Power Company’s steam-powered and combustion turbine generators, partially offset by a 4.2% increase in the cost of fuel per kwh generated. The cost of purchased power for retail sales increased $0.3 million as a result of a 75.1% increase in kwhs purchased, mostly offset by 41.4% decrease in the cost per kwh purchased. The increase in kwhs purchased was due to a 7.5% decrease in kwhs generated for retail combined with a 3.5% increase in retail kwh sales. Electric operating and maintenance expenses increased $0.2 million between the quarters.
3
Income taxes in the Electric segment decreased $2.2 million as a result of: (1) a first quarter 2010 noncash charge to income tax expense of $1.7 million related to a change in the tax treatment of postretirement prescription drug benefits under the 2010 federal healthcare reform legislation and (2) a $0.5 million increase in federal production tax credits earned as a result of a 25.6% increase in kwhs generated from tax credit qualified wind turbines owned by Otter Tail Power Company.
Wind Energy
Wind energy revenues and net loss were $61.6 million and $8.1 million, respectively, compared with revenues of $49.4 million and net income of $33,000 for the first quarter of 2010.
| · | At DMI, revenues increased $6.1 million and net income decreased $6.8 million. Tower production increased 33.6%. The primary cause for the net loss is that output has not been sufficient to offset the costs to produce towers due to throughput constraints in the plants. DMI incurred an additional $1.4 million, pretax, in outsourced quality control costs to satisfy expanded customer requirements. Additionally, DMI is not recognizing tax benefits on the operating losses of its Canadian operations until those operations become profitable. The unrecognized tax benefits totaled $0.9 million in the first quarter of 2011. DMI’s interest expense increased $0.5 million due to an increase in outstanding debt and higher interest rates between the quarters. |
| · | In trucking operations, revenues increased $6.1 million while net losses increased $1.3 million. Costs incurred in the first quarter of 2011 related to a major wind project delivery contract, initiated in October 2010, exceeded the $4.9 million in contract related revenues recorded in the first quarter of 2011, resulting in most of the $1.3 million increase in trucking operation net losses between the quarters. |
Manufacturing
Manufacturing revenues and net income were $56.3 million and $2.3 million, respectively, compared with revenues of $38.0 million and a net loss of $0.7 million for the first quarter of 2010.
| · | At BTD, revenues increased $15.1 million and net income increased $1.8 million as a result of higher sales volume due to improved customer demand. |
| · | At T.O. Plastics, revenues increased by $2.0 million and net income increased $0.3 million due to increased sales of horticultural and industrial products. |
| · | At ShoreMaster revenues increased $1.2 million while net losses decreased $0.9 million. ShoreMaster’s revenue increase mainly reflects higher sales of residential products due to improving dealer confidence and expanded distribution in Canada. Operating expenses at ShoreMaster decreased $1.4 million, reflecting lower collection costs and decreases in sales and employee benefit expenses. |
4
Construction
Construction revenues and net losses were $37.5 million and $0.3 million, respectively, compared with $17.8 million and $1.5 million for the first quarter of 2010. The increase in revenues and decrease in net losses is due to an increase in construction activity, mainly at Foley Company.
Plastics
Plastics revenues and net loss were $18.5 million and $0.4 million, respectively, compared with revenues of $23.1 million and net income of $0.8 million for the first quarter of 2010. The decrease in revenues and net income was due to an 18.1% decrease in pounds of pipe sold combined with a 2.3% decrease in the price per pound of pipe sold, while the cost per pound of pipe sold increased 4.7% between the quarters.
Health Services
Health Services revenues and net income were $22.5 million and $0.6 million, respectively, compared with revenues of $25.2 million and a net loss of $0.7 million for the first quarter of 2010. Revenues from scanning and other related services decreased $2.0 million. Revenues from equipment sales decreased $0.7 million. Net income increased $1.3 million despite the decrease in revenues as a result of a $5.5 million decrease in cost of goods sold, partially offset by a $0.7 million increase in depreciation expense. The decrease in cost of goods sold includes a $1.6 million reduction in material and service labor costs and a $3.5 million reduction in equipment rental costs directly related to efforts by the Health Services segment to right-size its fleet of imaging assets by exercising purchase options on productive imaging assets coming off lease and not renewing leases on underutilized imaging assets. As of March 31, 2011 there were 123 owned and leased assets in the fleet compared with 147 at March 31, 2010. The $0.7 million increase in depreciation expense reflects an increase in owned equipment compared with a year ago.
