Otter Tail Corp

Previous wording

Operating Expenses decreased $13.0 million primarily due to lower sales volumes within our Manufacturing segment and lower purchased power costs in our Electric segment, partially offset by the impact of increased sales volumes within our Plastics segment. See our segment disclosures below for additional discussion of items impacting operating expenses.

Current wording

Operating Expenses increased $1.3 million due to increased purchased power costs and depreciation expense in our Electric segment, the impact of increased sales volumes in our Plastics segment and higher general and administrative expenses. These increases were largely offset by lower cost of goods sold from decreased sales volumes in our Manufacturing segment. See our segment disclosures below for additional discussion of items impacting operating expenses.

Previous wording

Interest Expense increased $2.0 million primarily due to the issuance of an additional $120.0 million of long-term debt at OTP in March 2024, the proceeds of which were used to repay short-term borrowings, fund capital expenditures, and support operating activities.

Current wording

Interest Expense increased $1.7 million primarily due to the issuance of $120.0 million of long-term debt at OTP in March 2024, the proceeds of which were used to repay short-term borrowings, fund capital expenditures and support operating activities.

Previous wording

Income Tax Expense decreased $6.1 million primarily due to decreased income before income taxes and an increase in PTCs at OTP due to increased wind and solar generation. Our effective tax rate was 17.9% for the three months ended September 30, 2024 and 21.2% for the same period last year.

Current wording

Income Tax Expense decreased $7.7 million primarily due to an increase in PTCs at OTP driven by increased wind generation and a decrease in income before taxes. In late 2024, we completed our first wind repowering project which resulted in the commencement of PTCs associated with the generation from the facility. Our effective tax rate was 12.9% for the three months ended March 31, 2025 and 19.3% for the same period last year.

Previous wording

The operating results of our Electric segment are impacted by fluctuations in weather conditions and the resulting demand for electricity for heating and cooling. The following table shows heating and cooling degree days as a percent of normal for the three months ended September 30, 2024 and 2023.

Current wording

The operating results of our Electric segment are impacted by fluctuations in weather conditions and the resulting demand for electricity for heating and cooling. The following table shows heating degree days as a percent of normal for the three months ended March 31, 2025 and 2024. There were no cooling degree days in our service territory during the three months ended March 31, 2025 and 2024.

Previous wording

Retail Revenues increased $0.3 million primarily due to the following:

Current wording

Retail Revenues increased $8.9 million primarily due to the following:

Previous wording

Retail revenues were also impacted by a net decrease in rider revenues primarily due to increased PTCs from our wind and solar generation, which are passed on to customers, partially offset by additional recovery of costs associated with our advanced meter infrastructure and wind repowering projects.

Current wording

The increases in retail revenues described above were partially offset by a net decrease in rider revenues. Rider revenues decreased on a net basis as a result of increased PTCs from our wind generation, which are passed on to customers, partially offset by recovery of our investments in our wind repowering projects.

Previous wording

Depreciation and Amortization increased $1.8 million due to additional assets, including certain distribution assets, being placed in service.

Current wording

Depreciation and Amortization expense increased $2.5 million due to additional assets, including certain wind, transmission and distribution assets, being placed in service.

Previous wording

Interest Expense increased $2.9 million due to the issuance of an additional $120.0 million of long-term debt at OTP in March 2024, the proceeds of which were used to repay short-term borrowings, fund capital expenditures, and support operating activities.

Current wording

Interest Expense increased $1.7 million primarily due to the issuance of $120.0 million of long-term debt in March 2024, the proceeds of which were used to repay short-term borrowings, fund capital expenditures and support operating activities.

Previous wording

Operating Revenues decreased $20.8 million primarily due to a 13% decrease in sales volumes, with declines experienced primarily in the recreational vehicle, agriculture, construction, and lawn and garden end markets. Sales volumes have softened due to lower end market demand and inventory management efforts by manufacturers and dealers. A 37% decline in scrap metal revenues, largely driven by lower production volumes and a 6% decrease in steel costs, which are passed through to customers, also contributed to the decrease in operating revenues.

