UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of report (Date of earliest event reported): October 31,
2016
OTTER TAIL CORPORATION
(Exact name of registrant as specified in
its charter)
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Minnesota
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0-53713
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27-0383995
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(State or other jurisdiction
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(Commission
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(I.R.S. Employer
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of incorporation)
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File Number)
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Identification No.)
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215 South Cascade Street, P.O. Box 496, Fergus Falls, MN
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56538-0496
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(Address of principal executive offices)
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(Zip Code)
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Registrant's telephone number, including area code: (866) 410-8780
Check the appropriate box below if the Form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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¨
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Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
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¨
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Soliciting material pursuant to Rule 14a-12 under the Exchange
Act (17 CFR 240.14a-12)
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¨
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Pre-commencement communications pursuant to Rule 14d-2(b)
under the Exchange Act (17 CFR 240.14d-2(b))
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¨
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Pre-commencement communications pursuant to Rule 13e-4(c)
under the Exchange Act (17 CFR 240.13e-4(c))
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Item 1.01.
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Entry into a Material Definitive Agreement.
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Amendment of Otter Tail Corporation Credit Agreement
On October 31, 2016, Otter Tail Corporation
(the “Company”) entered into an amendment dated as of October 31, 2016 (the “Fourth Amendment to OTC Credit Agreement”)
to the Third Amended and Restated Credit Agreement dated as of October 29, 2012, as amended, (the “OTC Credit Agreement”)
among the Company, U.S. Bank National Association, as Administrative Agent (the “OTC Agent”) and the banks party thereto
from time to time (the “OTC Banks”). The OTC Credit Agreement provides for an unsecured revolving credit facility with
a $150 million line of credit that the Company can draw on to refinance certain indebtedness and support the operations of the
Company and its subsidiaries, and is described in and filed as Exhibit 4.1 to the Company’s Form 8-K filed with the Securities
and Exchange Commission (the “SEC”) on November 2, 2012, Exhibit 4.1 to the Company’s Form 8-K filed with the
SEC on November 1, 2013, Exhibit 4.1 to the Company’s Form 8-K filed with the SEC on November 4, 2014 and Exhibit 4.1 to
the Company’s Form 8-K filed with the SEC on November 3, 2015.
The Fourth Amendment to OTC Credit Agreement
was entered into among the Company, the OTC Agent and the OTC Banks to extend the termination date of the facility from October
29, 2020 to October 29, 2021 and to make certain other immaterial changes consistent with provisions in similar agreements. In
connection with the Fourth Amendment, the Company has elected to reduce the commitment from $150 million to $130 million. The summary
in this Item 1.01 of the material terms of the Fourth Amendment to OTC Credit Agreement is qualified in its entirety by reference
to the full text of the Fourth Amendment to OTC Credit Agreement, a copy of which is filed as Exhibit 4.1 hereto and incorporated
herein by reference.
Amendment of Otter Tail Power Company
Credit Agreement
On October 31, 2016, Otter Tail Power Company
(“OTP”), a wholly owned subsidiary of the Company, entered into an amendment dated as of October 31, 2016 (the “Fourth
Amendment to OTP Credit Agreement”) to the Second Amended and Restated Credit Agreement dated as of October 29, 2012, as
amended, (the “OTP Credit Agreement”) among OTP, U.S. Bank National Association, as Administrative Agent (the “OTP
Agent”), and the Banks party thereto from time to time (the “OTP Banks”). The OTP Credit Agreement provides for
an unsecured revolving credit facility with a $170 million line of credit that OTP can draw on to support the working capital needs
and other capital requirements of its operations, and is described in and filed as Exhibit 4.2 to the Company’s Form 8-K
filed with the SEC on November 2, 2012, Exhibit 4.2 to the Company’s Form 8-K filed with the SEC on November 1, 2013, Exhibit
4.2 to the Company’s Form 8-K filed with the SEC on November 4, 2014, and Exhibit 4.2 to the Company’s Form 8-K filed
with the SEC on November 3, 2015.
The Fourth Amendment
to OTP Credit Agreement was entered into among OTP, the OTP Agent and the OTP Banks to extend the termination date of the facility
from October 29, 2020 to October 29, 2021, and to make certain other immaterial changes consistent with provisions in similar agreements.
The summary in this Item 1.01 of the material terms of the Fourth Amendment to OTP Credit Agreement is qualified in its entirety
by reference to the full text of the Fourth Amendment to OTP Credit Agreement, a copy of which is filed as Exhibit 4.2 hereto and
incorporated herein by reference.
Certain Relationships
Certain of the banks party to one or both
of the OTC Credit Agreement and the OTP Credit Agreement and/or their respective affiliates have had, and may in the future have,
investment banking and other commercial dealings with the Company, OTP and their other affiliates, for which such banks or their
respective affiliates have received and may in the future receive customary compensation. Such dealings have included the following:
(i) U.S. Bank, JPMorgan, Bank of America, N.A. (“Bank of America”), and KeyBank National Association (“KeyBank”)
are parties to both credit agreements; (ii) J.P. Morgan Securities LLC (“JPMS”), an affiliate of JPMorgan, entered
into a Distribution Agreement with the Company on May 11, 2015, pursuant to which the Company may offer and sell its common shares,
par value $5.00 per share, from time to time through JPMS, as the Company’s distribution agent for the offer and sale of
the shares, up to an aggregate sales price of $75,000,000; (iii) in connection with the offering and sale by the Company of $100,000,000
aggregate principal amount of its 9.000% Notes due 2016 in 2009, JPMS and an affiliate of Bank of America acted as joint book-running
managers, an affiliate of U.S. Bank acted as lead manager, and affiliates of Bank of the West (a party to the Otter Tail Credit
Agreement), KeyBank and Wells Fargo Bank, National Association (a party to the OTP Credit Agreement) acted as co-managers; (iv)
Merrill Lynch, Pierce, Fenner and Smith Incorporated (an affiliate of Bank of America) acted as placement agent in connection with
the 2011 issuance by OTP of its 4.63% Senior Unsecured Notes due December 1, 2021; (v) JPMS acted as sole placement agent
in connection with a note purchase agreement entered into on August 14, 2013 for the private placement of $60 million aggregate
principal amount of OTP’s 4.68% Series A Senior Unsecured Notes due February 27, 2029 and $90 million aggregate principal
amount of OTP’s 5.47% Series B Senior Unsecured Notes due February 27, 2044, both issued on February 27, 2014; (vi) KeyBank
was the Company’s investment banker in connection with the dispositions of Aevenia, Inc. (closed February 28, 2015) and Foley
Company (closed April 30, 2015); (vii) JPMorgan acted as administrative agent and JPMS acted as lead arranger and book arranger
in connection with the Term Loan Agreement with the Company entered into on February 5, 2016 for a $50 million unsecured two-year
term loan; and (viii) Bank of America Merrill Lynch Incorporated and US Bancorp. Investments, Inc. acted as placement agents in
connection with a note purchase agreement entered into on September 23, 2016 for the private placement of $80 million aggregate
principal amount of the Company’s 3.55% Guaranteed Senior Notes due December 15, 2026.
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Item 2.02
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Results of Operations and Financial Condition
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On November 2, 2016 Otter Tail Corporation
issued a press release concerning consolidated financial results for the third quarter of 2016. A copy of the press release is
furnished herewith as Exhibit 99.1.
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Item 9.01
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Financial Statements and Exhibits
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4.1
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Fourth Amendment to Third Amended and Restated Credit Agreement, dated as of October 31, 2016, among Otter Tail Corporation,
U.S. Bank National Association, as Administrative Agent and as a Bank, Bank of America, N.A. and JPMorgan Chase Bank, N.A., each
as a Co-Syndication Agent and as a Bank, KeyBank National Association, as Documentation Agent and as a Bank, and Bank of the West
as a Bank.
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4.2
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Fourth Amendment to Second Amended and Restated Credit Agreement, dated as of October 31, 2016, among Otter Tail Power Company,
U.S. Bank National Association, as Administrative Agent and as a Bank, Bank of America, N.A. and JPMorgan Chase Bank, N.A., each
as a Co-Syndication Agent and as a Bank, KeyBank National Association, as Documentation Agent and as a Bank, CoBank, ACB, as a
Co-Documentation Agent and as a Bank, and Wells Fargo Bank, National Association as a Bank.
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99.1
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Press Release issued November 2, 2016.
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Signature
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.
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OTTER TAIL CORPORATION
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Date: November 3, 2016
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By
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/s/ Kevin G. Moug
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Kevin G. Moug
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Chief Financial Officer
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EXHIBIT INDEX
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Exhibit
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Description of Exhibit
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4.1
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Fourth Amendment to Third Amended and Restated Credit Agreement, dated as of October 31, 2016, among Otter Tail Corporation, U.S. Bank National Association, as Administrative Agent and as a Bank, Bank of America, N.A. and JPMorgan Chase Bank, N.A., each as a Co-Syndication Agent and as a Bank, KeyBank National Association, as Documentation Agent and as a Bank, and Bank of the West as a Bank.
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4.2
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Fourth Amendment to Second Amended and Restated Credit Agreement, dated as of October 31, 2016, among Otter Tail Power Company, U.S. Bank National Association, as Administrative Agent and as a Bank, Bank of America, N.A. and JPMorgan Chase Bank, N.A., each as a Co-Syndication Agent and as a Bank, KeyBank National Association, as Documentation Agent and as a Bank, CoBank, ACB, as a Co-Documentation Agent and as a Bank, and Wells Fargo Bank, National Association as a Bank.
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99.1
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Press release, issued November 2, 2016
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Exhibit 4.1
FOURTH AMENDMENT TO THIRD AMENDED AND RESTATED
CREDIT AGREEMENT
THIS FOURTH AMENDMENT
(this “Amendment”), dated as of October 31, 2016, amends and modifies that certain Third Amended and Restated Credit
Agreement, dated as of October 29, 2012 (as amended by the First Amendment thereto dated October 29, 2013, the Second Amendment
thereto dated November 3, 2014 and the Third Amendment thereto dated October 29, 2015, the “Credit Agreement”), among
Otter Tail Corporation
(the “Borrower”), U.S. BANK NATIONAL ASSOCIATION,
as Administrative Agent (in such capacity, the “Agent”), and the Lenders, 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 Lenders and the Agent agree that the Credit Agreement is amended as follows.
ARTICLE I - AMENDMENTS
1.1 The
definition of “Termination Date” appearing in Section 1.1 of the Credit Agreement is hereby amended to replace the
date “October 29, 2020” with the date “October 29, 2021”.
1.2 Section
1.1 of the Credit Agreement is hereby amended to insert the following definitions alphabetically therein:
“
Bail-In
Action
” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect
of any liability of an EEA Financial Institution.
