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| 8-K - FORM 8-K - Otter Tail Corp | t1600508_8k.htm |
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: | August 8, 2016 | Financial Media |
Otter Tail Corporation Announces Second 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 June 30, 2016.
Summary:
| · | Consolidated operating revenues were $203.5 million compared with $188.2 million for the second quarter of 2015. |
| · | Consolidated net income and diluted earnings from continuing operations totaled $15.6 million and $0.41 per share, respectively, compared with $13.7 million and $0.36 per share for the second quarter of 2015. |
| · | Consolidated net income totaled $15.7 million, or $0.41 per diluted share, compared with $11.4 million and $0.30 per diluted share for the second quarter of 2015, reflecting a loss of $0.06 in diluted earnings per share from discontinued operations in the second quarter of 2015. |
| · | Otter Tail Corporation reaffirms its 2016 earnings guidance range of $1.50 to $1.65 per diluted share. |
CEO Overview
“Our team delivered broad-based and solid earnings growth for the second quarter of 2016 over the second quarter of 2015,” said Otter Tail Corporation President and CEO Chuck MacFarlane. “Our Manufacturing segment drove operating margin improvements while our Electric segment benefited from strong sales to pipeline customers and higher revenue from interim rates, which are subject to refund.
“We continue to execute our capital investment plan at Otter Tail Power Company under a constructive regulatory framework. Our $858 million utility capital spending plan for 2016 through 2020 includes two large regional transmission projects and several generation investments. We expect these to drive a compounded annual growth rate of 8.0% in utility rate base through 2020, using 2014 as the base year.
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“A resource plan filed with the Minnesota Public Utilities Commission (MPUC) in June proposes a 248-megawatt simple-cycle natural gas combustion turbine, 200 megawatts of additional wind energy and 30 megawatts of solar energy in the next five years.
“Meanwhile, the two 345-kilovolt transmission projects that are part of our capital investment plan have begun construction. They are on budget and on schedule for completion in 2017 and 2019, respectively. Named Big Stone South-Brookings and Big Stone South-Ellendale, both are Midcontinent Independent System Operator-approved multi-value projects. Otter Tail Power Company is a 50% owner with other regional utilities in both and manages the Big Stone South-Ellendale project.
“Otter Tail Power Company filed a rate case with the MPUC in February, seeking permission to increase rates by approximately $19.3 million annually, or 9.8%. We expect intervenors to file testimony in mid-August and the MPUC to make a final determination in 2017. The MPUC granted a 9.56% interim rate increase, subject to refund, which began April 16 while it considers the overall request. We expect to recognize 8.5 months of increased revenues under interim rates, subject to refund, in 2016.
“Quarter-over-quarter net income at BTD, our custom metal fabricator, improved mainly due to improved productivity at all its facilities and increased sales at its Illinois plant. The recreational vehicle market continues to soften, adding to depressed markets for manufactured equipment in oil and gas extraction and agriculture. Original equipment manufacturers in these markets are BTD’s customers. We expect BTD to be in a good position to enhance earnings when market conditions improve. BTD’s Minnesota facilities expansion is complete. All plants have streamlined operations and the new state-of-the-art paint system is receiving orders.
“Our Plastics segment, Northern Pipe Products and Vinyltech, experienced a significant 19.2% increase in pipe sales quarter over quarter but at lower margins as the spread between sales and raw material prices has narrowed in 2016. Both companies are efficient, low-cost operators, but we expect margins to remain compressed for the balance 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
Consolidated cash provided by continuing operations for the six months ended June 30, 2016 was $64.2 million compared with $52.7 million for the six months ended June 30, 2015. Contributing to the increase in cash provided by continuing operations between the quarters was a $10.9 million decrease in cash used for working capital items between periods, which includes:
| · | An $11.8 million decrease in cash used for accounts payable at Otter Tail Power Company, reflecting higher levels of payables in June 2016 for coal deliveries and transmission services and the payment, in January 2015, of large billings for coal transportation, coal and purchased power received in December 2014. |
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| · | A $4.0 million refund of 2015 estimated tax payments received in the first quarter of 2016. 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. |
offset by:
| · | A $6.8 million decrease in cash related to an increase in accounts receivable, mainly due to an increase in receivables at BTD in 2016 as a result of increased business activity in the first six months of the year, longer payment terms for certain customers and customers holding payment until after the June 30, 2016 quarter end. |
The following table presents the status of our lines of credit as of June 30, 2016:
| (in thousands) | Line Limit | In Use On June 30, 2016 | Restricted due to Outstanding Letters of Credit | Available on June 30, 2016 | Available on December 31, 2015 | |||||||||||||||
| Otter Tail Corporation Credit Agreement | $ | 150,000 | $ | 19,289 | $ | — | $ | 130,711 | $ | 90,334 | ||||||||||
| Otter Tail Power Company Credit Agreement | 170,000 | 29,985 | 50 | 139,965 | 148,694 | |||||||||||||||
| Total | $ | 320,000 | $ | 49,274 | $ | 50 | $ | 270,676 | $ | 239,028 | ||||||||||
Board of Directors Declared Quarterly Dividend
On August 5, 2016 the corporation’s Board of Directors declared a quarterly common stock dividend of $0.3125 per share. This dividend is payable September 10, 2016 to shareholders of record on August 15, 2016.
