OTTER TAIL CORP (Form: 10-Q, Received: 11/14/2003 15:35:24)

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


(Mark One)
x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended		September 30, 2003


OR

o		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 incorporation or organization)		(I.R.S. Employer Identification No.)


215 South Cascade Street, Box 496, Fergus Falls, Minnesota		56538-0496

(Address of principal executive offices)		(Zip Code)

866-410-8780

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 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:

October 31, 2003 — 25,717,832 Common Shares ($5 par value)

TABLE OF CONTENTS


Part I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		Consolidated Balance Sheets — September 30, 2003 and December 31, 2002 (Unaudited)
		Consolidated Statements of Income — Three and Nine Months Ended September 30, 2003 and 2002 (Unaudited)
		Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2003 and 2002 (Unaudited)
		Notes to Consolidated Financial Statements (Unaudited)
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EX-4.1 Third Amendment to Credit Agreement
EX-10.1 Supplemental Agreement No. 4
EX-10.2 Amendment to Coyote Station Agreement
EX-31.1 Certification of CEO Pursuant to Sec. 302
EX-31.2 Certification of CFO Pursuant to Sec. 302
EX-32.1 Certification of CEO Pursuant to Sec. 906
EX-32.2 Certification of CFO Pursuant to Sec. 906

OTTER TAIL CORPORATION

INDEX


Part I.		Financial Information	Page No.

	Item 1.	Financial Statements

		Consolidated Balance Sheets — September 30, 2003 and December 31, 2002 (Unaudited)	2 & 3

		Consolidated Statements of Income — Three and Nine Months Ended September 30, 2003 and 2002 (Unaudited)	4

		Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2003 and 2002 (Unaudited)	5

		Notes to Consolidated Financial Statements (Unaudited)	6-12

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13-26

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	27-29

	Item 4.	Controls and Procedures	29

Part II.		Other Information

	Item 6.	Exhibits and Reports on Form 8-K	30

Signatures			30

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Otter Tail Corporation
Consolidated Balance Sheets
(Unaudited)
-Assets-


				September 30,		December 31,
				2003		2002

				(Thousands of dollars)
Current assets
Cash and cash equivalents				$	—	$	9,937
Accounts receivable:
	Trade—net				108,018		81,670
	Other				9,543		1,466
Inventories					56,158		44,154
Deferred income taxes					4,492		4,487
Accrued utility revenues					8,083		11,633
Costs and estimated earnings in excess of billings					16,873		5,529
Other					17,935		5,337

		Total current assets			221,102		164,213
Investments and other assets					35,963		36,135
Goodwill—net					66,431		64,557
Other intangibles—net					5,626		5,592
Deferred debits
Unamortized debt expense and reacquisition premiums					8,310		8,895
Regulatory assets					12,269		10,238
Other					912		1,220

		Total deferred debits			21,491		20,353
Plant
Electric plant in service					866,173		835,382
Nonelectric operations					187,947		178,656

		Total plant			1,054,120		1,014,038
Less accumulated depreciation and amortization					470,069		467,759

		Plant—net of accumulated depreciation and amortization			584,051		546,279
Construction work in progress					21,576		41,607

		Net plant			605,627		587,886

			Total	$	956,240	$	878,736

See accompanying notes to consolidated financial statements

-2-

Otter Tail Corporation
Consolidated Balance Sheets
(Unaudited)
-Liabilities-


				September 30,			December 31,
				2003			2002

				(Thousands of dollars)
Current liabilities
Short-term debt				$	37,251		$	30,000
Current maturities of long-term debt					9,347			7,690
Accounts payable					66,431			52,430
Accrued salaries and wages					13,813			18,194
Accrued federal and state income taxes					6,317			—
Other accrued taxes					9,271			10,150
Other accrued liabilities					9,761			5,760

	Total current liabilities				152,191			124,224
Pensions benefit liability					22,844			20,484
Other postretirement benefits liability					22,735			20,382
Other noncurrent liabilities					10,764			7,840
Deferred credits
Deferred income taxes					100,646			94,147
Deferred investment tax credit					11,918			12,782
Regulatory liabilities					25,839			9,133
Other					1,959			2,550

	Total deferred credits				140,362			118,612
Capitalization
Long-term debt, net of current maturities					268,436			258,229
Cumulative preferred shares authorized 1,500,000 shares without par value; outstanding 2003 and 2002 — 155,000 shares					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 2003 — 25,717,067 and 2002 — 25,592,160					128,585			127,961
Premium on common shares					26,293			24,135
Unearned compensation					(3,623	)		(1,946	)
Retained earnings					184,223			175,304
Accumulated other comprehensive loss					(12,070	)		(11,989	)

	Total common equity				323,408			313,465
		Total capitalization			607,344			587,194

			Total	$	956,240		$	878,736

See accompanying notes to consolidated financial statements

-3-

Otter Tail Corporation
Consolidated Statements of Income
(Unaudited)


			Three months ended					Nine months ended
			September 30,					September 30,
			2003			2002		2003			2002

			(In thousands, except share and per share amounts)
Operating revenues
Electric			$	113,434		$	82,049	$	284,906		$	228,339
Plastics				23,414			22,370		65,996			62,650
Manufacturing				49,793			34,576		133,350			101,646
Health services				26,284			23,019		73,514			67,771
Other business operations				27,777			23,736		79,604			59,649

		Total operating revenues		240,702			185,750		637,370			520,055
Operating expenses
Production fuel				14,307			11,107		37,980			33,569
Purchased power				45,103			27,703		108,878			70,262
Other electric operation and maintenance expenses				24,010			20,143		65,383			58,698
Cost of goods sold				101,319			73,446		269,697			205,425
Other nonelectric expenses				19,398			16,926		58,117			51,321
Depreciation and amortization				11,718			10,880		34,208			31,570
Property taxes				2,553			2,537		7,591			7,419

		Total operating expenses		218,408			162,742		581,854			458,264
Operating income (loss)
Electric				20,863			14,316		45,614			39,777
Plastics				(165	)		3,998		4,461			10,825
Manufacturing				49			1,737		6,454			6,718
Health services				1,877			1,499		3,505			6,549
Other business operations				(330	)		1,458		(4,518	)		(2,078	)

	Total operating income			22,294			23,008		55,516			61,791
Other income — net				25			746		1,288			1,155
Interest charges				4,528			4,518		13,344			13,189

Income before income taxes				17,791			19,236		43,460			49,757
Income taxes				5,830			6,354		13,203			16,256

Net income				11,961			12,882		30,257			33,501
Preferred dividend requirements				184			184		552			552

Earnings available for common shares			$	11,777		$	12,698	$	29,705		$	32,949

Basic earnings per common share			$	0.46		$	0.50	$	1.16		$	1.32
Diluted earnings per common share			$	0.46		$	0.50	$	1.15		$	1.30
Average number of common shares outstanding — basic				25,708,199			25,327,522		25,657,717			25,037,601
Average number of common shares outstanding — diluted				25,868,975			25,496,519		25,810,697			25,269,011
Dividends per common share			$	0.270		$	0.265	$	0.810		$	0.795

See accompanying notes to consolidated financial statements

-4-

Otter Tail Corporation
Consolidated Statements of Cash Flows
(Unaudited)


					Nine months ended
					September 30,
					2003			2002

					(Thousands of dollars)
Cash flows from operating activities
Net income					$	30,257		$	33,501
		Adjustments to reconcile net income to net cash provided by operating activities:
			Depreciation and amortization			34,208			31,570
			Deferred investment tax credit — net			(864	)		(864	)
			Deferred income taxes			4,628			(1,208	)
			Change in deferred debits and other assets			(1,587	)		(5,445	)
			Change in noncurrent liabilities and deferred credits			5,397			2,972
			Allowance for equity (other) funds used during construction			(1,214	)		(1,537	)
			Unrealized gains on derivatives net of regulatory deferral			(3,901	)		—
			Other — net			1,330			1,258
		Cash provided by (used for) current assets & current liabilities:
			Change in receivables and inventories			(45,985	)		(1,848	)
			Change in other current assets			(12,164	)		(7,870	)
			Change in payables and other current liabilities			8,463			(5,547	)
			Change in interest and income taxes payable			9,230			5,701

				Net cash provided by operating activities		27,798			50,683
Cash flows from investing activities
			Capital expenditures			(35,827	)		(54,358	)
			Proceeds from disposal of noncurrent assets			931			1,042
			Acquisitions, net of cash acquired			(1,815	)		(9,120	)
			Sale of other investments			1,129			884

				Net cash used in investing activities		(35,582	)		(61,552	)
Cash flows from financing activities
			Net borrowings under line of credit			7,181			—
			Proceeds from employee stock plans			829			2,293
			Proceeds from issuance of long-term debt			18,638			65,072
			Payments for retirement of long-term debt			(6,963	)		(28,291	)
			Payments for debt issuance expenses			(98	)		(2,348	)
			Dividends paid and other distributions			(21,740	)		(20,499	)

				Net cash (used in) provided by financing activities		(2,153	)		16,227
Net change in cash and cash equivalents						(9,937	)		5,358
Cash and cash equivalents at beginning of period						9,937			11,378

Cash and cash equivalents at end of period					$	—		$	16,736

Supplemental cash flow information
	Cash paid for interest and income taxes
		Interest			$	10,347		$	11,283
		Income taxes			$	2,308		$	14,196

See accompanying notes to consolidated financial statements

-5-

OTTER TAIL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

In the opinion of management, Otter Tail Corporation (the Company) has included all adjustments (including normal recurring accruals) necessary for a fair presentation of the consolidated results of operations for the periods presented. The consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes as of and for the years ended December 31, 2002, 2001 and 2000 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002. Because of seasonal and other factors, the earnings for the three and nine-month periods ended September 30, 2003, should not be taken as an indication of earnings for all or any part of the balance of the year.

Acquisitions

The Company completed two acquisitions during the quarter ended June 30, 2003 and one additional acquisition in the quarter ended September 30, 2003, none of which individually, or in aggregate, was material, in the health services segment for approximately $1.9 million in cash. The company has recorded $1,874,000 of goodwill related to these acquisitions. Disclosure of pro forma information related to the results of operations of the acquired entities for the periods presented in this report is not required due to immateriality.

Revenue Recognition

Due to the diverse business operations of the Company, revenue recognition depends on the product produced or sold. The Company recognizes revenue when the earnings process is complete, evidenced by an agreement with the customer, there has been delivery and acceptance and the price is fixed and determinable. In cases where significant obligations remain after delivery, revenue is deferred until such obligations are fulfilled. Provisions for sale returns and warranty costs are recorded at the time of sale based on historical information and current trends.

For those operating businesses recognizing revenue when shipped, the operating businesses have no further obligation to provide services related to such product. The shipping terms used in these instances are FOB shipping point.

Some of the operating businesses enter into fixed-price construction contracts. Revenues under these contracts are recognized on a percentage-of-completion basis. The method used to determine the progress of completion is based on the ratio of costs incurred to total estimated costs. The following summarizes costs incurred, billings and estimated earnings recognized on uncompleted contracts:


	September 30,			December 31,
(in thousands)	2003			2002

Costs incurred on uncompleted contracts	$	88,762		$	42,768
Less billings to date		(80,149	)		(44,572	)
Plus estimated earnings recognized		7,343			6,340

	$	15,956		$	4,536

The following amounts are included in the Company’s consolidated balance sheets. Billings in excess of costs and estimated earnings on uncompleted contracts are included in Accounts Payable:


	September 30,			December 31,
(in thousands)	2003			2002

Costs and estimated earnings in excess of billings on uncompleted contracts	$	16,873		$	5,529
Billings in excess of costs and estimated earnings on uncompleted contracts		(917	)		(993	)

	$	15,956		$	4,536

The percent of revenue recognized under the percentage-of-completion method compared to total consolidated revenues was 15.7% for the nine months ended September 30, 2003 compared with 11.6% for the nine months ended September 30, 2002.

Stock-based compensation

The Company has elected to follow the accounting provisions of Accounting Principle Board Opinion No. 25, Accounting for Stock Issued to Employees, for stock-based compensation and to furnish the pro forma disclosures required under Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation.

Had compensation costs for the stock options issued been determined based on estimated fair value at the award dates, as prescribed by SFAS No. 123, the Company’s net income for three and nine-month periods ended September 30, 2003 and September 30, 2002 would have decreased as presented in the table below. This may not be representative of the pro forma effects for future periods if additional options are granted.


			Three months ended						Nine months ended
			September 30,						September 30,
(in thousands)			2003			2002			2003			2002

Net income
	As reported		$	11,961		$	12,882		$	30,257		$	33,501
		Total stock-based employee compensation expense determined under fair value based method for all awards net of related tax effects		(260	)		(260	)		(725	)		(779	)

	Pro forma		$	11,701		$	12,622		$	29,532		$	32,722

Basic earnings per share
	As reported		$	0.46		$	0.50		$	1.16		$	1.32
	Pro forma		$	0.45		$	0.49		$	1.13		$	1.28
Diluted earnings per share
	As reported		$	0.46		$	0.50		$	1.15		$	1.30
	Pro forma		$	0.45		$	0.49		$	1.12		$	1.27

Reclassifications

Certain prior year amounts reported on the Company’s consolidated balance sheet have been reclassified to conform to 2003 presentation. Such reclassifications had no impact on net income, shareholders’ equity or cash provided by operating activities.

Inventories

Inventories consist of the following:


	September 30,		December 31,
(in thousands)	2003		2002

Finished goods	$	18,939	$	15,795
Work in process		7,740		1,438
Raw material, fuel and supplies		29,479		26,921

	$	56,158	$	44,154

Goodwill and Other Intangible Assets

The carrying amount of goodwill increased by $1,874,000 during the nine months ended September 30, 2003 as a result of three acquisitions in the health services segment in 2003.

The following table summarizes the components of the Company’s intangible assets at September 30, 2003 and December 31, 2002.