Current wording

Operating Revenues decreased $17.7 million primarily due to a 13% decrease in sales volumes, with the most significant declines experienced in the recreational vehicle, agriculture, and construction end markets. Sales volumes have continued to soften due to lower end market demand and inventory management efforts by manufacturers and dealers. A 3% decrease in steel costs, which are passed through to customers, as well as a 1% decrease in scrap revenue also contributed to the decrease in operating revenues.

Previous wording

Cost of Products Sold increased $16.2 million due to increased sales volumes, as described above, partially offset by a 16% decrease in the cost of PVC resin and other input materials.

Current wording

Cost of Products Sold increased $2.3 million primarily due to increased sales volumes, as described above. The cost of PVC resin and other input materials decreased 9% compared to the prior year, driven by elevated domestic resin supply, partially offsetting the impact of increased sales volumes.

Previous wording

Selling, General, and Administrative Expenses increased $2.0 million primarily due to costs associated with ongoing litigation regarding the pricing of PVC pipe, which is further described in Note 10 to the consolidated financial statements, as well as variable costs associated with financial performance during the period.

Current wording

Selling, General, and Administrative Expenses increased $1.4 million primarily due to costs associated with ongoing litigation regarding the pricing of PVC pipe, which is further described in Note 9 to the consolidated financial statements.

Previous wording

General, and Administrative Expenses increased $4.4 million primarily due to increased insurance and employee benefit expenses, including increases in our workers' compensation and employee health insurance claim costs, after we had experienced a decline in employee medical costs in the prior year.

Current wording

General and Administrative Expenses increased $1.6 million primarily due to increased employee health insurance claim costs, after experiencing a decline in employee medical costs in the first quarter of 2024.

Previous wording

The following provides a summary of general rate, rate rider, and other regulatory filings that have or are expected to have a material impact on our operating results, financial position or cash flows.

Current wording

The following provides a summary of general rates, rate rider and other regulatory filings that have or are expected to have a material impact on our operating results, financial position or cash flows.

Previous wording

We believe our financial condition is strong and our cash and cash equivalents, other liquid assets, operating cash flows, existing lines of credit, access to capital markets and borrowing ability, because of investment-grade credit ratings, when taken together, provide us ample liquidity to conduct our business operations, fund our short-term and long-term capital expenditure plans and satisfy our obligations as they become due. Our liquidity, including our operating cash flows and access to capital markets, could be impacted by macroeconomic factors outside of our control, including higher interest rates and debt capital costs and diminished credit availability. In addition, our liquidity could be impacted by non-compliance with certain financial covenants under our various debt instruments. As of September 30, 2024, we were in compliance with all financial covenants (see the Financial Covenants section under Capital Resources below).

Current wording

We believe our financial condition is strong and our cash and cash equivalents, other liquid assets, operating cash flows, existing lines of credit, access to capital markets and borrowing ability, because of investment-grade credit ratings, when taken together, provide us ample liquidity to conduct our business operations, fund our short- and long-term capital expenditure plans and satisfy our obligations as they become due. Our liquidity, including our operating cash flows and access to capital markets, could be impacted by macroeconomic factors outside of our control, including higher interest rates and debt capital costs, and diminished credit availability. In addition, our liquidity could be impacted by non-compliance with certain financial covenants under our various debt instruments. As of March 31, 2025, we were in compliance with all financial covenants (see the Financial Covenants section under Capital Resources below).

Previous wording

The following table presents the status of our lines of credit as of September 30, 2024 and December 31, 2023:

Current wording

The following table presents the status of our lines of credit as of March 31, 2025:

Previous wording

OTC and OTP are each party to separate credit agreements (the OTC Credit Agreement and OTP Credit Agreement, respectively) which provide for unsecured revolving lines of credit. Should additional liquidity be needed, the OTC Credit Agreement includes an accordion feature allowing us to increase the amount available to $290 million, subject to certain terms and conditions. The OTP Credit Agreement also includes an accordion feature allowing OTP to increase that facility to $250 million, subject to certain terms and conditions.