Corporate
Corporate expenses, net-of-tax, decreased $0.8 million between the quarters mainly due to lower salary and employee benefit costs due to lower staffing levels between the periods, lower general and administrative costs and reductions in unallocated interest costs associated with the corporate cost center.
Discontinued Operations - Food Ingredient Processing - IPH
Food ingredient processing net income was $1.8 million compared with $1.4 million for the first quarter of 2010. The $0.4 million increase in net income was driven by a $1.7 million increase in revenue resulting from a 7.5% increase in pounds of product sold. Cost of goods sold increased $1.1 million due to the increase in sales volume while the cost per pound of product sold only increased 0.3%.
5
2011 Business Outlook
The corporation is updating its 2011 diluted earnings per share guidance to reflect the sale of IPH, its Food Ingredient Processing business, and to adjust for changing business conditions in its other segments. This guidance considers the cyclical nature of some of the corporation's businesses and reflects challenges presented by current economic conditions and the corporation's plans and strategies for improving future operating results. Since the corporation’s February 2011 earnings release, guidance for two segments has been raised, but the outlook for Wind Energy has been lowered.
The sale of IPH allows the corporation to refine its portfolio to focus on a mix of businesses that will reduce its risk profile. The corporation will continue to review its portfolio to see where additional opportunities exist to improve its risk profile, improve credit metrics and generate additional sources of cash to support the future capital expenditure plans of its Electric segment. The proceeds from the sale of IPH will be used to pay down short-term borrowings on the corporation's credit facility for its nonelectric businesses.
The updated 2011 earnings per share guidance range is as follows:
Original 2011 Earnings Per Share Guidance Range | Updated 2011 Earnings Per Share Guidance Range | |||||
| Low | High | Low | High | |||
| Electric | $ .97 | $1.02 | Electric | $ .99 | $1.04 | |
| Wind Energy | (.10) | .05 | Wind Energy | (.40) | (.25) | |
| Manufacturing | .13 | .18 | Manufacturing | .25 | .29 | |
| Construction | .05 | .08 | Construction | .05 | .08 | |
| Plastics | .05 | .08 | Plastics | .05 | .08 | |
| Health Services | .00 | .04 | Health Services | .00 | .04 | |
| Food Ingredient Processing | .17 | .20 | Corporate | (.20) | (.18) | |
| Corporate | (.27) | (.25) | Total – Continuing Operations | $ .74 | $1.10 | |
| Total | $1.00 | $1.40 | Earnings – Discontinued Operations | .06 | .07 | |
| Gain on Sale of Discontinued Operations | .35 | .38 | ||||
| Total | $1.15 | $1.55 | ||||
Contributing to the earnings guidance update for 2011 are the following items:
| · | The corporation expects an increase in net income from its Electric segment in 2011 compared to 2010. This is based on anticipated sales growth and rate and rider recovery increases, an increase in capitalized interest costs related to larger construction expenditures and reductions in operating and maintenance expense in 2011 due to lower benefit costs. |
| · | The corporation is revising its 2011 earnings guidance downward for its Wind Energy segment due to the following factors: |
6
| o | DMI has had challenges ramping up production to meet customer demand. This has resulted in a full year outlook that reflects production of fewer towers than originally forecast. Cost levels continue at planned levels but output has not matched those costs due to throughput constraints in the plants and additional processing and verification required to complete the projects under contract. DMI also incurred higher costs in procuring steel for a customer contract when the steel supplier failed to deliver according to the terms of a purchase agreement, requiring DMI to replace the steel at a higher cost in order to meet its contractual commitments. |
| o | E.W. Wylie incurred additional costs in completing a major wind tower transportation project in the first quarter of 2011. The additional costs, in part, relate to severe weather on the East Coast, which resulted in extreme delays resulting in cost overruns in permits, truck escort services, and detention and crane operation costs. |
Backlog in the Wind Energy segment is $134 million for 2011 compared with $141 million one year ago.