			September 30, 2003						December 31, 2002

			Gross				Net		Gross				Net
			carrying		Accumulated		carrying		carrying		Accumulated		carrying
(in thousands)			amount		amortization		amount		amount		amortization		amount

Amortized intangible assets:
	Covenants not to compete		$	2,110	$	1,368	$	742	$	1,920	$	1,143	$	777
	Other intangible assets including contracts			2,314		1,050		1,264		2,079		884		1,195

		Total	$	4,424	$	2,418	$	2,006	$	3,999	$	2,027	$	1,972

Non-amortized intangible assets:
	Brandname		$	3,620	$	—	$	3,620	$	3,620	$	—	$	3,620

Intangible assets with finite lives are being amortized over average lives ranging from one to five years. The amortization expense for these intangible assets was $448,000 for the nine months ended September 30, 2003 compared to $391,000 for the nine months ended September 30, 2002. The estimated annual amortization expense for these intangible assets for the next five years is: $603,000 for 2003, $593,000 for 2004, $387,000 for 2005, $264,000 for 2006 and $152,000 for 2007.

New Accounting Standards

The Financial Accounting Standards Board (FASB) has issued SFAS No. 143 , Accounting for Asset Retirement Obligations (ARO), which provides accounting requirements for retirement obligations associated with tangible long-lived assets. The Company adopted SFAS No. 143 on January 1, 2003. Retirement obligations associated with long-lived assets included within the scope of SFAS No. 143 are those for which there is a legal obligation to settle under existing or enacted law, statute, written or oral contract or by legal constructions under the doctrine of promissory estoppel. Adoption of SFAS No. 143 changed the accounting for ARO costs of the utility’s generating plants. As of June 30, 2003 the Company transferred $13.6 million in accumulated reserves related to net salvage costs on assets with ARO from accumulated depreciation to a regulatory liability account in accordance with the requirements of SFAS No. 143 and Federal Energy Regulatory Commission rules issued on April 9, 2003. SFAS No. 143 requires the present value of the future decommissioning cost to be recognized as a liability on the balance sheet with an offsetting amount being added to the capitalized cost of the related long-lived asset. The liability will be accreted to its present value each period and the capitalized cost will be depreciated over the useful life of the related asset.

The Company’s asset retirement obligations include site restoration, the closure of ash pits and the removal of storage tanks and asbestos at certain electric utility generating plants. The Company has legal obligations associated with retirement of other long-lived assets used in its electric operations that cannot be reasonably estimated because the useful lives of those assets are not determinable. There are no assets legally restricted for the settlement of any of the Company’s asset retirement obligations.

The present value of the legal asset retirement obligations as of September 30, 2003 of $1,568,000 is included in Other noncurrent liabilities on the Company’s September 30, 2003 consolidated balance sheet. The $1,568,000 liability includes the original obligation of $377,000 plus accumulated accretion expense of $1,113,000 from the date the obligation arose through January 1, 2003, plus $78,000 of additional accumulated accretion expense for the nine months ended September 30, 2003. Since the recovery of these estimated removal costs, which include accretion, has been provided for through the recovery of depreciation expense included as a component of current electric retail rates, there is no cumulative effect on income to be recorded related to the adoption of this accounting principle. The difference between current accretion expense and depreciation expense based on approved rates will accumulate as a regulatory asset until the actual cost to settle the asset retirement obligation has been incurred. At that time, the associated regulatory asset will be transferred to the associated regulatory liability account as required by regulatory accounting rules. The effects of the transitional noncash transactions described above are not reflected in the Company’s consolidated statement of cash flows for the nine months ended September 30, 2003.

The following table shows the amount of the asset retirement obligation liability that would have been included in Other noncurrent liabilities in prior periods had the requirements of SFAS No. 143 been in effect in those periods.


	As of September 30,				As of December 31,
(in thousands)	2003		2002		2002		2001

As reported	$	1,568		—		—		—
Pro forma	$	1,568	$	1,465	$	1,490	$	1,392

The FASB issued SFAS No. 149 , Amendment of Statement 133 on Derivative Instruments and Hedging Activities, in April 2003. The statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement is effective for contracts entered into or modified after June 30, 2003. With the issuance of SFAS No.149, any forward contracts for the purchase or sale of energy entered into after June 30, 2003, that do not meet the definition of a capacity contract and are subject to unplanned netting, referred to as a book out in the utility industry, are not eligible for the normal purchases and sales exception provided for under SFAS No. 133 and modified by SFAS No. 149. These contracts are considered derivatives and are now subject to mark-to-market accounting. This classification applies to virtually all of the Company’s forward wholesale purchases and sales of energy, which, prior to the issuance of SFAS No. 149, qualified for the normal purchases and sales exception from mark-to-market accounting treatment. As a result of the issuance of SFAS No. 149, unrealized gains and losses on forward purchases and sales of energy are now recorded by the Company. All provisions of this statement have been applied prospectively.

The Company recorded $3.9 million in net unrealized gains for the three and nine-month periods ended September 30, 2003, which reflects the difference between the contracted prices for forward purchases and sales of energy and the September 30, 2003 market prices for contracts with matching terms and characteristics. A portion of the net unrealized gain is not reflected in current income but has been deferred under regulatory accounting treatment until realized at the time of physical delivery. See further discussion of the Company’s marked-to-market position on forward energy contracts under Item 3. Quantitative and Qualitative Disclosures About Market Risk.

At the July 31, 2003 Emerging Issues Task Force (EITF) meeting, EITF Issue 03-11 , Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133, and Not “Held for Trading Purposes ” as Defined in Issue No. 02-3, was discussed. The EITF reached a consensus by agreeing that determining whether realized gains and losses on derivative contracts not “held for trading purposes” should be reported on a net or gross basis is a matter of judgment that depends on the relevant facts and circumstances. The FASB ratified the EITF consensus at its August 13, 2003 meeting. The reporting requirements of EITF Issue 03-11 will be applicable to financial statement presentation in the fourth quarter of 2003. The FASB staff believes that transition for the consensus reached on this Issue should require that comparative financial statements for prior periods be reclassified to conform to the consensus. Early application of any consensus is permitted. The Company will determine the appropriate reporting treatment for its forward energy transactions under EITF Issue 03-11 in the fourth quarter of 2003. Application of the reporting requirements of EITF 03-11, whether under a gross or net basis, will not have an effect on the Company’s consolidated net income, financial position or cash flows.

FASB Interpretation (FIN) No. 46 , Consolidation of Variable Interest Entities, is an interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements, that addresses consolidation by business enterprises of variable interest entities which have certain characteristics related to equity at risk and rights and obligations to profits and losses. The effective date for FIN 46 has been deferred until the fourth quarter of 2003 for interests in variable interest entities created before February 1, 2003 and held by a public entity that has not previously applied the provisions of FIN 46. The Company is reviewing its investments reported on an equity-method basis to determine if the provisions of FIN 46 apply to those investments.

Segment Information

The Company’s business operations consist of five segments based on products and services. Electric includes the electric utility operating in Minnesota, North Dakota and South Dakota. Plastics consists of businesses involved in the production of polyvinyl chloride (PVC) and polyethylene (PE) pipe in the Upper Midwest and Southwest regions of the United States. Manufacturing consists of businesses involved in the production of waterfront equipment, wind towers, frame-straightening equipment and accessories for the auto repair industry, custom plastic pallets, material and handling trays, horticultural containers, fabrication of steel products, contract machining, and metal parts stamping and fabrication located in the Upper Midwest, Missouri and Utah. Health services include businesses involved in the sale of diagnostic medical equipment, supplies and accessories. These businesses also provide service maintenance, mobile diagnostic imaging, mobile positron emission tomography and nuclear medicine imaging, portable x-ray imaging and rental of diagnostic medical imaging equipment to various medical institutions located in 40 states. Other business operations consists of businesses in electrical and telephone construction contracting, transportation, telecommunications, entertainment, energy services, and natural gas marketing, as well as the portion of 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					Nine months ended
		September 30,					September 30,
(in thousands)		2003			2002		2003			2002

Electric		$	20,863		$	14,316	$	45,614		$	39,777
Plastics			(165	)		3,998		4,461			10,825
Manufacturing			49			1,737		6,454			6,718
Health services			1,877			1,499		3,505			6,549
Other business operations			(330	)		1,458		(4,518	)		(2,078	)

	Total	$	22,294		$	23,008	$	55,516		$	61,791

Identifiable Assets


		September 30,		December 31,
(in thousands)		2003		2002

Electric		$	591,285	$	550,855
Plastics			59,812		54,926
Manufacturing			148,576		114,120
Health services			68,270		64,785
Other business operations			88,297		94,050

	Total	$	956,240	$	878,736

Substantially all sales and long-lived assets of the Company are within the United States.

Common Shares and Earnings per Share

On April 14, 2003 the Company’s Board of Directors granted 222,750 stock options to key management employees and 90,900 shares of restricted stock to certain key executives and the directors under the 1999 Stock 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 vest ratably over a four-year period and expire ten years after the date of the grant. As of September 30, 2003 a total of 1,697,111 options were outstanding and a total of 193,094 shares of restricted stock had been issued under the Plan. The Company accounts for the Plan under Accounting Principles Board Opinion No. 25.

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 September 30, 2003 was net income of $12.0 million as compared to $12.9 million of net income for the three months ended September 30, 2002. The only elements of comprehensive income for the nine months ended September 30, 2003 were net income of $30.3 million and an additional accumulated comprehensive loss of $81,000 related to the Company’s Executive Survivor & Supplemental Retirement Plan as compared to $33.5 million of net income for the nine months ended September 30, 2002.

Regulatory Assets and Liabilities

As a regulated entity the Company and the electric utility account for the financial effects of regulation in accordance with SFAS No. 71, Accounting for the Effect of Certain Types of Regulation. This statement allows for the recording of a regulatory asset or liability for costs that will be collected or refunded through the ratemaking process in the future.

The following table indicates the amount of regulatory assets and liabilities recorded on the Company’s consolidated balance sheet:


					September 30,			December 31,
(in thousands)					2003			2002

Regulatory assets:
	Deferred income taxes				$	11,577		$	10,238
	Debt expenses and reacquisition premiums					3,975			4,323
	Deferred conservation program costs					664			844
	Plant acquisition costs					296			329
	Deferred marked-to-market losses					605			—
	Accrued cost-of-energy revenue					41			768
	Accumulated ARO accretion/depreciation adjustment					87			—

			Total regulatory assets		$	17,245		$	16,502

Regulatory liabilities:
		Accumulated depreciation on ARO assets’ negative salvage			$	13,056		$	—
		Deferred income taxes				8,433			8,960
		Deferred marked-to-market gains				4,181			—
		Gain on sale of division office building				169			173

				Total regulatory liabilities	$	25,839		$	9,133

Net regulatory (liability)/asset position					$	(8,594	)	$	7,369

The regulatory assets and liabilities related to deferred income taxes are the result of the adoption of SFAS No. 109, Accounting for Income Taxes. Deferred conservation program costs included in Deferred debits – Other represent mandated conservation expenditures recoverable through retail electric rates over the next 1.5 years. Plant acquisition costs included in Deferred debits — Other will be amortized over the next 7 years. Accrued cost-of-energy revenue included in Accrued utility revenues will be recovered over the next nine months. All deferred marked-to-market gains and losses are related to forward purchases and sales of energy scheduled for delivery prior to May 2004. The remaining regulatory assets and liabilities are being recovered from electric customers over the next 32 years.

If for any reason, the Company’s regulated businesses cease to meet the criteria for application of SFAS No. 71 for all or part of their operations, the regulatory assets and liabilities that no longer meet such criteria would be removed from the consolidated balance sheet and included in the consolidated statement of income as an extraordinary expense or income item in the period in which the application of SFAS No. 71 ceases.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

MATERIAL CHANGES IN FINANCIAL POSITION

For the period 2003 through 2007, the Company estimates that funds internally generated net of forecasted dividend payments will be sufficient to meet scheduled debt retirements and provide for most of its estimated consolidated capital expenditures. Reduced demand for electricity or products manufactured and sold by the Company could have an effect on funds internally generated. Additional short-term or long-term financing will be required in the period 2003 through 2007 to provide for the balance of estimated consolidated capital expenditures, in the event the Company decides to refund or retire early any of its presently outstanding debt or cumulative preferred shares, to complete acquisitions or for other corporate purposes. There can be no assurance that any additional required financing will be available through bank borrowings, debt or equity financing or otherwise, or that if such financing is available, it will be available on terms acceptable to the Company. If adequate funds are not available on acceptable terms, the Company’s business, results of operations and financial condition could be adversely affected.

The Company has the ability to issue up to an additional $135 million of unsecured debt securities from time to time under its shelf registration statement on file with the SEC.

On August 25, 2003, the Company’s line of credit was increased to $70 million. This line is available to support borrowings of the Company’s nonelectric operations. The Company anticipates the electric utility’s cash requirements through April 2004 will be provided for by cash flows from electric utility operations. As of September 30, 2003, $37,251,000 of the $70 million line was in use. The Company’s obligations under this line of credit are guaranteed by a 100%-owned subsidiary of the Company that owns substantially all of the Company’s nonelectric companies.

The line of credit contains a number of covenants that restrict the Company’s ability, with significant exceptions, to: engage in mergers or consolidations; dispose of assets; create liens on assets; engage in transactions with affiliates; take any action which would result in a decrease in the ownership interest in any subsidiary; redeem stock or any subsidiary’s stock and pay dividends on stock; make investments, loans or advances; guaranty the obligations of other persons or agree to maintain the net worth or working capital of, or provide funds to satisfy any other financial test applicable to, any other person; and enter into a contract that requires payment to be made by the Company whether or not delivery of the materials, supplies or services is ever made under the contract. In addition, the Company is required to comply with specified financial covenants, including maintaining a debt-to-total capitalization ratio not in excess of 60% and an interest and dividend coverage ratio of at least 1.5 to 1. As of September 30, 2003, the Company was in compliance with all of the covenants under the line of credit. The interest rate under the line of credit is subject to adjustment in the event of a change in ratings on the Company’s senior unsecured debt, up to LIBOR plus 0.8% if the ratings on the Company’s senior unsecured debt fall to BBB+ or below (Standard & Poor’s) or Baa1 or below (Moody’s). The line of credit also provides for accelerated repayment in the event the Company’s long-term unsecured and unsubordinated debt is rated below BBB- (Standard & Poor’s) or Baa3 (Moody’s).