Segment Performance Summary
Electric
| Three Months ended June 30, | ||||||||||||
| (in thousands) | 2016 | 2015 | Increase | |||||||||
| Revenues | $ | 97,925 | $ | 90,964 | $ | 6,961 | ||||||
| Net Income | $ | 9,148 | $ | 8,252 | $ | 896 | ||||||
| Three Months ended June 30, | ||||||||||||
| 2016 | 2015 | % Change | ||||||||||
| Heating Degree Days | 455 | 435 | 4.6 | % | ||||||||
| Cooling Degree Days | 133 | 83 | 60.2 | % | ||||||||
The following table shows heating and cooling degree days as a percent of normal:
| Three Months ended June 30, | ||||||||
| 2016 | 2015 | |||||||
| Heating Degree Days | 87.7 | % | 82.7 | % | ||||
| Cooling Degree Days | 125.5 | % | 76.1 | % | ||||
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The following table summarizes the estimated impact of weather changes on diluted earnings per share compared with sales under normal weather conditions and to the second quarter of 2015:
| Three Months ended June 30, | ||||||||||||
| 2016 vs Normal | 2015 vs Normal | 2016 vs 2015 | ||||||||||
| Effect on Diluted Earnings Per Share | $ | — | $ | (0.01 | ) | $ | 0.01 | |||||
Retail electric revenues increased $6.5 million as a result of:
| · | A $2.8 million increase in retail revenues related to a 9.56% interim rate increase (subject to refund) implemented in mid-April 2016 in conjunction with Otter Tail Power Company's 2016 Minnesota general rate increase request. |
| · | A $0.7 million increase in Environmental Costs Recovery rider revenues 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 $0.6 million increase in Transmission Costs Recovery rider revenues related to increased investment in transmission plant. |
| · | A $0.6 million increase in Conservation Improvement Program (CIP) cost recovery and incentive revenues. |
| · | A $0.6 million increase in revenues from the recovery of fuel and purchased power costs mainly due to an increase in the cost of fuel per kilowatt-hour (kwh) generated for retail use. |
| · | A $0.6 million increase in revenues related to increased retail kwh sales due to warmer weather in the second quarter of 2016, evidenced by cooling degree days that were 60.2% higher than in the second quarter of 2015 and 125.5% of normal. |
| · | A $0.5 million increase in revenue related to increased kwh sales unrelated to weather, mainly to pipeline customers. |
Revenue from wholesale electric sales from company-owned generation increased $0.6 million while fuel costs for wholesale generation increased $0.5 million, resulting in a $0.1 million increase in wholesale revenue net of fuel costs.
Other electric revenues included a quarter-over-quarter increase of $0.9 million in transmission service charges related to a regional transmission cooperative terminating its integrated transmission agreement with Otter Tail Power Company and joining the Southwest Power Pool (SPP) beginning in 2016. This increase was offset by a $0.8 million increase in the accrual for an estimated refund obligation that would arise if the Federal Energy Regulatory Commission (FERC) orders a reduction in the return on equity (ROE) component of the Midcontinent Independent System Operator, Inc. (MISO) Open Access Transmission, Energy and Operating Reserve Markets Tariff for revenues billed under the tariff from December 2013 through May 2016. This is related to the non-binding initial decision of the presiding administrative law judge on June 30, 2016 recommending a lower FERC-allowed ROE.