| · | The corporation expects earnings from its Manufacturing segment to increase from the original 2011 guidance as a result of increased order volume and continuing improvement in economic conditions in the industries BTD serves. ShoreMaster is expecting significantly improved performance as a result of bringing costs in line with current revenue levels and absent last year’s $15.6 million noncash impairment charge. T.O. Plastics is expected to have slightly better earnings in 2011 compared with 2010. Backlog for the manufacturing companies for 2011 is approximately $87 million compared with $75 million one year ago. |
| · | The corporation expects higher net income from its Construction segment in 2011 as the economy improves and the construction companies record earnings on a higher volume of jobs in progress. Backlog for the construction businesses is $105 million for 2011 compared with $85 million one year ago. |
| · | The corporation expects its Plastics segment's 2011 performance to be in line with 2010 results. |
| · | The corporation expects increased net income from its Health Services segment in 2011 as the benefits of implementing its asset reduction plan continue to be realized. |
| · | Corporate general and administrative costs are expected to decrease in 2011, compared with 2010, as a result of recent reductions in employee count and associated decreases in benefit costs. |
Earnings expectations from discontinued operations reflect net income from the Food Ingredient Processing segment from January 2011 through May 6, 2011, the date of the sale. The corporation expects to recognize earnings from a gain on the sale of IPH in the range of $0.35 to $0.38 per share.
7
The sale of IPH is a strategic decision by management to monetize a currently strong earning asset and use the proceeds to pay down short-term borrowings. This frees up liquidity going forward for upcoming Electric segment capital investments and helps ease the need to rely on the capital markets to fully fund these expenditures. Future IPH earnings forfeited through this sale are expected to be replaced by increased utility earnings over the next three years as the utility makes investments in its current capital plan. This will result in a larger percentage of the corporation’s earnings coming from its most stable and relatively predictable business, Otter Tail Power Company, and is consistent with the strategy to grow this business given its current investment opportunities.
The corporation currently anticipates the following capital expenditures and electric utility average rate base for 2011 through 2013:
| (in millions) | 2011 | 2012 | 2013 | |||||||||
| Capital Expenditures: | ||||||||||||
| Electric Segment: | ||||||||||||
| Transmission | $ | 23 | $ | 31 | $ | 65 | ||||||
| Environmental | 4 | 49 | 97 | |||||||||
| Other | 40 | 50 | 57 | |||||||||
| Total Electric Segment | $ | 67 | $ | 130 | $ | 219 | ||||||
| Nonelectric Segments | 40 | 41 | 48 | |||||||||
| Total Capital Expenditures | $ | 107 | $ | 171 | $ | 267 | ||||||
| Total Electric Utility Average Rate Base | $ | 651 | $ | 722 | $ | 876 | ||||||
Execution on the currently anticipated electric utility capital expenditure plan is expected to grow rate base and be a key driver in increasing utility earnings over the 2011 through 2013 timeframe. The corporation intends to maintain an equity to total capitalization ratio near its present level of 51% in its Electric segment and will seek to earn its allowed overall return on equity of approximately 10.5% in the utility’s regulatory jurisdictions.
Regarding the collective operating companies in the nonelectric segments, there is a general expectation that business will strengthen in 2012 and 2013, assuming continued recovery in the U.S. economy. This is expected to lead to increased demand for the corporation’s industrial products and services, generating higher revenues. This expectation, coupled with cost reductions that have taken place across the corporation, should result in rising earnings per share for the nonelectric businesses as a whole.