Current wording

OTC and OTP are each party to separate credit agreements (the OTC Credit Agreement and OTP Credit Agreement, respectively) which provide for unsecured revolving lines of credit. Should additional liquidity be needed, the OTC Credit Agreement includes an accordion feature allowing us to increase the amount available to $290 million, subject to certain terms and conditions. The OTP Credit Agreement also includes an accordion feature allowing OTP to increase that facility to $300 million, subject to certain terms and conditions.

Previous wording

As of September 30, 2024, we had $263.8 million of available liquidity under our credit facilities and $280.0 million of available cash and cash equivalents, resulting in total available liquidity of $543.8 million, compared to total available liquidity of $468.1million as of September 30, 2023.

Current wording

As of March 31, 2025, we had $322.4 million of available liquidity under our credit facilities and $284.8 million of available cash and cash equivalents, resulting in total available liquidity of $607.2 million.

Previous wording

The following is a discussion of our cash flows for the nine months ended September 30, 2024 and 2023:

Current wording

The following is a discussion of our cash flows for the three months ended March 31, 2025 and 2024:

Previous wording

Net Cash Used in Investing Activities increased $80.1 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase in cash used in investing activities was primarily due to a $50.1 million investment in U.S. treasuries made to secure a fixed rate of return until their maturity in September 2026, and an increase in capital expenditures in 2024. Capital expenditures during the nine months ended September 30, 2024 included additional investments in our wind repowering and advanced meter infrastructure projects, as well as continued investments in our manufacturing facility expansion projects in Arizona and Georgia.

Current wording

Net Cash Used in Investing Activities decreased $15.0 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The decrease in cash used in investing activities was primarily due to a decrease in our capital expenditures in our Manufacturing and Plastics segments, as we completed our expansion projects in Arizona and Georgia in late 2024. Capital expenditures during the three months ended March 31, 2025 included additional investments in our wind repowering, advanced meter infrastructure and transmission line projects in our Electric segment.

Previous wording

Net Cash Provided by (Used In) Financing Activities increased $55.3 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. Financing activities for the nine months ended September 30, 2024 included the issuance of $120.0 million of long-term debt at OTP, the proceeds of which were used to repay short-term borrowings under the OTP credit agreement, fund Electric segment construction expenditures, and support operating activities. We manage the capital structure of OTP independent from our consolidated financial position to ensure compliance with the capital structure approved through regulation; therefore, our decision to issue long-term debt at OTP is not impacted by our consolidated cash and cash equivalent position.

Current wording

Net Cash Provided by Financing Activities decreased $0.1 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. Financing activities for the three months ended March 31, 2025 included the issuance of $50.0 million of long-term debt at OTP, the proceeds of which were used to repay short-term borrowings under the OTP credit agreement, fund Electric segment construction expenditures and support operating activities. We manage the capital structure of OTP independent from our consolidated financial position to ensure compliance with the capital structure approved through regulation; therefore, our decision to issue long-term debt at OTP is not impacted by our consolidated cash and cash equivalent position.

Previous wording

Financing activities for the nine months ended September 30, 2024 also included net short-term borrowings of $14.0 million and dividend payments of $58.7 million. Financing activities for the nine months ended September 30, 2023 included net short-term borrowings of $43.3 million and dividend payments of $54.8 million.

Current wording

Financing activities for the three months ended March 31, 2025 also included net repayments of short-term borrowings of $10.8 million and dividend payments of $22.0 million. Financing activities for the three months ended March 31, 2024 included the issuance of $120.0 million of long-term debt at OTP, net repayments of short-term debt of $81.4 million and dividend payments of $19.6 million.

Previous wording

Our capital expenditure plan includes investments in electric generation facilities, transmission and distribution lines, manufacturing facilities and upgrades, equipment used in the manufacturing process, and computer hardware and information systems. Our capital expenditure plan is subject to review and is revised in light of changes in demands for energy, technology, environmental laws, regulatory changes, business expansion opportunities, the costs of labor, materials and equipment and our financial condition. Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Form 10-K for the year ended December 31, 2023 for our capital expenditure plans for the five year period from 2024 through 2028.