On September 24, 2003, the Company borrowed $16.3 million under a loan agreement with Lombard US Equipment Finance Corporation in the form of an unsecured note. The terms of the note require quarterly principal payments in the amount of $582,143 commencing in January 2004 with a final installment due on October 2, 2006, the stated maturity date of the note. The term of the note can be extended for additional one-year periods following the stated maturity date through October 1, 2010. The note bears interest at a variable rate of 3-month LIBOR plus 1.43% on the unpaid principal balance with interest payments due quarterly commencing on October 1, 2003 until the principal balance is repaid in full. The Company used proceeds from the note to pay down borrowings under the Company’s line of credit that were used to finance acquisitions and capital expenditures of its nonelectric

subsidiaries. The covenants associated with the note are consistent with existing credit facilities. There are no rating triggers associated with this note.

Cash provided by operating activities of $27.8 million for the nine months ended September 30, 2003 combined with cash on hand of $9.9 million as of December 31, 2002 allowed the Company to pay dividends and fund 45% of its capital expenditures. The remaining capital expenditures have been funded through short-term borrowings and the issuance of long-term debt. Net cash provided by operating activities decreased $22.9 million for the nine months ended September 30, 2003 compared to the nine months ended September 30, 2002 primarily as a result of an increase in receivables, inventories and other current assets of $58.1 million offset by an increase in accounts payable and other current liabilities and interest and income taxes payable of $17.7 million in the first nine months of 2003 compared to an increase in receivables, inventories and other current assets of $9.7 million in the first nine months of 2002. The increase in cash used for working capital in the first nine months of 2003 compared to the first nine months of 2002 of $30.9 million was partially offset by a $5.8 million net change in cash provided by an increase in deferred income taxes payable in 2003 of $4.6 million compared to a $1.2 million decrease in deferred income taxes payable in 2002 and a $2.4 million net increase in noncurrent liabilities and deferred credits from 2002 to 2003.

Receivables in the manufacturing segment increased $13.7 million in the first nine months of 2003 mainly related to increased sales in this segment with receivable increases of $5.9 million at the wind tower manufacturing company, $3.1 million at the waterfront equipment company related to seasonal sales increases, $2.7 million at the metal parts stamping and fabrication company and $1.7 million at the Company’s manufacturer of structural steel products. The electric utility’s receivables increased $10.7 million from December 31, 2002 to September 30, 2003 as a result of increases in wholesale sales of electricity and billings for contracted electrical construction work in September of 2003 compared to December of 2002. Receivables at the construction companies increased $4.6 million from December 31, 2002 to September 30, 2003, coinciding with a normal increase in regional construction business from winter to summer. Receivables at the transportation company increased $2.3 million in the first nine months of 2003 mainly due to increased brokerage activity. A $2.1 million increase in receivables in the plastics segment from December 31, 2002 to September 30, 2003 is reflective of increased sales and increased product prices in the third quarter of 2003 compared to the fourth quarter of 2002.

The increase in inventories in the first nine months of 2003 is mainly due to a $5.7 million build-up of inventories at the Company’s manufacturer of wind towers, a $3.3 million increase in inventories at the other manufacturing companies related to recent increases in sales and production activity and a $2.0 million increase in inventory at the plastic pipe companies related to an increase in raw material and production costs in September 2003 compared to December 2002.

The $12.2 million increase in other current assets in the first nine months of 2003 is mainly due to an $11.3 million increase in costs and estimated earnings in excess of billings on uncompleted contracts, of which $9.0 million was at the Company’s manufacturer of wind towers and $1.6 million was at the construction companies. The $12.2 million increase in other current assets was more than offset by the $8.5 million increase in payables and other current liabilities plus the $7.3 million increase in income taxes payable related to the timing and magnitude of estimated tax payments and the $1.9 million increase in interest payable related to the timing of interest payments on long-term debt and increases in the level of debt outstanding in the first nine months of 2003.

Net cash used in investing activities was $35.6 million for the nine months ended September 30, 2003 compared with net cash used in investing activities of $61.6 million for the nine months ended September 30, 2002. Capital expenditures decreased by $18.5 million and business acquisition expenditures decreased by $7.3 million between the periods. Capital expenditures at the electric utility decreased $10.8 million related to the completion of a major transmission line in the fourth quarter of 2002 and winding down of construction on the electric utility’s new gas-fired combustion turbine placed in service in June 2003. Capital expenditures in other segments decreased by $7.7 million between the periods, reflecting a $3.9 million reduction in equipment purchases at the Company’s metal

parts stamping and fabrication company, a $3.5 million decrease in plant expenditures at one of the plastic pipe manufacturing facilities, a $3.3 million reduction in equipment purchases at the Company’s wind-tower manufacturing company and a $1.6 million decrease in equipment expenditures at the Company’s transportation company. These decreases were offset by a $3.0 million increase in capital expenditures at one of the Company’s pipe manufacturing companies related to the construction of a new polyethylene pipe production facility in Iowa, a $1.2 million increase in capital expenditures at the Company’s manufacturer of thermoformed plastic and horticultural products related to a relocation and expansion of facilities and a $0.3 million increase in capital expenditures at the Company’s manufacturer of waterfront equipment.

Net cash used in financing activities was $2.2 million for the nine months ended September 30, 2003 compared with net cash provided by financing activities of $16.2 million for the nine months ended September 30, 2002. The $18.4 million decrease in cash provided by financing activities between the periods reflects a $39.3 million reduction in cash provided by short-term and long-term borrowings, a $1.5 million reduction in cash from the issuance of common stock and a $1.2 million increase in dividends paid and other distributions offset by a $23.6 million reduction in the repayment and retirement of long-term debt between the periods. Proceeds from the $25.8 million total increase in short-term and long-term borrowing in the first nine months of 2003 were mainly used to finance construction and operating activities at the Company’s nonelectric operating companies.

As of September 30, 2003 there were no material changes in the Company’s contractual obligations on construction program commitments or coal contracts from those reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. The Company’s contractual obligations on long-term debt increased $4.7 million in the two-year period 2004-2005 and $11.6 million in the two-year period 2006-2007 as a result of the $16.3 million long-term note issued in September 2003. The Company’s contractual obligations associated with long-term operating leases increased $0.1 million for the remainder of 2003, $0.7 million in the two-year period 2004-2005, $0.7 million in the two-year period 2006-2007 and $0.2 million in 2008 related to the leasing of new tractor-trailers by the Company’s transportation company in September 2003. The Company’s contractual obligations associated with capacity and energy requirements increased by approximately $4.2 million in the two-year period 2004-2005, $4.2 million in the two-year period 2006-2007 and $44.0 million in the years after 2007 as a result of a long-term power purchase agreement entered into in the second quarter of 2003. For more information on contractual obligations and commitments, see Item 7 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

On September 18, 2003 Standard & Poor’s Ratings Services lowered its rating on the Company’s senior unsecured debt from A to A-, lowered its rating on the Company’s preferred stock from A- to BBB and changed its outlook on the Company from stable to negative. According to Standard & Poor’s, the rating action reflects the Company’s increased business risk profile due to the increasing size of its nonregulated businesses and concerns associated with the future financial performance of the Company’s manufacturing and health services segments. The ratings changes do not require any action under rating triggers and will not increase interest rates on current outstanding debt.

The Company’s current securities ratings are:


	Moody's
	Investors	Standard
	Service	& Poor's

Senior unsecured debt	A2	A-
Preferred stock	Baa1	BBB
Outlook	Negative	Negative

The Company’s disclosure of these securities ratings is not a recommendation to buy, sell or hold its securities. Downgrades in these securities ratings could adversely affect the Company. Further downgrades could increase borrowing costs resulting in possible reductions to net income in future periods and increase the risk of default on the Company’s debt obligations.

MATERIAL CHANGES IN RESULTS OF OPERATIONS

Comparison of the Three Months Ended September 30, 2003 and 2002

Consolidated Results of Operations

Total operating revenues were $240.7 million for the three months ended September 30, 2003 compared with $185.8 million for the three months ended September 30, 2002. Operating income was $22.3 million for the three months ended September 30, 2003 compared with $23.0 million for the three months ended September 30, 2002. The Company recorded diluted earnings per share of $0.46 for the three months ended September 30, 2003 compared to $0.50 for the three months ended September 30, 2002. Third quarter 2003 earnings include $0.09 per share related to the initial recording of marked-to-market net unrealized gains on forward energy contracts under SFAS No. 149, of which $0.04 per share relates to energy scheduled for delivery in the fourth quarter of 2003.

Following is a discussion of the results of operations by segment.

Electric


	Three months ended
	September 30,
(in thousands)	2003		2002		Change

Retail sales revenues	$	51,023	$	50,838	$	185
Wholesale revenues		53,976		25,648		28,328
Other revenues		8,435		5,563		2,872

Total operating revenues	$	113,434	$	82,049	$	31,385
Production fuel		14,307		11,107		3,200
Purchased power		45,103		27,703		17,400
Other electric operation and maintenance expenses		24,010		20,143		3,867
Depreciation and amortization		6,598		6,243		355
Property taxes		2,553		2,537		16

Operating income	$	20,863	$	14,316	$	6,547

Wholesale power revenues increased 110.4% mostly due to a 49.2% increase in megawatt-hour (mwh) sales combined with a 30.9% increase in wholesale electric prices for the three months ended September 30, 2003 compared with the three months ended September 30, 2002. The increase in wholesale electric prices reflects increased demand for electricity in the Mid-Continent Area Power Pool (MAPP) region. Higher prices in the wholesale power markets also reflect generally increasing generation costs, reduced generation from regional hydro facilities due to lower spring runoff and the lack of summer rainfall and high cost generation from natural gas fired peaking units. The higher prices combined with increased availability of Company-owned generation and well-timed energy purchases in the third quarter of 2003 compared to the third quarter of 2002, put the company in a favorable position to respond to the increased demand for electricity resulting in the increase in wholesale electric sales. Wholesale revenues in 2003 also include $3.9 million in net unrealized marked-to-market gains on forward contracts for the purchase and sale of electricity related to the adoption of SFAS No. 149.

The 51.6% increase in other electric operating revenues reflects a $2.1 million net increase in revenues from contracted electrical construction work between the periods. The third quarter of 2003 includes $5.4 million in revenue related to work on regional wind energy projects that more than replaces $3.3 million in third quarter 2002 revenues related to the construction of a transmission line in North Dakota for another area utility. Revenues from the sale of steam to an ethanol plant that began operations in the third quarter of 2002 increased $430,000 in the

third quarter of 2003 compared to the third quarter of 2002 and revenues related to the transmission of electricity for other companies increased $370,000 between the periods.

Fuel costs increased by 28.8% for the three months ended September 30, 2003 compared with the three months ended September 30, 2002 as a result of a 20.6% increase in generation combined with a 6.8% increase in the cost of fuel per mwh generated. Generation increased at all three of the Company’s coal fired generating stations, but the majority of the increase came from the Company’s Big Stone Plant which was shut down for two weeks in the third quarter of 2002 for scheduled maintenance. The increase in the fuel cost per mwh generated is mostly a function of the mix of available generation sources during the third quarter of 2003 as compared to the third quarter of 2002, but also reflects slight increases in coal and coal transportation costs at Hoot Lake Plant along with fuel costs for the Company’s new combustion turbine brought on line in June 2003.

Purchased power expense increased 62.8% for the three months ended September 30, 2003 compared with the three months ended September 30, 2002 as a result of a 30.7% increase in the cost per mwh purchased combined with a 24.5% increase in mwh purchases. A 41.7% decrease in mwh purchases for retail customers resulted from the increased availability of Big Stone Plant in the third quarter of 2003 compared to the third quarter of 2002. Mwh purchases for wholesale customers increased 47.0% as increased demand and higher wholesale prices provided opportunities for increased sales in wholesale power markets.

The $3.9 million (19.2%) increase in other electric operation and maintenance expenses for the three months ended September 30, 2003 compared with the three months ended September 30, 2002 reflects a $2.6 million increase in labor expenses due to an increase in employee benefit costs, a general wage increase and a reduction in capitalized and billable labor between the periods. The increase in other electric operation and maintenance expenses also includes a $0.8 million increase in costs related to contracted construction work and a $0.5 million increase in insurance and other injury and damage repair expenses. Overall, the Company expects continued strong performance in the electric segment for the remainder of 2003.

Plastics


	Three months ended
	September 30,
(in thousands)	2003			2002		Change

Operating revenues	$	23,414		$	22,370	$	1,044
Cost of goods sold		22,042			16,920		5,122
Operating expenses		984			1,000		(16	)
Depreciation and amortization		553			452		101

Operating (loss)/income	$	(165	)	$	3,998	$	(4,163	)

The 4.7% increase in operating revenues for the three months ended September 30, 2003 compared with the three months ended September 30, 2002 is the result of a 19.8% increase in pounds of polyvinyl chloride (PVC) pipe sold, partially offset by a 12.7% decrease in the price per pound of PVC pipe sold. The increase in pipe sales combined with an 8.7% increase in the cost per pound of PVC pipe sold contributed to the 30.3% increase in cost of goods sold. The cost per pound of resin, the raw material used to produce PVC pipe, increased 6.4% between the periods. The increase in depreciation and amortization expense is due to a $3.5 million increase in depreciable plant in 2002 and a $3.1 million increase in depreciable plant in 2003. Sales volumes and margins generally decline in the fourth quarter due to normal slowdown in construction activities as the winter season approaches.

Manufacturing


	Three months ended
	September 30,
(in thousands)	2003		2002		Change

Operating revenues	$	49,793	$	34,576	$	15,217
Cost of goods sold		42,339		26,875		15,464
Operating expenses		5,356		4,238		1,118
Depreciation and amortization		2,049		1,726		323

Operating income	$	49	$	1,737	$	(1,688	)

The 44.0% increase in operating revenues for the three months ended September 30, 2003 compared with the three months ended September 30, 2002 reflects revenue increases of $7.2 million from the Company’s manufacturer of wind towers, $5.9 million from the waterfront equipment companies, one of which was acquired in October of 2002, $1.6 million from the Company’s manufacturer of thermoformed plastic and horticultural products, $0.9 million from the metal parts stamping and fabrication company and $0.2 million from the Company’s manufacturer of structural steel products. These revenue increases were offset by a $0.6 million reduction in revenue from the manufacturer of automobile frame-straightening equipment.