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Production fuel costs increased $5.8 million as a result of a 109.7% increase in kwhs generated from our steam-powered and combustion turbine generators, mainly related to Big Stone Plant being fully operational in the second quarter of 2016 compared to being down for maintenance during the entire second quarter of 2015.
The cost of purchased power to serve retail customers decreased $4.6 million due to a 14.3% decrease in the cost per kwh purchased combined with a 10.3% decrease in kwhs purchased. The decreased cost per kwh purchased was driven by lower wholesale energy prices in the second quarter of 2016 compared with the second quarter of 2015. The decrease in kwhs purchased was the result of increased availability and generation from company-owned resources.
Electric operating and maintenance expenses increased $1.2 million as a result of:
| · | A $0.8 million increase in transmission service charges related to incurring transmission expenses from SPP participants beginning in 2016. This is a result of a regional transmission cooperative terminating its integrated transmission agreement with Otter Tail Power Company and joining the SPP. |
| · | A $0.3 million increase in pollution control reagent costs at Big Stone Plant and Coyote Station related to compliance with federal power plant emission regulations. |
| · | A $0.8 million increase in CIP program expenditures, repair expenses related to June 2016 storms, software licensing and travel expenses. |
offset by:
| · | A $0.7 million reduction in labor benefit costs mainly related to a decrease in corporate expenses billed to Otter Tail Power Company. |
Depreciation expense increased $2.3 million due to the AQCS at Big Stone Plant being placed in service at the end of December 2015 along with increased investment in transmission plant with the final phases of the Fargo-Monticello and Brookings-Southeast Twin Cities 345-kilovolt transmission lines placed in service in 2015. Property tax expense increased $0.3 million as a result of property additions in Minnesota and North Dakota in 2015.
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Manufacturing
| Three Months ended June 30, | ||||||||||||
| (in thousands) | 2016 | 2015 | Increase | |||||||||
| Revenues | $ | 58,452 | $ | 51,273 | $ | 7,179 | ||||||
| Net Income | $ | 3,009 | $ | 1,912 | $ | 1,097 | ||||||
At BTD, revenues increased $7.8 million, including:
| · | Revenues of $6.5 million in the second quarter of 2016 at BTD-Georgia, the plant we acquired in September 2015. |
| · | A $3.8 million increase in revenues mainly related to the production of wind tower components at BTD’s Illinois plant. |
offset by:
| · | A $2.5 million decrease in revenues related to lower sales to manufacturers of recreational and agricultural equipment due to softness in end markets served by those manufacturers. |
Cost of products sold at BTD increased $3.5 million. This included $5.7 million in cost of products sold at BTD-Georgia in the second quarter of 2016, offset by a $2.2 million net decrease in cost of products sold at BTD’s other facilities. The $2.2 million decrease is related to the decrease in sales to recreational and agricultural product manufacturers and to productivity improvements, partially offset by an increase in costs of products sold at BTD’s Illinois plant. Gross margins were also positively impacted in the second quarter of 2016 by changes in customer product mix between quarters. Operating expenses at BTD increased $0.4 million, primarily as a result of the BTD-Georgia acquisition. Depreciation and amortization expenses at BTD increased $1.5 million, including $0.8 million at BTD-Georgia in the second quarter of 2016 and a $0.7 million increase as a result of BTD placing new assets in service in Minnesota. BTD’s interest expense, income taxes and net income increased $0.2 million, $0.8 million and $1.4 million, respectively, in the second quarter of 2016 compared with the second quarter of 2015.
At T.O. Plastics, revenues decreased $0.6 million reflecting:
| · | A $0.9 million decrease in industrial market sales primarily as a result of a continued decline in sales volumes to a customer insourcing product into its own manufacturing facilities. |
offset by:
| · | A $0.3 million increase in revenues from sales of horticultural containers. |
The decreased revenues in combination with a $0.2 million increase in cost of products sold was partially offset by a $0.3 million decrease in incentive benefits and selling expenses, resulting in a $0.3 million decrease in net income at T.O. Plastics between the quarters.