“
Bail-In
Legislation
” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European
Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is
described in the EU Bail-In Legislation Schedule.
“
EEA
Financial Institution
” means (a) any institution established in any EEA Member Country which is subject to the supervision
of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described
in clause (a) of this definition, or (c) any institution established in an EEA Member Country which is a subsidiary of an institution
described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“
EEA
Member Country
” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“
EEA
Resolution Authority
” means any public administrative authority or any Person entrusted with public administrative authority
of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“
EU
Bail-In Legislation Schedule
” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or
any successor Person), as in effect from time to time.
“
Write-Down
and Conversion Powers
” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such
EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down
and conversion powers are described in the EU Bail-In Legislation Schedule.
1.3 The
definition of “Defaulting Bank” appearing in Section 1.1 of the Credit Agreement is hereby amended to delete the word
“or” now appearing in clause (e) therein and substitute a comma “,” therefor and insert immediately after
the phrase “an instrumentality thereof” the following: “or (iii) has or whose parent company has become the subject
of a Bail-In Action”.
1.4 Article
XII of the Credit Agreement is hereby amended to insert the following new Section 12.18 at the end thereof:
Section 12.18
Acknowledgement
and Consent to Bail-In of EEA Financial Institutions
. Notwithstanding anything to the contrary in any Loan Document or in any
other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any
EEA Financial Institution arising under any Loan Document may be subject to the Write-Down and Conversion Powers of an EEA Resolution
Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a) the
application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which
may be payable to it by any party hereto that is an EEA Financial Institution; and
(b) the
effects of any Bail-In Action on any such liability, including, if applicable:
(i) a
reduction in full or in part or cancellation of any such liability;
(ii) a
conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution,
its parent entity, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other
instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or
any other Loan Document; or
(iii) the
variation of the terms of such liability in connection with the exercise of the Write-Down and Conversion Powers of any EEA Resolution
Authority.
1.5 Article
VII of the Credit Agreement is hereby amended to insert the following new Section 7.19 at the end thereof:
Section 7.19:
EEA
Financial Institutions
. Neither the Borrower nor any Subsidiary is an EEA Financial Institution.
1.6 Section
2.11(g) of the Credit Agreement is hereby amended to restate the second sentence therein in its entirety as follows:
“Subject
to Section 12.18, nothing contained in the foregoing shall be deemed to constitute a waiver by the Borrower of any of its rights
or remedies (whether in equity or law) against any Bank which fails to fund any of its Loans hereunder at the time or in the amount
required to be funded under the terms of this Agreement.”
1.7 Schedule
1.1(a) (Commitments and Percentages), Schedule 1.1(b) (Material Subsidiaries), Schedule 1.1(c) (Departing Bank Schedule), Schedule
7.6 (Litigation and Contingent Liabilities), Schedule 7.15 (Subsidiaries), Schedule 7.16 (Partnerships/Joint Ventures), Schedule
9.4 (Exceptions to Ownership of Material Subsidiaries), Schedule 9.7 (Investments), Schedule 9.8 (Existing Liens) and Schedule
9.10 (Certain Transactions with Related Parties), are hereby amended in their entirety to be in the forms of Schedule 1.1(a), Schedule
1.1(b), Schedule 1.1(c), Schedule 7.6, Schedule 7.15, Schedule 7.16, Schedule 9.4, Schedule 9.7, Schedule 9.8 and Schedule 9.10
attached hereto and made a part hereof.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
To induce the Agent
and the Lenders 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 Lenders 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, subject to limitations as to enforceability which
might result from bankruptcy, insolvency, moratorium and other similar laws affecting creditors’ rights generally and subject
to limitations on the availability of equitable remedies.
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 the Credit Agreement shall be true and correct as
though made on the date hereof with respect to representations and warranties containing qualifications as to materiality, and
true and correct as though made on the date hereof in all material respects with respect to representations and warranties without
qualifications as to materiality, 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
. The Borrower, the Agent and the Lenders shall have executed and delivered this Amendment.
3.4
Fees
. The Agent shall have received all fees and other amounts due and payable on or prior to the date hereof, including, without limitation,
(i) all fees set forth in that certain Fee Letter by and between the Borrower and the Agent dated as of October 31, 2016 and (ii)
to the extent invoiced reasonably in advance, reimbursement or payment of all out-of-pocket expenses required to be reimbursed
or paid by the Borrower under the Credit Agreement.
3.5
Reduction
of Commitment
. The Agent shall have received irrevocable notice pursuant
to Section 4.3 that the Borrower has elected to reduce the Commitment, effective as of the date of this Amendment to an aggregate
amount not greater than $130,000,000.
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 the 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
Governing
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, the Agent and the Lenders and their respective successors
and assigns, and shall inure to the benefit of the Borrower, the Agent and the Lenders and the successors and assigns of the Agent
and the Lenders. Except as hereby amended, the Credit Agreement shall remain in full force and effect and is hereby ratified and
confirmed in all respects.
[Signature Pages Follow]
IN WITNESS WHEREOF, the parties hereto have
caused this Amendment to be executed by their respective officers thereunto duly authorized as of the date first written above.
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OTTER TAIL CORPORATION
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By:
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/s/ Kevin Moug
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Title:
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Chief Financial Officer
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4334 18
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Avenue South
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Suite 200
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Fargo, North Dakota 58103
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Attention:
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Mr. Kevin G. Moug,
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Chief Financial Officer
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Telephone: (701) 451-3562
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Fax: (701) 232-4108
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(Signature Page to Fourth Amendment to
Otter Tail Corporation Credit Agreement)
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U.S. BANK NATIONAL ASSOCIATION,
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as Agent and a Bank
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By:
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/s/ Jacquelyn Ness
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Title:
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Vice President
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505 Second Avenue North
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Mail Code EP-ND-0630
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Fargo, ND 58102
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Attention: Jacquelyn Ness, Vice President
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Telephone: (701) 280-3655
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Fax: (701) 280-3580
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(Signature Page to Fourth Amendment to
Otter Tail Corporation Credit Agreement)
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BANK OF AMERICA, N.A., as Co-Syndication Agent and as a Bank
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By:
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/s/ Casey Klepsch
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Title:
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Assistant Vice President
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IL4-135-04-13
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135 South LaSalle Street
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Chicago, IL 60603
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Attention: Casey Klepsch
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Telephone: (312) 904-7465
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Fax: (312) 992-9981
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(Signature Page to Fourth Amendment to
Otter Tail Corporation Credit Agreement)
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JPMORGAN CHASE BANK, N.A., as Co-Syndication Agent and as a Bank
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By:
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/s/ Justin Martin
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Title:
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Authorized Officer
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10 South Dearborn, 9
th
Floor, IL1-0090
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Chicago, IL 60603
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Attention: Justin Martin
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Telephone: (312) 732-4441
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Fax: (312) 732-1762
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(Signature Page to Fourth Amendment to
Otter Tail Corporation Credit Agreement)
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KEYBANK NATIONAL ASSOCIATION, as Documentation Agent and as a Bank
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By:
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/s/ Keven D. Smith
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Title:
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Senior Vice President
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127 Public Square
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Mail Code: OH-01-27-1125
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Cleveland, OH 44114
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Attention: Keven D. Smith
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Telephone: (206) 343-6966
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Fax: (216) 689-4981
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(Signature Page to Fourth Amendment to
Otter Tail Corporation Credit Agreement)
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BANK OF THE WEST, a California Banking Corporation, as a Bank
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By:
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/s/ David Wang
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Title:
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Director
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250 Marquette Ave., Suite 575
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Minneapolis, MN 55401
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Attention: David Wang
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Telephone: (612) 339-1403
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Fax: (612) 339-6362
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(Signature Page to Fourth Amendment to
Otter Tail Corporation Credit Agreement)
Schedule 1.1(a)
Commitments and Percentages
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Bank:
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Initial Commitment:
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Percentage:
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U.S. Bank National Association
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$
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39,000,000
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30
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%
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JPMorgan Chase Bank, N.A.
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$
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26,000,000
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20
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%
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Bank of America, N.A.
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$
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26,000,000
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20
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%
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KeyBank National Association
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$
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23,833,333
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18.33333307692
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%
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Bank of the West
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$
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15,166,667
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11.666666923077
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%
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Total:
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$
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130,000,000
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100
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%
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Schedule 1.1(b)
Material Subsidiaries
(as of the date of the Fourth Amended and Restated Credit Agreement)
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BTD Manufacturing, Inc.
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Northern Pipe Products, Inc.
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Varistar Corporation
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Vinyltech Corporation
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Schedule 1.1(c)
Departing Bank Schedule
None.
Schedule 7.6
Litigation (Section 7.6)
Contingent Liabilities (Section 7.6)
Ameren Services Company, etal v. FERC DC Circuit Case No. 07-1141.
The case is an appeal from FERC challenging its treatment of MISO Revenue Sufficiency Guarantee (“RSG”) charges for
entities participating in the MISO wholesale energy market since the market’s start on April 1, 2005. Otter Tail Power
was a participant in the market and could be adversely affected by certain outcomes.
Contingent Liabilities
Based on a potential reduction by the FERC in the ROE component
of the MISO Tariff, OTP has recorded a $2.4 million liability on its balance sheet as of September 30, 2016, representing OTP’s
best estimate of a refund obligation that would arise, net of amounts that would be subject to recovery under state jurisdictional
TCR riders, if FERC orders a reduction in ROE component of the MISO Tariff.
In 2014, the Environmental Protection Agency (EPA) published
proposed standards of performance for CO2 emissions from new fossil fuel-fired power plants, proposed CO2 emission guidelines for
existing fossil fuel-fired power plants and proposed CO2 standards of performance for CO2 emissions from reconstructed and modified
fossil fuel-fired power plants under section 111 of the Clean Air Act. The EPA published final rules for each of these proposals
on October 23, 2015. All of these rules have been challenged on legal grounds and are currently pending in the D.C. Circuit. On
February 9, 2016 the U.S. Supreme Court granted a stay of the CO2 emission guidelines for existing fossil fuel-fired power plants,
pending disposition of petitions for review in the D.C. Circuit and disposition of a petition for a writ of certiorari seeking
review by the U.S. Supreme Court, if such a writ is sought. Oral argument before all the judges of the D.C. Circuit (en banc review)
is scheduled for September 2016. Uncertainty regarding the status of the rules will likely continue for some time. OTP is actively
engaged with the stakeholder processes in each of its states that have continued to move forward with planning efforts during the
stay.