8
Risk Factors and Forward-Looking Statements that Could Affect Future Results
The information in this release includes certain forward-looking information, including 2011 expectations, made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Although the corporation believes its expectations are based on reasonable assumptions, actual results may differ materially from those expectations. The following factors, among others, could cause actual results for the corporation to differ materially from those discussed in the forward-looking statements:
| · | The corporation is subject to federal and state legislation, regulations and actions that may have a negative impact on its business and results of operations. |
| · | Federal and state environmental regulation could require the corporation to incur substantial capital expenditures and increased operating costs. |
| · | Volatile financial markets and changes in the corporation’s debt ratings could restrict its ability to access capital and could increase borrowing costs and pension plan and postretirement health care expenses. |
| · | The corporation relies on access to both short- and long-term capital markets as a source of liquidity for capital requirements not satisfied by cash flows from operations. If the corporation is not able to access capital at competitive rates, its ability to implement its business plans may be adversely affected. |
| · | The corporation may experience fluctuations in revenues and expenses related to its operations, which may cause its financial results to fluctuate and could impair its ability to make distributions to its shareholders or scheduled payments on its debt obligations, or to meet covenants under its borrowing agreements. |
| · | Disruptions, uncertainty or volatility in the financial markets can also adversely impact the corporation’s results of operations, the ability of its customers to finance purchases of goods and services, and its financial condition, as well as exert downward pressure on stock prices and/or limit its ability to sustain its current common stock dividend level. |
| · | The corporation made a $20.0 million discretionary contribution to its defined benefit pension plan in 2010. The corporation could be required to contribute additional capital to the pension plan in future years if the market value of pension plan assets significantly declines in the future, plan assets do not earn in line with the corporation’s long-term rate of return assumptions or relief under the Pension Protection Act is no longer granted. |
| · | Any significant impairment of the corporation’s goodwill would cause a decrease in its asset values and a reduction in its net operating performance. |
| · | A sustained decline in the corporation’s common stock price below book value or declines in projected operating cash flows at any of its operating companies may result in goodwill impairments that could adversely affect its results of operations and financial position, as well as financing agreement covenants. |
| · | The inability of the corporation’s subsidiaries to provide sufficient earnings and cash flows to allow the corporation to meet its financial obligations and debt covenants and pay dividends to its shareholders could have an adverse effect on the corporation. |
| · | Economic conditions could negatively impact the corporation’s businesses. |
| · | If the corporation is unable to achieve the organic growth it expects, its financial performance may be adversely affected. |
| · | The corporation’s plans to grow and diversify through acquisitions and capital projects may not be successful, which could result in poor financial performance. |
| · | The corporation’s plans to acquire additional businesses and grow and operate its nonelectric businesses could be limited by state law. |
| · | The corporation’s subsidiaries enter into production and construction contracts, including contracts for new product designs, which could expose them to unforeseen costs and costs not within their control, which may not be recoverable and could adversely affect the corporation’s results of operations and financial condition. |
9
| · | Significant warranty claims and remediation costs in excess of amounts normally reserved for such items could adversely affect the corporation’s results of operations and financial condition. |
| · | The corporation is subject to risks associated with energy markets. |
| · | The corporation is subject to risks and uncertainties related to the timing and recovery of deferred tax assets which could have a negative impact on the corporation’s net income in future periods. |
| · | Certain of the corporation’s operating companies sell products to consumers that could be subject to recall. |
| · | Competition is a factor in all of the corporation’s businesses. |
| · | Actions by the regulators of the corporation’s electric operations could result in rate reductions, lower revenues and earnings or delays in recovering capital expenditures. |