The 57.5% increase in cost of goods for the three months ended September 30, 2003 compared with the three months ended September 30, 2002 primarily reflects $9.1 million in increased costs at the Company’s manufacturer of wind towers and a $4.5 million increase in costs of goods sold at the waterfront equipment companies. The increase in cost of goods sold also reflects increases of $1.4 million from the Company’s manufacturer of thermoformed plastic and horticultural products, $0.5 million from the company that manufactures structural steel products and $0.4 million from the metal parts stamping and fabrication companies. These increases were offset by a $0.5 million decrease in cost of goods sold at the manufacturer of automobile frame-straightening equipment.

The $1.1 million (26.4%) increase in manufacturing operating expenses for the three months ended September 30, 2003 compared with the three months ended September 30, 2002 resulted mainly from a $1.0 million increase in operating expenses related to the waterfront equipment companies. Depreciation and amortization expenses increased between the periods as a result of significant plant additions in 2002 most of which were at the metal parts stamping and fabrication companies.

Results in the manufacturing segment were mixed depending on the types of businesses served by our manufacturing companies. In the Company’s view, the continuing economic uneasiness, coupled with the impact of steel tariffs, foreign competition and continued pressure from customers for price reductions continue to place considerable downward pressure on the earnings of the metal fabrication companies, including those that manufacture towers for the wind energy industry. In addition, the uncertainty over the future of the Production Tax Credit that is part of proposed federal energy legislation has slowed wind developers’ decisions to issue more purchase orders for wind towers. The Corporation’s wind tower manufacturer is taking steps to reduce overhead costs in its operations.

Health Services


	Three months ended
	September 30,
(in thousands)	2003		2002		Change

Operating revenues	$	26,284	$	23,019	$	3,265
Cost of goods sold		19,324		16,745		2,579
Operating expenses		3,747		3,623		124
Depreciation and amortization		1,336		1,152		184

Operating income	$	1,877	$	1,499	$	378

The 14.2% increase in health services operating revenues for the three months ended September 30, 2003 compared with the three months ended September 30, 2002 reflects $1.5 million in additional scan revenue mainly from the acquisitions that occurred in November 2002 and May 2003. Revenues from the sale of diagnostic imaging equipment increased $1.8 million in the third quarter of 2003 compared with the third quarter of 2002 in part due to two recent acquisitions in May and July of 2003 that added to the products and geographic territory of the sales and service operations. The number of scans performed increased 2.2% and the average fee per scan increased 4.3%.

The 15.4% increase in cost of goods sold for the three months ended September 30, 2003 compared with the three months ended September 30, 2002 was directly related to the increases in revenues. The increase in operating expenses between the periods is related to recent acquisitions. The increase in depreciation and amortization expense is related to an increase in depreciable property as a result of recent equipment purchases. The improved results in this segment in the third quarter of 2003 are reflective of recent acquisitions and steps taken by management to address increases in operating expenses of the diagnostic imaging operations. Management continues to address the cost structure of the diagnostic imaging operations and most recently hired a new president/chief operating officer to lead the imaging part of the health services segment. The health services company that sells and services diagnostic medical equipment has negotiated a five-year extension of the Dealer Agreement it has with Philips Medical Systems North America Company to December 31, 2008, unless terminated earlier under provisions of the agreement.

Other Business Operations


	Three months ended
	September 30,
(in thousands)	2003			2002		Change

Operating revenues	$	27,777		$	23,736	$	4,041
Cost of goods sold		17,614			12,906		4,708
Operating expenses		9,311			8,065		1,246
Depreciation and amortization		1,182			1,307		(125	)

Operating (loss)/income	$	(330	)	$	1,458	$	(1,788	)

The 17.0% increase in operating revenues for the three months ended September 30, 2003 compared with the three months ended September 30, 2002 was mostly due to a $2.9 million increase in construction company revenues between the periods. Revenues and cost of goods sold related to natural gas sales at the Company’s energy services company both increased $0.7 million as a result of an increase in natural gas prices between the periods. Revenues at the transportation company increased $0.6 million as a result of increased brokerage activities. The above increases in revenues were offset slightly by a $0.2 million decrease in revenues at the telecommunications company.

The 36.5% increase in cost of goods sold for the three months ended September 30, 2003 compared with the three months ended September 30, 2002 is primarily related to increases at the construction companies. The $2.9 million increase in construction company revenues was more than offset by a $4.0 million increase in construction company costs of goods sold between the quarters. Construction margins have declined due to the sluggish economy in the region and increased competition for available work.

The 15.4% increase in operating expenses is mostly due to a $0.6 million increase in transportation company operating expenses mostly related to brokerage activity and a $0.6 million increase in unallocated corporate overhead costs mainly related to increased pension costs. The decrease in depreciation and amortization expense reflects minor decreases at the construction, telecommunications and transportation companies. The transportation company continues to be profitable but is faced with continuing pressure on operating margins because of increased fuel and insurance costs and highly competitive pricing.

Other Income — net and Income Taxes

For the three months ended September 30, 2003 compared with the three months ended September 30, 2002, Other Income — net decreased $721,000 related to the recording of $277,000 in approved conservation improvement plan incentives in the third quarter of 2002 and a $381,000 decrease in revenues from the allowance for funds used during construction (AFUDC) due to lower construction work in progress balances in the third quarter of 2003 compared to the third quarter of 2002. An increase in expenses related to evaluation of electric generation projects also contributed to a reduction in Other Income — net between the quarters.

The $524,000 (8.2%) decrease in income tax expense between the quarters is primarily the result of a $1.4 million (7.5%) reduction in income before income tax for the three months ended September 30, 2003 compared with the three months ended September 30, 2002. The effective tax rate for the three months ended September 30, 2003 was 32.8% compared to 33.0% for the three months ended September 30, 2002.

Comparison of the Nine Months Ended September 30, 2003 and 2002

Consolidated Results of Operations

Total operating revenues were $637.4 million for the nine months ended September 30, 2003 compared with $520.1 million for the nine months ended September 30, 2002. Operating income was $55.5 million for the nine months ended September 30, 2003 compared with $61.8 million for the nine months ended September 30, 2002. The Company recorded diluted earnings per share of $1.15 for the nine months ended September 30, 2003 compared with $1.30 for the nine months ended September 30, 2002. Earnings for the nine months ended September 30, 2003 include $0.09 per share related to the initial recording of marked-to-market net unrealized gains on forward energy contracts under SFAS No. 149, of which $0.04 per share relates to energy scheduled for delivery in the fourth quarter of 2003.

Following is a discussion of the results of operations by segment.

Electric


	Nine months ended
	September 30,
(in thousands)	2003		2002		Change

Retail sales revenues	$	160,062	$	150,090	$	9,972
Wholesale revenues		109,802		63,320		46,482
Other revenues		15,042		14,929		113

Total operating revenues	$	284,906	$	228,339	$	56,567
Production fuel		37,980		33,569		4,411
Purchased power		108,878		70,262		38,616
Other electric operation and maintenance expenses		65,383		58,698		6,685
Depreciation and amortization		19,460		18,614		846
Property taxes		7,591		7,419		172

Operating income	$	45,614	$	39,777	$	5,837

Retail electric revenues increased 6.6% while retail mwhs sold increased only 0.9% between the periods mainly due to a $8.0 million (5.3%) increase in revenues related to increased fuel and purchased power costs passed on to most retail customers through the cost-of-energy adjustment factor included in retail rates.

The 73.4% increase in wholesale power revenues is mostly due to a 25.1% increase in mwhs sold combined with a 33.7% increase in wholesale electric prices during the nine months ended September 30, 2003 compared with the nine months ended September 30, 2002. The increase in mwh sales and higher wholesale prices reflect increased demand relative to available supply mainly due to higher prices combined with increased availability of Company-owned generation and well-timed energy purchases in the third quarter of 2003 compared to the third quarter of 2002 and colder weather in the region in the first quarter of 2003 compared with the first quarter of 2002. Higher prices in the wholesale power markets reflect generally increasing generation costs, a decrease in available base-load resources due to the number of plants shut down for maintenance in the second quarter of 2003, reduced generation from regional hydro facilities due to lower spring runoff and lack of summer rainfall and high cost generation from natural gas fired peaking units. Wholesale revenues in 2003 also include $3.9 million in net unrealized marked-to-market gains on forward contracts for the purchase and sale of electricity related to the adoption of SFAS No. 149.

Other electric operating revenues related to contracted electrical construction work were $7.3 million for the nine months ended September 30, 2003, mostly related to contracted work on regional wind generation projects,

compared to $9.7 million for the nine months ended September 30, 2002 mainly from work on a transmission line in North Dakota for another area utility that was completed in the fourth quarter of 2002. The $2.4 million decrease in construction revenue between the periods was offset by a $1.7 million increase in transmission related revenues from control area services, transmission tariffs and shared use deficiency payments, and a $0.9 million increase in revenue from the sale of steam to an ethanol plant that began operations in the third quarter of 2002.

Fuel costs increased by 13.1% for the nine months ended September 30, 2003 compared with the nine months ended September 30, 2002 as a result of a 11.2% increase in the cost of fuel per mwh generated combined with a 1.8% increase in generation. The increase in the fuel cost per mwh generated is mostly a function of the mix of available generation sources between the periods. Coyote Station, the Company’s generating unit with the lowest fuel costs per mwh, was unavailable for generation in April and May of 2003 due to a scheduled maintenance shutdown. Consequently, proportionally more power generation came from the Company’s other generating units in the first nine months of 2003 compared to the first nine months of 2002 resulting in an increase in the cost of fuel per mwh generated. The increase in the fuel cost per mwh generated also reflects slight increases in coal costs at Big Stone Plant along with fuel costs for the Company’s new combustion turbine brought on line in June 2003.

Purchased power expense increased 55.0% for the nine months ended September 30, 2003 compared with the nine months ended September 30, 2002 as a result of a 22.0% increase in mwh purchases combined with a 27.1% increase in the cost per mwh purchased. Increased demand for electricity brought on by the colder weather in the first quarter of 2003 and a reduction in available generation in the second quarter of 2003 were contributing factors to a 27.8% increase in mwh purchases for wholesale customers between the periods. The increase in the cost per mwh of purchased power resulted from an increase in generation fuel costs combined with a decrease in available generation in the region.

The $6.7 million (11.4%) increase in other electric operation and maintenance expenses for the nine months ended September 30, 2003 compared with the nine months ended September 30, 2002 reflects a $5.3 million increase in labor expenses due to increases in employee benefit costs, increased incentive payments related to increased wholesale sales and a general wage increase. Transportation expenses increased $0.7 million as a result of reductions in billable work between the periods. Insurance and other injury and damage repair expenses increased by $0.7 million. The 4.5% increase in depreciation expense in 2003 is due to an increase in depreciable plant in 2002 and 2003. Overall, the Company expects continued strong performance in the electric segment for the remainder of 2003.

Plastics


	Nine months ended
	September 30,
(in thousands)	2003		2002		Change

Operating revenues	$	65,996	$	62,650	$	3,346
Cost of goods sold		57,101		47,309		9,792
Operating expenses		2,888		3,190		(302	)
Depreciation and amortization		1,546		1,326		220

Operating income	$	4,461	$	10,825	$	(6,364	)

The 5.3% increase in operating revenues for the nine months ended September 30, 2003 compared with the nine months ended September 30, 2002 is the result of a 8.7% increase in the price per pound of PVC pipe sold offset by a 3.1% decrease in pounds of PVC pipe sold. Cost of goods sold increased 20.7% between the periods despite the decrease in pounds of pipe sold as a result of a 24.5% increase in the cost per pound of PVC pipe sold. The cost per pound of resin, the raw material used to produce PVC pipe, increased 31.2% between the periods. Operating expenses decreased 9.5% primarily due to decreased compensation directly related to the decrease in

sales. The increase in depreciation and amortization expense is due to a $3.5 million increase in depreciable plant in 2002 and a $3.1 million increase in depreciable plant in 2003. Sales volumes and margins generally decline in the fourth quarter due to normal slowdown in construction activities as the winter season approaches.

The companies in this segment are highly dependent on a limited number of third-party vendors for PVC resin. For the nine months ended September 30, 2003 and 2002, purchases of raw materials from two vendors totaled 96.6% and 57.7%, respectively, of total resin purchases. The companies in this segment believe their relationships with their key raw material vendors are good. However, the loss of a key supplier or any interruption or delay in the supply of PVC resin could have a significant impact on the plastics segment.

Manufacturing


	Nine months ended
	September 30,
(in thousands)	2003		2002		Change

Operating revenues	$	133,350	$	101,646	$	31,704
Cost of goods sold		104,964		77,795		27,169
Operating expenses		16,063		12,427		3,636
Depreciation and amortization		5,869		4,706		1,163

Operating income	$	6,454	$	6,718	$	(264	)

The 31.2% increase in operating revenues for the nine months ended September 30, 2003 compared with the nine months ended September 30, 2002 reflects a $23.2 million increase in revenue from the waterfront equipment companies acquired in May and October of 2002, an increase of $5.2 million from the Company’s manufacturer of thermoformed plastic and horticultural products, an increase of $4.3 million from the Company’s manufacturer of wind towers and an increase of $3.0 million from the metal parts stamping and fabrication company. These increases were offset by decreases in revenue of $3.7 million from the company that manufactures structural steel products and $0.3 million from the manufacturer of automobile frame-straightening equipment.

The 34.9% increase in cost of goods for the nine months ended September 30, 2003 compared with the nine months ended September 30, 2002 primarily reflects a $17.1 million increase in costs of goods sold at the waterfront equipment companies combined with increased costs of $6.1 million at the Company’s manufacturer of wind towers, $3.1 million from the Company’s manufacturer of thermoformed plastic and horticultural products and $2.8 million from the metal parts stamping and fabrication company. These increases were offset by reductions in cost of goods sold of $1.8 million at the company that manufactures structural steel products and $0.1 million from the manufacturer of automobile frame-straightening equipment.