Schedule 7.15
Subsidiaries (Section 7.15)
Subsidiaries of Otter Tail Corporation
|
Company
|
State of
Organization
|
Number and Class of Shares Issued
and Owned by Otter Tail
Corporation or its Subsidiaries
|
Footnote
Ref.
|
|
AEV, Inc.
|
Minnesota
|
100 Shares Common
|
(1)
|
|
ASI, Inc.
|
Minnesota
|
100 Shares Common
|
(3)
|
|
BTD Manufacturing, Inc.
|
Minnesota
|
200 Shares Common
|
(1)
|
|
IMD, Inc.
|
North Dakota
|
980 Shares Common
|
(1)
|
|
Miller Welding & Iron Works, Inc.
|
Minnesota
|
1,000 Shares Common
|
(5)
|
|
Northern Pipe Products, Inc.
|
North Dakota
|
10,000 Shares Common
|
(1)
|
|
Otter Tail Assurance Limited
|
Cayman Islands
|
50,000 Shares Common
|
(4)
|
|
Otter Tail Energy Services Company, Inc.
|
Minnesota
|
1,000 Shares Common
|
(4)
|
|
Otter Tail Power Company
|
Minnesota
|
100 Shares Common
|
(4)
|
|
Sheridan Ridge II, LLC
|
Minnesota
|
1,000 Membership Units
|
(2)
|
|
Shrco, Inc.
|
Minnesota
|
100 Shares Common
|
(1)
|
|
T.O. Plastics, Inc.
|
Minnesota
|
100 Shares Common
|
(1)
|
|
Varistar Corporation
|
Minnesota
|
100 Shares Common
|
(4)
|
|
Vinyltech Corporation
|
Arizona
|
100 Shares Common
|
(1)
|
|
(1) Subsidiary
of Varistar Corporation
(2) Subsidiary
of Otter Tail Energy Services Company, Inc.
(3) Subsidiary
of Shrco, Inc.
|
(4) Subsidiary
of Otter Tail Corporation
(5) Subsidiary
of BTD Manufacturing, Inc.
|
Schedule 7.16
Partnerships and Joint Ventures
as of June 30, 2016
|
Partnership Name
|
|
Type of
Partnership
Interest
|
|
Ownership
Percentage
|
|
|
Book value of
Investment
June 30, 2016
|
|
|
Boston Financial Institutional Tax Credit VIII Fund
|
|
Limited
|
|
|
3.4
|
|
|
$
|
0
|
|
|
Walnut Properties Limited – Summit Group
|
|
Limited
|
|
|
15.7
|
|
|
$
|
0
|
|
|
WNC Institutional Tax Credit Fund II
|
|
Limited
|
|
|
13.3332
|
|
|
$
|
0
|
|
|
Grace Village Limited Partnership
|
|
Limited
|
|
|
89.0
|
|
|
$
|
0
|
|
|
The Homestead Limited Partnership
|
|
Limited
|
|
|
89.0
|
|
|
$
|
0
|
|
|
Lincoln Square of Alexandria Limited Partnership
|
|
Limited
|
|
|
89.0
|
|
|
$
|
0
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
0
|
|
In the ordinary course of business, Otter
Tail Power Company has entered into contractual arrangements with other regional utilities providing for ownership interests (both
as tenants-in-common and discretely) in transmission and generation assets.
No Subsidiary Guarantor has any partnership or joint venture
interest.
Schedule 9.4
Exceptions to Ownership of Material Subsidiaries
(Section 9.4)
None.
Schedule 9.7
Investments (Section 9.7)
|
|
|
As of
September 30, 2016
|
|
|
Investment in Loan Pools (OTP)
|
|
$
|
68,000
|
|
|
Investments – Bank of Butterfield (OTAL)
|
|
|
9,189,548
|
|
|
CoBank (St Paul Bank for Coop’s) (VSC)
|
|
|
73,012
|
|
|
Relocation Loans to Employees (OTP)
|
|
|
50,000
|
|
|
Trusts Associated with Large Transmission Projects
|
|
|
5,236,522
|
|
|
Other Miscellaneous (OTP)
|
|
|
10,110
|
|
|
|
|
|
|
|
|
Total Investments of Otter Tail Corporation and Subsidiaries
|
|
$
|
14,627,192
|
|
Schedule 9.8
Existing Liens (Section 9.8)
None.
Schedule 9.10
Certain Transactions with Related Parties
(Section 9.10)
None.
Exhibit 4.2
FOURTH AMENDMENT TO SECOND AMENDED
AND RESTATED CREDIT AGREEMENT
THIS FOURTH AMENDMENT
(this “Amendment”), dated as of October 31, 2016, amends and modifies that certain Second Amended and Restated Credit
Agreement, dated as of October 29, 2012 (as amended by the First Amendment thereto dated October 29, 2013, the Second Amendment
thereto dated November 3, 2014 and the Third Amendment thereto dated October 29, 2015, the “Credit Agreement”), among
Otter Tail power company
(the “Borrower”), U.S. BANK NATIONAL ASSOCIATION,
as Administrative Agent (in such capacity, the “Agent”), and the Lenders, 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 Lenders and the Agent agree that the Credit Agreement is amended as follows.
ARTICLE I - AMENDMENTS
1.1 The
definition of “Termination Date” appearing in Section 1.1 of the Credit Agreement is hereby amended to replace the
date “October 29, 2020” with the date “October 29, 2021”.
1.2 Section
1.1 of the Credit Agreement is hereby amended to insert the following definitions alphabetically therein:
“
Bail-In
Action
” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect
of any liability of an EEA Financial Institution.
“
Bail-In
Legislation
” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European
Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is
described in the EU Bail-In Legislation Schedule.
“
EEA
Financial Institution
” means (a) any institution established in any EEA Member Country which is subject to the supervision
of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described
in clause (a) of this definition, or (c) any institution established in an EEA Member Country which is a subsidiary of an institution
described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“
EEA
Member Country
” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“
EEA
Resolution Authority
” means any public administrative authority or any Person entrusted with public administrative authority
of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“
EU
Bail-In Legislation Schedule
” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or
any successor Person), as in effect from time to time.
“
Write-Down
and Conversion Powers
” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such
EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down
and conversion powers are described in the EU Bail-In Legislation Schedule.
1.3 The
definition of “Defaulting Bank” appearing in Section 1.1 of the Credit Agreement is hereby amended to delete the word
“or” now appearing in clause (e) therein and substitute a comma “,” therefor and insert immediately after
the phrase “an instrumentality thereof” the following: “or (iii) has or whose parent company has become the subject
of a Bail-In Action”.
1.4 Article
XII of the Credit Agreement is hereby amended to insert the following new Section 12.18 at the end thereof:
Section 12.18
Acknowledgement
and Consent to Bail-In of EEA Financial Institutions
. Notwithstanding anything to the contrary in any Loan Document or in any
other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any
EEA Financial Institution arising under any Loan Document may be subject to the Write-Down and Conversion Powers of an EEA Resolution
Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a) the
application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which
may be payable to it by any party hereto that is an EEA Financial Institution; and
(b) the
effects of any Bail-In Action on any such liability, including, if applicable:
(i) a
reduction in full or in part or cancellation of any such liability;
(ii) a
conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution,
its parent entity, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other
instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or
any other Loan Document; or
(iii) the
variation of the terms of such liability in connection with the exercise of the Write-Down and Conversion Powers of any EEA Resolution
Authority.
1.5 Article
VII of the Credit Agreement is hereby amended to insert the following new Section 7.19 at the end thereof:
Section 7.19:
EEA
Financial Institutions
. Neither the Borrower nor any Subsidiary is an EEA Financial Institution.
1.6 Section
2.11(g) of the Credit Agreement is hereby amended to restate the second sentence therein in its entirety as follows:
“Subject
to Section 12.18, nothing contained in the foregoing shall be deemed to constitute a waiver by the Borrower of any of its rights
or remedies (whether in equity or law) against any Bank which fails to fund any of its Loans hereunder at the time or in the amount
required to be funded under the terms of this Agreement.”
1.7 Schedule
1.1(a) (Commitments and Percentages), Schedule 1.1(b) (Material Subsidiaries), Schedule 7.6 (Litigation and Contingent Liabilities),
Schedule 7.15 (Subsidiaries), Schedule 7.16 (Partnerships/Joint Ventures), Schedule 9.4 (Stock Ownership Transactions), Schedule
9.7 (Investments), Schedule 9.8 (Liens) and Schedule 9.10 (Transactions with Related Parties), are hereby amended in their entirety
to be in the forms of Schedule 1.1(a), Schedule 1.1(b), Schedule 7.6, Schedule 7.15, Schedule 7.16, Schedule 9.4, Schedule 9.7,
Schedule 9.8 and Schedule 9.10 attached hereto and made a part hereof.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
To induce the Agent
and the Lenders 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 Lenders 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, subject to limitations as to enforceability which
might result from bankruptcy, insolvency, moratorium and other similar laws affecting creditors’ rights generally and subject
to limitations on the availability of equitable remedies.
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 the Credit Agreement shall be true and correct as
though made on the date hereof with respect to representations and warranties containing qualifications as to materiality, and
true and correct as though made on the date hereof in all material respects with respect to representations and warranties without
qualifications as to materiality, 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
.
The Borrower, the Agent and the Lenders shall have executed and delivered this Amendment.
3.4
Fees
.
The Agent shall have received all fees and other amounts due and payable on or prior to the date hereof, including, without limitation,
(i) all fees set forth in that certain Fee Letter by and between the Borrower and the Agent dated as of October 31, 2016 and (ii)
to the extent invoiced reasonably in advance, reimbursement or payment of all out-of-pocket expenses required to be reimbursed
or paid by the Borrower under 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 the 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
Governing
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, the Agent and the Lenders and their respective successors
and assigns, and shall inure to the benefit of the Borrower, the Agent and the Lenders and the successors and assigns of the Agent
and the Lenders. Except as hereby amended, the Credit Agreement shall remain in full force and effect and is hereby ratified and
confirmed in all respects.