| · | Otter Tail Power Company could be required to absorb a disproportionate share of costs for investments in transmission infrastructure required to provide independent power producers access to the transmission grid. These costs may not be recoverable through a transmission tariff and could result in reduced returns on invested capital and/or increased rates to Otter Tail Power Company's retail electric customers. |
| · | Otter Tail Power Company’s electric generating facilities are subject to operational risks that could result in unscheduled plant outages, unanticipated operation and maintenance expenses and increased power purchase costs. |
| · | Wholesale sales of electricity from excess generation could be affected by reductions in coal shipments to the Big Stone and Hoot Lake plants due to supply constraints or rail transportation problems beyond the corporation’s control. |
| · | Changes to regulation of generating plant emissions, including but not limited to carbon dioxide (CO2) emissions, could affect Otter Tail Power Company’s operating costs and the costs of supplying electricity to its customers. |
| · | The U.S. wind industry is reliant on tax and other economic incentives and political and governmental policies. A significant change in these incentives and policies could negatively impact the corporation’s results of operations and growth. |
| · | The corporation’s wind tower manufacturing business is substantially dependent on a few significant customers. |
| · | Competition from foreign and domestic manufacturers, cost management in a fixed price contract project environment, the price and availability of raw materials and diesel fuel, the ability of suppliers to deliver materials at contracted prices, fluctuations in foreign currency exchange rates and general economic conditions could affect the revenues and earnings of the corporation’s wind energy and manufacturing businesses. |
| · | A significant failure or an inability to properly bid or perform on projects by the corporation’s wind energy, construction or manufacturing businesses could lead to adverse financial results and could lead to the possibility of delay or liquidated damages. |
| The corporation’s Plastics segment is highly dependent on a limited number of vendors for PVC resin, many of which are located in the Gulf Coast regions, and a limited supply of resin. The loss of a key vendor, or an interruption or delay in the supply of PVC resin, could result in reduced sales or increased costs for this segment. |
| · | The corporation’s plastic pipe companies compete against a large number of other manufacturers of PVC pipe and manufacturers of alternative products. Customers may not distinguish the pipe companies’ products from those of its competitors. |
| · | Reductions in PVC resin prices can negatively impact PVC pipe prices, profit margins on PVC pipe sales and the value of PVC pipe held in inventory. |
| · | Changes in the rates or method of third-party reimbursements for diagnostic imaging services could result in reduced demand for those services or create downward pricing pressure, which would decrease revenues and earnings for the corporation’s Health Services segment. |
10
| · | The corporation’s health services businesses may be unable to continue to maintain agreements with Philips Medical from which the businesses derive significant revenues from the sale and service of Philips Medical diagnostic imaging equipment. |
| · | Technological change in the diagnostic imaging industry could reduce the demand for diagnostic imaging services and require the corporation’s health services operations to incur significant costs to upgrade its equipment. |
| · | Actions by regulators of the corporation’s health services operations could result in monetary penalties or restrictions in the corporation’s health services operations. |
For a further discussion of other risk factors and cautionary statements, refer to reports the corporation files with the Securities and Exchange Commission.
About The Corporation: Otter Tail Corporation has interests in diversified operations that include an electric utility and energy services company, wind energy and transportation, health services, and infrastructure businesses that include manufacturing, construction and plastics. Otter Tail Corporation stock trades on the NASDAQ Global Select Market under the symbol OTTR. The latest investor and corporate information is available at www.ottertail.com. Corporate offices are located in Fergus Falls, Minnesota, and Fargo, North Dakota.
See Otter Tail Corporation’s results of operations for the three months ended March 31, 2011 and 2010 in the following financial statements: Consolidated Statements of Income, Consolidated Balance Sheets – Assets, Consolidated Balance Sheets – Liabilities and Equity, and Consolidated Statements of Cash Flows.