The 29.3% increase in manufacturing operating expenses for the nine months ended September 30, 2003 compared with the nine months ended September 30, 2002 reflects increases of $3.8 million related to the waterfront equipment companies and $0.6 million at the Company’s manufacturer of thermoformed plastic and horticultural products. These increases were offset by a $0.6 million decrease in operating expenses at the Company’s manufacturer of wind towers and a $0.2 million decrease in operating expenses at the manufacturer of automobile frame-straightening equipment. Depreciation and amortization expenses increased 24.7% between the periods as a result of the waterfront equipment company acquisitions and significant plant additions in 2002 most of which were at the metal parts stamping and fabrication company.

manufacture towers for the wind energy industry. In addition, the uncertainty over the future of the Production Tax Credit that is part of proposed federal energy legislation has slowed wind developers’ decisions to issue more purchase orders for wind towers. The Corporation’s wind tower manufacturer is taking steps to reduce overhead costs in its operations.

Health Services


	Nine months ended
	September 30,
(in thousands)	2003		2002		Change

Operating revenues	$	73,514		67,771	$	5,743
Cost of goods sold		54,648		47,894		6,754
Operating expenses		11,562		10,169		1,393
Depreciation and amortization		3,799		3,159		640

Operating income	$	3,505	$	6,549	$	(3,044	)

The 8.5% increase in health services operating revenues for the nine months ended September 30, 2003 compared with the nine months ended September 30, 2002 reflects $5.1 million in additional scan and other services revenue, mostly from the acquisitions that occurred in 2002 and May 2003. Revenues from the sale of diagnostic imaging equipment increased $0.6 million between the periods in part due to two recent acquisitions in May and July of 2003. The number of scans performed increased 12.2% mainly due to the 2002 acquisitions, while the average fee per scan decreased 0.6%.

Although revenues from imaging services increased by $5.1 million, the increase was more than offset by increases in equipment and infrastructure costs incurred to support expected revenue growth. While operating income for the nine months ended September 30, 2003 was significantly less than operating income for the same period a year ago, the segment’s 2003 results have improved significantly from the first quarter of 2003 in part due to steps taken by management to address increases in operating expenses of the diagnostic imaging operations. Management continues to address the cost structure of the diagnostic imaging operations and most recently hired a new president/chief operating officer to lead the imaging part of the health services segment. The health services company that sells and services diagnostic medical equipment has negotiated a five-year extension of the Dealer Agreement it has with Philips Medical Systems North America Company to December 31, 2008, unless terminated earlier under provisions of the agreement.

Other Business Operations


	Nine months ended
	September 30,
(in thousands)	2003			2002			Change

Operating revenues	$	79,604		$	59,649		$	19,955
Cost of goods sold		52,984			32,427			20,557
Operating expenses		27,604			25,535			2,069
Depreciation and amortization		3,534			3,765			(231	)

Operating loss	$	(4,518	)	$	(2,078	)	$	(2,440	)

The 33.5% increase in operating revenues for the nine months ended September 30, 2003 compared with the nine months ended September 30, 2002 was mostly due to a $12.5 million increase in revenues from natural gas sales at the Company’s energy services company related to an increase in natural gas prices. In addition, construction revenues increased by $6.1 million and transportation revenues increased by $1.9 million between the periods.

Telecommunications revenue decreased by $0.6 million between the periods. The 63.4% increase in cost of goods sold reflects a $12.5 million increase in the cost of natural gas sold by the energy services company and an $8.0 million increase in construction costs at the construction companies.

The 8.1% increase in operating expenses between the periods reflects a $1.7 million increase in transportation operating expenses mainly related to increased brokerage activity, a $1.1 million increase in unallocated corporate overhead costs mainly related to increased pension costs and a $0.5 million increase in construction company operating expenses, offset by a $1.3 million reduction in energy services operating expenses. The decrease in depreciation and amortization expense reflects minor decreases at the construction, telecommunications and transportation companies.

Construction margins have declined due to the sluggish economy and increased competition for available work. Construction operating losses of $2.5 million were partially offset by a $1.2 million decrease in operating losses from our energy services company. The transportation company continues to be profitable but is faced with continuing pressure on operating margins because of increased fuel and insurance costs and highly competitive pricing.

Other Income — net, Interest Charges and Income Taxes

For the nine months ended September 30, 2003 compared with the nine months ended September 30, 2002, other income increased $133,000 due mainly to reductions in expenditures related to investigating the feasibility of constructing a second electricity generating unit at the electric utility’s Big Stone Plant.

The $155,000 (1.2%) increase in interest charges is mainly due to higher short-term debt balances outstanding for the nine months ended September 30, 2003 compared with the nine months ended September 30, 2002.

The $3.1 million (18.8%) decrease in income tax expense between the periods is primarily the result of a $6.3 million (12.7%) reduction in income before income tax for the nine months ended September 30, 2003 compared with the nine months ended September 30, 2002. The reduction in the effective tax rate from 32.7% for the nine months ended September 30, 2002 to 30.4% for the nine months ended September 30, 2003 is due to a decrease in taxable income relative to the level of tax credits and permanent differences between book income and taxable income.

Critical Accounting Policies Involving Significant Estimates

The discussion and analysis of the consolidated financial statements and results of operations are based on the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

The Company uses estimates based on the best information available in recording transactions and balances resulting from business operations. Estimates are used for such items as depreciable lives, asset impairment evaluations, tax provisions, collectability of trade accounts receivable, self insurance programs, environmental liabilities, unbilled electric revenues, unscheduled power exchanges, market valuation of forward energy contracts, service contract maintenance costs, percentage-of-completion and actuarially determined benefits costs. As better information becomes available or actual amounts are known, estimates are revised. Operating results can be affected by revised estimates. Actual results may differ from these estimates under different assumptions or conditions. Management has discussed the application of these critical accounting policies and the development of these estimates with the audit committee of the board of directors.

Goodwill Impairment

The Company currently has $1.0 million of goodwill recorded on its balance sheet related to its energy services subsidiary that markets natural gas to approximately 150 retail customers. A recent evaluation of projected cash flows from these operations indicated that the related goodwill was not impaired. However, actual and projected cash flows from these operations are subject to fluctuations due to low profit margins on natural gas sales combined with high volatility of natural gas prices. Reductions in profit margins or the volume of natural gas sales from these operations could result in an impairment of all or a portion of its related goodwill. The Company will continue to evaluate this reporting unit for impairment on an annual basis and as conditions warrant.

On September 1, 1999 the Company acquired the flatbed trucking operations of E. W. Wylie Corporation (Wylie). The Company currently has $6.7 million of goodwill recorded on its balance sheet relating to this acquisition. Highly competitive pricing in the trucking industry in recent years has resulted in decreased operating margins and lower returns on invested capital for Wylie. The Company’s current projections are for operating margins to increase from current levels over the next three to five years as demand for shipping increases relative to available shipping capacity and additional revenues are generated from added terminal locations. If current conditions persist and operating margins do not increase according to Company projections, the reductions in anticipated cash flows from transportation operations may indicate that the fair value of Wylie is less than its book value resulting in an impairment of goodwill and a corresponding charge against earnings. The Company will continue to evaluate this reporting unit for impairment on an annual basis and as conditions warrant.

A discussion of critical accounting policies is included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002. There were no material changes in critical accounting policies or estimates during the quarter ended September 30, 2003, except for the initial recording of marked-to-market gains and losses on forward purchases and sales of energy under the requirements of SFAS No. 149.

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 some of the forward-looking statements within the meaning of the Act and are included, along with this statement, for purposes of complying with the safe harbor provision 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, market valuations of forward energy contracts, growth of electric revenues, impact of the investment performance of the utility’s pension plan, changes in the economy, governmental and regulatory action, weather conditions, fuel and purchased power costs, environmental issues, resin prices, and other factors discussed under “Factors affecting future earnings” on pages 27-28 of the Company’s 2002 Annual Report to Shareholders, which is incorporated by reference in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002. 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. The Company is not obligated to publicly update or revise any forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

At September 30, 2003 the Company had limited exposure to market risk associated with interest rates and commodity prices and no exposure to market risk associated with changes in foreign currency exchange rates.

The majority of the Company’s long-term debt has fixed interest rates. The interest rate on variable rate long-term debt is reset on a periodic basis reflecting current market conditions. The Company manages its interest rate risk through the issuance of fixed-rate debt with varying maturities, through economic refunding of debt through optional refundings, limiting the amount of variable interest rate debt, and utilization of short-term borrowings to allow flexibility in the timing and placement of long-term debt. As of September 30, 2003, the Company had $30.9 million of long-term debt subject to variable interest rates. Assuming no change in the Company’s financial structure, if variable interest rates were to average 1% higher or lower than the average variable rate on September 30, 2003, interest expense and pre-tax earnings would change by approximately $309,000 on an annual basis.

The Company has short-term borrowing arrangements to provide financing for working capital and other purposes for its nonelectric operations. The level of borrowings under these arrangements varies from period to period, depending upon, among other factors, operating needs and capital expenditures. On September 30, 2003 the Company had $37.3 million outstanding short-term borrowings with variable interest rates under these arrangements.

The Company has not used interest rate swaps to manage net exposure to interest rate changes related to the Company’s portfolio of borrowings. The Company maintains a ratio of fixed rate debt to total debt within a certain range. It is the Company’s policy to enter into interest rate transactions and other financial instruments only to the extent considered necessary to meet its stated objectives.

The electric utility’s retail portion of fuel and purchased power costs are subject to cost of energy adjustment clauses that mitigate the commodity price risk by allowing a pass through of most of the increase or decrease in energy costs to retail customers. In addition, the electric utility participates in an active wholesale power market providing access to commodity transactions that may serve to mitigate price risk.

The Company has in place an energy risk management policy with a goal to manage, through the use of defined risk management practices, price risk and credit risk associated with wholesale power purchases and sales. These policies require that forward sales of electricity in wholesale markets be covered by offsetting forward purchases of electricity with matching terms and delivery dates or by the portion of company-owned generation projected to be in excess of retail load requirements. As a result of these policies, the Company is exposed to very little market risk related to its forward energy contracts because margins are locked in when offsetting positions are secured and subsequent changes in market values are applied to both the purchase and matching sales contract. Any marked-to-market gains or losses on a sales contract will be offset by a marked-to-market loss or gain on the offsetting purchase contract.

The Company’s energy risk management policy allows for long open positions with limitations on the aggregate marked-to-market value of open positions. These positions are closely monitored and covered with offsetting sales when the risk of loss exceeds predefined limits. The exposure to price risk of these open positions as of September 30, 2003 was not material.

The following table shows the effect of marking-to-market forward contracts for the purchase and sale of energy on the Company’s consolidated balance sheet as of September 30, 2003 and the change in its consolidated balance sheet position from December 31, 2002 to September 30, 2003:


		September 30,
(in thousands)		2003

Current asset — marked-to-market gain		$	9,221
Regulatory asset — deferred marked-to-market loss			605

	Total assets		9,826

Current liability — marked-to-market loss			(1,744	)
Regulatory liability — deferred marked-to-market gain			(4,181	)

	Total liabilities		(5,925	)

Net fair value of marked-to-market energy contracts		$	3,901


	Nine Months Ended
(in thousands)	September 30, 2003

Fair value at beginning of year	$	—
Amount realized on contracts delivered in third quarter		—
Changes in fair value		3,901
Net fair value at end of period		3,901

Net change recorded as marked-to-market	$	3,901

The $3.9 million in recognized but unrealized net gains on the forward energy purchases and sales marked-to-market on September 30, 2003 are expected to be realized upon physical settlement as scheduled over the following quarters in the amounts listed:


	4th Quarter		1st Quarter		2nd Quarter			4th Quarter
(in thousands)	2003		2004		2004			2004			Total

Gain/(loss)	$	1,885	$	2,075	$	(50	)	$	(9	)	$	3,901

The market prices used to value the Company’s forward contracts for the purchases and sales of electricity are determined by survey of the Company’s power services personnel responsible for contract pricing, as an open market for the types of bilateral forward energy agreements being valued does not exist. Over 98% of the $3.9 million in net unrealized marked-to-market gains recorded as of September 30, 2003 are on forward purchase and sales contracts that are offsetting in terms of volumes and delivery periods.

Due to the nature of electricity and the physical aspects of the electricity transmission system, unanticipated events affecting the transmission grid can result in transmission constraints and the cancellation of scheduled transactions by the independent transmission system operator. In these situations, which are relatively infrequent in occurrence, the counterparties to the cancelled transaction are generally not made whole for the difference in the contract price and the market price of the electricity at the time of cancellation. In such instances the Company may be obligated to deliver on a sale where its offsetting purchase has been cancelled or to take delivery on a purchase where its offsetting sale has been cancelled. All forward energy transactions are subject to a small, and likely unquantifiable, risk of cancellation by the independent transmission system operator due to unanticipated physical constraints on the transmission system. At the time of cancellation, the Company could be in a gain or loss position depending on the market price of electricity relative to the contract price and the Company’s position in the transaction.

The Company has credit risk associated with the nonperformance or nonpayment by counterparties to its forward energy purchases and sales agreements. The Company has established guidelines and limits to manage credit risk associated with wholesale power purchases and sales. Specific limits are determined by a counterparty’s financial strength. The Company’s credit risk with its largest counterparty on delivered and marked-to-market forward contracts as of September 30, 2003 was $13.6 million. As of September 30, 2003, the Company had a net credit risk exposure of $11.6 million from thirty-one counterparties with investment grade credit ratings.

The $11.6 million credit risk exposure includes net amounts due to the Company on receivables/payables from completed transactions billed and unbilled plus marked-to-market gains/losses on forward contracts for the purchase and sale of energy scheduled for delivery after September 30, 2003. Individual counterparty exposures are offset according to legally enforceable netting arrangements.

Counterparties with investment grade credit ratings have minimum credit ratings of BBB- (Standard & Poor’s), Baa3 (Moody’s) or BBB- (Fitch).

The Company’s energy services subsidiary markets natural gas to approximately 150 retail customers. Some of these customers are served under fixed-price contracts. There is price risk associated with these limited number of fixed-price contracts since the corresponding cost of natural gas is not immediately locked in. This price risk is not considered material to the Company. These contracts call for the physical delivery of natural gas and are considered executory contracts for accounting purposes. Current accounting guidance requires losses on firmly committed executory contracts to be recognized when realized.