[Signature Pages Follow]
IN WITNESS WHEREOF, the parties hereto
have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the date first written above.
|
|
OTTER TAIL POWER COMPANY
|
|
|
|
|
|
|
By:
|
/s/ Kevin Moug
|
|
|
|
|
|
|
Title:
|
Treasurer
|
|
|
4334 18
th
Avenue South
|
|
|
Suite 200
|
|
|
Fargo, North Dakota 58103
|
|
|
Attention:
|
Mr. Kevin G. Moug,
|
|
|
|
Treasurer
|
|
|
Telephone: (701) 451-3562
|
|
|
Fax: (701) 232-4108
|
(Signature Page to Fourth Amendment to
Otter Tail Power Company Credit Agreement)
|
|
U.S. BANK NATIONAL ASSOCIATION,
|
|
|
as Agent and a Bank
|
|
|
|
|
|
|
By:
|
/s/ Jacquelyn Ness
|
|
|
|
|
|
|
Title:
|
Vice President
|
|
|
|
|
|
505 Second Avenue North
|
|
|
Mail Code EP-ND-0630
|
|
|
Fargo, ND 58102
|
|
|
Attention: Jacquelyn Ness, Vice President
|
|
|
Telephone: (701) 280-3655
|
|
|
Fax: (701) 280-3580
|
(Signature Page to Fourth Amendment to
Otter Tail Power Company Credit Agreement)
|
|
JPMORGAN CHASE BANK, N.A., as a Co-Syndication Agent and as a Bank
|
|
|
|
|
|
|
By:
|
/s/ Justin Martin
|
|
|
Title:
|
Authorized Officer
|
|
|
|
|
|
10 South Dearborn, 9th Floor, IL1-0090
|
|
|
Chicago, IL 60603
|
|
|
Attention: Justin Martin
|
|
|
Telephone: (312) 732-4441
|
|
|
Fax: (312) 732-1762
|
(Signature Page to Fourth Amendment to
Otter Tail Power Company Credit Agreement)
|
|
BANK OF AMERICA, N.A., as Co-Syndication Agent and as a Bank
|
|
|
|
|
|
|
By:
|
/s/ Casey Klepsch
|
|
|
|
|
|
|
Title:
|
Assistant Vice President
|
|
|
IL4-135-04-13
|
|
|
135 South LaSalle Street
|
|
|
Chicago, IL 60603
|
|
|
Attention:
|
Casey Klepsch
|
|
|
Telephone:
|
(312) 904-7465
|
|
|
Fax: (312) 992-9981
|
(Signature Page to Fourth Amendment to
Otter Tail Power Company Credit Agreement)
|
|
KEYBANK NATIONAL ASSOCIATION, as
Documentation Agent and as a Bank
|
|
|
|
|
|
|
By:
|
/s/ Keven D. Smith
|
|
|
|
|
|
|
Title:
|
Senior Vice President
|
|
|
127 Public Square
|
|
|
Mail Code: OH-01-27-1125
|
|
|
Cleveland, OH 44114
|
|
|
Attention: Keven D. Smith
|
|
|
Telephone: (206) 343-6966
|
|
|
Fax: (216) 689-4981
|
(Signature Page to Fourth Amendment to
Otter Tail Power Company Credit Agreement)
|
|
WELLS FARGO BANK, NATIONAL
|
|
|
ASSOCIATION, as a Bank
|
|
|
|
|
|
|
By:
|
/s/ Keith Luettel
|
|
|
|
|
|
|
Title:
|
Director
|
|
|
90 S 7
th
Street, 7
th
Floor
|
|
|
MAC: N9305-070
|
|
|
Minneapolis, MN 55408
|
|
|
Attention:
|
Keith Luettel
|
|
|
Tel: 612-667-4747
|
|
|
Fax: 612-316-0506
|
(Signature Page to Fourth Amendment to
Otter Tail Power Company Credit Agreement)
|
|
COBANK, ACB, as a Co-Documentation Agent
and as a Bank
|
|
|
|
|
|
|
By:
|
/s/ John H. Kemper
|
|
|
|
|
|
|
Title:
|
Vice President
|
|
|
|
|
|
|
5500 South Quebec St.
|
|
|
Greenwood Village, CO 80111
|
|
|
Attention: John Kemper
|
|
|
Telephone: 303-740-6576
|
|
|
Fax: 303-224-2615
|
(Signature Page to Fourth Amendment to
Otter Tail Power Company Credit Agreement)
Schedule 1.1(a)
Commitments and Percentages
|
Bank
|
|
Initial Commitment:
|
|
|
Percentage:
|
|
|
|
|
|
|
|
|
|
|
U.S. Bank National Association
|
|
$
|
52,500,000
|
|
|
|
30.882352941176
|
%
|
|
JPMorgan Chase Bank, N.A.
|
|
$
|
32,500,000
|
|
|
|
19.117647058824
|
%
|
|
Bank of America, N.A.
|
|
$
|
32,500,000
|
|
|
|
19.117647058824
|
%
|
|
KeyBank National Association
|
|
$
|
17,500,000
|
|
|
|
10.294117647059
|
%
|
|
CoBank, ACB
|
|
$
|
17,500,000
|
|
|
|
10.294117647059
|
%
|
|
Wells Fargo Bank, National Association
|
|
$
|
17,500,000
|
|
|
|
10.294117647059
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
170,000,000
|
|
|
|
100
|
%
|
Schedule 1.1(b)
Material Subsidiaries of Otter Tail Power
Company
None
Schedule 7.6
Litigation (Section 7.6)
Contingent Liabilities (Section 7.6)
Ameren Services Company, etal v. FERC DC Circuit Case No. 07-1141.
The case is an appeal from FERC challenging its treatment of MISO Revenue Sufficiency Guarantee (“RSG”) charges for
entities participating in the MISO wholesale energy market since the market’s start on April 1, 2005. Otter Tail Power
was a participant in the market and could be adversely affected by certain outcomes.
Contingent Liabilities
Based on a potential reduction by the FERC in the ROE component
of the MISO Tariff, OTP has recorded a $2.4 million liability on its balance sheet as of September 30, 2016, representing OTP’s
best estimate of a refund obligation that would arise, net of amounts that would be subject to recovery under state jurisdictional
TCR riders, if FERC orders a reduction in ROE component of the MISO Tariff.
In 2014, the Environmental Protection Agency (EPA) published
proposed standards of performance for CO2 emissions from new fossil fuel-fired power plants, proposed CO2 emission guidelines for
existing fossil fuel-fired power plants and proposed CO2 standards of performance for CO2 emissions from reconstructed and modified
fossil fuel-fired power plants under section 111 of the Clean Air Act. The EPA published final rules for each of these proposals
on October 23, 2015. All of these rules have been challenged on legal grounds and are currently pending in the D.C. Circuit. On
February 9, 2016 the U.S. Supreme Court granted a stay of the CO2 emission guidelines for existing fossil fuel-fired power plants,
pending disposition of petitions for review in the D.C. Circuit and disposition of a petition for a writ of certiorari seeking
review by the U.S. Supreme Court, if such a writ is sought. Oral argument before all the judges of the D.C. Circuit (en banc review)
was held on September 28, 2016. Uncertainty regarding the status of the rules will likely continue for some time. OTP is actively
engaged with the stakeholder processes in each of its states that have continued to move forward with planning efforts during the
stay.
Schedule 7.15
Subsidiaries (Section 7.15)
None.
Schedule 7.16
Partnerships/Joint Ventures (Section 7.16)
In the ordinary course of
business, the Borrower has entered into contractual arrangements with other regional utilities providing for ownership interests
(both as tenants-in-common and discretely) in transmission and generation assets.
Schedule 9.4
Stock Ownership Transactions (Section 9.4)
None.
Schedule 9.7
Investments (Section 9.7)
Otter Tail Power Company
Detail of Investments
|
|
|
As of
September 30,
2016
|
|
|
Investment in Loan Pools
|
|
$
|
68,000
|
|
|
Other Miscellaneous
|
|
|
10,110
|
|
|
Relocation Loans to Employee
|
|
|
50,000
|
|
|
Trusts Associated Large Joint Transmission Projects
|
|
|
5,236,522
|
|
|
|
|
|
|
|
|
|
|
$
|
5,364,632
|
|
Schedule 9.8
Liens (Section 9.8)
None.
Schedule 9.10
Transactions with Related Parties (Section 9.10)
None.
Exhibit 99.1
|
|
|
|
|
|
NEWS RELEASE
|
|
|
Media contact:
|
Cris Oehler, Vice President of Corporate Communications, (218) 531-0099 or (866) 410-8780
|
|
Investor contact:
|
Loren Hanson, Manager of Investor Relations, (218) 739-8481 or (800) 664-1259
|
|
For release:
|
November 2, 2016
|
Financial
Media
|
Otter Tail Corporation Announces
Third Quarter Earnings,
Reaffirms 2016 Earnings Guidance Range; Board of Directors
Declares Quarterly Dividend
FERGUS FALLS, Minnesota
- Otter Tail Corporation (NASDAQ:
OTTR) today announced financial results for the quarter ended September 30, 2016.
Summary:
|
|
·
|
Consolidated operating revenues were $197.2 million compared with $200.0 million for the third quarter of 2015.
|
|
|
·
|
Consolidated net income and diluted earnings from continuing operations totaled $14.6 million and $0.37 per share, respectively,
compared with $15.7 million and $0.42 per share for the third quarter of 2015.
|
|
|
·
|
Consolidated net income totaled $14.6 million, or $0.37 per diluted share, compared with $15.4 million and $0.41 per diluted
share for the third quarter of 2015.
|
|
|
·
|
Otter Tail Corporation reaffirms its 2016 earnings guidance range of $1.50 to $1.65 per diluted share.
|
CEO Overview
“Otter Tail's employees worked hard to overcome a number
of challenges this quarter, and we remain confident in our plans and in our full year expectations,” said Otter Tail Corporation
President and CEO Chuck MacFarlane.
“Electric segment results were negatively impacted by
$0.03 per diluted share due to recording an additional estimate of refunds for revenues collected under interim rates. This accrual
reflects a modification in our original request and other expected outcomes in the rate case filed in February 2016. We expect
the Minnesota Public Utilities Commission to issue its final order in March 2017.
“Milder summer weather resulted in a 19.9% decrease in
cooling degree days. This negatively impacted diluted earnings per share by $0.01 quarter over quarter.
“The utility continues its solid operational performance.
The two 345-kilovolt transmission projects that are under construction and part of Otter Tail Power Company's plan to grow during
the next five years are on schedule and on budget. We are a 50% owner with other regional utilities in the Big Stone South-Brookings
line, scheduled for completion in 2017, and the Big Stone South-Ellendale line, scheduled for completion in 2019. Otter Tail Power
Company manages the Big Stone South-Ellendale project. The Midcontinent Independent System Operator recognizes both as multi-value
projects.
“Our $858 million utility capital spending plan for 2016
through 2020 also includes a 248-megawatt simple-cycle natural gas combustion turbine, 200 megawatts of additional wind energy,
and 30 megawatts of solar energy. We expect these and the transmission projects to drive a compounded annual growth rate of 8.0%
in utility rate base through 2020, using 2014 as the base year.
“Quarter-over-quarter net income at BTD, our custom metal
fabricator, was stable in the face of a recreational vehicle market that continues to soften and decreased demand for manufactured
equipment used in oil and gas extraction and agriculture. Original equipment manufacturers in these markets are BTD’s customers.
With expanded facilities and service offerings, we expect BTD to be in a good position to enhance earnings when market conditions
improve.
“Our Plastics segment, PVC pipe companies Northern Pipe
Products and Vinyltech, experienced a significant decrease in quarter over quarter revenues. Lower revenues resulted from declining
sales prices, which were a response to known reductions in PVC resin costs. Overall volumes were stable, but gross margins declined
primarily due to lower sales prices between the quarters. We expect these conditions to remain through the end of the year.