# # #
11
| Otter Tail Corporation | ||||||||
| Consolidated Statements of Income | ||||||||
| In thousands, except share and per share amounts | ||||||||
| (not audited) | ||||||||
Quarter Ended March 31, | ||||||||
| 2011 | 2010 | |||||||
| Operating Revenues by Segment | ||||||||
| Electric | $ | 91,596 | $ | 91,452 | ||||
| Wind Energy | 61,597 | 49,398 | ||||||
| Manufacturing | 56,313 | 38,031 | ||||||
| Construction | 37,515 | 17,774 | ||||||
| Plastics | 18,478 | 23,087 | ||||||
| Health Services | 22,495 | 25,171 | ||||||
| Corporate Revenue and Intersegment Eliminations | (1,313 | ) | (1,227 | ) | ||||
| Total Operating Revenues | 286,681 | 243,686 | ||||||
| Operating Expenses | ||||||||
| Fuel and Purchased Power | 31,954 | 32,965 | ||||||
| Nonelectric Cost of Goods Sold (depreciation included below) | 155,709 | 117,484 | ||||||
| Electric Operating and Maintenance Expense | 31,117 | 30,940 | ||||||
| Nonelectric Operating and Maintenance Expense | 35,626 | 29,738 | ||||||
| Depreciation and Amortization | 19,113 | 18,584 | ||||||
| Total Operating Expenses | 273,519 | 229,711 | ||||||
| Operating Income (Loss) by Segment | ||||||||
| Electric | 18,486 | 17,510 | ||||||
| Wind Energy | (8,812 | ) | 1,620 | |||||
| Manufacturing | 5,103 | (94 | ) | |||||
| Construction | (325 | ) | (2,389 | ) | ||||
| Plastics | (266 | ) | 1,619 | |||||
| Health Services | 1,083 | (915 | ) | |||||
| Corporate | (2,107 | ) | (3,376 | ) | ||||
| Total Operating Income | 13,162 | 13,975 | ||||||
| Interest Charges | 9,489 | 9,022 | ||||||
| Other Income | 675 | 13 | ||||||
| Income Tax Expense | 414 | 1,653 | ||||||
| Net Income (Loss) by Segment – Continuing Operations | ||||||||
| Electric | 11,142 | 7,491 | ||||||
| Wind Energy | (8,111 | ) | 33 | |||||
| Manufacturing | 2,267 | (735 | ) | |||||
| Construction | (325 | ) | (1,489 | ) | ||||
| Plastics | (374 | ) | 781 | |||||
| Health Services | 572 | (691 | ) | |||||
| Corporate | (1,237 | ) | (2,077 | ) | ||||
| Net Income from Continuing Operations | 3,934 | 3,313 | ||||||
Net Income from Discontinued Operations (net of income taxes of $1,112 and $727, respectively) | 1,762 | 1,404 | ||||||
| Total Net Income | 5,696 | 4,717 | ||||||
| Preferred Dividend Requirement | 184 | 184 | ||||||
| Balance for Common | $ | 5,512 | $ | 4,533 | ||||
| Average Number of Common Shares Outstanding | ||||||||
| Basic | 35,876,853 | 35,720,571 | ||||||
| Diluted | 36,081,426 | 35,939,759 | ||||||
| Basic Earnings Per Common Share: | ||||||||
| Continuing Operations (net of preferred dividend requirement) | $ | 0.10 | $ | 0.09 | ||||
| Discontinued Operations | 0.05 | 0.04 | ||||||
| $ | 0.15 | $ | 0.13 | |||||
| Diluted Earnings Per Common Share: | ||||||||
| Continuing Operations (net of preferred dividend requirement) | $ | 0.10 | $ | 0.09 | ||||
| Discontinued Operations | 0.05 | 0.04 | ||||||
| $ | 0.15 | $ | 0.13 | |||||
12
| Otter Tail Corporation | ||||||||
| Consolidated Balance Sheets | ||||||||
| ASSETS | ||||||||
| in thousands | ||||||||
| (not audited) | ||||||||
| March 31, | December 31, | |||||||
| 2011 | 2010 | |||||||
| Current Assets | ||||||||
| Cash and Cash Equivalents | $ | 186 | $ | -- | ||||
| Accounts Receivable: | ||||||||
| Trade—Net | 152,509 | 125,308 | ||||||
| Other | 15,935 | 19,399 | ||||||
| Inventories | 81,141 | 79,354 | ||||||