The plastics companies are exposed to market risk related to changes in commodity prices for PVC resins, the raw material used to manufacture PVC pipe. The PVC pipe industry is highly sensitive to commodity raw material pricing volatility. Historically, when resin prices are rising or stable, margins and sales volume have been higher and when resin prices are falling, sales volumes and margins have been lower. Gross margins also decline when the supply of PVC pipe increases faster than demand. Due to the commodity nature of PVC resin and the dynamic supply and demand factors worldwide, it is very difficult to predict gross margin percentages or to assume that historical trends will continue.

Item 4. Controls and Procedures

Under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of September 30, 2003, the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2003.

During the fiscal quarter ended September 30, 2003, there was no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

a) Exhibits:

Pursuant to Item 601(b) (4) (iii) of Regulation S-K, copies of certain instruments defining the rights of holders of certain long-term debt of the Company are not filed, and in lieu thereof, the Company agrees to furnish copies thereof to the Securities and Exchange Commission upon request.

4.1 Third Amendment to Credit Agreement dated as of August 25, 2003.

10.1 Supplemental Agreement No. 4 Big Stone Plant made as of April 24, 2003.

10.2 Amendment to Coyote Station Agreement made as of April 24, 2003.

31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

b) Reports on Form 8-K.

The Company filed a Form 8-K on July 28, 2003 to furnish under Item 12 the press release issued on July 28, 2003 to report its earnings for the second quarter of 2003.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


OTTER TAIL CORPORATION


By: /s/ Kevin G. Moug
Kevin G. Moug
Chief Financial Officer and Treasurer
(Chief Financial Officer/Authorized Officer)

Dated: November 14, 2003

EXHIBIT INDEX


Exhibit Number		Description


4.1		Third Amendment to Credit Agreement dated as of August 25, 2003.

10.1		Supplemental Agreement No. 4 Big Stone Plant made as of April 24, 2003.

10.2		Amendment to Coyote Station Agreement made as of April 24, 2003.

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 4.1

THIRD AMENDMENT TO CREDIT AGREEMENT

THIS THIRD AMENDMENT, dated as of August 25, 2003, amends and modifies a certain Credit Agreement, dated as of April 30, 2002, as amended by amendments dated as of September 19, 2002 and April 29, 2003 (as so amended, the “Credit Agreement”), among OTTER TAIL CORPORATION, a Minnesota corporation (the “Borrower”), U.S. BANK NATIONAL ASSOCIATION, as Agent (in such capacity, the “Agent”), and the Banks, as defined therein. Terms not otherwise expressly defined herein shall have the meanings set forth in the Credit Agreement.

FOR VALUE RECEIVED, the Borrower, the Agent and the Banks agree that the Credit Agreement is amended as follows.

ARTICLE I - AMENDMENT TO THE CREDIT AGREEMENT

1.1 Additional Bank. Wells Fargo Bank, National Association (“Wells”) shall, upon effectiveness of this Amendment, become a Bank under the Credit Agreement. Upon such effectiveness, the Agent shall inform Wells of the amount of the Loans it is required to fund consistent with its Revolving Percentage and its participating interest in Letters of Credit. Upon funding by Wells, the Agent shall pay the outstanding Revolving Loans of the other Banks to make the outstanding Revolving Loans of all Banks consistent with their Revolving Percentages.

1.2 Definitions. Section 1.1 is amended as follows:

(a) The following new definitions are added:

“Revolving Commitment” means the maximum unpaid principal amount of the Revolving Loans and participation in Letters of Credit of all Banks which may from time to time be outstanding hereunder, being $62,500,000 as of the date of the Third Amendment hereto, as the same may be reduced from time to time pursuant to Section 4.3, or, if so indicated, the maximum unpaid principal amount of Revolving Loans and participation in Letters of Credit of any Bank (which amounts are set forth on Schedule 1.1(a) hereto or in the relevant Assignment and Assumption Agreement for such Bank) and, as the context may require, the agreement of each Bank to make the Revolving Loans to the Borrower and to participate in the Letters of Credit subject to the terms and conditions of this Agreement up to its Revolving Commitment.”

“Revolving Percentage” means, as to any Bank, the proportion, expressed as a percentage, that such Bank’s Revolving Commitment bears to the total Revolving Commitments of all Banks. The Revolving Percentages of the Banks as of the date of this Third Amendment hereof are set forth on Schedule 1.1(a).”

“Swing Line Commitment” means the maximum unpaid principal amount of the Swing Line Loans of the Swing Line Bank which may from time to time be outstanding hereunder, being $7,500,000 as of the date of the Third Amendment hereto, as the same may be reduced from time to time pursuant to Section 4.3 and, as the context may require, the agreement of the Swing Line Bank to make the Swing Line Loans to the Borrower up to the Swing Line Commitment.”

(b) The definition of “Commitment” is amended to read as follows:

“Commitment” means the maximum unpaid principal amount of the Loans and participation in Letters of Credit of all Banks which may from time to time be outstanding hereunder, being $70,000,000 as of the date of the Third Amendment hereto, as the same may be reduced from time to time pursuant to Section 4.3, or, if so indicated, the maximum unpaid principal amount of Loans and participations in Letters of Credit of any Bank (which amounts are set forth on Schedule 1.1(a) hereto or in the relevant Assignment and Assumption Agreement for such Bank) and, as the context may require, the agreement of each Bank to make Loans to the Borrower and to participate in the Letters of Credit subject to the terms and conditions of this Agreement up to its Commitment. The Commitments shall include both the Revolving Commitments and the Swing Line Commitment.”

“Percentage” means (a) prior to any termination of the Commitments, as to any Bank, the proportion, expressed as a percentage, that such Bank’s Commitments bears to the total Commitments of all Banks, and (b) following any termination of the Commitments, as to any Bank, the proportion, expressed as a percentage, that such Bank’s outstanding Loans and participations in Letters of Credit and Loans (as provided in Sections 2.7(c) and (d), 2.8 and 4.5) bears to the total outstanding Loans and total participations in Letters of Credit of all Banks. The Percentages of the Banks as of the date of this Agreement are set forth on Schedule 1.1(a).”

(d) The definition of “Swing Line Participation Amount” is deleted.

1.3 The Commitments. Section 2.1 is amended to read as follows:

“Section 2.1 The Commitments. Subject to the terms and conditions hereof and in reliance upon the warranties of the Borrower herein:

(a) each Bank agrees, severally and not jointly, to make loans (each, a ‘Revolving Loan’ and, collectively, the ‘Revolving Loans’) to the Borrower from time to time from the date hereof until the Termination Date, during which period the Borrower may repay and reborrow in accordance with the provisions hereof, provided, that the aggregate unpaid principal amount of any Bank’s Revolving Loans plus its participation in Letter of Credit Obligations shall not exceed such Bank’s Revolving Commitment and provided, further, that the total of all outstanding Revolving Loans and Letter of Credit Obligations shall not exceed the aggregate Revolving Commitments of all Banks at any time. The Revolving Loans shall be made by the Banks on a pro rata basis, calculated for each Bank based on its Revolving Percentage.

(b) the Swing Line Bank agrees to make loans (each a ‘Swing Line Loan’ and, collectively, the ‘Swing Line Loans’) to the Borrower from time to time from the date hereof until the Termination Date, during which period the Borrower may repay and reborrow in accordance with the provisions hereof, provided, that the aggregate unpaid principal amount of the Swing Line Loans at any one time outstanding shall not exceed the Swing Line Commitment.”

1.4 Borrowing Procedures. Section 2.3(a)(iii) is deleted. It is the intent that request for Swing Line Loans be governed by Section 2.7(a).

1.5 Swing Line Provisions and Procedures on Event of Default. Section 2.7 is amended to read as follows:

“Section 2.7 Swing Line Loans; Procedures on Event of Default.

(a) The borrowing procedures and time requirements set forth in Section 2.3, and the timing requirements for repayments set forth in Section 4.4 shall not apply to the Swing Line Loans. Instead, the Swing Line Bank and the Borrower shall enter into mutually acceptable arrangements and agreements for “sweep” funding and repayment of the Swing Line Loans.

(b) Unless an Event of Default shall have occurred and shall be continuing, the Swing Line Bank shall have the right to receive, retain, and apply to the Swing Line Loans any payment made under the foregoing arrangements and shall not be required to remit such payment to the Agent for application to any other obligations of the Borrower, and to such extent, the second sentence of Section 4.4 shall not apply to such payments.

(c) Upon occurrence and during continuance of an Event of Default: (i) the Agent shall, on behalf of the Borrower (which hereby irrevocably directs the Agent to act on its behalf), request the Banks (including the Swing Line Bank) to make Loans, and the Agent shall apply the proceeds thereof to payment of outstanding Revolving Loans or Swing Line Loans, so that after the making of such Loans and application of the proceeds thereof, each Bank shall have made its Percentage of the outstanding Loans (all of which shall be Base Rate Advances); and (ii) the Agent shall adjust the participating interest of all Banks in the outstanding Letters of Credit and Letter of Credit Obligations so that each Bank shall hold its Percentage of such participating interests in the Letters of Credit and Letter of Credit Obligations. For such purpose and for purposes of Section 2.7(d), the Percentage of each Bank shall be determined as if the Commitments had not been terminated (i.e. as provided in subparagraph (a) of the definition of ‘Percentage’).

(d) If, for any reason, Loans may not be (as determined by the Agent in its sole discretion), or are not, made pursuant to Section 2.7(c), then, effective on the date such Loans would otherwise have been made, each Bank (including the Swing Line Bank) severally, unconditionally and irrevocably agrees that it shall purchase a participating interest in the outstanding Loans to the extent necessary so that each Bank shall hold (either directly or by participation) its Percentage of all outstanding Loans.

(e) Whenever any Bank receives any payment on account of its Loans in which a participation is deemed to have been sold as provided in Section 2.7(d), such Bank will distribute to the Bank or Banks deemed to have purchased such participation their share or shares of such payment (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Bank’s participating interest was outstanding and funded and, in the case of principal and interest payments, to reflect such Bank’s pro rata portion of such payment if such payment is not sufficient to pay the principal of and interest on all Loans then due); provided, however, that in the event that such payment received by the Bank so distributing payments is required to be returned, the Bank or Banks receiving payment will return to the distributing Bank any portion thereof previously distributed to it or them by the distributing Bank.

(f) Each Bank’s obligation to make the Loans referred to in Section 2.7(c) and to fund its participating interests in the Letters of Credit, Letter of Credit Obligations and Loans pursuant to Section 2.7(c) and Section 2.7(d) shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any setoff, counterclaim, recoupment, defense or other right which such Bank or the Borrower may have against the any other Bank, the Borrower or any other Person for any reason whatsoever; (ii) the occurrence or continuance of an Event of Default or the failure to satisfy any of the other conditions precedent specified in Article VI; (iii) any adverse change in the condition (financial or otherwise) of the Borrower; (iv) any breach of this Agreement or any other Loan Document by the Borrower or any Bank; or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing.

(g) Upon the request for a Loan, adjustment of any participation in funded Letter of Credit Obligation or participation in a Loan, as provided in Section 2.7(c) and Section 2.7(d), each Bank required to fund amounts of such Loan or participations shall transfer to the Agent the amount of such funding on the Business Day requested by the Agent (or if such request is made after 2:00 p.m., Minneapolis time, on the next succeeding Business Day), and the Agent shall apply the proceeds of such Loans or participations in accordance with the terms of such Sections.

1.6. Letters of Credit. It is intended that, prior to occurrence of an Event of Default, the Banks purchase participating interest in the Letters of Credit in accordance with their respective Revolving Percentages (and not Percentages). Section 2.8 of the Credit Agreement is amended to read as provided in Exhibit AA attached hereto. For ease of reference of the parties, words added to such Section 2.8 are double-underlined in Exhibit AA.

1.7 Reduction or Termination of Commitments. The following sentence is added at the end of Section 4.3:


	“Reductions of Commitments shall be applied ratably to the Revolving Commitments and the Swing Line Commitments and the Borrower may not terminate one such Commitment (Revolving Commitment and Swing Line Commitment) without also terminating the other such Commitment.”

1.8 Schedule. Schedule 1.1(a) is replace by Schedule 1.1(a) attached hereto.

1.9 Construction. All references in the Credit Agreement to “this Agreement”, “herein” and similar references shall be deemed to refer to the Credit Agreement as amended by this Amendment.

ARTICLE II - REPRESENTATIONS AND WARRANTIES

To induce the Agent and the Banks to enter into this Amendment and to make and maintain the Loans under the Credit Agreement as amended hereby, the Borrower hereby warrants and represents to the Agent and the Banks that it is duly authorized to execute and deliver this Amendment, and to perform its obligations under the Credit Agreement as amended hereby, and that this Amendment constitutes the legal, valid and binding agreement of the Borrower, enforceable in accordance with its terms.

ARTICLE III - CONDITIONS PRECEDENT

This Amendment shall become effective on the date first set forth above, provided, however, that the effectiveness of this Amendment is subject to the satisfaction of each of the following conditions precedent:

3.1 Warranties. Before and after giving effect to this Amendment, the representations and warranties in Article VII of the Credit Agreement shall be true and correct as though made on the date hereof, except for changes that are permitted by the terms of the Credit Agreement. The execution by the Borrower of this Amendment shall be deemed a representation that the Borrower has complied with the foregoing condition.

3.2 Defaults. Before and after giving effect to this Amendment, no Default and no Event of Default shall have occurred and be continuing under the Credit Agreement. The execution by the Borrower of this Amendment shall be deemed a representation that the Borrower has complied with the foregoing condition.

3.3 Documents and Fee. The following shall have been executed and delivered to the Agent and the Borrower shall have paid to the Agent the following fee:

(a) This Amendment, executed by the Borrower, the Agent and the Banks;

(b) The Acknowledgment in the form attached hereto, executed by the Guarantor;

(c) Revolving Notes, executed by the Borrower, payable to Wells in the amount of up to $20,000,000 and payable to U.S. Bank in the amount of up to $17,500,000 (which Revolving Note payable to U.S. Bank shall replace the existing Revolving Note payable to U.S. Bank in the amount of up to $25,000,000);

(d) An acknowledgment and agreement, executed by Wells, as contemplated by Section 3.5 of the Intercreditor Agreement; and

(e) A supplement to the Agent’s Fee Letter (which, together with the original Agent’s Fee Letter, will be deemed the “Agent’s Fee Letter” for purposes of reference thereto in the Credit Agreement).

