Otter Tail Corp

Previous wording

Provided below are a summary and discussion of our operating results on a consolidated basis followed by a discussion of the operating results of each of our segments: Electric, Manufacturing and Plastics. In addition to the segment results, we provide an overview of our Corporate costs. Our Corporate costs do not constitute a reportable segment, but rather consist of unallocated general corporate expenses, such as corporate staff and overhead costs, the results of our captive insurance company and other items excluded from the measurement of segment performance. Corporate costs are added to operating segment totals to reconcile to totals on our consolidated statements of income.

Current wording

Provided below are a summary and discussion of our operating results on a consolidated basis followed by a discussion of the operating results of each of our segments: Electric, Manufacturing and Plastics. In addition to the segment results, we provide an overview of our Corporate costs. Our Corporate costs do not constitute a reportable segment, but rather consist of unallocated general corporate expenses, such as corporate staff and overhead costs, the results of our captive insurance company and other items excluded from the measurement of segment performance. Corporate costs are added to operating segment totals to reconcile to totals on our consolidated statements of operations.

Previous wording

The operating results of our Electric segment are impacted by fluctuations in weather conditions and the resulting demand for electricity for heating. The following table shows heating degree days as a percent of normal for the three months ended March 31, 2026 and 2025.

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 and cooling degree days as a percent of normal for the three months ended June 30, 2026 and 2025.

Previous wording

•A $3.3 million increase in PTCs, the benefit of which is provided to customers, as described below.

Current wording

•A $6.2 million increase in PTCs, the benefit of which is passed on to customers, as described below.

Previous wording

•A $9.2 million increase from higher rates, reflecting interim rates in Minnesota and South Dakota and updated base rates in North Dakota. Interim rates in Minnesota and South Dakota became effective in January 2026 and December 2025, respectively, and updated base rates in North Dakota went into effect in March 2025.

Current wording

•A $6.4 million increase from higher rates, reflecting interim and final base rate increases in Minnesota and South Dakota. Interim rates in Minnesota and South Dakota became effective in January 2026 and December 2025, respectively, and final base rates in South Dakota went into effect in April 2026.

Previous wording

Purchased Power costs decreased $3.9 million primarily due to a 32% reduction in purchased power volumes, partially offset by a 28% increase in the price of purchased power driven by higher market energy costs.

Current wording

Purchased Power costs decreased $2.2 million primarily due to a 36% decrease in the price of purchased power, driven by lower market energy costs, partially offset by a 33% increase in purchased power volumes primarily driven by the planned outage at one of our facilities.

Previous wording

Operating and Maintenance expenses increased $1.4 million primarily due to higher labor costs, as well as an increase in software costs.

Current wording

Operating and Maintenance expenses increased $7.9 million primarily due to higher labor costs, increased vegetative management expenses, plant outage-related expenses and an increase in insurance costs.

Previous wording

Depreciation and Amortization expense increased $1.1 million as additional assets, including certain wind generation, distribution and transmission assets, were placed in service.

Current wording

Depreciation and Amortization expense increased $1.9 million as additional assets, including certain wind generation, distribution and transmission assets, were placed in service.

Previous wording

Income Tax Benefit increased $1.2 million primarily due to an increase in PTCs driven by increased wind generation that qualified for PTCs compared to the same period last year. Our wind repowering project was completed in the first quarter of 2026. The completion of these facility repowering projects results in the commencement of PTCs earned from the generation from these facilities as they are placed back into service. PTCs are credited to customers, resulting in a reduction of both operating revenue and income taxes.

Current wording

Income Tax Benefit increased $8.6 million primarily due to an increase in PTCs driven by increased wind generation that qualified for PTCs compared to the same period last year. Our wind repowering projects were completed in the first quarter of 2026. The completion of these facility repowering projects resulted in the commencement of PTCs earned from the generation from these facilities as they were placed back into service. PTCs are credited to customers, resulting in a reduction of both operating revenue and income taxes.

Previous wording

Cost of Products Sold increased $3.2 million primarily due to higher steel costs and sales volumes, partially offset by the impact of improved production efficiencies compared to the same period last year, as we have continued to align our cost structure with current demand levels.

Current wording

Cost of Products Sold increased $6.7 million primarily due to higher steel costs and sales volumes, partially offset by improved absorption of fixed manufacturing costs attributable to the higher production volumes.

Previous wording

Selling, General, and Administrative Expenses increased $1.6 million, driven by variable compensation costs associated with financial results during the period and expectations for full-year performance.

Current wording

Selling, General, and Administrative Expenses increased $2.4 million, driven by variable compensation costs associated with financial results during the period and expectations for full-year performance.

Previous wording

Cost of Products Sold decreased $0.1 million primarily due to a 12% decrease in the cost of input materials, including PVC resin, however, the decrease was largely offset by a 7% increase in sales volumes.