| Deferred Income Taxes | 12,206 | 11,068 | ||||||
| Accrued Utility and Cost-of-Energy Revenues | 13,090 | 16,323 | ||||||
| Costs and Estimated Earnings in Excess of Billings | 66,269 | 67,352 | ||||||
| Income Taxes Receivable | 4,307 | 4,146 | ||||||
| Other | 25,503 | 21,646 | ||||||
| Assets of Discontinued Operations | 90,267 | 90,684 | ||||||
| Total Current Assets | 461,413 | 435,280 | ||||||
| Investments | 9,794 | 9,708 | ||||||
| Other Assets | 28,233 | 27,356 | ||||||
| Goodwill | 69,742 | 69,742 | ||||||
| Other Intangibles--Net | 16,056 | 16,280 | ||||||
| Deferred Debits | ||||||||
| Unamortized Debt Expense | 6,656 | 6,444 | ||||||
| Regulatory Assets | 117,485 | 127,766 | ||||||
| Total Deferred Debits | 124,141 | 134,210 | ||||||
| Plant | ||||||||
| Electric Plant in Service | 1,333,125 | 1,332,974 | ||||||
| Nonelectric Operations | 355,842 | 340,907 | ||||||
| Construction Work in Progress | 51,808 | 42,031 | ||||||
| Total Gross Plant | 1,740,775 | 1,715,912 | ||||||
| Less Accumulated Depreciation and Amortization | 653,173 | 637,933 | ||||||
| Net Plant | 1,087,602 | 1,077,979 | ||||||
| Total | $ | 1,796,981 | $ | 1,770,555 | ||||
13
| Otter Tail Corporation | ||||||||
| Consolidated Balance Sheets | ||||||||
| LIABILITIES AND EQUITY | ||||||||
| in thousands | ||||||||
| (not audited) | ||||||||
| March 31, | December 31, | |||||||
| 2011 | 2010 | |||||||
| Current Liabilities | ||||||||
| Short-Term Debt | $ | 116,976 | $ | 79,490 | ||||
| Current Maturities of Long-Term Debt | 683 | 604 | ||||||
| Accounts Payable | 109,834 | 117,911 | ||||||
| Accrued Salaries and Wages | 16,379 | 20,252 | ||||||
| Accrued Taxes | 11,642 | 11,957 | ||||||
| Derivative Liabilities | 19,633 | 17,991 | ||||||
| Other Accrued Liabilities | 11,142 | 9,546 | ||||||
| Liabilities of Discontinued Operations | 18,961 | 19,026 | ||||||
| Total Current Liabilities | 305,250 | 276,777 | ||||||
| Pensions Benefit Liability | 74,506 | 73,538 | ||||||
| Other Postretirement Benefits Liability | 42,991 | 42,372 | ||||||
| Other Noncurrent Liabilities | 21,182 | 21,043 | ||||||
| Deferred Credits | ||||||||
| Deferred Income Taxes | 163,318 | 162,208 | ||||||
| Deferred Tax Credits | 44,199 | 44,945 | ||||||
| Regulatory Liabilities | 67,162 | 66,416 | ||||||
| Other | 469 | 556 | ||||||
| Total Deferred Credits | 275,148 | 274,125 | ||||||
| Capitalization | ||||||||
| Long-Term Debt, Net of Current Maturities | 436,064 | 434,812 | ||||||
| Class B Stock Options of Subsidiary | 525 | 525 | ||||||
| Cumulative Preferred Shares | 15,500 | 15,500 | ||||||
| Cumulative Preference Shares | -- | -- | ||||||
| Common Equity | ||||||||
| Common Shares, Par Value $5 Per Share | 180,014 | 180,014 | ||||||
| Premium on Common Shares | 251,505 | 251,919 | ||||||
| Retained Earnings | 193,244 | 198,443 | ||||||
| Accumulated Other Comprehensive Income | 1,052 | 1,487 | ||||||
| Total Common Equity | 625,815 | 631,863 | ||||||
| Total Capitalization | 1,077,904 | 1,082,700 | ||||||
| Total | $ | 1,796,981 | $ | 1,770,555 | ||||
14
| Otter Tail Corporation | ||||||||
| Consolidated Statements of Cash Flows | ||||||||
| In thousands | ||||||||
| (not audited) | ||||||||
Three Months Ended March 31, | ||||||||
| 2011 | 2010 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net Income | $ | 5,696 | $ | 4,717 | ||||