ARTICLE IV - GENERAL

4.1 Expenses. The Borrower agrees to reimburse the Agent upon demand for all reasonable expenses (including reasonable attorneys’ fees and legal expenses) incurred by this Agent in the preparation, negotiation and execution of this Amendment and any other document required to be furnished herewith.

4.2 Counterparts. This Amendment may be executed in as many counterparts as may be deemed necessary or convenient, and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same instrument.

4.3 Severability. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction.

4.4 Law. This Amendment shall be a contract made under the laws of the State of Minnesota, which laws shall govern all the rights and duties hereunder.

4.5 Successors; Enforceability. This Amendment shall be binding upon the Borrower, and Agent and the Banks and their respective successors and assigns, and shall inure to the benefit of the Borrower, the Agent and the Banks and the successors and assigns of the Agent and the Banks. Except as hereby amended, the Credit Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed at Minneapolis, Minnesota by their respective officers thereunto duly authorized as of the date first written above.

(signature page follows)


OTTER TAIL CORPORATION

By:	/s/	Kevin G. Moug


Title:		C.F.O. & Treasurer

U.S. BANK NATIONAL ASSOCIATION,
		as Agent and a Bank

By:	/s/	Randy Salzwedel

		Randy A. Salzwedel Vice President

BANK ONE, N.A., as a Bank

By:	/s/	Sharon K. Webb


Title:		Associate Director

BANK HAPOALIM B.M., as a Bank

By:	/s/	James Surless


Title:		VP


and

By:	/s/	Laura Raffa


Title:		SVP


WELLS FARGO BANK, NATIONAL ASSOCIATION, as a Bank

By:	/s/	G. N. Ophaug


Title:		V.P.

ACKNOWLEDGMENT

Reference is made to the Guaranty, dated as of April 30, 2002 (the “Guaranty”) pursuant to which the undersigned, as Guarantor (the “Guarantor”) has guaranteed payment and performance of obligations of Otter Tail Corporation (the “Borrower”) to U.S. Bank National Association, as Agent, and the Banks (the “Creditors”) under the Credit Agreement among the Borrower and the Creditors dated as of April 30, 2002 (as thereafter amended, the “Credit Agreement”) and under each Note and Loan Document, as defined in the Credit Agreement. The Guarantor acknowledges that it has received a copy of the proposed Third Amendment to the Credit Agreement, to be dated on or about August 25, 2003 (the “Amendment”). The Guarantor agrees and acknowledges that the Amendment shall in no way impair or limit the right of the Creditors under the Guaranty, and confirm that by the Guaranty, the Guarantor continues to guaranty payment and performance of the obligations of the Borrower to the Bank under the Credit Agreement as amended pursuant to the Amendment. The Guarantor hereby confirms that the Guaranty remains in full force and effect, enforceable against the Guarantor in accordance with its terms.

Dated as of August 25, 2003.


		VARISTAR CORPORATION

		By:		/s/ Kevin G. Moug


		Title:		C. F. O. & Treasurer

Schedule 1.1(a)

Commitments and Percentages

Revolving Commitments :


Bank:	Initial Revolving Commitment:			Revolving Percentages:

U.S. Bank		$	17,500,000		28.00000	%
Wells Fargo		$	20,000,000		32.00000	%
Bank One		$	15,000,000		24.00000	%
Bank Hapoalim		$	10,000,000		16.00000	%

Total:		$	62,500,000		100.00000	%

Swing Line Commitment :


Bank:	Initial Swing Line Commitment:

U.S. Bank		$7,500,000

Percentages:


Bank:	Total Commitments:		Percentages:

U.S. Bank*	$	25,000,000		35.714286	%
Wells Fargo	$	20,000,000		28.571429	%
Bank One	$	15,000,000		21.428571	%
Bank Hapoalim	$	10,000,000		14.285714	%

Total:	$	70,000,000		100.00000	%

*sum of Revolving Credit Commitment and Swing Line Commitment

Exhibit AA

Section 2.8 Amendment

Section 2.8 Letters of Credit

(a) Letters of Credit. Subject to the terms and conditions of this Agreement, and on the condition that aggregate Letter of Credit Obligations shall never exceed the lesser of (i) $3,000,000 or (ii) the Revolving Commitments, and that the sum of Letter of Credit Obligations plus the Revolving Loans shall never exceed the aggregate Revolving Commitments of all Banks, the Borrower may, in addition to Loans, request that the Agent issue letters of credit for the account of the Borrower, by making such request to the Agent (such letters of credit as any of them may be amended, supplemented, extended or confirmed from time to time, being herein collectively called the ‘Letters of Credit’). The Agent may, at its discretion, elect to issue or decline to issue any requested Letter of Credit. No Letter of Credit shall expire more than one year after the date of issuance thereof (provided, that Letters of Credit may automatically extend absent notice of termination by the issuer). Upon the date of the issuance of a Letter of Credit, the Agent shall be deemed, without further action by any party hereto, to have sold to each Bank, and each Bank shall be deemed without further action by any party hereto, to have purchased from the Agent, a participation, in its Revolving Percentage, in such Letter of Credit and the related Letter of Credit Obligations.

(b) Purchase Unconditional. Each Bank’s purchase of a participating interest in a Letter of Credit pursuant to Section 2.8(a) shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any setoff, counterclaim, recoupment, defense or other right which such Bank or the Borrower may have against the Agent, the Borrower or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default or an Event of Default or the failure to satisfy any of the other conditions precedent in Article VI; (iii) any adverse change in the condition (financial or otherwise) of the Borrower; (iv) any breach of this Agreement or any other Loan Document by the Borrower or any Bank; (v) the expiry date of any Letter of Credit occurring after such Bank’s Revolving Commitment has terminated; or (vi) any other circumstance, happening or event whatsoever, whether or not similar or any of the foregoing.

(c) Additional Provisions. The following additional provisions shall apply to each Letter of Credit:

(i) Upon receipt of any request for a Letter of Credit, the Agent shall notify each Bank of the contents of such request and of such Bank’s Revolving Percentage of the amount of such proposed Letter of Credit.

(ii) No Letter of Credit may be issued if after giving effect thereto the Letter of Credit Obligations shall exceed $3,000,000 or if the sum of (A) the aggregate outstanding principal amount of Revolving Loans plus (B) the aggregate Letter of Credit Obligations would exceed the aggregate Revolving Commitments of all Banks. The Revolving Commitment of each Bank shall be deemed to be utilized for all purposes hereof in an amount equal to such Bank’s Revolving Percentage of the Letter of Credit Obligations.

(iii)     Upon receipt from the beneficiary of any Letter of Credit of any demand for payment thereunder, Agent shall promptly notify the Borrower and each Bank as to the amount to be paid as a result of such demand and the payment date. If at any time the Agent shall have made a payment to a beneficiary of such Letter of Credit in respect of a drawing or in respect of an acceptance created in connection with a drawing under such Letter of Credit, each Bank will pay to Agent immediately upon demand by the Agent at any time during the period commencing after such payment until reimbursement thereof in full by the Borrower, an amount equal to such Bank’s Revolving Percentage of such payment, together with interest on such amount for each day from the date of demand for such payment (or, if such demand is made after 2:00 p.m. Minneapolis time on such date, from the next succeeding Business Day) to the date of payment by such Bank of such amount at a rate of interest per annum equal to the Federal Funds Effective Rate for such period.

(iv)     The Borrower shall be irrevocably and unconditionally obligated forthwith to reimburse the Agent for any amount paid by the Agent upon any drawing under any Letter of Credit, without presentment, demand, protest or other formalities of any kind, all of which are hereby waived. Such reimbursement may, subject to satisfaction of the conditions in Article VI hereof and to the available Revolving Commitment (after adjustment in the same to reflect the elimination of the corresponding Letter of Credit Obligation), be made by the borrowing of Revolving Loans. The Agent will pay to each Bank such Bank’s Revolving Percentage of all amounts received from the Borrower for application in payment, in whole or in part, of a Letter of Credit Obligation, but only to the extent such Bank has made payment to the Agent in respect of such Letter of Credit pursuant to clause (iii) above.

(v)     The Borrower’s obligation to reimburse the Agent for any amount paid by the Agent upon any drawing under any Letter of Credit shall be performed strictly in accordance with the terms of this Agreement and the applicable Letter of Credit Agreement under any and all circumstances whatsoever and irrespective of (A) any lack of validity or enforceability of any Letter of Credit, any Letter of Credit Agreement or this Agreement, or any term or provision therein, (B) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (C) payment by the Agent under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (D) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions

of this clause (v), constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower’s obligations hereunder. Neither the Agent nor the Bank shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Agent; provided that the foregoing shall not be construed to excuse the Agent from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Agent’s failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of the Agent (as finally determined by a court of competent jurisdiction), the Agent shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties hereto expressly agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of the Letter of Credit, the Agreement may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.

(vi) The Borrower will pay to Agent for the account of each Bank in accordance with its Revolving Percentage letter of credit fee with respect to each Letter of Credit equal to an amount, calculated on the basis of face amount of each Letter of Credit, in each case for the period from and including the date of issuance of such Letter of Credit to and including the date of expiration or termination thereof at a per annum rate equal to the then-applicable Applicable Margin for Eurodollar Advances, such fee to be due and payable in advance on the date of the issuance thereof. The Agent will pay to each Bank, promptly after receiving any payment in respect of letter of credit fee referred to in this clause (v), an amount equal to the product of such Bank’s Revolving Percentage times the amount of such fees. The Borrower shall also pay to Agent at the Principal Office for the account of the Agent an issuance fee of 0.125% of the face amount of the applicable Letter of Credit. All fees hereunder shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed.

(vii)     The issuance by the Agent of each Letter of Credit shall, in addition to the discretionary nature of this facility, be subject to the conditions precedent that the Borrower shall have executed and delivered such applications and other instruments and agreements relating to such Letter of Credit as the Agent shall have reasonably requested and are not inconsistent with the terms of this Agreement (the “Letter of Credit Agreements”). In the event of a conflict between the terms of this Agreement and the terms of any Letter of Credit Agreement (including the charging of any fees other than normal and customary reimbursable expenses), the terms hereof shall control.

(viii)     In the event that any Letter of Credit remains outstanding after the Termination Date, the Borrower shall deliver, prior to the Termination Date, cash collateral to be held and applied in accordance with the terms of Section 10.3.

(ix)     Upon occurrence and during continuance of an Event of Default, the participating interest of the Banks in the Letters of Credit and Letter of Credit Obligations shall be adjusted as provided in Section 2.7(c), and upon such adjustment, the funding of such adjusted participating interests shall be made as provided in Section 2.7(g).

(d) Indemnification; Release. Borrower hereby indemnifies and holds harmless the Agent and each Bank from and against any and all claims and damages, losses, liabilities, costs or expenses which the Agent or such Bank may incur (or which may be claimed against the Agent or such Bank by any Person whatsoever), regardless of whether caused in whole or in part by the negligence of any of the indemnified parties, in connection with the execution and delivery of any Letter of Credit or transfer of or payment or failure to pay under any Letter of Credit; provided that the Borrower shall not be required to indemnify any party seeking indemnification for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by (i) the willful misconduct or gross negligence of the party seeking indemnification, or (ii) by the failure by the party seeking indemnification to pay under any Letter of Credit after the presentation to it of a request required to be paid under applicable law.

Exhibit 10.1

SUPPLEMENTAL AGREEMENT NO. 4
BIG STONE PLANT
Agreement for Sharing Ownership
Of Generating Plant

This Supplemental Agreement No. 4 is made as of April 24, 2003, by and between Otter Tail Power Company, a Division of Otter Tail Corporation, a Minnesota corporation (“Otter Tail”), Montana-Dakota Utilities Co., a Division of MDU Resources Group, Inc. (“Montana-Dakota”) and Northwestern Public Service, a Division of Northwestern Corporation (“Northwestern”).

RECITALS

A. Otter Tail, Montana-Dakota and Northwestern have entered into the Big Stone Plant Agreement for Sharing Ownership of Generating Plant, dated as of January 7, 1970, as amended and supplemented by Supplemental Agreement No. 1, dated as of July 1, 1983, and by Supplemental Agreement No. 2, dated as of March 1, 1985, and by Supplemental Agreement No. 3, dated as of March 31, 1986, (The Big Stone Plant Agreement), to provide for the construction and sharing of ownership by Otter Tail, Montana-Dakota and Northwestern of a lignite-fueled electric generating plant located in the vicinity of Big Stone, South Dakota, (the “Big Stone Plant”).

B. Otter Tail serves as Operating Agent pursuant to the Big Stone Plant Agreement, and in such capacity periodically requisitions funds from the plant owners pursuant to Article 15 of the Big Stone Plant Agreement.

C. Also, Otter Tail as Operating Agent uses the requisitioned funds to pay the costs and expenditures for the operation, maintenance and repair of the plant and other plant property, pursuant to Article 15 of the Big Stone Plant Agreement.

D. Otter Tail has customarily scheduled such requisitions so that the receipt of funds corresponds close in time to the payment date of the costs or expenditures to be made from such funds.

E. Otter Tail, Montana-Dakota and Northwestern have determined that certain provisions of the Big Stone Plant Agreement should be changed to reflect Otter Tail’s scheduling of such requisitions and to ensure that the funds received by Otter Tail as the Operating Agent pursuant to such requisitions will be sufficient to pay the expenses of the plant.

F. Otter Tail, Montana-Dakota and Northwestern support amendment of the Big Stone Plant Agreement and have agreed to change and amend such agreement as hereinafter provided.