Current wording

Cost of Products Sold increased $5.7 million primarily due to an increase in sales volumes, as described above. The impact of increased sales volumes was partially offset by a 2% decrease in the cost of input materials, including PVC resin.

Previous wording

Income Tax Benefit increased $1.3 million due to the internal allocation of interim tax expense.

Current wording

Income Tax (Benefit) Expense reflected income tax expense of $0.3 million for the three months ended June 30, 2026, compared to income tax benefit of $1.5 million in the same period last year due to the internal allocation of interim tax expense.

Previous wording

Operating Revenues increased $9.7 million primarily due to increased revenues from our Electric segment driven by recent rate increases and higher sales volumes in our Manufacturing and Plastics segments, partially offset by lower sales prices in our Plastics segment. See our segment disclosures below for additional discussion of items impacting operating revenues.

Current wording

Operating Revenues increased $11.0 million primarily due to higher sales volumes in our Plastics segment and increased revenues from our Electric segment driven by recent rate increases. In addition, higher steel costs, which are passed on to customers, and increased sales volumes in our Manufacturing segment also contributed to the increase in operating revenues. These increases were largely offset by lower sales prices in our Plastics segment and increased PTCs in our Electric segment, the benefit of which is passed on to customers. See our segment disclosures below for additional discussion of items impacting operating revenues.

Previous wording

•A $3.5 million increase from the recovery of additional rate base investments.

Current wording

•A $6.4 million increase from the recovery of our additional rate base investments.

Previous wording

•A $3.2 million increase from higher commercial and industrial sales volumes.

Current wording

•A $5.4 million increase from higher commercial and industrial sales volumes.

Previous wording

Operating Revenues increased $7.9 million primarily due to a 5% increase in steel costs, which are passed on to customers, and a 4% increase in sales volumes. Demand improved in certain markets we serve, including the construction and recreational vehicle markets, compared to softer demand and tighter inventory management efforts during the same period last year.

Current wording

Operating Revenues increased $17.6 million primarily due to steel cost increases which drove a 7% revenue increase, as steel costs are passed on to customers, as well as a 4% increase in sales volumes. Demand improved in certain markets we serve, including the construction, recreational vehicle and horticulture markets, compared to softer demand and tighter inventory management efforts during the same period last year.

Previous wording

Income Tax Expense increased $1.0 million due to an increase in income before income taxes.

Current wording

Income Tax Expense increased $1.4 million primarily due to the increase in income before income taxes.

Previous wording

On March 10, 2026, the SDPUC approved a settlement agreement between OTP and the commission staff in the general rate case. The key provisions of the order include a net increase in annual revenue of $3.3 million, or 7.7%, based on a return on rate base of 7.09%. Through the settlement of the case, the parties also agreed to a moratorium on increases to base rates until December 1, 2029, with certain exceptions. New base rates in South Dakota went into effect on April 1, 2026, and interim rate refunds totaling $1.3 million will be refunded to customers beginning in May 2026.

Current wording

On March 10, 2026, the SDPUC approved a settlement agreement between OTP and the commission staff in the general rate case. The key provisions of the order included a net increase in annual revenue of $3.3 million, or 7.7%, based on a return on rate base of 7.09%. Through the settlement of the case, the parties also agreed to a moratorium on increases to base rates until December 1, 2029, with certain exceptions. New base rates in South Dakota went into effect on April 1, 2026, and interim rate refunds totaling $0.8 million were refunded to customers during the three months ended June 30, 2026.

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 capital expenditure program 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, 2026, 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 capital expenditure program 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.

Previous wording

As of March 31, 2026, we had $310.5 million of available liquidity under our credit facilities and $348.4 million of available cash and cash equivalents, resulting in total available liquidity of $658.9 million.

Current wording

As of June 30, 2026, we had $323.0 million of available liquidity under our credit facilities and $278.4 million of available cash and cash equivalents, resulting in total available liquidity of $601.4 million.

Previous wording

The following is a discussion of our cash flows for the three months ended March 31, 2026 and 2025:

Current wording

The following is a discussion of our cash flows for the six months ended June 30, 2026 and 2025:

Previous wording

Net Cash Provided by Operating Activities increased $31.1 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025, primarily due to a decrease in working capital requirements, largely driven by the timing of vendor payments and the recovery of fuel cost and rider revenue from our utility customers. Net cash provided by operating activities in our Electric segment is regularly affected by the timing of payments made for operating costs and the various mechanisms used to recover costs from or return amounts to our utility customers. The timing of recoveries and refunds can vary by the recovery or refund mechanism. Due to the numerous factors that impact the timing of our cash receipts and cash payments, our cash provided by operating activities can vary significantly from our net income for the period.