“We are reaffirming our 2016 diluted earnings per share
guidance range of $1.50 to $1.65.”
Operating Cash Flows and Liquidity
Cash provided by operating activities of continuing operations
for the nine months ended September 30, 2016 was $115.1 million compared with $81.8 million for the nine months ended
September 30, 2015. Items contributing to the increase in cash provided by continuing operations between the periods include:
|
|
·
|
A $10.8 million increase in non-cash depreciation expense.
|
|
|
·
|
A $10.7 million decrease in cash used for accounts payable at Otter Tail Power Company, reflecting higher levels of payables
in September 2016 for coal deliveries and transmission services and the payment, in January 2015, of large billings for coal transportation,
coal and power purchased in December 2014.
|
|
|
·
|
A $10.5 million increase in cash from reduced levels of receivables between the periods, including $5.6 million at BTD
Manufacturing, Inc. (BTD), $2.5 million at Vinyltech and $1.0 million at T.O. Plastics.
|
|
|
·
|
A $4.0 million refund of 2015 estimated tax payments received in the first quarter of 2016, as a five-year extension of bonus
depreciation for income taxes, approved on December 18, 2015, resulted in the elimination of any federal income tax liability for
the Company in 2015.
|
The following table presents the status of our lines of credit
as of September 30, 2016:
|
(in thousands)
|
|
Line Limit
|
|
|
In Use On
September 30,
2016
|
|
|
Restricted due to
Outstanding
Letters of Credit
|
|
|
Available on
September 30,
2016
|
|
|
Available on
December 31,
2015
|
|
|
Otter Tail Corporation Credit Agreement
|
|
$
|
150,000
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
150,000
|
|
|
$
|
90,334
|
|
|
Otter Tail Power Company Credit Agreement
|
|
|
170,000
|
|
|
|
37,173
|
|
|
|
50
|
|
|
|
132,777
|
|
|
|
148,694
|
|
|
Total
|
|
$
|
320,000
|
|
|
$
|
37,173
|
|
|
$
|
50
|
|
|
$
|
282,777
|
|
|
$
|
239,028
|
|
On October 31, 2016 both the Otter Tail Corporation and the
Otter Tail Power Company credit agreements were amended to extend the expiration dates by one year from October 29, 2020 to October
29, 2021. Also, the line limit on the Otter Tail Corporation Credit Agreement was reduced from $150 million to $130 million.
On September 23, 2016 we entered into a note purchase agreement
for the issuance of $80 million aggregate principal amount of our 3.55% Guaranteed Senior Notes due December 15, 2026 (the 2026
Notes) in a private placement transaction. We expect to issue the 2026 Notes on December 13, 2016, and intend to use the proceeds
from the issuance to repay existing debt, including the remaining $52,330,000 of our 9.000% Senior Notes due December 15, 2016,
and for general corporate purposes.
Board of Directors Declared Quarterly Dividend
On November 1, 2016 the corporation’s Board of Directors
declared a quarterly common stock dividend of $0.3125 per share. This dividend is payable December 10, 2016 to shareholders of
record on November 15, 2016.
Segment Performance Summary
Electric
|
|
|
Three Months ended September 30,
|
|
|
|
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
Retail Electric Revenues
|
|
$
|
87,755
|
|
|
$
|
89,140
|
|
|
$
|
(1,385
|
)
|
|
Wholesale Electric Revenues
|
|
|
1,656
|
|
|
|
377
|
|
|
|
1,279
|
|
|
Other Electric Revenues
|
|
|
13,312
|
|
|
|
11,050
|
|
|
|
2,262
|
|
|
Total Electric Revenues
|
|
$
|
102,723
|
|
|
$
|
100,567
|
|
|
$
|
2,156
|
|
|
Net Income
|
|
$
|
12,513
|
|
|
$
|
12,921
|
|
|
$
|
(408
|
)
|
|
|
|
Three Months ended September 30,
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
% Change
|
|
|
Cooling Degree Days
|
|
|
317
|
|
|
|
396
|
|
|
|
(19.9
|
)
|
The following table shows cooling degree days as a percent of
normal:
|
|
|
Three Months ended September 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Cooling Degree Days
|
|
|
89.5
|
%
|
|
|
111.5
|
%
|
The following table summarizes the estimated impact of weather
changes on diluted earnings per share compared with sales under normal weather conditions and the third quarter of 2015:
|
|
|
Three Months ended September 30,
|
|
|
|
|
2016 vs
Normal
|
|
|
2015 vs
Normal
|
|
|
2016 vs
2015
|
|
|
Effect on Diluted Earnings Per Share
|
|
$
|
(0.01
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
Retail electric revenues decreased $1.4 million as a result
of:
|
|
·
|
A $3.8 million increase in retail revenue related to a 9.56% interim rate increase implemented in April 2016 in conjunction
with Otter Tail Power Company’s 2016 general rate increase request in Minnesota.
|
|
|
·
|
A $1.2 million increase in Environmental Cost Recovery rider revenue due to the recovery of additional investment and costs
related to the operation of the air quality control system (AQCS) at Big Stone Plant that was placed in service in December 2015.
|
|
|
·
|
A $0.8 million increase related to increased kilowatt-hours (kwhs) sales across all customer classes offsetting the negative
impact of milder weather on kwh sales and revenue.
|
|
|
·
|
A $0.8 million increase in Conservation Improvement Program (CIP) cost recovery and incentive revenues.
|
|
|
·
|
A $0.2 million increase in Transmission Cost Recovery and Renewable Resource Adjustment rider revenues related to increased
investment in transmission plant and renewable energy resources.
|
more than offset by:
|
|
·
|
A $5.3 million decrease in fuel and purchased power cost recovery revenues mainly due to a 48.3% decrease in kwhs purchased
partially offset by a 28.3% increase in generation at a lower fuel-cost-per-kwh than the cost of purchased power.
|
|
|
·
|
A $2.1 million reduction in interim rate revenues recorded to provide for an estimated refund related to a modification in
Otter Tail Power Company’s original request and other expected outcomes in the pending Minnesota general rate case. Through
the nine months ended September 30, 2016, a $2.3 million provision has been recorded for an estimated refund of a portion of interim
rate revenues of $6.9 million.
|
|
|
·
|
A $0.8 million decrease in revenues from reduced demand due to milder weather in the third quarter of 2016, evidenced by a
19.9% decrease in cooling degree days compared to the third quarter of 2015.
|
Revenue from wholesale electric sales from company-owned generation
increased $1.3 million while fuel costs for wholesale generation increased $0.8 million, resulting in a $0.5 million increase in
wholesale revenue net of fuel costs.
Other electric revenues increased $2.3 million as a result of:
|
|
·
|
A $2.7 million increase in Midcontinent Independent System Operator, Inc. (MISO) transmission tariff revenues related to increased
investment in regional transmission lines and driven in part by returns on and recovery of CapX2020 and MISO-designated multi-value
project (MVP) investment costs and operating expenses.
|
|
|
·
|
A $0.6 million increase in MISO network integration transmission service revenues as a result of a regional transmission cooperative
terminating its integrated transmission agreement with Otter Tail Power Company and becoming a member the Southwest Power Pool
(SPP) in 2016.
|
|
|
·
|
A $0.2 million increase in steam sales from Big Stone Plant to a nearby ethanol plant as a result of Big Stone Plant being
fully operational in the third quarter of 2016 compared to operating in only August and September of 2015.
|
offset by:
|
|
·
|
A $0.9 million decrease in revenue related to a reduction in work performed on projects for another regional transmission owner.
|
|
|
·
|
A $0.4 million reduction in integrated transmission agreement revenues from two regional transmission providers related to
the curtailment of services under an agreement with one provider and termination of an agreement with the other provider.
|
Production fuel costs increased $3.7 million as a result of
a 40.5% increase in kwhs generated from our steam-powered and combustion turbine generators related to Big Stone Plant and Coyote
Station being fully operational in the third quarter of 2016. In the third quarter of 2015, Big Stone Plant was down for an extended
maintenance outage and Coyote Station was operating at reduced load due to ongoing repairs related to a December 2014 boiler feed
pump failure and fire.
The cost of purchased power to serve retail customers decreased
$7.3 million due to a 48.3% decrease in kwhs purchased partially offset by an 18.6% increase in the cost per kwh purchased. The
decrease in kwhs purchased was the result of increased availability and generation from company-owned resources. The increased
cost per kwh purchased is related to contractual prices being paid for purchased power under a long-term supply agreement.
Electric operating and maintenance expenses increased $3.6 million
as a result of:
|
|
·
|
A $1.2 million increase in MISO transmission service charges due to increased transmission investment by other MISO members.
|
|
|
·
|
A $0.9 million increase in operating supply and maintenance costs mainly related to increased generation at Coyote Station
and Big Stone Plant and increased expenditures for vegetation maintenance.
|
|
|
·
|
A $0.6 million increase in storm repair and other expenses mainly associated with excessive storm damage in Otter Tail Power
Company’s Minnesota service area in July of 2016.
|
|
|
·
|
A $0.6 million increase in pollution control reagent costs at Big Stone Plant and Coyote Station related to compliance with
Environmental Protection Agency power plant emission regulations.
|
|
|
·
|
A $0.5 million increase in transmission expenses from the SPP as a result of a regional transmission cooperative terminating
its integrated transmission agreement with Otter Tail Power Company and becoming a member of the SPP in 2016.
|
|
|
·
|
A $0.2 million increase in CIP program expenditures.
|
offset by:
|
|
·
|
A $0.5 million decrease in costs related to a reduction in work performed on projects for another regional transmission owner.
|
Depreciation and amortization expense increased $2.2 million
mainly due to the Big Stone Plant AQCS being placed in service in December 2015.
Manufacturing
|
|
|
Three Months ended September 30,
|
|
|
|
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
Revenues
|
|
$
|
52,171
|
|
|
$
|
52,460
|
|
|
$
|
(289
|
)
|
|
Net Income
|
|
$
|
1,246
|
|
|
$
|
1,714
|
|
|
$
|
(468
|
)
|
At BTD, a revenue increase of $1.6 million includes:
|
|
·
|
A $3.7 million increase in revenues at BTD-Georgia as a result of BTD acquiring and operating the Georgia plant in September
2015, compared with three months of operations in the third quarter of 2016.
|
offset by:
|
|
·
|
A $2.1 million decrease in revenues at BTD’s Minnesota and Illinois plants, mainly related to a decline in sales to manufacturers
of recreational and agricultural equipment and heavy machinery due to softness in end markets served by those manufacturers.
|
Cost of products sold at BTD increased $0.3 million. This includes
a $4.0 million increase in cost of products sold at BTD-Georgia, offset by a $3.7 million decrease in cost of products sold at
BTD’s other facilities. The $3.7 million decrease is related to the decrease in sales. Operating expenses at BTD increased
$0.5 million, mainly in the areas of labor and benefit costs and computer-related expenditures, and included a $0.2 million increase
in operating expenses at BTD-Georgia.