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Plastics
| Three Months ended June 30, | ||||||||||||
| (in thousands) | 2016 | 2015 | Increase/(decrease) | |||||||||
| Revenues | $ | 47,112 | $ | 45,954 | $ | 1,158 | ||||||
| Net Income | $ | 3,485 | $ | 4,265 | $ | (780 | ) | |||||
The increase in revenues is the result of a 19.2% increase in pounds of polyvinyl chloride (PVC) pipe sold, mostly offset by a 14.0% decrease in the price per pound of pipe sold. The Plastics segment reported increased sales in the western United States, Texas and Missouri. The decline in sales price per pound is due to softening sales prices as a result of lower raw material prices between the quarters. Cost of products sold increased $2.2 million due to the increase in sales volume, partially offset by a 10.9% decrease in the cost per pound of PVC pipe sold.
Corporate
Corporate costs net of tax decreased $0.7 million between the quarters mainly as a result of receiving $0.7 million in nontaxable benefit proceeds from corporate-owned life insurance.
Discontinued Operations
Following are summary presentations of the results of discontinued operations for the three-month periods ended June 30:
| (in thousands) | 2016 | 2015 | ||||||
| Operating Revenues | $ | — | $ | 5,899 | ||||
| Operating Expenses | (199 | ) | 9,209 | |||||
| Operating Income (Loss) | 199 | (3,310 | ) | |||||
| Other Deductions | — | (11 | ) | |||||
| Income Tax Expense (Benefit) | 80 | (1,329 | ) | |||||
| Net Income (Loss) from Operations | 119 | (1,992 | ) | |||||
| Loss on Disposition Before Taxes | — | (509 | ) | |||||
| Income Tax Benefit on Disposition | — | (280 | ) | |||||
| Net Loss on Disposition | — | (229 | ) | |||||
| Net Income (Loss) | $ | 119 | $ | (2,221 | ) | |||
On April 30, 2015 we sold Foley Company (Foley), our former water, wastewater, power and industrial construction contractor, resulting in a net loss on disposition of $0.2 million. The above results for the three months ended June 30, 2015 include net losses from operations of $1.5 million from Foley and $0.5 million from our former waterfront equipment manufacturer related to settlement of a warranty claim.
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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 economic challenges facing our Manufacturing and Plastics segments and strategies for improving future operating results. We expect capital expenditures for 2016 to be $175 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.
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 Revised May 2, 2016 |
2016
Guidance Revised August 8, 2016 | |||
| Low | High | Low | High | Low | High | ||
| Electric | $1.29 | $1.29 | $1.32 | $1.29 | $1.32 | $1.27 | $1.30 |
| Manufacturing | $0.11 | $0.11 | $0.15 | $0.12 | $0.16 | $0.14 | $0.18 |
| 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) | ($0.15) | ($0.11) |
| 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% | 9.3% | 10.2% | |
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 six months of 2016 has had a negative impact on diluted earnings per share of approximately $0.04 compared to projected earnings under normal temperatures and $0.03 compared to the six months ended June 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 MPUC 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 that our interim rates will become final and that our requested 10.4% ROE will ultimately be approved. |
| 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 multi-value transmission projects 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%. |
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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 expense 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 and employee expenses. |
| 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 May 2016 guidance for 2016 net income from our Manufacturing segment based on positive results in the first six 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 due to: |
| o | Increases in sales volume at BTD as a result of having BTD-Georgia in place for a full year. Full year sales for BTD-Georgia are now estimated to be $28 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 and improved margins on parts and tooling sales given improved productivity as a result of lower expediting costs, costs of quality and maintenance expenses. |
offset by:
| o | Excluding the full year impact of BTD-Georgia, revenues are now expected to decline approximately 3%, compared with an original growth expectation of 7%. This change is due to challenging market conditions impacting end markets served by BTD. BTD has significant exposure to the agriculture, oil and gas and recreational vehicle end markets, all of which are forecasted to be down in 2016 compared to 2015. |
| o | Higher facility costs associated with BTD’s expansion of its square footage. |
| 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 $81 million for 2016 compared with $85 million one year ago. |
| · | We are maintaining our May 2016 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. |
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| · | 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 Tuesday, August 9, 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. |
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| · | 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. |
| · | OTP’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. |
| · | OTP’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 six months ended June 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.