Current wording

Our capital expenditure plan includes investments in electric generation facilities, transmission and distribution lines and facilities, equipment used in the manufacturing process, and computer hardware and information systems. Our capital expenditure plan is subject to review and is revised in light of changes in demands for energy, technology, environmental laws, regulatory approvals, business expansion opportunities, the costs of labor, materials and equipment and our financial condition. Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Form 10-K for the year ended December 31, 2024 for our capital expenditure plans for the five year period from 2025 through 2029.

Previous wording

Our contractual obligations as of December 31, 2023 are included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2023. There were no material changes in our contractual obligations outside of the ordinary course of business during the nine months ended September 30, 2024, except for the obligation described below.

Current wording

Our contractual obligations as of December 31, 2024 are included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2024. There were no material changes in our contractual obligations outside of the ordinary course of business during the three months ended March 31, 2025.

Previous wording

We paid dividends to our shareholders totaling $58.7 million, or $1.4025 per share, in the first nine months of 2024. The determination of the amount of future cash dividends to be paid will depend on, among other things, our financial condition, our actual or expected level of earnings and cash flows from operations, the level of our capital expenditures and our future business prospects. As a result of certain statutory limitations or regulatory or financing agreements, the amount of dividends we are allowed to pay could be restricted. See Note 11 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information. The decision to declare dividends is reviewed quarterly by our Board of Directors.

Current wording

We paid dividends to our shareholders totaling $22.0 million, or $0.5250 per share, in the first quarter of 2025. The determination of the amount of future cash dividends to be paid will depend on, among other things, our financial condition, our actual or expected level of earnings and cash flows from operations, the level of our capital expenditures and our future business prospects. As a result of certain statutory limitations or regulatory or financing agreements, the amount of dividends we are allowed to pay could be restricted. See Note 10 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information. The decision to declare dividends is reviewed quarterly by our Board of Directors.

Previous wording

On May 3, 2024, we filed two registration statements with the SEC, replacing two previously filed registration statements upon their expiration. The first statement, a shelf registration, allows us to offer for sale, from time to time, either separately or together in any combination, equity, debt or other securities described in the registration statement. No new debt or equity has been issued pursuant to the registration statement. The second registration statement allows for the issuance of up to 1,500,000 common shares under our Automatic Dividend Reinvestment and Share Purchase Plan, which provides our common shareholders, retail customers of OTP and other interested investors a method of purchasing our common shares by reinvesting their dividends and/or making optional cash investments. Shares purchased under the plan may be newly issued common shares or common shares purchased on the open market. As of September 30, 2024, there were 1,453,913 shares available for purchase or issuance under the plan. Both registration statements expire in May 2027.

Current wording

On May 3, 2024, we filed two registration statements with the SEC, replacing two previously filed registration statements upon their expiration. The first statement, a shelf registration, allows us to offer for sale from time to time, either separately or together in any combination, equity, debt or other securities described in the registration statement. No new debt or equity has been issued pursuant to the registration statement. The second registration statement allows for the issuance of up to 1,500,000 common shares under our Automatic Dividend Reinvestment and Share Purchase Plan, which provides our common shareholders, retail customers of OTP and other interested investors a method of purchasing our common shares by reinvesting their dividends and/or making optional cash investments. Shares purchased under the plan may be newly issued common shares or common shares purchased on the open market. As of March 31, 2025, there were 1,404,582 shares available for purchase or issuance under the plan. Both registration statements expire in May 2027.