Depreciation and amortization expenses at BTD increased $1.1
million, including a $0.6 million increase at BTD-Georgia, and a $0.5 million increase BTD’s Minnesota facilities as
a result of placing new assets in service in Minnesota in 2015 and 2016. BTD’s interest expense increase of $0.1 million
was entirely at BTD-Georgia. A favorable tax variance at BTD, due to an increase in research and development tax credits recorded
in 2016, resulted in essentially no change in quarter over quarter net income. A $0.8 million increase in net income at BTD’s
Minnesota and Illinois locations was mostly offset by a $0.7 million increase in net losses at BTD-Georgia.
At T.O. Plastics, revenues decreased $1.9 million, including
a $1.2 million decrease in industrial market sales and a $0.6 million decrease in revenues from sales of horticultural containers.
The decrease in industrial market sales is primarily due to a continued decline in sales volumes to a customer insourcing product
into its own manufacturing facilities.
The decrease in revenues was partially offset by a $0.6 million
decrease in cost of products sold and a $0.4 million decrease in selling, benefits and administrative and general expenses,
resulting in a $0.5 million decrease in net income at T.O. Plastics between the quarters.
Plastics
|
|
|
Three Months ended September 30,
|
|
|
|
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
Revenues
|
|
$
|
42,292
|
|
|
$
|
47,025
|
|
|
$
|
(4,733
|
)
|
|
Net Income
|
|
$
|
2,346
|
|
|
$
|
3,534
|
|
|
$
|
(1,188
|
)
|
The decrease in Plastics segment revenues
is the result of a 10.4% decrease in the price per pound of polyvinyl chloride (PVC) pipe sold, while quarter over quarter sales
volume was essentially unchanged. The decline in sales price per pound is due to a continued softening in sales prices as a result
of lower raw material prices. Increased pipe sales in Colorado and Utah and the Midwest and South-Central regions of the United
States were mostly offset by decreased sales volumes in California, Minnesota and North Dakota. Lower material costs, which did
not decline as much as sales prices, resulted in a $2.7 million decrease in costs of product sold. The cost decrease in combination
with a $0.3 million decrease in operating expenses fell short of offsetting the impact of lower pipe prices, resulting in a $1.2
million decrease in Plastics segment net income.
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.
Corporate
Corporate costs, net-of-tax, decreased $0.9 million between
the quarters as a result of:
|
|
·
|
A $0.4 million net-of-tax increase in the cash value of corporate-owned life insurance policies.
|
|
|
·
|
A $0.3 million net-of-tax reduction in insurance costs related to reduced claims at our captive insurance company.
|
|
|
·
|
A $0.2 million net-of-tax reduction in accounting and legal fees.
|
2016 Business Outlook
We are reaffirming our consolidated diluted earnings per share
guidance for 2016 to be in the range of $1.50 to $1.65. This guidance reflects the current mix of businesses we own, considers
the cyclical nature of some of our businesses, and reflects current regulatory factors and economic challenges facing our Electric,
Manufacturing and Plastics segments and strategies for improving future operating results. We expect capital expenditures for 2016
to be $159 million compared with $160 million in capital expenditures in 2015. Major projects in our planned expenditures
for 2016 include investments in two large transmission line projects for the Electric segment, which positively impact earnings
by providing an immediate return on invested funds through rider recovery mechanisms.
Segment components of our 2016 earnings per share initial and
revised guidance range compared with 2015 actual earnings are as follows:
|
Diluted Earnings Per Share
|
2015 EPS
by
Segment
|
2016 Guidance
February 8, 2016
|
2016 Guidance
August 8, 2016
|
2016 Guidance
November 2, 2016
|
|
Low
|
High
|
Low
|
High
|
Low
|
High
|
|
Electric
|
$1.29
|
$1.29
|
$1.32
|
$1.27
|
$1.30
|
$1.24
|
$1.27
|
|
Manufacturing
|
$0.11
|
$0.11
|
$0.15
|
$0.14
|
$0.18
|
$0.16
|
$0.20
|
|
Plastics
|
$0.32
|
$0.26
|
$0.30
|
$0.24
|
$0.28
|
$0.24
|
$0.28
|
|
Corporate
|
($0.16)
|
($0.16)
|
($0.12)
|
($0.15)
|
($0.11)
|
($0.14)
|
($0.10)
|
|
Total
– Continuing Operations
|
$1.56
|
$1.50
|
$1.65
|
$1.50
|
$1.65
|
$1.50
|
$1.65
|
|
Expected Return on Equity
|
|
9.3%
|
10.2%
|
9.3%
|
10.2%
|
9.2%
|
10.1%
|
Contributing to our earnings guidance for 2016 are the following
items:
|
|
·
|
We now expect 2016 Electric segment net income to be comparable with 2015 segment net income based on:
|
|
|
o
|
Normalized weather for the remainder of 2016. Mild weather in the first nine months of 2016 has had a negative impact on diluted
earnings per share of approximately $0.05 compared to our original 2016 expected earnings based on normal temperatures and $0.04
compared to the nine months ended September 30, 2015.
|
|
|
o
|
Constructive outcome of the rate case filed in Minnesota in February 2016. We are currently receiving revenues under interim
rates (subject to refund) related to this rate case. The Minnesota Public Utilities Commission determines our rates. Our ability
to obtain final rates similar to interim rates and reasonable rates of return depends on regulatory action under applicable statutes
and regulations. We cannot provide assurance our interim rates will become final and that our revised 10.05% requested return on
equity will ultimately be approved. Through September of 2016, Otter Tail Power Company revenue has increased $4.6 million as a
result of the interim rate increase, which includes $6.9 million billed and accrued under interim rates net of a $2.3 million
provision for an estimated refund related to a modification in Otter Tail Power Company’s original request and other expected
outcomes in the rate case. Compared to our original 2016 expected earnings, the refund provision has had a negative impact on diluted
earnings per share of approximately $0.04 through September 30, 2016 and projected to be $0.06 by year-end 2016.
|
|
|
o
|
Rider recovery increases, including environmental riders in Minnesota, North Dakota and South Dakota related to the Big Stone
AQCS environmental upgrades and transmission riders related to the Electric segment’s continuing investments in its share
of the MISO-designated MVPs in South Dakota.
|
|
|
o
|
Meeting forecasted sales to pipeline and commercial customers.
|
|
|
o
|
A decrease in pension costs as a result of an increase in the discount rate from 4.35% to 4.76%.
|
offset by:
|
|
o
|
The effect of the 2015 adoption of bonus depreciation for income taxes reducing projected earnings from Electric segment operations
by $0.06 per share in 2016.
|
|
|
o
|
Higher depreciation and property tax expenses due to large capital projects being put into service.
|
|
|
o
|
Higher short-term interest costs as major construction projects continue to be funded.
|
|
|
o
|
Increased operating expenses associated with reagents.
|
|
|
o
|
Increased transmission expenses associated with termination of historic integrated transmission agreements.
|
|
|
o
|
Higher post-retirement and post-employment medical costs than initially expected for 2016 due to changes in actuarial estimates
and increased claims in 2016.
|
|
|
·
|
We are increasing our guidance for 2016 net income from our Manufacturing segment based on positive results through the first
nine months of the year driven by improved productivity, despite softening end markets, and continued focus on improved productivity
and cost reductions for the remainder of the year.
|
|
|
·
|
In spite of softening end markets, we expect 2016 net income from our Manufacturing segment to increase over 2015 by $3.0 million
due to:
|
|
|
o
|
Increased sales volume at BTD as a result of having BTD-Georgia in place for a full year. Full year sales for BTD-Georgia are
estimated to be $25 million compared with original expectations of $33 million. The decline is due to continued softness in end
markets served by the BTD-Georgia location.
|
|
|
o
|
Improved margins on product mix that occurred in the second quarter and improved margins on parts and tooling sales driven
by improved productivity resulting from lower expediting costs, costs of quality and maintenance expenses in our Illinois and Minnesota
plants.
|
offset by:
|
|
o
|
An expected decline in revenue, excluding the full year impact of BTD-Georgia revenues, of approximately 4%, compared with
an original growth expectation of 7%. This change is due to challenging market conditions impacting end markets served by BTD,
which has significant exposure to agriculture, oil and gas and recreational vehicle end markets. All of these end markets are forecasted
to be down in 2016 compared to 2015.
|
|
|
o
|
Continued challenges of on time deliveries, low productivity and end market softness at BTD-Georgia.
|
|
|
o
|
Higher facility costs associated with BTD’s expansion of its square footage at its Minnesota plants.
|
|
|
o
|
A decrease in earnings from T.O. Plastics mainly driven by an expected decrease in operating margins due to a shift in product
mix relating to a customer bringing a product back into its own manufacturing facilities.
|
|
|
o
|
Backlog for the manufacturing companies of approximately $42 million for 2016 compared with $45 million one year ago.
|
|
|
·
|
We are maintaining our August guidance for 2016 net income from our Plastics segment. Net income for 2016 from this segment
is expected to be down from 2015 with lower expected operating margins due to tighter spreads between raw material costs and sales
prices, along with higher labor and freight costs.
|
|
|
·
|
We continue to expect lower corporate costs than originally estimated for 2016 due to continued cost reduction efforts.
|
CONFERENCE CALL AND WEBCAST
Otter Tail Corporation will host a live webcast on Thursday,
November 3, 2016, at 10:00 a.m. CDT to discuss its financial and operating performance.
The presentation will be posted on our website before the webcast.
To access the live webcast go to
www.ottertail.com/presentations.cfm
and select “Webcast”. Please allow extra
time prior to the call to visit the site and download any necessary software that may be needed to listen to the webcast. An archived
copy of the webcast will be available on our website shortly following the call.
If you are interested in asking a question during the live
webcast, the Dial-In Number is: 877-312-8789.