# # #
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Otter Tail Corporation
Consolidated Statements of Income
In thousands, except share and per share amounts
(not audited)
| Quarter Ended June 30, | Year-to-Date June 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Operating Revenues by Segment | ||||||||||||||||
| Electric | $ | 97,925 | $ | 90,964 | $ | 210,919 | $ | 204,511 | ||||||||
| Manufacturing | 58,452 | 51,273 | 118,272 | 108,032 | ||||||||||||
| Plastics | 47,112 | 45,954 | 80,549 | 78,506 | ||||||||||||
| Intersegment Eliminations | (7 | ) | (38 | ) | (16 | ) | (55 | ) | ||||||||
| Total Operating Revenues | 203,482 | 188,153 | 409,724 | 390,994 | ||||||||||||
| Operating Expenses | ||||||||||||||||
| Fuel and Purchased Power | 25,117 | 23,867 | 57,703 | 62,158 | ||||||||||||
| Nonelectric Cost of Goods Sold (depreciation included below) | 80,949 | 74,986 | 153,588 | 146,484 | ||||||||||||
| Electric Operating and Maintenance Expense | 38,981 | 37,754 | 78,999 | 75,281 | ||||||||||||
| Nonelectric Operating and Maintenance Expense | 9,238 | 8,823 | 20,693 | 21,286 | ||||||||||||
| Depreciation and Amortization | 18,525 | 14,661 | 36,814 | 29,196 | ||||||||||||
| Property Taxes - Electric | 3,589 | 3,262 | 7,268 | 6,764 | ||||||||||||
| Total Operating Expenses | 176,399 | 163,353 | 355,065 | 341,169 | ||||||||||||
| Operating Income (Loss) by Segment | ||||||||||||||||
| Electric | 16,806 | 14,944 | 40,034 | 38,107 | ||||||||||||
| Manufacturing | 5,805 | 3,891 | 9,660 | 6,421 | ||||||||||||
| Plastics | 6,005 | 7,221 | 9,752 | 10,836 | ||||||||||||
| Corporate | (1,533 | ) | (1,256 | ) | (4,787 | ) | (5,539 | ) | ||||||||
| Total Operating Income | 27,083 | 24,800 | 54,659 | 49,825 | ||||||||||||
| Interest Charges | 7,976 | 7,702 | 15,970 | 15,445 | ||||||||||||
| Other Income | 1,532 | 567 | 1,932 | 1,139 | ||||||||||||
| Income Tax Expense – Continuing Operations | 5,083 | 4,008 | 10,575 | 8,081 | ||||||||||||
| Net Income (Loss) by Segment – Continuing Operations | ||||||||||||||||
| Electric | 9,148 | 8,252 | 21,686 | 21,430 | ||||||||||||
| Manufacturing | 3,009 | 1,912 | 4,862 | 3,096 | ||||||||||||
| Plastics | 3,485 | 4,265 | 5,637 | 6,385 | ||||||||||||
| Corporate | (86 | ) | (772 | ) | (2,139 | ) | (3,473 | ) | ||||||||
| Net Income from Continuing Operations | 15,556 | 13,657 | 30,046 | 27,438 | ||||||||||||
| Discontinued Operations | ||||||||||||||||
| Income (Loss) - net of Income Tax Expense (Benefit) of $80, ($1,329), $100 and ($2,705) for the respective periods | 119 | (1,992 | ) | 149 | (4,064 | ) | ||||||||||
| Impairment Loss - net of Income Tax Benefit of $0 for the six months ended June 30, 2015 | — | — | — | (1,000 | ) | |||||||||||
| (Loss) Gain on Disposition - net of Income
Tax (Benefit) Expense of ($280) and $4,536 for the three and six months ended June 30, 2015 | — | (229 | ) | — | 6,997 | |||||||||||
| Net Income (Loss) from Discontinued Operations | 119 | (2,221 | ) | 149 | 1,933 | |||||||||||
| Net Income | $ | 15,675 | $ | 11,436 | $ | 30,195 | $ | 29,371 | ||||||||
| Average Number of Common Shares Outstanding | ||||||||||||||||
| Basic | 38,179,371 | 37,433,318 | 38,058,157 | 37,338,218 | ||||||||||||
| Diluted | 38,321,289 | 37,653,203 | 38,183,249 | 37,558,103 | ||||||||||||
| Basic Earnings (Loss) Per Common Share: | ||||||||||||||||
| Continuing Operations | $ | 0.41 | $ | 0.37 | $ | 0.79 | $ | 0.74 | ||||||||
| Discontinued Operations | — | (0.06 | ) | — | 0.05 | |||||||||||