Current wording

Net Cash Provided by Operating Activities increased $23.3 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025, primarily due to a decrease in working capital requirements, largely driven by the timing of vendor payments and the recovery of fuel cost and rider revenues from our utility customers. Net cash provided by operating activities in our Electric segment is regularly affected by the timing of payments made for operating costs and the various mechanisms used to recover costs from or return amounts to our utility customers. The timing of recoveries and refunds can vary by the recovery or refund mechanism. Due to the numerous factors that impact the timing of our cash receipts and cash payments, our cash provided by operating activities can vary significantly from our net income for the period.

Previous wording

Net Cash Provided by Financing Activities for the three months ended March 31, 2026 included the issuance of $100.0 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 for the six months ended June 30, 2026 included the issuance of $170.0 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 three months ended March 31, 2026 also included net short-term borrowings of $7.7 million and dividend payments of $24.3 million. Financing activities for the three months ended March 31, 2025 included the issuance of $50.0 million of long-term debt at OTP, net repayments of short-term debt of $10.8 million and dividend payments of $22.0 million.

Current wording

Financing activities for the six months ended June 30, 2026 also included dividend payments of $48.5 million. Financing activities for the six months ended June 30, 2025 included the issuance of $100.0 million of long-term debt at OTP, net repayments of short-term debt of $69.6 million and dividend payments of $44.0 million.

Previous wording

In connection with our Abercrombie Solar project currently under development in southeastern North Dakota, we have entered into multiple agreements to lease approximately 2,200 acres of land on which the facility will be constructed. The leases commenced on May 1, 2026, and have an initial term of 35 years, with renewal options to extend the term up to an additional ten years. Total lease payments over the initial 35-year term are expected to be approximately $54 million, which will be recovered from our utility customers over the estimated useful life of the facility.

Current wording

In connection with our Abercrombie Solar project, which is currently under development in southeastern North Dakota, we have entered into multiple land lease agreements for the property on which the facility will be constructed. The leases commenced on May 1, 2026, and have an initial term of 35 years, with options to extend the lease term for up to an additional 10 years. Annual lease payments vary based on the acreage subject to each lease, and total contractual lease payments over the initial 35-year term of the leases are $53.9 million.

Previous wording

Our contractual obligations as of December 31, 2025 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, 2025. There were no material changes in our contractual obligations outside of the ordinary course of business during the three months ended March 31, 2026, except for the land leases discussed above.

Current wording

Our contractual obligations as of December 31, 2025 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, 2025. There were no material changes in our contractual obligations outside of the ordinary course of business during the six months ended June 30, 2026, except for the land leases and settlement payments described above.

Previous wording

We paid dividends to our shareholders totaling $24.3 million, or $0.5775 per share, in the first three months of 2026. 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 $48.5 million, or $1.155 per share, in the first six months of 2026. 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.

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 March 31, 2026, there were 1,306,321 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 June 30, 2026, there were 1,282,756 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 three months ended, March 31, 2026:

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 six months ended June 30, 2026:

Previous wording

On March 19, 2026, OTP entered into a Note Purchase Agreement pursuant to which OTP issued, in a private placement transaction, $170.0 million of senior unsecured notes consisting of (a) $100.0 million of 5.33% Series 2026A Senior Unsecured Notes due March 19, 2036, and (b) $70.0 million of 6.04% Series 2026B Senior Unsecured Notes due June 4, 2056. The Series 2026A Notes were issued on March 19, 2026, upon entering into the agreement. The Series 2026B Notes are expected to be issued on June 4, 2026, subject to the satisfaction of certain customary conditions to closing.

Current wording

On March 19, 2026, OTP entered into a Note Purchase Agreement pursuant to which OTP issued, in a private placement transaction, $170.0 million of senior unsecured notes consisting of (a) $100.0 million of 5.33% Series 2026A Senior Unsecured Notes due March 19, 2036, and (b) $70.0 million of 6.04% Series 2026B Senior Unsecured Notes due June 4, 2056. The Series 2026A Notes were issued on March 19, 2026, upon entering into the agreement. The Series 2026B Notes were issued on June 4, 2026.

Previous wording

As of March 31, 2026, we had $1.1 billion 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 2055. Note 7 to our consolidated financial statements included in this Quarterly Report on Form 10-Q includes additional information regarding these long-term debt instruments.

Current wording

As of June 30, 2026, we had $1.2 billion 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 2056. Note 7 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 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, 2026, OTC's interest-bearing debt to total capitalization was 0.40 to 1.00, OTC's interest and dividend coverage ratio was 7.76 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 June 30, 2026, OTC's interest-bearing debt to total capitalization was 0.41 to 1.00, OTC's interest and dividend coverage ratio was 5.17 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 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, 2026, OTP's interest-bearing debt to total capitalization was 0.50 to 1.00 or 0.48 to 1.00, depending on the debt agreement, OTP's interest and dividend coverage ratio was 3.13 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 June 30, 2026, OTP's interest-bearing debt to total capitalization was 0.49 to 1.00, OTP's interest and dividend coverage ratio was 2.87 to 1.00 and OTP had no priority indebtedness outstanding.