AGREEMENTS

In consideration of the premises and the mutual covenants herein contained, the Parties hereby agree that the Big Stone Plant Agreement shall be, and is hereby modified, altered, amended, and changed in the following respects only (shown in strike-underline format for convenience):

1. Article 19, Defaults and Remedies, Paragraph 19.4 is amended to read as follows:

19.4 If an Event of Default under this Agreement shall continue for a period of [formerly thirty] five days, or, in the event that the question of whether an Event of Default exists is made the subject of an arbitration pursuant to this Agreement and such Event of Default continues for a period of [formerly thirty] five days following a final determination by the arbitrators (or a court of competent jurisdiction as provided in section 21.9) that an Event of Default exists, then, at any time thereafter while such Event of Default is continuing, the non-defaulting Owners, by giving written notice to the defaulting Owner, may suspend the right of the defaulting Owner to schedule or receive Energy or spinning reserve from or at the Plant, in which case the suspension shall be treated, for purposes of this Agreement, the same as if the defaulting Owner had failed to schedule Energy or spinning reserve hereunder during such suspension, except that the proceeds from the sale by the Agent of such Energy and/or spinning reserve pursuant to section 18.1 shall be applied first to the payment of the defaulting Owner’s share of current costs under this Agreement and then to the payment of any sum owed under this Agreement to any of the other Owners by the defaulting Owner, and any balances thereafter remaining shall be shared by the non-defaulting Owners in the proportion which their respective Ownership Shares bear to the total of their Ownership Shares. Such suspension shall not relieve the defaulting Owner from any of its obligations under this Agreement, including without limitation, its obligations under sections 12.1, 13.2 and 13.4.

2. Other than as expressly provided herein, Otter Tail, as Operating Agent, shall make advance requisitions and maintain advanced funds as it has customarily done for the past several years.

3. In the event of any conflict, inconsistency, or incongruity between the provision of this Supplemental Agreement No. 4 and any of the provisions of the Big Stone Plant Agreement, provisions of this Supplemental Agreement No. 4 shall in all respects govern and control.

4. Otter Tail, Montana-Dakota and Northwestern understand and agree that this Supplemental Agreement No. 4 shall in no way act as a waiver of any of the conditions and obligations imposed upon the parties by the Big Stone Plant Agreement, and any rights which any of the Parties may have by virtue of such Big Stone Plant Agreement are to be considered as of full force and effect.

5. Otter Tail, Montana-Dakota and Northwestern agree that this Supplemental Agreement No. 4 shall be filed in the Grant County Register of Deeds office and indexed against the property of the property described in Exhibit A to this Supplemental Agreement No. 4, pursuant to the provisions of Article 3, Ownership, Paragraph 3.4 of the Big Stone Plant Agreement.

IN WITNESS WHEREOF, the parties have executed this Supplemental Agreement No. 4 the day and year first-above written.


						OTTER TAIL POWER COMPANY A DIVISION OF OTTER TAIL CORPORATION

						By		/s/ Charles MacFarlane


						Name		CHARLES MAC FARLANE


						MONTANA-DAKOTA UTILITIES CO. A DIVISION OF MDU RESOURCES GROUP, INC.

						By		/s/ C. Wayne Fox


						Name		C. Wayne Fox


						NORTHWESTERN PUBLIC SERVICE A DIVISION OF NORTHWESTERN CORPORATION

						By		/s/ Michael J. Hanson


						Name		MICHAEL J. HANSON

Exhibit 10.2

AMENDMENT TO COYOTE STATION AGREEMENT
FOR SHARING OWNERSHIP OF GENERATING UNIT NO. 1

The Agreement is made as of the twenty-fourth day of April, 2003, by and between Otter Tail Power Company, a division of Otter Tail Corporation, a Minnesota corporation (“Otter Tail”), Northern Municipal Power Agency, a political subdivision and municipal corporation of the State of Minnesota (“Agency”), Montana-Dakota Utilities Co., a division of MDU Resources Group, Inc., a Delaware corporation (“Montana-Dakota”), Northwestern Public Service Company, a division of Northwestern Corporation, a Delaware corporation (“Northwestern”) (collectively “the Parties”).

Recitals

WHEREAS, Otter Tail, Agency, Montana-Dakota, and Northwestern have entered into an agreement entitled “Coyote Station Agreement for Sharing Ownership of Generating Unit No. 1,” dated as of July 1, 1977, and several amendments (collectively “the Agreement”) providing for the joint ownership and operation of the Coyote Generating Unit No. 1 (“Coyote”); and

WHEREAS , Otter Tail serves as Operating Agent pursuant to the Agreement, and in such capacity periodically requisitions funds from the plant owners pursuant to Article 15 of the Agreement.

WHEREAS, also, Otter Tail as Operating Agent uses the requisitioned funds to pay the costs and expenditures for the operation, maintenance and repair of the plant and other plant property, pursuant to Article 15 of the Agreement.

WHEREAS, Otter Tail has customarily scheduled such requisitions so that the receipt of funds corresponds close in time to the payment date of the costs or expenditures to be made from such funds.

WHEREAS, Otter Tail, Agency, Montana-Dakota and Northwestern have determined that certain provisions of the Agreement should be changed to reflect Otter Tail’s scheduling of such requisitions and to ensure that the funds received by Otter Tail as the Operating Agent pursuant to such requisitions will be sufficient to pay the expenses of the plant.

WHEREAS, Otter Tail, Agency, Montana-Dakota and Northwestern support amendment of the Agreement and have agreed to change and amend such agreement as hereinafter provided.

Agreements

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Parties hereby agree that the Agreement shall be, and is hereby modified, altered, amended, and changed in the following respects only (shown in strike-underline format for convenience):

1. Article 19, Defaults and Remedies, Paragraph 19.4 is amended to read as follows:

2. Other than as expressly provided herein, Otter Tail, as Operating Agent, shall make advance requisitions and maintain advanced funds as it has customarily done for the past several years.

3. In the event of any conflict, inconsistency, or incongruity between the provision of this Amendment and any of the provisions of the Agreement, provisions of this Amendment shall in all respects govern and control.

4. Otter Tail, Agency, Montana-Dakota and Northwestern understand and agree that this Amendment shall in no way act as a waiver of any of the conditions and obligations imposed upon the parties by the Agreement, and any rights which any of the Parties may have by virtue of such Agreement are to be considered as of full force and effect.

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed and sealed by their authorized representatives on the date appearing next to their signature blocks, intending thereby that this Agreement shall be effective as of the day and year first written above.


Dated: 4/28/03	OTTER TAIL POWER COMPANY A DIVISION OF OTTERTAIL CORPORATION

	By:	/s/ Charles MacFarlane


Dated: 5/9/03	NORTHERN MUNICIPAL POWER AGENCY, BY AND THROUGH ITS AGENT AND REPRESENTATIVE FOR THE COYOTE COAL PLANT, MINNKOTA POWER COOPERATIVE, INC.

	By:	/s/ David Loer


Dated: 5/6/03	MONTANA-DAKOTA UTILITIES CO. A DIVISION OF MDU RESOURCES GROUP, INC.

	By:	/s/ C. Wayne Fox


Dated: 5/5/03	NORTHWESTERN PUBLIC SERVICE A DIVISION OF NORTHWESTERN CORPORATION

	By:	/s/ Michael J. Hanson

Exhibit 31.1

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John D. Erickson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Otter Tail Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5 . The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2003

/s/ John D. Erickson

John D. Erickson

President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kevin G. Moug, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Otter Tail Corporation;

     (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2003

/s/ Kevin G. Moug

Kevin G. Moug

Chief Financial Officer and Treasurer

Exhibit 32.1

CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Otter Tail Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John D. Erickson, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


		/s/ John D. Erickson John D. Erickson
		President and Chief Executive Officer
		November 14, 2003

Exhibit 32.2

CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Otter Tail Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kevin G. Moug, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


		/s/ Kevin G. Moug

		Kevin G. Moug
		Chief Financial Officer and Treasurer
		November 14, 2003

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	(a) Letters of Credit. Subject to the terms and conditions of this Agreement, and on the condition that aggregate Letter of Credit Obligations shall never exceed the lesser of (i) $3,000,000 or (ii) the Revolving Commitments, and that the sum of Letter of Credit Obligations plus the Revolving Loans shall never exceed the aggregate Revolving Commitments of all Banks, the Borrower may, in addition to Loans, request that the Agent issue letters of credit for the account of the Borrower, by making such request to the Agent (such letters of credit as any of them may be amended, supplemented, extended or confirmed from time to time, being herein collectively called the ‘Letters of Credit’). The Agent may, at its discretion, elect to issue or decline to issue any requested Letter of Credit. No Letter of Credit shall expire more than one year after the date of issuance thereof (provided, that Letters of Credit may automatically extend absent notice of termination by the issuer). Upon the date of the issuance of a Letter of Credit, the Agent shall be deemed, without further action by any party hereto, to have sold to each Bank, and each Bank shall be deemed without further action by any party hereto, to have purchased from the Agent, a participation, in its Revolving Percentage, in such Letter of Credit and the related Letter of Credit Obligations.

	(b) Purchase Unconditional. Each Bank’s purchase of a participating interest in a Letter of Credit pursuant to Section 2.8(a) shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any setoff, counterclaim, recoupment, defense or other right which such Bank or the Borrower may have against the Agent, the Borrower or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default or an Event of Default or the failure to satisfy any of the other conditions precedent in Article VI; (iii) any adverse change in the condition (financial or otherwise) of the Borrower; (iv) any breach of this Agreement or any other Loan Document by the Borrower or any Bank; (v) the expiry date of any Letter of Credit occurring after such Bank’s Revolving Commitment has terminated; or (vi) any other circumstance, happening or event whatsoever, whether or not similar or any of the foregoing.

	(c) Additional Provisions. The following additional provisions shall apply to each Letter of Credit:


	(i) Upon receipt of any request for a Letter of Credit, the Agent shall notify each Bank of the contents of such request and of such Bank’s Revolving Percentage of the amount of such proposed Letter of Credit.

	(ii) No Letter of Credit may be issued if after giving effect thereto the Letter of Credit Obligations shall exceed $3,000,000 or if the sum of (A) the aggregate outstanding principal amount of Revolving Loans plus (B) the aggregate Letter of Credit Obligations would exceed the aggregate Revolving Commitments of all Banks. The Revolving Commitment of each Bank shall be deemed to be utilized for all purposes hereof in an amount equal to such Bank’s Revolving Percentage of the Letter of Credit Obligations.


	(iii) Upon receipt from the beneficiary of any Letter of Credit of any demand for payment thereunder, Agent shall promptly notify the Borrower and each Bank as to the amount to be paid as a result of such demand and the payment date. If at any time the Agent shall have made a payment to a beneficiary of such Letter of Credit in respect of a drawing or in respect of an acceptance created in connection with a drawing under such Letter of Credit, each Bank will pay to Agent immediately upon demand by the Agent at any time during the period commencing after such payment until reimbursement thereof in full by the Borrower, an amount equal to such Bank’s Revolving Percentage of such payment, together with interest on such amount for each day from the date of demand for such payment (or, if such demand is made after 2:00 p.m. Minneapolis time on such date, from the next succeeding Business Day) to the date of payment by such Bank of such amount at a rate of interest per annum equal to the Federal Funds Effective Rate for such period.

	(iv) The Borrower shall be irrevocably and unconditionally obligated forthwith to reimburse the Agent for any amount paid by the Agent upon any drawing under any Letter of Credit, without presentment, demand, protest or other formalities of any kind, all of which are hereby waived. Such reimbursement may, subject to satisfaction of the conditions in Article VI hereof and to the available Revolving Commitment (after adjustment in the same to reflect the elimination of the corresponding Letter of Credit Obligation), be made by the borrowing of Revolving Loans. The Agent will pay to each Bank such Bank’s Revolving Percentage of all amounts received from the Borrower for application in payment, in whole or in part, of a Letter of Credit Obligation, but only to the extent such Bank has made payment to the Agent in respect of such Letter of Credit pursuant to clause (iii) above.

	(v) The Borrower’s obligation to reimburse the Agent for any amount paid by the Agent upon any drawing under any Letter of Credit shall be performed strictly in accordance with the terms of this Agreement and the applicable Letter of Credit Agreement under any and all circumstances whatsoever and irrespective of (A) any lack of validity or enforceability of any Letter of Credit, any Letter of Credit Agreement or this Agreement, or any term or provision therein, (B) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (C) payment by the Agent under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (D) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions


	of this clause (v), constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower’s obligations hereunder. Neither the Agent nor the Bank shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Agent; provided that the foregoing shall not be construed to excuse the Agent from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Agent’s failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of the Agent (as finally determined by a court of competent jurisdiction), the Agent shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties hereto expressly agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of the Letter of Credit, the Agreement may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.

	(vi) The Borrower will pay to Agent for the account of each Bank in accordance with its Revolving Percentage letter of credit fee with respect to each Letter of Credit equal to an amount, calculated on the basis of face amount of each Letter of Credit, in each case for the period from and including the date of issuance of such Letter of Credit to and including the date of expiration or termination thereof at a per annum rate equal to the then-applicable Applicable Margin for Eurodollar Advances, such fee to be due and payable in advance on the date of the issuance thereof. The Agent will pay to each Bank, promptly after receiving any payment in respect of letter of credit fee referred to in this clause (v), an amount equal to the product of such Bank’s Revolving Percentage times the amount of such fees. The Borrower shall also pay to Agent at the Principal Office for the account of the Agent an issuance fee of 0.125% of the face amount of the applicable Letter of Credit. All fees hereunder shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed.


	(vii) The issuance by the Agent of each Letter of Credit shall, in addition to the discretionary nature of this facility, be subject to the conditions precedent that the Borrower shall have executed and delivered such applications and other instruments and agreements relating to such Letter of Credit as the Agent shall have reasonably requested and are not inconsistent with the terms of this Agreement (the “Letter of Credit Agreements”). In the event of a conflict between the terms of this Agreement and the terms of any Letter of Credit Agreement (including the charging of any fees other than normal and customary reimbursable expenses), the terms hereof shall control.

	(viii) In the event that any Letter of Credit remains outstanding after the Termination Date, the Borrower shall deliver, prior to the Termination Date, cash collateral to be held and applied in accordance with the terms of Section 10.3.

	(ix) Upon occurrence and during continuance of an Event of Default, the participating interest of the Banks in the Letters of Credit and Letter of Credit Obligations shall be adjusted as provided in Section 2.7(c), and upon such adjustment, the funding of such adjusted participating interests shall be made as provided in Section 2.7(g).

	1.		The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	2.		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.