| $ | 0.41 | $ | 0.31 | $ | 0.79 | $ | 0.79 | |||||||||
| Diluted Earnings (Loss) Per Common Share: | ||||||||||||||||
| Continuing Operations | $ | 0.41 | $ | 0.36 | $ | 0.79 | $ | 0.73 | ||||||||
| Discontinued Operations | — | (0.06 | ) | — | 0.05 | |||||||||||
| $ | 0.41 | $ | 0.30 | $ | 0.79 | $ | 0.78 | |||||||||
12
Otter Tail Corporation
Consolidated Balance Sheets
Assets
in thousands
(not audited)
| June 30, | December 31, | |||||||
| 2016 | 2015 | |||||||
| Current Assets | ||||||||
| Cash and Cash Equivalents | $ | — | $ | — | ||||
| Accounts Receivable: | ||||||||
| Trade—Net | 78,677 | 62,974 | ||||||
| Other | 7,144 | 9,073 | ||||||
| Inventories | 81,396 | 85,416 | ||||||
| Unbilled Revenues | 15,909 | 17,869 | ||||||
| Income Taxes Receivable | — | 4,000 | ||||||
| Regulatory Assets | 17,205 | 18,904 | ||||||
| Other | 14,065 | 8,453 | ||||||
| Total Current Assets | 214,396 | 206,689 | ||||||
| Investments | 8,413 | 8,284 | ||||||
| Other Assets | 33,605 | 32,784 | ||||||
| Goodwill | 37,572 | 39,732 | ||||||
| Other Intangibles—Net | 15,639 | 15,673 | ||||||
| Regulatory Assets | 123,706 | 127,707 | ||||||
| Plant | ||||||||
| Electric Plant in Service | 1,834,157 | 1,820,763 | ||||||
| Nonelectric Operations | 218,007 | 201,343 | ||||||
| Construction Work in Progress | 116,848 | 79,612 | ||||||
| Total Gross Plant | 2,169,012 | 2,101,718 | ||||||
| Less Accumulated Depreciation and Amortization | 740,440 | 713,904 | ||||||
| Net Plant | 1,428,572 | 1,387,814 | ||||||
| Total | $ | 1,861,903 | $ | 1,818,683 | ||||
13
Otter Tail Corporation
Consolidated Balance Sheets
Liabilities and Equity
in thousands
(not audited)
| June 30, | December 31, | |||||||
| 2016 | 2015 | |||||||
| Current Liabilities | ||||||||
| Short-Term Debt | $ | 49,274 | $ | 80,672 | ||||
| Current Maturities of Long-Term Debt | 52,497 | 52,422 | ||||||
| Accounts Payable | 86,210 | 89,499 | ||||||
| Accrued Salaries and Wages | 14,774 | 16,182 | ||||||
| Accrued Taxes | 10,562 | 14,827 | ||||||
| Other Accrued Liabilities | 17,951 | 15,416 | ||||||
| Liabilities of Discontinued Operations | 1,868 | 2,098 | ||||||
| Total Current Liabilities | 233,136 | 271,116 | ||||||
| Pensions Benefit Liability | 95,520 | 104,912 | ||||||
| Other Postretirement Benefits Liability | 49,659 | 48,730 | ||||||
| Other Noncurrent Liabilities | 24,980 | 23,854 | ||||||
| Deferred Credits | ||||||||
| Deferred Income Taxes | 217,523 | 207,669 | ||||||
| Deferred Tax Credits | 23,678 | 24,506 | ||||||
| Regulatory Liabilities | 77,915 | 77,432 | ||||||
| Other | 9,580 | 11,595 | ||||||
| Total Deferred Credits | 328,696 | 321,202 | ||||||
| Capitalization | ||||||||
| Long-Term Debt—Net | 493,804 | 443,846 | ||||||
| Cumulative Preferred Shares | — | — | ||||||
| Cumulative Preference Shares | — | — | ||||||
| Common Equity | ||||||||
| Common Shares, Par Value $5 Per Share | 193,516 | 189,286 | ||||||
| Premium on Common Shares | 313,839 | 293,610 | ||||||
| Retained Earnings | 132,401 | 126,025 | ||||||
| Accumulated Other Comprehensive Loss | (3,648 | ) | (3,898 | ) | ||||
| Total Common Equity | 636,108 | 605,023 | ||||||
| Total Capitalization | 1,129,912 | 1,048,869 | ||||||
| Total | $ | 1,861,903 | $ | 1,818,683 | ||||
14
Otter Tail Corporation
Consolidated Statements of Cash Flows
In thousands
(not audited)
| For the Six Months Ended June 30, | ||||||||
| In thousands | 2016 | 2015 | ||||||