Risk Factors and Forward-Looking Statements that Could Affect
Future Results
The information in this release includes certain forward-looking
information, including 2016 expectations, made under the Safe Harbor provisions of the Private Securities Litigation Reform Act
of 1995. Although we believe our expectations are based on reasonable assumptions, actual results may differ materially from those
expectations. The following factors, among others, could cause our actual results to differ materially from those discussed in
the forward-looking statements:
|
|
·
|
Federal
and state environmental regulation could require us to incur substantial capital expenditures
and increased operating costs.
|
|
|
·
|
Volatile financial markets and changes in our debt ratings could restrict our ability to access capital and could increase
borrowing costs and pension plan and postretirement health care expenses.
|
|
|
·
|
We rely on access to both short- and long-term capital markets as a source of liquidity for capital requirements not satisfied
by cash flows from operations. If we are not able to access capital at competitive rates, our ability to implement our business
plans may be adversely affected.
|
|
|
·
|
Disruptions, uncertainty or volatility in the financial markets can also adversely impact our results of operations, the
ability of our customers to finance purchases of goods and services, and our financial condition, as well as exert downward pressure
on stock prices and/or limit our ability to sustain our current common stock dividend level.
|
|
|
·
|
We made a $10.0 million discretionary contribution to our defined benefit pension plan in January 2016. We could be required
to contribute additional capital to the pension plan in the future if the market value of pension plan assets significantly declines,
plan assets do not earn in line with our long-term rate of return assumptions or relief under the Pension Protection Act is no
longer granted.
|
|
|
·
|
Any significant impairment of our goodwill would cause a decrease in our asset values and a reduction in our net operating
income.
|
|
|
·
|
Declines in projected operating cash flows at any of our reporting units may result in goodwill impairments that could adversely
affect our results of operations and financial position, as well as financing agreement covenants.
|
|
|
·
|
The inability of our subsidiaries to provide sufficient earnings and cash flows to allow us to meet our financial obligations
and debt covenants and pay dividends to our shareholders could have an adverse effect on us.
|
|
|
·
|
We rely on our information systems to conduct our business and failure to protect these systems against security breaches
or cyber-attacks could adversely affect our business and results of operations. Additionally, if these systems fail or become unavailable
for any significant period of time, our business could be harmed.
|
|
|
·
|
Economic conditions could negatively impact our businesses.
|
|
|
·
|
If we are unable to achieve the organic growth we expect, our financial performance may be adversely affected.
|
|
|
·
|
Our plans to grow and realign our business mix through capital projects, acquisitions and dispositions may not be successful,
which could result in poor financial performance.
|
|
|
·
|
We may, from time to time, sell assets to provide capital to fund investments in our electric utility business or for other
corporate purposes, which could result in the recognition of a loss on the sale of any assets sold and other potential liabilities.
The sale of any of our businesses could expose us to additional risks associated with indemnification obligations under the applicable
sales agreements and any related disputes.
|
|
|
·
|
Significant warranty claims and remediation costs in excess of amounts normally reserved for such items could adversely
affect our results of operations and financial condition.
|
|
|
·
|
We are subject to risks associated with energy markets.
|
|
|
·
|
We are subject to risks and uncertainties related to the timing and recovery of deferred tax assets which could have a negative
impact on our net income in future periods.
|
|
|
·
|
We may experience fluctuations in revenues and expenses related to our electric operations, which may cause our financial
results to fluctuate and could impair our ability to make distributions to our shareholders or scheduled payments on our debt obligations,
or to meet covenants under our borrowing agreements.
|
|
|
·
|
Actions by the regulators of our electric operations could result in rate reductions, lower revenues and earnings or delays
in recovering capital expenditures.
|
|
|
·
|
Otter Tail Power Company’s operations are subject to an extensive legal and regulatory framework under federal and
state laws as well as regulations imposed by other organizations that may have a negative impact on our business and results of
operations.
|
|
|
·
|
Otter Tail Power Company’s electric generating facilities are subject to operational risks that could result in unscheduled
plant outages, unanticipated operation and maintenance expenses and increased power purchase costs.
|
|
|
·
|
Changes to regulation of generating plant emissions, including but not limited to carbon dioxide emissions, could affect
our operating costs and the costs of supplying electricity to our customers.
|
|
|
·
|
Competition from foreign and domestic manufacturers, the price and availability of raw materials, prices and supply of scrap
or recyclable material and general economic conditions could affect the revenues and earnings of our manufacturing businesses.
|
|
|
·
|
Our plastics operations are highly dependent on a limited number of vendors for PVC resin and a limited supply of resin.
The loss of a key vendor, or any interruption or delay in the supply of PVC resin, could result in reduced sales or increased costs
for this segment.
|
|
|
·
|
We compete against a large number of other manufacturers of PVC pipe and manufacturers of alternative products. Customers
may not distinguish the pipe companies’ products from those of our competitors.
|
|
|
·
|
Changes in PVC resin prices can negatively impact PVC pipe prices, profit margins on PVC pipe sales and the value of PVC
pipe held in inventory.
|
For a further discussion of other risk factors and cautionary
statements, refer to reports we file with the Securities and Exchange Commission.
About The Corporation:
Otter Tail Corporation has interests
in diversified operations that include an electric utility and manufacturing businesses. Otter Tail Corporation stock trades on
the NASDAQ Global Select Market under the symbol OTTR. The latest investor and corporate information is available at
www.ottertail.com
.
Corporate offices are located in Fergus Falls, Minnesota, and Fargo, North Dakota.
See Otter Tail Corporation’s results of operations
for the three and nine months ended September 30, 2016 and 2015 in the following financial statements: Consolidated Statements
of Income, Consolidated Balance Sheets – Assets, Consolidated Balance Sheets – Liabilities and Equity, and Consolidated
Statements of Cash Flows.
# # #
Otter Tail Corporation
Consolidated Statements of Income
In thousands, except share and per share
amounts
(not audited)
|
|
|
Quarter Ended September 30,
|
|
|
Year-to-Date September 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
Operating Revenues by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
|
|
$
|
102,723
|
|
|
$
|
100,567
|
|
|
$
|
313,642
|
|
|
$
|
305,078
|
|
|
Manufacturing
|
|
|
52,171
|
|
|
|
52,460
|
|
|
|
170,443
|
|
|
|
160,492
|
|
|
Plastics
|
|
|
42,292
|
|
|
|
47,025
|
|
|
|
122,841
|
|
|
|
125,531
|
|
|
Intersegment Eliminations
|
|
|
(11
|
)
|
|
|
(29
|
)
|
|
|
(27
|
)
|
|
|
(84
|
)
|
|
Total Operating Revenues
|
|
|
197,175
|
|
|
|
200,023
|
|
|
|
606,899
|
|
|
|
591,017
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel and Purchased Power
|
|
|
26,262
|
|
|
|
29,849
|
|
|
|
83,965
|
|
|
|
92,007
|
|
|
Nonelectric Cost of Goods Sold (depreciation included below)
|
|
|
75,405
|
|
|
|
78,428
|
|
|
|
228,993
|
|
|
|
224,912
|
|
|
Electric Operating and Maintenance Expense
|
|
|
36,207
|
|
|
|
32,648
|
|
|
|
115,206
|
|
|
|
107,929
|
|
|
Nonelectric Operating and Maintenance Expense
|
|
|
10,197
|
|
|
|
10,771
|
|
|
|
30,890
|
|
|
|
32,057
|
|
|
Depreciation and Amortization
|
|
|
18,314
|
|
|
|
15,141
|
|
|
|
55,128
|
|
|
|
44,337
|
|
|
Property Taxes - Electric
|
|
|
3,506
|
|
|
|
3,560
|
|
|
|
10,774
|
|
|
|
10,324
|
|
|
Total Operating Expenses
|
|
|
169,891
|
|
|
|
170,397
|
|
|
|
524,956
|
|
|
|
511,566
|
|
|
Operating Income (Loss) by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
|
|
|
23,340
|
|
|
|
23,320
|
|
|
|
63,374
|
|
|
|
61,427
|
|
|
Manufacturing
|
|
|
2,382
|
|
|
|
3,469
|
|
|
|
12,042
|
|
|
|
9,890
|
|
|
Plastics
|
|
|
4,187
|
|
|
|
5,988
|
|
|
|
13,939
|
|
|
|
16,824
|
|
|
Corporate
|
|
|
(2,625
|
)
|
|
|
(3,151
|
)
|
|
|
(7,412
|
)
|
|
|
(8,690
|
)
|
|
Total Operating Income
|
|
|
27,284
|
|
|
|
29,626
|
|
|
|
81,943
|
|
|
|
79,451
|
|
|
Interest Charges
|
|
|
8,026
|
|
|
|
7,730
|
|
|
|
23,996
|
|
|
|
23,175
|
|
|
Other Income
|
|
|
499
|
|
|
|
334
|
|
|
|
2,431
|
|
|
|
1,473
|
|
|
Income Tax Expense – Continuing Operations
|
|
|
5,163
|