| Adjustments to Reconcile Net Income to Net Cash (Used in) Provided | ||||||||
| by Operating Activities: | ||||||||
| Income from Discontinued Operations | (1,762 | ) | (1,404 | ) | ||||
| Depreciation and Amortization | 19,113 | 18,584 | ||||||
| Deferred Tax Credits | (659 | ) | (679 | ) | ||||
| Deferred Income Taxes | 4,099 | 6,863 | ||||||
| Change in Deferred Debits and Other Assets | 6,266 | 15 | ||||||
| Change in Noncurrent Liabilities and Deferred Credits | 90 | 2,346 | ||||||
| Allowance for Equity (Other) Funds Used During Construction | (116 | ) | -- | |||||
| Change in Derivatives Net of Regulatory Deferral | (59 | ) | (1,622 | ) | ||||
| Stock Compensation Expense – Equity Awards | 452 | 610 | ||||||
| Other--Net | (120 | ) | (52 | ) | ||||
| Cash (Used for) Provided by Current Assets and Current Liabilities: | ||||||||
| Change in Receivables | (23,737 | ) | (20,890 | ) | ||||
| Change in Inventories | (1,787 | ) | (8,345 | ) | ||||
| Change in Other Current Assets | (747 | ) | (23,425 | ) | ||||
| Change in Payables and Other Current Liabilities | (3,869 | ) | 2,837 | |||||
| Change in Interest Payable and Income Taxes Receivable/Payable | 1,306 | (710 | ) | |||||
| Net Cash Provided by (Used in) Continuing Operations | 4,166 | (21,155 | ) | |||||
| Net Cash Provided by (Used in) Discontinued Operations | 2,795 | (1,585 | ) | |||||
| Net Cash Provided by (Used in) Operating Activities | 6,961 | (22,740 | ) | |||||
| Cash Flows from Investing Activities | ||||||||
| Capital Expenditures | (23,981 | ) | (17,687 | ) | ||||
| Proceeds from Disposal of Noncurrent Assets | 984 | 619 | ||||||
| Net Increase in Other Investments | (598 | ) | (1,001 | ) | ||||
| Net Cash Used in Investing Activities – Continuing Operations | (23,595 | ) | (18,069 | ) | ||||
| Net Cash Provided by Investing Activities – Discontinued Operations | 137 | 11 | ||||||
| Net Cash Used in Investing Activities | (23,458 | ) | (18,058 | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Change in Checks Written in Excess of Cash | (10,030 | ) | 244 | |||||
| Net Short-Term Borrowings | 37,486 | 102,914 | ||||||
| Proceeds from Issuance of Common Stock | -- | 55 | ||||||
| Common Stock Issuance Expenses | -- | (79 | ) | |||||
| Payments for Retirement of Common Stock | -- | (262 | ) | |||||
| Proceeds from Issuance of Long-Term Debt | 1,500 | 95 | ||||||
| Short-Term and Long-Term Debt Issuance Expenses | (686 | ) | (87 | ) | ||||
| Payments for Retirement of Long-Term Debt | (170 | ) | (58,350 | ) | ||||
| Dividends Paid and Other Distributions | (11,041 | ) | (10,938 | ) | ||||
| Net Cash Provided by Financing Activities – Continuing Operations | 17,059 | 33,592 | ||||||
| Net Cash (Used in) Provided by Financing Activities – Discontinued Operations | (88 | ) | 3,007 | |||||
| Net Cash Provided by Financing Activities | 16,971 | 36,599 | ||||||
| Cash and Cash Equivalents at Beginning of Period – Discontinued Operations | -- | (609 | ) | |||||
| Effect of Foreign Exchange Rate Fluctuations on Cash – Discontinued Operations | (288 | ) | (233 | ) | ||||
| Net Change in Cash and Cash Equivalents | 186 | (5,041 | ) | |||||
| Cash and Cash Equivalents at Beginning of Period | -- | 5,041 | ||||||
| Cash and Cash Equivalents at End of Period | $ | 186 | $ | -- | ||||
15