Previous wording

OTC and OTP are each party to a credit agreement (the OTC Credit Agreement and the OTP Credit Agreement, respectively) which each provides for unsecured revolving lines of credit. The following is a summary of key provisions and borrowing information as of, and for the nine months ended, September 30, 2024:

Current wording

OTC and OTP are each party to a credit agreement (the OTC Credit Agreement and the OTP Credit Agreement, respectively) which each provides for unsecured revolving lines of credit. The following is a summary of key provisions and borrowing information as of and for the three months ended, March 31, 2025:

Previous wording

In March 2024, OTP entered into a Note Purchase Agreement pursuant to which OTP issued, in a private placement transaction, $120.0 million of senior unsecured notes consisting of (a) $60.0 million of 5.48% Series 2024A Senior Unsecured Notes due April 1, 2034, and (b) $60.0 million of 5.77% Series 2024B Senior Unsecured Notes due April 1, 2054. The proceeds of the notes were used to repay existing short-term borrowings, fund capital expenditures, and for general corporate purposes.

Current wording

On March 27, 2025, OTP entered into a Note Purchase Agreement pursuant to which OTP issued, in a private placement transaction, $100.0 million of senior unsecured notes consisting of (a) $50.0 million of 5.49% Series 2025A Senior Unsecured Notes due March 27, 2035, and (b) $50.0 million of 5.98% Series 2025B Senior Unsecured Notes due June 5, 2055. The Series 2025A Notes were issued on March 27, 2025, upon entering into the agreement. The Series 2025B Notes are expected to be issued on June 5, 2025, subject to the satisfaction of certain customary conditions to closing. We do not anticipate or plan to issue any additional long-term debt in 2025.

Previous wording

As of September 30, 2024, we had $947.0 million of principal outstanding under long-term debt arrangements. These instruments generally provide for unsecured borrowings at fixed rates of interest with maturities ranging from 2026 to 2054. Note 7 to our consolidated financial statements included in this Quarterly Report on Form 10-Q includes additional information regarding these short-term and long-term debt instruments.

Current wording

As of March 31, 2025, we had $997.0 million of principal outstanding under long-term debt arrangements. These instruments generally provide for unsecured borrowings at fixed rates of interest with maturities ranging from 2026 to 2054. Note 6 to our consolidated financial statements included in this Quarterly Report on Form 10-Q includes additional information regarding these long-term debt instruments.

Previous wording

OTC, under its financial covenants, may not permit its ratio of interest-bearing debt to total capitalization to exceed 0.60 to 1.00, may not permit its interest and dividend coverage ratio to be less than 1.50 to 1.00, and may not permit its priority indebtedness to exceed 10 percent of its total capitalization. As of September 30, 2024, OTC's interest-bearing debt to total capitalization was 0.38 to 1.00, OTC's interest and dividend coverage ratio was 10.4 to 1.00, and OTC had no priority indebtedness outstanding.

Current wording

OTC, under its financial covenants, may not permit its ratio of interest-bearing debt to total capitalization to exceed 0.60 to 1.00 or 0.65 to 1.00, depending on the debt agreement, may not permit its interest and dividend coverage ratio to be less than 1.50 to 1.00 and may not permit its priority indebtedness to exceed 10 percent of its total capitalization. As of March 31, 2025, OTC's interest-bearing debt to total capitalization was 0.38 to 1.00, OTC's interest and dividend coverage ratio was 9.33 to 1.00 and OTC had no priority indebtedness outstanding.

Previous wording

OTP, under its financial covenants, may not permit its ratio of interest-bearing debt to total capitalization to exceed 0.60 to 1.00, may not permit its interest and dividend coverage ratio to be less than 1.50 to 1.00, and may not permit its priority indebtedness to exceed 20 percent of its total capitalization. As of September 30, 2024, OTP's interest-bearing debt to total capitalization was 0.48 to 1.00, OTP's interest and dividend coverage ratio was 3.27 to 1.00, and OTP had no priority indebtedness outstanding.

Current wording

OTP, under its financial covenants, may not permit its ratio of interest-bearing debt to total capitalization to exceed 0.60 to 1.00 or 0.65 to 1.00, depending on the debt agreement, may not permit its interest and dividend coverage ratio to be less than 1.50 to 1.00 and may not permit its priority indebtedness to exceed 20 percent of its total capitalization. As of March 31, 2025, OTP's interest-bearing debt to total capitalization was 0.48 to 1.00, OTP's interest and dividend coverage ratio was 3.17 to 1.00 and OTP had no priority indebtedness outstanding.