| Cash Flows from Operating Activities | ||||||||
| Net Income | $ | 30,195 | $ | 29,371 | ||||
| Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: | ||||||||
| Net Gain from Sale of Discontinued Operations | — | (6,997 | ) | |||||
| Net (Income) Loss from Discontinued Operations | (149 | ) | 5,064 | |||||
| Depreciation and Amortization | 36,814 | 29,196 | ||||||
| Deferred Tax Credits | (828 | ) | (939 | ) | ||||
| Deferred Income Taxes | 9,679 | 12,707 | ||||||
| Change in Deferred Debits and Other Assets | 2,680 | 11,470 | ||||||
| Discretionary Contribution to Pension Plan | (10,000 | ) | (10,000 | ) | ||||
| Change in Noncurrent Liabilities and Deferred Credits | 6,404 | 4,025 | ||||||
| Allowance for Equity/Other Funds Used During Construction | (475 | ) | (576 | ) | ||||
| Change in Derivatives Net of Regulatory Deferral | — | (123 | ) | |||||
| Stock Compensation Expense – Equity Awards | 828 | 1,126 | ||||||
| Other—Net | (76 | ) | 200 | |||||
| Cash (Used for) Provided by Current Assets and Current Liabilities: | ||||||||
| Change in Receivables | (12,673 | ) | (5,918 | ) | ||||
| Change in Inventories | 4,218 | 3,400 | ||||||
| Change in Other Current Assets | (1,043 | ) | 1,913 | |||||
| Change in Payables and Other Current Liabilities | (5,441 | ) | (21,294 | ) | ||||
| Change in Interest and Income Taxes Receivable/Payable | 4,018 | 96 | ||||||
| Net Cash Provided by Continuing Operations | 64,151 | 52,721 | ||||||
| Net Cash Provided by (Used in) Discontinued Operations | 11 | (10,966 | ) | |||||
| Net Cash Provided by Operating Activities | 64,162 | 41,755 | ||||||
| Cash Flows from Investing Activities | ||||||||
| Capital Expenditures | (79,158 | ) | (83,418 | ) | ||||
| Proceeds from Disposal of Noncurrent Assets | 1,080 | 2,628 | ||||||
| Final Purchase Price Adjustment – BTD-Georgia Acquisition | 1,500 | — | ||||||
| Cash Used for Investments and Other Assets | (1,719 | ) | (5,763 | ) | ||||
| Net Cash Used in Investing Activities - Continuing Operations | (78,297 | ) | (86,553 | ) | ||||
| Net Proceeds from Sale of Discontinued Operations | — | 32,765 | ||||||
| Net Cash Used in Investing Activities - Discontinued Operations | — | (1,770 | ) | |||||
| Net Cash Used in Investing Activities | (78,297 | ) | (55,558 | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Changes in Checks Written in Excess of Cash | (2,024 | ) | (947 | ) | ||||
| Net Short-Term Debt (Repayments) Borrowings | (31,398 | ) | 32,186 | |||||
| Proceeds from Issuance of Common Stock – net of Issuance Expenses | 21,645 | 6,848 | ||||||
| Payments for Retirement of Capital Stock | (104 | ) | (1,421 | ) | ||||
| Proceeds from Issuance of Long-Term Debt | 50,000 | — | ||||||
| Short-Term and Long-Term Debt Issuance Expenses | (59 | ) | (4 | ) | ||||
| Payments for Retirement of Long-Term Debt | (106 | ) | (99 | ) | ||||
| Dividends Paid and Other Distributions | (23,819 | ) | (23,035 | ) | ||||
| Net Cash Provided by Financing Activities – Continuing Operations | 14,135 | 13,528 | ||||||
| Net Cash Provided by Financing Activities – Discontinued Operations | — | 322 | ||||||
| Net Cash Provided by Financing Activities | 14,135 | 13,850 | ||||||
| Net Change in Cash and Cash Equivalents – Discontinued Operations | — | (47 | ) | |||||
| Net Change in Cash and Cash Equivalents | — | — | ||||||
| Cash and Cash Equivalents at Beginning of Period | — | — | ||||||
| Cash and Cash Equivalents at End of Period | $ | — | $ | — | ||||
15