|
|
|
6,521
|
|
|
|
15,738
|
|
|
|
14,602
|
|
|
Net Income (Loss) by Segment – Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
|
|
|
12,513
|
|
|
|
12,921
|
|
|
|
34,199
|
|
|
|
34,351
|
|
|
Manufacturing
|
|
|
1,246
|
|
|
|
1,714
|
|
|
|
6,108
|
|
|
|
4,810
|
|
|
Plastics
|
|
|
2,346
|
|
|
|
3,534
|
|
|
|
7,983
|
|
|
|
9,919
|
|
|
Corporate
|
|
|
(1,511
|
)
|
|
|
(2,460
|
)
|
|
|
(3,650
|
)
|
|
|
(5,933
|
)
|
|
Net Income from Continuing Operations
|
|
|
14,594
|
|
|
|
15,709
|
|
|
|
44,640
|
|
|
|
43,147
|
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) - net of Income Tax Expense (Benefit) of $14, ($168), $114 and ($2,873) for the respective periods
|
|
|
22
|
|
|
|
(252
|
)
|
|
|
171
|
|
|
|
(4,316
|
)
|
|
Impairment Loss - net of Income Tax Benefit of $0 for the nine months ended September 30, 2015
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(1,000
|
)
|
|
(Loss) Gain on Disposition - net of Income Tax (Benefit) Expense of ($43) and $4,493 for the three and nine months ended Sept. 30, 2015
|
|
|
--
|
|
|
|
(65
|
)
|
|
|
--
|
|
|
|
6,932
|
|
|
Net Income (Loss) from Discontinued Operations
|
|
|
22
|
|
|
|
(317
|
)
|
|
|
171
|
|
|
|
1,616
|
|
|
Net Income
|
|
$
|
14,616
|
|
|
$
|
15,392
|
|
|
$
|
44,811
|
|
|
$
|
44,763
|
|
|
Average Number of Common Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
38,832,659
|
|
|
|
37,575,413
|
|
|
|
38,316,324
|
|
|
|
37,417,283
|
|
|
Diluted
|
|
|
39,005,706
|
|
|
|
37,794,543
|
|
|
|
38,457,401
|
|
|
|
37,636,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings (Loss) Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
$
|
0.38
|
|
|
$
|
0.42
|
|
|
$
|
1.17
|
|
|
$
|
1.15
|
|
|
Discontinued Operations
|
|
|
--
|
|
|
|
(0.01
|
)
|
|
|
--
|
|
|
|
0.05
|
|
|
|
|
$
|
0.38
|
|
|
$
|
0.41
|
|
|
$
|
1.17
|
|
|
$
|
1.20
|
|
|
Diluted Earnings (Loss) Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
$
|
0.37
|
|
|
$
|
0.42
|
|
|
$
|
1.16
|
|
|
$
|
1.15
|
|
|
Discontinued Operations
|
|
|
--
|
|
|
|
(0.01
|
)
|
|
|
0.01
|
|
|
|
0.04
|
|
|
|
|
$
|
0.37
|
|
|
$
|
0.41
|
|
|
$
|
1.17
|
|
|
$
|
1.19
|
|
Otter Tail Corporation
Consolidated Balance Sheets
Assets
in thousands
(not audited)
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
--
|
|
|
$
|
--
|
|
|
Accounts Receivable:
|
|
|
|
|
|
|
|
|
|
Trade—Net
|
|
|
69,556
|
|
|
|
62,974
|
|
|
Other
|
|
|
7,082
|
|
|
|
9,073
|
|
|
Inventories
|
|
|
80,848
|
|
|
|
85,416
|
|
|
Unbilled Revenues
|
|
|
14,882
|
|
|
|
17,869
|
|
|
Income Taxes Receivable
|
|
|
--
|
|
|
|
4,000
|
|
|
Regulatory Assets
|
|
|
19,958
|
|
|
|
18,904
|
|
|
Other
|
|
|
11,139
|
|
|
|
8,453
|
|
|
Assets of Discontinued Operations
|
|
|
249
|
|
|
|
--
|
|
|
Total Current
Assets
|
|
|
203,714
|
|
|
|
206,689
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
8,065
|
|
|
|
8,284
|
|
|
Other Assets
|
|
|
33,707
|
|
|
|
32,784
|
|
|
Goodwill
|
|
|
37,572
|
|
|
|
39,732
|
|
|
Other Intangibles—Net
|
|
|
15,291
|
|
|
|
15,673
|
|
|
Regulatory Assets
|
|
|
118,123
|
|
|
|
127,707
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant
|
|
|
|
|
|
|
|
|
|
Electric Plant in Service
|
|
|
1,842,931
|
|
|
|
1,820,763
|
|
|
Nonelectric Operations
|
|
|
215,074
|
|
|
|
201,343
|
|
|
Construction Work in Progress
|
|
|
143,999
|
|
|
|
79,612
|
|
|
Total Gross Plant
|
|
|
2,202,004
|
|
|
|
2,101,718
|
|
|
Less Accumulated Depreciation and Amortization
|
|
|
749,569
|
|
|
|
713,904
|
|
|
Net Plant
|
|
|
1,452,435
|
|
|
|
1,387,814
|
|
|
Total
|
|
$
|
1,868,907
|
|
|
$
|
1,818,683
|
|
Otter Tail Corporation
Consolidated Balance Sheets
Liabilities
and Equity
in thousands
(not audited)
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
Short-Term Debt
|
|
$
|
37,173
|
|
|
$
|
80,672
|
|
|
Current Maturities of Long-Term Debt
|
|
|
85,490
|
|
|
|
52,422
|
|
|
Accounts Payable
|
|
|
77,704
|
|
|
|
89,499
|
|
|
Accrued Salaries and Wages
|
|
|
15,573
|
|
|
|
16,182
|
|
|
Accrued Taxes
|
|
|
12,635
|
|
|
|
14,827
|
|
|
Other Accrued Liabilities
|
|
|
16,050
|
|
|
|
15,416
|
|
|
Liabilities of Discontinued Operations
|
|
|
1,631
|
|
|
|
2,098
|
|
|
Total Current Liabilities
|
|
|
246,256
|
|
|
|
271,116
|
|
|
|
|
|
|
|
|
|
|
|
|
Pensions Benefit Liability
|
|
|
95,653
|
|
|
|
104,912
|
|
|
Other Postretirement Benefits Liability
|
|
|
49,718
|
|
|
|
48,730
|
|
|
Other Noncurrent Liabilities
|
|
|
25,857
|
|
|
|
23,854
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Credits
|
|
|
|
|
|
|
|
|
|
Deferred Income Taxes
|
|
|
222,244
|
|
|
|
207,669
|
|
|
Deferred Tax Credits
|
|
|
23,264
|
|
|
|
24,506
|
|
|
Regulatory Liabilities
|
|
|
79,835
|
|
|
|
77,432
|
|
|
Other
|
|
|
8,604
|
|
|
|
11,595
|
|
|
Total Deferred Credits
|
|
|
333,947
|
|
|
|
321,202
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization
|
|
|
|
|
|
|
|
|
|
Long-Term Debt—Net
|
|
|
460,757
|
|
|
|
443,846
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Preferred Shares
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Preference Shares
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Equity
|
|
|
|
|
|
|
|
|
|
Common Shares, Par Value $5 Per Share
|
|
|
196,123
|
|
|
|
189,286
|
|
|
Premium on Common Shares
|
|
|
329,288
|
|
|
|
293,610
|
|
|
Retained Earnings
|
|
|
134,884
|
|
|
|
126,025
|
|
|
Accumulated Other Comprehensive Loss
|
|
|
(3,576
|
)
|
|
|
(3,898
|
)
|
|
Total Common Equity
|
|
|
656,719
|
|
|
|
605,023
|
|
|
Total Capitalization
|
|
|
1,117,476
|
|
|
|
1,048,869
|
|
|
Total
|
|
$
|
1,868,907
|
|
|
$
|
1,818,683
|
|
Otter Tail Corporation
Consolidated Statements of Cash Flows
In thousands
(not audited)
|
|
|
For the Nine Months Ended
September 30,
|
|
|
In thousands
|
|
2016
|
|
|
2015
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
44,811
|
|
|
$
|
44,763
|
|
|
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net Gain from Sale of Discontinued Operations
|
|
|
--
|
|
|
|
(6,932
|
)
|
|
Net (Income) Loss from Discontinued Operations
|
|
|
(171
|
)
|
|
|
5,316
|
|
|
Depreciation and Amortization
|
|
|
55,128
|
|
|
|
44,337
|
|
|
Deferred Tax Credits
|
|
|
(1,242
|
)
|
|
|
(1,408
|
)
|
|
Deferred Income Taxes
|
|
|
14,924
|
|
|
|
12,244
|
|
|
Change in Deferred Debits and Other Assets
|
|
|
5,595
|
|
|
|
13,839
|
|
|
Discretionary Contribution to Pension Plan
|
|
|
(10,000
|
)
|
|
|
(10,000
|
)
|
|
Change in Noncurrent Liabilities and Deferred Credits
|
|
|
5,999
|
|
|
|
4,345
|
|
|
Allowance for Equity/Other Funds Used During Construction
|
|
|
(605
|
)
|
|
|
(944
|
)
|
|
Change in Derivatives Net of Regulatory Deferral
|
|
|
--
|
|
|
|
(28
|
)
|
|
Stock Compensation Expense – Equity Awards
|
|
|
1,151
|
|
|
|
1,428
|
|
|
Other—Net
|
|
|
(73
|
)
|
|
|
(27
|
)
|
|
Cash (Used for) Provided by Current Assets and Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Change in Receivables
|
|
|
(3,490
|
)
|
|
|
(14,020
|
)
|
|
Change in Inventories
|
|
|
4,766
|
|
|
|
5,721
|
|
|
Change in Other Current Assets
|
|
|
1,690
|
|
|
|
2,163
|
|
|
Change in Payables and Other Current Liabilities
|
|
|
(5,945
|
)
|
|
|
(17,490
|
)
|
|
Change in Interest and Income Taxes Receivable/Payable
|
|
|
2,538
|
|
|
|
(1,499
|
)
|
|
Net Cash Provided by Continuing Operations
|
|
|
115,076
|
|
|
|
81,808
|
|
|
Net Cash Used for Discontinued Operations
|
|
|
(333
|
)
|
|
|
(11,581
|
)
|
|
Net Cash Provided by Operating Activities
|
|
|
114,743
|
|
|
|
70,227
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
(125,913
|
)
|
|
|
(115,321
|
)
|
|
Proceeds from Disposal of Noncurrent Assets
|
|
|
4,167
|
|
|
|
2,956
|
|
|
Acquisition Purchase Price Adjustment (Payment)
|
|
|
1,500
|
|
|
|
(30,806
|
)
|
|
Cash Used for Investments and Other Assets
|
|
|
(3,161
|
)
|
|
|
(7,297
|
)
|
|
Net Cash Used in Investing Activities - Continuing Operations
|
|
|
(123,407
|
)
|
|
|
(150,468
|
)
|
|
Net Proceeds from Sale of Discontinued Operations
|
|
|
--
|
|
|
|
32,765
|
|
|
Net Cash Used in Investing Activities - Discontinued Operations
|
|
|
--
|
|
|
|
(1,769
|
)
|
|
Net Cash Used in Investing Activities
|
|
|
(123,407
|
)
|
|
|
(119,472
|
)
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
Changes in Checks Written in Excess of Cash
|
|
|
(841
|
)
|
|
|
(1,236
|
)
|
|
Net Short-Term Debt (Repayments) Borrowings
|
|
|
(43,499
|
)
|
|
|
76,098
|
|
|
Proceeds from Issuance of Common Stock – net of Issuance Expenses
|
|
|
39,378
|
|
|
|
10,979
|
|
|
Payments for Retirement of Capital Stock
|
|
|
(104
|
)
|
|
|
(1,596
|
)
|
|
Proceeds from Issuance of Long-Term Debt
|
|
|
50,000
|
|
|
|
--
|
|
|
Short-Term and Long-Term Debt Issuance Expenses
|
|
|
(157
|
)
|
|
|
(7
|
)
|
|
Payments for Retirement of Long-Term Debt
|
|
|
(161
|
)
|
|
|
(149
|
)
|
|
Dividends Paid and Other Distributions
|
|
|
(35,952
|
)
|
|
|
(34,607
|
)
|
|
Net Cash Provided by Financing Activities – Continuing Operations
|
|
|
8,664
|
|
|
|
49,482
|
|
|
Net Cash Provided by Financing Activities – Discontinued Operations
|
|
|
--
|
|
|
|
321
|
|
|
Net Cash Provided by Financing Activities
|
|
|
8,664
|
|
|
|
49,803
|
|
|
Net Change in Cash and Cash Equivalents – Discontinued Operations
|
|
|
--
|
|
|
|
(10
|
)
|
|
Net Change in Cash and Cash Equivalents
|
|
|
--
|
|
|
|
548
|
|
|
Cash and Cash Equivalents at Beginning of Period
|
|
|
--
|
|
|
|
--
|
|
|
Cash and Cash Equivalents at End of Period
|
|
$
|
--
|
|
|
$
|
548
|
|